Alto Ingredients, Inc. Price & Performance (ALTO)

Please refer to the company's Safe Harbor statement on Slide two of the presentation available online, which states that some of the comments in this call constitute forward looking statements and considerations that involve risks and uncertainties. The actual future results of Alto Ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, risks and other factors previously and from time to time disclosed in Altra Ingredients filings with the SEC. Except as required by applicable law, the company assumes no obligation to any forward looking statements. In management's prepared remarks, non GAAP measures will be referenced. [indiscernible] uses these non GAAP measures to monitor the financial performance of operations and believes these measures will assist investors in assessing the company's performance for the periods reported. The company defines adjusted EBITDA as consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, unrealized derivative gains and losses, acquisition related expense and depreciation and amortization expense. To support the company's review of non GAAP information, a reconciling table was included in today's press Brian will provide a review of our strategic plan, and activities and Rob will comment on our financial results.

Brian will wrap up the call and open the call for questions. It's now my pleasure to introduce Brian Thank you, Kirsten.

Thank you all for joining us today. We have a lot to discuss what's gone well and what hasn't, what we've done about it so far and what we will be doing to make additional improvements to take advantage of our strengths and opportunities. I'll start with some highlights. In January, we leveraged a long term partnership to acquire a beverage grade liquid CO2 processing adjacent to our Columbia facility. Bolstering economics, and increasing asset valuation. This transaction will improve the top and bottom line results for our Columbia facility as well as create cost synergies and growth opportunities. Additionally, in the fourth quarter of twenty twenty four and again in the first quarter of twenty twenty five, we took action to rationalize our footprint and cut costs. While supporting customers and our goal of becoming a low cost producer. We'll discuss this further in a moment. But I will note that these actions and associated non cash impairments make up a material portion of the losses for Q4 and 2024 year end results. Lastly, as part of our ongoing efforts to maximize shareholder value, with the assistance of our financial and legal advisors, we are considering a broad range of options including asset sales, a merger or other strategic transactions to better align the long term value potential of the company.

Turning to our operational review. As fourth quarter market conditions proved challenging. And crush margins were down compared to the prior quarter and year as Rob will cover shortly. As mentioned, we have implemented the following cost saving initiatives. First, we called idled Magic Valley. To provide context, [indiscernible] 2022, we saw an opportunity to take advantage of premium prices in high quality protein and corn oil. Pursuing greater yield of high margin products, we installed and commissioned the high quality protein and corn oil technology. However, the installation took much longer and cost significantly more than expected. Further, we underestimated the negative impact of the build out of renewable diesel soy crush capacity would have on corn oil and protein market prices in the region. Compounded by the dramatic swing in delivered corn excuse me, delivered corn prices for Western operations in comparison to Midwestern facilities it became impossible to operate our Magic Valley plant profitably. By cold idling the facility and cutting our variable and fixed costs as much as We stopped the drag on unprofitable areas of our business. The fourth quarter, we took a significant impairment charge related to this plant. To partially offset remaining carrying expenses and to serve our customers in the area, we are opportunistically using Magic Valley as a renewable fuel Second, we rationalize illegal alcohol.

Since the acquisition, we have integrated Eagle Alcohol's high quality alcohol pulp operations and customers into our Paken and Kinergy Marketing business. With this reorganization, we reduced headcount at the Eagle Alcohol. Now we are focused on turning the remaining brake bulk warehousing and truck team operations into a profitable service center. Third, we implemented additional rightsizing opportunities. We aligned the company to our small operational smaller operational footprint while maintaining excellent customer support. During Q4 twenty twenty four and Q1 twenty twenty five, we streamlined staffing, reducing both COGS and SG and A. In aggregate, we expect to save approximately $8,000,000 annually which will improve our bottom line run rate and manage liquidity. We continue to evaluate initiatives to grow our high margin offerings. Unlocking unrealized value and improved efficiency. More specifically, the carbon markets continue to show promise And on 01/01/2025, we acquired Kodiak Carbonic, a beverage grade liquid CO2 processor for just over $7,000,000 in cash plus working capital. This processing facility renamed Alto Carbonic is located on the same property as our Columbia plant in Boardman, Oregon. And has been operating profitably since its first full year of operations in 2016. Alto Carbonic takes Bionic biogenic CO2 gas produced as a byproduct of the fermentation process at our Columbia plant and converts it into premium liquid CO2 The finished product is sold into the Northwestern Region Of The United States for use in food and beverage processing.

Industrial cooling, and other applications. The facility produces on average approximately 56,000 tons annually of liquid CO2 with the capacity to produce over 70,000 tons annually. This transaction, which included an amended long term sales offtake agreement, with a leading North American industrial gas supplier, was immediately accretive and has a compelling payback of approximately two years We have been integrating the plant with our Columbia facility improving coordination and collaboration between the operations. We expect to realize additional cost savings with synergies in production and overhead. We are also evaluating an opportunity to increase storage capacity to improve logistics and to take advantage of spot market premium liquid CO2 demand To add a finer point, this acquisition immediately stems the recent lack of profitability at the Columbia site provides a stronger financial foundation to overcome destination plant competitive challenges and significantly increases the value of these combined assets. At our peak in campus, we also continue to diligently pursue opportunities to optimize our CO2 which historically was considered only a waste stream with marginal value. In November, we achieved a milestone, finally finalizing our CO2 transportation and sequestration agreement with Vault. Partnership will be critical in our execution of carbon capture and storage or CCS, formal application for the EPA Class six permit.

Required to commence construction of a CCS pipeline and for long term CO2 storage in deep geological formations. The complexity in constructing operations to capture, transport and store CO2 requires significant development and planning work The EPA requires extensive site analysis, monitoring and safety measures to safeguard underground water supply Currently, the approval process is estimated to take at least two years. We anticipate this will allow the time necessary to address Illinois's current moratorium on new CO2 pipelines as part of the Safe CCS Act. Which is in effect until July 2026 or until revised federal safety standards are established, whichever comes first. While the CCS project timeline is slow, it is important to recognize the significant changes that have occurred in the CCS environment and the carbon regulatory and political markets during that time. Altel's deliberate pace has been advantageous as we navigate these changes and discover more effective and efficient options. The extended time required for regulatory approvals provides us the flexibility to lay the necessary infrastructure plans including compression and energy solutions, We also intend to use this time to secure financing. In addition, working with Vault, we are focused on meeting with local groups and authorities to educate the community about strengthen support and address concerns.

Regarding our ongoing business at our Pican Campus, we are proactively modifying operations to deliver the higher value products market demands During our biennial wet mill outage in May 2024, we were able to improve plant utilization. As a result, the wet mill has been operating at nameplate capacity of 100,000,000 gallons Q4 peak in campus production volume was up 3,800,000 gallons over the prior year, This 7% increase demonstrates the effectiveness of our maintenance program Carrying these improvements into 2025, expect to produce an additional 8,000,000 gallons for the year. Lowering our cost of production on a per gallon basis and providing an opportunity to produce a greater volume of specialty alcohols. [indiscernible] renewable fuel, over a year ago, we applied for ISCC certifications to allow us to ship qualified renewable fuel to the EU at a premium to our domestic alternatives. Both Alto ICP and Pecan We're ISCC certified in late summer. We began exporting certified product to Europe markets [indiscernible] in Q4 and anticipate expanding exports further in 2025. In premium specialty alcohol, certifications and customer relationships continue to be material differentiators. For 2024, we sold nearly 92,000,000 gallons of specialty alcohol, In 2025, our goal is to balance production levels between specialty alcohol and ISEC product to maximize margins and address customer needs.

Since our last call, we completed another ISO 9,001 audit And I can proudly state that there were no adverse findings. A testament to our culture of quality at Alta. Now I'll turn the call over to Rob Thanks, Brian. Before I discuss the quarter, I'd like to highlight the cost cutting steps we taken to strengthen our financial results. As Brian mentioned, we cold idled the Magic Valley facility rationalized our Eagle alcohol operations, and reduced our headcount by 16% to align with our smaller company footprint. In aggregate, our workforce reductions are expected to lower our annual costs by $7,800,000 The savings are split 74% in cost of goods sold and 26% in SG and A. We expect to realize the full financial benefit beginning in Q2. These are meaningful reductions. To put it into perspective, if we applied these measures retroactively to 2024, all other things being equal, adjusted EBITDA would have been positive for the year. Now, I'll review the financial results for the fourth quarter of twenty twenty four compared to the fourth quarter of twenty twenty three. We sold 95,100,000 gallons up from 92,500,000 gallons during Q4 twenty twenty three. Reflecting production improvements, [indiscernible] from our planned repairs and maintenance program.

However, our sales price per gallon averaged 1.88 in Q4 twenty twenty four, compared to $2.24 in Q4 twenty twenty three. These lower market prices reduced net sales by $38,000,000 for the same quarter year over year. The market crush margin declined nearly $0.18 resulting in an $8,700,000 net adverse impact to gross profit. In addition, our protein returns were negatively impacted by the expanded soy crush to meet renewable diesel demand. Higher wet feed product mix and the inability of a key customer to take deliveries following Hurricane Helene. While low carbon fuel credit prices were also down compared to a year ago, they improved from Q3 twenty twenty four and are recovering from their market lows. I'll review factors that impacted our our COGS in Q4 twenty twenty four. Our realized derivative losses which are included in adjusted EBITDA, were $1,200,000 greater than the same quarter in 2023 at $3,500,000 compared to $2,300,000 Our unrealized derivative gains which are excluded from adjusted EBITDA, were positive $5,500,000 compared to a loss of $8,200,000 resulting in a $13,700,000 positive swing year over year. Our non cash lower cost or market adjustment on physical inventories and the mark to market on corn commitments resulted in a $3,500,000 reserve and was $1,300,000 more negative a year ago.

A result, total gross loss was $1,400,000 improving from a gross loss of $2,500,000 in Q4 twenty twenty three In Q4 twenty twenty four, we recognized final Eagle alcohol acquisition related expenses of $5,700,000 of which $5,000,000 was non cash compared to $700,000 in Q4 of twenty twenty three. Q4 twenty twenty four asset impairments were $24,800,000 This consists of $21,400,000 for the cold idling of our Magic Valley plant and $3,400,000 on intangibles, related to the integration of certain Eagle alcohol activities. This compares to $6,000,000 related to goodwill as associated with Eagle alcohol in Q4 twenty twenty three. Our consolidated net loss $41,700,000 including the $30,500,000 in asset impairments and acquisition related expenses compared to a net loss of $18,900,000 including net expenses of $6,700,000 in asset impairments, acquisition related expenses and the USDA grant in Q4 twenty twenty three. Adjusted EBITDA was negative $7,700,000 including the $3,500,000 in realized losses on derivatives for Q4 twenty twenty four. This compares to positive $3,500,000 including $2,300,000 in realized losses on derivatives in Q4 twenty twenty three. As you will recall, the best way to determine the derivative value or obligation to be realized in the future measured as of a specific date is to note the amounts on our balance sheet.

The net derivative asset or liability reflects what Alto would realize if we liquidated all of our positions as of that specific period end date. For 12/31/2024, our derivative net asset position was $2,100,000 As of December 31, our cash balance was $35,000,000 and our total loan borrowing availability was $88,000,000 including $23,000,000 under our operating line of credit and $65,000,000 subject to certain conditions under our term loan facility. We used $3,500,000 in cash flow from operations in 2024. We invested $11,100,000 in CapEx in 2024. We recorded $34,600,000 in repairs and maintenance expense in line with our 2024 estimate. In summary, our restructuring has improved the company's financial position We realized over $30,000,000 in asset impairments and prior acquisition related expenses. Resetting our base. We also reduced our expense run rate by $8,000,000 annually. Combined with our improved performance at the Peak And Wet Mill, our synergistic acquisition of premium liquid CO2 processing and our entry into the European market we are optimistic about 2025. I'll turn the call back to Brian. Thank you, Rob. In summary, every day we are focused on exceeding customer expectations. In the services we provide and products we sell, as well as maximizing the value of our specialty alcohol and essential ingredients.

Our recent acquisition of Alto Carbonics bolsters economics and increases asset valuation of the Columbia facility. Our reorganization improves profitability on a more sustainable consistent basis and reinforces our commitment to create long term shareholder value. [indiscernible] Operator, are ready to begin Q and A with sell side analysts.

Thank you. First question comes from Samir Joshi with AT and T. Wainwright. Please go ahead.

Hey, good afternoon, Brian, Rob. Thanks for taking my questions. Hi, Sameer. About the Carbonic acquisition, How are you planning to balance the carbon sequestration versus the carbon like getting the carbon dioxide for the beverage industry, like is there some strategy on that So while there may be opportunities for carbon sequestration in the Pacific Northwest, It's not as readily apparent or prevalent as it is in our Paken location. And this is and the Carbonic Structure And Arrangement Is Clearly Beneficial For Us. Particularly Over The Over The More Lengthy Period Of Time Under Contract. Situation Is Interesting And Unique In The Pacific Northwest. There's not a lot of supply of CO2, particularly if you look and even along the Pacific Coast, as you've seen a reduction significantly in the amount of CO2 produced at refineries and the like. So it's a unique market and most of the product comes into that region is under a long haul. Transportation, which is not efficient. So it puts that facility to be very unique position to be able to take advantage of of the needs that are in and the market demands in that area. So this by far is is probably the most productive exercise in use of the CO2 at the moment.

Understood. Is this site certified for or does it qualify for the 45 Q incentives already or is there some more work needed to be done to [indiscernible] in order?

It's very close. It's very close. I mean, there's clearly still work that needs to be done on 45Z. But if you look at the overall score of Columbia facility, it's within striking distance of that requirement. So it's certainly something that we're going to be focusing on. We'll provide you more information as those rules become codified and we can we can be clear about the opportunity.

Understood. And then for the specialty ingredient or high value alcohol I know you said 92,000,000 gallons in '19 in 2024. Also, you have the EU, it export option. Do you know or do you have an estimate of how much of this will be sent to EU versus here? And how does that ratio impact pricing and profitability on this front?

So because of the The nature of the product, it actually captures a premium and it depends clearly on what one price for the EU as a whole. Each country and each location has its requirements So it's not just an easy layup. That said, it's think about this as a displacement of what otherwise would be sold domestically as [indiscernible] So it's not necessarily a displacement of or a use of our high quality product, And we still our goal is to continue to achieve the high volumes that we been able to do. But it is around if you look at the flexibility that's provided by an outlook our location in Beacon, our ability to shift between [indiscernible] and be able to take advantage of Market improvements and conditions, it's it provides a great opportunity for us to be able to to optimize profitability in that in that area or at least revenues in that section. [indiscernible] [indiscernible] Understood. And then last one, the asset sale versus merger, or other strategic options How far along are these discussions? Have you identified any particular asset that is initially targeted to be divested or are you talking to us? Like, I just want just to get an idea of where the discussion is on that front?

Yes. So it's a great question. It's not really productive for us to talk about M and A opportunities and activities. But I want to be clear that we're considering all options and as a part of our ongoing efforts to maximize shareholder value. [indiscernible] and to better align our long term value potential of the company. So we'll provide updates effectively when they occur. Fair, fair. Thanks for taking my questions, Glenn.

You bet.

The next question comes from Eric Stine with Craig Hallum. Please go ahead. Hi, Brian. Hi, Rob.

Hello.

Hello. Could we just go back to Pekin in the CCUS? I know you're you're juggling a lot of things. You're juggling the link of time it takes for the EPA permit, moratorium in Illinois, Just trying to think, so you've got you expect that to take two years. So that gets you to early twenty twenty seven. In that timeframe, you're looking to get financing. Then just thinking about, all right, if you were to then give the green light to the project, remind us how long it would take for that project to be constructed? And what timeline we're looking for where this could start to contribute to results? Is it 2029 or 02/1930 or is it potentially sooner than that?

Yes. It's a great question, Eric, and it's I guess a little reluctant to give you a specific date I would say however is if you it depends largely on what kind of technology you're using. As well, your compression technology, things like that. So, and the [indiscernible] the queue that you may have to line up depending on which technology you want to apply for That said, If you think about the to do again your math, it puts you into just for your Class six permit approval if EPA sticks with their Commitment which was two years. Right? And we all know challenging or the things that EPA is having to deal with right now [indiscernible] and the number of items in their queue. That said, if we went with that, You would expect that I can't speak to the queue, but you would would the line and this the backup line with regards to the technology. Let's say it's another one to two years, let's be generous and say two years. That puts you what in 2029? 02/1930? Okay. Got it. So just checking if that if And you may be able to accelerate Right. And Eric, you may be able to accelerate.

If there's a change in people who put down payments, on piping and everything else, you've got a green light. There may be opportunities to take advantage of that where others may not. That could be expedited Significantly. [indiscernible] again, there's a lot of factors that are going into this. But our eyes on the ball on that and very focused and have a good partner pursuing this and trying to accelerate as quickly as we can. Maybe just turning to the Columbia plant, you mentioned that had you not made the acquisition, you would have looked to potentially cold idle that plant as well. I mean, it sounds like now with that acquisition in place, that's off the table, but I mean, what was the thought process there based on market conditions? Yes, I'll take that one. As we talked about in the past, Both of our Western assets were particularly challenged due to regional issues, particularly higher corn basis the smaller size of their facilities. And ultimately, the efforts that we put forth at Majid Ali was the the high protein and corn oil technology wasn't enough to overcome those regional challenges. Particularly accounting for the to the impact that the additional soy crush had on both carbon and corn oil and protein prices.

So that led ultimately to our decision to coal idle them in Q4 because we just couldn't overcome that, at least not at this time. But fortunately, with Colombia, they were well positioned and we were able to leverage the relationship that we have to acquire this CO2 processing facility. And that does that's essentially a game changer for this site.

I want to be clear about that. It is a very interesting acquisition that has a very accretive payback the fact that there's an expanded opportunity to increase the business in the CO2 area. I mean right now we're processing through that facility about 55,000 tons per year.

But as with the current capacity to go closer to 70,000 And we're only using maybe half of the Columbia facility's CO2 waste gas. Got it. Okay. No, it makes total sense. Maybe last one for me, you mentioned Magic Valley. I'm just curious, with that cold idled, I know you were going through the process of potentially going back to [indiscernible] and whether it was for damages or figuring out best path forward, how does I mean does this impact that process at all, change maybe what we should think the results might be? I think generally, no, Eric. I think that we've evaluated. It doesn't mean that we've bought pursue what we can with regards to addressing issues outside of the plant itself and with technology providers and like. That said, decided and taken actions that we needed to do in order to stem the losses and to And basically to put that facility into place, until there's an opportunity to realize more of that value. And whether that occurs through an asset sale or other unique opportunities that there's significant change in the market and things, but for right now, the facility is idle and and the staffing adjustments have been Significantly.

Adjusted as well there. So we're running that as a terminal as we said in our and it's offsetting it's beneficial in that regard because it's offset some of the fixed costs that you would otherwise have to carry. Got it. Even with the non big plan. Yes. Okay. Thanks for that.

This concludes the question and answer session. I would like to turn the conference back over to Brian McGregor for any closing remarks. Please go ahead.

Thank you, operator, and thanks again, everyone, for joining us today. On a final note, we will be participating in the thirty seventh Annual ROTH Conference later this month. And look forward to seeing those in attendance. We appreciate your ongoing feedback and your support. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [indiscernible] [indiscernible]