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Alto Ingredients, Inc.
8/6/2025
Good day and welcome to the Aalto Ingredients Second Quarter 2025 Financial 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 Alliance Advisors Investor Relations. Please go ahead.
Thank you, Ashya, and thank you all for joining us for the Alto Ingredients second quarter 2025 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 financials for the second quarter of 2025. The company also has 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 on Alto Ingredients' website. Please note the information on this call speaks only as of today, August 6, 2025, and you are advised that time-sensitive information may be no longer available 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 can 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 and 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 consolidated net income or loss before interest expense, interest income, provision for income taxes, asset impairments, unrealized derivative gains and losses, acquisition-related expense, 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 strategic 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's now my pleasure to introduce CEO Brian McGregor. Please go ahead, sir.
Thank you, Kirsten. Thank you all for joining us today. The main takeaway for Q2 is that our adjusted EBITDA improved by nearly $6 million compared to last year, reflecting the successful execution of our initiatives to increase productivity. For some time, we have been focusing on short-term projects with more immediate returns, and we see the roots taking hold in delivering success. This approach will support our path to incremental profitability and an improved future. Projects under evaluation will be prioritized by anticipated cost, timing, and ROI impact. Under consideration are projects to lower our carbon intensity and capture more of the benefits of the 45 regulations increase our CO2 utilization at our Pekin campus and at Columbia, building on our successful carbonic acquisition, and improve our prospects to monetize our Western assets. Further, we will continue to pursue opportunities to improve efficiency and productivity, like we did in Q1 and Q2. As a brief update to our carbon capture and storage project for our Pekin campus, on August 1st, the Governor of Illinois signed Senate Bill 1723, that prohibits CO2 sequestration directly through the Muhammad Aquifer, as contemplated in our EPA Class VI permit. As a result, we are developing alternatives with Walt, as well as evaluating other promising non-sequestration options to optimize the value of our CO2 production. The bottom line is, while we lay the groundwork for longer-term, capital-intensive projects, we are focusing on executable strategies within our control with short-term paybacks and potential long-term benefits. Our adjusted EBITDA for Q2 compared to last year's quarter reflects the benefits of multiple initiatives. We generated positive gross profit at our Western assets, resulting from the combination of our liquid CO2 facility acquisition, improvements at our Columbia ethanol plant, and our decision to cold idle Magic Valley due to adverse market factors. Our marketing and distribution segment also improved, reflecting the integration of our bulk volume customers from our Eagle alcohol business, fostering third-party ethanol marketing relationships that met profitability criteria, and transitioning away from businesses that had limited returns. We note that our peak in campus was negatively impacted by quarter-over-quarter changes in derivatives and the impact of the damage sustained to our loadout dock in April. We partially offset these effects by leveraging our operational flexibility at the beacon campus by increasing sales of higher margin ISCC products exported to Europe. I'll cover more on the dock in a moment. Company-wide, we improved our operational model by right-sizing our corporate overhead to a level that aligns with our current company footprint. Based on our Q2 results, we are on track to exceed our goal of saving approximately $8 million annually. We continue to evaluate options to improve operational efficiency and throughput, focus on growth in profitable market segments, and identify additional cost-saving opportunities that, while smaller in amount, should, in the aggregate, make a real difference to smaller rents. Turning back to the Deakin campus, in early April, our loadout dock sustained damage due to rapidly rising river levels, impacting production, logistics, and campus economics for most of Q2. Since our last call, we've made progress recovering from this setback in a few ways. First, we were able to respond quickly to take interim steps with third-party river transload vendors to minimize business interruption. Also, we worked with our insurance carrier to confirm coverage for both the property damage and business interruption. Finally, we're reviewing repair plans with our carrier to ensure the best path forward. We intend to commence the project ahead of mid-west winter and expect work to extend into next year. On markets and regulatory trends, the big beautiful bill enacted in July made several positive updates too, including the 45Z credit extensions through the end of 2029 and spending on farm programs that are beneficial for the industry. The bill also increased focus on domestic renewable fuel production and introduced new eligibility restrictions, particularly around foreign involvement. For example, only fuel derived from feedstocks grown or produced in North America is eligible for the credit. We are pursuing options to capitalize on 45Z. Based on our current carbon intensity scores, Columbia will qualify for $0.10 per gallon for 2025 and up to $0.20 for 2026, while our peak and dry mill will qualify for $0.10 per gallon starting in 2026. This equates to roughly $4 million in 2025 and $8 million in 2026 for Columbia and $6 million for the dry mill in 2026, based on production capacities. Further, we expect to make improvements to our plans to increase the anticipated credits moving forward across all eligible facilities. While low-carbon corn may contribute favorably towards further reduction and reducing our carbon footprint, we are evaluating whether it's economically beneficial to source that particular feedstock to reduce our carbon footprint. The other two operating plants at Beacon will continue to produce higher quality products, as well as take advantage of the export market premiums for fuel, as the new rule incentivizes domestic ethanol plants from 45Z eligible dry mills. The bill also positively impacts farm programs by boosting sector profitability, reducing financial volatility, enhancing asset values, and strengthening the overall safety net with the intent to improve operational stability and long-term farm enterprise value. Also contained within the bill is the increase in USDA commodity reference prices and base acres. Corn will increase by $3.70 per bushel to $4.10 per bushel, and soybeans from $8.40 per bushel to $10 per bushel, and the addition of up to 30 million base acres that can enroll in farm programs. As a result, farmers will need new and expanded markets to absorb the additional production. We believe this will bode well for the future of the higher ethanol blends and new uses of American-grown feedstocks, making the U.S. an even more attractive origin for source ethanol and other renewal fuel products internationally. Turning to crush margins, the annual uptick in demand from the summer driving season helped lift ethanol prices and improve crush spreads. While it's difficult to predict market fluctuations, we've seen additional spread improvement in Q3. We remain optimistic for positive margins for the remainder of the summer. Regarding E15 blending waivers, the EPA extended the waivers nationally through the summer, offering continued support for near-term domestic ethanol blending. In California, there was further progress, and regulatory momentum continues to build for E15 blending. Full-scale implementation is still pending further administrative review and regulatory updates. On the sustainability front, we finalized our Scope 1 and 2 greenhouse gas verifications during the quarter, and we have submitted our 2025 ECOWAS scorecard. On the corporate front, in June, we held our annual meeting of stockholders, electing two new board members, Jeremy Bezdik and Alan Tank. We look forward to their fresh perspectives and contributions. I'd also like to congratulate Gil Nathan on being named Chairman of the Board and Diane Nuri as Vice Chair. With that, I'll turn the time over to Rob for our financial review.
Thank you, Brian. I'll review the financial results for Q2 2025 compared to Q2 2024. We sold 86.7 million gallons compared to 95.1 million gallons. The change in volume reflects our decision to rationalize unprofitable business in our marketing and distribution segment and impact the dock availability at our peak in campus. Because we sold fewer gallons in Q2 2025 and at average lower prices, net sales were $218 million, $18 million lower than the prior year. Cost of goods sold, or COGS, was $9 million lower than the same quarter last year. Gross loss was $1.9 million compared to gross profit of $7.6 million, reflecting the following factors. The peaking campus year-over-year change in unrealized non-cash derivatives was negative $13.2 million, and the realized derivatives gain was positive $7.6 million, resulting in a net unfavorable change of $5.6 million. Although the market crush continued to improve in 2025, it was still on average $0.10 lower than the Q2 of 2024. This equated to $5.5 million of lower crush margin comparatives. As Brian mentioned, we are heading in the right direction with the market crush averaging 30 cents per gallon for July. High-quality alcohol premiums were 15 cents per gallon less than the same quarter last year due to increased competition during the annual contracting process. This translated to $3 million, which we were able to offset with our ability to shift higher volumes into the more profitable ISCC export markets. This is a prime example of how our strategy to diversify production enables us to take advantage of market opportunities. Our essential ingredients return at the peaking campus throughout this quarter by nearly 4.5 points to 44.2%. However, this doesn't include the impact of our related hedging activities. Taking our realized hedging gains into consideration, there was no impact. The impact of the dock outage totaled $2.7 million for the quarter. and we are working with our insurance company to recover the losses in excess of our deductibles. At the Western facilities, gross profit improves $5.6 million of the Q2 2024. With addition of our also carbonic liquid CO2 processing facility, the Columbia plant improved gross profit by $3 million to $2.3 million. I mean, our Magic Valley plant and utilizing it primarily as a terminal, We improved gross profit by another $2.6 million. We also reduced SG&A to $6.2 million. This $2.8 million improvement includes $1.1 million related to final payments for acquisition of Eagle Alcohol, $900,000 from right-sizing or SG&A staffing levels, and another $900,000 less in non-cash stock compensation. Along with our workforce reductions that improved COGS by $1.2 million, we are exceeding our target annual overhead savings of approximately $8 million. We also took additional steps to further lower our future costs, including negotiating lower property taxes, improving terms with suppliers, reducing reliance on outside services, as well as a myriad of other changes, which we expect, in aggregate, will make a meaningful difference in the future. Interest expense increased $1.1 million, reflecting the higher average outstanding loan balances and interest rates. Our consolidated net loss was $11.3 million for Q2 2025, compared to a net loss of $3.4 million in Q2 2024, primarily due to higher unrealized non-cash derivative losses, lower crush margins, lower high-quality alcohol premiums, and the impact to our loading dock as discussed earlier in the call. Adjusted EBITDA improved $5.7 million to negative $200,000 in Q2 2025. As of June 30, 2025, our derivative net asset position was $1.7 million. Our cash balance was $30 million, and our total loan borrowing availability was $70 million, including $5 million under our operating line of credit and $65 million subject to certain conditions under our term loan facility. During the second quarter of 2025, we used $850,000 in cash from our operations. We spent another $500,000 in capex, much lower than historical averages, to manage liquidity and focus priorities. And year-to-date, we recorded $16 million in repairs and maintenance expense. in line with our 2025 estimate of $32 million. In summary, our acquisition of Alto Carbonic, entry into the European ISCC markets, cost restructuring efforts, and scaling back marginal operations has improved our financial position. With that, I'll turn the call back to you.
Thank you, Robin. Our purposeful initiatives in 2025 have delivered adjusted EBITDA improvements, even though markets remain volatile. With these successes and positive overall backdrop, we are doubling down to focus on executable projects within our control, with short-term paybacks, more immediate returns, and long-term benefits. We are prioritizing these projects by their anticipated cost, timing, and ROI impact. We are also evaluating opportunities to improve low-carbon prospects, improve asset monetization, and increase CO2 utilization and production. The regulatory environment is positive for the industry and is conducive to creating opportunities for Alto. The change in 45Z have created the opportunity for at least two plans to apply for credit totaling approximately $18 million in the next two years alone, based on our main plate and targeted carbon intensity scores, and for our other plans to capture more of the export market, notably as a result of the 45Z updates, the earnings profile, and thus the intrinsic value of all our facilities, Finally, working with Guggenheim, we continue to make progress on our Western asset optimization and monetization plan. We are also evaluating strategic alternatives and interest for Pekin and the company as a whole. We will share more information in this regard, if appropriate. Before we turn the call to questions, I'll note we will present at the AC Wainwright Investor Conference on the 9th of September in New York City. I hope to see some of you there. Staff, operator, words, ready to begin the Q&A with cell site analysts.
Thank you. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question comes from Eric Stein with Craig Hill. Please go ahead.
Hey, this is Luke on for Eric. Appreciate you guys taking the questions. So first with the carbonic acquisition of Columbia already paying off in a big way in terms of profitability, what's your outlook for further operational benefits there? Do you think there's still substantial synergies yet to have been not realized? And how early are we just in the, in the process of realizing some of these benefits?
So we're, Luke, it's a good question. We certainly haven't peaked yet with regards to our overall capacity at the carbonic facility. We produce, if you want to round numbers out, we're looking at over 100,000 tons of CO2 that's produced at the Columbia facility on an annual basis at about 70,000 capacity, and we're producing on average or sell about 50,000 metric tons. So there's clearly room for growth, and we're working with our for a customer to make sure they can place that product. There is interest, but it takes time to build that infrastructure and support around that. So we think that's really a nice positive for us without really much lifting that would be required. It would certainly require more capital to expand if you wanted to expand the capacity of the carbonic facility, but it's mostly vessels. that would be a general light lift to the extent that the demand increases there for that feed.
Great, that's helpful. And switching gears a little bit for the second question, on the export strategy to Europe, how equipped are you to make this a substantial revenue stream out of pecan? And does the dock damage recently impede any progress on that front material, or is that not really a factor?
So I'll answer that in maybe reverse order. The dock we have certainly developed workarounds and they're working and grateful for that support that we received from from relate long-standing relationships That said it's not as effective as if we were to run it as we have historically with our own dock so it's imperative that our our our dock repaired and replaced and We're working diligently to to that end as Robin mentioned that said we have found as we think back to what we originally projected and expected around European sales, that we're significantly exceeding that and that there continues to be demand for the product. And it's unique in regards to what we can produce because of the high-quality products that we produce at the ICP and the wet mill that make that product unique and eligible for sale there. So we would expect that to continue, we would expect that to continue to improve as well.
Got it, that's helpful. Okay, thank you, I'll turn it over.
Once again, if you have a question, please press star then one. The next question comes from Samir Joshi with HC Main Ride. Please go ahead.
Yeah, good afternoon. Thanks for taking my question. I just want a clarification on the HG&A improvement. Was the 1.1 million eagle alcohol improvement a one-time thing, or should we expect that going forward as well?
No, that was a one-time. That was just the change in the deferred acquisition costs associated with acquired eagles. Okay, okay. And those are the final acquisition costs, so you won't see that going forward.
Yeah, yeah, that's what I thought. So going forward, it will be 6.1 plus 1.1 or around about those levels on a quarterly basis.
Yes, that's fair. Okay. Okay.
Are there any further reductions specifically on the exchange A front that you can, not at the COGS, but at the exchange A level that you can realize?
Yeah, that's a good question. You know, we took, you know, pretty significant efforts to right-size our staffing levels to better align with our current organizational footprint, and we've seen the benefit of that. You analyzed the impact of that Q2 we're exceeding our $8 million targeted savings goal, which impacts SG&A and COGS alike. But in regards to SG&A and some other areas, as mentioned in our remarks, we're looking across the board and we're scrutinizing all spend. We're trying to be very wise with our liquidity. We've negotiated better terms with some of our key suppliers, both in respect to payment terms and in pricing. You know, we've spoken with our property tax assessors and lowered some of our real estate taxes. And we've also taken the opportunity to insource some activities that historically we use contractors for. So, you know, a lot of these efforts individually aren't significant, but collectively, you know, we think that they'll make a pretty meaningful impact moving forward.
Yeah, it is really good to see improvement on that front. Thanks for that. On the 45Z, 18 million estimated benefits over the next two years, are those based on the CI improvements that you are targeting? or are those based on existing facility generating those CPI scores and $18 million in savings or other benefits?
Yeah, no, that's a good question. That number is based on what our current CI scores are anticipated to be under the Greek calculations. It improves for Columbia. It will qualify in 2025. And then with the ILUC standard change being removed, that will double the impact for 2026, the anticipation at Columbia. The dry mill we don't anticipate will qualify in 2025. But again, with the ILUC change, we believe they will qualify in 2026. Understood.
No, so that's good to see.
So any additional changes to reduce our carbon score would be above and beyond these targets.
Right, right. And they will come with associated CAPEX, which you have indicated you will deploy based on your ROI calculations.
Yeah, and some will have CapEx implications, but others may not. It just has to do with ways to continue to be more energy efficient. And to some degree, it may include sourcing feedstock. As I mentioned in my prepared remarks, we're still evaluating it, but certainly sourcing feedstock that has a lower carbon footprint. And if you do so effectively, there's significant benefit, as you can see. I mean, there's additional... 80 cents to be had between where we will be in 2026. And if you get to zero, that's an incredible lift, but still something to aspire to and achieve.
Yeah, yeah. And just a clarification on that, it just struck me. You have been using only American-sourced free stock, right? There was nothing being imported for free stock.
That's correct.
Just last one, is there any color or insight into the Western asset monetization process or it's being worked on but no more details?
Yeah, I'll take that one. Yeah, we're continuing to work with Guggenheim. We're having conversations with prospective buyers and we're evaluating the opportunities. The process for transactions of this size and for unique assets in destination plants tends to take a little bit longer to get through the diligence process. Each plant is nuanced in its own way. It takes time to discuss and diligence the high-protein technology at Magic Valley and then also the recent acquisition of the carbonic CO2 liquid processing facility. Now with the positive regulatory changes that we've seen around 45Z, that's also going to, you know, increase our valuations, which is going to impact the diligence process as well. You know, but also point out that, you know, we're considering all options as part of our ongoing efforts to maximize shareholder value, and that's including asset sales, you know, potentially in addition to Western assets, merger, or, you know, really any strategic transactions that better align the long-term value potential of our company. Understood. And I guess with that, you know, we'll report when appropriate.
Got it. Thanks for that, Tyler. And thanks for taking my question.
Yeah, thank you.
This concludes our question and answer session. I would like to turn the conference back over to Brian McGregor for any closing remarks. Please go ahead.
Thank you, Operator, and thank you all again for joining us today. We appreciate your ongoing feedback and support. Please have a good day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.