Q1 2024 Alto Ingredients Inc Earnings Call
Operator: Good day, and welcome to the Alto Ingredients, Inc. First Quarter 2024 Financial Results Conference Call. All participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by 0. After today's presentation, there will be an opportunity to ask questions. You may press the star key, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Kirsten Chapman of LHS Investments. Please go ahead.
Good day and welcome to the Alco ingredients, Inc. First quarter 2024.
Conference call.
All participants are in listen only mode should you need assistance. Please signal a conference specialist by pressing the star keep our doctor it.
After today's presentation there'll be an opportunity to ask questions you might have to Starkey then one on your telephone.
Which all your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Kirsten Chapman L. A chicken basket. Please go ahead.
Kirsten F. Chapman: Thank you, Kaylee, and thank you all for joining us today for the Alto Ingredients first quarter 2024 results conference call. On the call today are President and CEO Bryon McGregor and CFO Rob Olander. Alto Ingredients issued a press release after the market closed today, providing details of the company's financial results. The company has also prepared a presentation for today's call that is available on the company's website at altoingredients.com. A telephone replay of today's call will be made available through May 13, the details of which are included in today's press release.
Kirsten F. Chapman: Thank you Kelly and thank you all for joining us today for the Alto ingredients first quarter 'twenty 'twenty four results conference call on the call today are president and CEO, Bryon, Mcgregor and CFO Rob Aulander.
Kirsten F. Chapman: Altra ingredients issued a press release after market closed today, providing details of the company's financial results. The company has also prepared a presentation for todays call that is available on the company's website at alto ingredients Dot com a telephone replay of today's call will be made available through May 13. The details which are included in today's press release or webcast replay.
Kirsten F. Chapman: A webcast replay will also be available on Alto Ingredients' website. Please note that the information on this call applies only as of today, May 6. You are advised that any time-sensitive information may no longer be accurate at the time of any replay. Please refer to the company 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 risks and uncertainties.
Kirsten F. Chapman: We will also be available at Alto ingredients website. Please note that the information on this call speaks only as of today May six you are advised that any time sensitive information may no longer be accurate at the time of any replay.
Kirsten F. Chapman: 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 in Alto Ingredients' filings with the SEC.
Kirsten F. Chapman: 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 presentation 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.
Kirsten F. Chapman: Except as 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 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 unaudited, consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, loss on extinguishment of debt, unrealized derivatives, gains and losses, acquisitions-related expense, and depreciation and amortization expenses.
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.
Kirsten F. Chapman: 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 in assessing the company's performance for the periods ripped.
Speaker Change: Got it.
Speaker Change: The company defines adjusted EBITDA as unaudited consolidated net income or loss before interest expense.
Speaker Change: Interest income provision for income taxes asset impairments loss on extinguishment of debt unrealized derivatives gains and losses acquisition related expense and depreciation and amortization expense to support the company's review of non-GAAP financial information a reconciling table was included in today's press release.
Kirsten F. Chapman: To support the company's review of non-GAAP financial information, a reconciling table was included in today's press release. On today's call, Bryon will provide a review of our strategic plan and activities, and Rob will comment on our financial results. Then Bryon will wrap up and open the call for questions.
Speaker Change: On today's call, Brian will provide a review of our strategic plan and activities Rob will comment on our financial results then Brian will wrap up and open the call for questions. It's now my pleasure to introduce Bryon Mcgregor. Please go ahead Sir.
Speaker Change: Yeah.
Kirsten F. Chapman: Thank you, Kirsten. Thank you, everyone, for joining us today.
Bryon T. McGregor: Thank you Kirsten Thank you everyone for joining us today.
Bryon T. McGregor: We began 2024 with a refined vision to produce a variety of essential ingredients and the highest grade beverage alcohol in the industry and prioritize our Carbon Capture and Storage, or CCS, initiative. We are leveraging the unique capabilities of our Peak and Campus and our other assets to moderate the impact of crushed margin fluctuation. I'm encouraged by the strategic and operational progress we've made so far this year. However, relatively low but improving crush margins and various weather factors impacted our financial results in the first quarter.
Bryon T. McGregor: We began 2024 with a refined vision to produce a variety of essential ingredients.
Bryon T. McGregor: And the highest green beverage alcohol in the industry and prioritize our carbon capture and storage or Ccs initiative.
Bryon T. McGregor: We are leveraging the unique capabilities of our Pekin campus in our other assets to moderate the impact of crush margin fluctuations.
Bryon T. McGregor: I'm encouraged by the strategic and operational progress we've made so far this year.
Bryon T. McGregor: However, relatively low but improving crush margins.
Bryon T. McGregor: And various weather factors impacted our financial results in the first quarter that said high quality alcohol sales from our Pekin campus increased year over year contributing toward an overall improved gross profit and adjusted EBITDA on a comparative basis.
Bryon T. McGregor: That said, high-quality alcohol sales from our Pekin campus increased year over year, contributing toward an overall improved gross profit and adjusted EBITDA on a comparative basis. Rob will discuss our financial results in greater detail. I'll begin by reviewing CCS and our ongoing strategic project. With CCS, our goal is to create value for Alto, our customers, our surrounding communities, and our shareholders by substantially reducing our carbon footprint. Our Pekin Campus facilities, their CO2 production, and their location provide Alto with a unique CCS opportunity.
Bryon T. McGregor: Rob will discuss our financial results in greater detail ill begin by reviewing Ccs and our ongoing strategic projects.
Bryon T. McGregor: We continue to negotiate the terms of our proposed agreements with potential financial partners and with Vault, a leading CCS developer focused on the development, capitalization, and operation of carbon storage assets. Our plan is to work with Ball to safely transport the CO2 to a geological reservoir nearby and permanently store it securely deep underground. As noted in March, together with Bottle, we are driving ahead with our respective activities for system design, community outreach, vendor negotiations, and schedule alignment requirements to procure equipment for compression and to support the installation of additional power. VOLF completed the 2D seismic geologic survey and has begun data analysis.
Bryon T. McGregor: With Ccs our goal is to create value for alto, our customers our surrounding communities and our shareholders by substantially reducing our carbon footprint.
Bryon T. McGregor: Our beacon cabot's facilities.
Bryon T. McGregor: The C O two production and their location provided alto a unique Ccs opportunity. We continue to negotiate the terms of our proposed agreements with potential financial partners and with vault, a leading ccs developer focused on the development capitalization and operational carbon storage assets are.
Bryon T. McGregor: Our plan is to work with ball to safely transport. The C 022, a geological and reservoir nearby and currently stored securely deep underground.
Bryon T. McGregor: As noted in March together with Vogtle, we're driving ahead with our respective activities for system design community outreach vendor negotiations and schedule aligning requirements.
Bryon T. McGregor: Equipment for compression and to support the installation of additional power.
Bryon T. McGregor: <unk> completed the <unk> seismic geologic survey.
Bryon T. McGregor: And has begun data analysis, they've also advanced the work required to submit the EPA plastics permit application.
Bryon T. McGregor: They've also advanced the work required to submit the EPA Class 6 permit application. Our CCS project provides compelling economics that we believe we can enhance with more efficient, lower cost energy production. To this end, we are evaluating multiple capital options.
Bryon T. McGregor: Our Ccs project provides compelling economics that we believe we can enhance with more efficient lower cost energy energy production.
Bryon T. McGregor: To this end we are evaluating multiple capital options.
Bryon T. McGregor: We are in discussions with a highly regarded independent energy company. This potential partner has been engaged to complete their feed study for an energy cogeneration facility that they would build, own, operate, and maintain on our site. This facility would lower Alto's capital expenditures, improve operating efficiencies, and reduce our forecasted long-term energy costs. We are also continuing conversations with our current utility provider to expand energy supply capabilities as an alternative to cogeneration. Our specialty alcohol products include highly differentiated 192 proof and low moisture 200 proof grain neutral spirits that create customer opportunities higher up the value chain.
Bryon T. McGregor: We are in discussions with a highly regarded independent energy companies. This potential partner has been engaged to complete their feed study for an energy cogeneration facility that we're building that they would build own operate and maintain our site.
Bryon T. McGregor: This facility with lower Altos capital expenditures improved operating efficiencies and reduce our forecasted long term energy costs.
Bryon T. McGregor: We are also continuing conversations with our current utility provider to expand energy supply capabilities as an alternative to cogeneration.
Bryon T. McGregor: Our specialty alcohol products include highly differentiated 192 brief and low moisture 200 improved grain neutral spirits.
Bryon T. McGregor: Creating customer opportunities higher up the value chain.
Bryon T. McGregor: In Q1 2024, we sold 26 million gallons of specialty alcohol, up from 21 million gallons in Q1 2023. As mentioned in March, for 2024, we contracted approximately 93 million gallons at a fixed price, with specialty alcohol at an average premium to renewal fuel of 31 cents per gallon.
Bryon T. McGregor: In Q1, 2024, we sold 26 million gallons, especially alcohol.
From 21 million gallons in Q1 2023.
Bryon T. McGregor: As mentioned in March for 2024, we contracted approximately 93 million gallons of fixed price.
Bryon T. McGregor: I shall be alcohol at an average premium to renewable fuel of 31 cents per gallon.
Bryon T. McGregor: Our biennial part, excuse me, our biennial peak and campus wet mill outage was completed in April. The plant was offline for 10 days while we executed the scope of work, with over 450 discrete tasks focused on corrective and preventative maintenance, as well as upgrades to plant infrastructure. With the outage complete, the plant has safely returned to operation and is ramping up to target production rates. These efforts will result in more consistent and higher production rates, improving reliability as we approach the summer driving season.
Our biennial part is getting our band biennial Pekin campus wet mill outage was completed in April.
That was offline for 10 days, while we executed the scope of work with over 450 discrete tasks focused on corrective and preventative maintenance as well as upgrades to plant infrastructure with.
Bryon T. McGregor: But the outage to complete the plan have safely returned to operation and is ramping up to targeted production rates.
Bryon T. McGregor: These efforts will result in more consistent and higher production rates improving reliability as we approach the summer driving season.
Bryon T. McGregor: At Magic Valley, we have been diligently working on our corn oil and high-protein technology to return the facility to a more sustainable profitability by reducing the impact of periodic low crush margins and higher decimation corn basins. As outlined in March, we are working with our high-protein system vendor, Harvest Technology, to achieve the intended production rate, quality, and consistency of our corn oil and high-protein output at the facility. While the plant is hot idle, we are using the downtime to accelerate routine maintenance activities to optimize plant efficiency upon restart.
Bryon T. McGregor: Our Magic Valley, we have been diligently working on our corn oil and high protein technology to return the facility to a more sustainable profitability by reducing the impact of pure periodic low crush margins and higher destination corn basis.
As outlined in March we are working with our high protein system vendor harvest technology.
Bryon T. McGregor: Achieved the intended production rate quality and consistency of our Farmville and high protein output at the facility.
Bryon T. McGregor: While the plant is hot idled, we are using the downtime to accelerate routine maintenance activities to optimize plant efficiency upon restart.
Bryon T. McGregor: Equipment for the new system modifications has been ordered, and based on current delivery and installation schedules, we expect to resume production in late June or early July. As a reminder, Harvest Technology is paying for the direct cost of equipment and design changes associated with the corn oil and high-protein system.
Bryon T. McGregor: The equipment for the new system modifications has been ordered.
Bryon T. McGregor: Based on current delivery and installation schedules, we expect to resume production in late June early July.
Bryon T. McGregor: As a reminder, harvest technology is paying for the direct cost of equipment and design changes associated with the corn oil and high protein systems.
Bryon T. McGregor: As noted previously, as always, we evaluate our path to increase margins, improve profitability, and deliver the highest return to our shareholders. We continue to assess our current portfolio of assets. We will write updates if and when appropriate. Before I turn the call over to Rob, I have a few corporate updates to review. As part of our sustainability efforts, we finished our annual Scope 1 and 2 greenhouse gas verifications during the quarter.
Bryon T. McGregor: As noted previously as always we evaluate our path to increase margins improve profitability and deliver the highest return to our shareholders. We continue to assess our current portfolio of assets, we will write updates if and when appropriate.
Bryon T. McGregor: Before I turn the call over to Rob I have a few corporate updates to review.
Robert R. Olander: As part of our sustainability efforts, we finished our annual scope, one and two greenhouse gas verifications during the quarter.
Bryon T. McGregor: In April, as part of our succession planning, we announced our new COO, Todd Betts. I'd like to congratulate Todd on his promotion and Mike Kandris on his forthcoming retirement. Todd has over 25 years of experience at the Pekin facility and 30 years in the industry. With his good relations with the workforce, deep connection with the community, and extensive record of achievement for operational excellence, the board and I look forward to his contributions to our ongoing safety, operational efficiency, reliability, and sustainability efforts. Now, I'll turn the call over to our CFO, Rob Olander. Thanks, Bryon.
Robert R. Olander: In April as part of our succession planning, we announced our new COO, Todd better I'd like to congratulate Todd on his promotion and my canvas unexplored coming retire.
Robert R. Olander: Todd has over 25 years' experience at the Pekin facility in 30 years in the industry with.
Robert R. Olander: His good relations with the workforce deep connections with the community and extensive record of achievement for operational excellence the board and I look forward to his contributions to our ongoing safety operational efficiency reliability and sustainability efforts.
Robert R. Olander: Now I'll turn the call over to our CFO Rob <unk>.
Robert R. Olander: Thanks, Bryon. I'll now review the financial results for the first quarter of 2024 compared to the first quarter of 2023. We sold 99 million gallons during both Q1 2024 and 2023. Q1 2024 net sales were $241 million compared to $314 million in Q1 2023, reflecting lower market prices in 2024. Yet, Q1 2024 gross loss improved by $800,000, and adjusted EBITDA improved by $3.4 million compared to Q1 2023. These improved results reflect better-than-ethanol crush margins, increased sales of specialty alcohol, and the positive impact of our efforts to lower costs and expand operating efficiency. However, the following factors impacted the results:
Robert R. Olander: Brian I will now review the financial results for the first quarter 2024, compared to the first quarter of 2023.
Robert R. Olander: We sold 99 million gallons during both Q1 2024 and 2020 through.
Robert R. Olander: Q1, 2024, net sales were $241 million compared.
Robert R. Olander: Compared to $314 million in Q1, 2023, reflecting lower market prices in 2024.
Robert R. Olander: Q1, 2024 gross loss improved by $800000.
Robert R. Olander: And adjusted EBITDA improved by $3 4 million.
Robert R. Olander: Compared to Q1 of 2023.
Robert R. Olander: These improved results reflect better than ethanol crush margins increased sales, especially alcohol and the positive impact of our efforts to lower cost and expand operating efficiencies. However, the following factors impacted the results first as you know we employ a variety of risk management strategies to mitigate the price.
Robert R. Olander: First, as you know, we employ a variety of risk management strategies to mitigate the price volatility of different commodities throughout the year as a normal course of business. In recent years, we have seen extreme volatility in the price of natural gas, resulting from foreign wars, political events, and extended periods of sub-zero weather conditions. To mitigate the risk of high price volatility, we locked in a significant portion of our gas needs at fixed prices in advance of Q1 2024. Year to date, the market has experienced historically low prices due to higher production and supply, coupled with lower consumer demand.
Robert R. Olander: This volatility of different commodities throughout the year as a normal course of business in recent years, we have seen extreme volatility in the price natural gas, resulting from foreign wars political events and extended periods of sub zero weather conditions.
Robert R. Olander: To mitigate the risk of high price volatility, we locked in a significant portion of our gas needs at fixed prices in advance of Q1 2024.
Year to date, the market has experienced historically low prices due to higher production and supply coupled with lower consumer demand.
Robert R. Olander: While our positions benefited us during the polls in January, we recognized an incremental loss of $4.9 million related to natural gas hedging activities in Q1 of 2024. Also, and as covered on our last call, the extreme cold weather in January at our Pekin campus restricted BART's deliveries and increased standby feed. To manage inventory levels, we transported more product by rail, which is a higher-cost mode of transportation. Additionally, this extreme cold weather necessitated a shift to lower-margin feed products and reduced production rates across the facility, decreasing specialty alcohol production.
Our positions benefit benefited us during the cold spell in January we recognized an incremental loss of $4 $9 million related to natural gas hedging activities in Q1 of 2024.
Robert R. Olander: Also and as covered on our last call the extreme cold weather in January at our Pekin campus restricted barge deliveries and increased standby fees.
Robert R. Olander: To manage inventory levels, we transported more product by rail, which is a higher cost motor transportation.
Robert R. Olander: Further this extreme cold weather necessitated a shift to lower margin feed products and reduced production rates across the facility decreasing specialty alcohol production.
Robert R. Olander: At our Columbia facility, our Q1 production was hindered by issues with our centrifuge. To address this, in mid-March, we installed two upgraded, more reliable models that will reduce ongoing maintenance costs. We commissioned one unit, and the other will begin operating in May. We also rebuilt the remaining units, enabling the plant to return to target run rates. Today, the plant is running well.
Robert R. Olander: At our Columbia facility, our Q1 production was hindered by issues with our centrifuges.
Robert R. Olander: To address this in mid March we installed two upgraded more reliable models that will reduce ongoing maintenance costs. We commissioned one unit and the other will begin operating in May. We also rebuilt the remaining units, enabling the plant to return to target run rates to date to date the plant is running well.
Robert R. Olander: Given these events, our Q1 2024 repairs and maintenance expense was $7.5 million, $1 million higher compared to Q1 2023. As this increase inflects the timing of the accelerating costs, we remain on track for our estimate of $34 million in repairs and maintenance for 2024. As of March 31st, our cash balance was $29 million, and our total loan borrowing availability was $91 million to support our business operations and capital investment initiatives. Our borrowing availability includes $26 million under our operating line of credit and $65 million, subject to certain conditions, under our term loan facility. In Q1 2024, we generated $1.4 million in positive cash flow from operations, and we invested $4.6 million in CapEx in line with their $25 million plan for 2024. With that, I'll turn the call back to Bryon.
Robert R. Olander: Given these events Q1 2020 for repairs and maintenance expense was $7 5 million $1 million higher compared to Q1 2023.
Robert R. Olander: As this increase reflects the timing of the accelerating costs, we remain on track for our estimate of $34 million in repairs and maintenance for 2024.
Robert R. Olander: As of March 31, our cash balance was $29 million and our total loan borrowing availability was $91 million.
Robert R. Olander: To support our business operations and capital investment initiatives.
Robert R. Olander: Our borrowing availability includes $26 million under our operating line of credit and $65 million.
Robert R. Olander: Subject to certain conditions under our term loan facility in.
Robert R. Olander: In Q1, 2024, we generated $1 $4 million in positive cash flow from operations, we invested $4 $6 million in Capex in line with our $25 million planned for 2024.
Robert R. Olander: With that I will turn the call back to Brian.
Brian: Thank you Rob.
Bryon T. McGregor: Looking ahead, ethanol crush margins have continued to improve in Q2, and the market outlook for the next three quarters remains favorable. While we are forecasting lower feed prices for the rest of the year, we have solid corn inventories and improved export demand for ethanol. In addition, the EPA summer waiver for the 15% blends will facilitate sustained use of higher blend renewable transportation fuel. Operationally, we expect that our recent work should result in more consistent and higher product production rates.
Brian: Looking ahead ethanol crush margins have continued to improve in Q2 and the market outlook for the next three quarters remains favorable.
Brian: We are forecasting lower feed prices for the rest of the year, we have solid corn inventories and improved export demand for ethanol. In addition, the EPA summer waiver for the 15% blends will facilitate sustained use of higher blend renewable transportation fuel.
Brian: Operationally, we expect that our recent work should result in more consistent and higher production rates.
Bryon T. McGregor: Improving Reliability and Profitability. Longer term, the updated guidelines around tax credits for including ethanol in the production of sustainable aviation fuel further validates our CCS efforts. Finally, we are pleased with the progress we have made with our CCS initiative and the value we expect to deliver to stakeholders. Operator, we are ready to begin Question and Answer. We will now begin the question and answer.
Brian: Improving reliability and profitability.
Brian: Longer term the updated guidelines around tax credits for including ethanol and the production of sustainable aviation fuel further validates our Ccs efforts.
Brian: Finally, we are pleased with the progress we have made with our Ccs initiative and the value we expect to deliver to stakeholders.
Speaker Change: Operator, we are ready to begin questions and answers.
Operator: We will now begin the question and answer session. To ask a question, press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, press star then two. Your first question comes from Eric Stine with Craig Hammam Capital.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: Speakerphone, please pick up your handset before pressing the keys if.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: Your first question comes from Eric Stine with Craig Hallum Capital Group.
Eric Andrew Stine: Hi, Brian Hi, Rob.
Speaker Change: Alright, great.
Eric Andrew Stine: Hey, so just starting with carbon capture, you gave a lot of detail there, but I guess I was unclear about things that had been done versus things that were to come. And so just curious, if you could just run over that, maybe with a little more detail, and then just talk about you gave some additional steps that are needed, and maybe a timeframe for some of those steps.
Speaker Change: Hi.
Eric Andrew Stine: So just starting with carbon capture you gave a lot of detail there, but I guess I was unclear.
Eric Andrew Stine: About things that had been done versus things that were to come and so just curious if you could just run over that maybe with a little more detail and then just talk about you gave some additional steps that are needed and maybe a timeframe for some of those steps.
Bryon T. McGregor: Yeah, so Eric, I mean, clearly coming to a final agreement with our partners at Vault is important, as well as advancing discussions with financial partners and the like, given the amount of work that still needs to be completed. That said, we've made good progress with regard, or Vault has made great progress with regard, to a lot of the work that goes into the Classics permit. In addition to that, we've been doing a lot of work with Vault around the community and making sure that we are responding to questions and comments, as well as reviewing sightings. There's probably a slew of other things that I'm missing. That said, you know, our goal is to have, if we stay on track as we are, to have our application in, call it the end of summer, before our fourth quarter.
Speaker Change: Yes, so Eric I mean, clearly coming to a final agreement with our with.
Speaker Change: With ball is important as well.
Speaker Change: Advancing discussions.
Speaker Change: With financial partners in Hawaii.
Given the amount of work that still needs to be completed that said we've made good progress with regard to the vault has made great progress with regards to.
Speaker Change: A lot of work that goes into the into the classics permit. In addition to that we are doing a lot of work with all around the community and making sure that.
Speaker Change: That we're responding to.
Speaker Change: <unk> and comments.
Speaker Change: And.
Speaker Change: As well as reviewing sighting and.
Speaker Change: There's probably a slew of other things that I am missing that said our goal is to have.
Speaker Change: If we stay on track as we are to have our application.
Speaker Change: Call it end of summer.
Speaker Change: Before the fourth quarter.
So this year.
Eric Andrew Stine: And is that something you might have said in the past, or maybe indications that that's an 18, 18 months plus kind of review process? Or am I not thinking about that right? That's correct.
Speaker Change: And is that.
Speaker Change: You might have said in the past or maybe indications of bumps and 18 18 months plus kind of.
Speaker Change: A review process or am I, not thinking about that right.
Bryon T. McGregor: That's correct. Under the EPA's latest indications, they have upped the amount of time for review and expectations from 18 to 24 months. So our expectation is as conservative as we can keep that, hopefully, with
Speaker Change: That's correct under the Epa's latest indications.
Speaker Change: <unk> upped the amount of time for review.
Speaker Change: Expectations from 18 months to 24 months. So our expectation is as conservatively as we can keep that hopefully within the 24 month period of time.
Eric Andrew Stine: Okay. And then just on the equipment side, you mentioned that it was unclear if you'd ordered some of that equipment or are going to order that equipment. And I know that evaluating vendors, that was something that you were very focused on or talked about last quarter. So maybe where does that stand?
Speaker Change: Okay.
Speaker Change: And then just on the equipment side you mentioned.
Unclear, if you've hormone so all of that equipment or are going to order that equipment and I know that evaluating vendors that was something that you were very focused on her talked about last quarter, So maybe where does that stand.
Bryon T. McGregor: Yeah, so Eric, the long haul, in a sense, is clearly the EPA class six permit, right? And really, the work that we do around that is clearly, you have to purchase your compression equipment. And then on top of that, we're layering in energy, right? So we need our energy, our power systems, and the like to be up to speed. While those are also long lead items, they're not as long as what you would expect under class six.
Speaker Change: Yeah, So Eric.
Speaker Change: Paul and intends to declare the EPA class six permit right and really the work that we do around that is clearly you have to purchase new compression equipment and then on top of that we were layering in energy right. So we need our energy our power systems and the like to could be up to speed while those are.
Speaker Change: Also long lead items that are not as long as what you would expect under the classics. So it's really about staging those and making sure that you are spending the money at the right time and not be you don't want to be Penny wise and pound foolish.
Bryon T. McGregor: So it's really about staging those and making sure that you're spending the money at the right time and not being penny wise and pound foolish and spending it all up front, nor do you want to wait until you get your class experiment before you start that process. So it's really about just finding that timing correctly, and we're still working on that. But we have a pretty good idea, and our goal is to actually be able to.
And spend it all upfront nor do you wait until you get your classics from before you started that process. So it's really about just finding that the timing correctly and we're still working on that.
Speaker Change: But we have a pretty good idea and our goal is to actually.
Speaker Change: To be able to.
Bryon T. McGregor: If we can light up the planets, to be able to, once you get your classics permit, to be able to have all of your other systems up and operational at or before the time that you can go operational with your mouse. You're a full sequestration system.
Speaker Change: And if we can line up the planets as to be able then once you get your classics permanent to be able to have all of your other systems up and operational at or before the time.
Speaker Change: Can go operational in nature.
Ill.
Speaker Change: Youre come here.
Sequestration system.
Speaker Change: Yes.
Eric Andrew Stine: Okay, got it. Maybe this last topic for me is just the CoProMax or the high protein initiatives.
Speaker Change: Okay got it.
Speaker Change: Maybe just last topic for me just on the co pro Max or the high protein initiatives and you mentioned that there they're paying for the design and the upgrades and all of that I mean.
Speaker Change: When do you.
Bryon T. McGregor: And you mentioned that they're paying for the design and the upgrade and all that. I mean, when do you think or anticipate maybe having the confidence that this is operating the way you originally envisioned? I mean, is this something where you think you need to see it run for three months, six?
Speaker Change: Thank you anticipate maybe having the confidence that this is operating the way you originally.
Speaker Change: Envisioned I mean is this something where you think.
Speaker Change: You need to see it run for three months six months.
Speaker Change: How do you expect that to play out because I would assume that's big powerful whether you take it to other plants or not.
Bryon T. McGregor: Well, I'd love to say the next, but I think that only time will tell. Our expectations are the changes that we're making, the upgrades that are being made to the facility, and the additional tolerances and capacity that's being built into the system will be able to more than adequately address what we need and be able to achieve our goals, and part of it is around being able to improve, not only meet the target. Aaron Spychalla, Sameer Joshi, Robert Olander, Michael Kandris, David Bastian, Both at ours, and clearly, our technology is, you know, has an interest in using their technology elsewhere.
Speaker Change: So I'd love to say the next day.
Speaker Change: But I think that only time will tell our expectations are the changes that we're making the upgrades that are being made to the facility and the additional tolerances.
Speaker Change: Capacity that's being.
Speaker Change: Built into the system will be able to more than adequately addressed what we need and be able to achieve our goals.
Speaker Change: And harvest technology skills around being able to improve not only meet the targets and the performance that we expect at Magic Valley, but then for us and them to be able to.
Speaker Change: Move forward on other.
Speaker Change: Other locations.
Speaker Change: Both of ours, and clearly harvest technologies.
Speaker Change: <unk> has interest in.
Speaker Change: Using their technology elsewhere.
Got it thank you.
Amit Dayal: Your next question comes from Amit Dayal with HCW.
Speaker Change: Your next question comes from Amit Dayal with H C. W.
Bryon T. McGregor: Thank you. Good afternoon, everyone. So, Bryon, with respect to sort of margin recovery for the rest of the year, I know you had indicated previously that 1Q margins may be pressured, but you know, with the visibility you have right now, do you see improvements, and are they already sort of showing up in your operations for 2Q so far?
Amit Dayal: Thank you good afternoon, everyone. So Brian you know with respect to sort of margin recovery for the rest of the year. I know you had indicated previously that <unk> margins maybe pressure.
Amit Dayal: But you know the visibility you have right now.
Amit Dayal: Do you see improvement some other already sort of showing up in your operations for <unk> So far.
Amit Dayal: Yeah.
Bryon T. McGregor: So the only thing I would comment on is beyond what I've said, which is that we're seeing margins continue to improve. They're in positive areas today. And we would expect them to continue to improve, particularly as we move into the summer driving season. Um, we did bring down the wet mill in April of this year, and it was down for 10 days. And if you give yourself some additional time on top of that, call it a week to be able to ramp up and meet your goals.
Brian: So the only thing I would comment on is beyond what I've said, which is we're seeing margins continue to improve their positive.
Brian: Areas today.
Brian: And.
Brian: We would expect them to continue to improve particularly as we move into the summer driving season.
Brian: We did bring down the wet mill in.
Brian: In April of this year and it was down for 10 days and if you'd give yourself. Some additional time on top of that call. It a week to be able to ramp up and meet your goals.
Bryon T. McGregor: It won't be the same as if we were running full out. Aaron Spychalla, Sameer Joshi, Robert Olander, Aaron Spychalla, Aaron Spychalla, Q2 Results, based on, based on current operation operating rates, and we're pleased with what we're seeing in results and, you know, figures cross, we continue to see further
Brian: It won't be the same as if we were running full out.
Brian: Capacity for further for the quarter, that's a little too preliminary at this point to be able to provide an exact ideas around.
Brian: Q2 results.
Brian: But.
Brian: Based on.
Brian: Based on current operation operating rates and we're pleased with what we're seeing is the results and.
Brian: Fingers crossed we should continue to see.
Brian: Further improvement.
Amit Dayal: Okay, and so thank you for that. And then, with respect to CCS, are there any expenses that are outside of your, you know, CapEx budget that need to go into CCS development efforts, or is that part of your CapEx for this year?
Speaker Change: Okay understood. Thank you for that and then with respect to Ccs.
Speaker Change: Are there any expenses better outside of your Capex budget.
Bob.
Speaker Change: Need to grow into your Ccs development efforts or is that part of your capex for this year.
Robert R. Olander: Yeah, I'll take this one. You know, the majority of the costs are going to be involved in the CAPEX plan, but there are some, you know, upfront, more material costs, you know, aspects of, you know, certain feed studies at www.amitdayal.com.
Bob: Yeah I'll take this one.
Bob: The majority of the costs are going to be involved in the Capex plan, but there are some upfront.
Bob: And material costs.
Bob: Aspects of <unk>.
Bob: Certainteed studies.
Bob: Yeah.
Speaker Change: Yes, certain legal costs to review.
Speaker Change: Commercial terms contracts things like that but those are all fairly immaterial.
Amit Dayal: Okay, okay, understood. When do you expect to start incurring a larger portion of these costs for CCS? Is that like, the second half of 25 timeframe, or any sense of when those needs will start coming up for you?
Speaker Change: Okay, Okay understood.
Speaker Change: When do you expect to start including the larger portion of these costs for Ccs is that like bringing five in the second half of 'twenty five day timeframe or.
Speaker Change: And any sense on when those needs and soft quoting a clue.
Bryon T. McGregor: Yeah, so we would probably expect to see those somewhere around the beginning of the first quarter or second quarter of next year. Still, a lot of the lift that's going to occur would be, you know, down payments on compression technology, right, making sure that you're in your queue and you've got, you know, the system's starting to be built. And there won't be, on a relative basis, the cost associated with developing the pipeline and the injection system really doesn't occur until after you've got your classics permit in place, so it's a combination of things, but, again, that would be largely for the account default, where ours will be more of a.
Speaker Change: Yes, we would probably expect to see those somewhere around the beginning first quarter second quarter next year still a lot of the lift that's going to occur would be.
Speaker Change: Downpayments on compression technology, right and making sure that you are in your Q you got it.
Speaker Change: Systems starting to be built.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Won't be.
Speaker Change: On a relative basis.
Speaker Change: Costs associated with developing.
Speaker Change: The pipeline and the injection system really doesn't occur until <unk>.
Speaker Change: After you've got your classics permit in place so it's a combination of things but.
Speaker Change: That would be largely for the account default where ours would be more of.
Speaker Change: Okay.
Bryon T. McGregor: A growing spend over that same period of time, call it 36 months of expense beginning mostly next year. And that's why... You know, that's why it's important as well to bring, you know, the financial resources to the table to be able to connect the dots pretty well, so you know what's on the balance sheet, what's being addressed elsewhere, and how we're going to make those ends meet.
Speaker Change: Our growing spend over over that same period of time call. It.
<unk> 36 months.
Speaker Change: Of.
Speaker Change: Beginning mostly in next year.
And that's why.
Speaker Change: That's why it's important as well to bring the financial resources to the table to be able to connect the dots pretty well. So you know what what's on balance sheet, what's being addressed elsewhere.
Speaker Change: And how we're going to make those ends meet.
Speaker Change: Okay.
Amit Dayal: I understand. Okay. Thank you, Bryon.
Speaker Change: Understood. Okay. Thank you Brian.
Speaker Change: Just last one for me in the presentation you highlight.
Amit Dayal: This last one for me, in the presentation, you highlight pursuing other opportunities like SAS, et cetera. Like, how should we read into that? I mean, is this... is this a serious effort already underway, or are you just exploring at a high level? This will kind of give a sense of how some of those developments might take place.
Speaker Change: In pursuing other opportunities like SaaS et cetera.
Speaker Change: How should we read into that I mean is this.
Speaker Change: Sort of a serious offer already underway or I'll use this explosion at a high level.
Speaker Change: Just trying to get a sense of you know how some of those developments Mike.
Speaker Change: Weakness.
Bryon T. McGregor: Well, there's clearly a lot of interest around SAF. There's a lot of resources that are going into it, not necessarily at Alto. Our focus is really around being able to make a product that would be eligible for SAF. That said, I think there's a lot of work and a lot of lifting that still needs to be done between now and when our product is available.
Speaker Change: So theres a lot of there's clearly a lot of interest around SaaS theres a lot of.
Speaker Change: A lot of resources that are going into it not necessary at alto. Our focus is earlier on being able to make the product that will be eligible for for Saf.
Speaker Change: That said I think theres a lot of a lot of work and a lot of lifting that still needs to be done between now.
Speaker Change: And when our product is available with lot of things can change, but I think there is really a growing interest in particularly with the latest treasury announcements. There is now a pathway and there is an opportunity to be able to really bank.
Bryon T. McGregor: A lot of things can change, but I think there's really a growing interest, and particularly with the latest Treasury announcements, there is now a pathway, and there's an opportunity to be able to really make, where you have the ability to be able to capture the CO2 and sequester it to really make.
Speaker Change: Where where you have the ability to be able to capture the cotwo and sequester.
Speaker Change: To really make a difference and be able to produce product that is eligible for an available too.
Speaker Change: To support the SNF industry.
Amit Dayal: Thank you so much.
Speaker Change: Got it.
Speaker Change: Yes, that's all items. Thank you so much.
Operator: Again, if you have a question, please press star then 1. Your next question comes from David Bastian with Kingdom Capital Advisors.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Your next question comes from David Boston with Kingdom capital Advisors.
David Bastian: Alright, thanks guys.
David Bastian: Alright, thanks, guys.
David Bastian: Couple of quick ones.
Bryon T. McGregor: Aaron Spychalla, Sameer Joshi, Robert Olander, Michael Kandris, David Bastian, Aaron Spychalla, You know, it's tough to say at the moment. I think we're down, I don't know, 20% as an industry, if you look across, you know, the various different products, 20-30% from the peaks of last year. It's difficult to know whether, you know, there'll still continue to be some progression. There's still clearly a spread, a significant benefit in that, you know, and it's still, it's a compelling argument as to why you should be able to differentiate your product as much as possible, taking advantage of that. But, and that goes from everything from corn oil to high-protein value products.
David Bastian: You mentioned you expected co product revenues to be down for the remainder of the year at least as a percentage of sales.
David Bastian: It's likely to be roughly ratable over last year in terms of percentages are there any major puts and takes we should be thinking about.
David Bastian: Yeah.
Speaker Change: Yes, it's tough to say at the moment I think we're down.
Speaker Change: I don't know, 20% as an industry. If you look across the various different products 20, 30% from the peaks of last year.
Speaker Change: It's difficult to know whether they will still continue to be some progression I mean, there's still clearly.
Speaker Change: Spread significant benefit in that.
Speaker Change: And it still is a compelling argument as to why you should be able to you should be differentiating your product as much as possible taking advantage of that but yes.
From everything from corn oil to the high protein value products.
David Bastian: That said, you're just not seeing the peaks that you would otherwise have seen a year ago. And I don't, you know, our expectation is that that's going to be a bit of a cycle, right? You need to be able to produce product that then makes its way, and there are times where you'll have excess product and it'll soften prices, and then demand will grow and find a place for it, and you'll start to see prices start to increase.
Speaker Change: Said youre just not seeing the peaks that you would otherwise would have seen a year ago.
Speaker Change: I don't.
Speaker Change: Our expectation is that that's going to be a bit of a cycle right you need to be able to produce product that then makes its way and there are times, where youll have excess excess product and it will soften prices and demand will grow in and find a place for it and and Youll start to see prices start to increase stemming of the nellix.
David Bastian: It's difficult to know exactly the length of that cycle, but we do know in the long run that there is significant demand for the products. And so our expectation is that, in the long run, those are the kind of investments that we should be making. And there's an opportunity again to further differentiate the kinds of products that we make, and we will be willing to pay for that. Aaron Spychalla, Sameer Joshi, Robert Olander, Michael Kandris, David Bastian, Aaron Spychalla, Do you guys expect CapEx to be at a similar level to last year as well on a quarterly basis, or if there's any major changes there that we should be thinking about?
Speaker Change: The length of that cycle, but we do know we have a long run and there is significant demand for the products.
Speaker Change: And so our expectation is sustaining over the long run that those are the kind of investments that we should be making as well.
Speaker Change: There is an opportunity to get further differentiate the kinds of products that we make.
Speaker Change: And we will be willing to pay for them.
Speaker Change: Okay.
Speaker Change: Thanks for the color on the Capex with carbon as well I was curious if outside of the carbon capture opportunity you.
Do you guys expect capex to be at a similar level to last year as well on a quarterly basis or if there is any major.
Speaker Change: No changes there that we should be thinking about.
Robert R. Olander: Yeah, I believe last year we had about $30 million in CapEx for 2023, and I believe $40 million the year before. This year, we lowered the target to not exceed $25 million. And with about four and a half, $4.7 million in CapEx in Q1, we feel that
Speaker Change: Yeah.
Speaker Change: Last year we.
Speaker Change: How about $30 million in Capex for 2023.
Speaker Change: And I believe $40 million a year before this year, we lowered the target to not exceed $25 million.
Speaker Change: And with about $454 7 million in Capex in Q1, we feel that were coming in at that plan.
Speaker Change: Yes.
David Bastian: So David, is your question going to be ratable? Or are you looking at asking if there's going to be a low and a big spend in other periods or not? We just wanted to confirm what you guys are thinking.
Speaker Change: So David as your question is that going to be ratable or are you looking at are you asking if theres going to be a lull in the big spend in other periods.
Speaker Change: Help me understand confirms what you guys are thinking so it sounds like 25% is that target here, we're on track for that.
David Bastian: Right, and I would assume that'd be pretty stable throughout the year. For More Information, Visit www.fema.gov
Speaker Change: Right I would assume that would be pretty ratable throughout the year.
Speaker Change: Okay.
David Bastian: Got it, thank you, that's all for me.
Speaker Change: Got it. Thank you that's all for me.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Bryan McGregor.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Brian Mcarthur CEO for any closing remarks.
Thank you Kelly.
Bryon T. McGregor: Thanks again for joining us today, everyone.
Bryon T. McGregor: Thank you again for joining us today, everyone. We appreciate your ongoing feedback and support have.
Bryon T. McGregor: Have a good day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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