SOUTH DAKOTA SOYBEAN PROCESSORS LLC

Previous wording

The information in this quarterly report on Form 10-Q for the three-month period ended March 31, 2024, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the financial statements and Annual Report on Form 10-K for the year ended December 31, 2023. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2023.

Current wording

The information in this quarterly report on Form 10-Q for the six-month period ended June 30, 2024, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the financial statements and Annual Report on Form 10-K for the year ended December 31, 2023. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2023.

Previous wording

The construction of High Plains Processing, LLC's multi-seed plant near Mitchell, South Dakota, in which we have invested through our subsidiary, High Plains Partners, LLC, is progressing steadily. A mild winter has allowed us to stay on track with our construction schedule and kept winter-related expenses at a minimum. A large portion of the concrete is now in place, and steel and equipment shipments have been arriving over the past few months. If all goes according to plan, the plant's structures should start being built in the next few weeks, with anticipated start-up of the facility in the fall of 2025.

Current wording

The construction of High Plains Processing, LLC's multi-seed plant near Mitchell, South Dakota, in which we have invested through our subsidiary, High Plains Partners, LLC, is progressing steadily. The project remains on schedule as we continue to focus construction on the key process buildings including prep, extraction, refining, and utility. Equipment deliveries have also kept pace with construction, giving us more confidence of achieving the anticipated start-up of the facility in the fall of 2025.

Previous wording

Revenue – Revenue decreased by $23.7 million, or 13.8%, for the three-month period ended March 31, 2024, compared to the same period in 2023 due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 14.1% during the three months ended March 31, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically during the first quarter as refining margins for biodiesel and renewable diesel producers came under pressure from overproduction, thus causing slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives than soybean oil. Average soybean meal prices declined by 14.1% from 2023, being adversely affected by the return of Argentine processors to the global export market after a severe drought in 2023 shifted the export market to the U.S. from which we benefited.

Current wording

Revenue – Revenue decreased by $35.2 million, or 19.0%, for the three months ended June 30, 2024, compared to the same period in 2023 due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 18.7% during the three months ended June 30, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically in 2024 as refining margins for biodiesel and renewable diesel producers came under pressure from overproduction, thus leading to production slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Average soybean meal prices declined by 15.3% from 2023 following the return of Argentine processors to the global export market. In 2023, the soybean meal export market shifted to the U.S. from Argentina because of a severe drought in Argentina and from which we benefited.

Previous wording

Gross Profit/Loss – Gross profit decreased by $17.3 million, or 70.2%, for the three months ended March 31, 2024, compared to the same period in 2023. The decrease was mainly due to declining board crush margins, which were caused by a decrease in demand for soybean oil and an increase in global soybean meal supply which negatively affected U.S. export sales including ours.

Current wording

Gross Profit/Loss – Gross profit decreased by $3.6 million, or 29.6%, for the three months ended June 30, 2024, compared to the same period in 2023. The decrease was mainly due to declining board crush margins, which were caused by a decrease in demand for soybean oil and an increase in global soybean meal supply which negatively affected U.S. export sales including ours.

Previous wording

Interest Expense – Interest expense increased by $0.5 million, or 58.0%, during the three months ended March 31, 2024, compared to the same period in 2023. The increase in interest expense was due to a $13.7 million increase in borrowings from our lines of credit with our senior lender, CoBank. The average debt level was $74.0 million during the three months ended March 31, 2024, compared to $60.3 million during the same period in 2023. Debt levels increased mainly to fund our committed investment into High Plains Processing's plant through our subsidiary, High Plains Partners.

Current wording

Interest Expense – Interest expense increased by $862,000, or 81.5%, during the three months ended June 30, 2024, compared to the same period in 2023. The increase in interest expense was due to a $34.1 million increase in borrowings from our lines of credit with our senior lender, CoBank. The average debt level was $90.3 million during the three months ended June 30, 2024, compared to $56.2 million during the same period in 2023. Debt levels increased mainly to fund our committed investment into the High Plains Processing's plant through our subsidiary, High Plains Partners.

Previous wording

Net Income/Loss – During the three-month period ended March 31, 2024, we generated a net income of $5.5 million, compared to $22.7 million for the same period in 2023. The $17.3 million decrease was primarily attributable to decreased gross margins.

Current wording

Net Income/Loss – During the three-month period ended June 30, 2024, we generated a net income of $6.0 million compared to $9.7 million for the same period in 2023. The $3.7 million decrease was primarily attributable to decreased gross margins.

Previous wording

Our net income during the first quarter of 2024 was $5.5 million, compared to $22.7 million during the same period in 2023. In the first quarter of 2024, soybean processing margins decreased from above-average levels in 2023 due to several factors. Soybean oil demand from the energy sector declined sharply as refining margins for biodiesel and renewable diesel producers came under pressure due to overproduction and forced slowdowns at some production locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Another contributing factor was the anticipated rebound in Argentine soybean production and processing. Last year’s drought in Argentina reduced available the soybean supply to Argentine processors, thus shifting meal demand to the U.S. and keeping our margins elevated in 2023. So far in 2024, however, ample soybean supply is expected in Argentina due to improved weather and Argentine processors are aggressively offering products into the global export markets.

Current wording

Revenue – Revenue decreased by $58.9 million, or 16.5%, for the six-month period ended June 30, 2024, compared to the same period in 2023 due to a decrease in the average sales price of soybean products. The average price of soybean oil decreased 20.2% during the six months ended June 30, 2024, compared to the same period in 2023, due to a decrease in demand. Soybean oil demand from the energy sector dropped dramatically during in 2024 as refining margins for biodiesel and renewable diesel producers came under pressure from overproduction, thus leading to production slowdowns at some locations. In addition, imports of used cooking oil and other feedstocks flooded the market with lower-priced alternatives to soybean oil. Average soybean meal prices declined by 14.7% from 2023 following the return of Argentine processors to the global export market after a severe drought in Argentina in 2023.

Previous wording

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $56,000, or 3.6%, during the three-month period ended March 31, 2024, compared to the same period in 2023. The increase was primarily due to increased professional and related costs associated with the start-up of High Plains Processing's plant.

Current wording

Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $149,000, or 5.0%, during the six-month period ended June 30, 2024, compared to the same period in 2023. The increase was primarily due to increased professional and related costs associated with the start-up of the High Plains Processing's plant.

Previous wording

Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $1.2 million during the three-month period ended March 31, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $1.2 million increase in interest income which we received from the deposit of investment proceeds received by a subsidiary in connection with its equity financing.

Current wording

Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $2.7 million during the six-month period ended June 30, 2024, compared to the same period in 2023. The increase in other non-operating income was due to a $2.8 million increase in interest income which we received from the deposit of investment proceeds received by our subsidiaries, High Plains Partners and HPP SD Holdings, in connection with their equity financing.

Previous wording

Our primary sources of liquidity are cash provided by operations and borrowings under our two revolving lines of credit which are discussed below under “Indebtedness.” On March 31, 2024, we had working capital, defined as current assets less current liabilities, of approximately $151.2 million, compared to $53.6 million on March 31, 2023. Working capital increased between periods primarily due to investment proceeds raised by our consolidated subsidiaries, High Plains Partners, LLC and HPP SD Holdings, LLC, in connection with their equity financing, which were subsequently contributed to High Plains Processing, LLC for the construction and development of the new oilseed crush facility near Mitchell, South Dakota. We acquired a majority ownership in High Plains Partners in exchange for contributing to High Plain Partners cash, property, and various construction and development rights for the project. High Plains Partners, in turn, has contributed the cash, property, and rights to High Plains Partners' subsidiary, HPP SD Holdings, which owns the Mitchell plant through its wholly-owned subsidiary, High Plains Processing.

Current wording

Our primary sources of liquidity are cash provided by operations and borrowings under our two revolving lines of credit which are discussed below under “Indebtedness.” On June 30, 2024, we had working capital, defined as current assets less current liabilities, of approximately $107.8 million, compared to $53.6 million on June 30, 2023. Working capital increased between periods primarily due to investment proceeds raised by our consolidated subsidiaries, High Plains Partners, LLC and HPP SD Holdings, LLC, in connection with their equity financing, which were subsequently contributed to High Plains Processing, LLC for the construction and development of the new oilseed crush facility near Mitchell, South Dakota. We acquired a majority ownership in High Plains Partners in exchange for contributing cash, property, and various construction and development rights for the project. High Plains Partners, in turn, contributed the cash, property, and rights to High Plains Partners' subsidiary, HPP SD Holdings, which owns the Mitchell plant through its wholly-owned subsidiary, High Plains Processing.

Previous wording

The $16.2 million increase in cash flows used for operating activities was largely due to a $17.3 million decrease in net income and a $16.5 million change in inventory. During the three-month period ended March 31, 2024, our inventories increased by $9.9 million, compared to a $6.6 million decrease during the same period in 2023. Partially offsetting changes in inventory and margin deposits, was a $9.7 million change in accrued commodity purchases. Accrued commodity purchases decreased by $28.2 million during the three months ended March 31, 2024, compared to $37.9 million in 2023.

Current wording

The $21.8 million decrease in cash flows from (used for) operating activities was largely due to a $19.7 million decrease in net income.

Previous wording

The $15.8 million increase in cash flows used for investing activities during the three-month period ended March 31, 2024, compared to the same period in 2023, was due to a $15.3 million increase in expenditures for purchases of various property and equipment that were largely made for the construction and development of the Mitchell facility. During the three months ended March 31, 2024, we spent $22.8 million on purchases of property and equipment, compared to $7.5 million during the same period in 2023.

Current wording

The $49.5 million increase in cash flows used for investing activities during the six-month period ended June 30, 2024, compared to the same period in 2023, was due to a $65.1 million increase in expenditures for purchases of various property and equipment made for the construction and development of the Mitchell facility. During the six months ended June 30, 2024, we spent $70.0 million on purchases of property and equipment, compared to $4.9 million during the same period in 2023.

Previous wording

The $94.4 million increase in cash flows provided by financing activities was principally due to a $57.5 million increase in investment proceeds received and a $46.7 million increase in net proceeds on borrowings. During the three months ended March 31, 2024, our subsidiaries, High Plains Partners and HPP SD Holdings, received $57.5 million in investment proceeds in connection with their equity financing, which were subsequently contributed to High Plains Processing for the construction and development of the new crush facility. Net proceeds on borrowings increased by $110.1 million during the three months ended March 31, 2024, compared to $63.4 million during the same period in 2023. Partially offsetting the increase is a $3.0 million increase in cash distributions to our members during the three-month period ended March 31, 2024, compared to the same period in 2022.

Current wording

The $97.5 million increase in cash flows provided by financing activities was principally due to a $57.5 million increase in investment proceeds received and a $48.8 million increase in net proceeds on borrowings. During the six months ended June 30, 2024, our subsidiaries, High Plains Partners and HPP SD Holdings, received $57.5 million in investment proceeds in connection with their equity financing, which were subsequently contributed to High Plains Processing for the construction and development of the new crush facility. Net proceeds on borrowings increased by $88.2 million during the six months ended June 30, 2024, compared to $39.4 million during the same period in 2023. Partially offsetting the increase was a $3.0 million increase in cash distributions to our members during the six-month period ended June 30, 2024, compared to the same period in 2023.

Previous wording

We hold three lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under this loan, we may borrow funds, as needed, up to the credit line maximum, or $12.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. The available credit line decreases by $0.6 million every six months until the credit line’s maturity on March 20, 2028, at which time a balloon payment for the remaining balance is due. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $10.8 million and $0.0 million as of March 31, 2024 and

Current wording

We hold three lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under this loan, we may borrow funds, as needed, up to the credit line maximum, or $12.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. The available credit line decreases by $0.6 million every six months until the credit line’s maturity on March 20, 2028, at which time a balloon payment for the remaining balance is due. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $10.8 million and $0.0 million as of June 30, 2024 and December 31, 2023, respectively. Under this loan, there were no additional funds available to borrow as of June 30, 2024.

Previous wording

The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance our operating needs. We may borrow up to $85.0 million until the loan's maturity on October 1, 2024. We pay a 0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of March 31, 2024 and December 31, 2023, the principal balance outstanding on this credit line was $54.3 million and $0.0 million, respectively, allowing us to borrow an additional $30.7 million as of March 31, 2024.

Current wording

0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of June 30, 2024 and December 31, 2023, the principal balance outstanding on this credit line was $32.4 million and $0, respectively, allowing us to borrow an additional $52.6 million as of June 30, 2024.