Alto Ingredients, Inc. Q4 FY2024 earnings call

• Cold idled Magic Valley due to unprofitability, took a significant impairment charge, and now use it as a renewable fuel terminal.
• Rationalized Eagle Alcohol by integrating its operations into marketing businesses and focusing on a profitable service center.
• Implemented right-sizing initiatives, reducing headcount by 16% to lower COGS and SG&A.
• Acquired Alto Carbonic, a beverage-grade liquid CO2 processor adjacent to the Columbia plant, which is accretive and has a compelling payback.
• Pekin campus wet mill operating at nameplate capacity, with Q4 2024 production up 3.8 million gallons, expecting 8 million more gallons in 2025.
• Renewable fuel exports to EU started in Q4 2024, with anticipation of expansion in 2025.
• Premium specialty alcohol sales in 2024 were nearly 92 million gallons, aiming to balance production in 2025 for margin maximization.
• Completed ISO 9001 audit with no adverse findings, demonstrating quality culture.

In the fourth quarter of 2024, Alto Ingredients sold 95.1 million gallons, up from 92.5 million gallons in Q4 2023. However, sales price per gallon averaged $1.88 in Q4 2024 compared to $2.24 in Q4 2023. The company implemented cost-cutting initiatives, including cold idling Magic Valley, rationalizing Eagle Alcohol, and other right-sizing opportunities, expecting to save approximately $8 million annually (74% in COGS and 26% in SG&A). The acquisition of Alto Carbonic bolstered economics and asset valuation at the Columbia facility.

• Optimistic about 2025 due to restructuring, improved performance at Pekin, acquisition of Alto Carbonic, and entry into European market.
• Expect to realize full financial benefit of cost savings beginning in Q2 2025.
• Aim to balance production between specialty alcohol and ISCC product in 2025 to maximize margins.

• Regulatory approvals for CCS project taking longer than expected, including EPA Class VI permit process estimated to take at least two years.
• Market conditions impacting sales prices and margins.
• Uncertainties around carbon sequestration opportunities in certain regions.
• Challenges in executing asset sales, mergers, or other strategic transactions.

Q: About the Carbonic acquisition, how are you planning to balance the carbon sequestration versus the carbon, like getting the high-premium carbon dioxide for the beverage industry?

A: While carbon sequestration opportunities in the Pacific Northwest are less prevalent than in Pekin, the Carbonic facility is beneficial due to unique market conditions in the region with low local CO2 supply and long-haul transportation inefficiency.

Q: Understood. Is this site certified for -- or does it qualify for the 45Q incentives already or is there some more work needed to be done to get that in order?

A: It's very close, with work still needed on 45Z, but the Columbia facility is within striking distance of meeting requirements.

Q: Understood. And then for the specialty ingredient or high value alcohol, I know you said 92 million gallons in 2024. Also, you have the EU export option. Do you know or do you have an estimate of how much of this will be sent to EU versus here? And how does that ratio impact pricing and profitability on this one?

A: The product captures a premium, but it's not a one-size-fits-all EU price; flexibility in Pekin's location allows shifting between products to optimize profitability.

Q: Understood. And then last one, the asset sale versus merger or other strategic options, how far along are these discussions? Have you identified any particular asset that is initially targeted to be divested or are you talking to? Like just to get an idea of where the discussion is on that front.

A: Considering all options to maximize shareholder value, but it's not productive to discuss specific assets or M&A activities in detail, with updates provided when they occur.

Q: Can we just go back to Pekin in the CCUS? I know you're juggling a lot of things. You're juggling the length of time it takes for the EPA permit, the moratorium in Illinois. Just trying to think. So you've got, you expect that to take two years, so that gets you to early 2027. In that time frame you're looking to get financing. Then just thinking about, all right, if you were to then give the green light to the project, remind us how long it would take for that project to be constructed, and what timeline we're looking for where this could start to contribute to results. Is it 2029 or 2030 or is it potentially sooner than that?

A: Permit approval estimated to take two years, with construction and contribution to results potentially in 2029/2030, but acceleration possible depending on technology and queue factors.

Q: Yeah, I mean is that something that had you not made the acquisition you would have looked to potentially cold idle that plant as well. I mean it sounds like now with that acquisition in place, that's off the table bu,t I mean what kind of was the thought process there based on market conditions?

A: Both Western assets were challenged, but the Columbia plant was well-positioned; the acquisition of Alto Carbonic was a game-changer for the site, unlike Magic Valley which was idled due to regional challenges.

Q: You mentioned Magic Valley. I'm just curious, with that cold idle, I know you were going through the process of potentially going back to CoPromax and whether it was for damages or figuring out best path forward. How does, I mean, does this impact that process at all, change maybe what we should think the results might be?

A: Generally no impact, as the facility is idled and used as a terminal, offsetting some fixed costs, with no significant change to the CoPromax process evaluation.