Q4 2021 Alto Ingredients Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to Alto ingredients fourth quarter 2021, and year end financial results.
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Okay.
Thank you operator, and thank you all for joining us today for the Alto ingredients fourth quarter and year end 2021 results conference call.
On the call today are Mike, Kansas, CEO , and Bryon Mcgregor CFO .
Our two 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 company's website at outdoor ingredients dot com a telephone.
A replay of today's call will be available through March 17th the details of which are included in today's earnings press release and.
A webcast replay will also be available at Altra ingredients website. Please note that information on this call speaks only as of today March 10.
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 in this presentation constitute forward looking statements and considerations that involve a number of risks and uncertainties.
The actual future results with agile ingredients could differ materially from those statements.
Actor 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 in our two ingredients filings with the SEC.
That is required by applicable law the company assumes no obligation to update any forward looking statements.
In management's prepared remarks, non-GAAP measures will be referenced management uses these non-GAAP measures to monitor their financial performance of operations and believes these measures will assist investors in assessing the company's performance for the periods being reported the company defines adjusted EBITDA as unaudited net income or loss attributed to.
Auto ingredient before interest expense interest income provision or benefit for income taxes asset.
Paramount loss on extinguishment of debt purchase accounting adjustments fair value adjustments and depreciation expense.
To support the company's review of non-GAAP information later on this call a reconciling table was included in today's press release.
On today's call Mark will begin with some financial highlights and accomplishments for 2021, followed by key plans for the next few years, Brian will then provide additional detail on our Q4 and Q on Q4 in 2021 financial results then Mike will wrap up with a summary before opening the call for Q&A.
Now my pleasure to introduce Mike, Kansas CEO , Mike.
Thank you Destiny and thank you everyone for joining us today to hear about the exciting progress we are making as we continue to execute on our strategic initiatives. We promised the market we would change the strategic vision and focus of the company and I believe we have accomplished that goal.
I'll begin with some financial highlights for full year 2021 over 2020, our net sales reached $1 2 billion, an increase of 35% gross profit increased to $67 8 million up 28%.
Net income increased to $44 $2 million compared to a loss of $16 $4 million in 2020.
And adjusted EBITDA grew to $76 8 million up 15%.
This outstanding performance is the result of numerous achievements to highlight a few beginning in 2021 we renamed the company to Alto ingredients. This was important for us both internally and externally to reinforce our broadened outlook brand and Stu.
T J direction.
During the year, we invested in capacity expanded our protein strategy secured valuable certifications optimized our asset base by selling non core facilities and became became net debt free.
In November of 2021, we restarted our magic Valley facility, which we idled in 2020 due to low renewable fuel margins Magic Valley has the advantage of being located in a market that is experiencing significant growth in cattle poultry pork and Aqua culture.
Given these opportunities we committed to resume operations at the facility and began upgrading this dry mill to produce concentrated protein feed and food ingredients by installing harvesting technologies patent and co pro Max system. When completed this system will produce.
Over 33000 tons annually of speed with a protein content greater than 50% increase corn oil yields by 50% or almost 9 million pounds annually and contribute over $9 million annually and adjusted EBITDA based on current market.
Prices and the combination of additional sales of corn oil and high value proteins.
We expect to be able to commence our expanded production of corn oil at the facility in mid 2022 as planned and we expect to be fully operational in oil and protein feed before year end.
Next we invested and certifications for specialty alcohol production.
We're high quality, it's table stakes in the specialty alcohol market reliability and surety of supply as demonstrated through rigorous and robust certifications are sought after and valuable market differentiators for our customers.
After securing ISO 9001 certification the world's most widely recognized standard for quality management systems in December of 2020.
We turned our focus on the comprehensive processes and procedures required for pharmaceutical and medical markets in February of 2021 at ICP. We earned IC H, two seven which is the internationally recognized at active pharmaceutical ingredient <unk>.
Patient <unk>.
And <unk> good manufacturing practices certification, which is the globally recognized standard for use of excipient, which are the inactive components of the drug or for medication.
Then and most importantly in February of 2022, we earned the same distinctions at our Alto Pekin facility, thus, creating the advantage of having full redundancy of the certified product at our Pekin campus. These.
These certifications appeal to customers using high grade alcohols in health <unk> home and beauty as well as distilled spirits. They can deepen existing customer relationships and opened the door to new opportunities in domestic markets as well as the growing export market.
Onto a review of monetizing the assets as discussed we are focused on our strengths leaning towards more profitable and less commoditized markets to that end, we chose to dispose of our non core facilities in Nebraska and California.
Upon exiting these businesses, we utilize the proceeds from the sales combined with strong cash flow from our operations to retire restrictive debt.
They we have a stronger balance sheet and our net debt free Brian will elaborate more on this in a moment.
On January 14th 2022, we completed the downstream acquisition of Eagle alcohol and established leader in premium alcohol distribution.
Eagle expands our scope of offerings customer base and commercial opportunities and we expect it to accelerate our penetration into new high margin markets Eagle specializes in small package products preferred by a large segment of the specialty alcohol market.
Adding beverage alcohol companies concentrating in break bulk distribution eagle purchases bulk alcohol from suppliers, including El Alto den stores, the natures packages and resells alcohol products in smaller sizes, including tank trucks.
<unk> and drones that garner a premium to bulk alcohols.
<unk> also delivers products to customers and the beverage food pharma and related process industries.
Its own dedicated trucking fleet and common carrier.
Between Altos bulk production and eagle's differentiated distribution capabilities and established customer relationships, we look forward to lowering our exposure to bulk alcohol price volatility, increasing our margins and creating new opportunities for okay.
Organic growth.
We are excited to welcome former Eagle President Dan proven to our team as Vice President of Alto and general manager of Eagle.
He and his team bring over 60 years of combined experience and expertise in the chemical and alcohol distribution industry.
As we have worked with Eagle for some time the integration efforts are minimal and progressing smoothly.
Eagle fits perfectly into our strategic roadmap as we continue to raise the quality of our production to the highest grades of grain neutral spirits by further enhancing our.
Distillation process, optimizing our production capabilities and integrating eagle strong distribution and sales services.
In summary today, we operate three bio refinery campuses with one Matt went in for dry mills located in Pekin, Illinois, early Idaho, and Boardman, Oregon and are able to produce 350 million gallons of alcohol annually. In addition, we now.
Now also operate Eagle's distribution center located in St. Louis Missouri.
Our numerous blue chip customers incorporate our various high quality products and to a range of vital finished goods that touch People's lives every day from pharmaceuticals to Pet Foods for example, in the health home and beauty markets. Our products include API grade ethyl alcohol.
<unk> used in mouthwash as cosmetics and pharmaceuticals, USP grade ethyl alcohol used enhanced sanitizer disinfecting cleaning products and industrial grade ethyl alcohol in the food and beverage market. Our products include grain neutral spirits gnl's used in alcohol.
Beverages, and vinegar, and <unk> used in industrial applications, and dry ice and the essential ingredients markets. Our products include Alto east corn, gluten foreign condensed distillers, corn oil and germ and distillers grains all used in.
Pet food food production at animal feed and in the renewable fuels markets. Our products are used in transportation fuels.
In 2022, we intend to reinvest further regarding Eagle, we plan to invest $5 million in 2022 to further optimize specialty alcohol distribution, we expect eagle to contribute $4 million of EBITDA in 2022, and then <unk>.
Additional $4 million to $5 million annually, beginning in 2023 for a total of $8 million to $9 million annually.
Also we will expand corn storage at our Pekin campus. This will increase the company's corn buying flexibility, enabling <unk> to reduce the need to purchase product at premium prices when farmers and elevators are not shipping corn during holidays or unfavorable weather conditions.
We'll spend approximately $6 million and expect this project to provide over $2 million.
<unk> EBITDA annually with a payback in less than three years, beginning in Q4 of 2022.
Naturally we will continue to reinvest in our facilities upgrading and improving systems to increase efficiency and planned uptime. These capital expenditures will be more ongoing in nature and we will provide color on these projects periodically as the year progresses.
As previously discussed also in 2022, we are focused on completing the co pro match system at Magic Valley.
Then in 2023 and beyond we plan to roll out these upgrades to our other three dry mills with the goal to have them fully operational by no later than year end 2024.
The total investment plan is approximately $70 million for all four facilities. The benefit is expected to exceed $34 million in EBIT da annually based on current market values.
There are other opportunities in development. For example, we are evaluating investing and a natural gas bypass at our Pekin campus, reducing the price we pay for natural gas by approximately 11% based on 2021 values and bypassing the loan.
Utility this would create the opportunity to sell renewable natural gas produced by the plant directly into the pipeline in the future.
Would expect to invest approximately $9 million in 2023 for a return of approximately $5 million and EBITDA annually beginning in 2024.
Regarding carbon capture and sequestration.
<unk> options include developing the project as a standalone system size to our facility or interconnecting with other viable gathering and sequestration systems under development.
In close proximity to our Pekin campus prior to signing commitments, we want to ensure that we fully evaluate risks and benefits to affect the highest and best probable outcome for investors the company and the communities in which we live and operate.
At the same time, we also believe that this is a high priority for us and we look forward to providing more information at a later date.
We began our transformation 18 months ago and have turned alto into a consistently profitable company. We are committed to continue to transform the company by pursuing additional profitable opportunities with a focus on 2024 and beyond.
Before I turn the call over to Brian I would like to welcome ouster Graham our new Vice President and General Counsel. Our staff has over 15 years of legal experience in multiple industries, including specialty chemicals components, and industrial coatings and she will be.
<unk> a valuable addition to our executive team I would now turn the call over to Brian to review the financials.
Thank you Mike.
I'll provide some additional color around our results and metrics for the quarter and full year.
For the first fourth quarter of 2021 net sales were $385 million.
From $306 million in the third quarter due to an increase in our average sales price per gallon.
The average sales price per gallon of renewable fuel largely reflects supply constraints.
Slating into strong ethanol prices.
We had alcohol sales of $325 million and $60 million in revenue from this.
From sales of our essential ingredients.
Of the 69 million production gallons sold in the fourth quarter 26 million gallons consisted of specialty alcohols up 10 million gallons over fourth quarter 2020.
Reflecting expanded capacity and increased exports and industrial demand.
Gross profit improved significantly to $42 1 million.
From a gross loss of $3 $4 million last quarter.
This reflects not only the profitable operations of our peaking campus, but also over $7 million in gross profit at our Idaho, and Oregon facilities over $10 million improvement quarter over quarter.
And then the $11 million swing year over year for the same period.
SG&A expenses in the quarter were $9 $4 million, bringing our annual SG&A of $29 2 million in line with our previous guidance.
This quarter, we had a gain of $4 $6 million for selling our production facility in Stockton, California.
Provision for income taxes was $1 $5 million.
While we have a considerable amount of federal Nols and some states in which we operate suspended their use.
In 2021, resulting in a modest tax expense.
Taking into account profits for 2021, Nols available to offset taxable income in 2022 and beyond.
Total $169 million.
Net income available to common shareholders was $35 4 million or <unk> 49 per diluted share.
This compares to a net loss of $3 5 million or <unk> <unk> per share in the third quarter.
Adjusted EBITDA was $43 4 million compared to $3 million in the third quarter.
For the full year of 2021 compared to 2020, a few items to note.
Net sales were $1 2 billion compared to $897 million.
Gross profit reached $67 8 million compared to a gross profit of $52 $9 million the.
The significant year over year improvement in results was largely void of specialty alcohol sales for use in Sanitizers and disinfectants, which were primary contributors towards our financial recovery in 2020, driven by the spike in demand early in the pandemic.
In short 2021 results are a testament to our focus on improved quality of sales and earnings and the rationalization and optimization efforts of our renewable fuel production.
Capital expenditures for the year totaled $16 4 million.
Adjusted EBITDA was $76 8 million this compared to $66 6 million versus prior year.
As previously, which as previously discussed benefited from hand sanitizer Serge.
Turning to our balance sheet on December 31, 2021, our cash and cash equivalents were $51 million compared to $36 million on September 32021.
During the quarter with proceeds of $24 million from the sale of the Stockton facility and our cash flows from operations, we paid down $38 million in debt and spent $4 million in capex.
As of December 31, 2021, we are both term debt free and net debt free having retired the remaining term debt balances in Q4, and leaving us with only $50 million outstanding.
Inexpensive working capital line of credit more.
More than offset by cash and cash equivalents.
Sure.
Before I turn the call back to Mike I'll provide some color on our expectations for 2022 and beyond.
Consistent with our goal to place more specialty alcohol in 2022.
And excluding Eagle's volume, we've already contracted over 90 million gallons and.
In specialty alcohol sales.
This represents a 28% increase in volume contracted at the same time last year for sale in 2021.
Similar to the prior year.
These gallons, while still priced at a premium to renewable fuel reflect tighter spreads than we experienced last year due to higher commodity prices as well as unusual swings in demand related to the pandemic.
Looking forward as demand and supply rebalance we expect.
We expect specialty alcohol margins to return to more stable and normalized levels.
While our contracted volumes provide much greater visibility into our expected results for the year the extreme volatility in commodity prices ongoing logistical constraints and the potential impact the war in Ukraine may have on corn supplies and related commodities makes it difficult to provide 2022 revenue our gross profit guidance.
At this time.
Nonetheless, we expect to produce positive results for the year and generate over $18 million in additional EBITDA in 2022 related to the improvements initiatives and the acquisition completed over the past 12 months over our base business.
Excluding our renewable fuel business.
Looking further into the future. We expect just the projects Mike outlined to be completed over the next few years to result in over $45 million in additional EBITDA contribution annually by the end of 2024.
This does not include the additional benefits of carbon capture or other projects that are under evaluation and development.
In short, we build a profitable resilient base of business on which investors can rely today and we intend to continue to build on this foundation through strategic investment in our specialty alcohol and essential ingredient lines of business.
In addition, we expect SG&A for 2022 to be in line with our results for 2021 or under $30 million.
Finally, as we pursue new high value growth opportunities.
Our evaluating long term funding options in the debt market to further bolster the balance sheet accelerated investments and further improve our bottom line.
We believe our balance sheet should have the right kind of that that reflects lower cost of capital with high rate of return projects to properly leverage our equity base.
As we do so we also continue to consider share repurchase opportunities.
Though we believe investing in our current capital projects provides a better long term return profile, we will continue to weigh our options to optimize the value return to shareholders with that I will turn the time back to Mike.
Thank you Brian I appreciate that in summary, we were pleased with our successes.
Having turned the company into a profitable business with significant unique opportunities for top and bottom line growth and we feel we are in a great position as we continue to execute on key initiatives in 2022 and beyond.
Finally, I'd be remiss, if I didn't acknowledge the efforts of our tremendous employees that have contributed significantly to our success with that I'd like to open the call for questions operator.
Thank you.
Ladies and gentlemen, as a reminder to ask the question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, Thats star one to ask a question.
And by while we compile the Q&A roster.
First question comes from the line of Eric Stine with Craig Hallum. Your line is open.
Hi, Mike Hi, Brian .
Hey, Eric.
Thanks for taking the questions. So I would love to just trying to dig in on the guide a little bit and I can I can certainly appreciate there are so many moving parts right now very difficult to kind of.
Think about that but you know maybe putting.
Putting the fuel ethanol side and with your contracted volumes are you able to look at that judging where.
Reising is today and maybe your expectations and think about maybe what your non fuel grade EBITDA would be even if it's directionally.
Versus 2021, when you think about 2022.
I normally would Eric but the challenges is that theres so much.
<unk>.
So much volatility that is occurring across the board and it's not just about ethanol and corn, it's about logistical costs is about.
Interruptions in supply and everything so it would see while we were looking at a more steady position, we probably feel comfortable in providing that information.
The best you can do is look we feel comfortable with is if you look and you kind of look at our base business.
We provide segmented information you can see that and you can build off of that.
To make a determination as to what that looks like going forward.
Yeah.
Okay, well, maybe maybe then as we think about the difference between the two years you mentioned the $18 million.
As a result of some of the operational things that you've done.
So you called out I, just want to make sure I'm thinking about this right. We've certainly got Eagle, which in 2022 I believe you said that'd be another 4 million incremental in.
And EBITDA and then the corn storage potentially is another two not telling me I could have the numbers wrong.
Yeah.
Okay.
So Gary Stern, yet yes.
Yes, the corn storage would be in Q4.
When that would be completed so what we did is we took the projects that we had identified.
In the Q3.
Earnings call.
We've just layered demand based on completion of those projects well well, but are all pretty.
Pretty much on track pad, a few disruptions from supply chain.
Not unlike the rest of the world.
But pretty much all of those projects are on track and in net.
If you add in the Eagle contribution that's the $18 million got you. Okay. That's that's my fault. Yes. So you are referring to what you had previously discussed those would be for 2022, and then what you've laid out the $8 million to $9 million for Eagle plus the $2 million for storage you know think about it.
<unk> 11, plus somewhere in that range at least at this point for 2023 is that does that kind of the way to think about it okay.
Correct.
Okay.
Yes, Eric.
I also don't want to.
Cause any kind of real goods or real panic around thinking about fuel ethanol. Indeed, if you look at the crush margin today ethanol is actually tracked relatively well with the other commodity prices, even though we are seeing the highest prices.
Historical prices and corn, so it's actually tracked well and actually that crush margins is better than it was a year ago same time.
So again, there's a lot of things moving around and I've. Just we think is not it would be prudent.
To not put a stake in the ground yet.
With regards to 2022 at least.
No understood I can't go out and I can certainly appreciate that.
So thinking about the 90 million gallons contracted.
<unk>.
Curious.
I know that you've got the key certifications. So now all of peaking as is covered by the by the pharmaceutical and the medical grade certification did those limit you in any way in terms of contracting for 2022 given that those were.
Recently received.
Or is it just that you know given the given what's going on in the overall market in the world today that you Werent able to lock in a higher number of of your overall 140.
No I think the way the way to look at that is you go back to 2019, we were at 50 then.
That ramped up to 70, and then we're now sitting at 90.
And.
What we've said all along is we have 140 capable but we.
We want to be really careful by the way we can layer that in it's more of a longer term we want to be very diligent we want to be very sensitive to the market. We don't want to just go out and try to place that entire 140 and do damage to the market we want to be.
Very thoughtful and what we've been able to do is grow about 28% a year and contracted volume I think Brian mentioned that number.
<unk>.
We'll continue on that path, we're never going to contract the entire 140, because we want to maintain a certain level of.
Ability to play in the spot market or to make sure we have adequate supply for our customers that we do contract with.
The redundancy that we gained by having the pekin side of the campus certified is that surety of supply to our customers and.
And being able to have.
Redundant certified product.
It gives us a lot of comfort that and.
And our customers a lot of comfort that we're going to be able to honor their contractual amounts. It also allows us to be able to move product back and forth between the facilities. So youre no longer constrained by one or the other right.
Got it and in that 90.
Just sticking with the 90, so I mean, obviously, that's not a number that you'd ever give.
Given your outlook I mean is it fair to say that 90 is kind of in line with what your expectations were.
Yeah, Yeah, and I think it's also reflected if you look we guided and provided indications early on last year that we were at 70 million gallons and we ended up on the year at about 90 million gallon sold so.
Okay.
So product this year yeah.
Okay. That's great. Thank you.
Thank you.
A reminder, ladies and gentlemen that star one to ask a question.
Our next question comes from the line of Amy Dial with H C. Wainwright. Your line is open.
Thank you good afternoon network.
Just sticking to that.
<unk> million.
Especially the alcohol number.
Is there any concentration in bedroom.
Gross multiple customers.
Any.
Concentration risks.
Actually.
Not necessarily and indeed, if you look at the spread of that across the board kind of business segments that we talked about we actually were able to grow it across those of those all four segments. So we continue to make as we.
As we have.
As a gold.
We were able to actually execute on that goal and move product.
The value chain.
And expand those year over year.
<unk>.
Okay got it and just a note that does not include Eagle.
Okay. Okay got it thank you.
With respect to some of the inflationary environment.
As we have shifted towards these ingredients.
No.
Opportunity or market.
How should we think about the potential impact on margins et cetera are you able to increase.
Increases in your own cost to customers.
Between when you can do some of those types of things.
Relative to our 2021.
Two days.
When we go into shaping up on that front.
How should we think about margins in two.
Two days.
Yes.
Yes, Amit you kind of broke up on the.
The first part were you asking with regards to.
Our essential ingredients are we asking across the board across all our different product lines.
Primarily on the <unk>.
Great insight Brian .
I mean any color you can provide across Florida.
Jimmy as well would be helpful.
It's a great question, clearly and depending on where you are in the and what products are selling you have the ability to pass on.
Built into the price, particularly if youre, if youre selling under index.
For some of the more fixed price contracts it becomes more of a challenge and so we try to offset those or to fix our input costs as much as we can for those products to be able to lock in that spread but yes, it's certainly a challenge and something that we're keeping an eye on and making sure that we can.
Offset those those pressures as much as possible.
Okay Alright.
I have a question on the download, but Michael any thoughts around that.
I think one of the questions off line days before that thank.
Thank you.
Thanks, Matt.
Thank you.
Thank you, ladies and gentlemen, I would now like to turn the call over to Mike for closing remarks.
Thank you and thank you everyone for joining us today and your continued support we're excited about the progress we've made and as we continue to execute on our strategic plan, we feel extremely optimistic about the future of alto. Thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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