Good morning, ladies and gentlemen. And welcome to the Andersons 2022 Third Quarter Earnings Conference Call. My name is Joe, and I will be your coordinator for today. At this time, all participants will be in a listen-only mode. Later we will facilitate a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now hand the presentation to your host for today, Mr. Mike Hoelter, Vice President, Corporate Controller and Investor Relations. Please proceed.

Thanks, Joe. Good morning, everyone, and thank you for joining us for The Andersons third quarter earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation on 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 today to review our third quarter results. We're excited to discuss our third quarter, which was our best ever adjusted third quarter from continuing operations. Both trade and renewables posted very solid improvements over last year, while plant nutrient results declined in their seasonally low quarter, our overall company performance was strong with trailing 12 months adjusted EBITDA from continuing operations totaling nearly $440 million. With this Q3 results, we anticipate a very strong and potentially record setting year. Trade group results were a record third quarter on an adjusted basis and reflect improvement in many areas. Our Louisiana assets performed well during the corn harvest capturing strong elevation margins. Lead ownership in our grain terminal assets is earning space income. In merchandizing, our new profit centers have contributed more than $5 million this quarter to our pretax earnings. We continue to have very strong results in our western greenbelt in animal feed ingredient merchandizing as well as in our food and specialty ingredients businesses. In particular, our UK subsidiary, again delivered strong results with our organic feed business. Renewables had another solid quarter. Our Eastern ethanol plants delivered positive results on weaker corn basis in spite of declining ethanol prices and inflation in natural gas and other production costs. Our Kansas plant experience high corn bases due to the ongoing drought in the region. We continue to benefit from strong values of coal products, particularly distillers corn oil used as a renewable diesel feedstock. All the plants have now completed their planned fall maintenance shutdowns. Plant nutrient follows a very strong first half with mixed results are agricultural product lines performed well for the typically slow third quarter on good margins and well positioned inventory. Within our manufactured lawn products, we were challenged with lower demand, inflation and production costs and took an inventory right down in the in the quarter. Brian will now cover some key financial data. After that, I'll be back to discuss our outlook for the remainder of 2022 and into 2023. Brian?

Thanks, Pat. And good morning, everyone. We're now turning to our third quarter results on slide number five. In the third quarter of 2022, the company reported net income from continuing operations attributable to the Andersons of $17 million, or $0.50 per diluted share, this compares to adjusted net income from continuing operations attributable to the company of $5 million, or $0.15 per diluted share in the third quarter of 2021. Gross profit increased 34% despite this being a seasonally low quarter. EBITDA for the third quarter of 2022 was $83 million compared to adjusted EBITDA of $56 million in the third quarter of 2021. Trailing 12 months adjusted EBITDA was almost $440 million. All of these measures exclude discontinued operations. Our effective tax rate varies each quarter based primarily on the amount of income or loss attributable to the non-controlling interests. We recorded taxes from continuing operations for the quarter at a 28% effective tax rate. We still expect a full year effective tax rate between 18% and 21%. Next, we'll move to slide number six to discuss cash, liquidity and debt. We generated quarterly cash flow from operations before changes in working capital of $51 million in 2022, compared to $56 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 third quarter of 2021. The short term debt balance of approximately $650 million at September 30, is supported by readily marketable inventories of over $1.1 billion. At the end of the third quarter, we had available short term borrowing capacity of over $1.3 billion. We continue to have good support from our banks, as they understand the key role that we play in the ag supply chain.…

Thanks, Brian. We remain optimistic about our outlook. Strong global market fundamentals, including supply chain disruptions should exist for some time. Keeping commodity prices historically high. Worldwide supplies are projected to remain tight for the next few years. Our trade business outlook remains very positive. In addition to production and transportation challenges globally, demand remains strong for grains and oil seeds. U.S. dollar strength and logistics concerns with low water levels on the Mississippi River may keep more grain in the U.S. than was expected. Our inland grain elevators that shipped by rail, and our domestic merchandizing teams are well prepared for this volatile environment. Our international team is also meeting the challenge of finding additional sources of supply amid the complicated logistics and loss production due to the ongoing conflict in Ukraine. We're investing in our North American infrastructure to provide better service to our customers. We continue to evaluate M&A opportunities that align with our strategy, such as the recently announced Bridge Agri acquisition, which expands our presence in the pet food ingredient space. We knew it'd be challenging to match last year's strong second half trade group results. However, at this point, we see the potential for another strong fourth quarter and a possible improvement over the second half of 2021. In our renewable segment, we've experienced an overall margin decline, unlike the significant margin expansion in the fourth quarter of 2021. We believe that our eastern ethanol plants are favorably located, while western plants are facing much higher corn bases. We continue to see strong demand and good values for coal products, particularly distillers corn oil, which supports our overall margins. In addition, our renewable diesel feedstock merchandizing business is performing well. And we're evaluating additional renewable diesel low carbon intensity feedstock opportunities. Don't expect to…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ben Bienvenu with Stephens. Please go ahead.

Hey, thanks. Good morning and congrats on the quarter.

Good morning, Ben.

So I want to ask on -- a follow up on a comment you made Pat related to low water levels we're seeing on the Mississippi River. Can you talk about the opportunities that presents for you guys with port terminals in places like Port Houston, Great Lakes exposure? Does that give you guys an advantaged position? Are you still grappling with the same logistical challenges that your larger peers who send more product out of the gulf might be? How should we think about your relative positioning with respect to that dynamic?

Yeah, I think you pointed out very good point, Ben is that we're well positioned given this environment. We're not a river shipper. And we don't ship a lot of our rail terminal assets ship that much to the gulf. We did have a very good Louisiana harvest early and shipped a lot of that product already. That goes to various domestic and Mexican markets. The Houston asset for exports is well positioned, and we're in a good position for exports out of that terminal. So that's doing well. And we've recently had some really nice sales out of the Great Lakes. So we've seen some margin improvement into Lake shipments. So we're well positioned. We continue to have very good business on our rail supply to crushers and cattle feeders and with the shortfalls of Western production, there's going to be great movements into those feedlot markets may be different than normally would happen because of the drought conditions out west. So short answer yes, we're very well positioned, given the Mississippi River challenges.

Okay, great. Thanks for that. And then maybe thinking about M&A. You guys have done a number of bolt ons. You mentioned that they would be a creative in 2023. Forgive me, you might have said that somebody just missed it was that to EPS or to EBITDA. And then also when you think about kind of sizing, the contribution, maybe EBITDA would be helpful of M&A You've done over the last let's say 12 months. Can you give us a ballpark for kind of how we should be thinking about contribution just in the bucket -- total bucket of bolt-ons you've done?

Yeah. So Ben, this is Brian. It's a great question. I think the two that we've most recently announced Bridge Agri and Mote Farm Services, I would say on an EBITDA basis for 2023. I would put it in the range of kind of $5 million to $7 million range. And if we think about the year ago this time, I think when we were talking about Capstone and some of the international expansion. We said, we expected that to contribute in the range of $10 million to $15 million and kind of on a run rate in 2022, I would say, we're tracking, you know, above that right now. So that's kind of the range that we originally we're talking about. And then, again, doing better than that, on those two.

Ben. I mean I'd like to add on to the comments Brian made, which were right on the money. I think you recall, there might have been the last call, we talked about our strategy on M&A. And I was using the baseball analogy of singles and doubles. While we've looked at some pitches for homeruns, on big M&A deals, we haven't seen a valuation, that is something that we were attracted to. But these recent ones in the case of Mote Farm Services, it's a Farm Service Center in our region, Indiana, Ohio, as well as Bridge Agri, which is in the pet food ingredients space that we really like these into what you'd call singles and doubles that are very attractive for our strategy and on point with where we're headed. We have others like that in the pipeline. And again, Gibson [ph], it's the World Series going on right now. Maybe we're not going to hit as many home runs as the Phillies, but I'll be happy that plenty of singles and doubles of solid acquisitions are close to our strategy. And those are the things we're looking at right now.

Okay, that's great. On the -- one more question for me on debt profile of business. How should we be thinking about your aspirations for debt pay down from here, and particularly our long term debt, putting aside kind of the swings we'll see in working capital?

Yeah, I would say -- our long term -- as you know, we target long term debt to EBITDA below 2.5 times, I would say right now, we're actually on kind of a trailing 12 month basis. We're actually a little bit below 1.5 time. So if anything, we feel like we have the balance sheet well positioned to fund growth and some of these singles and doubles that Pat is talking about. And as you alluded to, the short term side can swing around with working capital changes in commodity inventory. So I would not look for call it a meaningful long term debt pay down strategy, if that's kind of what you're asking. I would say, we feel like we're well positioned to fund growth.

Okay, great. Good luck with the fourth quarter.

Thank you, Ben.

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

All right. Congratulations on a good quarter here and thanks for taking my questions. Couple of questions. Pat, you commented within the trade group new facilities contributing about $5 million to earnings in the quarter? I think I know the answer this, but I want to clarify that $5 million is that is that inclusive of the acquisitions that you're actually just talking about? Or are those 5 -- is there any material amount of that $5 million due to organic growth from new facilities? If you could elaborate on that, that'd be helpful.

Hey, Ben. This is Brian, good question. That $5 million is actually related to new businesses that were announced called in 2021. And so we'd be thinking about swing trading office Capstone and some of the other new process centers that would not include anything from the recently announced stuff or call it base organic growth.

It does include capstone now?

To be clear, that number is an EBT number, not an EBITDA number.

Got it.

I just kind of want to add on that. Just kind of linking it back to the strategy. As we said a year ago with the opening of our office in Switzerland, we were really looking at how we could expand to the growth of population markets of the Middle East and Africa, kind of the strategy of skating to where the puck is going to be. That's worked out very well for us. It's been a very complicated time. As you can imagine, with the Ukraine conflict and lots of challenges to supply chain. I got a photo from one of our traders who was flying from the airplane over the Black Sea. And it showed right now, there's 109 vessels waiting in Istanbul, to pass the Bosphorus to go into load in Ukraine. And there's 57 loaded vessels awaiting inspection again at the Bosphorus to get out into the Black Sea. So this on again off again, what's happening with Ukraine exports where the Russians said they're going to pull out of the joint agreement with the UN in Turkey. Now this morning, they said they will continue to operate under that agreement. Russian loaded vessels from Russian origins are coming out just fine. But there's a very active international trade going on, especially to Middle East and Africa. So we have a normal, complicated environment with a strong dollar and different crop conditions around the world. But we threw this Ukrainian conflict into the mix. It's really created a very robust environment for trading. And so far we've favorite very well. And we're glad that we made the move when we did.

Yeah, I hear a lot that. I didn't catch that the news this morning. That's good to hear that that's the better grooms back up and running. I'd like to pivot over to your comments on renewable diesel. And I have two questions, and I'm going to get back to queue. My first question, Pat, you mentioned that merchandizing opportunities in the space are growing at a nice cliff. My first question here is given that so many of these facilities are still coming online, still ramping to capacity. I'm wondering, the degree to which this growth rate that you're seeing is nice on a raw dollar basis or more just on a percentage basis, given kind of the low the kind of entry level position here in this space. How materials and contributors is today,

Right, completely understand where you're coming from. RD demand is really picked up and the feedstock demand for that going in will continue into '23. So with that should have a very positive impact across margins for the soybean crushers, and for our corn oil demand. We've -- as we mentioned before, we put in new technology [Indiscernible]. And we're putting in and four of our five plants to clean up, finished corn oil product products to make those more readily usable for RD. We're looking to also sell those to third parties, so we're kind of excited about that piece of technology. We've also been able to add both use cooking oil and other RD feedstock ingredients to our portfolio. And so that marketplace has been robust, and our trading team is doing quite well in growing the volume in that segment. So we see this RD feedstock impact to be a very bullish signal to the oil seed complex in North America. And that's going to continue well into '23.

Okay, and you might have just answered my second question here. In your prepared comments, you noted efforts in expanding the renewable diesel feedstocks. And so, I was curious if you could kind of characterize that a bit further? And you just did, but I'm also wondering kind of the degree to which you're looking at new crush facilities coming online as a source of volume for you, the degree to which you're looking at kind of new crops that are emerging, new oilseed crops that are emerging that can participate in this play. Are you looking at all of the above, is there any kind of source of more intensely focused on?

Yeah. The answer is all the above. We don't have any intentions to enter into the soil crushing industry. There's lots of our colleagues in the industry that are very strong in that space and have multiple plants have been added for many, many years and do a great job there. There are some newer plants that are coming online or have expanded. And those are opportunities for us to get originations from those facilities, as well. As you mentioned, other cover crops, and new oilseed products that are coming to the marketplace, specialty seeds that add to one, the carbon recovery at the farm and then and can be crushed and use as a feedstock. So those early days. And they're relatively small in acreage, but shows some promise. And we're having good discussions with people in that space. And in general, this convergence of energy and agriculture is really exciting for our industry, right? So with not just the RD demand, but where the future of ethanol is going and higher inclusion rates as well as SAF and other potential products, we're quite bullish on the segment in a broad basis.

Very good. Very exciting. All right. Well, thanks for taking my question. And congratulations, again on a good quarter and I'll get back to you.

Thanks very much.

Our next question will come from Ken Zaslow with Bank of Montreal. Please go ahead.

Hey, good morning, guys.

Good morning, Ken.

A couple questions. One is, can you talk about the Inflation Reduction Act? How is that going to impact you guys, and how do you see it playing out? It seems like there are a lot of nuances to it. And maybe this may not be the call to get into all the nuances, but I feel like there are a lot of things that maybe you could kind of shed some light on.

I don't fig specifically in the near term, there were things a while back ago that related to tax structures et cetera and a little bit of the payments that occurred in ethanol last year. Going forward, the money that is going in to try to decarbonize ag supply chains is a plus. We've not personally benefited from that at this point. There could be opportunities on new technologies as we get into '23 and '24, where you could capitalize on some government programs that helps that decarbonization to happen. So those are things that we're interested in nothing to announce at this time.

Okay. And I know it's a little early for 2023. But can you talk about the puts and takes as you see them now? And again, I'm not looking for exact guidance, but what do you see kind of laying out from the returns on your investment? I know, you have the $10 million to $15 million, but can you kind of lay out some sort of picture of what the puts and takes are for 2023?

Sure, Ken. Let's first start with our merchandizing grain business where we see a very attractive fundamentals going into '23. So we continue to have global problems not just only because of the Ukraine situation, but we have had weather issues. We've had a good crop now in Australia with some rains, it's very dry in Argentina early. So we'll have to see how things progress. And this continuation of a quote La Nina environment. We had a very difficult drought in the Western U.S., so that's going to create merchandising opportunities for us to move grain domestically to locations that are short this year due to the drought. The good part for the Andersons with our traditional Eastern assets, in particular, we call the Tristate area, Indiana, Ohio, Michigan, we've had really good crops. So harvest has progressed well this year. The national average for corn is about 76%, in the east, probably about 50% done so far, but have great weather. And we look to make some really good progress on corn harvest here in early November, and beans nationally are 88% and we're 80% done in the east. We had good yields in our tributary areas on soybeans. Farmers are in very good position, they've sold probably maybe 30%-40%, ahead of time when markets rallied earlier this year. But we'll have grain to sell there, they're very well healed, as you know, with high commodity prices in restoring quite a bit of grain on farm. But it should be some movement that will happen in Jan-Feb-March, mainly to make fertilizer payments. So we're fundamentally feeling very good about our grain business. We like the opportunities of international trade that we've gotten into and where our assets are positioned to supply that. So filling very positive about our…

And Ken, just to frame that kind of in a in an overarching way. As you know, we had strong EBITDA in 2021 with EBITDA just north of $350 million. And we expect to exceed that this year in 2022, I think, as Pat was just summarizing our 2023 outlook is really expecting continued strong fundamentals. And so in total, we believe we should be able to maintain these levels of EBITDA looking ahead to 2023 and which aligns really with our original targets that we outlined back in kind of late-2020.

Okay, just one more, just maybe two more --

Go ahead.

How can we then -- the write down -- how much is the write down, why do you keep it as an echo item?

I didn't get the second part, you said, how much was the write down? And what you said?

And what was an extraordinary item? Is it non-recurring, is it not?

Yeah, so the amount of the write down was about $4 million in the quarter. We didn't line it out as an extraordinary item, just because it was slow moving obsolete. But you're right, we don't anticipate a recurrence of that item.

Because you reset the lawn business. I'm assuming, so it's like next year, you won't get that, it's not a reset, right. It's just a write off.

Correct. The way you're thinking about it is correct.

And then my -- really my last question is, the $100 million, you said $50 million is maintenance? What are you spending the other $50 million for growth on? Can you talk about some of the projects, not the least illustratively?

Yeah, so if you think about I mean, it's really all of these strategic areas that we've been talking about. If you think about some of the things well, Pat mentioned on renewables, some of the truce and investments that are happening, there's a lot of things going on with additional corn oil extraction in the facilities. And if we think about the renewable side of the business, it's all on operating efficiency and extracting more things in the corn oil space. If you think about our plant nutrient side of the business, it could be things that are going to be in the organic space in a variety of other areas in some of the newer fertilizers. And I don't know, Pat, if you want to talk about some of the things in trade.

Yeah, no, that's terrific. We can just strengthen our assets, we're catching up on capital deployment in our core grain elevators, and fertilizer, as Brian mentioned. We also have some projects in organics that are interesting. We liked this pet food ingredients segment, we announced this acquisition in the last couple of days. We think there'll be opportunities for additional growth in that segment. That is a high margin growth segment. And another is in our food segment we produce, we put more capital into our corn assets, we make food grade corn for chip manufacturers, that's been a solid growth segment for us. And so we are have strengthened some of those assets by putting some more investment there. And Brian mentioned, the opportunities that look interesting or anything related to the organic, I'm sorry -- organic -- let's say renewable diesel feedstock business. So we've had some growth opportunities there we're evaluating, we'd like to maybe partner and align with other people where we can get additional volumes of feedstocks to this really solidly growing category. So that's an area of focus for us going into next year.

And Ken, one other one that I would mention, and this is particularly in the plant nutrients side of the business. There's some projects that we're looking at from an automation perspective of automating some things in our facilities that previously those numbers didn't -- the economics didn't work, but with what's been happening with markets and margins, and inflation, some of those projects now make a lot more economic sense.

Also to clarify in that lawn segment, while sales really slowed during the quarter, we had some obsolete inventory. We still see this as a very attractive business. It's historically been a good margin and growth business for us. And we would look to grow in that segment if we see the right opportunities.

And you would argue that if you go back to pre-COVID now, even if you take out that $4 million, the business has grown over those years. It just grew too quickly and then you're just resetting it a little bit. Is that correct?

Yeah. And had kind of a rapid rise up and then inventory got over supply period.

I appreciate it guys.

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

Yeah, thanks, guys. And congratulations on the quarter. So just a couple. You've alluded to some of the things Pat, I think that are relevant to this question. But late in the third quarter, we saw bases weaken pretty sharply in the eastern Corn Belt. Bases in the western Corn Belt is off the charts. And I guess I thought maybe that would have a negative impact on your third quarter basis appreciation in the grain business in your trade business. And then I'm looking at $1.3 billion of available liquidity and I think it was only about a $0.5 billion at the end of the last quarter. Are you not seeing with these little -- with these low eastern Corn Belt with a favorable basis that you guys should be buying cheap grain on? Are you not seeing those opportunities to put more business on your books? Or what am I missing here?

Eric, I think you pointed out at the very beginning. The drought in the west caused basis levels to rise pretty dramatically quickly, especially in the desert southwest and into those feedlot markets. That is actually good opportunity for us from a merchandizing standpoint. And what we call our Midwest truck segment that sells to those markets has done very well with this appreciation of the basis. So actually, that's a good thing. The one area it hurt us is in our Kansas ethanol plant has high basis levels, and that has made margins very difficult in Kovich [ph]. A little bit higher, also in Denison, Iowa, as Iowa basis levels are a little bit higher. It's really a Kansas-Nebraska phenomena. When it comes to the east, as you pointed out, we had a good book on early with growers in the east. I'd say it's been a normal harvest activity in the last month with kind of a steady supply and steady selling of grain. Nothing like backlog and huge lines, anything like that, so it's been kind of a very orderly progression this harvest. So we're in very good shape. We like the position we're in. We're gaining storage on wheat in the delivery market here in Toledo for soft red wheat, which is a nice ability to clip some coupons there. And we really like our ownership and basis levels have been firm for export sales, and we liked the position we're in. So simple answer to your question, it's going quite well. And then we have good volumes, and a very healthy farmer. So it's a good environment for us.

Okay, good. No, I mean, that sounds great. And it sounds like there is a [Indiscernible]. And I know that the east is not is as far along on harvests as the west is but the weather has been just phenomenal. We're progressing pretty quickly, I think around the whole country. But -- so if you're only, let's say 50%-55% harvested, should that not give you more opportunities in the fourth quarter? Maybe you've answered this fourth quarter, you should be able to pick up some really good cheap grain and have some pretty good momentum going into the first half of next year. Is that a fair way to look at it?

Yeah. As of the Monday's crop report we're 50% in the Indiana, Ohio, Michigan market. So harvest is progressing rapidly right now, because weather is perfect. And so yeah, we're hoping to capture quite a bit of grain here in the second half of harvest. So it's a good outlook on both for fertilizer application. And for corn coming straight out of the field. Beans were very dry. And so corn is probably normal right now. So our drying and blending of corn is probably on a normal basis right now. So it's a good year, especially in the east. So we're very pleased with Eastern harvest thus far.

So what kind of moisture levels are you seeing in corn right now?

Kind of it's sort of spotty, Eric. So kind of in the high-teens, some spots low-20s. But most that's why growers have waited. They took the beans are almost done I think we're 80% of beans and that that'll be will be done probably by this week. But some growers have waited to get corn dried down in the field. It's beautiful 60 degrees sunny days here. Probably the best Halloween we've seen in a long time. So we've had just a beautiful weather this fall.

Yeah, no, it's the same here. We're going to set record highs today. It's just beautiful weather perfect for harvest, perfect for fall application stuff. So, all good seems to be on the agricultural front. So thanks for your comments, Pat and Brian and Mike.

Thanks, Eric. Good luck with the rest of your harvest.

Yeah, thank you.

This concludes our question and answer session. I would like to turn the conference back over to Mike Hoelter 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, February 15, 2023, at 11 am Eastern Time, when we will review our fourth 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.