Alto Ingredients, Inc.

Good day, and welcome to the Aalto Ingredients Third 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 touch-tone phone. To withdraw your questions, please press star, then two. Please note, this event is being recorded. I would now like to hand 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 third quarter 2023 results conference call. On the call today are President and CEO Brian McGregor and CFO Rob Olander. Alto Ingredients issued a press release after the market closed today providing the details of 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 November 13th, the details of which are included in today's press release. A webcast will also be available at Alto Ingredients' website. Please note that the information on this call speaks only as of today, November 6th. You are advised that 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 and conference call constitute forward-looking statements and considerations that involve risks and uncertainties. The actual future results of 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 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 unaudited net income or loss before interest expense, interest income, provision for income taxes, assets impairments, loss on extinguishment of debt, acquisition-related expense, fair value adjustments, and depreciation and amortization expense. 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 strategic plan and activities review, and Rob will comment on our financial results. Then Brian will wrap up and open the call for Q&A. It is now my pleasure to introduce Brian McGregor. Please go ahead, sir.

Thank you, Kirsten. Thank you all for joining us today. As a new CEO, I've spent the last 90 days on the road meeting with customers, investors, and the dedicated teams of our facilities. I've been listening, learning, and collaborating to reinforce our continued mission to profitably provide ingredients that make everyday life better. I'm proud of our talented team and our overall accomplishments to date. We continue to successfully transform our company from a supplier of low-margin commodities to a provider of high-margin differentiated specialty alcohols and essential ingredients in consumer, pharmaceutical, food, beverage, and industrial products. This strategic realignment has greatly improved our financial profile over the past three years. We continue to make good progress, although we are subject to intermittent operational and commodity market challenges. Q3 2023 results. reflected positive contribution from improved ethanol crush margins, particularly in September, as corn bases declined as the harvest commenced. However, unusually high unscheduled downtime lowered our anticipated production volumes and shifted our mix towards lower margin products. Combined with higher repair and maintenance costs, we did not generate the results we anticipated. Despite these operational challenges, we delivered positively adjusted EBITDA in Q3 2023 and a significant improvement over Q3 2022. We expect the extensive repairs and maintenance work completed during the quarter to benefit future periods of time and reliability going forward. Rob will provide greater detail in a few minutes. First, I'll review our various initiatives. In early 2023, we outlined our revenue enhancing and cost-reducing capital initiatives. Each project has a different timeline, return on investment, and risk profile. As such, we've intentionally evaluated and prioritized funding needs and options for each project separately with the overarching goal of remaining fiscally responsible. We have already completed several of our short-term projects. These include expanding our high-quality alcohol products, installing additional corn storage capacity and replacing boiler equipment at our peak and site, along with other various upgrades in our plant systems. For our more capital-intensive projects, we have engaged experts, third-party front-end engineering and design firms, or feed firms, to conduct deeper analysis on scope, timing, and cost. These projects include primary yeast, carbon capture and sequestration, or CCS, natural gas pipeline, cogeneration, and biogas conversion capabilities. Here are a few material updates. Beginning with our specialty alcohol sales, our 2024 contracting season is going well. We are on pace to exceed 2023 delivered gallons at premiums to fuel grade ethanol. As mentioned previously, our goal is to move up the value chain and capture a larger share of the beverage grade market, where our high quality, low moisture, and location differentiations create competitive advantages. Regarding Magic Valley, we continue to line out this facility to achieve the performance guarantees of the installed high protein and corn oil technology. While this process has taken longer than we anticipated, we remain resolute in our efforts to improve the consistency of the facility's product output and optimize the plant's production. We continue to evaluate the rollout of the high protein and corn oil technology at our other locations. In the interim, We have achieved comparable improvements in corn oil yield at our peak in dry mill through process optimization unique to its ICM design. Regarding primary yeast, we have just received preliminary results from our feed study. While the findings are promising, inflationary pressures and supply chain constraints have materially impacted the installation costs with increases of over 70% from our original estimate. and extended our construction period from 18 to 27 months. As a partial offset to this change, the anticipated operational costs have declined and the market price for primary use has improved. In short, we are evaluating this project and exploring funding alternatives to make this unique opportunity a reality. Considering these results, we are critically reviewing all our projects to better ensure that the construction costs reflect current market conditions. We remain fiscally vigilant given the current challenging capital market environment and are giving priority to those projects with sustainable long-term profitability. As previously reported, we completed the installation of our new grain silo in the second quarter of 2023. We have seen the benefit of this expanded capacity and reduced costs for delivered corn and lower operating costs through more timely silo cleanouts. We expect the added capacity to further benefit operations this winter. Regarding the natural gas pipeline and cogeneration capabilities, we are now negotiating engineering, procurement, and construction contracts. We continue to make progress on our carbon capture and sequestration project. With our development partner, we are designing an Alto dedicated pipeline and sequestration system located within a relatively short distance of our facility, materially reducing installation costs and decreasing external risks. Based on the current economic environment, the preliminary feed study findings, and changing capital requirements, we have extended our EBITDA expansion goals by 6 to 12 months. We are now targeting to increase annual adjusted EBITDA incrementally by over $65 million by the middle of 2026, with the completion of our near-term projects, and by approximately $125 million by year-end 2027, when our CCS, and other long-term initiatives are fully realized. Before I turn the call to Rob, I'll mention that we remain steadfast in our sustainability efforts to be a good community steward while addressing our customers' current and future needs. This quarter, our PECAN facility earned Safe Food, Safe Feed, another third-party product safety certification for our corn meal and germ products, further differentiating our products and services. We plan to publish We plan to publish our sustainability report publicly by year end and look forward to providing key disclosures in this format on an annual basis. Now I'll turn the call to our CFO, Rob Olander.