Alto Ingredients, Inc.

Good day and welcome to the Aalto Ingredients first quarter 2023 financial results conference call. All participants will be in a 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 a touchtone phone. 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, LHA Investor Relations. Please go ahead.

Thank you, Betsy, and thank you all for joining us today for the Alto Ingredients First Quarter 2023 Results Conference Call. On the call today are Mike Kandris, CEO, and Brian McGregor, CFO. Alto Ingredients issued a press release after the market closed today. providing details on the company's financial results. The company has also prepared a presentation for today's call that is available on the company's website at altoingredients.com. A telephone replay of today's call will be available through May 15th, the details of which are included in today's press release. A webcast replay will be available on the website as well. Please note that the information on this call speaks as of today. May 8. 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 2 of the presentation available online, which states that some of the comments in the presentation constitute forward-looking statements and considerations that involve a number of risks and uncertainties. The actual future results of the outdoor 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 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 the operations and believes these measures will assist investors in assessing the company's performance for the periods being reported. The company defines adjusted EBITDA as unaudited net income or loss before interest expense, interest income, provision for income taxes, asset impairments, loss of extinguishment of debt, acquisition-related expense, fair value adjustments, and depreciation and amortization expense. To support the company's review of any non-GAAP information, a reconciling table was included in today's press release. On the call today, Mike will provide a review of the strategic plan and activities, and Brian will comment on our financial results. Then Mike will wrap up and open the call for questions. It's now my pleasure to introduce Mike Kandris, CEO. Please go ahead, sir.

Thank you, Kirsten, and thank you everyone for joining us today to review the first quarter of 2023. Since our call in March, we have continued to make good progress on our transformative capital projects, which will drive our near and long-term EBITDA expansion goals. I will discuss this further in a minute. We are also pleased with the current market improvements, which are positively impacting our business. Crush margins have been improving since December. Notably, each month this year has improved sequentially. March 2023 ended with regional natural gas prices, corn bases, and ethanol prices greatly improved over December of 2022, all of which benefited our business. For the month of March, we generated positive bottom-line financial results. Should the strong crush margins continue, we would expect positive adjusted EBITDA for the second quarter of 2023. Brian will review the financial results in detail shortly. Even though we have positive crush margins today, we don't control commodity pricing. This is exactly why we are implementing a series of near and long-term projects aimed at reducing our exposure to those volatile markets. We continue to transform Elto Ingredients by further diversifying our products and optimizing operations to expand margins and increase profitability. We are excited about our capital improvement initiatives and their return profiles. With the completion of our near-term projects, we expect to increase annualized EBITDA by over $65 million by the end of 2025 and increase to $125 million annually by the end of 2026 when our carbon capture and sequestration, cogeneration, and other initiatives are fully realized. Regarding diversification, Our strategy is to pursue multiple paths. We are increasing production of our most differentiated and highest quality products. Our near term focus includes grain neutral spirits, corn oil, and high protein. And our longer term plan includes primary yeast as well as carbon capture and sequestration. Regarding costs, our near term initiatives are to improve plant efficiency reliability and where appropriate redundancy by adding corn storage and installing our own natural gas pipeline. Our long-term vision includes upgrading equipment, converting our biogas to renewable natural gas and building energy cogeneration capabilities at our Pekin campus. We are confident in our ability to fund our near-term capital projects through our term loan facility, current working capital resources, and expected cash generated from operating activities. As far as funding our longer-term projects, we continue to hold productive discussions with strategic partners, and we will assess our capital needs at that time. Let me provide updates on our capital projects. First, I'll review our high-quality alcohol strategy. As discussed previously, we completed the upgrade of our distillation system at our pecan wet mill to produce the highest quality 190 proof and low moisture 200 proof GNS products on the market. We also added break bolt and distribution capabilities, enabling tote and drum packaging and distribution through the acquisition of the Eagle alcohol. Recently, we have added new beverage customers and we are working to place our GNS product on a spot purchase basis for the remainder of 2023. More importantly, this fall we expect to place additional volumes with new and existing customers during our annual contracting period for 2024. Our valuable certifications will be advantageous as we work towards qualifications by various customers. Beginning in 2024, we estimate these products will contribute approximately $5 million in EBDA annually and continue to grow over time. Regarding our expanded production of corn oil and high protein, as previously discussed, in December, we moderated production at our Columbia plant in temporarily idle phases. the Magic Valley facility to minimize the impact of sustained high natural gas prices in the Pacific Northwest. This created an opportunity at Magic Valley for us to focus our attention on finalizing installation of the high-protein technology. We have now resumed production at our Magic Valley facility and completed all material installations of the CoProMax corn oil and high-protein system. We are currently aligning all the new and existing operating systems at the plant to ensure optimal efficiency. We plan to achieve full production of both higher corn oil volumes and higher quality dry protein at the facility by the end of the second quarter. We anticipate sales for these products at increased values to begin in the third quarter of 2023. We estimate corn oil and high quality protein will combine to contribute approximately $9 million of EBITDA annually. Beginning in late 2023, management plans to start a stage rollout of the corn oil technology installation at our other three dry mills. Although each facility is a slightly different size, on average we expect to produce similar financial results to Magic Valley. When fully installed, we estimate The corn oil installations at the three other plants in aggregate will contribute over $14 million in EVA DA annually. 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 some similar expected economics. We estimate the high protein installations at our other three Plants in aggregate will contribute over $13 million in EBITDA, or over $27 million annually in the aggregate with corn oil expansion. Regarding longer-term initiatives for high-margin offerings, we plan to expand into primary yeast production. Having completed successful product trials, we have selected a highly qualified third-party engineering group to complete our front-end engineering and design or feed study. We expect the study to be completed in Q3. This project would extend the past upgrades made to our yeast operations. We estimate the primary yeast product will contribute approximately $19 million of EBITDA in the first 12 months and has the potential to increase to over $25 million annually thereafter. We are targeting beginning construction in early 2024 and completing in the summer of 2025. As you know, we also have a significant opportunity in carbon capture and sequestration. As previously discussed, we produce approximately 700,000 metric tons of carbon a year at our Pekin campus. Our advanced negotiations for this important and game-changing project proceed in earnest. We have selected a third-party feed firm to determine capture, compression, and engineering design. We expect this study to be completed in Q3. We are also finalizing the selection of a development partner to provide turnkey transportation, sequestration, and monitoring services. Our goal is to have CCS operational in 2026. As we discussed last quarter, based solely on a conservative assumption of annual carbon production and $85 per metric ton, reflecting the 45Q incentive established under the Inflation Reduction Act, we believe we can generate over $30 million annually in EBITDA. To be clear, this is after operating at sequestration costs and does not include any of the substantial economic benefits of the environmental attributes associated with low-carbon ethanol. On to a review of our strategies to improve plant efficiency, reliability, and capacity. Regarding additional corn storage at our peak and site, the 850,000 bushel silo is now fully operational. and contributing to improved corn procurement costs, plant reliability, and plant operating costs to Pekin Campus. We estimate the silo to conservatively contribute over $2 million to EBITDA annually. Regarding our new natural gas pipeline, We completed the third party feed study and are working on the initial routing steps which enables the project to advance to definitive land agreements and the construction permit application process. Community interaction has been initiated around the pipeline and initial feedback has been positive. We are planning our new pipeline to bypass our current utility with the goal of optimizing procurement, usage, and expense, which will contribute to our sustainability efforts. When fully operational, the pipeline will reduce our energy costs by approximately $3 million annually. Upon completion, the new gas pipeline will create the opportunity for us to convert and monetize our current biogas pipeline waste stream into renewable natural gas, or RNG. Based on our current output, we estimate we could produce and sell RNG for more than $3 million in EBITDA annually. Regarding cogeneration of pecan, we completed our feed study with a third-party expert. The design is intended to address our current needs, support the increased energy requirements for both our primary yeast and CCS projects, and offset grid electrical power consumption. In addition to supporting these projects and based on current energy prices, we estimate that cogeneration will contribute approximately $15 million in EBITDA annually. Renewable products are part of the Elko Ingredients DNA, and producing them safely is one of our core tenets. Each of our capital initiatives advances and addresses sustainability. While these and our continual process improvements are labeled as ESG, our decisions to ensure safety, quality, and sustainability are simply good business. I'll review our actions over the past year. Our work with NASDAQ on ESG included a materiality survey to determine areas of focus, and we have completed all the initial roadmap action items. We have strengthened and communicated our environmental health safety and security policy and objectives, added consistent standards and details to our code of ethics and supplier code of conduct, implemented a supplier transparency program with components such as supplier scorecards and on-site auditing, and in some cases partnered with SEDEX a leading data platform with over 74,000 members to improve our sustainability performance and to ensure that we are ethically sourcing our goods and services. Looking ahead, we have launched a three-year employee engagement program with Gallup to identify areas of opportunity and facilitate communication at all levels. And we completed our first engagement survey in December 2022. This employee engagement is more than a survey. It's a comprehensive program with tools and training to achieve our goals for supporting one of our most important assets, our employees. Diversity has been a focus for recruiting internally and at the board level, and we will include further metrics in our mid-2023 sustainability reporting. We have completed our scope one and two greenhouse gas emissions inventory and have third-party verification for both 2021 and 2022 at all production facilities. This information, combined with our key projects such as carbon capture, improving energy efficiencies and cogeneration and boiler upgrades, and maximizing biogas utilization will lead us to set and achieve carbon reduction targets and help us do our part to meet sustainable development goals. We look forward to sharing our ESG progress with everyone mid-year. With that, Brian, over to you for a review of the financials.