Good morning, everyone. Welcome to The Andersons 2024 Second Quarter Earnings Conference Call. My name is Alan and I will be your coordinator today. All participants are currently in listen-only mode. We will have a question-and-answer session later. This conference is being recorded for replay. Now, I will pass it over to your host for today, Mr. Mike Hoelter, Vice President, Corporate Controller and Investor Relations. Please go ahead.

Thanks, Alan. 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 from 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 the GAAP to non-GAAP measures are included within the appendix of this presentation. On the call with me today are Pat Bowe, President and Chief Executive Officer; Brian Valentine, Executive Vice President and Chief Financial Officer; and Bill Krueger, Chief Operating Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Pat.

Thanks, Mike and good morning, everyone. Thank you for your understanding regarding the technical difficulties. Results in trade were up with improvements in wheat space income in our eastern assets, and we saw growth within our premium food and pet food ingredients business. As expected, merchandising opportunities were lower year-over-year in these well-supplied markets. Farmers have been slow to sell grain at prices well below what they experienced in recent years, and a high percentage of last year's crop remains in on-farm storage. We expect much of this grain to move off-farm prior to harvest. Operating performance in the Renewables business was very good, with continued strong performance at our ethanol plants. We had record second quarter production in our current operations, benefiting from higher ethanol yields and well-managed costs. Ethanol margins were higher than last year due to lower corn basis at our plants. The teams at our facilities executed very well, but overall results continue to be impacted by lower values of feed ingredients, which closely follow the price of corn. Our renewable diesel feedstock merchandising business continues to grow its volumes but has seen margin compression on industry fundamentals. Our second quarter Nutrient and Industrial business was solid, but negatively impacted by lower fertilizer price volatility and a delayed application season that resulted in a decline in both volume and margin. When we look at the first half of 2024 compared to 2023, our volumes are comparable, but at reduced margins in a lower fertilizer price environment this year. Brian will cover some key financial data, and after that, I'll be back to discuss our outlook for the remainder of 2024.

Thanks, Pat and good morning, everyone. We're now turning to our second quarter results on Slide number 5. In the second quarter of 2024, the company reported net income attributable to The Andersons of $36 million or $1.05 per diluted share, and adjusted net income of $39 million or $1.15 per diluted share. This compares to net income of $55 million or $1.61 per diluted share, and adjusted net income of $52 million, or $1.52 per diluted share, in the second quarter of 2023. Adjusted pretax earnings were $45 million for the quarter compared to $72 million in 2023, with trade showing improvement and the other businesses generating solid results, but were unable to match an outsized prior year. Adjusted EBITDA for the second quarter of 2024 was $98 million compared to adjusted EBITDA of $144 million in 2023. Trailing 12 months adjusted EBITDA totaled $355 million. Our effective tax rate varies each quarter based primarily on the amount of income or loss attributable to non-controlling interests. This quarter was also impacted by the reversal of uncertain tax positions relating to research and development and other tax credits. We recorded taxes for the quarter at a 9% effective tax rate. We now expect a full year adjusted effective tax rate between 14% and 18%. Next, we’ll move to Slide 6 to discuss cash, liquidity and debt. We generated cash flows from operations before changes in working capital of $89 million in the second quarter of 2024, demonstrating our ability to generate consistent operating cash flows in a less volatile market. This strong cash flow generation, combined with lower commodity prices and delayed farmer engagement resulted in a cash position of more than $500 million and negligible short-term borrowings at the end of the quarter. Next, we’ll take a look at capital spending and long-term debt on Slide 7. We continue to take a disciplined, responsible approach to capital spending and investments, which we expect to be in the range of $150 million to $175 million for the year, roughly half of which is typically related to maintenance capital. Our long-term debt to EBITDA is approximately 1.6x, which is well below our stated target of less than 2.5x. We have a strong balance sheet with significant capacity to support growth investments that meet our strategic and financial criteria. We continue to evaluate growth projects in our pipeline, including several M&A opportunities at various stages of completion. This includes the recently announced intent to acquire an ownership interest in Skyland Grain LLC pending completion of diligence and negotiations. Our project pipeline remains very active and we are excited about additional capital investment and M&A opportunities that align with our growth strategies. Now we’ll move on to a review of each of our businesses beginning with Trade on Slide 8. Trade reported pretax income of $5 million and adjusted pretax income of $9 million, compared to adjusted pretax income of $7 million in the second quarter of 2023. We had a slight improvement in our operating results in our Trade business portfolio when compared to last year. The financial results for our grain assets were up, driven by weak income opportunities, but domestic producers are still hesitant to forward sell due to lower commodity prices combined with limited basis appreciation to start the year. Our assets are well-positioned to support the needs of our customers when the grains are brought to market. With the reduction in commodity prices and limited forward selling by producers, financing costs, supporting inventory and forward contracts have also declined. Our premium food and pet food ingredients business has shown growth year-over-year with recent acquisitions and internal growth projects providing positive impacts to these product lines. As Pat mentioned earlier, merchandising businesses are being impacted by an oversupplied grain market with lower commodity prices and less volatility. As expected, we saw a decline in results in these businesses in the current quarter as compared to 2023. Trade’s adjusted EBITDA for the quarter was $24 million, compared to $27 million for the second quarter of 2023. Moving to Slide 9. Renewables had another solid quarter, generating pretax income attributable to the company of $23 million compared to $39 million and $32 million on an adjusted basis in the second quarter of 2023. Ethanol prices remained favorable in the quarter and our operating performance resulted in record production in our four plants. But overall profitability was negatively impacted by the values of co-products, including feed and corn oil. Renewable diesel feedstock volumes continue to grow, but margins are down year-over-year due to overall industry fundamentals. Feed ingredients demand remained strong, but at lower values as prices are tied to the value of corn. Renewables had EBITDA of $52 million in the second quarter compared to $81 million and $74 million on an adjusted basis in the second quarter of last year. Turning to Slide 10. The Nutrient and Industrial business reported pretax income of $23 million compared to an upsized $43 million in 2023. Overall, fertilizer prices declined in the quarter after several years of higher prices and market volatility. In addition, a late and wet spring planting season in much of the core geography that we serve negatively impacted sales volume. This was offset in part by improvements in our manufactured products as we continued to streamline our operations. Nutrient and Industrial had EBITDA of $32 million for the quarter compared to $52 million in 2023. And with that, I’ll turn things back over to Pat for some comments about our outlook for the remainder of 2024.

Thanks, Brian. Overall, we remain optimistic about our 2024 outlook. Our Trade business outlook remains solid with the expectation of sizable grain volume to handle in the upcoming harvest. We completed a smaller but good quality wheat harvest in July in the eastern assets and we expect to continue to earn space income on the grain we’ve accumulated. We’re also very pleased with the growth in our premium food and feed ingredient products and anticipate continued growth, both organically and through acquisitions. Merchandising opportunities remain, but we expect that they will continue to be muted compared to results in times of higher commodity prices and market volatility. Our Renewables segment continues to expect strong ethanol prices on good demand from a growing export market. We expect values of our feed ingredient co-products to remain soft as they follow lower corn prices. Our production volumes have remained very strong and we believe this should continue. We remain focused on improving and maintaining our four production facilities for optimal efficiency. Third-party merchandising of ethanol feed, ingredients and renewable diesel feedstock will also continue to be an important component of the business, and we expect continued volume growth in renewable diesel feedstocks. The Renewables business is an important part of our longer-term growth strategy, and we continue to make progress on plans to lower the carbon intensity of our assets. This includes enhancements at our production facilities as well as developing supportive farmer programs, which should position us to acquire lower carbon intensity corn as a feedstock in the future. The outlook for this business remains strong. The Nutrient and Industrial business near-term outlook is mixed with continued relatively low grain prices and reduced farmer income. The timing of harvest and market fundamentals will influence post-harvest fertilizer applications. We’re also focused on continued operational enhancements in our manufactured products facilities. With our strong balance sheet position and a desire for continued growth, we’re excited about the significant opportunities in each of our three segments. I already mentioned renewables opportunities that are longer-term in implementation. We continue to work on the Skyland Grain LLC opportunity, which could significantly expand the geographic reach of our grain business and increase the size of our farm center fertilizer business within Nutrient and Industrial. We’re also evaluating a number of organic growth initiatives, and the pipeline remains robust. We’re focusing on organic and acquisition opportunities within four businesses of commodities, premium ingredients, ethanol, renewable diesel feedstocks and nutrients. We’ll continue to make responsible decisions that benefit our customers and maximize shareholder value as we execute on growth opportunities within our stated strategy. With that, I’ll turn it back over to our operator where we can take your questions.

We will now begin the question-and-answer session. Our first question comes from Ben Klieve of Lake Street Capital Markets. Please go ahead.

All right. Thanks for taking my questions and congratulations on a nice quarter here in the face of some suboptimal conditions in the market. So congratulations on the quarter here.

Thanks.

A handful of questions. First, on this dynamic you all discussed on the elevated level of inventories throughout the grain complex. I’m wondering if, first of all, if you can – if you have an expectation that this is going to work its way through truly by harvest time or if there’s a risk of elevated inventory levels and old crops staying in bins, even after the new harvest comes in. And then second, as that unwinds, do you guys expect to see some – kind of an increase in volatility? Or is this kind of stale state something that you’re expecting for the foreseeable future?

I’ll get started, Ben, and turn it over to Bill. But I think the shift in the markets actually has done some good things for us. And mainly in the East, we had not as big a wheat harvest as we had in past years, but a very good quality one. So we were able to purchase a lot of soft wheat at harvest and have that in storage, where we’re earning space income. As farmers have moved into the corn market, that’s a good thing for elevator operators like ourselves. We think that farmers will need to come to market because we have very high on-farm storage right now. And as they see their current crops, which, by the way, look really good. These Midwest rains have been a nice boost to the crop this year. I think we’re going to see a big harvest this year, and thus farmers will be needing to move grain to market here before we get to full harvest. Maybe Bill could comment more on this.

Yes. Good morning, Ben. I would agree with Pat. We have near-record on-farm stocks for corn and we’re looking at potentially a record-breaking corn yield. So, I think it’d be very hard to make the assumption that the producer is not going to move their corn that’s on farm before harvest.

Got it. Okay. That’s very helpful from you both. And then I guess as a follow-up to this, in the last quarter call, you guys noted an expectation that the Trade Group is going to see some seasonality shift to later in the year. I guess, has this shift been slower than you maybe anticipated a few weeks, excuse me, few months ago? And then, on a full-year basis, can you kind of comment on your expectations for the Trade Group, especially in the merchandising side of the business for 2024 versus 2023?

Yes, I’ll take that one. No, but I think that our expectations at the end of Q1 are playing out like we thought they would. At that time, we weren’t nearly as confident in the upcoming corn crop. So, I do think that we are going to remain in this lower price environment. But I do believe that we should have an opportunity to handle even more fall harvest crops as the crop continues to look good in early August. The other thing is, we have to really pay attention to the value of the wheat, U.S. wheat compared to competitors around the globe. And I think that’s going to provide some opportunity for us also. And to your last question, we do think that the last half of 2024 will be more challenging than the last half of 2023 was, just because we’re in a lower price environment and volatility is a little lower.

Got it. Okay, that’s very helpful. Thanks, Bill. On the Renewable side, a question on the renewable diesel initiative. You noted that volumes were up, margins were down. Can you comment on overall earnings from that initiative? Did the volume growth more than offset the margin declines, or was the opposite true?

I would tell you that the volume growth did not offset the reduction in overall margins produced on the renewable diesel feedstock.

Okay. Very good. And then last, oh, sorry, go ahead, Pat.

I’m just going to comment on that, as our new plants came online, we still continue to see robust demand. We like the diversity of our portfolio, and we see this as a business opportunity just to continue to be important within The Andersons, like all commodity markets, since they have ups and downs and balances of supply and demand, that plays right into our merchandising capabilities. So, it’s a business we’re committed to continue to grow.

Got it. And last one for me. You guys talked about considering a few different M&A opportunities at various stages of the diligence process. The Skyland Grain acquisition seems to be a sizable one. But I’m wondering if you can characterize these opportunities that you’re in diligence for from the perspective of, do you have multiple acquisitions in your pipeline that are really advancing your 2025 EBITDA target? Or are the other things you’re considering beyond Skyland kind of more tuck-in in nature?

Sure. Ben, this is Brian. I’ll start, and then maybe Bill could add some color. I would say our pipeline does remain pretty robust. We’ve seen it be even more active this year. We’re seeing more deal flow, probably in part due to the higher interest rate environment over the past year or two. And so, I would say they’re at various stages of completion, and I would probably characterize more of them as – we’ve talked about singles in the past. I would call more of these doubles, triples, as we think about some of the growth projects, both internal growth as well as some of the M&A growth. We’re going to continue to be disciplined, and I know with regard to the $475 million run rate target that’s out there. We’ve talked about in these sort of changing and dynamic ag markets over the past several quarters. It’ll require more M&A to get there, but we’re going to continue to be disciplined and responsible and make sure that we’re going to generate appropriate returns for our shareholders. And, Bill, maybe you want to comment about some of the deal flow as well.

Yes. I would second Brian’s comment there around it. We’ll take maybe more M&A than we’d originally expected to achieve the $475 million. But we are seeing the opportunities that both tie directly into our core business. Skyland is a very good example of that, where geographically and product mix, it fits right at the center of our core. We’re also taking a look at where the industry is going to be in two to three years’ time and trying to get in front of those opportunities, which would also be larger in size compared to what we’ve done in the last three years.

Yes. Good morning, afternoon, and thanks for the questions. Just want to follow up a little bit on the scale and your focus on kind of the northern portion of the USA, and just provide a little more color strategically on the footprint with the Skyland kind of more in the Midwest. Just kind of a little more color on the focus of those assets, and as they become integrated within your footprint from expanding footprint. Just kind of take us through that a little bit more, and that’d be great.

Sure, Scott. This is Pat. I think, as you know, The Andersons’ original footprint was an eastern grain belt footprint here, primarily in Michigan, Indiana and Illinois, but with the acquisition of Lansing in 2019, we moved quite a bit into the western corn belt, as far up as Idaho and down south into Louisiana. However, we don’t have a significant physical presence with assets in Texas and Southeast Kansas, which are prominent areas for hard wheat and dairy and feedlot grain demand. So, it’s a very active part of the country and for us to expand geographically to that region would be attractive. As Bill mentioned earlier, we think a perfect fit with our overall portfolio. We can’t comment further on this at the moment, as we’re undergoing due diligence, but strategically, it’s a nice fit for The Andersons.

Perfect. And then just kind of switching to the opportunity, can I get an update on the ethanol business? Can you talk about the outlook as we head into fall and inventory levels there and production across the industry versus demand? Additionally, an update on the ethanol jet fuel opportunity?

Before I let Bill get started, there is a correction on what I just said. This wasn’t Southeast Kansas; I should have said Southwest Kansas. The Texas panhandle and Southwest Kansas are where we have a big growing demand for dairy and feedlot grains. At a high level, I think I’m understanding your line of thought here. We mentioned in our script our commitment to the future of our four ethanol plants, and it’s not just about carbon intensity, which is a big part of it; it’s about working on efficiency, improving our combined heat and power, achieving better yields and more productivity. The investments we continue to make in our plants have positioned us in the top quartile of the industry. We want to continue to invest to ensure our facilities are modern and efficient.

Yes. Thanks, Scott, for the question. First, I’d like to clarify that we believe the alcohol-to-jet initiative is a few years down the road. From The Andersons’ perspective, we've demonstrated over the last several quarters that we can operate in the renewable space, specifically our ethanol plants, very efficiently and profitably. We’re not waiting to have more clarity around SAF from ethanol. We really want to grow in this space now. We are looking at opportunities to expand our current footprint to leverage the areas we specialize in.

This is Pat again. I want to address your outlook for ethanol margins and the year ahead. We’re really in good shape as an industry this year. We’ve seen some very high margins last year. The reduction of corn has impacted co-product volumes. However, overall ethanol demand has remained strong, primarily driven by exports. Year-to-date, we're at nearly 963 million pounds, whereas last year, we finished the year at 1.43 billion pounds, with estimates suggesting a potential increase to 1.7 to 1.9 billion pounds for this year. Given this spike in exports, the global value of U.S. ethanol remains low, with strong demand suggesting bullish potential for ethanol margins through the rest of the year. Overall, it’s been a solid year for ethanol results, and we anticipate this trend continuing until year-end.

Appreciate that color. And then one last one, if possible, just kind of along those lines, an update on the trade business and the carry in the market with the large U.S. crops. Could you provide more color on the trade contribution as we project pretax earnings for the second half of 2024?

Sure, I'll take that one. As I mentioned earlier, we see a lot of opportunity coming out of our grain assets, capturing elevation margins and space income going forward. All expectations are that we will have a large crop, which will benefit us. However, merchandising opportunities may be slower than in the past. The key takeaway is that our end users want to buy grain from us, so we expect there will be opportunities; it's just that the extent of those opportunities will depend on market volatility. However, we believe elevation margins will be higher than previously expected, likely offset by some lower opportunities in our merchandising.

Hey, good morning, guys. Thanks for taking the question. I was wondering if you could talk about the demand you're seeing from the animal feed side. Can you also talk about the shift between premium and value pet food channels? Just trying to get a sense of what you're seeing in terms of demand?

Thank you, Ben. I will start with the animal numbers. Obviously, the pork industry has faced some struggles, while the beef industry is performing well. In our specific areas, particularly in the western corn belt, we're seeing a definite pickup in demand from the beef and dairy markets and expect an uptick in pork demand by the first half of 2025. So, I think we have a real opportunity there. As for the demand shift between premium and value pet food channels, we are definitely noticing a continued shift from premium to value products. This actually aligns better with The Andersons' special ingredients model as we're able to supply our feed customers with the necessary ingredients for those value products versus the premium ones.

And I think, Ben, this is Pat again. This highlights our core business model. We are merchandisers of domestic grains, and we have built strong relationships with our customers across various sectors, including swine, beef cattle, poultry, and even ethanol and flour milling. Regardless of whether the prices are high or low, we focus on providing domestic supplies that our customers require. This demand is robust, and those relationships are key to our continued business.

Great. And if I could just ask one more. And I believe it was sort of asked before, but I just want to return to it. So, I'm just wondering the various ways that the ag market can sort of correct itself to higher prices. Like, does this just happen? Are we just waiting on an exogenous shock, or can the industry really correct the oversupply in corn, for instance?

It's interesting, Ben. As someone who's been in this business for over 40 years, I’ve seen prices fluctuate significantly. Corn was under $2 in the '80s. The market typically adjusts itself based on global demand. We've continued to increase demand globally, along with production. Weather conditions can also significantly affect supply. While we've had good global crops this season, the market appears to have balanced out after experiencing elevated prices and income for farmers. Currently, we have abundant stocks and crops. Our focus is on effective merchandising and managing risks while working with our customers, regardless of market volatility. Conditions suggest a significant corn crop in the Midwest this fall, contributing to a soft pricing environment going into 2025.

Great. Thank you for the color. I'm going to hop back in the queue.

Thanks. Good morning, everybody. First, just on the renewable diesel feedstock trading, I know we were on the path to two billion pounds. I’m wondering about the give-and-take here. Are we building up some pent-up activity that could lead to a pop later on? Or just your thoughts on the path to two billion pounds?

Yes, I’ll take that. Thank you for the question. We are as confident today as ever that we will reach two billion pounds. The opportunities as we approach max capacity in renewable diesel will shift towards better utilization and increased run times at our plants. We continue to see quarter-over-quarter volume increases, indicating we can achieve and likely surpass that target.

Great. I'll stick on that for a moment. There are reports of investigations into potential counterfeit used cooking oil imports. If actions are taken against some of those, would that create opportunities or might it hinder your feedstock trading?

I would tell you it’s unrelated. However, if restrictions are placed on used cooking oil, it should drive DCO prices higher, benefiting both our renewable diesel feedstock business and our ethanol profitability at the plant level. So, we foresee that the outcome, regardless of how it turns out, would not negatively affect The Andersons.

And Jason, this is Pat. Just to clarify, we are not involved in the importation of any oils regarding the alleged used cooking oil imports. Supporting our domestic suppliers of cooking oil and ensuring the market is cleared up positively will benefit the overall market.

Got it. Thanks for that. Very clear. So, just one other question as we step back. Looking at this result, and considering the path for the second half of this year, how do you feel about the trajectory toward the 2025 EBITDA targets? You've mentioned more M&A, but what’re your thoughts?

This is Brian; I'll start, then maybe Pat can add color. As mentioned, we finished with about $355 million of EBITDA for the last twelve months. To achieve the run rate target by the end of next year will require more M&A than we initially estimated. Our pipeline is active, and if two or three of these opportunities materialize, we can make significant progress. Nonetheless, we will continue to approach this with discipline and responsibility, ensuring that projects align strategically and yield strong shareholder returns. We’re also refreshing our strategic outlook given the market trends and opportunities that have emerged over the past few years.

Yes, Jason, as previously mentioned, volatility has emerged with a transition from elevated commodity prices to lower ones, which isn’t unexpected. Our consistent strategy of seeking opportunities in the agricultural supply chain remains steadfast. The current interest rate environment has also opened up more potential deals. We see this as a chance to invest the cash generated over the last three years into promising investments to grow our company and enhance our existing assets. We believe we can achieve our $475 million EBITDA target by strategically investing in the agriculture supply chain. We are determined to reach that goal, notably after having surpassed $400 million last year. Although it's dipped slightly in the current lower commodity price environment, our long-term outlook remains positive.

Great. Looking forward to seeing what materializes. Thanks very much. I'll hop back in queue.

Thanks, Alan. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Tuesday, November 5, 2024 at 11:00 a.m. Eastern 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.