Alto Ingredients (NASDAQ:ALTO) Q1 2026 Earnings Call

0:00 Good day, and welcome to the Alto Ingredients First Quarter twenty twenty six Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Jody Burfinin, Alliance Advisors. Please go ahead. Thank you, Nick, and thank you all for joining us today for Alto Ingredients first quarter twenty twenty six results conference call. With me today are President and CEO, Brian McGregor and CFO, Rob Olender.

0:50 Alto Ingredients issued a press release after the market closed today providing details of the company's financial results for the first quarter of twenty twenty six. The company also prepared a presentation for today's call that is available on its website at altoingredients.com. A webcast and webcast replay will be available on the Alto Ingredients website. Please note that the information on this call speaks only as of today, 05/06/2026. 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 in the slide deck posted to the company's website, which states that some of the comments in the presentation constitute forward looking statements and considerations that involve risks and uncertainties.

1:39 The actual 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 consolidated net income or loss before interest expense, interest income, provision or benefit for income taxes, asset impairments, unrealized derivative gains and losses, acquisition related expense, excess insurance proceeds, and depreciation and amortization expense.

2:41 To support the company's review of non GAAP information, a reconciling table has been included in today's release. On today's call, Brian will review the company's first quarter performance, Rob will review the financial results, and then Brian will wrap up and open the call for Q and A. It's now my pleasure to introduce Brian MacGregor. Brian, please do go ahead. Thanks, Jody. Thanks, everyone, for joining us today. I'll begin with a high level review of our first quarter results and operational activities. After that, I'll turn the call over to Rob for a detailed review of our financial results for the quarter, and then wrap up and open the call to Q and A. The first quarter is typically a seasonally weak period for both Alto and the industry resulting from the buildup of ethanol inventories and lower demand. In contrast we are reporting strong first quarter results relative to our historical performance in this period.

3:41 We delivered profitability on an adjusted EBITDA and net income basis through the contributions of stronger export sales, higher crush margins, and incremental earnings from 45Z tax credits. Even without the contribution of tax credits, we were profitable. Our strategic realignment, our efforts to improve our operational model, and our success in capturing premiums over fuel ethanol have enhanced our earning power. We remain focused on maximizing value from our diversified portfolio of assets and on pursuing multiple revenue opportunities in response to market demands. To that end, we have robust plans to improve utilization, reliability and efficiencies, and to support higher value revenue streams during 2026.

4:33 Let me share with you some highlights of the operational activities we tackled during the first quarter and update you on the capital projects we have planned for 2026. First, as discussed on last quarter's call, an extended period of very cold weather in the first half of the quarter disrupted river logistics and caused us to curtail production at our Pekin campus. We took the opportunity to accelerate a portion of our planned wet mill biennial outage work that was scheduled for the second quarter. This will allow us to recapture lost production when crush margins are typically stronger and keep us on track with our goal to increase total twenty twenty six alcohol volumes and prioritize product mix that delivers a premium to domestic renewable fuel.

5:21 Secondly, we had a planned outage at our Columbia facility during a seasonally slow quarter for CO2 sales. Combined with the outage we took last December we addressed deferred process related activities intended to improve production performance and plant reliability for the remainder of the year. This work will help ensure the plant is running at optimal rates to reliably support our CO2 offtake customers' growing demand in the coming summer months. It will also allow us to qualify more gallons for 45Z credits. We are still planning a normal outage at ICP during the second quarter consistent with 2025. In terms of capital projects at our Peking campus, we started the repairs on the original dock and the construction of the second alcohol loadout and are on track to complete both projects by the end of twenty twenty six.

6:15 As a reminder, we are building the second alcohol dock to create redundancies and improve logistical capabilities. We also kicked off a project to increase throughput and storage capacity in our Columbia Liquid CO2 Processing Facility by adding a third storage tank. This project will position us to further capitalize on favorable market conditions, specifically the growing demand in the Pacific Northwest and limited supply for premium CO2. At our Peak And Dry Mill, our most efficient plant, we are moving the planned outage to June from the third quarter. During this downtime, we are going to implement a debottlenecking project to increase annual production capacity by about 8% or 5,000,000 gallons.

7:03 We expect to fully realize these improved rates starting in the fourth quarter, which will provide incremental margin and allow us to qualify for more 45Z credits. Finally, in addition to the CapEx projects we planned for 2026, we are continuing to assess large scale CO2 utilization and sequestration opportunities at our Pekin campus. These projects would position us to lower our carbon intensity score and monetize additional incremental earnings from 45Z credits and generate more liquid CO2 revenue. Before I turn the call over to Rob, we're closely monitoring macro conditions, including unrest in The Middle East, which can indirectly affect us through energy and commodity volatility and freight and export logistics, and we're actively managing these exposures.

7:50 We are also encouraged by continued progress on E15. In California, AB30 has provided a pathway for year round E15 sales and we are watching the state implementation process closely. Nationally, momentum for year round E15 legislation continues to build in Congress. We view expanded access to E15 as an important demand side complement to the production incentives in 45Z, helping ensure the market can absorb additional low carbon gallons over time. Without demand growth, incentives alone can contribute to unintended consequences, including overproduction and pressure on industry margins. With that, I'll now turn the call over to Rob for a more detailed review of our Q1 financial results.

8:35 Rob? Thank you, Brian. I'll start with a review of the income statement for the first quarter of twenty twenty six compared to the first quarter of twenty twenty five. Consolidated net sales were $225,000,000, 2,000,000 lower than in the prior year. This reflects a 4% reduction in volume sold or 3,700,000 gallons, partially offset by a 4% increase in the average sales price per gallon from a dollar 93 to $2 on a consolidated basis. The primary drivers impacting revenues were the net overall reduction in volume sold, which was mainly related to the production curtailment at our peak in campus. An improved product mix of higher renewable fuel export sales, reflecting both an increase in volume sold and a significantly higher premium compared to domestic renewable fuel sales than last year contributed $6,700,000.

9:34 High quality alcohol volume sold decreased by 1,300,000 gallons, reflecting continued weak alcohol consumption and increased competition. In addition, the premium versus domestic fuel grade values were lower than last year. As a result, revenues declined by 1,400,000. Co product protein feed and fuel prices improved, supported by strong gains in corn oil used in renewable biofuels, which added an additional net 2,200,000 in revenues. Coupled with a 4% lower cost of corn, our consolidated return on essential ingredients improved to 53.4% from 48.2% a year ago. Gross profit was $9,200,000 compared to a gross loss of $1,800,000 reported for Q1 twenty twenty five for an $11,000,000 positive swing to profitability.

10:33 In addition to the revenue variances I just covered, the change in gross profit also encompassed the following factors. A seasonally strong market crush margin of 17¢ per gallon for Q1 twenty twenty six, compared to 2¢ per gallon for the same period last year, accounted for approximately 5,200,000 of benefit. An increase in net unrealized gain on derivatives contributed $6,400,000 as a result of our high quality alcohol hedges associated with future shipments improved in relation to the rise in the market price of ethanol. As we locked in the premium on our contracted fixed price, high quality alcohol commitments. And we incurred $500,000 less in production labor costs to the staffing reduction that we completed during the first quarter of twenty twenty five.

11:26 These positive trends were partially offset by the following negative variances. Natural gas and electricity costs collectively increased $5,300,000 due to higher prices related to volatile weather conditions and rising demand. Repair and maintenance expenses were $2,400,000 higher this quarter compared to last year. This was driven by the acceleration of work at the wet mill originally planned for the second quarter, as Brian mentioned, as well as increased costs from the planned outage at Columbia. The increased repair and maintenance costs at Columbia were the primary contributors to the $1,100,000 gross loss in our Western production segment for the first quarter of twenty twenty six.

12:12 SG and A expenses decreased by $500,000 to $6,700,000 also reflecting our decision to right size staffing levels last year. With respect to 45z transferable tax credits, as mentioned on the fourth quarter call, for 2026, we expect to qualify approximately 90,000,000 gallons of combined production at the Columbia and peak and dry mill facilities on an annual basis at $0.20 per gallon, resulting in approximately $15,000,000 in net proceeds after all monetization costs. We recorded $3,900,000 in 45Z credit earnings for the first quarter of twenty twenty six. The sale of all of our twenty twenty five forty five z tax credits is currently underway at values consistent with our previously recorded estimates, and we expect to close on that transaction this month.

13:05 We are working diligently to qualify additional gallons and further reduce our carbon intensity scores to capture more of the 45 zinc benefit, and we'll provide updates as these efforts materialize. As a result of an improvement in gross profit, lower SG and A expenses and recognition of 45Z tax credits, we reported net income attributable to common stockholders of $4,000,000 or $05 per share for Q1 twenty twenty six, an increase of $16,000,000 compared to a net loss of $12,000,000 or $0.16 per share for the first quarter of twenty twenty five. Adjusted EBITDA increased $9,100,000 to $4,700,000 compared to a negative adjusted EBITDA of $4,400,000 for last year's first quarter.

13:57 As a reminder, the 6,400,000 increase of unrealized derivative gains is excluded from the calculation of adjusted EBITDA. Turning to our balance sheet. As of 03/31/2026, our cash balance was $20,000,000 During the first quarter, we generated 4,000,000 in cash flow from operating activities. As mentioned on last quarter's call, we plan to spend about $25,000,000 in capital expenditures during 2026 on both maintenance and optimization projects with strong projected returns. With the major projects earmarked for the next three quarters, capital expenditures for the first quarter were only $1,000,000. We paid $16,600,000 in principle on our term debt in the first quarter as planned and ended the quarter with 38,400,000 outstanding on the term loan.

14:51 With a lower debt balance, interest expense decreased by $531,000 This reflects our focus on minimizing idle cash and maximizing excess borrowing capacity in order to reduce our interest expense burden. We ended the quarter with total borrowing availability of $94,000,000 consisting of 29,000,000 under our operating line of credit and 65,000,000 under our term loan facility. With that, I'll now turn the call back to Brian. Thanks Rob. In summary, our first quarter results show that Alto's operating model is working, improving margins through higher value revenue opportunities, while maintaining a disciplined cost structure.

15:36 With multiple product streams, we have the flexibility to respond quickly as markets shift, and we're continuing to strengthen our ability to perform through commodity cycles. Looking ahead, our priorities are straightforward: improve utilization and reliability, execute our twenty twenty six optimization and capital projects on time and on budget, and keep advancing our commercial strategy, which includes expanding the value we capture from 45Z credits and optimally monetizing the value of our biogenic CO2 production across our facilities to lower our carbon footprint. With our focus on these priorities, we remain committed to further enhancing shareholder value in both the short and long term. Operator, we're ready to begin Q and A.

16:24 Thank you. We will now begin the question and answer session. The first question will come from Eric Stine with Craig Hallum. Please go ahead. Hi, Brian. Hi, Rob. Hi, Eric. Hello. Hey. So one thing that caught my attention, you talked about that at peak and you're looking at I'm not sure exactly how you termed it, but you're looking at continuing to look at large scale CO2 utilization and sequestration.

17:10 I know that there was a moratorium on sequestration in Illinois that's been in place for some time. So maybe can you just, I don't know, delve into that a little bit? What has kind of changed the thinking? Or it sounds like it's a little more optimistic on that front? Any details there would be very helpful. Sure. There's a couple of things that proved challenging under our prior plans which was first the moratorium on pipelines and then secondly the legislation that was approved which precluded the injection through the aquifer for sequestration which impacted solely Alto for that matter.

18:04 Out of that opportunity or out of those challenges we found opportunities to, along with the Big Beautiful Build changes, to rethink and pursue utilization as well as sequestration. So now they are both opportunities to be able to take advantage of 45Q in the long run. And then on top of that with 45Z, there are opportunities now if we can monetize that value of CO2 quickly, particularly for the dry mill in Pekin, there's an opportunity to capture significant benefit that was otherwise not available when we were first developing that project. So we've been in discussions with numerous parties to be able to bring this to fruition. My guess is that it may end up looking a lot like a combination of the two, some utilization and some sequestration, but time will tell. We're working diligently on that and aggressively on that to try and come to a clear plan and solution this year.

19:15 Rob anything else? No, it was good, Brian. Okay. Yeah. I mean, so okay. So it does sound like, though, there have been some changes. I mean, I get the utilization piece. You know, I mean, it's it's been a big success at Columbia. And if you can replicate that to any extent, I mean, that's a great thing. But in terms of the sequestration piece, I know you're talking about that things have kind of opened up a little bit. I mean, is that the pipeline moratorium or your ability to sequester? Have things changed in that regard? Or you're kind of thinking outside the box in ways to access that opportunity?

20:06 I guess what I'd say is that it's we're not we're no longer feeling like we have to bring the whole solution to the table ourselves, where we had to commit to a singular pipeline that was dedicated solely for our use, But that there are other opportunities that are starting to avail themselves to us and discussions around where we may not have to make the kind of capital spend that we otherwise needed to spend previously under that prior project. That being said, it's still a viable option, and we have a good relationship with all. And there are opportunities to go, you know, to think of it as as an as more opportunities rather than less. Okay. Got it. No. It's good to hear. Mean, that we that hasn't really been on your on your plate for a while. It's been some time. So a good development there.

21:01 Maybe could we just talk about I mean, the overall market environment, obviously, Q1 better than is typical. And I know there are a lot more factors than simply just the basic crush. But, you know, by my estimation, it's as strong as it has been at this time of year in almost a decade. So just curious, what kind of confidence that gives you for Q2? And is there the potential that this kind of lasts a little bit given that you've had some potentially structural changes in the market based on where gasoline prices are right now? Yeah, mean, think it's a great point, Eric, in that margins continue to remain strong. They're actually slightly better than where they were same time last year. So that all bodes well. I think we're doing what we can to continue to monetize that value and capture that value.

22:03 As we mentioned, there are going to be some scheduled outages, but that we remain optimistic around the future. That said, there are historically, it's usually been more the norm than the exception that when you have strong spring margins it ends up translating into significant increase in production and then fundamental economics can, in an oversupplied market margins start to give away in the second half. I think the thing that changes that at least to date has been exports and the optimism, albeit cautious optimism around E15.

22:54 And so demand has continued to remain strong and inventories remain on the whole balanced. So we'll see. Think a thing to do is keep an eye on inventories and then it will be interesting to see what the impact of The Middle East challenges and how they impact export logistics, commitments, people having to reroute and find other alternatives their fuel needs that may actually bode well for not only adoption of E15 but as well adoption of ethanol in the export markets. There is a bit of wait and see efforts going on as much as possible so it's a bit of a it's funny enough it's probably as cloudy as it ever has been in looking forward but I think that there are a lot of positives to be thinking about and that provide, I think, a counter to what would otherwise be the norm.

24:02 Yeah, I mean, many moving parts, I mean, such as gasoline prices are good, except for the fact that they potentially dampen gasoline demand, but then you've got jet fuel at extremely high prices. I don't know, cautiously optimistic, I guess, is the best way to put it. Yeah. I mean, think the interesting thing is we haven't seen a whole lot of change in demand right now for fuel. So it appears that we as consumers have not changed our behavior at least with regards to fuel but have changed our consumption behavior elsewhere to adapt. And I think that also we're seeing a good increase in demand for renewable diesel which has in turn also resulted in improvements in corn oil values.

24:53 So that's generally positive. Yeah I mean time will tell but you know fingers crossed and God willing and creek don't rise we should have a should have a good year generally I think. Okay I appreciate it thank you. Thanks, Eric. Thanks, Eric. The next question will come from Sameer Joshi with H. C. Wainwright. Please go ahead. Hey, Brian. Hey, Rob. Thanks for taking my questions, congrats on a solid quarter. So just in terms of priorities, your debt servicing was around 10,800,000 last year, 2,200,000 this quarter.

25:39 Is the focus on reducing the debt, or is the focus on actually increasing this, or rather reducing CI scores by spending on these various projects that you talked about? Have you done some analysis on what makes more sense. Yeah, I'll take that one. Let's start. Go ahead. Sorry about this, Sameer. Me start by saying that I don't think it's a binary question or a binary answer. And I'll let Rob go ahead and riff. Yeah, I was gonna say the same thing. One's dependent upon the other. I mean, we have a repayment mechanism, which has worked out well for Alto that when we do well, then there's a cash flow suite that pays down the debt.

26:28 And so we like paying it down. We commented on the interest expense savings, but we're also managing our liquidity and our availability to go after the products that we do provide the strongest returns. And to that effect, as mentioned before, we do have a capital expenditure budget of $25,000,000 for 2026. So there are several projects in our sites that we're excited to go after. Understood. Actually, that was sort of a second question on the 25,000,000 CapEx. On slide six, you have a nice table. Thanks for providing that. That gives a nice snapshot of what the impact of your CI score reduction would be on potential benefits from 45Z.

27:16 If you are able to do all the, or execute on all the projects that you have planned for 2026, will we be at 30¢, 40¢? Like, do you have an idea of what you're targeting there? I'd say generally, we do have an idea, but we're not prepared to share that yet because some of the efforts certainly require more than just our efforts. We try and control everything all that we can but there is significant dependence on third parties including farmers and the relationships that we have there, but I think we remain very optimistic about our ability to capture more of that 45Z and they're keenly focused on it.

28:09 So more Yeah, I'll just add to that. Our near term focus is to capture more 45Z benefits is to optimize our production. And that kind of speaks to the maintenance activities we did at our Columbia facility in Q1 to improve the reliability moving forward. And our expectation is that we will be able to increase our production output moving forward, particularly compared to 2025. And then later this year, we are going to debottleneck the dry mill starting in the second quarter, hoping to complete that by the end of the third quarter where we expand our production by about 5,000,000 gallons on an annual run rate basis. And so in that mechanism, in the near term, at least for 2026 is how we're hoping to capture more of the value from the 45Z credits. And then as Brian commented, it'll take collaboration and a little more work and effort longer term working with other parties to move us down the CI score.

29:13 And like Brian said, a good opportunity is on potentially low carbon intensity corn and signing up farmers who are employing, I guess, carbon smart practices such as reduced till or no till, low nitrogen fertilizers, or the use of cover crops. But that's going to take time to develop. Fortunately, this program is currently available through the end of twenty twenty nine and we hope it gets extended further. Yeah, no, understood. Thanks for that. And then just industry questions sort of the benefit or impact of E15. Of course, it would create excess demand, but that would also drive some of the mothballed refineries or ethanol plants to be reactivated, and would that flood the market?

30:09 What do you see from where you sit right now? Any adverse impact from the benefits that emanate from E15? I guess my general thought is first is if you can capture E15, you're already seeing anything that would be, or most of the projects that otherwise have been mothballed or idle, There's some effort to resume that production and there are certainly lots of rumors and a lot of work that we're seeing behind the scenes including ourselves right we're talking about debottle debottlenecking at our dry mill to expand capacity. So I think that's already in the works for the most part, Samir. I think that E15 will only help balance out what is otherwise a demand or a production push and incentivize production to also incentivize demand.

31:05 I think that complement that with a good export program will help provide significant balance going forward. Certainly, the number of gallons that would come from a year round E15 adoption, including California, is on the order of 1,000,000,000 gallons. So I don't think there's that much latent capacity currently in the market. So I think that all looks positive and gives and gives really consumers an opportunity to have more options at the pump, which they haven't been able to have for a very long time. Understood. Thanks for that insight. For 2Q, of course, the LCFS scores are moving in the right direction. The RINs are moving in the right direction.

31:58 Good luck with the second quarter and second half of the year. Thanks for taking my questions. Thank you. Thanks, Samir. This concludes our question and answer session. I would like to turn the conference back over to Mr. Brian McGregor for any closing remarks. Thanks, Nick. Thanks, everyone, for joining us again today. We look forward to speaking to you soon. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.