Alto Ingredients Q1 2025 Earnings Call Transcript

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May 7, 2025

Key Takeaways

  • Acquisition of beverage-grade CO₂ plant adjacent to the Columbia facility has driven operational synergies, boosting Q1 adjusted EBITDA by $2.9 M and improving asset economics.
  • Workforce reductions totaling 16% are expected to save approximately $8 M annually, with cost benefits beginning in Q2 FY25.
  • Pekin campus’ ISCC certification enabled premium exports of certified renewable fuel to Europe, helping offset softer domestic alcohol premiums.
  • Unplanned dock damage at Pekin’s river loadout in April disrupted production and logistics, with remediation costs under assessment and insurance claims in progress.
  • The EPA’s temporary E15 waivers and pending state/national legislation could expand ethanol demand by up to 7 B gallons, though export tariffs and high inventories pose ongoing constraints.
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Earnings Conference Call
Alto Ingredients Q1 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day, and welcome to the Alto Ingredients First Quarter twenty twenty five Financial Results Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I'd now like to turn the conference over to Kirsten Chapman, Alliance Advisors, Investor Relations. Please go ahead.

Kirsten Chapman
Managing Director, Alliance Advisors IR at Alliance Advisors

Thank you, Darcy, and thank you all for joining us today for the Alto Ingredients first quarter twenty twenty five results conference call. On the call today are President and CEO, Brian McGregor and CFO, Rob Olander. Alto Ingredients issued a press release after market close today providing details of the company's financial results for the first quarter twenty twenty five. The company 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 May 14, the details of which are included in today's press release.

Kirsten Chapman
Managing Director, Alliance Advisors IR at Alliance Advisors

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 7. You are advised that any time sensitive information may no longer be accurate at the time of any replay. 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 the Alto ingredient could differ materially from those statements.

Kirsten Chapman
Managing Director, Alliance Advisors IR at Alliance Advisors

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. 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 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 expense.

Kirsten Chapman
Managing Director, Alliance Advisors IR at Alliance Advisors

To support the company's review of non GAAP information, a reconciling table was included in today's press release. 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 Q and A. It's now my pleasure to introduce Brian MacGregor. Please go ahead, sir.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Thank you, Kirsten, and thank you all for joining us today. During Q1 twenty twenty five, gross margin and adjusted EBITDA improved compared to q one twenty twenty four. This reflects our operational uptime and our carbon optimization initiative driven by our acquisition on January 1 of a beverage grade liquid carbon dioxide processing plant adjacent to our Columbia facility. The combined ownership of both assets has reduced management and staffing costs while enhancing operation coordination and overall productivity. We continue our optimization efforts which should facilitate longer term feed sales commitments and expand premium liquid CO2 sales.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

As expected, this acquisition improved the Columbia facility's economics and increased its asset valuation. Also we rightsized 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 $8,000,000 annually with the financial benefits starting in Q2. Although we have completed our planned reorganization we will continue to evaluate opportunities to reduce expenses.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

We are prioritizing quick return projects including water and energy optimization that would reduce utility costs and lower our carbon footprint. Results of operations at our Pekin campus helped to illustrate Pekin's flexibility to shift production quickly to capitalize on market trends. For example, to diversify our revenue streams, we earned our ISCC certification in late last summer and began exporting qualified renewable fuel to the European markets beginning in the fourth quarter. This certification has enabled us to access higher margin sales. During the first quarter, we experienced solid demand for ISCC certified renewable fuel priced at a premium to domestic fuel grade ethanol.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

We grew ISCC sales as a percentage of our total renewable fuel volume sold at our Peking campus in q one. As a result, ISCC sales partially offset some domestic market challenges. Premiums on domestic high quality alcohol were generally lower in q one than in the same quarter last year, reflecting increased competition in the market. Also, prices for essential ingredients declined because of the rise in soybean oil supply to support renewable diesel demand. In late March and early April, we completed our scheduled seasonal outages at the Beacon facilities.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

The repairs and maintenance successfully achieved our goal of sustaining the improved plant utilization rate set a year ago. Also in early April during a period of rapidly rising river levels, our peak and loadout dock was damaged negatively impacting production, logistics, and campus economics. We implemented temporary solutions, and we are now back to full operation. We are currently assessing our long term remediation options and working with our insurance carrier to mitigate the financial impact. I'll provide further updates on our next call.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Now I'll review market and regulatory trends. So far in 2025, we've experienced typical seasonal market patterns with spreads between corn and ethanol prices comparable year over year. These crush margins improved sequentially each month over the first quarter. We've seen spread improvements in April resulting from lower production rates associated with industry wide scheduled spring plant outages. Nonetheless, margin expansion has been kept largely in check by high inventory levels with production outpacing demand.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Without a meaningful reduction in ethanol supply, substantial crush spread improvements may be constrained. And although we are optimistic that margins will continue to improve with increases in demand from the summer driving season, concerns over tariffs and Chinese vessel restrictions have introduced greater export uncertainty. While these macro events are largely beyond our control, we will continue to minimize the impact as effectively as possible. On a positive note, as I mentioned earlier, we've seen solid export in the state. In addition, we applaud the EPA's recent E15 fuel waiver allowing blending through May 20.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

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 E15 adoption in California. The California Assembly recently passed a bill aimed at accelerating the approval process for e 15 fuel blends. 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.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

According to the latest EIA reports, California's thirteen point four billion gallons of annual fuel consumption represents 11.6% of the national volume, A five percentage point increase from 10% to 15% in ethanol blend in California alone would result in an additional 670,000,000 gallons sold annually. Further, it is estimated that the national adoption of year round e 15 blending could boost ethanol demand by five to 7,000,000,000 gallons. In short, since The US has approximately 18,000,000,000 gallons of ethanol production capacity and domestic demand of approximately 14,400,000,000 gallons currently, 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. Beyond the demand side, we believe e 15 adoption would also have positive economic environmental impacts reducing greenhouse gas emissions, supporting farmers, and lowering consumer fuel costs. Turning to our PEEK in campus, Illinois bill SB1723 is under consideration to prevent CO2 sequestration activity that overlies, underlies, or passes through a sole source aquifer.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

This would include the Mohammad Aquifer which underlies multiple counties throughout the state including an area currently contemplated for storage in our class six permit application. Together with Vault and other potentially affected parties, are working with elected officials to address concerns to minimize or eliminate the potential legal impact of this legislation on our CCS initiative. We are also developing options to ensure that we are optimizing the value of our CO two production no matter the outcome of this legislation including relocating the proposed storage location of our CO two. Further, we're working with Illinois state leaders on SB 41, the 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. With that, I'll turn the call over to Rob for our financial review.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Thank you, Brian. I'll review the financial results for the first quarter of twenty twenty five compared to the first quarter of twenty twenty four. We sold 89,600,000 gallons compared to 99,000,000 gallons, reflecting our decisions to idle Magic Valley and to rationalize our warehouse freight boat business. Net sales were $227,000,000 $14,000,000 lower than the same quarter year over year due to the combined impact of both positive and negative factors. While the market crush margin only increased by a penny or so year over year, improved domestic market prices for ethanol increased our overall average sales price per gallon to a dollar 93 in q one twenty twenty five compared to a dollar 86 q 1 20 20 4.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Also, greater sales of ISCC exports delivered a $1,400,000 benefit from premium prices versus domestic renewable fuel sales this quarter. However, a decline in high quality alcohol premiums equated to $4,600,000 in lower sales, and the drop in return for essential ingredients 48% from 50% had a negative impact of $3,800,000, which most affected our Peak and Campus results. COGS were $15,000,000 lower than the same quarter year over year due to the following reasons. We idled Magic Valley, accounting for $10,000,000 of the decrease. We also marketed less volume in proximity to the Magic Valley plant, resulting in a 5,000,000 gallon decrease in third party renewable fuel volumes sold.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

We lowered repairs and maintenance expenses by $1,200,000 While net realized derivative gains were negligible for both quarters, our unrealized derivative gains, which are part of COGS but excluded from adjusted EBITDA, were $1,600,000 in Q1 twenty twenty five compared to $3,200,000 in Q1 twenty twenty four, resulting in a $1,600,000 negative swing year over year. Gross loss improved $1,800,000 from $2,400,000 We lowered SG and A by $700,000 to $7,200,000 reflecting the conclusion of our Eagle Alcohol acquisition related expenses in 2024. Interest expense increased $1,100,000 reflecting higher average outstanding loan balances and interest rates. Our consolidated net loss was $11,700,000 for both periods. Adjusted EBITDA improved to negative $4,400,000 from negative $7,100,000 in Q1 twenty twenty four.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

This improvement includes $4,800,000 saved by idling Magic Valley and a $2,900,000 improvement at our Columbia site, primarily reflecting our ownership of Alto Carbonic. Our net derivative asset or liability reflects what Alto would realize if we liquidated all of our positions as of that specific period and 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. For 03/31/2025, our derivative net asset position was $3,800,000 As of March 31, our cash balance was $27,000,000 and our total loan borrowing availability was $77,000,000 including $12,000,000 under our operating line of credit and $65,000,000 subject to certain conditions under our term loan facility. During the first quarter of twenty twenty five, we used $18,000,000 in cash flow from operations. We invested $7,300,000 in our acquisition of Alto Carbonic.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

We spent $500,000 in CapEx, and we recorded $7,000,000 in repairs and maintenance expense, in line with our 2025 estimate of $32,000,000. 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 call back to Brian.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Thank you, Rob. We continue to execute our long term plan to diversify revenue and mitigate the volatility of commodities. We have leveraged our plan flexibility and our efforts are working. New initiatives in beverage grade CO2 and ISCC renewable fuel have been economically beneficial. Additionally, our measures to become more efficient have reduced our expense run rate going forward.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

The regulatory environment remains dynamic yet there are encouraging developments including the increasing state and potential national adoption of year round P15. Additionally, the Illinois Clean Transportation Standard Act presents exciting possibilities that could further support industry growth and innovation. Our team will continue to proactively evaluate alternatives for revenue streams and value, leverage our flexible and unique plans and commit to driving long term shareholder value on a sustainable and consistent basis. With that operator, we are ready to begin Q and A with sell side analysts.

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, Your first question today comes from Sameer Joshi from H. C. Wainwright. Please go ahead.

Sameer Joshi
Senior Equity Research Analyst at H.C. Wainwright & Co., LLC

Hey, good afternoon. Thanks for taking my question. Just a quick one on the acquisition completed in January, the liquid Tier two. It was expected to be immediately accretive. Was it accretive during the first quarter?

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Yes. That's a good question. The Columbia facility and Carbonic integration, it moved ahead as we expected. We have already benefited from, increased communication and operation synergies. We immediately eliminated redundant accounting and management expenses.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

While we typically don't speak specifically about plant results, the Columbia assets improved $2,900,000 compared to q one twenty twenty four. So we are seeing significant positive benefits from that acquisition.

Sameer Joshi
Senior Equity Research Analyst at H.C. Wainwright & Co., LLC

Understood. And then the $8,000,000 in annual savings that I think they'll be fully realized in 2Q according to the commentary, would it mostly come from the operations operating expenses, or is there any portion of cost of good old overhead that will also be reduced?

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Yeah. Thanks for the question. So the anticipated benefit of about $8,000,000 due to our workforce reduction to better align with our current company footprint, you'll see about a 13% reduction in both cost of goods sold and SG and respectively. And we expect the benefit to start to be realized in Q2 of twenty twenty five.

Sameer Joshi
Senior Equity Research Analyst at H.C. Wainwright & Co., LLC

Okay. Okay. Got it. And and would you just elaborate or just give us a little bit more insight into the CCS impact that the Illinois bill might have on your I mean, you briefly described it, but just wanted to understand how it could impact your plan.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Sure. So it's difficult to assess at this time, Samir. It's so dynamic. That said, if it goes through as I generally expressed it in the prepared remarks, it's a fairly short and and limited bill as currently drafted and it would prohibit drilling through, in summary drilling through, you know, above or through the aquifer directly. So you have to go around it.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

And our current sighting under our class six is contemplates relocating through or going through the the aquifer. So we would have to, at a minimum, relocate that well.

Sameer Joshi
Senior Equity Research Analyst at H.C. Wainwright & Co., LLC

Okay. Thanks for that. And then

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

so which would then to what? Would potentially extend it would you'd have to then resubmit or reamend your at a minimum, you'd have to amend your your class six permit to, to adapt to those changes. And Right. Again, there's there's there's other work that we will be doing. As I mentioned in our my prepared remarks is the focus is really around, again, optimization, and, and working with our partners as best we can to address this issue.

Sameer Joshi
Senior Equity Research Analyst at H.C. Wainwright & Co., LLC

Got it. Understood. And then the last one, you mentioned the leaking load, dock damage, and the temporary solution. What was was the estimated cost of that temporary solution? And do you have an estimate on what it will cost to, like, more permanently repair that?

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Yeah. Just as a as a recap, our peak and barge dock failed in in early April April due to quickly rising river levels. You know, due that that essentially caused a pretty quick logistical challenge in moving both our liquid and our dry products. So we did take the dry mill offline for a week, significantly reducing our production volume during that time period. You know, a shout out to the operations and commercial teams who quickly made necessary short term adjustments logistically to get the product flowing again.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

And that included a temporary load out dock for liquids, and we're also working with a neighboring transload facility with respect to our DDGs. We are currently assessing our long term remediation options, and we're working with our insurance carrier to mitigate the financial impact. We will provide more updates on the next call. And also, I'll just add that we are assessing, you know, what the long term option will be in regards to what equipment that we can salvage, if any, and, you know, if we would replace it with a new floating loadout dock.

Sameer Joshi
Senior Equity Research Analyst at H.C. Wainwright & Co., LLC

Understood. Thanks for taking my questions. I will turn it over.

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Thank you.

Operator

Your next question comes from Eric Stine from Craig Hallum. Please go ahead.

Luke Persons
Research Analyst at Craig-Hallum Capital Group LLC

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?

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

I think it's pretty plant specific and location specific. So I guess maybe to answer your question differently is if you had a different sized plant corn facility in, you know, near or adjacent to our 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 need. And the cost of the logistical cost of bringing corn through that area with only one railroad, no competitors, makes it very difficult to be able to get, competitive pricing, for delivery corn.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

And so while you can support and justify the services that are provided by that facility to the local markets, there's more than sufficient demand. If you're if you're shipping within, 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 sources of of ethanol into that area. And so there really wasn't an opportunity to be able to the the really, the solution would be if you wanted to to run ethanol out of that facility would be find a different source of feedstock.

Luke Persons
Research Analyst at Craig-Hallum Capital Group LLC

Alright. That's helpful.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

So could so you could avoid that, you know, that that premium that you otherwise have to pay for corn.

Luke Persons
Research Analyst at Craig-Hallum Capital Group LLC

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 of 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 if that's something that's potentially still on the table for 2025, or are we still a long ways off in just terms of cost there?

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

You know, I think that the fundamentals that we were evaluating a couple years ago have changed dramatically. Right? We we made we made a a decision to proceed with the high protein and higher corn oil system where you on a logistical basis could see a material difference and benefit of doing so. And I think the fundamentals particularly around where corn prices are where they are today in low prices makes it very difficult to be able to do that on a sustained basis. If you were looking at corn prices of $8 or $10 a a bushel, right, at the high end, it actually makes it easier to to justify operating that facility because you're also getting such a better return for your co products, your your proteins, and your and your oils. Anything you wanna add to that, Rob?

Robert Olander
Robert Olander
Chief Financial Officer at Alto Ingredients

Yeah. I'll just say, you know, if you recall, that that site is also, particularly challenged with you know, we expected, to get a lot more revenues from the expanded high protein technology. But with the increased soy crush in the market, which we did not anticipate increasing supply levels, that's had a of a negative compression on protein prices. So while the market conditions can change and we'll continue to monitor and evaluate those, things would have to change for a fair amount of time before we consider bringing that plant back online.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

And I think you'd have to really address the question around sourcing your feedstock. You want to continue to do that with corn, or would you be looking to other sources like, you know, either a mixture of wheat and corn or moving to wheat or some other gluten or some other alternative altogether. And if you could do so and you wanted to spend the money on that, I think you'd actually have a fairly viable competitive facility. You'd also be eligible for for for five p five 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.

Luke Persons
Research Analyst at Craig-Hallum Capital Group LLC

Great, well thank you. I appreciate the color. That's it for us.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Thank you.

Operator

Thank you. That does conclude our question and answer session. I would now like to turn the conference back over to Brian McGregor for any closing remarks.

Bryon McGregor
Bryon McGregor
CEO, President & Director at Alto Ingredients

Thank you, Darcy. Thanks again, everyone, for joining us today. We appreciate your ongoing feedback and support. Have a good day.

Executives
    • Bryon McGregor
      Bryon McGregor
      CEO, President & Director
    • Robert Olander
      Robert Olander
      Chief Financial Officer
Analysts
    • Kirsten Chapman
      Managing Director, Alliance Advisors IR at Alliance Advisors
    • Sameer Joshi
      Senior Equity Research Analyst at H.C. Wainwright & Co., LLC
    • Luke Persons
      Research Analyst at Craig-Hallum Capital Group LLC
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