Second Quarter Earnings Call August 8, 2018 1
Safe Harbor and Non-GAAP Financial Measures Certain information discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward looking statements as a result of many factors including general economic conditions, weather, competitive conditions in the Company s industries, both in the U.S. and internationally, and additional factors that are described in the Company s publicly-filed documents, including its 34 Act filings and the prospectuses prepared in connection with the Company s offerings. Today s call includes financial information which the Company s independent auditors have not completely reviewed. Although the Company believes that the assumptions upon which the financial information and its forward looking statements are based are reasonable, it can give no assurances that these assumptions will prove to be accurate. This presentation and today's prepared remarks contain non-gaap financial measures. The Company believes adjusted pretax income, EBITDA and adjusted EBITDA provide additional information to investors and others about its operations, allowing an evaluation of underlying operating performance and better period-to-period comparability. Adjusted pretax income, EBITDA and adjusted EBITDA do not and should not be considered as alternatives to net income or income before income taxes as determined by generally accepted accounting principles. Reconciliations of the GAAP to non-gaap measures may be found within the financial tables of our earnings release and the appendix of the slide deck that accompanies this presentation. 2
Speakers Pat Bowe President and Chief Executive Officer Brian Valentine Senior Vice President and Chief Financial Officer Anne Rex Vice President, Corporate Controller John Kraus Director, Investor Relations 3
Q2 18 Highlights Seventh consecutive year-over-year improvement; merchandising results much improved; Lansing Trade Group improved again Plant optimization and better DDG values led to record production; strong E85 sales continued Continued strength in lawn and contract manufacturing and better primary nutrient volume could not offset continued margin pressure in nutrients Leasing income lower on higher maintenance expense despite higher utilization and cars on lease; repair business rebounded 4
Key Financial Data $ In millions except per share data, long-term debt-to-equity Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Sales and merchandising revenues $911.4 $993.7 ($82.3) $1,547.1 $1,845.7 ($298.6) Gross profit 90.5 87.8 2.7 154.2 164.3 (10.1) Operating and general expenses 59.9 69.5 (9.6) 124.1 151.1 (27.0) Equity in earnings of affiliates 9.8 6.4 3.4 13.4 4.5 8.9 Income (loss) before income taxes 29.2 (19.1) 48.3 26.9 (24.6) 51.5 Adjusted income before income taxes 29.2 22.9 6.3 26.9 17.4 9.5 Net income (loss) attributable to The Andersons, Inc. 21.5 (26.7) 48.2 19.8 (29.7) 49.5 Adjusted net income attributable to The Andersons, Inc. 21.5 15.3 6.2 19.8 12.3 7.5 Diluted earnings (loss) per share (EPS) 0.76 (0.94) 1.70 0.70 (1.05) 1.75 Adjusted diluted earnings per share (EPS) 0.76 0.54 0.22 0.70 0.43 0.27 Depreciation and amortization 22.6 21.9 0.7 45.2 42.9 2.3 EBITDA 59.7 8.9 50.8 87.3 30.3 57.0 Adjusted EBITDA 59.7 50.9 8.8 87.3 72.3 15.0 Effective tax rate 26.6% (40.1%) 66.7% 27.7% (20.8%) 48.5% Corporate unallocated net expenses 1 $2.8 $10.6 ($7.8) $11.7 $25.6 ($13.9) Long-term debt $435.6 $354.1 $81.5 Long-term debt-to-equity ratio 0.51 0.47 0.04 1 Includes net pretax impact of $6.7 for Q2 17 and $13.6 for YTD 17 from the former Retail business segment 5
($000) Pretax Income Q2 17 Adjusted Pretax Income to Q2 18 Reported Pretax Income $35,000 $30,000 $25,000 $2,948 $1,465 ($1,051) $7,826 $29,271 $20,000 $22,999 ($4,916) $15,000 $10,000 $5,000 $0 1,2 2 1 Q2 '17 Adjusted Grain Ethanol Plant Nutrient Rail Other Q2 '18 Reported 1 Excludes net income attributable to the noncontrolling interests of $64 in Q2 17 and $116 in Q2 18. 2 Excludes Plant Nutrient Group goodwill impairment charge of $42,000 6
($000) Pretax Income YTD 17 Adjusted Pretax Income to YTD 18 Reported Pretax Income $30,000 $25,000 $7,991 $1,588 $13,963 $27,261 $20,000 ($6,631) $15,000 $17,375 $10,000 ($7,025) $5,000 $0 1,2 2 1 YTD '17 Adjusted Grain Ethanol Plant Nutrient Rail Other YTD '18 Reported 1 Excludes net income attributable to the noncontrolling interests of $10 in YTD 17 and $398 in YTD 18. 2 Excludes Plant Nutrient Group goodwill impairment charge of $42,000 7
Grain Group Q2 18 Highlights Base Grain results improved on better merchandising results, continued strong income from storage space Lansing Trade Group again posted much stronger performance Unaudited in $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Revenues 1 $365.9 $488.4 ($122.5) $642.8 $967.0 ($324.2) Adj. Pretax Income ($M) $41 $24 Gross Profit $34.7 $30.4 $4.3 $60.8 $54.1 $6.7 $14 ($16) $10 Base Grain Pretax Income $4.5 $4.1 $0.4 $2.8 $0.6 $2.2 Affiliates Pretax Income $5.4 $2.8 $2.6 $7.0 $1.3 $5.7 Total Pretax Income $9.9 $6.9 $3.0 $9.8 $1.9 $7.9 EBITDA $17.9 $14.2 $3.7 $24.9 $16.3 $8.6 1 2018 revenues are $185 lower for the quarter and $349 lower year to date as the result of new accounting rules effective January 1, 2018 1 1,2 3 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 1 Excludes gains of $17.1 in 2014 and $23.1 in 2015 from partial redemptions of our investment in Lansing Trade Group. 2 Excludes goodwill impairment charges of $46.4. 3 Excludes asset impairment charges of $10.9. 4 Includes asset impairment charge of $1.6. 4 8
Ethanol Group Q2 18 Highlights Pretax income up about 30 percent on solid plant execution and better DDG values Group set a quarterly production record and posted continued strong E-85 sales Unaudited in $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Revenues $200.9 $187.8 $13.1 $373.8 $342.0 $31.8 Pretax Income Attributable to The Andersons, Inc. ($M) $92 Equity in Earnings of Affiliates $4.3 $3.5 $0.8 $5.9 $2.9 $3.0 Consolidated Operations and Services Fees $1.7 $1.1 $0.6 $1.7 $3.5 ($1.8) Pretax Income $6.0 $4.6 $1.4 $7.6 $6.4 $1.2 $29 $25 Attributable to Noncontrolling Interest ($0.1) ($0.1) $ - ($0.4) $ - ($0.4) $19 $8 Pretax Income Attributable to The Andersons, Inc. $6.1 $4.7 $1.4 $8.0 $6.4 $1.6 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 9
Plant Nutrient Group Q2 18 Highlights Primary and specialty nutrients volumes recovered from delayed planting; margins suffered Lawn and contract manufacturing businesses turned in another excellent quarter Unaudited Tons in 000 s, $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Adj. Pretax Income ($M) Primary Nutrients Tons 657 628 29 859 845 14 Specialty Nutrients Tons 247 221 26 433 430 3 $25 $15 $14 $14 $16 Other Tons 13 16 (3) 29 39 (10) Revenues $303.1 $264.7 $38.4 $438.7 $411.3 $27.4 Gross Profit $37.2 $39.9 ($2.7) $59.4 $65.7 ($6.3) Gross Profit Margin 12.3% 15.1% (2.8%) 13.5% 16.0% (2.5%) Reported Pretax Income (loss) $15.1 ($25.8) $40.9 $16.2 ($19.2) $35.4 Adjusted Pretax Income $15.1 $16.2 ($1.1) $16.2 $22.8 ($6.6) Adjusted EBITDA $23.5 $24.7 ($1.2) $32.8 $39.9 ($7.1) 1 2 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 1 Excludes goodwill impairment charges of $9.7 and one-time acquisition costs of $4.9. 2 Excludes goodwill impairment charges of $59.1. 10
Rail Group Q2 18 Highlights Lease income lower as expected on higher maintenance expense; utilization improved, more cars on lease Income from car sales comparable to prior year before scrapping idle cars Repair business sets quarterly record for revenue and pretax income Unaudited in $M Q2 18 Q2 17 VPY YTD 18 YTD 17 VPY Pretax Income ($M) Revenues $41.4 $38.1 $3.3 $91.9 $78.5 $13.4 $51 Gross Profit $13.6 $12.7 $0.9 $26.1 $25.0 $1.1 Gross Profit Margin 32.9% 33.3% (0.4%) 28.4% 31.8% (3.4%) $31 $32 Lease Income $2.1 $2.9 ($0.8) $4.2 $3.5 $0.7 $25 Railcar Sales Income (loss) ($3.0) $1.4 ($4.4) ($0.7) $5.0 ($5.7) Service and Other Income $1.8 $1.6 $0.2 $1.4 $3.4 ($2.0) $5 Pretax Income $0.9 $5.9 ($5.0) $4.9 $11.9 ($7.0) EBITDA $10.8 $13.6 ($2.8) $24.3 $26.7 ($2.4) 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 1 Includes asset impairment charge of $4.7. 1 11
2018 Outlook Good operating environment should allow income from merchandising to continue; expect affiliates results to continue to improve Near-term outlook is somewhat optimistic; cautious about impact of tariffs on export markets; DDG values to continue well above 2017 levels Primary and specialty nutrients margins are likely to remain challenged; lawn and contract manufacturing to maintain strong start in off-season Continued gradual increase in utilization and cars on lease; comparable Repair results 12
Q&A Session 13
Thank you for joining us. Our next earnings call is scheduled for November 6, 2018 at 11:00 a.m. 14
Appendix 15
Definitions EBITDA: Earnings before interest, taxes, depreciation and amortization; a non-gaap measure. A primary measure of period-over-period comparisons, and we believe it is meaningful measures for investors to compare our results from period to period Base Grain: Grain operations owned and operated by The Andersons (does not include affiliates) Ethanol Margin Hedging: From time to time we establish hedge positions with futures and derivative contracts that lock in prices for sales of ethanol and purchases of corn and natural gas with the intent of securing portions of our future sales margins Grain Bushels Shipped: Includes shipments from our facilities, farm-to-market (F2M) and origination services for corn, soybeans, wheat and oats Bushels Stored for Others: Bushels stored by The Andersons for the owner of the grain for which the company charges a storage fee Railcar Fleet Utilization: Percentage of railcars in leased service divided by total railcars controlled by the Company Primary Nutrients: Nitrogen, phosphorous, potassium (including those sold by farm centers) Specialty Nutrients: Low-salt liquid starter fertilizers, micro-nutrients, lawn fertilizers (including those sold by farm centers) Other Tons: Corn-cob products 16
Millions of bushels Pretax Income per bushel Grain Group Grain Storage Capacity/Adjusted Pretax Income Per Bushel 200 150 100 50 0 Core Grain Average Storage Capacity Target Range Excess wheat basis appreciation Adj. Pre-tax Income per Bushel Excess Wheat Basis $0.70 1 2 06 07 08 09 10 11 12 13 14 15 16 17 1 Excludes the impact of goodwill impairment charges of $46.4. 2 Excludes the impact of asset impairment charges of $10.9. $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 ($0.10) Grain Inventory In million Q2 16 Q2 17 Q2 18 Bushels owned 71.7 77.2 80.8 Bushels stored for others 4.0 0.8 0.1 Total bushels inventory 75.7 78.0 80.9 U.S. Planted Acres 1 56.8 55.0 50.1 46.0 47.3 83.3 82.7 83.4 90.1 89.6 90.6 88.0 94.0 90.2 89.1 14-15 15-16 16-17 17-18 18-19 Corn Soybeans Wheat estimate 17
U.S. Corn Condition Rated Good-to-Excellent August 5, 2018 85% 77% Gold states = ahead of 2017 condition Grey states = behind 2017 condition 71% July 29, 2018 72% 71% 70% 85% 48% 81% 75% 81% 26% 49% 71% 76% 72% 71% 74% 34% August 5, 2017 31% 60% Source: USDA crop progress report 8/6/18 18
U.S. Soybeans Condition Rated Good-to-Excellent August 5, 2018 73% 74% Gold states = ahead of 2017 condition Grey states = behind 2017 condition 67% July 29, 2018 70% 65% 84% 43% 80% 74% 75% 34% 61% 57% 68% 72% 71% 71% 45% August 5, 2017 60% 52% 71% Source: USDA crop progress report 8/6/18 19
Ethanol Group Production Ethanol Gallons Produced E-85 Gallons Shipped DDG Tons Shipped Corn Oil Pounds Shipped in millions in millions in thousands in millions 192.1 214.2 238.2 19.9 31.5 514 603 630 37.3 46.9 55.6 97.1 115.8 121.4 9.1 15.4 10.6 16.6 260 324 316 18.8 26.0 28.1 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 Q2 YTD Q2 YTD Q2 YTD Q2 YTD Charts include activity at nonconsolidated ethanol plants 20
Growing U.S. Ethanol Exports Continue to Support Market Price U.S. Ethanol Exports (MGY) May 2018 China, 53 UAE, 29 Other, 84 2018 YTD 782M 2017 YTD 602M 1,193 1,046 1,367 1,606 Mexico, 11 Philippines, 25 Colombia, 22 Peru, 27 India, 43 Brazil, 310 397 740 620 836 836 Canada, 126 S. Korea, 27 Nigeria, 15 Source: EIA 2010 2011 2012 2013 2014 2015 2016 2017 2018E Source: Pro Exporter Network 6/4/18 Export Growth Expected to Continue 21
Plant Nutrient Tons Sold Historical Seasonality in Volume (000 s) 19 257 16 221 13 247 17 207 665 18 129 19 128 23 209 628 15 109 15 132 16 186 657 236 223 361 217 253 360 202 Q1' 16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Primary Nutrients Specialty Nutrients Other Tons Committed to Growth of Specialty Nutrients Note: Primary nutrients = nitrogen, phosphorous, potassium (including those sold by farm centers); specialty nutrients = low-salt liquid starter fertilizers, and micro-nutrient (including those sold by farm centers) and lawn fertilizers; other tons = cob products. 22
Rail Group Fleet Key Metrics Railcar Fleet by Commodity 2 ~23,000 Railcars 89.5% Average Utilization Rate 1 ~20,600 Cars on Lease 2 20 Railcar Repair Facilities 2 Grain/Grain Products Fertilizer/Minerals Sand/Sand Products Plastics Wood & Forestry/Paper Ethanol & Gasoline Metals & Products Chemicals 11% 10% 10% 7% 7% 5% 5% 28% ~150 Commodities Handled Aggregates & Limestone Other 4% 13% 1 Average of Q2 18. 2 As of 6/30/18. 23
Rail Group Earning Power $ in millions YE 2014 YE 2015 YE 2016 YE 2017 Q2 2018 Average # of Assets 22,199 23,017 23,057 23,314 23,035 Sources of Income Generates lease income from long-lived assets Maximizes value by remarketing assets opportunistically Provides repair services embedded in leases and to third parties Beg. $ on Bal. Sheet $240.6 $297.7 $338.1 $327.2 $462.3 Average % Utilization 89.5% 92.4% 87.8% 85.0% 89.5% Lease Income $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Lease Income $13.6 $31.5 $13.2 $8.9 $4.2 Railcar Sales Income $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Asset Sale Income $15.8 $13.3 $11.0 $11.0 ($0.7) Service & Other Income $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Rail Services & Other $2.0 $5.9 $8.2 $4.9 $1.4 Total Rail $ in millions FY 2014 FY 2015 FY 2016 FY 2017 YTD 2018 Revenue $149.0 $170.8 $163.7 $172.1 $91.9 Gross Profit $59.8 $67.7 $55.9 $52.5 $26.1 Gross Profit % 40.1% 39.6% 34.1% 30.5% 28.4% Pretax Income $31.4 $50.7 $32.4 $24.8 $4.9 24