Alto Ingredients, Inc. (ALTO) Earnings

Management highlights

### Overall Profitability - The company delivered its fourth consecutive quarter of positive gross profit, income from operations, net income, and adjusted EBITDA, with consistent profitability even without 45Z tax credit contributions. - 45Z tax credit earnings totaled $5.1 million in Q2 2026, with no comparable earnings in Q2 2025; adjusted EBITDA reached $23.7 million, up from negative adjusted EBITDA in the prior year period, and net income was $11.4 million ($0.15 per share) compared to a net loss of $11.3 million (-$0.15 per share) YoY. ### Operational Projects and Capacity Expansion - Completed the planned dry mill outage and debottlenecking project at the Pekin campus, increasing annual production capacity by ~8% (5 million gallons). Full capacity benefits are expected to be realized in Q4 2026, and the additional gallons qualify for 45Z tax credits. - Routine spring outage completed at ICP; repairs to the existing dock and installation of a second alcohol load out remain on track for completion by end of 2026, improving logistics and loading capacity. - Construction began on a third CO2 storage tank at the Columbia facility, expected to be operational in Q4 2026 to meet growing demand for premium CO2 in the Pacific Northwest. - The company continues advancing multiple low-capital, high-return pathways to monetize CO2 streams, including utilization and sequestration, via partnerships with stakeholders that already have compression capabilities to accelerate commercialization. ### Market and Strategic Highlights - Strong domestic ethanol demand and improved margins driven by robust export demand, strong domestic blending activity, tighter ethanol inventories after industry spring maintenance, and lower corn costs from favorable crop conditions. - Geopolitical disruption in the Middle East increased Gulf Coast freight costs and reduced vessel availability, compressing the U.S.-Europe ethanol arbitrage and lowering renewable fuel export volumes vs. Q2 2025; the company shifted product mix to domestic fuel-grade ethanol sales to capture strong domestic crush margins, demonstrating the benefit of its diversified platform. - Growing momentum for year-round E15 adoption, with 72% of U.S. voters supporting the policy (the highest level since 2016), multiple Midwestern states implementing permanent year-round access, and California progressing toward implementation after passing Assembly Bill 30, creating meaningful long-term incremental demand for ethanol. - The company is working with farmer partners to reduce the carbon intensity of corn supplies to lower the company's carbon scores and increase 45Z tax credit eligibility with minimal capital investment; the company remains on track to qualify 90 million gallons or more of production in 2026, expecting a minimum of $15 million in income from tax credits after monetization costs. ### Financial Highlights - Generated $28.5 million in cash flow from operating activities in Q2 2026; CapEx totaled $10.6 million in the quarter and $11.5 million year-to-date, on track to hit the full-year target of $25 million. - Paid down $8.5 million in term debt principal during Q2 2026, bringing total year-to-date principal payments to $25.1 million and ending the quarter with $29.9 million in term debt outstanding; total borrowing availability at quarter end was $106 million. - Established a $50 million at-the-market (ATM) equity program to provide additional financial flexibility for pursuing high-return organic opportunities, with disciplined use aligned with market conditions and shareholder interests.

Guidance

- The company reaffirmed its expectation to increase total 2026 production volumes compared to 2025. - Full benefits from the Pekin campus debottlenecking and capacity expansion project are expected to be realized in Q4 2026, unchanged from prior guidance. - The company maintained its guidance of a minimum of $15 million in net income from 45Z tax credits in 2026 after monetization costs, based on qualifying at least 90 million gallons of production; management now expects full-year net 45Z earnings to reach the $15 million to $16 million range, an upward revision from the prior minimum baseline. - Full-year capital expenditure guidance remains unchanged at $25 million, with year-to-date spending of $11.5 million on track to meet the target. - Management expects Alto's diversified operating model to generate positive annual adjusted EBITDA across commodity cycles, with upside when market conditions are favorable.

Segment performance

1. Renewable Fuel (Fuel Grade Ethanol): Consolidated net sales increased year-over-year to $246 million, with total ethanol and specialty alcohol sales volume of 88.5 million gallons (up 1.8 million gallons YoY) at an average sales price of $2.15 per gallon (up 10% YoY). Revenue from renewable fuel exports increased by $800 thousand YoY despite a 2.2 million gallon volume reduction, due to higher premiums over domestic ethanol. This segment contributed the majority of total revenue, with crush margins improving significantly to $0.33 per gallon from $0.11 per gallon YoY. 2. High Quality Alcohol: Sales volume increased by 3.6 million gallons YoY. While average premiums over ethanol narrowed, reducing revenue by ~$2.9 million, realized derivative gains offset most of this impact, leaving a net premium decline of only $0.02 per gallon. Higher volumes generated a modest increase in profitability despite the lower premium environment. 3. Essential Ingredients (Dry Distiller Grain, Corn Oil, Germ): Sales increased $6.1 million YoY driven by improved average sales prices. Strong export demand for dry distiller grain, tighter domestic supply from industry spring maintenance, and elevated biodiesel/renewable diesel feedstock demand for corn oil and germ lifted prices. This segment contributed ~51.6% of total returns, up from 45.2% YoY.

Risks & headwinds

- Forward-looking statements about future results, project benefits, and market developments are subject to risks and uncertainties that could cause actual results to differ materially, including regulatory changes for 45Z tax credits and E15 adoption, commodity price volatility, and geopolitical disruption. - Ongoing geopolitical disruption in the Middle East has increased freight costs and reduced vessel availability for U.S. Gulf Coast exports, compressing the U.S.-Europe ethanol arbitrage and reducing export competitiveness relative to Brazilian ethanol. - Final regulatory implementation steps remain for E15 adoption in California, and full regulatory clarity for 45Z tax credit carbon intensity reduction requirements is still pending. - The company faces uncertainty around the volume of low-carbon intensity corn that can be sourced from farmer partners in 2026, and thus cannot yet confirm the magnitude of incremental 45Z credit benefits for this year.

Analyst Q&A

• Q: Capital projects are progressing well, but management alluded to additional unannounced opportunities. Are these opportunities extensions of existing strategic paths, or new areas, and can management share any details?

  A: Most unannounced opportunities are extensions of existing priorities: further monetizing CO2 streams, capturing more 45Z tax credit value available through 2029, and expanding or improving efficiency at the company's lowest-cost production facilities. No details can be shared yet as full capital commitments have not been made, but management notes these opportunities have very attractive payback periods and will update investors once commitments are finalized.

• Q: 45Z tax credits are relatively new, how open are farmers to adopting low-carbon practices to lower corn carbon intensity, and is this opportunity already largely exploited or still underdeveloped?

  A: The opportunity is still very new for farmers, as formal rules were only finalized recently, but farmer interest is very high. Incremental 45Z credit gains from lower carbon intensity translate to roughly $0.30 per bushel additional income for participating farmers, which is a meaningful incentive even amid current corn price levels, and many initial steps to qualify are simple administrative actions. The opportunity is still largely untapped and expected to grow over time.

• Q: How does management balance capital allocation between debt paydown and pursuing new high-return growth projects?

  A: All projects are evaluated and ranked by expected return, with foundational projects that enable future expansion prioritized even if their near-term returns are lower. With strong current operating cash flow, the company can fund most low-cost, high-return projects internally and still pay down debt to reduce interest expense, rather than holding idle cash. Debt paydown also improves future financial flexibility for larger expansion projects.

• Q: What is the status of 2026 45Z tax credit recognition, and is the original $15 million net proceeds target still on track?

  A: Year-to-date, the company has recognized $7.9 million in net 45Z credits for 2026, putting the company on track to reach $15 million to $16 million in full-year net proceeds, above the original minimum baseline target of $15 million. Additional volume may qualify via the Pekin expansion, reliability improvements, and low-carbon corn efforts, so there is upside to the current range.