Alto Ingredients, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. Although the request references 2021 Q4, this is an annual filing; the provided filing text does not give a clear set of standalone fourth-quarter financial results.
Business context
Alto produces and markets specialty alcohols, fuel-grade ethanol and essential ingredients, including animal-feed co-products. It operated five production facilities, with stated annual alcohol capacity of 350 million gallons, and reported three segments: marketing and distribution, Pekin production, and other production. The company marketed approximately 480 million gallons of alcohols and 1.2 million tons of essential ingredients in 2021. Its strategy emphasizes higher-value specialty alcohols, distribution capabilities and expanded essential-ingredient production.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $1,207.9 million | $897.0 million |
| Gross profit | $67.8 million; 5.6% margin | $52.9 million; 5.9% margin |
| Operating income | $40.1 million | $9.9 million |
| Consolidated net income (loss) | $46.1 million | ($17.3 million) |
| Income (loss) available to common stockholders | $44.2 million; $0.62 basic EPS, $0.61 diluted | ($16.4 million); ($0.28) EPS |
| Cash from operating activities | $26.8 million | $71.7 million |
| Cash and cash equivalents at year-end | $50.6 million | $47.7 million |
| Working capital | $159.9 million; 3.30 current ratio | $127.1 million; 2.46 current ratio |
| Long-term debt, net | $50.4 million | $71.8 million |
Net sales rose 34.7%, principally because average alcohol selling prices increased 51% to $2.46 per gallon; total gallons sold fell 10.6% to 479.6 million. Delivered corn cost increased 62% to $6.22 per bushel. Gross profit increased, but gross margin narrowed year over year. Operating cash flow declined substantially, with higher receivables and inventories among the factors cited. Investing cash flow was $27.1 million, including proceeds from facility sales; financing cash outflow was $40.0 million.
Year-end debt consisted of $50.4 million drawn on Kinergy’s $100 million operating line, with $25.4 million available to borrow. The company repaid its Pekin and ICP loans and senior notes during 2021. The line matures in 2023 and is secured by subsidiary assets; Alto guarantees Kinergy’s obligations. Management said it believed liquidity was sufficient for at least 12 months from the filing date. Approximately $69.4 million of subsidiary net assets were restricted from transfer to the parent.
Material changes and unusual items
- Alto sold its Madera and Stockton, California facilities in 2021, receiving $19.5 million and $24.0 million in cash, respectively. Sale proceeds funded debt repayment; the Stockton sale generated a $4.6 million gain.
- Magic Valley restarted operations in November 2021. The company said all its remaining production facilities were operating at year-end.
- In January 2022, after year-end, Alto acquired Eagle Alcohol for $14.0 million cash plus an estimated $1.3 million working-capital adjustment. Additional contingent consideration may total up to $14.0 million, subject to conditions.
- Alto recognized $9.9 million of income from forgiveness of CARES Act/PPP loans. The SBA may audit eligibility, and the filing says repayment cannot be ruled out following an audit.
- Net gains from commodity derivatives were $21.6 million in 2021, recorded in cost of goods sold; the positions are not designated for hedge accounting.
- Alto reported $3.1 million of asset impairment charges and a $4.6 million gain on asset sales. These sale gains and loan-forgiveness income are not expected to recur.
Outlook, management commentary and risks
Management did not provide specific 2022 revenue or gross-profit guidance, citing commodity-price volatility, logistics constraints and uncertainty related to the war in Ukraine. It nevertheless expected positive results in 2022 and estimated that cost savings and projects completed in 2021 would add $18 million of EBITDA in 2022, excluding renewable fuels. These are management estimates, not reported results or a formal revenue forecast.
- Growth projects: Management estimated the Magic Valley CoPromax protein-feed and corn-oil project could contribute more than $9 million of annual EBITDA at current market prices. A planned rollout to three other dry mills was estimated to require $70 million total investment and contribute $34 million annual EBITDA at current market values. The company also forecast approximately $45 million of annual EBITDA from outlined capital projects by the end of 2024; these estimates depend on execution and market conditions.
- Specialty alcohols and Eagle: Alto reported contracted specialty-alcohol sales exceeding 90 million gallons for 2022, 28% above the prior-year comparison on longer-term contracted volumes. Management expected Eagle to contribute $4 million EBITDA in 2022 and $8–$9 million annually from 2023, including synergies.
- Core risks: Earnings are sensitive to volatile selling prices and the costs of corn, natural gas and other inputs. A narrowing spread between product prices and input costs could reduce margins or force production cuts. The filing also highlights inflation, supply-chain and transport disruption, pandemic-related demand uncertainty, dependence on fuel-ethanol mandates, regulatory and environmental liabilities, and customer and supplier concentration.
- Other exposures: At year-end, three largest fuel-ethanol customers represented approximately 23% of net sales. A hypothetical 10% adverse price move in expected ethanol and corn volumes was estimated to reduce pretax income by $52.9 million and $50.7 million, respectively; the analysis excludes future contracted volumes. Legal proceedings arise in the ordinary course; management did not expect them to have a material financial impact based on information then available.
The audited financial statements received an unqualified opinion from RSM US LLP, which also reported effective internal control over financial reporting as of December 31, 2021. The auditor reported no critical audit matters.
Important facts for investors to verify
- Review full-year results alongside quarterly filings to determine standalone Q4 revenue, margins, cash flow and segment performance; this filing excerpt does not provide clear Q4 amounts.
- Assess whether operating cash flow can improve as working-capital demands, commodity prices and customer collections change.
- Track Kinergy line availability, borrowing-base requirements, covenant compliance and restrictions on moving subsidiary cash to the parent.
- Compare forecast EBITDA contributions and capital spending for CoPromax, Eagle Alcohol, corn storage and energy projects with actual costs, timing and results.
- Verify Eagle Alcohol’s final purchase-price allocation, contingent-payment conditions and realized contribution after acquisition.
- Monitor commodity margins, derivative gains or losses, customer concentration, and exposure to policy changes affecting ethanol demand.
- Consider potential dilution from 8.9 million outstanding warrants and conversion rights attached to Series B preferred stock; the preferred stock carries a 7% annual dividend.