Q4 2024 Alto Ingredients Inc Earnings Call

Speaker Change: Good evening and welcome to the Alto Ingredients 4th quarter and year end, 2024 Natural Results Conference Call. Albert Dispense will be in Listen Only Mode. Should you need assistance, a signal or conference specialist by pressing the star key followed by C.L.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch turn phone. To withdraw your question, please press star then two. Please note, this event is being recorded.

Speaker Change: I would now like to turn the conference over to Kirsten Chapman with Alliance Advisors and Resulations. Please go ahead.

Kirsten Chapman: Thank you, Asya. And thank you all for joining us today for the Alto Ingredients 4th quarter in year-end 2004 results conference call. On the call today are President and CEO , Brian McGregor, and CFO , Rob Olander. Alto Ingredients issued a press release that after the market closed today.

Kirsten Chapman: 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 available through March 12, the details of which are included in today's press release.

Kirsten Chapman: and Webcast Replay will also be available on Alto Ingredients website.

Kirsten Chapman: Please note that the information on this call speaks only of today March 5th. Your advice that any time-sensitive information may no longer be accurate at the time of any replay.

Kirsten Chapman: Please refer to the company's Safe Harbor Statement on Slide 2 of the presentation available online which states that some of the comments in this call constitute forward looking statements and considerations that involve risks and uncertainties.

Kirsten Chapman: The actual future results of Alto Ingredients could differ materially from those statements.

Kirsten Chapman: 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 now to ingredients filings with the SEC, except as required by applicable law, the company assumes no obligation to update any forward-looking statements.

Kirsten Chapman: 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.

Kirsten Chapman: The company defines adjusted EBDA as consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments.

Kirsten Chapman: Unrealized derivative gains and losses, acquisition-related expense, and depreciation and amortization expense. To support the company's review of non-GAAP information, a reconciling table was included in today's press release.

Kirsten Chapman: On today's call, Bryon will provide a review of our Strategic Plan and Activities and Robble Comment on our financial results.

Speaker Change: Brian will wrap up the call and open the call for questions. It's now my pleasure to introduce Brian McGregor. Please go ahead, sir.

Bryon McGregor: Thank you, Kirsten. Thank you all for joining us today. We have a lot to discuss. What's gone well and what hasn't. What we've done about it so far and what we will be doing to make additional improvements to take advantage of our strengths and opportunities.

I'll start with some highlights.

Bryon McGregor: In January , we leveraged a long-term partnership to acquire a beverage grade liquid CO2 processing plan, adjacent to our Columbia facility, bolstering economics and increasing asset valuation.

Bryon McGregor: This transaction will improve the top and bottom line results for our Columbia facility as well as create cost synergies and growth opportunities.

Bryon McGregor: Additionally, in the fourth quarter of 2024, and again in the first quarter of 2025, we took action to rationalize our footprint and cut costs, while supporting customers and our goal of becoming a low-cost producer.

Bryon McGregor: We'll discuss this further in a moment, but I will note that these actions and associated non-cash impairments make up a material portion of the losses for Q4 and 2024 year end results.

Bryon McGregor: Lastly, as part of our ongoing efforts to maximize shareholder value with the assistance of our financial and legal advisors, we are considering a broad range of options including asset sales, and merger or other strategic transactions to better align the long-term value potential of the company.

Turning to our operational review. I was expected and discussed on our last call.

Bryon McGregor: Fourth quarter market conditions prove challenging and crush margins were down compared to the prior quarter and year as Rob will cover shortly.

As mentioned, we have implemented the following cost-saving initiatives.

First, we called Idle Magic Valley.

Bryon McGregor: To provide context in 2022, we saw an opportunity to take advantage of premium prices and high-quality protein and corn oil.

Pursuing greater yield of high margin products, weems.

Bryon McGregor: Stalled and commissioned, the high quality protein and corn oil technology however.

Bryon McGregor: The installation took much longer and cost significantly more than expected. Further, we underestimated the negative impact that the build out a renewable diesel and soy crushed capacity would have on corn oil and protein market prices in the region.

Bryon McGregor: Compounded by the dramatic swing and delivered corn prices for Western operations in comparison to midwestern facilities, it became impossible to operate our Magic Valley plant profitably.

Bryon McGregor: By cold idling the facility and cutting our variable and fixed cost as much as possible, we stop the drag on the profitable areas of our business.

Bryon McGregor: For the fourth quarter, we took a significant impairment charge related to this plant.

Bryon McGregor: to partially offset remaining carrying expenses and to serve our customers in the area. We are opportunistically using Magic Valley as a renewable fuel terminal.

Second, we rationalize the allow-call.

Bryon McGregor: Since the acquisition, we have integrated Eagle Alcohols, High Quality Alcohols, Volt Operations, and Customers into our PITICAN and Kinnergy Marketing Business.

Bryon McGregor: With this reorganization, we reduced headcount at the Eagle Alcohol. Now, we are focused on turning the remaining brake bolt, warehousing, and trucking operations into a profitable service center.

Third, we implemented additional rights citing opportunities.

Bryon McGregor: We aligned the company to our small operational footprint, smaller operational footprint while maintaining excellent customer support during Q4, 2024 and Q1, 2025. We stream life-staffing, producing both COGs and SGNA.

Bryon McGregor: In aggregate, we expect to save approximately $8 million annually, which will improve our bottom line run rate and manage liquidity.

Bryon McGregor: We continue to evaluate initiatives to grow our high margin offerings, unlocking unreliced value and improve efficiency.

Bryon McGregor: More specifically, the carbon markets continue to show promise, and on January 1, 2025, we acquired Kodiak Carbonic, a beverage-grade liquid CO2 processor for just over $7 million in cash plus working capital.

Bryon McGregor: This processing facility, renamed Alto Carbonic, is located on the same property as our Columbia plant in Borden, Oregon, and has been operating profitably since its first full year of operations in 2016.

Bryon McGregor: Alto Carbonic takes bionic, excuse me, biogenic CO2 gas produced as a byproduct of the fermentation process, but our Columbia plant and converts it into premium liquid CO2.

Bryon McGregor: The finished product is sold into the north-western region of the United States, for use in food and beverage processing, industrial cooling, and other applications.

Bryon McGregor: The facility produces, on average, approximately 56,000 tons annually, a liquid CO2 with a capacity to produce over 70,000 tons annually.

Bryon McGregor: This transaction, which included an amended long-term sales offtake agreement with a leading North American industrial gas supplier, was immediately accreted and has a compelling payback of approximately two years.

Bryon McGregor: We have been integrating the plant with our Columbia facility, improving coordination and collaboration between the operations.

Bryon McGregor: You expect to realize additional costings with centeredies and production and overhead.

Bryon McGregor: We are also evaluating an opportunity to increase storage capacity to improve logistics and to take advantage of spot market premium liquid CO2 demand.

Bryon McGregor: To add a finer point, this acquisition immediately stems the recent lack of profitability at the Columbia site. Provides a stronger financial foundation to overcome destination-plant competitive challenges and significantly increases the value of these combined assets.

Bryon McGregor: At our peaking campus, we also continue to diligently pursue opportunities to optimize our CO2, which historically was considered only a way string with marginal value.

Bryon McGregor: In November , we achieved a milestone finalizing our CO2 transportation and sequestration agreement

Bryon McGregor: This partnership will be critical in our execution of carbon capture and storage or CCS.

Bryon McGregor: In December , Vault submitted the formal application for the EPA Class 6 permit, required to commence construction of a CCS pipeline, and for long-term CO2 storage, indeed, geological formations.

Thank you.

Bryon McGregor: The complexity in constructing operations to capture transport and store CO2 requires significant development and planning work.

Bryon McGregor: The EPA requires extensive site analysis, monitoring and safety measures to safeguard underground water supplies.

Bryon McGregor: Currently, the approval process is estimated to take at least two years.

Bryon McGregor: We anticipate this will allow the time necessary to address Illinois's current moratorium on new CO2 pipelines as part of the Safe CCS Act, which is in effect until July 2026 or until

Bryon McGregor: While the CCS project timeline has been slow, it is important to recognize the significant changes that have occurred in the CCS environment and the carbon regulatory and political markets during that time.

Bryon McGregor: Alto's deliberate pace has been advantageous as we navigate these changes and discover more effective and efficient options.

Bryon McGregor: The extended time required for regulatory approvals provides us the flexibility to lay the necessary infrastructure plans, including compression and energy solutions. We also intend to use this time to secure financing.

Bryon McGregor: In addition, working with VALP, we are focused on meeting with local groups and authorities to educate the community about the process, strengthen support and address concerns.

Bryon McGregor: Regarding our ongoing business at our peaking campus, we are proactively modifying operations to deliver the higher value products to market demands.

Thank you.

Bryon McGregor: During our biennial wet mill outage in May 2024, we were able to improve plant utilization. As a result, the wet mill has been operating at name plate capacity of 100 million gallons.

Subs by www.zeoranger.co.uk

Bryon McGregor: Q4 pecan campus production volume was up 3.8 million gallons over the prior year. This 7% increase demonstrates the effectiveness of our maintenance program.

Bryon McGregor: Caring these improvements into 2025, we expect to produce an additional 8 million gallons for the year, lowering our cost of production on a per gallon basis and providing an opportunity to produce a greater volume of specialty alcohols.

For more information visit www.FEMA.gov

Bryon McGregor: In Renewable Fuel, over a year ago, we applied for ISCC certifications to allow us to ship qualified renewable fuel to the EU and a premium to our domestic alternatives.

Bryon McGregor: Both Alto, ICP, and Pekin were IACC certified in late summer. We began exporting certified product to Europe markets.

in Q4 and anticipate expanding exports further in 2025.

Bryon McGregor: In premium specialty alcohol, our certifications and customer relationships continue to be material differentiators.

Bryon McGregor: For 2024, we sold nearly 92 million gallons, especially alcohol. In 2025, our goal is to balance production levels between specialty alcohol and ISEC product to maximize margins and

Bryon McGregor: Since our last call, we completed another ISO 9001 audit, and I can proudly state that there were no adverse findings, a testament to our culture of quality at Alto.

Now, I'll turn the color to rub.

Rob Olander: Thanks, Brian . Before I discuss the quarter, I'd like to highlight the cost-cutting steps we've taken to strengthen our financial results. As Brian mentioned, we cold-idled the Magic Valley facility, rationalized our Eagle alcohol operations, and reduced our headcount by 16% to align with our smaller company footprint.

Rob Olander: In aggregate, our workforce reductions are expected to lower our annual costs by $7.8 million.

Rob Olander: The savings are split 74% and cost a good soul, or COGS, and 26% in S.G.N.A.

Rob Olander: We expect to realize the full financial benefit beginning in Q2. These are meaningful reductions.

Rob Olander: To put it into perspective, if we applied these measures retroactively to 2024, all other things being equal adjusted even out would have been positive for the year.

Rob Olander: Now I'll review the financial results for the fourth quarter of 2024, compared to the fourth quarter of 2023.

Rob Olander: We sold 95.1 million gallons, up from 92.5 million gallons during Q4 2023, reflecting production improvements that are peaking campus from our Plan Repairs and Maintenance Program.

Rob Olander: However, our sales price per gallon average $1.88 in Q4 2024 compared to $2.24 in Q4 2023. These lower market prices reduce net sales by $38 million for the same quarter year over year.

Rob Olander: The market crushed margin declined nearly 18 cents, resulting in an $8.7 million net adverse

Rob Olander: In addition, our protein returns were negatively impacted by the expanded soy crush to meet renewable diesel demand, higher wet feed product mix, and the inability of a key customer to take deliveries following herpane haline.

Rob Olander: While low-carbon fuel credit prices were also down, compared to a year ago, they improved from Q3 2024 and are recovering from their market lows.

Rob Olander: I'll review factors that impacted or caused in Q4 2024. I realize derivative losses which are included in adjusted EBITDA for $1.2 million greater than the same quarter in 2023 at $3.5

Rob Olander: Our unrealized derivative gains, which are excluded from adjusted EBITDA, were positive $5.5 million compared to a loss of $8.2 million resulting in a $13.7 million positive swing year over year.

Rob Olander: Our non-tash, lower-poster market adjustment on physical inventories, and the marked market on corn commitments resulted in a $3.5 million reserve and was $1.3 million dollars more

Rob Olander: As a result, total gross loss was $1.4 million, improving from a gross loss of $2.5 million in Q4 2023.

Rob Olander: In Q4 2024, we recognized final Eagle Alcohol Acquisition-related expenses of $5.7 million of which $5 million was non-cash compared to $700,000 in Q4 2023.

Rob Olander: Q4 2024 acid impairments for $24.8 million. This consists of $21.4 million for the cold idling of our Magic Valley plant and $3.4 million on intangibles related to the integration of certain evil alcohol activities.

Rob Olander: This compares the $6 million related to Goodwill associated with Eagle Alcohol in Q4 2023.

Rob Olander: Our consolidated net loss was $41.7 million, including the $30.5 million in asset impairments and acquisition related expenses.

Rob Olander: Compared to a net loss of $18.9 million, including net expenses of $6.7 million in asset impairments, acquisition-related expenses, and the USDA grant in 2-4-2023.

Rob Olander: Adjusted EBITDA was negative $7.7 million, including the $3.5 million in realized losses on derivatives for June 4, 2024.

Rob Olander: This compares to positive $3.5 million, including $2.3 million in realized losses under the revivatives in Q4 2023.

Rob Olander: As you will recall, the best way to determine the derivative value or obligation should be realized in the future, measured as of a specific date is to note the amounts on our balance sheet.

Rob Olander: The net derivative asset, or liability, reflects what Alto would realize if we lifrogated all of our positions as a bat specific period end date.

Rob Olander: For December 31st, 2024, our derivative net asset position was $2.1 million.

Rob Olander: As of December 31st, our cash balance was $35 million and our total loan borrowing availability was $88 million, including $23 million under our operating line of credit and $65 million subject to certain conditions under our term loan facility.

Rob Olander: We used $3.5 million in cash flow from our operations in 2024.

We invested $11.1 million in CAPEX in 2024.

Rob Olander: We recorded $34.6 million in repairs and maintenance expenses in line with our 2024 estimate.

In summary, our restructuring has improved the company's financial position.

Rob Olander: We realized over $30 million in asset impairments and prior acquisition related expenses resetting our base.

Rob Olander: We also reduced our expense run rate by $8 million annually.

Bryon McGregor: Combined with our improved performance at the pecan wet mill, our synergistic acquisition of premium liquid CO2 processing and our entry into the European market, we are optimistic about 2025. Now, we'll turn the call back to Brian .

Thank you Rob.

Bryon McGregor: In summary, every day we are focused on exceeding customer expectations in the services we provide and products we sell, as well as maximizing the value of our specialty alcohol and sensual

Bryon McGregor: Our recent acquisition of Alto Carbonics bolstered economics and increases asset valuation in the Columbia facility. Our reorganization improves profitability on a more sustainable, consistent basis and reinforces our commitment to create long-term shareholder value.

Speaker Change: Operator, we are ready to begin Q&A with Southside Analysts.

Speaker Change: Thank you. To ask a question, you may press star than one on your touch turn phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.

Samir Joshi: First question comes from Samir Joshi with ATV Enrite. Please go ahead.

Take a good afternoon, Brian Robb. Thanks for taking my questions.

Bye, Samir.

Speaker Change: About the carbon-like acquisition, how are you planning to balance the carbon sequestration versus the carbon, like getting the heartbeam in carbon dioxide for the beverage industry? Is there some strategy on that?

Speaker Change: So while there may be opportunities for carbon sequestration in the Pacific Northwest, it's not as readily apparent or prevalent as it is in our Deakin location.

and this is in the carbonic.

Structure and Arrangement is...

Clearly beneficial for us.

particularly over the length, a more lengthy period of time under contract.

Speaker Change: Situation is interesting and unique in the Pacific Northwest. There's not a lot of supply of CO2, particularly if you look. And you're along the Pacific coast as you've seen in reduction significantly in the amount of CO2 being produced and the refineries alike.

Speaker Change: So it's a unique market and most of the product that comes into that region is under a long haul transportation which is not efficient so it puts that facility to be very unique position to be able to take advantage of the needs that are in.

Speaker Change: and the market demands in that area. So this by far is probably the most productive exercise in use of the CO2 at the moment.

Speaker Change: Understood. Is this site certified for or quite does it qualify for the 45 Q incentives already or is there some more work needed to be done to get that?

Speaker Change: in order. It's very close. Yeah, it's very close. I mean, there's clearly still work that needs to be done on 45Z.

Speaker Change: But if you look at the overall score of the Columbia facility, it's within striking distance of that requirement so it's certainly something that we're going to be focusing on. We'll provide you more information as those rules become codified and we can be clear about the opportunity.

Speaker Change: and then for the specialty ingredient or high-value alcohol, [inaudible]

I know you said 92 million gallons in 2024.

Speaker Change: And also you have the EU Export option. Do you know or do you have an estimate of how much of this?

Speaker Change: will be sent to you versus here, and how does that ratio impact pricing and profitability on this one?

so it because of the

Speaker Change: The nature of the product is actually captures a premium and it depends clearly on what you know it's not there's not one price for the EU as a whole each country and each location has its own requirements.

Speaker Change: So it's not just an easy layup. That said, think about this as a displacement of what otherwise would be sold domestically as fuel.

Speaker Change: So, it's not necessarily a displacement of or use of our high quality product.

Speaker Change: and we still, you know, our goal is to continue to achieve the high volumes of being able to do, but it is around, if you look at the flexibility that's provided by that location and beacon, our ability to shift between products.

Speaker Change: and be able to take advantage of market improvements in conditions. It provides a great opportunity for us to be able to optimize profitability in that area, or at least revenues in that section.

of the world and in our operations.

The Affit Sale vs. Merger, or other strategic options.

Speaker Change: How far along are these discussions? Have you identified any particular aspect that is initially targeted to be divested, or are you talking to up? Like I just want to just get an idea of where the discussion is on that front.

For more information, visit www.FEMA.gov

Speaker Change: Yeah, so it's a great question. It's not really productive for us to talk about, you know, M&A opportunities and activities, but I want to be clear that we're considering all options. And as a part of our ongoing Everest and Maxxulation, our older body.

Speaker Change: and a better online or long-term value potential of the company.

So we'll provide updates.

Perfectly when they occur.

Speaker Change: Thanks for taking my questions. I'll be right back.

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Speaker Change: Once again, if you have a question, please press star then one. The next question comes from Eric Stine with Craig Hillam, please go ahead.

Hi Bryon, Hi Rob.

Hello

Speaker Change: Hello. You know, could we just go back to Pekin in the CCUS? I know you're you're juggling a lot of things, you're juggling the length of time it takes for the EPA permit.

The Moratorium in Illinois.

Just trying to think, so...

Speaker Change: You've got, you expect that to take two years so that gets you to early 2027.

Speaker Change: in that time frame you're looking to get financing. Then just thinking about all right.

Speaker Change: If you were to then give the green light to the project, remind us how long it would take for that project to be constructed. And what timeline we're looking for, where this could start to contribute to results, is it 2029 or 2030, or is it potentially sooner than that?

For more information visit www.FEMA.gov

Yeah, it's a great question, Eric, and it's...

Speaker Change: I guess a little reluctant to give you a specific date, but I would say however it is if you.

Speaker Change: and it depends largely on what kind of technology you're using.

as well, and your compression technology, things like that. And you know, Bill.

Speaker Change: The EQ that you may have to line up, depending on which technology you want to apply for, that said, if you think about to do you again your map, it puts you into...

Thank you. Thank you.

Speaker Change: Just for your classics, permit approval, if EPA sticks with their commitment.

Speaker Change: which was two years, and we all know how challenging or the things that EPA is having to deal with right now.

and the number of lighters in their cube.

That said, if we went with that...

You would expect that.

Speaker Change: I can't speak to the queue with you, the back-up line with regards to technology, but let's say another one to two years, let's be generous and say two years, that puts you wet in 2029, 2030.

Okay.

God

Speaker Change: Checking if it's my job. And you may be able to tolerate.

Speaker Change: Right, and Eric, you may be able to accelerate. If there's a change in people who have put down payments on piping and everything else, you've got a green light.

Speaker Change: There may be opportunities to take advantage of that, where others may not, you know, that could be expedited significantly. So, again, there's a lot of factors that are going into this. But, you know, our eyes on the ball on that and very focused and have a good partner in pursuing this and trying to excel as quickly as we can. Thank you very much.

Speaker Change: Yeah, maybe just turning to the Columbia plant, you mentioned the acquisition. I mean, is that something that had you not made the acquisition, you would have looked to potentially cold idle that plant as well? I mean, it sounds like now.

Speaker Change: with that acquisition in place. That's off the table, but what kind of was the thought process there based on market conditions?

Speaker Change: Yeah, I'll take that one. You know, as I talked about in the past, both our Western assets were particularly challenged due to regional issues, particularly higher corn bases, you know, the smaller size of their facilities.

Speaker Change: And, you know, ultimately the efforts that we put forth at Magic Dolly with the high protein and corn oil technology wasn't enough to overcome those regional challenges, particularly accounting for the impact that the additional soy crush had on both Carvin and...

Speaker Change: You know, so that led ultimately to our decision to cool idle down, if you focus, you just couldn't overcome that, at least not at this time, but fortunately with Columbia, they were both positioned and we were able to leverage the relationship that we had to acquire this CO2 processing facility.

Speaker Change: And that does, that's essentially a game changer for this fight. I want to be clear about that. It is a very...

You know, interesting acquisition that has a very creative payback.

Speaker Change: for the facility. So, we're really excited, particularly about the fact that there's an expanded opportunity to increase the business in the CO2 area. I mean, right now we're...

Speaker Change: Processing through that facility about 55,000 tons per year, but it has with the current capacity to go closer to 70,000, and we're only using maybe half of the Columbia Facilities CO2 waste gas.

Speaker Change: Got it. Okay. No, it makes total sense. Maybe last one for me, you mentioned Magic Valley. I'm just curious. With that cold idol, I know you were going through the process of potentially going back to Co-Pro Max.

Speaker Change: and whether it was for damages or figuring out best path forward, how does this impact that process at all change maybe what we should think the results might be?

[inaudible]

Speaker Change: I think generally no, Eric, I think that, you know, we've weed.

Speaker Change: We've evaluated, it doesn't mean that we've won't pursue what we can with regards to, you know, addressing issues outside of the plant itself and with technology providers and like that said, you know, we decided and made taken actions that we needed to do in order to. Thank you.

Speaker Change: Stem Molasses and basically to put that facility into place until there's an opportunity to realize more of that value.

Speaker Change: And whether that occurs through an asset sale or other unique opportunities, there's a significant change in the market and things, but for right now the facility is idle and the staffing adjustments have been significantly.

Speaker Change: Justin and Wilner. So we're running out as a terminal as we said in our, you know, and it's offsetting, it's beneficial in that regard because it offsets some of the fixed costs and what other ways have to carry.

Got it. Keep it with the garlic plant.

Yep. Okay. Thanks for that.

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

Bryon McGregor: Thank you, operator. And thanks again, everyone for joining us today. On a final note, we will be participating in the 37th Annual Roth Conference later this month and look forward to seeing those in attendance. We appreciate your on-going feedback and your support. Have a good day.

Bryon McGregor: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thank you very much.

Speaker Change: John draws up a map or element. He thinks there is a sapphire study at the Detroit Fort. He is guided by a crapoach, the War of Independence man of discrimination in the 1800s. He keeps a fact that there may be restored in the summertime.