Alto Ingredients, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Financial amounts below are in millions of dollars unless otherwise noted. Alto produces and distributes specialty alcohols, fuel-grade ethanol and essential ingredients. Magic Valley was temporarily idled in January because of high natural gas prices and other market conditions, then restarted in April.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Net sales | $313.9 | $308.1 |
| Gross profit (loss); gross margin | $(3.2); (1.0)% | $4.8; 1.5% |
| Operating loss | $(11.6) | $(2.9) |
| Net loss | $(13.2) | $(2.6) |
| Net loss available to common; per share | $(13.5); $(0.18) | $(2.9); $(0.04) |
| Adjusted EBITDA, non-GAAP | $(4.5) | $4.4 |
| Operating cash flow | $(23.3) | $11.1 |
| Capital expenditures | $9.6 | $2.3 |
| Cash, cash equivalents and restricted cash | $26.4 | $49.5 at Dec. 31, 2022 |
| Working capital; current ratio | $117.8; 3.19 | $121.1; 2.55 at Dec. 31, 2022 |
| Debt borrowings outstanding | $93.4 gross; $83.7 balance-sheet long-term debt, net of discounts and costs | $78.1 gross at Dec. 31, 2022 |
Revenue increased 1.9%, but cost of goods sold rose 4.5%, producing a $7.9 million year-over-year deterioration in gross profit. Higher commodity input costs and $1.8 million of net derivative fair-value losses weighed on margins. Net interest expense rose to $1.6 million from $0.2 million, primarily reflecting the Orion term loan. Operating cash use reflected the loss and cash payments of accounts payable and accrued liabilities. Financing provided $13.4 million, including $15.4 million of net line-of-credit proceeds.
Material changes and operating results
- Total gallons sold fell 10.5% to 92.4 million; gallons produced declined 18.4% to 60.6 million, and capacity utilization fell to 70% from 86%.
- Pekin production gross profit declined to a $1.9 million loss from $2.7 million profit. Other production had a $4.7 million gross loss versus $0.5 million profit, with lower fuel-grade ethanol margins and reduced output. Marketing and distribution gross profit improved to $4.2 million from $2.6 million.
- Essential-ingredient tons sold fell 24.9% to 299,300. Average sales price per gallon was down 1.2%; delivered corn cost per bushel rose 3.1% to $7.07.
- At March 31, the company had $41.6 million of unused availability on Kinergy’s line of credit and $40 million available under the Orion facility. The line is secured by company assets; its fixed-charge coverage covenant requirement is 1.10 and the reported Q1 actual ratio was 3.89.
Outlook, risks and contingencies
- Management said crush margins improved month by month in Q1 and reported positive bottom-line results for March, without giving a March figure. At then-current margins, it expected positive Adjusted EBITDA in Q2. Alto provided no full-year 2023 guidance and said it believed liquidity was sufficient for the next 12 months.
- Management estimated approximately $10 million of additional EBITDA from capital projects completed or expected to be completed in 2023; it also projected over $65 million of annualized EBITDA from initiatives by the end of 2025 and over $125 million by the end of 2026. These are forward-looking estimates, not reported results.
- Projects include high-protein and corn-oil systems, primary yeast, carbon capture and sequestration, a natural-gas pipeline, cogeneration and plant efficiency improvements. Timing, costs, funding, market conditions and successful execution could affect projected returns. Capital-project commitments were $21.7 million at quarter-end.
- Key exposures include volatile ethanol, corn and natural-gas prices, production interruptions, demand and regulatory changes affecting renewable fuels, and liquidity effects from hedging. A hypothetical 10% adverse price change was estimated to reduce pretax income by approximately $12.7 million for ethanol and $13.7 million for corn; the analysis excludes future contracted volumes.
- The company disclosed ordinary-course legal claims and contingencies; management did not expect pending proceedings to materially affect financial condition or results, while noting outcomes remain uncertain. The Series B preferred stock has an 7% annual dividend; no common-stock dividend was planned in the foreseeable future.
Important facts for investors to verify
- Whether improved crush margins and the Magic Valley restart translate into positive Q2 results and sustained operating cash generation.
- Actual project spending, milestones, financing needs and realized EBITDA versus management’s estimates, including the $21.7 million of committed capital projects.
- Borrowing levels, covenant compliance, available credit and debt-service obligations, particularly the Orion term loan’s 10% fixed interest rate.
- Commodity-price and hedge exposures, including the effect of derivative results and potential margin calls on liquidity.
- Whether reported production, sales volumes and margins recover, and whether legal, regulatory or operating contingencies change materially.