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spk10: Good afternoon and welcome to the Alto Ingredients, Inc. Second Quarter 2024 Financial Results Conference Call. All participants are 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 touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Kirsten Chapman with LHS Investor Relations, a division of Alliance Advisors. Please go ahead.
spk00: Thank you, Kaylee, and thank you all for joining us today for the Alto Ingredients second quarter 2024 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 August 13th, 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, August 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 AFARB on slide 2 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 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 unadopted consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, loss and extinguishment of debt, unrealized derivative gains and losses, acquisition-related expense, and depreciation and amortization. To support the company's review of any 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, 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.
spk03: Thank you, Kirsten. We welcome our investors, valued customers, and other stakeholders joining us today. The Pekin campus has been producing alcohol for over 150 years through many market cycles. We will continue to produce well into the future. Over the last few years, We've been leaning on our strong balance sheet by utilizing cash flow from operations and excess liquidity to fund capital upgrades and repair and maintenance to strengthen our facilities and to improve our long-term profitability. While these additional expenses can impact our short-term results, our recent efforts are beginning to yield operational improvements, and we are confident we will reap long-term benefits. In Q2, our initiatives increased production in our Pekin campus positioning us to benefit from improving ethanol margins. These efforts further demonstrate the advantages of our production facilities located there, including the ability to operate profitably on a consistent basis. More specifically, in Q2, even with over $5 million related to spring outages, our beacon campus generated over $10 million of gross profit, up from over $4 million in Q1, reflecting these programs and higher crush margins in June. In Q2 2024, the average Chicago crush margin increased to 21 cents per gallon compared to just above break-even in Q1 2024. In July, the average Chicago crush margin rose further to 48 cents per gallon. These improvements align with the optimism we expressed on our Q1 call regarding strengthening crush margins, solid corn supplies, and growing export demand. Assuming margins remain strong, we expect to deliver solid financial results in Q3. That said, our consolidated Q2 2024 net loss and adjusted EBITDA were negatively impacted by the cost of our biennial wet mill outage, preventative repairs and maintenance at all our facilities, lower feed and carbon prices, particularly with respect to our Columbia facility, and realized losses on hedging activities. Rob will discuss our financial results in greater detail in a moment. To generate more sustainable profitability in the long term, we've been actively expanding our revenue streams. I'll review our operations and strategic initiatives, beginning with carbon capture and storage, or CCS. We'll expect that the regulatory developments and carbon market fluctuations will affect this initiative on an ongoing basis. Most recently, Illinois signed into law the Safe CCS Act on July 18th. Establishing stringent safety, financial, and insurance requirements on carbon dioxide pipelines. This act also imposes a moratorium on construction of new carbon pipelines until the Federal Pipeline and Hazardous Materials Safety Administration finalizes its new safety rules, or July 1, 2026, whichever occurs sooner. This timing aligns with our current proposed CCS project permitting and construction schedules. We believe the Act will add clarity for the industry on CCS projects, although we do anticipate increased compliance and other requirements. The CCS market also remains dynamic. For instance, on the economic front, current prices in the low-carbon fuel standard markets are at historic lows, and voluntary carbon markets are nascent. As such, it is difficult to project with certainty beyond the value of the 45Q tax credits that begin at $85 a metric tonne what the dollar values of the associated environmental attributes will be over the life of our proposed CCS project. Given our plans to take a capital-light approach to this project, we need to align Aalto and its various partners' resources to best bear the various risks while retaining the appropriate financial benefits. Given these evolving dynamics, it's important that we bring the right partners to the table. We believe we're doing so effectively as we continue to work collaboratively with Vault and other parties. Moving to operations, as previously discussed, we conducted our binaural wet mill repairs and maintenance outage at the Pekin Campus in April. This scheduled outage was completed on time, within budget, and is now demonstrating improvements over prior operational performance. For example, we increased production at the wet mill, improving capacity utilization while reducing our fixed cost per unit. The Pekin Campus is now fully operational and taking advantage of the summer driving season economics. We remain on track to achieve 90 million gallons or more of specialty alcohol sales in 2024. We are encouraged by the demand from existing and new customers. We're capitalizing on our proximity to the river, which gives us access to the gulf and the ability to export product. We're building a second loading dock at our Pekin campus that will increase barge volume, reduce our overall transportation costs, and provide critical redundancy. We expect the cost of the second dock to be less than $3 million. Now let's pivot to review our western plants. We built these facilities at a time when destination plants delivered a solid and differentiated value proposition. As competition in corn bases increased and carbon values declined, we began investing in these plants to broaden our revenue streams and improve profitability. Ultimately, our goal is to optimize their value, which could include operating them long-term as part of our portfolio of production assets or evaluating the sale of one or both plants. At Magic Valley, we continue to work with our high-protein system vendor, Harvesting Technology, to produce increased levels of corn oil and higher-protein feed products that garner higher prices. In January of this year, we hot-idled the plant due to negative regional crush margins and to address the excess water and mass balance challenges that inhibited our ability to operate the plant at capacity and to achieve the target results from our corn oil and high-protein system. We made significant modifications that included the installation of additional equipment and adjustments to the design process flows. Also in Q2, to optimize plant efficiency upon restart, we accelerated routine maintenance activities, including tuning other major plant equipment and operating systems, performing routine cleanings, and flushing prior process residuals. We resumed operations in early July and are encouraged by the initial results. We expect to increase production rates in the coming weeks as we complete the system upgrades. We intend to do so carefully to ensure the process remains balanced and our products meet quality expectations. We anticipate having a clearer picture with respect to the effectiveness of the system modifications and the general performance of the plant later this summer. In Q2, we significantly improved the production rates at our Columbia plant by addressing centrifuge limitations we experienced in Q1. As a result, we increased capacity utilization rates in Q2 and anticipate further improvements as the summer dry season continues. We're currently working on other ways to improve the facility's profitability and hope to share more information with you over the coming quarters. Before I turn the call to Rob, I'd like to note that customers have indicated their support of our efforts to continue to improve our sustainability and lower our carbon footprint. In July, our ICP and Pekin plants received the 2024 Bronze Medal Sustainability Rating from EcoVadis, which honors the top 35% of companies assessed. EcoVadis is a globally recognized business sustainability rating service that sets corporate sustainability standards. Now I'll turn the call to Rob.
spk07: Thanks, Brian. I'll review the financial results for the second quarter 2024 compared to the second quarter of 2023. During Q2 2024, we sold 95.1 million gallons, relatively consistent with 94.4 million gallons sold during Q2 of 2023. However, due to lower market prices in 2024, Q2 2024 net sales for $236 million compared to $317 million in Q2 2023. Although ethanol prices decreased, crush margins remained consistent. Therefore, lower ethanol prices did not materially impact gross profit. In fact, during Q2 2024, our peaking campus contributed over $10 million to gross profit even after considering its average costs, loss production margins, and derivative losses. Total gross profit per quarter was $7.6 million, down $9.6 million from Q2 2023, yet up over $10 million from Q1 2024. Various factors impacted our gross profit and bottom line results. While our essential ingredients return improved 46% in Q2 of 2024 compared to 38% a year ago, revenues decreased in Q2 2024 compared to Q2 2023. This is largely the result of a compression on protein prices due to an increase in soybean meal supply, a consequence of production growth and soy crush driven by the demand for renewable diesel. Next, renewable fuel revenue and bottom line results at our Columbia plant were negatively impacted by historic low carbon market pricing. Additionally, As Brian outlined on our last call, in Q2, we completed repairs and maintenance initiatives, including our peak and wet mill outage, to improve our operational performance heading into Q3. It's important to note that costs associated with wet mill outages are more substantial than those for dry grind facilities due to the nature and extent of the maintenance activities, the extended downtime required, and the opportunity cost. The biennial outage cost $3.6 million, and the planned ICP outage cost $1.8 million in Q2 2024. This does not include lost revenue associated with approximately 3.5 million fewer production gallons. During Q2, on a consolidated basis, we recorded $11.3 million in repairs and maintenance expense, including a portion of the outage cost. and we remain on track for our 2024 estimate of $34 million in total repairs and maintenance expense for all plants. Finally, realized derivative losses for Q2 of 2024 were $2.9 million compared to $5.5 million in realized derivative gains for the same quarter in 2023. As covered previously, we employ a variety of risk management strategies to mitigate the price volatility of different commodities throughout the year as a normal course of business. Our consolidated net loss for Q2 2024 was $3.1 million compared to net income of $7.6 million in Q2 of 2023. Adjusted EBITDA for Q2 2024 was negative $5.9 million, including $3.6 million in costs related to our wet mill outage and the $2.9 million in realized losses on derivatives. This compares to positive adjusted EBITDA of $14 million, including $5.5 million in realized derivative gains in Q2 2023. As of June 30th, our cash balance was $27 million, and our total loan borrowing availability was $95 million, including $30 million under our operating line of credit and $65 million subject to certain conditions under our term loan facility. In Q2 2024, we used $13.7 million in our operating activities, bringing the year to date total to a net use of $12.3 million. We invested $4.7 million in CapEx, bringing the year to date total to $9.3 million, in line with our $25 million plan for 2024. As Brian noted, we are pleased with the margins in July, and if they remain strong and we continue to meet our production targets, we expect to deliver positive adjusted EBITDA for Q3. With that, I'll turn the call back to Brian.
spk03: Thank you, Rob. We've been executing our plan to improve our profitability and leverage our strengths and opportunities. The major planned outages we completed in the second quarter position us to benefit from positive crush margins in the second half of 2024. We're excited to see our initiatives come to fruition, bolstering our ability to continue to serve our customers for many years to come. Operator, we're ready to begin Q&A.
spk10: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Your first question comes from Samir Joshi with HV Wainwright.
spk13: Hey, good afternoon, guys. Thanks for taking my questions. Let me start with the last point you discussed about the capex of $25 million on target or in line with the guidance. So far, you have spent $9.3 million What is the rest of the CapEx slated for this second half?
spk07: Yeah, sure. We've got a variety of different CapEx projects that we've reviewed and approved that we have planned for later this year. I will note that we've spent less year to date, but there's also more spend slated in the second half of 2024.
spk13: Any particular areas you're focused on for that?
spk07: A lot of the areas involve things that we talked about before, increasing plant efficiencies, upgrading various systems, things like that.
spk03: Would also include the $3 million from the new pipeline or the new loadout or loading facility.
spk13: Right, the new alcohol dock, yeah.
spk08: Got it.
spk13: And then these various upgrades that are being done, And you talked about increasing capacity utilization as a result of each of these maintenance and upgrades. Can you quantify what levels were you achieving before and what are the expected levels for, say, 3Q and 4Q of utilization at these plants?
spk03: So, Samir, it depends on what we're talking about, and that's why we didn't. provide specific details in the prepared remarks, but what we're overall seeing is somewhere between 10 and 15% improvements from production prior to the event. And again, it depends. As an example, we've seen about a 10% improvement in ethanol production. Overall, that would include both specialty and beverage. I'm sorry, specialty and fuel improvements. But it would also, and, you know, we've seen up to 15% improvements in essential ingredients. A lot of our, you know, quality essential products that come out, including yeast, that come out of the wet mill. So, overall, very pleased. And, you know, we hope to see continued improvement in that over the, you know, as we continue to further line out the operations.
spk13: Great. Thanks for that color. And then just one clarification, maybe the OPEX was up slightly. I know that these other costs are not run through the OPEX line, but was there a reason for this slight bump in OPEX?
spk12: SG&A. Yeah, we're here. Sorry.
spk07: Yeah, I mean, there's a lot going in into the other optics category. One thing to note is, you know, until we've officially approved the path forward related to our carbon capture and storage project, some of the upfront costs run through that line item.
spk06: Some upfront costs. Oh, you got it.
spk03: Okay, thanks. That activity is clearly picked up year over year, and so that would account for the material portion of it.
spk12: I'll take my other questions off. Thanks. Okay. Thanks, Samir. Thank you.
spk10: Our next question comes from Eric Stein with Craig Hellman Capital Group.
spk15: Hi, Brian. Hi, Rob. Hey, Eric. Hey. So just on carbon capture, so I can appreciate the timeline in July 1st of 26 and how that matches up, but I also know there are a number of steps that were targeted kind of in the interim. So just curious how you think about that, how your partners are thinking about that, the various steps, whether it's the Class 6 permit, negotiating with those financing partners and thinking about an investment in your region versus maybe some other region where they're not running into the same issues. So just some thoughts on that would be great.
spk12: Sure.
spk03: So as I mentioned in our prepared remarks, we think that we picked the right partners. We're working diligently ahead. They've been very collaborative and cooperative. Clearly having to address issues as they arise is an example of the Safe CCS Act that recently was enacted in Illinois and pivoting and addressing those issues. And not to fully reiterate what was in the prepared remarks, but maybe from additional color, is that there are, in the capital light approach, there are risks that, and adjustments that you need to make that you would otherwise wouldn't need to make if you were just doing it all on balance sheet, right? I think that we have those parties that are there and best suited to be able to handle those risks, but it's also doing it in a way and in an organized way so that you're not assuming risks that you otherwise don't need to take beforehand. So as an example, if you think about the class search permit, that's a two-year program, right, at a minimum from EPA. And you have to make decisions as to when you want to start to do your, you know, purchasing for compression. Do you assume that, you know, do you start right out of the box and start ordering that before you have your Class 6 permits? Or do you wait until you've got your Class 6 permit approved and submitted and awaiting final approval? And some of those other processes need to be in place. So those are all the things that are going into consideration here. um you know there are a number of parties out there that are willing to sell as an example their carbon credits or the environmental attributes well in advance to finance their their terms you know is that the appropriate approach and are you giving up too much or do you try and retain those values and and wait for those to come in the future so those are all things that there are a few things that come into you know come into the calculus when you're working through this process um so I don't know if that's helpful, Eric. No, it is.
spk02: Trying to find balance and risk in return.
spk15: Sure. I mean, but net effect, you do feel, whether it's with Volt or with some of the financial partners that you are in negotiations with, that those are the right parties that are willing to deal with the needed flexibility just given the situation? Correct. Okay. Okay. All right, appreciate that. And then maybe just turning to Magic Valley, so good to hear that you've got the restart and it's been going for, what, a month or so. Just curious, it sounds like you're taking the right approach to be measured in it, but what do you kind of need to see to where you're convinced that you're on the right track and does this push out a little bit the decision in terms of maybe rolling this technology out to other plants?
spk03: So we are pleased with what we've seen so far, that the steps that we took to expand and add additional equipment to be able to give additional leniency into the process so that you don't have to have everything out aligned fully all the time. was important, and we're seeing the value of that today, probably running at around 70% capacity today. So to achieve, you know, six, what we would define as successes is being able to achieve maximum capacity that we saw before we implemented the project and be able to achieve the goals and the targets that we had established with harvesting technology to put that system into place. Given, you know, to answer your question with regards to other applications within the portfolio of assets that we have, it's certainly an open option still, but I think that we think it's prudent to be measured and to see the success through, not only because we've been waiting a long time, but so have investors to see the results of this investment. So we want to see that through before we make any comments or decisions with regards to what we're going to do going forward. at our other sites.
spk12: Okay. Thanks a lot. Thanks, Eric.
spk10: Again, if you have a question, please press star then one. Your next question comes from Joseph with Domo Capital.
spk05: Hey, guys. Thanks for taking my questions.
spk02: Hello, Justin.
spk05: Hi. Just to tack on to that last thing, in the prepared remarks, you mentioned that you're expecting a Magic Valley update later this summer. Is that something that would be prior to your next earnings call then?
spk03: It's a good question. To the extent that there's material disclosure, yeah, we'll make sure that we do that. Otherwise, it may line out appropriately with With the third quarter call, if you think about it, you're not only talking about achieving capacity, but really what you're also talking about is being able to place your product and get the penetration that you were hoping for with regards to higher proteins and corn oil and placement of that product. I guess what we'd like to say is let's play it by ear, but we'll make sure that we provide information as appropriate.
spk05: Okay, and I imagine the success of that would probably go a long ways towards your ability to be able to monetize the Western assets as well. Would that be fair to say?
spk03: Well, it certainly wouldn't hurt. Absolutely. It doesn't hurt us either to have that asset on, right? I mean, these are unique assets. Exactly, right. We want to make sure that we maximize value for shareholders, whichever way it is. Okay.
spk05: And you highlighted the shutdown costs of Pekin. I was wondering if you could quantify the impact of Magic Valley being idled as well, as far as that Western gross margin.
spk12: Yeah.
spk07: You know, we don't typically provide those levels of specifics, but if you recall, we chose to bring the plant down earlier this year when the crush margin environment was less favorable. And so, in large, that kind of offset our operating losses. which kind of also underscores the reason why we're incorporating this technology, which is to improve our profitability and our crush margins in more challenging market environments. So it's kind of hard to quantify the lost opportunity cost in that case.
spk05: Got it. And I guess just my last question for you guys is, as you noted, in July, crush margins have doubled. So I was a little bit surprised by your guidance of positive adjusted EBITDA versus coming out and announcing or guiding towards positive net income. Are there any major Q3 uncapitalized costs we should be aware of, or are you guys just being ultra-conservative?
spk07: I'll take that one. Yeah, I mean, Justin, we try to be conservative but also transparent in what's going on. Our comments stem from July being behind us now and us being pleased with the financial results. As we stated on the call, as long as the crush margins remain strong and we continue to produce at the levels we are, it should be a very favorable quarter.
spk04: Okay, thank you.
spk07: But keep in mind, we operate in a commodity market, and so things ebb and flow.
spk03: And there's some things that just were beyond the impact net income that you may or may not be able to control. As an example, your realized gains and losses and unrealized gains and losses in derivatives and the like.
spk12: So it probably falls in the conservative camp. Okay, thank you. Under promise over deliver. All right. Hold you to it. I know you will.
spk10: This concludes our question and answer session. I would like to turn the conference back over to Brian McGregor for any closing remarks.
spk12: Thank you, Kaylee. Thanks, everyone, for joining us today.
spk03: In September, we hope to see you at the H.C. Wainwright Annual Conference. We appreciate your ongoing feedback and support.
spk12: Have a good day.
spk10: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Bye. music music Thank you. Good afternoon and welcome to the Alto Ingredients, Inc. Second Quarter 2024 Financial Results Conference Call. All participants are 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 touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Kirsten Chapman with LHS Investor Relations, a division of Alliance Advisors. Please go ahead.
spk00: Thank you, Kaylee, and thank you all for joining us today for the Alto Ingredients second quarter 2024 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 August 13th, 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, August 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 AFARB on slide 2 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 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 unadopted consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, loss and extinguishment of debt, unrealized derivative gains and losses, acquisition-related expense, and depreciation and amortization. To support the company's review of any 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, 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.
spk03: Thank you, Kirsten. We welcome our investors, valued customers, and other stakeholders joining us today. The Beacon Campus has been producing alcohol for over 150 years through many market cycles. We will continue to produce well into the future. Over the last few years, We've been leaning on our strong balance sheet by utilizing cash flow from operations and excess liquidity to fund capital upgrades and repair and maintenance to strengthen our facilities and to improve our long-term profitability. While these additional expenses can impact our short-term results, our recent efforts are beginning to yield operational improvements, and we are confident we will reap long-term benefits. In Q2, our initiatives increased production in our Pekin campus positioning us to benefit from improving ethanol margins. These efforts further demonstrate the advantages of our production facilities located there, including the ability to operate profitably on a consistent basis. More specifically, in Q2, even with over $5 million related to spring outages, our beacon campus generated over $10 million of gross profit, up from over $4 million in Q1, reflecting these programs and higher crush margins in June. In Q2 2024, the average Chicago crush margin increased to 21 cents per gallon compared to just above break-even in Q1 2024. In July, the average Chicago crush margin rose further to 48 cents per gallon. These improvements align with the optimism we expressed on our Q1 call regarding strengthening crush margins, solid corn supplies, and growing export demand. Assuming margins remain strong, we expect to deliver solid financial results in Q3. That said, our consolidated Q2 2024 net loss and adjusted EBITDA were negatively impacted by the cost of our biennial wet mill outage, preventative repairs and maintenance at all our facilities, lower feed and carbon prices, particularly with respect to our Columbia facility, and realized losses on hedging activities. Rob will discuss our financial results in greater detail in a moment. To generate more sustainable profitability in the long term, we've been actively expanding our revenue streams. I'll review our operations and strategic initiatives, beginning with carbon capture and storage, or CCS. We'll expect that the regulatory developments and carbon market fluctuations will affect this initiative on an ongoing basis. Most recently, Illinois signed into law the Safe CCS Act on July 18th, Establishing stringent safety, financial, and insurance requirements on carbon dioxide pipelines. This act also imposes a moratorium on construction of new carbon pipelines until the Federal Pipeline and Hazardous Materials Safety Administration finalizes its new safety rules, or July 1st, 2026, whichever occurs sooner. This timing aligns with our current proposed CCS project permitting and construction schedules. We believe the Act will add clarity for the industry on CCS projects, although we do anticipate increased compliance and other requirements. The CCS market also remains dynamic. For instance, on the economic front, current prices in the low-carbon fuel standard markets are at historic lows, and voluntary carbon markets are nascent. As such, it is difficult to project with certainty beyond the value of the 45Q tax credits that begin at $85 a metric tonne what the dollar values of the associated environmental attributes will be over the life of our proposed CCS project. Given our plans to take a capital-light approach to this project, we need to align Aalto and its various partners' resources to best bear the various risks while retaining the appropriate financial benefits. Given these evolving dynamics, it's important that we bring the right partners to the table. We believe we're doing so effectively as we continue to work collaboratively with Vault and other parties. Moving to operations, as previously discussed, we conducted our binaural wet mill repairs and maintenance outage at the Pekin Campus in April. This scheduled outage was completed on time, within budget, and is now demonstrating improvements over prior operational performance. For example, we increased production at the wet mill, improving capacity utilization while reducing our fixed cost per unit. The Pekin Campus is now fully operational and taking advantage of the summer driving season economics. We remain on track to achieve 90 million gallons or more of specialty alcohol sales in 2024. We are encouraged by the demand from existing and new customers. We're capitalizing on our proximity to the river, which gives us access to the gulf and the ability to export product. We're building a second loading dock at our Pekin campus that will increase barge volume, reduce our overall transportation costs, and provide critical redundancy. We expect the cost of the second dock to be less than $3 million. Now let's pivot to review our western plants. We built these facilities at a time when destination plants delivered a solid and differentiated value proposition. As competition in corn bases increased and carbon values declined, we began investing in these plants to broaden our revenue streams and improve profitability. Ultimately, our goal is to optimize their value, which could include operating them long term as part of our portfolio of production assets or evaluating the sale of one or both plants. At Magic Valley, we continue to work with our high protein system vendor, Harvesting Technology, to produce increased levels of corn oil and higher protein feed products that garner higher prices. In January of this year, we hot idled the plant due to negative regional crush margins and to address the excess water and mass balance challenges that inhibited our ability to operate the plant at capacity and to achieve the target results from our corn oil and high-protein system. We made significant modifications that included the installation of additional equipment and adjustments to the design process flows. Also in Q2, to optimize plant efficiency upon restart, we accelerated routine maintenance activities, including tuning other major plant equipment and operating systems, performing routine cleanings, and flushing prior process residuals. We resumed operations in early July and are encouraged by the initial results. We expect to increase production rates in the coming weeks as we complete the system upgrades. We intend to do so carefully to ensure the process remains balanced and our products meet quality expectations. We anticipate having a clearer picture with respect to the effectiveness of the system modifications and the general performance of the plant later this summer. In Q2, we significantly improved the production rates at our Columbia plant by addressing centrifuge limitations we experienced in Q1. As a result, we increased capacity utilization rates in Q2 and anticipate further improvements as the summer dry season continues. We're currently working on other ways to improve the facility's profitability and hope to share more information with you over the coming quarters. Before I turn the call to Rob, I'd like to note that customers have indicated their support of our efforts to continue to improve our sustainability and lower our carbon footprint. In July, our ICP and Pekin plants received the 2024 Bronze Medal Sustainability Rating from EcoVadis, which honors the top 35% of companies assessed. EcoVadis is a globally recognized business sustainability rating service that sets corporate sustainability standards. Now I'll turn the call to Rob.
spk07: Thanks, Brian. I'll review the financial results for the second quarter of 2024 compared to the second quarter of 2023. During Q2 2024, we sold 95.1 million gallons, relatively consistent with 94.4 million gallons sold during Q2 of 2023. However, due to lower market prices in 2024, Q2 2024 net sales for $236 million compared to $317 million in Q2 2023. Although ethanol prices decreased, crush margins remained consistent. Therefore, lower ethanol prices did not materially impact gross profit. In fact, during Q2 2024, our peaking campus contributed over $10 million to gross profit even after considering its outage costs, loss production margins, and derivative losses. Total gross profit per quarter was $7.6 million, down $9.6 million from Q2 2023, yet up over $10 million from Q1 2024. Various factors impacted our gross profit and bottom line results. While our essential ingredients return improved 46% in Q2 of 2024 compared to 38% a year ago, revenues decreased in Q2 2024 compared to Q2 2023. This is largely the result of a compression on protein prices due to an increase in soybean meal supply, a consequence of production growth and soy crush driven by the demand for renewable diesel. Next, renewable fuel revenue and bottom line results at our Columbia plant were negatively impacted by historic low carbon market pricing. Additionally, As Brian outlined on our last call, in Q2, we completed repairs and maintenance initiatives, including our peak and wet mill outage, to improve our operational performance heading into Q3. It's important to note that costs associated with wet mill outages are more substantial than those for dry grind facilities due to the nature and extent of the maintenance activities, the extended downtime required, and the opportunity cost. The biennial outage cost $3.6 million, and the planned ICP outage cost $1.8 million in Q2 2024. This does not include lost revenue associated with approximately 3.5 million fewer production gallons. During Q2, on a consolidated basis, we recorded $11.3 million in repairs and maintenance expense, including a portion of the outage cost. and we remain on track for our 2024 estimate of $34 million in total repairs and maintenance expense for all plants. Finally, realized derivative losses for Q2 of 2024 were $2.9 million compared to $5.5 million in realized derivative gains for the same quarter in 2023. As covered previously, we employ a variety of risk management strategies to mitigate the price volatility of different commodities throughout the year as a normal course of business. Our consolidated net loss for Q2 2024 was $3.1 million compared to net income of $7.6 million in Q2 of 2023. Adjusted EBITDA for Q2 2024 was negative $5.9 million, including $3.6 million in costs related to our wet mill outage and the $2.9 million in realized losses on derivatives. This compares to positive adjusted EBITDA of $14 million, including $5.5 million in realized derivative gains in Q2 2023. As of June 30th, our cash balance was $27 million, and our total loan borrowing availability was $95 million, including $30 million under our operating line of credit and $65 million subject to certain conditions under our term loan facility. In Q2 2024, we used $13.7 million in our operating activities, bringing the year to date total to a net use of $12.3 million. We invested $4.7 million in CapEx, bringing the year to date total to $9.3 million, in line with our $25 million plan for 2024. As Brian noted, we are pleased with the margins in July, and if they remain strong and we continue to meet our production targets, we expect to deliver positive adjusted EBITDA for Q3. With that, I'll turn the call back to Brian.
spk03: Thank you, Rob. We've been executing our plan to improve our profitability and leverage our strengths and opportunities. The major planned outages we completed in the second quarter position us to benefit from positive crush margins in the second half of 2024. We're excited to see our initiatives come to fruition, bolstering our ability to continue to serve our customers for many years to come. Operator, we're ready to begin Q&A.
spk10: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Your first question comes from Samir Joshi with HV Wainwright.
spk13: Hey, good afternoon, guys. Thanks for taking my questions. Let me start with the last point you discussed about the capex of 25 million on target or in line with the guidance. So far, you have spent 9.3 million What is the rest of the CAPEX slated for this second half?
spk07: Yeah, sure. We've got a variety of different CAPEX projects that we've reviewed and approved that we have planned for later this year. I will note that we've spent less year to date, but there's also more spend slated in the second half of 2024.
spk13: Any particular areas you're focused on for that?
spk07: A lot of the areas involve things that we talked about before, increasing plant efficiencies, upgrading various systems, things like that.
spk03: Would also include the $3 million from the new pipeline or the new loadout or loading facility.
spk13: Right, the new alcohol dock, yeah.
spk08: Got it.
spk13: And then these various upgrades that are being done, and you talked about increasing capacity utilization as a result of each of these maintenance and upgrades. Is there a quantifying, like can you quantify it, like what levels were you achieving before and what are the expected levels for say 3Q and 4Q of utilization at these plants?
spk03: So Samir, it depends on what we're talking about and it's why we didn't. provide specific details in the prepared remarks. But what we're overall seeing is somewhere between 10% and 15% improvements from production prior to the event. And again, it depends. As an example, we've seen about a 10% improvement in ethanol production. Overall, that would include both specialty and beverage. I'm sorry, specialty and fuel improvements. But it would also, and, you know, we've seen up to 15% improvements in essential ingredients. A lot of our, you know, quality essential products that come out, including yeast, that come out of the wet mill. So, overall, very pleased. And, you know, we hope to see continued improvement in that over the, you know, as we continue to further line out the operations.
spk13: Great. Thanks for that color. And then just one clarification, maybe the OPEX was up slightly. I know that these other costs are not run through the OPEX line, but was there a reason for this slight bump in OPEX?
spk12: SG&A. Yeah, we're here. Sorry.
spk07: Yeah, I mean, there's a lot going in into the other optics category. One thing to note is, you know, until we've officially approved the path forward related to our carbon capture and storage project, some of the upfront costs run through that line item.
spk06: Some upfront costs. Oh, you got that.
spk03: Okay, thanks. That activity is clearly picked up year over year, and so that would account for the material portion of it.
spk12: I'll take my other questions off then. Thanks. Okay. Thanks, Samir. Thank you.
spk10: Your next question comes from Eric Stein with Craig Helen Capital Group.
spk15: Hi, Brian. Hi, Rob. Hey, Eric. Hey. So just on carbon capture, so I can appreciate the timeline in July 1st of 26 and how that matches up, but I also know there are a number of steps that were targeted kind of in the interim. So just curious how you think about that, how your partners are thinking about that, the various steps, whether it's the Class 6 permit, negotiating with those financing partners and thinking about an investment in your region versus maybe some other region where they're not running into the same issues. So just some thoughts on that would be great.
spk12: Sure.
spk03: So, as I mentioned in our prepared remarks, we think that we picked the right partners. We're working, you know, diligently ahead. They've been very collaborative and cooperative. Clearly having to address issues as they arise is an example of the Safe CCS Act that recently was enacted in Illinois and pivoting and addressing those issues. And not to fully reiterate what was in the prepared remarks, but maybe from additional color is that there are, in the capital light approach, there are risks that, and adjustments that you need to make that you would otherwise wouldn't need to make if you were just doing it all on balance sheet, right? I think that we have those parties that are there and best suited to be able to handle those risks, but it's also doing it in a way and in an organized way so that you're not assuming risks that you otherwise don't need to take beforehand. So as an example, if you think about the class search permit, that's a two-year program, right, at a minimum from EPA. Okay. and you have to make decisions as to when you want to start to do your purchasing for compression. Do you assume that, do you start right out of the box and start ordering that before you have your Class 6 permits, or do you wait until you've got your Class 6 permit approved and submitted and awaiting final approval, and some of those other processes need to be in place. So those are all the things that are going into consideration. You know, there are a number of parties out there that are willing to sell, as an example, their carbon credits or the environmental attributes well in advance to finance their terms. You know, is that the appropriate approach, and are you giving up too much, or do you try and retain those values and wait for those to come in the future? So those are all things that are a few things that come into the calculus when you're working through this process. I don't know if that's helpful, Eric. No, it is.
spk02: Trying to find balance and risk in return.
spk15: Sure. I mean, but net effect, you do feel, whether it's with Volt or with some of the financial partners that you are in negotiations with, that those are the right parties that are willing to deal with that, with the needed flexibility just given the situation. Correct. Okay. All right, appreciate that. And then maybe just turning to Magic Valley, so good to hear that you've got the restart and it's been going for, what, a month or so. Just curious, it sounds like you're taking the right approach to be measured in it, but what do you kind of need to see to where you're convinced that you're on the right track and does this push out a little bit the decision in terms of maybe rolling this technology out to other plants?
spk03: So we are pleased with what we've seen so far, that the steps that we took to expand and add additional equipment to be able to give additional leniency into the process so that you don't have to have everything out aligned fully all the time. was important. And we're seeing the value of that today, probably running at around 70% capacity today. So to achieve, you know, six, what we would define as successes is being able to achieve maximum capacity that we saw before we implemented the project and be able to achieve the goals and the targets that we had established with harvesting technology to put in the tech into the, you know, put that system into place. Um, Given, you know, to answer your question with regards to other applications within the portfolio of assets that we have, it's certainly an open option still, but I think that we think it's prudent to be measured and to see the success through, not only because we've been waiting a long time, but so have investors to see the results of this investment. So we want to see that through before we make any comments or decisions with regards to what we're going to do going forward. at our other sites.
spk12: Okay. Thanks a lot. Thanks, Eric.
spk10: Again, if you have a question, please press star then one. Your next question comes from Joseph with Domo Capital.
spk05: Hey, guys. Thanks for taking my questions.
spk02: Hello, Justin.
spk05: Hi. Just to tack on to that last thing, in the prepared remarks, you mentioned that you're expecting a Magic Valley update later this summer. Is that something that would be prior to your next earnings call then?
spk12: It's a good question.
spk03: To the extent that there's material disclosure, yeah, we'll make sure that we do that. Otherwise, it may line out appropriately with With the third quarter call, if you think about it, you're not only talking about achieving capacity, but really what you're also talking about is being able to place your product and get the penetration that you were hoping for with regards to higher proteins and corn oil and placement of that product. I guess what we'd like to say is let's play it by ear, but we'll make sure that we provide information as appropriate.
spk05: Okay, and I imagine the success of that would probably go a long ways towards your ability to be able to monetize the Western assets as well. Would that be fair to say?
spk03: Well, it certainly wouldn't hurt. Absolutely. It doesn't hurt us either to have that asset on, right? I mean, these are unique assets. Exactly, right. We want to make sure that we maximize value for shareholders, whichever way it is.
spk05: Okay. And you highlighted the shutdown costs of Pekin. I was wondering if you could quantify the impact of Magic Valley being idled as well, as far as that Western gross margin.
spk12: Yeah.
spk07: You know, we don't typically provide those levels of specifics. But if you recall, we chose to bring the plant down earlier this year when the crush margin environment was less favorable. And so, in large, that kind of offset our operating losses. which kind of also underscores the reason why we're incorporating this technology, which is to improve our profitability and our crush margins in more challenging market environments. So it's kind of hard to quantify the lost opportunity cost in that case.
spk05: Got it. And I guess just my last question for you guys is, you know, as you noted, you know, in July, you know, crush margins have doubled. So I was a little bit surprised by your guidance of positive, you know, adjusted EBITDA versus, you know, coming out and, you know, announcing or guiding towards, you know, positive net income. Are there any major Q3 uncapitalized costs we should be aware of or are you guys just being ultra conservative?
spk07: No, I'll take that one. Yeah, I mean, Justin, we try to be conservative but also transparent in what's going on. Our comments stem from July being behind us now and us being pleased with the financial results. As we stated on the call, as long as the crush margins remain strong and we continue to produce at the levels we are, it should be a very favorable quarter.
spk04: Okay, thank you.
spk07: But keep in mind, we operate in a commodity market, and so things ebb and flow.
spk03: And there's some things that just were beyond the impact net income that you may or may not be able to control. As an example, your realized gains and losses and unrealized gains and losses in derivatives and the like.
spk12: So it probably falls in the conservative camp. Okay, thank you. Under promise over deliver. All right. Hold you to it. I know you will.
spk10: This concludes our question and answer session. I would like to turn the conference back over to Brian McGregor for any closing remarks.
spk12: Thank you, Kaylee.
spk03: Thanks, everyone, for joining us today. In September, we hope to see you at the H.C. Wainwright Annual Conference. We appreciate your ongoing feedback and support.
spk12: Have a good day.
spk10: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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