Q1 2025 Alto Ingredients Inc Earnings Call
Speaker Change: Good day, and welcome to the Alto Ingredients First Quarter 2025 Financial Results Conference call.
Speaker Change: All participants will be in list and only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions.
Speaker Change: To ask a question in my press star, then one on your telephone keypad, to withdraw your question, please press star then two.
Please note, this event is being recorded.
Kirsten Chapman: I'm L.A. Determine Conference Over Two, Kirsten Chapman, Alliance Advisors, Investor Relations. Please go ahead.
Speaker Change: Thank you Darcy, and thank you all for joining us today for the Alto Ingredients First Quarter 2025 Results Conference Call. On the call today, our President, the CEO , Brian McGregor, and CFO Rob Olander.
Speaker Change: Alto Ingredients issued a press release after market closed today, providing details of the company's financial results for the first quarter of 2025. The company also prepared a presentation for today's call that is available on the
Speaker Change: A telephone replay of today's call will be available through May 14th, the details of which are included in today's press release. A webcast replay will also be available on Alto Ingredients website. Please note that the information on this call speaks only as of today May 7th.
Speaker Change: You advise that any time sensitive information may no longer be accurate at the time of any replay.
Speaker Change: 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 presentation constitute for looking statements and considerations that involve risks and uncertainties.
Speaker Change: The actual future results of the 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
Speaker Change: accepted as required by a applicable law the company assumes no obligation to update any forward looking statements.
in Management's Prepare remarks, Non-Gat Measures will be referenced.
Speaker Change: Management uses these non-GAAT measures to monitor the financial performance of operations and believes these measures will assist investors in assessing the company's performance for the periods reported. The company defines adjusted EBITDA as consolidated net income or loss before interest expense.
Speaker Change: Interest Income, Provisioned For Income Taxes, Assa Impairments, Unrealized Derivative Gains and Losses, Acquisition Related Expense, and Depreciation and Ammonization Expense. To support the company's review of non-GAAP information, a reconciling table was included in today's press release.
Speaker Change: On today's call, Bryon will provide a review of our strategic plan and activities. Rob will come in on our financial results. Then Bryon will wrap up and open the call for Q&A. It's now my pleasure to introduce Bryon McGregor. Please go ahead, sir.
Bryan McGregor: Thank you Kirsten, and thank you all for joining us today.
Bryan McGregor: During Q-1 2025, Gross Margin and Adjusted Eva Dah improved compared to Q-1 2024. This reflects our operational uptime.
Bryan McGregor: and our Carbon Optimization Initiative, driven by our acquisition on January 1st of a
Bryan McGregor: The combined ownership of both assets has reduced management and staffing costs while enhancing operation coordination and overall productivity.
Bryan McGregor: We continue our optimization efforts, which should facilitate longer-term feed sales, commitments and expand premium liquid CO2 sales.
Bryan McGregor: As expected, this acquisition improved the Columbia Facilities Economics and increased its up asset valuation.
Bryan McGregor: Also, we write size staffing to align with our current footprint. During Q4 and Q1, we reduced headcount by a total of 16%. As a result, we expect to save approximately $8 million annually with the financial benefits starting in Q2.
Bryan McGregor: Although we have completed our planned reorganization, we will continue to evaluate opportunities to reduce expenses.
Bryan McGregor: We are prioritizing quick return projects including water and energy optimization that would reduce utility costs and lower our carbon footprint.
Bryan McGregor: Results of operations at our peaking campus help to illustrate peaking's flexibility to shift production quickly to capitalize on Marcus Friends.
Bryan McGregor: For example, to diversify our revenue strings we earned our ISCC certification in late last summer and began exploring qualified renewable fuel to the European markets beginning in the fourth quarter.
Bryan McGregor: This certification has enabled us to access higher margin sales. During the first quarter, we experienced solid demand for ISCC certified renewal fuel price at a premium to domestic fuel grade ethanol.
Bryan McGregor: We grew ISCC sales as a percentage of our total renewable fuel volume sold at our picking
Bryan McGregor: As a result, ISCC sales partially offset some domestic market challenges, premiums on domestic high quality alcohol were generally lower in Q1 than in the same quarter last year, reflecting increased competition in the market.
Bryan McGregor: Also, prices for essential ingredients decline because of the rise in soybean oil supply to support
Bryan McGregor: In late March and early April , we completed our scheduled seasonal outages at the vacant facilities.
Bryan McGregor: The repairs and maintenance successfully achieved our goal of sustaining the improved plant utilization rate set a year ago.
Bryan McGregor: Also in early April during a period of rapidly rising river levels, our peak in load-out dock was damaged, negatively impacting production, logistics, and campus economics.
Bryan McGregor: We implemented temporary solutions and we are now back to full operation.
Bryan McGregor: We are currently assessing our long-term remediation options and working with our insurance carrier to mitigate the financial impact. We will rank further updates on our next call.
Now I'll review Market and Regulatory Trends.
Bryan McGregor: So far in 2025, we've experienced typical seasonal market patterns with spreads between corn and adult prices comparable year over year.
Bryan McGregor: These crush margins improve sequentially each month over the first quarter. We see spread improvements in April resulting from lower production rates associated with industry-wide scheduled spring fat outages. Nonetheless, margin expansion has been kept largely unchecked by high inventory levels with production outpacing demand.
Bryan McGregor: Without a meaningful reduction in ethanol supply, substantial crushed front improvements may be constrained. And although we are optimistic, then margins will continue to improve with increases in demand from the summer driving season. Concerns over tariffs in Chinese vessel restrictions have introduced greater export and certainty.
Bryan McGregor: While these macro events are largely beyond our control, we will continue to minimize the impact as effectively as possible.
Bryan McGregor: On a positive note, as I mentioned earlier, we've seen solid export state.
Bryan McGregor: In addition, we applaud the EPA's recent knee-to-skin fuel waiver allowing blending.
Bryan McGregor: through May 20th. While this is temporary, it is expected that the agency will issue new waivers effectively extending the allowance through the summer. Further, we're optimistic that pending national legislation will be passed later this year.
Resulting in long-sought-after-permanent adoption nationwide.
There's also growing support for E-15 adoption in California.
Bryan McGregor: The California Assembly recently passed a bill aimed at accelerating the approval process for E-15 fuel blends.
Bryan McGregor: Governor Newsom has also directed the California Air Resources Board to expedite its review citing potential benefits such as lower gas prices and reduced emissions.
Bryan McGregor: According to the latest EIA reports, California's 13.4 billion gallons of annual fuel consumption represents 11.6% of the national volume.
Bryan McGregor: A 5% percentage point increased from 10% to 15% in ethanol blend that in California alone would result in an additional 670 million gallons sold annually.
Bryan McGregor: Further, it is estimated that the National adoption of year-round E15 blending could boost ethanol demand by 5 to 7 billion gallons.
Bryan McGregor: In short, since the U.S. has approximately 18 billion gallons of ethanol production capacity, and domestic demand of approximately 14.4 billion gallons currently.
Bryan McGregor: The National adoption of year-round E-15 combined with strong exports would utilize over time much of the excess capacity and produce greater margin stability.
Bryan McGregor: Beyond the demand side, we believe E15 adoption would also have positive economic and environmental impacts.
Bryan McGregor: Reducing greenhouse gas emissions, supporting farmers and lowering consumer fuel costs.
Bryan McGregor: Turning to our peak in campus, Illinois Bill SB1723 is under considerations for a bent CO2 sequestration activity that overlies, underlies or passes through a sole source aquifer.
Bryan McGregor: This would include the Mohamed aquifer, which underlies multiple counties throughout the state, including an area currently contemplated for storage in our Class 6 permit application.
Bryan McGregor: Together with BALT and other potentially affected parties, we are working with elected officials to address concerns to minimize or eliminate the potential legal impact of this legislation on our CCS initiative.
Bryan McGregor: We are also developing options to ensure that we are optimizing the value of our CO2 production, no matter the outcome of this legislation, including relocating the proposed storage location
Bryan McGregor: Further, we're working with Illinois State leaders on SB 41, a clean transportation standard act to develop clean ground transportation standards to reduce the life cycle carbon intensity of fuels, like the standards adopted on the West Coast.
Bryan McGregor: With that, I'll turn the caller to Rob for our financial review. Thank you, Bryon. I'll review the financial results for the first quarter of 2025, compared to the first quarter of 2024.
Speaker Change: We sold 89.6 million gallons per 99 million gallons reflecting our decisions to idle magic family and a rationalizer warehouse for equal business.
Speaker Change: Ed Sales, or $227 million, $14 million lower than the same quarter year over year, due to the combined impact of both positive and negative factors.
Speaker Change: While the market crush margin only increased by a penny or so, your year improved domestic market prices for ethanol, increased our overall average sales price for gallon to a dollar 93 in Q1 2025, compared to a dollar 86 in Q1 2024.
Speaker Change: Also, greater sales of ISCC exports deliver a $1.4 million benefit from premium prices versus domestic renewable fuel sales this quarter.
Speaker Change: Had a negative impact with $3.8 million, which most affected our peaking campus results.
Speaker Change: Cods were $15 million lower than the same quarter year over year due to the following reasons.
Speaker Change: We Idol Magic Valley, accounting for ten million dollars of the decrease.
Speaker Change: We also marketed less volume in proximity to the Magic Valley plant, resulting in a 5 million gallon de-trief and third-party renewable fuel volume soap.
We lowered repairs and maintenance expenses by $1.2 million.
While Net Realized Rifted Games were negligible from both quarters,
or unrealized derivative gains.
which are part of COGS, but excluded from adjusted ebina.
Speaker Change: for $1.6 million in Q1 2025, compared to $3.2 million in Q1 2024, resulting in a $1.6 million negative swing year-over-year.
Gross Loss Improved $1.8 Million from $2.4 Million $1.
Speaker Change: We lowered S.G.A. by $700,000 to $7.2 million, reflecting the conclusion of our evil alcohol acquisition related expenses in 2024. Interest expense increased $1.1 million, reflecting higher average outstanding loan balances
Our consolidated net loss was $11.7 million for both periods.
Speaker Change: Adjust the EBITDA approved to negative $4.4 million from negative $7.1 million to Q1.204.
Speaker Change: This improvement includes $4.8 million saved by idling magic dolly and a $2.9 million improvement at our Columbia site, primarily reflecting our ownership of alzo carbonic.
Speaker Change: Our net derivative asset, or liability, reflects what Alto wouldn't realize if we liquidated all of our positions as a bad specific period of end date, and is the best way to determine the derivative value or obligation to be realized in the future, measured as of a specific date.
Speaker Change: From March 31, 2025, our derivative net asset position was $3.81.
Speaker Change: As of March 31st, our cash balance was $27 million and our total loan borrowing availability was $77 million, including $12 million under our operating line of credit and $65 million subject to certain conditions under our term loan facility.
Speaker Change: During the first quarter of 2025, we used $18 million in cash flow from operations.
Speaker Change: We invested $7.3 million in our acquisition of Alto Carbonic. We spent $500,000 in CapEx and we recorded $7 million in repairs and maintenance expenses in line with our 2025 estimate of $32 million.
Speaker Change: In summary, our entry into the European ISCC markets, our cost-restructuring efforts and integration of Alto Carbonic has improved our financial position enabling us to better weather the typical low to negative operating margin environment in Q1 and to navigate unexpected challenges.
Now I'll turn the cold back to Brian .
Thank you Rob.
Speaker Change: We continue to execute our long-term plan to diversify revenue and mitigate the volatility of commodities.
Speaker Change: We have leveraged our planned flexibility and our efforts are working. New initiatives in beverage grade CO2 and ISEC Renewable Fuel have been economically beneficial.
Speaker Change: Additionally, our measures to become more efficient have reduced our expense run rate going forward.
Speaker Change: The regulatory environment remains dynamic, yet there are encouraging developments, including the increasing state and potential national adoption of year around E-15.
Speaker Change: Additionally, the Illinois Clean Transportation Standard Act presents exciting possibilities to further support industry growth and innovation.
Speaker Change: Our team will continue to proactively evaluate all of this for revenue, streams, and value. Leverage our flexible and unique plans and commit to drive.
Speaker Change: for driving long-term shareholder value on a sustainable, consistent basis.
Speaker Change: Without operator, we are ready to begin Q&A cell-side analysts.
Speaker Change: Your first question today comes from Sameer Joshi from H.C. Wainride.
Please go ahead.
Okay, good afternoon. Thanks for taking my questions.
Speaker Change: Just a quick one on the acquisition completed in January the liquid CO2. It was expected to be immediately creative, one lit creative during the first quarter.
Speaker Change: Yes, that's a good question. The Columbia Facility and Carbonic Integration
Speaker Change: It moved ahead as we expected. We have already benefited from increased communication and operation synergies. We immediately eliminated redundant accounting and management expenses.
Speaker Change: Although we typically don't speak specifically about plant results, the Columbia assets improved $2.9 million to pair to Q1 2024. So we are seeing significant positive benefits from that acquisition.
Understood.
Speaker Change: And then the $8 million in annual savings that I think will be familiarized to you, according to the commentary.
Speaker Change: Would it mostly come from the operations, operating expenses, or is there any portion of cost of the goods on the overhead that will also be reduced?
Speaker Change: Thank you for the question. So the anticipated benefit of about $8 million due to our workforce reduction to a better line with our current company footprint, you'll see about a 13% reduction in both cost of goods sold and that's unique in spite of what.
Speaker Change: and we expect the benefit to start to be realized in Q2 2025.
Will you just...
Speaker Change: Elaborate or just give us a little bit more insight into the CCS impact that the United Bible might have on the earth. You briefly describe that.
Speaker Change: But just to want to understand how we could impact your plans.
Speaker Change: Sure, so it's difficult to assess at this time, Sameer, it's so dynamic. That said, if it goes through as I generally express it in the prepared remarks, it's a fairly short and...
and limited bill as currently drafted, and it would prohibit.
Speaker Change: Drilling through, in summary, drilling through above or through the aquifer.
Speaker Change: Directly, so you have to go around it, and our current sighting under our classics is Condon Place.
Speaker Change: Relocating or going through the taco press, so we would have to at a minimum relocate that well.
Speaker Change: Okay, thanks for that. So which would down? What potentially extends? It would, you'd have to then recent that perium in your, at a minimum, you have to amend your, your plastics permit.
Speaker Change: to adapt to those changes. And, again, there's other work that we will be doing, as I mentioned in our prepared remarks is...
Speaker Change: The focus is really around the again optimization, and I'm working with our partners as best we can to address this issue.
Got it. Understood.
Speaker Change: And then the last one, you mentioned the Peyton load dock damage and the temporary solution. What was the estimated cost of that temporary solution, and do you have any?
Speaker Change: Estimate on what it will cost to more permanently repair that.
Speaker Change: Yeah, just as a recap, our peak in barred stock failed in early April due to quickly rising river levels.
Speaker Change: You know, that essentially caused a pretty quick with just a couple of challenges and moving both our liquid and our dry products.
Speaker Change: So we did take the Dry Mill Offline for a week.
Significantly Reducing Our Production Volume During That Time Period.
Speaker Change: You know, a shout out to the operations, the commercial teams who quickly made the necessary short-term adjustment logistically to get the product flowing again. And that included a temporary load-out dock for liquids, and we're also working with a neighboring translow facility with respect to our EDGs.
Speaker Change: We are currently assessing our long-term remediation options and we're working with our insurance carrier to mitigate the financial impact.
Speaker Change: We will provide more updates on the next call. And also, I'll just add that we are assessing what the long-term option will be in regards to what equipment that we can salvage. If any, and...
Speaker Change: You know, if we were to place it with a new floating loadout dog.
Understood. Thanks for taking my questions. I will turn it over. Thanks.
Thank you, Mayor.
Speaker Change: Your next question comes from Eric Stine and Craig Hallam. Please go ahead.
Speaker Change: Hey guys, this is Luke on for Eric. Thanks for taking the questions. So first starting with Magic Valley, you mentioned in the past corn prices as being a driver of unprofitability and leading to the ultimate decision to cold idle. So we were wondering are these conditions consistent with other production sites in the region around Magic Valley or are they more specific to just Alto's logistical and cost structure?
Uh, I think it's pretty...
Plant Specific, and Location Specific, so...
Speaker Change: I guess, maybe to answer your question differently is if you had a different size planned corn facility in, you know, near or adjacent to our our
Speaker Change: Magic Valley Facility, they would be dealing with the same kind of issues and consequences. Corn is not grown in the area, there is some local corn, but it's not sufficient to address the needs and the costs of the logistical costs of bringing corn through that area with only one railroad, no competitors.
Speaker Change: Makes it very difficult to be able to get competitive pricing for delivered corn.
Speaker Change: So while you can support and justify the services provided by that facility to the local markets and it's more of a sufficient demand if you're shipping within.
Speaker Change: You know, either Salt Lake City or all the way over to Boise. It covers a lot of area. There is...
There are other alternatives for cheaper.
Speaker Change: Sources of ethanol into that area, and so there really wasn't an opportunity to be able to, really the solution would be if you wanted to run ethanol out of that facility, would do find a different source of feedstock.
Speaker Change: All right, that's what you can avoid. So you can avoid that, you know, that, that preening that you have the ways have to pay for court.
Speaker Change: Right, thank you, and just to follow up quickly on that, I mean, given we've seen some slight market recovery in the past couple months here, it'd be helpful if you could just characterize what sort of sustained improvement you need to see in the market to potentially justify a restart at Magic Valley and...
Speaker Change: If that's something that's potentially still on the table for 2025 or we still a long ways off in just terms of cost there.
Speaker Change: You know, I think that the fundamentals that we were evaluating a couple of years ago have changed dramatically, right? We made, we've made a...
Game on!
Kirsten Chapman, Sameer
Speaker Change: The decision to proceed with the high protein and the higher corn oil system, where...
Speaker Change: You on a logistical basis could see a material difference and benefit of doing so?
and I think the fundamentals, particularly around...
Um.
Speaker Change: It makes it very difficult to be able to do that on the same basis. If you were looking at corn prices of $8 or $10 of a proposal at the high end, it actually makes it easier to justify operating that facility.
Speaker Change: Because you're also unique, such a better return for your co-products, your proteins and your oils.
Thank you.
Did you want to add to that rum?
Rob Olander: I would say, if you recall, that site is also particularly challenged with, we expected to get a lot more revenues from the expanded high protein technology, but with the increased soy crush.
Rob Olander: in the market, which we did not anticipate increasing supply levels. That's kind of a negative compression on protein prices.
Rob Olander: So while the market conditions can change and we'll continue to monitor and evaluate those things that have to change for a fair amount of time before we consider bringing that plant back online.
Speaker Change: If you want to continue to do that with corn or would you be looking to do other sources like, you know, either a mixture of wheat and corn are moving to wheat or some of them.
Speaker Change: We couldn't do some of their alternative altogether. And if you could do so when you wanted to spend the money on that, I think you actually have a fairly viable competitive facility. You also be eligible for a cloud for them.
Speaker Change: for five P5 Rins and be an advanced biofuel. So there's a lot of benefits to think about that but it's a significant capital lift.
to make that change.
Speaker Change: Right, well, thank you. I appreciate the color. That's it for us.
Thank you.
Speaker Change: Thank you. That does conclude our question and answer session. I will now let the Pemicomperns back over to Brian McGregor for any closing remarks.
Bron McGregor: Thank you Darcy. Thanks again everyone for joining us today. We appreciate your ongoing feedback and support. Have a good day.
Bron McGregor: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Thank you, John.
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