Good morning, and welcome to The Andersons 2022 Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded today. I would now like to turn the conference over to Mike Hoelter. Please go ahead.

Thanks, Joe. Good morning, everyone, and thank you for joining us for The Andersons second quarter earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via our webcast, the slides and commentary will be in sync. This webcast is being recorded, and the recording and the supporting slides will be made available on the Investors page of our website at andersonsinc.com shortly. Please direct your attention to the disclosure statement on Slide 2 as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are included within the appendix of this presentation. On the call with me today are Pat Bowe, President and Chief Executive Officer; and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Pat.

Thank you, Mike, and good morning, everyone. Thank you for joining our call this morning to review our second quarter results. We're thrilled to report this outstanding all-time record quarter, with all three of our segments providing significant double-digit improvement over the second quarter of 2021, we surpassed our prior quarterly record. Renewables and plant nutrient also had year-over-year increases last quarter. Trade's first quarter of 2022 results lagged a strong '21 first quarter but enabled us to accumulate grain ownership positions at good values. With this Q2 result, trade has rebounded strongly and nearly equaled their 2021 year-to-date results. Trade Group results reflect the corn and bean basis appreciation that we expected would occur after the Ukraine war impact on futures prices in the first quarter. Fleet ownership in our grain terminal assets is earnings space income. We had very strong results from our Midwest truck grain merchandising business. Our food and specialty ingredients business lines also delivered strong results in the quarter. Of note was our U.K. subsidiary feed factors. Renewables had a record quarter. Our ethanol plants delivered strong results from good overall margins. We once again had good results from third-party merchandising of ethanol, low CI renewable feedstocks and other coproducts. We remain positive on the outlook in renewables. Plant Nutrient followed a record first quarter with another very strong quarter. We completed a favorable spring application season that included solid margins that more than offset volume decreases in our agricultural product lines. Our well-positioned inventory and good execution kept products flowing to customers in this supply-constrained environment. I'm now going to turn things over to Brian to cover some of our key financial items. When he's finished, I'll be back to discuss our outlook for the remainder of 2022.

Thanks, Pat, and good morning, everyone. We're now turning to our second quarter results on Slide number 5. In the second quarter of 2022, the company reported adjusted net income from continuing operations attributable to The Andersons of $82.2 million or $2.39 per diluted share. This compares to $41.6 million or $1.26 per diluted share in the second quarter of 2021. Gross profit increased 41% for the quarter, exceeding $230 million. Adjusted EBITDA for the second quarter of 2022 was $169.3 million compared to adjusted EBITDA of $103 million in the second quarter of 2021. Both of these measures exclude discontinued operations. Trailing 12 months adjusted EBITDA was $412 million. Our effective tax rate varies each quarter based primarily on the amount of income or loss attributable to the non-controlling interest. We recorded taxes for the quarter at a 13% effective tax rate. We are now forecasting a full year effective tax rate between 18% and 21%. Next, we'll move to Slide 6 to discuss cash, liquidity, and debt. We generated quarterly cash flow from operations before changes in working capital of $134.6 million in the second quarter of 2022 compared to $93.1 million in 2021. High relative commodity prices and business growth are the primary causes of our continuing higher working capital and related short-term borrowing levels when compared to the second quarter of 2021. The short-term debt balance of $1.2 billion at June 30 is supported by readily marketable inventories of a similar amount and represents a $300 million reduction since March 31, 2022. At the end of the second quarter, we had available short-term borrowing capacity of over $1 billion on our main credit facility. We continue to have good support from our banks as they understand the key role that we play in the North American Ag Supply Chain. We continue to take a disciplined approach to capital spending, which we expect will be approximately $100 million for the year, about half of which will be related to maintenance capital. Our long-term debt to EBITDA currently is about 1.5 times, which is well below our stated target of less than 2.5 times. We continue to evaluate growth projects in our core agricultural businesses and invest in those that meet our strategic and financial criteria. We also have an existing Board authorization for a share repurchase program of up to $100 million and expect to begin using this authorization. One other item of note, just after the end of the quarter, we closed on the sale of the assets of the rail repair business for $55 million. Now we will move on to a review of each of our businesses, beginning with trade on Slide number 7.

Thanks, Brian. We believe that our ag business outlook remains strong. We expect that global market fundamentals, including supply chain disruptions will exist for some time, keeping commodity prices relatively high. With this backdrop, it's important that North America continues to produce abundant crops in order to offset the conflict-related shortfalls from the Black Sea and recent weather-related crop reductions in Europe. Our trade business outlook remains positive. Worldwide supplies are projected to be tight through the 2023 harvest, and we're pleased with our ownership positions at good values. Storage income has returned for our wheat ownership. Currently, we're very focused on growing conditions in North America, sourcing for customer demand in our merchandising business and supporting our farmer customers' grain marketing plans in these volatile markets. Our international team is meeting the challenge of finding additional sources of supply amid a more complicated logistics due to the ongoing conflict in Ukraine. Our Swiss trading team added last year has managed very well in these volatile markets. We're investing in our North American facilities to provide better service to customers and meet their changing needs, as well as continuing to evaluate acquisition opportunities in our pipeline that align with our strategy. We know it will be challenging to match last year's outstanding second half results in our Trade Group, as we had unusually strong third quarter elevation margins in certain regions. We are, however, preparing for a good harvest in our dry areas that should bring us good merchandising opportunities. In our Renewables segment, increased ethanol exports are favorably impacting overall margins. We believe that our Eastern ethanol plants are favorably located with expected lower corn costs through the fall, while Western plants are facing much higher corn basis. We continue to see strong demand and good values for coproducts, particularly distillers corn oil, which supports our overall margins. In addition, our renewable diesel feedstock merchandising business is performing well and adding to our results. Board crush margins are favorable through the third quarter of 2022, and our outlook for the full year remains positive. On the technology and innovation front, we recently announced an agreement with Trust Separation Technologies to commercialize their distillers corn oil refinement technology. Our first module is being operated at our Denison, Iowa ethanol plant with excellent results, and we will be installing additional commercial modules at our four other ethanol plants. We will also provide the technology along with our marketing services for corn oil to other ethanol producers. The Plant Nutrient business had a great finish to their spring application season. With growers focused on the upcoming harvest, our third quarter off-season results are typically lower. While we have seen some lowering of prices, continued strong global demand and disruption should keep prices higher than the historical averages. It remains uncertain how the fourth quarter will play out. Strong farm income may drive purchasing decisions, while overall price levels could cause farmers to delay fertilizer purchases. Overall, we're excited about our prospects for growth and the continued strong agricultural market fundamentals. We remain committed to adding value for our customers, managing risk and operating safely and efficiently. Our strategy is focused on our key role in serving the needs of our customers in the North American Ag Supply Chain. With our strong balance sheet, sustainable cash flows and strategic focus, we expect to be able to grow profitably in these exciting ag markets. Our pipeline contains a mix of capital projects and M&A that is centered around our grain, renewables and fertilizer segments. I'm very proud of our team and for our first half accomplishments and excited about our outlook for the balance of this year and growth prospects for the future. With that, I'd like to hand the call back to Joe, and we'll be happy to entertain your questions.

We will now begin the question-and-answer session. Our first question will come from Ken Zaslow with BMO. Please go ahead.

Good morning, guys.

Good morning, Ken.

I have a couple of questions. You mentioned the crop situation. It seems like the crop yield might be slightly lower. However, is there any real cause for concern regarding its development? Considering your assets, it appears that you are well-positioned to collect corn. Can you share your thoughts on this?

Yeah. That's a good question, a good point of reference, Ken, because the crop improved a little bit with the government report that the yield was $1.749 USDA number. And the conditions in the Far West have been really impacted by dry and hot weather, particularly impacting now into Missouri and Kansas and Nebraska. As you know, most of our major storage assets are in the East. And those conditions have actually improved in some cases. We feel really good about Inlay, Indiana, Ohio, and Michigan assets. And while it won't be record production, their crops look good. The outlook on the forecast will be important here in the next month. But we feel real good about the position of our assets in the corn and soybean tributary to those assets.

Can you discuss the progress in your trading businesses, specifically regarding your Swiss operations and the renewable diesel segment, and how this is developing?

Sure. Yes, good point. As we mentioned before on calls, we started a renewable diesel trading desk well over a year ago, and that's based off our corn oil production volume and also sourcing other corn oil and other vegetable fats and greases. We've been able to grow that business. There's a very bullish outlook for demand for renewable diesel feedstock. I mentioned in my comments, we've added a technology with Truist, our technology provider, we own the license to sell to others. So, we'll not only be doing it at our own plants, but we'd like to extend that to others in the industry that further cleans up corn oil specifications and can be then shipped directly and not have to be treated at an RD facility. So, we think that's a good technology and we're also looking for other areas where we can grow in the overall renewable feedstock space. So, it's an exciting time for that segment, and we think that's a good area for our business to grow. Your other part of the question was on...

Swiss. Yes. So Ken, this is Brian. You had asked about Swiss. And what I would say is our Swiss office and also even the other acquisition bolt-on that we had last year that we would now call Southwest Feed. I would say those are performing about as expected. So, they're kind of on track and performing in line with the expectations we had...

And I wanted to compliment the team there. Obviously, we do shipments into Africa and the Middle East and a lot of those supply chains were disrupted and moved around. We worked very closely with our customers to supply them and the team has adapted and done very well. And we're excited to see some of the multilateral agreements to try to get trade flows out of Odessa and get the ports opened to help supply those countries in the Middle East and Africa that are in need. So that's a bright spot for our industry overall. But our team in Switzerland has really done a nice job.

And can I just ask one more. The new technology, can you talk about like what type of return characteristics? How does that change? Not this year, but like in the next year to two years, how does that add incremental EBITDA? And then I'll leave it there, and I appreciate your time as always.

Sure. On Corn oil, Ken, right now, just the purification step can add an additional $0.10 per pound to prices, and we've demonstrated that and proven that with customers. So, we want to quickly build those modules. Again, these are not huge, big plants. These are additions to our existing plants. They're actually on skids that you bring into a facility. So we plan to get those built out and have made commitments for capital to build at our other existing plants and also to be able to sell those to other corn oil producers. With that, we would provide our oil merchandising experience. I just talked about earlier, the renewable diesel play. So, we'd like to build our book of corn oil, and that would add additionally to bottom line profits for us.

I appreciate it. Thank you, guys and congratulations on a new quarter.

Thank you very much.

Our next question will come from Ben Klieve with Lake Street Capital Markets. Please go ahead.

Thank you for taking my question and congratulations on a successful quarter. I would like to focus on the non-cash aspects of the quarter and the past year. My first question is more general. Regarding the trailing twelve-month EBITDA figure of $412 million, can you specify how much of that amount consists of non-cash gains? Additionally, where do you anticipate ending the second quarter, and what are your expectations for non-cash gains and losses for the remainder of 2022?

Yes. Ben, this is Brian. I think if we had to characterize what proportion is non-cash gains, I would say it's actually a pretty small amount, I would put it probably in the range of $5 million to $10 million because a lot of what we saw even as we talked about in the Renewables segment is the reversal of previous noncash mark-to-market losses that have come through. So, end of quarter we probably had in that range of $5 million to $10 million hung up on the balance sheet that will come through. But beyond that, not a ton of non-cash mark-to-market stuff in there.

Alright, that sounds good. Please continue.

This is Pat. Ben, regarding the outlook for the second half, we are quite optimistic about ethanol margins, which have remained strong. As the summer driving season winds down and we approach the back-to-school period, we still feel positive about the ethanol margins. Keep in mind that the fourth quarter of last year saw significant numbers in ethanol, so it may be challenging to match those figures, but we're hopeful for a strong finish to the year. In our PN segment, we generally earn most of our revenue during the spring application season, with more modest sales for the rest of the year. Last fourth quarter, however, was particularly strong for us, and I should note that farmer incomes are favorable, which bodes well for crop production and fertilizer sales. That said, fertilizer prices remain high, despite a slight drop, so we are somewhat cautious about matching last year's strong fourth quarter fertilizer shipments. Overall, though, we feel optimistic after a solid season. In our trade business, we were able to purchase grain at attractive prices when the futures market improved, and we expect to sell that grain in the coming quarters. We are also looking forward to the production that will support our assets, and harvest time in Louisiana is approaching quickly. The fall is nearly here, and we are confident about our positioning. Additionally, our ethanol business had a solid fourth quarter in 2021, making it a tough benchmark to surpass, but we maintain strong fundamentals across all three business segments.

Thank you, Pat and Brian, for clarifying the mark-to-market adjustment. I understand that the non-cash adjustments can fluctuate from quarter to quarter, but your quantification really emphasizes how significant the cash component is to the EBITDA number. I have a second question related to what Pat mentioned about the fertilizer sector. I've heard that farmers are looking a year ahead more than usual due to supply chain challenges, especially in fertilizer. Could you share if you've observed this trend in the market? Additionally, what steps is Anderson's taking to prepare for the upcoming year, considering the current challenges and the farmers' focus on inputs?

Ben, you've raised some excellent points about North American farmers. As we've highlighted, it's essential for U.S. growers to achieve peak production due to the declines stemming from the Ukraine war and the tight supply and demand situation, along with some production weaknesses in South America. The recent extremely hot and dry conditions in Europe have exacerbated these issues. Overall, global weather patterns have not been favorable this past year. Thus, U.S. production has become increasingly vital. Farmers in the U.S. are currently experiencing high income levels, which allows them to invest in effective production practices, ensuring they manage their land properly and apply the necessary nutrients. We believe they will prioritize these practices, and fortunately, we are well-positioned with 95% of our supply coming from North America, primarily supported by a rail distribution network. This means we have the right products available in the right locations at the right times. Our objective is to replicate this success in the upcoming fertilizer season. We're collaborating with growers on timing and price risk management concerning the flat-price fertilizer market, advising them on when to secure their inventories for the next season. Right now, there are significant discussions among farmers across the Midwest regarding fertilizer applications. The decisions they make now will affect their operations for one to three years out, so we’re actively assisting them with their grain marketing, long-term sustainability, carbon plans, and the best economic strategies for their farms. It’s an advantageous time for American farmers, but with market volatility, they must remain adaptable.

Our next question will come from Eric Larson with Seaport Research Partners. Please proceed.

Yeah. Thanks. Good morning, everyone and great quarter, congratulations. So Pat, the markets came back very nicely in the second quarter, a really nice basis appreciation, some reversals of MTMs, but I'm looking at your great inventories, and it seems to me that your RMIs are still well over $1 billion and actually give you some really great visibility on your merchandising for your second half, maybe even into your first quarter of next year. Can you comment on that?

I think the fundamentals for wheat have shifted due to the widening of wheat spreads. We have traditionally been a storage terminal market for soft wheat, allowing us to make deliveries against the CME contract and serve wheat millers effectively. While wheat production was slightly lower, the quality remained high, enabling us to blend and provide excellent quality wheat to our customers while also earning storage income. We've seen an increase in wheat tonnage as we take advantage of these market conditions. Our shipping activities for corn and beans have been consistent, both for export and domestic markets, and we anticipate continued activity. We're looking forward to the new crop coming in soon, especially with the upcoming Louisiana harvest and the favorable market conditions, similar to last year. Overall, we remain optimistic about the future of grain merchandising.

Okay, so I have a question about fertilizer. I understand that you have been cautious with your fertilizer inventories because you don't want to be stuck with a lot of expensive inventory that you need to sell off. Given the recent significant drop in fertilizer prices, are you increasing your fertilizer inventory for sale this fall? How are you planning to navigate the fertilizer market?

Yeah. I think, Eric, it's important to note that we have a very large fertilizer warehouse and good distribution network of rail assets. So, we can work with our key suppliers year-round and be able to take good quantities when they're able to ship them and have home for that product. And that provides an advantage for us, we feel. So, in that regard, we're probably business as usual. In spite of normal rail disruptions have been happening in the last 1.5 years, we've done a good job of that. We plan to do that as well. So, we'll have ample inventories available for our farmer customers. Volume was off a little bit last year. I think that was somewhat tied to high prices. And I think this year, with farmer income being strong and the need for good production, we're probably a little bit more optimistic to a return to maybe more normal volumes. So, bottom line, it's business as usual. We're not reliant on a Russian product or imported product from a foreign country that can get disrupted. We're very focused on having the right quantity at the right time and place and not too much. So, your point being when the markets have trimmed down here in the last quarter on fertilizer, which is probably a good thing, we need a little correction, but it's still going to be from markets for fertilizer products as we go forward.

Got it. And then my final question, and then I'll get back in queue. So, you guys have a $100 million share buyback program. You've now received another $55 million from the sale of your rail repair business. The stock was close to 30%, down from 59%. So why haven't you, kind of been starting on that share buyback earlier?

Yeah, Eric. That's a question we thought you might ask, Eric. As you know, there's a variety of factors that go into whether or not we repurchase and the related timing. And the only thing I'd say is we have a plan in place to execute under that authorization.

Okay. Let me ask one more question about ethanol. The blending economics are looking strong. It seems that driving miles have decreased, but your exports are performing well. Pat, can you provide us with more insight on how these factors will continue to benefit you in the second half?

Yeah, I think it should be a tailwind for us. We're estimating about 1.6 billion gallons of exports. It potentially could be maybe even higher than that if we get right port conditions, etc. But the market is set up really well. Particularly for our plants, our corn basis outlook is probably more attractive than some others in the industry. Unfortunately, our Kansas plant in Colwich has a very high basis level. We're not unusual with others in Kansas, Nebraska and those Western locations where corn basis has really spiked because of the weather conditions there. We could see some softening of production in some western assets as the corn prices and natural gas prices are very high. That hasn't really been realized yet. I think because ethanol producers, besides receiving the government program money, want to run solidly for cash. We're optimistic about corn oil values and our high pro-feed as well as our other co-product values remaining very strong, and that's been very supportive for the industry. And more importantly, the government being a little more pro under the Biden administration towards renewables and the outlook from legislation is more positive. So that, in general, a feeling of tailwinds across the ethanol industry.

Alright. Thanks, guys and congratulations again.

Thank you very much.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mike Holter for any closing remarks.

Thanks, Joe. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Wednesday, November 2, 2022, at 11:00 a.m. Eastern Daylight Time when we will review our third quarter results. As always, thank you for your interest in The Andersons, and we look forward to speaking with you again soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.