Q1 2021 Alto Ingredients Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Alto ingredients incorporated first quarter 2021 financial results.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
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I'd now like to hand, the conference over to your speaker today Moriah Shilton.
Please go ahead.
Thank you Elaine and thank you all for joining us today for the Alto ingredients first quarter 2021 results conference call.
On the call today are Mike and rich CEO and Bryon Mcgregor CFO.
Mike will begin with a review of business highlights.
Brian will provide a summary of the financial and operational results.
And then Mike will return to discuss alto ingredients outlook and open the call for questions.
I'll turn ingredients issued a press release after the market closed today, providing details of the company's quarterly results.
The company also prepared a presentation for todays call that is available on the Companys website at Alto ingredients dotcom.
A telephone replay of today's call will be available through may 19th the details of which are included in today's earnings press release.
A webcast replay will also be available at alto ingredients website.
Please note that the information and this call speaks only as of today May 12.
You are advised that time sensitive information may no longer be accurate at the time of any replay.
Please refer to the Companys Safe Harbor statement on slide two of the presentation available online.
Which states that some of the comments on this presentation constitute forward looking statements and considerations that are on.
A number of 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 events risks and other factors previously and from time to time disclosed and alto ingredients filings with the SEC.
Except as required by applicable law the company assumes no obligation to update any forward looking statements.
And management's prepared remarks, non-GAAP measures will be referenced.
Management uses these non-GAAP measures to monitor the financial performance of operations and believes these measures will assist investors and assessing the company's performance for the periods being reported.
The company defines adjusted EBITDA as unaudited net income or loss attributed to autos ingredients before interest expense provision or benefit for income taxes.
Asset impairments and loss on extinguishment of debt purchase accounting adjustments, and I'd, probably adjustments and depreciation and amortization expense.
To support the company's review of non-GAAP information later in this call reconciling table was included in today's press release.
It is now my pleasure to introduce Mike Kendrick CEO Mike.
Thank you Maria and thank you everyone for joining US today, we had a solid first quarter to start the year as we saw 19 million gallons and specialty alcohol through a combination of contracted volumes spot sales and exports. It also was our fourth consecutive quarter on gross.
Profit and positive adjusted EBITDA, reflecting the benefits and focusing on our strengths and sell.
And specialty alcohols.
And the essential ingredients and this is a more sustainable and profitable business model and fuel grade ethanol alone.
We generated net income of $4 $4 million and adjusted EBITDA of $13 $6 million. These results represent an approximate $30 million improvement and net income year over year and further testament to the benefit of our transformation efforts.
We remain on track for our specialty alcohol contracted sales to contribute and minimum $60 million and gross profit for 2021, and we remain optimistic for adding additional contracted specialty alcohol volumes and 2022 and beyond thereby.
Improving utilization over time from our expanded production capacity and enhanced certifications.
As we announced on April 28, we have signed a definitive agreement with Seaboard energy, California to sell our fuel grade ethanol production facility and Madera for a total consideration of $28 $3 million. We expect the sale of this 40 million gallon per year.
And <unk> to close and the second quarter of 2021, and most of the cash proceeds will be used to retire company debt.
And this will save approximately $700000 per quarter and interest expense and an additional $400000 per quarter and negative EBITDA carrying cost for this idle facility.
We are on track on our $18 million and announced capital improvement projects and 2021 that are expected to expand revenue and increased efficiencies and plant reliability. One example is a project underway that will increase the annual production capacity of our east facility by approximately.
<unk>, 15% and another example is our project to upgrade the feed dryers and our pekin facility to produce even higher value feed in addition to improving overall plant efficiency and reliability. These.
These two projects alone are scheduled to be completed and fully operational on or before the end of Q3 and are expected to contribute approximately $5 million annually and EBITDA.
Back and less than two years.
Turning to a topic that is top of mind for many of our investors the role carbon capture and sequestration can have on the de carbonization of urban environment.
And as we discussed on our last call Alto will be and active player and the carbon capture space as our peak and campus sits atop the mountain Simon sandstone formation considered to be one of the most significant potential carbon storage resources and the United States. We are actively engaged.
Aged and discussions to develop a carbon capture and sequestration program at the peak and site, which generate over 600000 tons of Cotwo annually.
We look forward to sharing more information over the next few quarters regarding this uniquely profitable opportunity for the company.
And finally worth noting among many other projects under development. It is our plan to expand protein production and our dry mill facilities, representing 250 million gallons of annual alcohol production. While it is too early to provide specific details we believe the echo.
<unk> are compelling and we will provide greater details on these projects over the coming months once contractual arrangements are finalized.
With that I'd now like to turn the call over to Brian for a discussion of our financials Bryan.
Thank you Mike all.
Ill discuss a few financial highlights and metrics from the first quarter 2021.
And provide an update on our expectations on certain metrics for the year.
For the first quarter of 2021, net sales were $219 million compared to $169 million and the fourth quarter.
Due to increased gallon sold and increased sales price per gallon.
This is also attributable to having a full quarter of production at our peak and dry mill.
With the price per gallon sold up 13% compared to last quarter in line with rising commodity prices.
We sold $58 million.
Production gallons and the first quarter of which 19 million gallons were specialty alcohols.
Up 3 million gallons sequentially over last quarter's results.
Gross profit was $13 $8 million relatively flat compared to the $13 6 million last quarter.
The improvement and sales of specialty alcohol was in part negatively impacted by the seasonally poor fuel grade ethanol crush margin early and the first quarter and the extreme weather conditions adversely impacting natural gas prices.
As noted on our prior earnings call, we have seen improvement and fuel ethanol margins as industry inventories have declined and fuel demand has increased and our dry mills are operating and positive margins.
As a reminder, the $60 million and gross profit contribution from the sale and specialty alcohols, Mike referred to earlier and is based in part.
On the 70 million gallons and we're contracted.
And the fall of 2020 these.
And these gallons were contracted for the entire calendar year of 2021 and fixed volumes and prices concur.
Concurrently we hedged.
Major input costs like corn at the then prevailing market prices to preserve the associated margins and minimizing impact on future commodity price volatility.
Similarly, as we negotiate new fixed price contracts and terms will reflect and current market conditions and commodity prices that we will hedge at the time of assignment.
SG&A expenses and the quarter was $7 million generally in line with last quarter, but slightly inflated due to normal seasonally high expenses.
And we remain on track with our guidance of 20% to $25 million for the full year of 2021.
Our initial and or excuse me our interest expense for the first quarter was $1 $9 million.
50% lower than the $3 $8 million, we paid and the fourth quarter of 2020.
And a 64% reduction from the same quarter last year as we continue to pay down high interest rate debt.
And the first quarter, we repaid $5 $5 million and principal on our senior notes and $3 million on our co bank credit facilities and.
In the past 12 months, we have paid off $120 million of high interest debt successfully removing 72% of the total debt. We had entered we had entering that time period.
We are on track to be net debt free and 2021.
Income available to common shareholders was $4 4 million or <unk> <unk> per diluted share.
Impaired to a loss of $25 million or <unk> 30 per share and the fourth quarter.
The fourth and first quarters included impairment charges of $24 4 million and $1 $2 million, respectively associated with our western assets and their transition to assets held for sale on the balance sheet.
Turning to our balance sheet on March 31, 2021, our cash and cash equivalents were $44 1 million.
Compared to $47 $7 million.
December 31 2020.
After quarter, and we announced the pending sale of our Madera plant for a total consideration of $28 $3 million.
Comprised of 19 <unk>.
$5 million, and cash and $8 $8 million and assumption of liabilities.
Upon closing the sale we anticipate.
Using our debt outstanding by approximately $18 $5 million, bringing.
Bringing our remaining term and planned debt loan balances to under $30 million.
Proceeds from future asset sales will be used to further retire debt bolstered liquidity and fund needed capital projects and.
In summary, we are building our balance sheet and support not only current liquidity needs to various commodity cycles, but also to address future capital improvement and growth opportunity funding needs.
Mike back to you.
Thank you Brian over the past 12 months, we have improved operations optimized our production footprint and reduced controllable expenses and our overall cost of capital Thus building a strong platform for the future.
This platform provides us the ability to aggressively pursue opportunities organically to reinvest and quality proven high value projects as well as pursue accretive strategic M&A opportunities.
We are grateful to all our employees for the efforts they have undertaken to put us in a position of strength as we look to the future with this operator I would like to open the lines for questions.
And at this time.
And as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Yes.
And your first question comes from Eric Stine from Craig Hallum.
Hey, good afternoon, and Aaron's for hall on for Eric Thanks for taking the questions.
And I Erin.
Hello, and maybe first you know and.
And then you said you're on track contract and the remaining 50% of the specialty alcohol, but can you just give a little more detail on kind of the progress there and if youre seeing any pricing pressures and then maybe also talk a little bit about the two recent certifications and.
And.
And whether that kind of spot or contract and just the outlook for international sales as well.
Sure and as Brian I'll take the first part and let Mike handle the second part.
We.
We remain on track and.
And selling those.
And those gallons, but it's important to note as well that we view this as a long play right.
While we would love to and we certainly are working diligently to be able to sell all 140 million gallons, particularly into 2020 contract for that those gallons in 2022 and beyond.
And would be I think and aggressive assumption on most people's part to assume that we can play on place all of that product.
<unk>, but that we expect with the certifications and Mike will speak more about to be able to do so effectively over the coming years, particularly as you look at just the on boarding and.
Diligent processes that our customers go through in order to be able to buy the products.
With regards to certifications Mike.
Yes, so ed.
And as you've mentioned era, and we have and.
Now that we have.
And additional certifications I think the key here is that during the process that they share that kind of goes back to what the the first part of your question was how do you get yourself and a position too.
B and.
B setup going into 2022 and beyond and one of the things that we saw.
Early on was getting the certifications getting qualified with customers and.
And starting the conversations with customers early is incredibly important and we're working very hard at that as we go through the year, even though the contracting cycle. Typically is in Q4. There is a lot of work that gets done ahead of time, we've been very fortunate and a lot of our very good.
Customers have worked with us and tab.
Guided us.
Through what is important for them and what we need to do to increase our business with them. So again, it's a process as Brian said certifications are extremely important and not only domestically, but internationally and thats, where our focus is right now.
Understood. Thanks for the color.
And second on corn and kind of just basis there given given recent developments I know you talked a little bit about the hedging on.
On the alcohol portion, but just on the fuel grade can you just talk a little bit about both that kind of what youre seeing maybe kind of <unk> near term thoughts on just corn and then he hedges and just basis as well.
Sure. So I think it's important to remember that.
And while there are opportunities at times to be able to lock in.
<unk>, even on the fuel business and we will take advantage of those opportunities as they present themselves, but generally speaking what we have found historically is that where you're pricing your product on an index basis net is highly speculative and.
And usually non.
Not.
At your most profitable place to be locking and your spreads.
On that product because of the inverted nature of <unk>.
<unk> prices and the carry on as and corn this year.
Kind of backwards right, we perform <unk> got an inversion and both corn and ethanol. So there are at times windows of opportunity to be able to lock in one or two months out and Thats all positive.
But I would generally say that it is our intent.
Or are the products that we sell on index to be and the nearby and so youre not pricing corn and.
Tell you effectively are grinding it and selling it.
Okay.
And then maybe last on carbon capture.
Stay tuned for details on peak and but just curious your thoughts on kind of Stockton and the developments and that market as well.
As.
Any color you can provide there on potential carbon capture would be helpful.
Yeah well.
We have publicly announced that we're.
Pursuing a potential sale of the Stockton facility.
And again.
You have to pick your spots and.
And.
That is our goal right now is to is to sell that facility and take the resources to further pay down debt and use those proceeds to.
Pursue whether other opportunities peak and as such a.
Fantastic carbon capture story, and we're getting a lot of interest there and we're just trying to sort through what is the best opportunity for us going forward and again like we mentioned will we will definitely keep everybody.
Up to speed as we go through that process, but right now our focus primarily on carbon capture is.
At Pekin and again, we are pursuing a sale of the Stockton facility.
Alright, thanks for taking the questions.
Thanks, Brian.
And you have a question from Amit Dayal and Steve anyway.
Thank you we'll have some growth.
Hi, Matt.
So we wouldn't capture opportunity is there any specific technology that we need to lose a little.
Dwell up on.
And you know just trying to get a sense of like what will go into.
Executing against.
Building on this business segment.
I don't know that there's any specific.
Newfangled technology that needs to be used I mean, this is a technology that's used for years and years and enhanced oil recovery and alike, I think that but what it does requires and is clearly a significant capital.
Requirement to be able to not only to begin with test wells and develop the resource make sure that <unk> got a secure resource.
But then largely pumps and compression and then and then and maybe pipelines and to the extent that it makes sense on the gathering system to be able to gather that product before you inject so while it has a significant capital.
Requirement associated with it and re.
Acquires its model, it's not a six month project.
And year project that being said the.
The economics are equally compelling.
Okay.
Alright, and I will take one of the questions on this ethylene.
And then just going through the gross margin or gross profit comments Mike.
The $60 million number is that specifically attributed to the specialty alcohol lane business and gross profit. Yes. It is yes. It is yes that is specifically addressing the contractual $70 million.
And that we talked about initially.
Thank you for that.
And with respect to sort of utilization levels and Brian could you maybe share what utilization levels and learn from <unk> and what you expect.
And that was to be.
On the remainder of the year.
So I mean, just a clarifying question are you looking for overall <unk>.
Utilization across the entire.
Portfolio or are you looking specifically towards specialty alcohols.
And sugar and break it out Brian that would actually be value.
Huntsville.
And if you have that just not the overall number.
And as well.
I think that it's the numbers that we've shown and our reported numbers are pretty consistent.
A good target for you.
As you model out the remainder of the year with regards to specialty alcohols.
Not to be.
<unk> tried but.
Yes.
If you do the math you are looking at.
Based on our contracted volumes Youre looking at 50% and so we want we definitely expect to be above 50%.
As I mentioned earlier to be at a 100% of utilization of our specialty alcohols would be certainly a goal, but but as well and aggressive assumption. So I think that as you think about it and as we think about it probably a more appropriate assumption would be to think about that is growing over time.
More and more this year, but then again, adding more of that are utilizing more of that capacity.
And as you contract out more volumes over the coming years next one to two three years.
Okay.
Did you already have some international sales for the specialty on global products and <unk>.
Yes.
Okay got it thank you.
My other questions offline. Thank you so much.
Thanks, Amit thank you.
And once again as a reminder, if you would like to ask a question Alright, and star and the number one on your telephone keypad.
And you have a question from Shar <unk> from Guggenheim partners.
Okay.
Hi, good afternoon, and its actually constantly and letting us share first refresh or a.
Couple of questions to follow up.
And have an abundance of information.
I'm kind of the realized margins on product sales can you talk about the structure of the contracts denominated sales and how specifically how price elastic or the specialty alcohols and ingredients and and in light of corn prices escalating and what kind of cost protection. So that you may have kind of both near term and longer term us and oil.
And stepping up.
Hi, costing and so as Brian.
Maybe the best way to answer that is as both in the short and so thinking about 2021, and then thinking about 'twenty, two 2020, two and beyond and clearly in the short run here within the next within this calendar year.
Really quite and elastic.
We've got fixed volume fixed prices you may expect to see some.
Depending on.
On customers and their demand adjustments sometime around the fourth quarter.
Maybe renegotiating into the new year, and adding additional capacity or are making adjustments there too, but generally speaking I think we hedged our input costs associated with that so we're feeling and then.
Feeling good about those margins.
And that's why we provided.
The framework that we did around 70 million gallons and the $60 million and gross margin.
As you think about 2022, I think it would be naive to assume that the additional capacity that not only that we brought on.
Right, where we went from 110 to 140 million gallons.
And entering this year, but and in addition to other.
Producers in this marketplace and we've also announced production capacity expansion to not have.
Some kind of an impact potentially on on prices that being said.
We believe and are optimistic that.
There will always be a positive or a premium and that.
And the products that the specialty alcohol markets.
And comparison to your next best alternative which would be fuel if not why would you not then just reduce your operating costs and set and sell fuel ethanol and instead.
And.
I think that and probably the more important part of the business is to really focus on that Mike mentioned and as emphasized is around again, the on boarding and the quality control.
If you will kind of what would be barriers to entry both debt.
Both ways for US right there be both protect us, but they also require us to two <unk>.
And where it significantly to make sure that we can play.
Place our products and do so effectively and be able to then.
Fully retain those customers for a very long period of time and Thats generally been the behavior that we've seen Mike anything you want to add to that I think you got on there Brian.
Thanks for the color that flow.
That's really helpful and just a bit on follow up on kind of the economics and the market.
And does it do kind of the recent price moves and changes and the margin change any of the economics on kind of the planned investments.
18 million and that you've talked about any kind of color on the payback.
And kind of Timeframes and just thoughts on kind of capital allocation at this juncture.
And with the with the 18 million and we're being very.
Specific in terms of where we are investing our capital dollars. We we we have a lot of infrastructure that we are continuing to upgrade to improved reliability.
There are kind of two buckets, you put it in further growth opportunities and reliability and improvement and your efficiencies and reliability within your existing.
Plant structure. So we carefully look at those and analyze and there were certain things that within that $18 million that we had to focus on for instance at our ICP plant.
It was important to upgrade the cooling tower, which was part of that 18 million capital expenditure and that we have planned for 2021. So there's a variety of things that go into that no. One single answer I think above and beyond that as I mentioned and in the remarks.
We now have we have a solid platform and we've worked really hard over the last 12 months to kind of put ourselves in a position working on the debt working on a per.
Alrighty of issues to put ourselves in a position to where we can aggressively pursue some other activities above and beyond the $18 million and we're looking at those also.
And just kind of in regards to the opportunities and you obviously talked about kind of carbon capture.
Opportunities and pecan.
How are you thinking about the capacity for these future investments and kind of maybe a range of capital requirements on us.
And thinking about this from.
And from a standalone perspective, or kind of a joint venture agreement and so forth.
And it's a really great question I think probably the best way to answer that is as we're considering all of those options and the real goal is to be able to as being the end of the price of the producer of the of the.
<unk>.
And of the carbon and the <unk> that we intend to try and capture as much value as we can and retain it for for the benefit of the company and the shareholders right.
And so we'll certainly and certainly.
And tend to and will continue to the process, where we keep these competitive and try and optimize value.
With regards to this resource.
So I.
I don't mean to answer the question is as we consider both but yes, I mean, we're considering all options and we'll make sure that we bring to bear that which makes most sense for us and for a.
While while mitigating risks appropriately.
Appropriately.
Assigning risks with people, who can best Anvil net risk.
That gives some very good color and.
For the quarters.
There are no further questions at this time I will turn the call back over to Mike Cantor for any closing remarks.
Thank you for joining us today and for your ongoing support.
As you can tell we are excited about the progress we have made and the bright future. We have ahead, we look forward to continuing our dialogue with you as we make further progress. Thank you and I hope everyone has a good afternoon and thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect your line.
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