Alto Ingredients, Inc.

Good afternoon and welcome to the Aalto Ingredients fourth quarter and year end 2023 financial results conference call. All participants will be in listen only mode. Should you need assistance, please signal the 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, LHA Investor Relations, a division of Alliance Advisors. Please go ahead.

Thank you, Gary. And thank you all for joining us today for the Alto Ingredients Fourth Quarter and Year-End 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 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 March 18th, the details of which are included in today's press release. A webcast replay will also be available at Alto Ingredients' website. Please note that the information on this call speaks only as of today, March 11th. You're 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 constitute forward-looking statements and considerations that involve risks and uncertainties. The actual future results of L2 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 Elto 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 final 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 consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, loss on extinguishment of debt, unrealized derivative gains and losses, acquisition-related expenses, and depreciation and amortization. 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&A. It's now my pleasure to introduce Brian McGregor. Please go ahead, Brian.

Thank you, Kirsten. Thank you, everyone, for joining us today. 2023, we continued our transformation to produce a variety of essential ingredients and the highest-grade beverage alcohol in the industry. We made significant investments in our facilities to improve our capacity utilization rates and expand margins long-term. These strategies are beginning to mitigate the impact of negative commodity price fluctuations. Although ethanol crush margins exhibited greater volatility in the second half of the year, Both our fourth quarter and full year 2023 results significantly outperformed those same periods in 2022. We generated $16 million in gross profit for 2023, an improvement of $43 million over 2022. We also reported positive adjusted EBITDA of approximately $21 million for 2023, an improvement of $27 million over the prior year. In Q4 2023, we continued to evaluate our strategic initiatives based on current market dynamics, recent findings from our updated front-end engineering and design or feed studies, interest from potential strategic partners, and project return profiles, our carbon capture and storage, or CCS, project is our top priority. Under Section 45Q of the Inflation Reduction Act, we have a unique and compelling opportunity to capture and store the biogenic CO2 we generate at our Pekin campus. Coupled with associated energy upgrades, our CCS project provides exciting economics. Given the significant amount of time, personnel, and financial resources necessary to complete our CCS project, we have decided to pause further development of our primary yeast and biogas conversion projects. These continue to be opportunities for potential future development as resources permit. We are encouraged by recent progress on many aspects of CCS. These include overall system design, community outreach, financing, vendor negotiations, EPA application preparation, and schedule alignment requirements to procure equipment and install power and compression. In fact, today we announced that we have signed an exclusive non-binding letter of intent with Vault, and we are nearing the execution of definitive agreements to develop our CCS project. The project involves ALTO installing equipment to capture the CO2 generated at our Pekin facilities and VOL safely transporting and permanently storing the emissions deep underground in a secure geologic reservoir located in close proximity to our campus. The intent is to substantially reduce CO2 emissions from the ethanol production process and provide direct value to the surrounding communities. In addition to CCS, We are pursuing two attractive options to increase energy capacity at our Pekin campus with either our current utility provider or a highly regarded independent energy company that would build, own, and operate on-site energy facilities. Both options would greatly reduce our capital requirements and long-term energy costs while lowering our carbon footprint. These capital light energy options may result in our CCS project being more accretive than originally estimated. Beyond our control, the EPA has extended its CCS application approval process from 18 to 24 months, and the equipment manufacturing and installation times have grown longer than originally anticipated. Accordingly, we intend to make positive use of this additional time to better align our various project schedules and reduce our overall financial risk. Finally, as we evaluate our path to increase margins, improve profitability, and deliver the highest return to our shareholders, We continue to assess our current portfolio of assets, especially our western facilities. We intend to leverage the distinctive strengths and opportunities of these locations by investing in new equipment and applications. While doing so, we may also consider the possible disposition of one or both of these facilities. As we have effectively demonstrated over the past three years with the sale of our California and Nebraska facilities, we remain steadfast in our commitment to make value enhanced decisions as appropriate to optimize long-term stakeholder value. Over the past two years, we have completed numerous upgrades. I'll review some of our larger initiatives that are in progress or that we completed over the past 12 months. In February 2024, we completed the installation of a new high-efficiency boiler at our Pekin campus. We expect to reach full utilization by the end of Q1. This boiler replaces two inefficient high-pressure boilers, and we and will significantly reduce our energy needs and operating costs. We estimate this will increase our annualized incremental EBITDA by $2 million. Additionally, in the second quarter of 2023, Pekin's new grain silo became fully operational, doubling our days of corn storage capacity. We achieved our goal of increasing flexibility and lowering costs related to quick or last-minute shipments and to reduce corn premiums during extended weekends and harsh weather conditions. This project has already exceeded our target of delivering annualized incremental EBITDA of $2 million. We continue to expand into higher quality alcohol, and our ability to differentiate our offerings has been very important considering market trends. In 2021 and for part of 2022, the higher margin for specialty alcohol attracted many new producers, increasing product availability and supply. This combined with ebbing consumer demand growth and fluctuations in supply chain dynamics had resulted in margin compression over the past 18 months. In anticipation of these changing market conditions, in 2022, we began strategic investments to produce more beverage-grade alcohols that leveraged the unique capabilities of our Peking campus. We developed our highly differentiated 192-proof and low-moisture 200-proof grain-neutral spirits, which became available in early 2023. These new products were well received by our customers and actively sold in the spot market, generating significant sales and bolstering our gross margin for the year. To date for 2024, we have contracted approximately 93 million gallons of fixed price, high quality alcohol at an average price premium to renewable fuel of 31 cents per gallon with additional capacity to take advantage of spot sales. In our pursuit to expand higher margin corn oil and high-protein products at our Magic Valley plant, working with our high-protein system vendor, Harvest Technology. We engaged equipment manufacturers and independent third-party engineers in Q4 to conduct an in-depth analysis of our challenges. They formulated a plan, including extensive design modifications, to achieve the intended production rate, quality and consistency. We decided mid-January to temporarily hot idle the facility to minimize the losses related to negative regional crush margins and expedite the installation of the additional equipment. Harvest Technology has borne the direct costs associated with their design and equipment. We intend to restart production in Q2 once the upgrades are complete and crush margins have improved. The operation of the upgraded high-protein system at the Magic Valley facility will influence our decision and timing to roll out the system at our other dry mills. In the interim, we are operating the Magic Valley facility as a terminal to service our renewable fuel customers. We're also working with the local feed distributor and feed customers to meet supply requirements. Before I turn the call over to Rob, I'll review our sustainability efforts. As a renewable company, we are dedicated to implementing sustainable best practices that are good for our business, our stakeholders, and our planet. In December, we published our first sustainability summary. It reviews our strategy and vision for advancements in sustainability, responsible sourcing, and risk management. We are focused on continuous improvements in environmental, health and safety, product quality, and diversification by integrating innovative practices at our facilities to ensure optimal efficiency, contribute to a lower carbon footprint. We are also focusing on giving back to the community through food drives and supporting charitable organizations. Our efforts improved our sustainability scores across the board with all three rating agencies, which is important to our customers. Looking ahead, we are working to obtain third-party greenhouse gas verifications, improve transportation safety, and earning additional EcoVitas awards. Now I'll turn the call to our CFO, Rob Olander.