The Andersons, Inc.

Good morning, ladies and gentlemen. Welcome to the Andersons 2025 Fourth Quarter Earnings Conference Call. My name is Dave, and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star and then 2. As a reminder, this conference is being recorded for playback purposes. I will now hand the presentation to your host for today, Mr. Mike Holter, Vice President, Corporate Controller, and Investor Relations. Please proceed.

Good morning, everyone, and thank you for joining us for the Anderson's fourth quarter earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via the 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 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 non-GAAP to GAAP measures are included within the appendix of this presentation. On the call with me today are Bill Krueger, 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 Bill.

Thanks, Mike, and good morning, everyone. Thank you for joining the call today to discuss our fourth quarter results and initial outlook for 2026. I would like to start off by thanking the entire Andy team for their hard work and strategic focus over the past several quarters. This effort allowed us to deliver a record fourth quarter EPS, confirming our portfolio's versatility and resilience in various market conditions. The fall harvest produced larger than expected volumes of grain in the Western Greenbelt, and we were able to accumulate significant corn and sorghum at favorable basis values. This increased production added to space income at our assets, but limited our merchandising opportunities. Exports for wheat and sorghum from our western assets saw sizable increases in the fourth quarter compared to the first three quarters of the year. In the eastern greenbelt, harvest results were more variable. Our team focused on sourcing corn for a record export program and strong ethanol demand, achieving higher seasonal elevation margins. Production at our ethanol plants resulted in another year of record volume and above-average yields. Ethanol exports again reached a record level, which helped to support improved ethanol board crush. However, our eastern ethanol plants were also impacted by higher corn basis and natural gas costs. our plants continue to run well. In the fourth quarter, we continue to execute our stated strategy. Although our capital allocation may vary from year to year, we are committed to profitable growth in both agribusiness and renewables. In renewables, after acquiring full ownership of our four ethanol plants last year, we recently announced an additional investment in our Climbers Indiana facility, which is expected to add 30 million gallons of incremental annual production in 2027. In the first quarter, we plan to begin operations at a renewable feedstock storage and blending facility in Ulysses, Kansas, where we will add capacity for low CI feedstock to supply the bio-based diesel and feed markets. Agribusiness growth initiatives include continued improvements in our skyland asset footprint, and we are pleased with their improved performance this quarter. Work continues with the Port of Houston expansion project. We expect completion of our upgrades to the grain elevator in Q2 of 2026 and the soybean meal export capacity should be online in late Q3 of 2026. After completing the first phase of the mineral processing facility in Carlsbad, New Mexico, we're adding processing capabilities in a second phase scheduled to be complete in the second quarter. We continue the build-out of our corn and wheat late processing capabilities strategically located within our asset footprint to support key CPG customers. I'm now going to turn things over to Brian to cover some key financial data. When he's finished, I'll be back to discuss our early outlook for 2026.

Thanks, Bill, and good morning, everyone. We're now turning to our fourth quarter results on slide number five. In the fourth quarter of 2025, the company reported net income attributable to the Andersons of $67 million or $1.97 per diluted share and adjusted net income of $70 million or $2.04 per diluted share. This compares to adjusted net income of $47 million or $1.36 per diluted share in the fourth quarter of 2024. Overall, fourth quarter gross profit of $231 million increased 8% year-over-year, primarily due to higher volume and margins in renewables, as well as the addition of Skyland grain in November of 2024. For the full year, gross profit of $714 million increased 3%, primarily due to the Skyland investment. Adjusted EBITDA for the fourth quarter was $137 million compared to $117 million in 2024, with an increase in renewables partially offset by a year-over-year decline in agribusiness. Full-year adjusted EBITDA was $337 million compared to $363 million in 2024. Our effective tax rate for the fourth quarter was 19% and for the full year it was 16%. Our effective tax rate varies each quarter based on the amount of income attributable to non-controlling interests as well as the recognition of non-taxable biofuels credits. Now let's move to slide six to review our cash flows and liquidity. We generated fourth quarter cash flow from operations before changes in working capital of $110 million in 2025 compared to $100 million in 2024. Full-year cash flow was $278 million compared to $323 million in 2024, with the reduction due to challenging ag market conditions in the first half of the year. This strong cash flow generation shows consistency and stability throughout the ag cycle. supporting our ability to fund growth projects and reinvest in our asset footprint. Our year-end cash balance is down, and short-term debt reflects a modest increase, both of which are a result of the acquisition of our partner's share of the ethanol plants, completed in the third quarter of 2025. Next, let's turn to slide 7 to review capital spending and long-term debt. We continue to take a disciplined and practical approach to capital spending and investments, but intentionally increased our level of strategic investment in 2025. This includes the handful of larger gross projects in both segments that Bill mentioned earlier, together with the full-year impact of Skyland capital spending. Long-term debt to EBITDA at year-end was 1.8 times, which remains well below our stated target of less than 2.5 times. We continue to evaluate various acquisitions and internal growth projects and have a strong balance sheet that will support investments that meet our strategic and financial criteria. Now we'll move on to a review of each of our segments, beginning with agribusiness on slide eight. Agribusiness reported fourth quarter pre-tax income of $46 million and adjusted pre-tax income attributable of $45 million. compared to $56 million in 2024. The large harvest provided significant quantities for our assets to handle, particularly in our western footprint, where we were able to acquire grain at favorable values and realize good basis appreciation. We also made considerable sorghum export sales in December, supporting our Skyland and Port of Houston assets. Our eastern grain assets also had a solid fourth quarter, with strong elevation margins and a significant portion of the corn acquired moving into the export markets. Our merchandising portfolio remained challenged, as grain markets were well-supplied at relatively low prices. Our premium ingredients business had solid results, and our Skyland investment also saw improved results in the quarterly. Agribusiness had adjusted EBITDA for the fourth quarter of $80 million, compared to $88 million in 2024. Adjusted EBITDA for the full year was $187 million, compared to $218 million in 2024. Moving to slide 9, renewables generated fourth quarter pre-tax income attributable to the company of $54 million, a significant increase when compared to $17 million in 2024. This increase reflects the full ownership of the four ethanol plants following the acquisition of our partner's share in the third quarter of 2025. Strong operations in our ethanol plants resulted in another quarter of record production. Ethanol board crush margins were up 15 cents per gallon year over year. However, this was partially offset by higher natural gas costs and firmer eastern corn basis. The impact of 45Z tax incentives was $15 million for the quarter and $35 million for the full year. These credits reflect our full ownership since August and relative share of the gallons produced for the first seven months of 2025. Renewables had EBITDA of $69 million in the fourth quarter of 2025 compared to $41 million in the fourth quarter of 2024. For the full year, renewables generated adjusted EBITDA of $203 million, compared to $189 million in 2024. And with that, I'll turn things back over to Bill for some comments about our early 2026 outlook.

Our 2025 results once again proved the resilience of our business model and create optimism for 2026. Although we had external factors challenging our agribusiness during the year, our team stayed committed and finished the year with a solid fourth quarter. Conversely, there were several favorable external market factors that the renewables team quickly identified, diligently researched, and then executed in to drive bottom line results. We expect that 2026 will bring better financial results in agribusiness with more certainty in our global grain markets while we believe demand for ethanol and related products will remain strong. We are focused on continuous improvement in our safety culture and in our enterprise business support organization. our agribusiness outlook remains focused on connecting supply to end users and export demand. With the large fall harvest, our western footprint should see basis appreciation into 2026 and sorghum exports have continued into the new year. Our eastern assets should benefit from higher elevation margins on corn export programs, but may not see the same basis appreciation as our western footprint. The current farm gate environment is faced with challenging economics. Domestic demand for production is critical to the U.S. farmer. The passage of year-round E15 and finalization of increased RVOs as proposed would provide significant support for ongoing domestic demand. As a significant amount of grain remains stored on farm and will need to be marketed, we are ready to act as a conduit to finding consumptive demand and supporting our farmers with disciplined risk management tools. While off prior year highs, we are forecasting higher than normal planted acres in 2026. This combined with higher acres during the 2025 harvest would necessitate additional nutrient applications, primarily nitrogen. These factors should benefit our fertilizer business, but volumes are dependent on farmer decisions and could be challenged by their current economics. We believe that we are well positioned to serve our customers with crop inputs during spring applications and with our specially liquid fertilizers during the growing season. I mentioned we expect to have several of our larger capital projects completed in 2026. Finalizing these projects will allow us to operate more efficiently along with handling increased volumes of products like soybean meal, cleaned corn, and wheat. We continue to assess internal growth projects and acquisition opportunities that support our growth strategy. We expect that the challenging 2025 market may bring us additional acquisition opportunities to evaluate. In renewables, we expect that ongoing domestic and global demand will continue to support ethanol prices and volume. We also expect to see clarification of biofuels policies, such as the renewable volume obligations and small refiners exemption reallocation. We are optimistic that year-round E15 legislation will eventually get congressional support as this would provide great benefits to the domestic ag economy. We recently received the proposed regulations around the 45Z tax credit and are pleased with the clarifications that were provided. As usual, Maintenance shutdowns in the industry and summer driving increases could positively influence ethanol demand and crush margins beginning in the second quarter. We continue to invest in our plants and consider our assets to be among the best in the industry. The recently announced investment in additional production at our climbers plant is the latest example of this commitment. We have additional investments planned to improve efficiency and save operations in our plants and increase both the quality and yield of Distiller's Corn Oil. As we mentioned at our Investor Day in December, we expect our 45Z tax credits to increase in 2026 with the removal of the indirect land use change penalty. The class six well permit for climbers continues to move through the required review process. We are actively pursuing investments aimed at reducing the carbon intensity of our ethanol production through alternative energy sources and the previously mentioned sequestration. Lastly, we remain interested in the acquisition of additional ethanol production facilities that align with our criteria. In 2025, we demonstrated our capability to generate positive returns and cash flow during the lower range of the ag cycle. We anticipate generating ongoing cash from operations that will support our stated strategy. Our balance sheet is well positioned to support future growth. We will maintain responsible decision-making to benefit our customers and optimize shareholder value. We expect to exit 2026 with run rate EPS more than our prior target of $4.30. And recently updated, our long-range target of $7 as we exit 2028. And now we are happy to take your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question comes from Ben Cleavey with Stonex. Please go ahead.

All right. Thanks for taking my questions and congratulations on a really great end of the year here. Um, first, I think the biggest surprise to me in the quarter was, was really the strength of the, uh, legacy Skyland business. I'm wondering if you can, uh, elaborate on a couple of things. First of all, was, was that performance something that, uh, kind of surprised you guys, or did that fall in line with your expectations throughout the quarter? And then second, with a full year now of Skyland integrated, can you break down the EBITDA contribution of that business within 2025?

Morning, Ben. This is Bill.

I'll take the first part of it. I do not think that it was surprising when you consider the backdrop of the large fall harvest. Being new to the business, I don't have access to all of their records for volume handled, but compared to any numbers that we had considered, the fall harvest in southwest Kansas and the panhandle of Texas allowed us to acquire more harvest bushels than we were planning on going into the year.

And Ben, with regard to the EBITDA contribution, I think when we originally talked about that transaction, we said we expected it to be kind of a run rate of $30 to $40 million, $30 to $40 million per year. And then last year we said we thought it would be more about half of that range. It finished the year just shy of $20 million. So it was right in that range.

Okay. Very good. Thanks. Thanks you both for that. One other one from you guys talked about the kind of outlet for fertilizer application this year. I'm wondering, you know, kind of given the kind of big variables that you outlined, how you're positioning that business here going into the spring application season, you know, has kind of the relative uncertainty here kind of changed your, you know, kind of inventory build thus far in the season or are you really, you know, is really the strategy in 26th? unchanged relative to historic years, you know, despite the relative uncertainty that I think is in this space.

Ben, I'll take that question. This is Bill.

So let's maybe rewind just a little bit and talk about fall applications that will give us a little bit better vantage point looking forward into 2026. If you start in the western U.S., we actually saw substantial applications of ammonia just due to the nearly perfect application season. And obviously, as you know, with ammonia going down and hydrocemonia going down, that is only going to be used for corn acres. So that's what drives our belief that corn acres will be higher than normal, but less than 2025 acres. As you move to the east, where we had a little less favorable application weather, we believe that we're going to be well poised for stronger than normal applications in Q1. And, you know, obviously with the recent being rally versus the corn futures, there is some concern that we'll have bean acres potentially taking away some corn acres. But at the end of the day, we still believe across even the eastern Corn Belt, it's getting kind of late to be switching from corn to beans. So we feel like we'll have slightly higher than normal applications for Q1 and early Q2 in the Eastern Corn Belt.

Okay. That's very helpful. Thanks, Bill. Plenty more to talk about, but I'll leave it there. Congratulations again on a good end of the year. I'll jump back in queue.

And the next question comes from Ben Mayhew with BMO Capital Markets. Please go ahead.

Hey, good morning, guys. And yeah, congrats on a really strong finish to the year here. So my first question is around the agribusiness segment outlook for 2026. And I'm just wondering if you can highlight, you know, the biggest potential profit opportunities for the agribusiness segment in 26 versus 25. And kind of like, What needs to fundamentally happen to make these a realization?

That's a good question, Ben.

And I'm going to start with the assumption that we'll have a normal growing season. But as we look back and try to compare the first half of 25 to the potential first half of 2026. It feels today like we're going to have more certainty around policy on exports. So with that assumption, we should see trade free up both domestically and for exports first half of 26 versus first half of 25. That's the number one area that I think will give us a little bit more stable earnings. As I just commented around fertilizer, with the large harvested acres in 2025, we are going to need to apply more nitrogen across the board for the 26 acres that we are expecting. Again, the economic conditions at the farm gate will drive a little bit of that, but we feel that we'll be pretty consistent on our PN outlook for 2026. And then probably the last area that should benefit agribusiness is the continued biofuels policy, and as mentioned, with the assumption that we'll see the RVOs come out as proposed, that should give us a little bit of an uplift for the underlying grain and soybean trade domestically.

Great.

And then my next question would be about You know, the strength in the fourth quarter earnings was very apparent. And I'm just wondering about momentum in the first quarter, 26, particularly with the ethanol business. So I was hoping you could just update us on, you know, year to date, kind of where we are with the board crush and, you know, You know, before we head into maintenance season, it seems like the inventory levels have maybe picked up a little bit. So if you could just kind of reconcile the ethanol segment and where we're at right now and where you expect to be throughout the year profit-wise.

Well, as you know, we don't provide guidance by segment.

but we can talk to the transition from Q4 to Q1. I'll talk about the fundamentals, and if Brian has anything to add on the financial aspect, I'll let him do that. You know, as we entered Q1, which is traditionally a lower board crush time of the year and has been over the last several years, We actually had slightly stronger board crush than I think the industry had expected. There are parts of our area where we did see a little bit higher corn basis and nat gas costs continue to roll into Q1. But the fundamentals of ethanol, both export and domestic, continue to feel very strong on Q1. And we don't have any reason as we look into the future to assume there's going to be a drastic change on 26 versus 25 from the fundamentals. We also believe that the opportunity to continue to drive efficiency at our plants exists. And, you know, with the current biofuels policy should provide support for those capital investments. With that, I'll let Brian hit on some financials.

Yeah, and just with regard, I mean, you know, Q1 is always kind of seasonally low, but we should see, we expect export demand to remain high again this year. We expect a seasonal uplift with summer driving season. And then what I would say is the other two things to factor in would be the full year impact of the full plant ownership. And then, you know, we talked about 45Z for the full year of $90 to $100 billion, and that's kind of still the range that we would expect.

Great. Thank you. I will hop back in the queue. And the next question comes from Poron Sharma.

With Stevens, please go ahead.

Good morning. Thanks for the question. I will be the third to say congratulations on the strong results. Wanted to start off with Skyland. I understand you said you finished the year with just shy of $20 million, but it does sound like you're off to a strong start. You did quote, you did note, of strong basis appreciation opportunity for your Western assets. And so I just wanted to maybe ask about Skyland contribution for 2026. Do you think that this business will be able to achieve the 30 to 40 million that you had initially targeted just given the stronger start to 2026?

Ron, good morning.

This is Bill. I will let Brian address the financial question. The one thing I do think is important to discuss here, when we talk about our Western footprint on assets, there are more assets than just Skyland. We have a nice setup in Nebraska. We continue to have a facility footprint in Idaho and Delhi, Louisiana. So just when we talk towards our western asset footprint, it is larger than just Skyland, so that to maybe clarify. So then I'll let Brian talk about Skyland.

You're right. I mean, we

What I would say is for 2026, our expectation is probably somewhere in the $25 to $35 million range for EBITDA. So we do expect it to normalize into that $30 to $40 million range that we originally talked about over time, assuming that the conditions get back to kind of a mid-cycle type market.

Okay, great.

Appreciate the color there and appreciate the clarification as well, Bill. On my follow-up, I wanted to understand a little bit about farmer selling dynamics. Now, you said on the prepared comments there's still a lot of crops in storage, and I wanted to get your sense on what do you think drives more selling here? Is it more clarity in the RVO and sales? And do you have a sense as to kind of timing when that occurs, when farmers would be willing to be more commercial?

That's a good question.

What I would tell you is the easy answer is higher prices. And that's really what the farmer... is looking for today. You know, it's pretty widely documented on the economics at the farm gate. And so the farmer is going to hold off as long as they can. The payments that they are receiving this month will help them be able to go longer. before generating cash flow. So as we look at it, it's not as important to us when the timing is. For most or nearly all farmers, they will have to move a substantial portion prior to next year's harvest. You know, if a farmer has grain in store today and we don't see a sizable rally, They're going to want to make sure that the corn and beans that they're going to plant this spring are in the ground and have a good start to the growing season before we're going to see a substantial amount of selling, in our opinion. Again, a large rally in the price, similar to what we've seen in soybeans lately.

can change that forecast. Great. Appreciate the call and congrats again on the quarter.

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

Thanks, Dave. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Wednesday, May 6th at 8.30 a.m. Eastern Time when we will review our first quarter results.

As always, thank you for your interest in the Andersons, and we look forward to speaking with you again soon. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.