Alto Ingredients (NASDAQ:ALTO) Q4 2025 Earnings Call

0:00 Good day and welcome to the Alto Ingredients Fourth Quarter and Year End twenty twenty five 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. Harriet Fried of Alliance Advisors. Please go ahead. Thank you, operator, and thank you all for joining us today for the Alto Ingredients fourth quarter and year end twenty twenty five results conference call. On the call today are President and CEO, Brian MacGregor and CFO, Rob Melender.

0:51 Alto Ingredients issued a press release after the market closed today providing details of the company's financial results for the fourth quarter of twenty twenty five. The company also prepared a presentation for today's call that is available on its website at altoingredients.com. A webcast and a webcast replay will be available on the Alto Ingredients website. Please note that the information on this call speaks only as of today, March 4. You're advised that time sensitive information may no longer be accurate at the time of any replay. Please refer to the company's Safe Harbor statement in the slide deck posted to the company's website, which states that some of the comments in this presentation constitute forward looking statements and considerations that involve risks and uncertainties.

1:40 The actual future results of Alto Ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, events, risks and other factors previously and from time to time disclosed in Alto Ingredients' filings with the SEC. Except as required by applicable law, the company assumes no obligation to update any forward looking statements. In management's prepared remarks, non GAAP measures will be referenced. Management uses these non GAAP measures to monitor the financial performance of operations and believes these measures will assist investors in assessing the company's performance for the periods reported. The company defines adjusted EBITDA as unaudited consolidated net income or loss before interest expense, interest income, provision or benefit for income taxes, asset impairments, unrealized derivative gains and losses, excess insurance proceeds, acquisition related expense or recoveries, and depreciation and amortization expense.

2:45 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 provide a review of the company's strategic plan and activities. Rob will comment on its financial results. Then Brian will wrap up and open the call for Q and A. It's now my pleasure to introduce Brian MacGregor. Brian, go ahead please. Thank you, Harriet, and thank you all for joining us today. I'll begin with a quick review of our fourth quarter results and achievements, after which I'll turn the call over to Rob for more details on our numbers. After that, I'll give you an overview of our major initiatives for 2026 and the opportunities we're seeing in our markets. We'll then open the call for Q and A.

3:33 The fourth quarter capped a year of strong execution and it was a pivotal milestone in our strategic realignment. Entering the year, we made tactical decisions to focus on opportunities that were within our control to maximize earnings. We adjusted staffing to align with our current organizational footprint, captured cost savings, invested in the throughput and efficiency of our plants, culled underperforming business activities in our marketing and distribution segment, and maintain operational disciplines in support of our diversification efforts. Earnings for the fourth quarter were $21,000,000 a $63,000,000 improvement compared to the fourth quarter of twenty twenty four. For the full year 2025, earnings were $12,000,000 a $72,000,000 improvement.

4:25 Further, adjusted EBITDA for the fourth quarter was 28,000,000 a $36,000,000 positive swing last year. For 2025, adjusted EBITDA grew to $45,000,000 a $53,000,000 improvement compared to 2024. Increased crush margins, qualified 45Z credits, and strong renewable fuel export sales were major contributors to improved performance for both the quarter and the full year. Our Carbonic acquisition in early twenty twenty five is a perfect example of our focused strategy. This acquisition and the resultant diversification into liquid CO2 improved the profitability of our Columbia ethanol plant.

5:13 Alto Carbonic also contributed positively to the profitability in our Western segment for both the fourth quarter and for all of 2025. Further, we made significant progress in determining the amount of 45Z transferable tax credits for 2025 and associated incremental earnings. We expect to qualify approximately 90,000,000 gallons of combined production on an annual basis for 45Z credits at our Columbia and our Peak And Dry Mill facilities. In the fourth quarter, we recorded for the full year $7,500,000 in 45Z credit earnings or $0.10 per gallon net of estimated monetization costs. For 2026, with the removal of the Indirect Land Use Change, or ILUC, from the GREET model, we expect to qualify for $0.20 per gallon at our Columbia And Peak And Dry Mill facilities and to generate approximately $15,000,000 in net proceeds.

6:15 We continue to pursue opportunities to lower our carbon scores further. The Pekin Wet Mill and ICP do not currently qualify for these credits but are advantaged to serve a variety of domestic and export markets, which are predominantly sold at a premium to ethanol. Finally, with respect to our Western Asset Optimization and Monetization Plan, as I mentioned at last quarter's call, current market conditions, including operational improvements, together with the positive impact of our Alto Carbonic acquisition, have materially changed the calculus for simply selling the facility. Given Columbia's improved profitability, we are no longer actively marketing the asset.

7:01 We continue, however, to evaluate all options for our Magic Valley facility, including selling the plant as well as restarting and capturing 45Z credits and monetizing the valuable CO2 the facility would produce. In summary, we are pleased with our Q4 and full year results that demonstrate the successful execution of our strategic realignment. I'll now turn the call over to Rob for a more detailed review of our financial performance. Rob? Thank you, Brian. Thank you. First, I'd like to review the financial results for the fourth quarter of twenty twenty five compared to the fourth quarter of twenty twenty four. Net sales were $232,000,000 $4,000,000 lower than in the prior year.

7:47 This reflects a reduction in volume sold of 10,600,000 gallons, primarily due to our decision to idle our Magic Valley facility at the end of twenty twenty four. On a consolidated basis, the average sales price per gallon increased to $2.10 from $1.88 per gallon, partially offsetting the reduction in volume sold. Gross profit for Q4 twenty twenty five was $15,200,000 a significant increase of 16,600,000 compared to Q4 twenty twenty four's gross loss of $1,400,000 The significant improvement in gross profit was due to the following drivers. Stronger market crush margin of $0.23 per gallon in Q4 twenty twenty five compared to $08 per gallon in 2024 accounted for approximately $8,000,000 An increase in renewable fuel export sales at premiums to domestic sales contributed $5,000,000 on a higher volume and higher average sales price per gallon.

8:51 We realized $2,600,000 less in compensation costs for the quarter related to the staffing reduction implemented earlier in the year, including the impact of idling our Magic Valley plant and a gain on our annual pension valuation adjustment. The sale of Oregon Carbon Credits contributed an additional $2,900,000 on improved market pricing. We continued to benefit from our Carbonic acquisition, which we completed at the beginning of twenty twenty five, as they contributed $1,400,000 to our Western Production segment during the quarter. With the idling of Magic Valley, this segment had a positive gross profit for the quarter and the full year. With high value liquid CO2 now in our product mix, our Western Essential Ingredients return improved to 48% in the fourth quarter from 30% a year ago, and contributed to an increase in our consolidated return to 52% from 43%.

9:53 And partially offsetting these positives was a net negative $4,200,000 in combined realized and unrealized changes in derivatives. SG and A expenses decreased by $500,000 to $6,900,000 Once again, this is attributable to rightsizing staffing levels in the first half of the year. As you may recall, in Q4 of twenty twenty four, we recorded the final acquisition related expenses for Eagle Alcohol of $5,700,000 and $24,800,000 of impairment charges related to Magic Valley and Eagle Alcohol, both of which were excluded from adjusted EBITDA. In the fourth quarter of twenty twenty five, we recorded $800,000 of asset impairment charges related to the cleanup of CapEx projects.

10:44 As discussed on prior calls, in April 2025, we sustained damage to our Pekin Campus River loading dock. After filing an insurance claim with our carrier, in q four, we received our maximum insurance coverage payment of $10,000,000. Of these proceeds, 1,500,000 was recorded as a reduction to cost of goods sold as a reimbursement for previously recorded expenses. Dollars 1,800,000 was recorded in other income for lost profits related to the business interruption. And the remaining $6,700,000 of income was recorded as excess insurance proceeds in accordance with GAAP, which will be used to fund the repairs and improvements in 2026. Since the excess proceeds were not related to operations, we excluded this gain from our calculation of adjusted EBITDA.

11:36 As Brian mentioned, we made significant progress in qualifying for 45Z credits and are entering into contracts to sell these credits to third parties. The expected proceeds from selling the twenty twenty five credits are $7,500,000 net of selling costs, which directly strengthen our bottom line in the fourth quarter. The combination of improved gross profit, lower SG and A expenses, recognition of 45Z tax credits and the excess insurance proceeds resulted in net income attributable to common stockholders of $21,500,000 or $0.28 per diluted share for Q4 twenty twenty five, an increase of $63,500,000 compared to Q4 twenty twenty four.

12:24 For the year, net income attributable to common stockholders was $12,100,000 or $0.16 per diluted share, compared to a loss of $60,300,000 or $0.82 per share. Adjusted EBITDA increased $35,600,000 to $27,900,000 for Q4 twenty twenty five, compared to a negative adjusted EBITDA of $7,700,000 for Q4 twenty twenty four, reflecting the above mentioned improvements in gross profit and SG and A, but excluding the $6,700,000 in excess insurance proceeds. And for the year, adjusted EBITDA was $44,700,000 an improvement of $53,200,000 compared to negative adjusted EBITDA of $8,500,000 for 2024.

13:17 Turning to our balance sheet. As of 12/31/2025, our cash balance was $23,000,000 During the fourth quarter, we generated $10,000,000 in cash flow from operations. We generated $5,000,000 in cash flow from investing activities, including $7,000,000 from excess insurance proceeds, partially offset by $2,000,000 in CapEx. We used $22,000,000 in our financing activities as we paid down $16,000,000 on our operating line of credit and $5,000,000 on our term debt. As a result, we ended the year with $55,000,000 outstanding on our term loan. At year end, we had a total loan borrowing availability of $102,000,000 consisting of $37,000,000 under our operating line of credit and $65,000,000 under our term loan facility.

14:10 Our improved profitability in the last half of twenty twenty five allowed us to further pay down $10,000,000 of principal on our term debt in February 2026, and we expect to pay down an additional $6,000,000 in March. This will reduce the principal amount of our term debt to $39,000,000 by the end of the first quarter. We are pleased to significantly reduce our debt and continue to strengthen our balance sheet. In 2026, we plan to elevate our capital expenditures to roughly $25,000,000 while maintaining strong cost discipline and prioritizing the highest ROI projects. Approximately 45% of our capital expenditure budget is earmarked for maintenance projects, while the remaining 55 is for optimization projects, including taking further steps to implement capacity increases at our peak and dry mill.

15:04 Included in the 25,000,000 budget are the cost to complete the repairs of the existing dock and adding the second alcohol load out dock. As a reminder, we are building the second dock to mitigate future business interruption and enhance our logistical capabilities by expanding throughput and creating redundancy. We expect to begin the repairs on the original dock and the installation of the second dock this spring and to complete both projects by the end of twenty twenty six. I'll now turn the call back to Brian. Thank you, Rob. In summary, we entered 2026 with a leaner cost structure, a higher mix of premium exports and carbon advantaged volumes, expanded CO2 opportunities and potential upside from 45Z tax credits.

15:55 We've completed the heavy lifting of addressing losses at underperforming assets, removing structural costs and repositioning our portfolio towards higher value and more consistent revenue streams and are moving forward with plans to improve the company's return on assets. By continuing to improve operations, we believe we will strengthen Alto's ability to capitalize on favorable margin environments, to stabilize when margins are compressed, and to ensure that our assets are producing positive returns. In 2026, we intend to stay focused on what is within our control, on driving improved profitability and executing on multiple opportunities to grow earnings. As a reminder, first quarter is a seasonally challenging period for us.

16:43 In January of this year, extreme cold weather disrupted river logistics and curtailed production at our Beacon Campus. We took advantage of the downtime to make some of the repairs we had planned to be completed in the second quarter during our biennial wet mill outage. This has allowed us to defer the remaining work until the spring of twenty twenty seven and to make up for January's lost production next quarter. With respect to additional outages planned for 2026, we expect normal Q2 outages at ICP and Columbia, consistent with those in 2025. In the second half of the year, the Beacon Dry mill will take a longer outage to implement a project to increase production capacity by approximately 8%, further improving the plant's profitability.

17:35 As Rob mentioned we have important capital projects planned for 2026 and intend to maintain strong cost discipline and will continue to prioritize the highest ROI projects. CO2 utilization remains a compelling opportunity for us as demand for liquid CO2 continues to rise. In 2026, we intend to capitalize further on demand growth in the Pacific Northwest and on our liquid CO2 processing capabilities by increasing our throughput, volume, and storage capacity. We're also assessing large scale CO2 utilization and sequestration opportunities at our Pekin campus and developing plans to capture more value for our CO2 as quickly as possible. We have contracted to sell a significant volume of renewable fuel exports for the first half of twenty twenty six and believe there are increasing opportunities for us to expand volumes and premiums in this market.

18:33 We are on track to match our twenty twenty five high quality alcohol volumes. And on the regulatory front, we continue to view E15 as a meaningful long term demand tailwind for the farming and ethanol industries. While permanent nationwide adoption remains pending, the EPA has consistently supported summer E15 sales through waivers, and political momentum has strengthened entering 2026 with renewed administration and bipartisan congressional support. Taken together, we believe the trajectory for E15 remains clearly positive and supportive of incremental ethanol demand over time. I'm proud of the progress our team has made and excited about the path forward.

19:19 Our focus remains on operational excellence and disciplined capital allocation. We entered 2026 from a position of greater strength with an improved ability to navigate market volatility and a clearer strategy to drive higher margin diversification and enhance asset value. Operator, we're now ready to begin Q and A with sell side analysts. Thank you. We will now begin the question and answer session. And And the first question will come from Amit Dayal with AC Wainwright.

20:19 Please go ahead. Thank you. Good afternoon, everyone. Brian, congratulations on a very strong quarter. It looks like a lot of drivers in place for a strong 2026 as well. But just want to focus on the 45Z tax credits. You're guiding for around $15,000,000 in those benefits in the year at $0.20 per gallon. What steps are you taking that could maybe get you even more in those benefits? And will that potentially come through in 2026? Or will that are you working on it for maybe 2027 and beyond? I'll take the front part of this and then Rob, if you want to round out anything that I otherwise missed. It's a lot of the drivers and opportunities around 45Z for us at these plants is around lowering our carbon intensity scores in some form or another, either reducing our energy demands or changes in sourcing of products and or services.

21:26 So anything that we can do in that regard or the way that we and the types of products that we purchase, whether it's corn and traceability and the like. But it's clear and compelling that anything that you can do to lower your score further as quickly as possible, the better. So, it's really a priority for us. I don't know that it's appropriate to share more than that with regards to some of the projects, but we're actively pursuing it on many fronts and making sure that we can do what we can to lower those scores further. Ram, anything else you want to add? Yeah, sure. Thanks, Brian. As we mentioned, one opportunity to capitalize further on the 45Z tax credits is also to increase our production capacity.

22:21 And we do have a project scheduled for end of Q3, early Q4 to expand the production capability of our peak and dry mill. It's already one of our lowest cost producing assets, but adding additional 45Z credits on that additional production really justifies that project. And our intent is to improve the capacity by about 8% or 5,000,000 gallons. Understood. Thank you for that, guys. And then you just mentioned it, Brian, the traceability of the feedstock. Are we already in compliance with that? There's a treasury proposal around 45Z eligibility. So just wanted to see how we stand on that front. You know, we're active in that front. I wouldn't say that all of our bushels are traced.

23:11 I think that there is some work that needs to be done around incentivizing our farmers to provide that information. It's not just something that we can do on a standalone basis but it's going to require regulatory support as well and adoption across the entire industry. That said, we're doing what we can, and we're making some headway there. Okay. Thank you. And then just last one for me. On the Western assets, should we expect revenue pickup in 2026? I know operationally that is performing much better now. But do we see can we think of any revenue improvements coming through in 2026 for that segment?

24:02 Certainly intend to try and increase production capacity there or increase our overall what's the word I'm looking for? Yeah, we definitely to work on improving our production utilization rate. And then as, I think Brian mentioned in the call, we're exploring opportunities to expand our CO2 throughput as well. Okay. That's all I have guys right now. I'll step back in queue. Thank you. Thank you, Amit. The next question will come from Eric Stine with Craig Hallum. Please go ahead. Hi, Brian. Hi, Rob. Hello. Hey.

24:49 Hello. So you mentioned ethanol exports that you had locked in a portion of that. It sounds like a meaningful portion of that for the first half. I'm wondering if you can kind of quantify that a little bit. And then also curious, as you think about going forward, increasing volumes and increasing margins there? I know you have to have certain certifications to even access other markets. So just curious what kind of steps that would entail to both increase volumes and potentially the margins you get? Yeah, sure. So while we don't specifically provide that level of detail, what it What's important to understand for us is that it's to try and find the optimal balance to optimize the value of the product that we're making, particularly for ICP or the distillery and the wet mill, to the extent that we can produce higher quality products or export fuel products would be the highest marginal value for those products and they predominantly sell at a premium to what would be domestic fuel, including 45Z credits.

26:21 But where we can as well, at other plants which are largely designed to be selling into the domestic fuel markets, that we're doing all that we can to continue to optimize those values to obtain as much 45z credit as we can. So it's really, again, finding a balance, and what we've been able to do is to sell more of that product for increasing demand in Europe for those products. So while we've seen somewhat of a margin compression around some of the high quality products that we sell, we've been able to see an increase in demand for that in the export market.

27:10 Does that answer your question? Yeah. Would there be anything else you want to add to that? Yes. No, that's good. Good. Yes. I mean, clearly, back half of the year, I mean, purchases or the exports to some of those European markets were quite significant. Okay, then, I mean, I think the main question that I have is, and this might be, Brian, a really hard question to answer, but I mean, you've clearly raised the floor here to the business. I mean, I know in the past, you had the platform when the crush was strong that you would do quite well. But conversely, when it was really tough, I mean, it would definitely show in results.

27:56 I mean, is there a way to think about what the business looks like, maybe not in a worst case scenario, but in some of the bad markets that we've seen in the past? Because I mean, correct me if I'm wrong, but it seems like you have you've raised the floor pretty meaningfully versus where it's been in the past. Yes. I think there's a number of factors that go into that. I think part of it is as you think back at the maturation and kind of the evolution of the company, where we were originally focused around destination facilities, the brilliance in the destination was is that they're able to they perform really, really well when you see supply constraints, but they also demonstrate their vulnerability when you get an oversupplied ethanol market, which has been largely the case for most of the, call it, eighteen-twenty years where we've been producing over fifteen-fourteen billion gallons of capacity in the industry.

29:08 So what we've been able to do is to some degree both through monetization and exiting certain locations but as well then being able to shore up the financial viability of those assets with other revenue sources and be able to lower operating costs around that, you're able to take out some of the vulnerabilities around the floor in tight crush margins. And then again, the other focus in what would be the origin facilities at Beacon is around optimizing the value of those revenue streams or the value of those products that generate that revenue stream, and then being diligent and efficient about how we execute.

29:56 So it's about cost management and then making sure that we're investing in projects that not only either increase revenue but also reduce operating expenses and or improve efficiencies as well. If we can do all three that's a home run. I think we've been able to see a lot of those benefits over the last couple years. Got it. And so this is I mean, it sounds like you'd characterize it more as I mean, this has been many, many, many years in the making if you've gotten rid of a lot or you've sold the two California plants. Then what you've done in the next or I'm sorry, in the last, call it, two plus years, you've just kind of taken it to that next level. Is that fair?

30:44 Yes, I think that's right. Okay, thank you. And that will conclude our question and answer session. I would like to turn the conference back over to Mr. Brian McGregor for any closing remarks. Please go ahead. Thank you, Chuck. Thanks again, everyone, for joining us to hear about our progress that we've been able to make and our initiatives for 2026. As always, we appreciate your feedback and support. Have a great day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.