Alto Ingredients, Inc.

Good afternoon and welcome to the Aalto Ingredients fourth quarter 2022 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Kirsten Chapman with LHA Investor Relations. Please go ahead.

Thank you, Gary, and thank you all for joining us today for the Alto Ingredients fourth quarter and year-end 2022 results conference call. On the call today are Mike Kandrath, CEO, and Brian McGregor, CFO. Alto Ingredients issued a press release after the market closed today providing details of the company's financial results. 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 March 16th, the details of which are included in today's press release. A webcast replay will be available at Alto Ingredients' website. Please note that the information on this call speaks only as of today, March 9th. You're 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 on this presentation constitute forward-looking statements and considerations that involve a number of risks and uncertainties. The actual future results of all two ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, events and risks and other factors previously and from time to time disclosed in ALTO ingredients filings for the SEC. Except as required by 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 periods being reported. The company defines adjusted EBITDA as unaudited net income or loss before interest expense, interest income, provision for taxes, asset impairments, loss and extinguishment of debt, acquisition-related expense, fair value adjustments, and depreciation and amortization expense. To support the company's review of the non-GAAP information, a reconciling table was included in today's press release. On today's call, Mike will provide a review of our strategic plan and activities. Brian will comment on our 2022 financial results, then Mike will wrap up and open the call for questions. It is now my pleasure to introduce Mike Handro, CEO. Please go ahead, Mike.

Thank you, Kirsten, and thank you, everyone, for joining us this afternoon. We are pleased to have the opportunity to speak with you and to reinforce Elto's transformation plan that will further diversify our products, expand our margins, and increase EBITDA. That being said, the fourth quarter and December in particular were impacted by extreme commodity volatility in the form of regional natural gas price spikes, high corn bases, as well as a dramatic decline in ethanol prices. These factors outweighed our performance in what was already a challenging year. Our 2022 results clearly underscore our need to further mitigate the impact of renewable fuel and commodity price swings. Our near and longer-term goals continue to focus on driving diversified margin expansion. We are increasing production of our highest quality products, including grain neutral spirits, corn oil, high protein, and primary yeast. We are in advanced stages to launch our carbon capture sequestration project. We are also executing strategies to increase plant efficiency and reliability by adding corn storage, installing a natural gas pipeline, converting our biogas to renewable natural gas, building energy cogeneration capabilities at Pekin, and upgrading other equipment. As 2022 unfolded, it became clear that we needed to accelerate these growth initiatives. So last November, we entered into a six-year term loan for up to $125 million. We are staging our projects and drawing capital in tranches to minimize carrying costs and maximize return. Our efforts will position us to add substantial EBITDA streams to our business all of which will be enhanced as the operating environment improves. With the completion of our current projects, we expect to increase annualized EPA DA by over $65 million by the end of 2025 and by over $125 million in 2026 when our carbon capture, cogeneration, and other initiatives are fully realized. Let me provide greater detail on our capital projects. First, I'll review our high-quality alcohol strategy and achievements. We began expanding our high-quality alcohol production in 2020, and in 2021, we refurbished our 30 million gallon per year grain-neutral spirits, or GNS, distillation system at our wet mill in Pekin. We raised the quality of our specialty alcohol, earning certifications to attract the most demanding customers in the pharmaceutical industry. In 2022, we made additional upgrades to our GNS system to produce the highest quality beverage grade product available in the market. Having now completed these improvements, we are excited to introduce our new high quality 190 proof and low-moisture 200-proof GNS products to our existing and target customers in the beverage, food, flavor, personal care, and pharmaceutical industries. Currently, we are working with customers to qualify our product in preparation for the yearly contracting period, which happens in the fall. Beginning in 2024, we expect to generate an additional $5 million in EBITDA annually from these products. Also, in January 2022, we added brake bolt and distribution capabilities by acquiring Eagle Alcohol. This collaboration has been fruitful, with the Eagle team advising on high-quality alcohol production, enabling tote and drum packaging and distribution, and building customer relationships for Alto's specialty alcohol. We are excited about future synergies with Eagle and our new GNS capabilities. Next, we are expanding production of high margin products, corn oil and high protein. In October, we commissioned the corn oil technology at our Magic Valley facility and saw increased production levels of approximately 40% in pounds per bushel. When combined with the high protein enhancement system, we expect to reach 50% or better increased yield, generating approximately $4.5 million annually of additional EPA DA based on current market pricing. In the fourth quarter, natural gas prices increased in the western region, and in December spiked to over 400% compared to Q3 prices. As such, we decided to moderate production at our Columbia plant and temporarily hot-idled the Magic Valley facility. Taking advantage of the situation in Magic Valley, we focused our attention on installing the high-protein CoProMax system, which is in the final stages of construction. We expect our high-protein product to easily achieve or even exceed 52% protein and generate an additional 4.5 million in annual EBITDA. We expect to reach full production in Q3 23, and with both corn oil and high-quality protein installed, we anticipate on a combined basis an additional annual EBITDA run rate of approximately $9 million based on current market pricing for the Magic Valley facility. In light of the positive proof of concept at Magic Valley, we plan to roll out the corn oil technology at our other three dry mill locations. Although each facility is a slightly different size, on average we expect to produce similar financial results to Magic Valley. For these plants, we anticipate the additional corn oil installations in aggregate will generate approximately $13.5 million in annual EBITDA. After the high-protein system is fully and successfully operational at Magic Valley, we will evaluate and anticipate rolling out the high-protein technology at our other dry mills with similar economics. We also plan to expand into primary yeast production. Having completed successful product trials, we are in advanced stages of selecting an engineering and design group to finalize our plans, schedule, and budget. This project would extend the past upgrades made to our yeast operations. Our preliminary figures indicate our primary yeast product will contribute annual EBITDA of approximately $19 million in the first 12 months and approximately $25 million annually thereafter. We believe construction could begin in early 2024 and end in mid-2025. As discussed before, we believe we have a significant and very large opportunity in carbon capture and sequestration. The arena has changed rapidly, and our measured analysis shows significant potential benefits. For example, the Inflation Reduction Act increased the price of carbon to $85 per metric ton, significantly strengthening future economics. Also, competition for offtake agreements has dramatically lowered the operating costs. Currently, we are in advanced negotiations to provide turnkey transportation, sequestration, and monitoring services for this important and game-changing project. We are also finalizing the selection of engineering services for the design and installation of the capture, compression, and energy requirements at Topekan Campus. While it is premature to provide specific details, we believe beginning in 2026, the project will contribute over $30 million annually in additional EBITDA, and this is based solely on the benefits under the Inflation Reduction Act associated with the 45Q incentives. Further, by sequestering our CO2 from our pecan site, we expect to materially reduce Alto's carbon footprint and to monetize additional value from the alcohol and essential ingredients we produce and sell. Regarding our strategies to improve plant efficiency, reliability, and capacity, we installed additional corn storage at our pecan site. We are currently conditioning the silo and expect it to be fully operational in Q2 2023. This will reduce the cost of delivered corn to our facility, lower the cost of silo cleaning, and increase the reliability of operations at the facility. We anticipate this installation to conservatively contribute over $2 million annually to EVA-DA. Consistent with our sustainability efforts, we have been reviewing options to improve energy procurement and usage. For our Pekin campus, we have made significant progress in planning the installation of a new natural gas pipeline to bypass our current utility. When fully operational, which we expect in 2024, the pipeline would reduce our energy costs by $3 million annually. Further, the line would help fulfill our increased energy needs associated with our numerous growth initiatives, including expanded yeast production and carbon sequestration. As a bonus, the new gas pipeline will lower our carbon score. Most of our biogas is currently flared. We believe once converted to renewable natural gas, or RNG, we could use the natural gas pipeline to monetize the value of this current waste stream and produce RNG for an additional $3 million in EBITDA annually. With the combined energy requirements for carbon capture and goals of lowering our carbon score and increasing our plant efficiency, we also are finishing a third-party study on cogeneration at Pekin. Based on preliminary results, we expect the cogen at Pekin to contribute approximately $15 million in annual EBITDA based on the current energy prices. With that, Brian, over to you for a review of the financials. Thank you, Mike.