Q2 2025 Alto Ingredients Inc Earnings Call

Speaker #3: Good day and welcome the Alto Ingredients second quarter 2025 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #3: After today's presentation, there will be an opportunity to ask questions. To ask a estion, you may press star then one on your telephone keypad.

Speaker #3: To withdraw your estion, please press star then two. Please note this event is being recorded. I would now like turn the conference over to Kirsten Chapman with Alliance Advisors Investor Relations.

Speaker #3: Please go head.

Speaker #4: Asha, and thank you all for joining us for the Alto Ingredients second quarter 2025 results conference call. On the call today are President and CEO Bryon McGregor and CFO Rob Olander.

Speaker #4: Alto Ingredients issued a press release after the market closed today providing details of the company's financials for the second quarter of 2025. The company also has prepared a presentation for today's call that is available on the company's website at altoingredients.com.

Speaker #4: A telephone Thank you, replay of today's call will be available through August 13th. The details of which are included in today's press release. A webcast replay will also be available on altoingredients' site.

Speaker #4: Please note the information on this call speaks only as to ay as of today, August 6th, 2025, and you're advised that time-sensitive information may longer accurate at the time of any replay.

Speaker #4: Please refer to company's Safe Harbor statement on slide two of the presentation available online, which states that some of the comments in this presentation can constitute forward-looking statements and considerations that involve risks and uncertainties.

Speaker #4: The actual future results Alto Ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are limited to, events, risks, and other factors previously and from time to time disclosed in Alto Ingredients' filings with the SEC.

Speaker #4: Except as required by applicable law, the company assumes no obligation to update be no any forward-looking statements. In management's prepared remarks, non-GAAP measures will be referenced.

Speaker #4: 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.

Speaker #4: The company defines adjusted EBITDA as consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, unrealized derivative gains and losses, acquisition-related expense, and depreciation and amortization.

Speaker #4: To support the company's review of non-GAAP information at reconciling table was included in today's press release. On today's call, Bryon will provide a review of strategic our strategic plan and activities, and Rob will comment on our financial results.

Speaker #4: Then Bryon will wrap up and open the call for Q&A. It's now my pleasure to introduce CEO Bryon McGregor. Please go ahead, sir.

Speaker #5: Thank you, Kirsten. Thank you all for joining us today. The main takeaway from Q2 is that our adjusted EBITDA improved by nearly $6 million compared to last year.

Speaker #5: Reflecting the successful execution of our initiatives to increase productivity. For some time, we have been focusing on short-term projects with more immediate returns. And we see the roots taking hold in delivering success.

Speaker #5: This approach will support our path to incremental profitability and an improved future. Projects under evaluation will be prioritized by anticipated cost, timing, and ROI impact.

Speaker #5: Under consideration, our projects to lower our carbon intensity and capture more of the benefits of the 45Z regulations increase our CO2 utilization at our peak in campus and at Columbia.

Speaker #5: Building on our successful carbonic acquisition, and improve our prospects to monetize our Western assets. Further, we will continue to pursue opportunities to improve efficiency and productivity like we did in Q1 and Q2.

Speaker #5: As a brief update to our carbon capture and storage project for our peak in campus, on August 1st, the governor of Illinois signed Senate Bill 1723 that prohibits CO2 sequestration directly through the Muhammad Aquifer as contemplated in our EPA Class 6 permit.

Speaker #5: As a , we are developing alternatives with WALT. As well as evaluating other promising non-sequestration options to optimize the value of our CO2 production.

Speaker #5: The bottom line is, while we lay the groundwork for longer-term capital-intensive projects, we are focusing on executable strategies within our control. With short-term paybacks, and potential long-term benefits.

Speaker #5: Our adjusted EBITDA for Q2 compared to last year's quarter reflects the benefits of multiple initiatives. We generated positive gross profit at our Western assets resulting from the combination of our liquid CO2 facility acquisition, the improvements at our Columbia ethanol plant, and our decision to cold idle Magic Valley due to adverse market factors.

Speaker #5: Our marketing and distribution segment also improved, reflecting the integration of our bulk volume customers from our Eagle Alcohol business, fostering third-party ethanol marketing relationships that met profitability criteria, and transitioning away from businesses that had limited returns.

Speaker #5: We note that our peak in campus was negatively impacted by quarter-over-quarter changes in derivatives. And the impact of the damage sustained to our loadout dock in April.

Speaker #5: However, we partially offset these effects by leveraging our operational flexibility at the peak in campus by increasing sales of higher-margin IFCC products exported to Europe.

Speaker #5: I'll more on the dock in a moment. Company-wide, we improved our operational model by right-sizing our corporate overhead, to level that aligns with our company footprint.

Speaker #5: Based on our Q2 results, we are on track to exceed our goal of saving approximately $8 million annually. We continue to evaluate options to improve operational efficiency and throughput.

Speaker #5: Focus growth and profitable market segments and identify additional cost-saving opportunities that, while smaller in amount, should in the aggregate make a real difference in the long run.

Speaker #5: Turning back to peak in campus, in the early April, our loadout dock sustained damage due to rapidly rising river levels. Impacting production, logistics, and campus economics for most of Q2.

Speaker #5: Since our call, we've made progress recovering from this setback in a few ways. First, we were able to respond quickly to take interim steps with third-party river transload vendors to minimize business interruption.

Speaker #5: Also, we worked with our insurance carrier to confirm coverage for both the property damage and business interruption. Finally, we're reviewing repair plans with our carrier to ensure the best path forward.

Speaker #5: We intend to commence the project ahead of midwest winter and expect work to extend into next year. On markets and regulatory trends, the big beautiful bill enacted in July made several positive updates to, including the 45Z credit extensions through the of 2029 and spending on farm programs.

Speaker #5: That are beneficial for the industry. The bill also increased focus on domestic renewable fuel production and introduced new eligibility restrictions, particularly around foreign involvement.

Speaker #5: For example, only fuel derived from feedstocks grown or produced in North America is eligible for the credit. We are ursuing options to capitalize on 45Z.

Speaker #5: Based on our carbon intensity scores, Columbia will qualify for 10 cents per gallon for 2025 and up to 20 cents for 2026. While our peak and dry mill will qualify for 10 cents per gallon starting in 2026.

Speaker #5: This equates to roughly $4 million in 2025 and $8 million in 2026 for Columbia and $6 million for the dry mill in 2026. Based production capacities, further, we expect to make improvements to our plants to increase the anticipated credits moving forward across all eligible facilities.

Speaker #5: While low carbon corn may contribute favorably towards further reduction and reducing our carbon footprint, we are evaluating whether it's economically beneficial to source that particular feedstock to reduce our carbon footprint.

Speaker #5: The other two operating plants at Beacon will continue to produce higher quality products as well as take advantage of the export market premiums for fuel.

Speaker #5: As the new rule incentivizes domestic ethanol plants from 45Z eligible dry mills. The bill also positively impacts farm programs by boosting sector profitability and reducing financial volatility and enhancing asset values and strengthening the overall safety net.

Speaker #5: With the intent to improve operational stability and long-term farm enterprise value, also contained in the bill is the increase in USDA commodity reference prices and base acres.

Speaker #5: Corn will increase by $3.70 per bushel to $4.10 per bushel. And soybeans from $8.40 per bushel to $10 per bushel. And the addition of up to $30 million base acres that can enroll the farm programs.

Speaker #5: As a result, farmers will need new and expanded markets to absorb the additional production. We believe this will bode well for the future of higher ethanol blends and new uses of American-grown feedstocks, making the U.S. an even more attractive origin for sourced ethanol and other renewable fuel products internationally.

Speaker #5: Turning to crush margins, the annual uptick in demand from the summer driving season helped lift ethanol prices. And improved crush spreads. While it's difficult to predict market fluctuations, we've seen additional spread improvement in Q3.

Speaker #5: And we remain optimistic for positive margins for the remainder of the summer. Regarding E15 blending waivers, the EPA extended the waivers nationally through the summer, offering continued support for near-term domestic ethanol blending.

Speaker #5: In California, there was further progress and regulatory momentum continues to build for E15 blending. However, full-scale implementation is still pending further administrative review and regulatory updates.

Speaker #5: On the sustainability front, we finalized our scope one and two greenhouse gas verifications during the quarter and we have submitted our 2025 eco bother scorecard.

Speaker #5: On the corporate front, in June, we held an annual meeting of stockholders electing two new board members, Jeremy Bezdek Tank. We look forward to their fresh perspectives and contributions.

Speaker #5: I'd also like to congratulate Gil Nathan on being named chairman of the board and Diane Nury as vice chair. With that, I'll turn the time over to Rob for our financial review.

Speaker #6: Thank you, Bryon. I'll iew the financial results for Q2 2025 compared to Q2 2024. We sold 86.7 million gallons compared to 95.1 million gallons.

Speaker #6: The change in volume reflects our

Speaker #6: decision to rationalize unprofitable business and our marketing and distribution and Alan segment and the impact of the dock availability at our peak in campus.

Speaker #6: Because we sold fewer gallons in Q2 2025 and at average lower prices, net sales were 218 million dollars, 18 million dollars lower than the prior year.

Speaker #6: Cost of goods sold or COGS was 9 million dollars lower than the same quarter last year. Gross loss was 1.9 million dollars compared to gross profit of 7.6 million dollars reflecting the following factors.

Speaker #6: The peak campus year-over-year change and unrealized non-cash derivatives was negative 13.2 million and the realized derivatives derivatives gain was positive 7.6 million, resulting in a net unfavorable change of 5.6 million.

Speaker #6: Although the market crush continued to improve in 2025, it was still on average 10 cents lower than the Q2 of 2024. This equated to five and a half million dollars of lower crush margin comparatively.

Speaker #6: As Bryon mentioned, we are heading in the right direction with the market crush averaging 30 cents per gallon for July. High-quality alcohol premiums were 15 cents per gallon less than the same quarter last year, due to increased competition during the annual contracting process.

Speaker #6: This translated to $3 million dollars which we were able to offset with our ility to shift higher volumes into the more profitable ISCC export markets.

Speaker #6: This is a prime example of how our strategy to diversify production enables us to take advantage of market opportunities. Our essential ingredients return at the peak in campus dropped this quarter by nearly four and a half points to 44.2%.

Speaker #6: However, this doesn't include the impact of our related hedging activities. Taking our realized hedging gains into consideration, there was no impact profitability. The impact of the dock outage totaled 2.7 million dollars for the quarter.

Speaker #6: And we are working with our insurance company to recover the losses and excess of our deductibles. At the Western facilities, gross profit improved 5.6 million dollars over Q2 2024.

Speaker #6: With the addition of our alto carbonic liquid CO2 processing facility, the Columbia plant plant improved gross profit by $3 million dollars to 2.3 million dollars.

Speaker #6: I lean our Magic Valley plant and utilizing it primarily as a terminal we improved gross profit by another 2.6 million dollars. We also reduced SG&A to 6.2 million dollars.

Speaker #6: This 2.8 million dollar improvement includes 1.1 million dollars related to the final payments for our acquisition of Eagle Alcohol, $900,000 from right-sizing our SG&A staffing levels, and another $900,000 less in non-cash stock compensation.

Speaker #6: Along with our force reductions that improved COGS by 1.2 million dollars, we are exceeding our target annual overhead savings of approximately $8 million. We also took additional steps to further lower our future costs.

Speaker #6: Including negotiating lower property taxes, improving terms with suppliers, reducing reliance on outside services, as well as a myriad of other changes which we expect in aggregate will make a meaningful difference in the future.

Speaker #6: Interest expense increased 1.1 million dollars. Reflecting the higher average outstanding loan balances and interest rates. Our consolidated net loss was 11.3 million dollars for Q2 2025, compared to a net loss of 3.4 million dollars in Q2 2024.

Speaker #6: Primarily due to higher unrealized non-cash derivative losses, lower crush margins, lower high-quality alcohol premiums, and the impact to our loading dock as discussed earlier in the call.

Speaker #6: Adjusted EBITDA improved 5.7 million dollars to negative 200,000 dollars in Q2 2025. As of June 30, 2025, our derivative net asset position was 1.7 million dollars.

Speaker #6: Our cash balance was 30 million dollars and our total loan borrowing availability was 70 million dollars. Including $5 million dollars under our operating line of redit, and $65 million dollars subject to certain conditions under our term loan facility.

Speaker #6: During the second quarter of 2025, we used $850 thousand dollars in cash from our operations, we spent another $500 thousand lars in capex, much lower than historical averages, to manage liquidity and focus priorities.

Speaker #6: And year to date, we recorded $16 million dollars in repairs and maintenance expense. In line with our 2025 estimate of $32 million dollars. In summary, our acquisition of Alto Carbonic entry into the European ISCC markets cost restructuring orts and scaling back marginal operations has improved our financial position.

Speaker #6: With that, I'll turn the call back to Bryon.

Speaker #5: Thank you, Rob. Our purposeful initiatives in 2025 have delivered adjusted EBITDA improvements even though markets remain volatile. With these successes and positive overall backdrop, we are doubling down to focus on executable projects within our control.

Speaker #5: The short-term paybacks were immediate returns and long-term benefits. We are prioritizing these projects by their anticipated cost, timing, and ROI impact. We are also evaluating opportunities to improve low carbon prospects, improve asset monetization, and increase CO2 utilization and production.

Speaker #5: The regulatory environment is positive for the industry and is conducive to creating opportunities for Alto. The change in 45Z have created the opportunity for at ast two plants to apply for credit totaling approximately $18 million in the next two years alone.

Speaker #5: Based on our nameplate and targeted carbon intensity scores, and for our other plants to capture more of the export market. Notably, as a result of the 45Z updates, the earnings profile and thus the intrinsic value of all our facilities have improved.

Speaker #5: Finally, working with Guggenheim, we continue to make progress on our Western asset optimization. And monetization plan. We are also evaluating strategic alternatives and interest for our Beacon and the company as a whole.

Speaker #5: We will share more information in regard when appropriate. Before we turn the call to questions, although we will present at the AC Wainwright Investor Conference on the 9th of September in New York City and hope to see some of you there.

Speaker #5: With that, operator, we're ready to begin the Q&A with sell-side analysts.

Speaker #3: Thank you. Do you ask a estion? You may press star, then one on your telephone keypad. If ou're using a speakerphone, please pick up your handset before pressing the keys.

Speaker #3: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question comes from Eric Stein with Craig Halen.

Speaker #3: Please go head.

Speaker #7: Hey, this is Luke on for Eric. Appreciate you guys taking the questions. So first, with the carbonic acquisition of Columbia, already paying off in a big way in terms of profitability.

Speaker #7: What, what's our outlook for further operational benefits there? Do ou think there's still substantial synergies yet to have been not realized? And how early are we in just in the ter in the process of, realizing some of these benefits?

Speaker #8: So we're, Luke, it's a good question. We, we certainly haven't peaked yet with regards to our overall capacity at the carbonic facility. We produce, you ow, if you wanna round numbers out, you're looking , over 100,000 tons of CO2 that's produced at the Columbia facility.

Speaker #8: On an annual basis, in about 70,000, I mean, capacity, and we're, we're producing on average or sell about 50,000 metric tons. So there's clearly room growth and we're working with our, our, core customer to make sure that we can place that product there.

Speaker #8: Is interest and, and, but it takes time to build that infrastructure and, and support around that. So we think that's, that's a ally a nice positive for us.

Speaker #8: Without really much lifting, it wouldn't be required. There would certainly require more capital expend if you wanted to expand the capacity of the carbonic facility, but it's mostly vessels and, and the likes that would be a generally light lift to the extent that the demand increases there for that need.

Speaker #7: Great. That's helpful. And switching gears a little bit for the second question, on the export strategy to Europe, how equipped are you to make this a substantial revenue stream out of pecking?

Speaker #7: And does the dock damage recently impede any progress on that front materially, or is that not really a factor?

Speaker #8: So I'll answer that in maybe reverse order. the dock, we have certainly developed workarounds and are working and are grateful for the support that we received from, from Relate Longstanding Relationships.

Speaker #8: that said, it's not as effective as if we were to run a, as we have historically with our own dock. And so it's imperative that we get our, our, our dock repaired and, and replaced.

Speaker #8: And we're working diligently to, to that end as Rob had mentioned. that said, we have found that as, as we think back to what we had originally projected and expected around, European sales that we're significantly exceeding that and that there continues to be demand for the product.

Speaker #8: and it's unique in the, in regards to what we can produce because of the high quality products that we produce at the, at the ICP and the wet mill that make that product unique.

Speaker #8: And eligible for, for sale there. So we would expect, you know, that could continue, we would expect that to continue to rove as well.

Speaker #7: Got it. That's helpful. Okay. Thank you. I'll take it.

Speaker #3: Once again, if you a question, please press star, then one. The next question comes from Samir Joshi with HC Wainwright. Please go head.

Speaker #9: Yeah. Good, good afternoon. thanks for taking my questions. I just want a clarification on the H&A improvement, was the 1.1 million Eagle Alcohol, improvement a one-time, thing?

Speaker #9: Or should we expect that going forward as well?

Speaker #8: no. That was a one-time. That was, just the, the, the change in the, the deferred acquisition, costs associated with, acquiring Eagle.

Speaker #9: Okay. Okay. So.

Speaker #8: And, and, and those are final, final acquisition costs. So you won't see that going forward.

Speaker #9: Yeah. Yeah. That, that's what I thought. So, so going forward, it will be 6.1 plus 1.1 or, or around about those levels, the H&A for on a quarterly basis.

Speaker #8: Yes. That's, that's, that's fair.

Speaker #9: Okay. are there any further reductions, specifically on the H&A front, that you can, not, not, not at the COGS but at the H&A level that you can realize?

Speaker #8: yeah. That's a od estion. you know, we took, you know, it's a pretty significant, efforts to, to right-size our staffing levels to better align with our, our current organizational footprint.

Speaker #8: And we've seen the benefit of that. you analyzed the, the impact of that for Q2. We're exceeding our 8 million, targeted savings goal. which impacts SG&A and, and COGS, alike.

Speaker #8: But, you know, in, in regards to SG&A and some other, areas, as mentioned, in our remarks, you know, we are we're looking across the board and we're scrutinizing all spend.

Speaker #8: We're trying to be very wise with our liquidity. you know, we've negotiated better terms some of our key suppliers, both in, respect to payment terms and in pricing.

Speaker #8: you know, we've spoken with, our property tax assessors, and lowered some of our real estate taxes. and we've also taken the portunity in source, some activities that, historically, we use contractors for.

Speaker #8: so, you know, a lot these efforts, individually, aren't significant but collectively, you know, we, we think that they'll make a pretty meaningful impact moving forward.

Speaker #9: Yeah. No. it is really good to see, improvement on that front. thanks for that. on the, 45Z 18 million, estimated, benefits over the next two years, are those based on, CI improvements that you are targeting, or are those based on, existing, facility generating those, CI scores and 45 18 million in savings?

Speaker #9: Or other benefits?

Speaker #8: Yeah. No. that's a good estion. that number is based on what our current CI scores are anticipated to be. under the, the, the Greek calculations, you know, in improves for, for Columbia, you know, we'll qualify in, 2025.

Speaker #8: And then with the ILUC standard change being removed, that will double the impact for 2026. It's the anticipation at Columbia. The dry mill we don't anticipate will qualify in 2025.

Speaker #8: But again, with the ILUC change, we believe they will, qualify in 2026.

Speaker #9: Understood. No. So that's good to see.

Speaker #8: So, so any, any additional changes to reduce our carbon score would be above and beyond these targets.

Speaker #9: Right. Right. And, and they will come with associated, capex, which you have indicated you will, deploy based on, your ROI calculations.

Speaker #8: Yeah. And some will have capex in, you know, capex implications, but others may not. It just has to do with ways to, you know, continue to be more energy efficient, and to some degree, it may include sourcing feedstock as I mentioned in my prepared remarks.

Speaker #8: We're still valuating it, but certainly sourcing feedstock, that has a lower carbon footprint. And if it's, if you do so effectively, there's significant benefit as you can see.

Speaker #8: I mean, there's, there's additional, yeah, 80 cents to be had between, you know, between where we will be in 2026 and, and, and if you can get to zero.

Speaker #8: Now that's a, that's an incredible lift. But still something to aspire to and achieve.

Speaker #9: Yeah. Yeah. And, , and just a clarification on, that, it just struck me. you have been using only, American sourced, feedstock, right? There was nothing being imported for feedstock?

Speaker #8: That's correct.

Speaker #9: Got it. just last one. is there any color, or insight into the Western asset monetization process, or, it's, it's being worked on but no more details?

Speaker #8: Yeah. Yeah. I'll take that one. yeah. We're continuing to work with, with Guggenheim. we're having conversations with, prospective buyers and we're, we're evaluating the opportunities.

Speaker #8: you know, the process for, for transactions of, of this size and for unique assets being destination plants, tends to take a little bit longer to get through the diligence process.

Speaker #8: each plant is, is nuanced in its own way. it takes time to discuss and diligence, you know, the high protein technology at Magic Valley, and then also the recent acquisition of the, carbonic CO2 liquid processing facility.

Speaker #8: now with the, the positive regulatory changes that we've seen around 45Z, that's also going to, you know, increase our valuations. Which is gonna impact the, diligence process as well.

Speaker #8: you ow, but also point out that, you know, we're considering all options, as part of, our, our ongoing efforts to maximize shareholder value. and that's, including asset sales, you know, potentially, in addition to Western assets, a merger, or, ou know, really any strategic transactions that, that better align, the long-term value potential of our company.

Speaker #9: Understood. Got it.

Speaker #8: And, I guess with that, you know, we'll, we'll forward the report when. Appropriate.

Speaker #9: Got it. thanks for that, brother. and thanks for taking my questions.

Speaker #8: Yep. ank you.

Speaker #9: Appreciate .

Speaker #3: This concludes our estion and answer session. I would like to turn the conference back over to Bryon McGregor for any closing remarks. Please go head.

Speaker #10: Thank you, operator. And thank you all. Again, for joining us today. We appreciate your ongoing feedback and support. Please have a od day.