Alto Ingredients, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 8, 2024. Alto produces and markets renewable fuels, specialty alcohols and essential ingredients. Its reporting segments are Pekin Campus production, marketing and distribution, and Western production.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $240.6 million | $313.9 million | Down 23.3% |
| Gross loss / margin | $2.4 million / (1.0%) | $3.2 million / (1.0%) | Loss narrowed $0.8 million |
| Operating loss | $10.3 million | $11.6 million | Loss narrowed $1.3 million |
| Net loss | $11.7 million | $13.2 million | Loss narrowed $1.4 million |
| Net loss available to common stockholders | $12.0 million; $0.17 per share | $13.5 million; $0.18 per share | Loss narrowed $1.4 million |
| Adjusted EBITDA | $(7.1) million | $(10.4) million | Loss narrowed $3.4 million |
| Cash from operating activities | $1.4 million | $(23.3) million | Improved $24.8 million |
Net sales fell primarily because average selling prices declined: total alcohol selling price per gallon was down 23%, while total gallons sold were up 1%. Specialty alcohol sales volume increased 23% to 26.3 million gallons. Essential-ingredient sales volume rose 5% overall, but lower prices weighed on revenue. Corn costs per bushel fell 30% on average, helping improve gross loss despite weaker selling prices.
Segment results were mixed: Pekin production gross profit improved to $4.9 million from a $1.6 million loss; marketing and distribution gross profit declined to $0.7 million from $1.3 million; Western production gross loss widened to $8.3 million from $4.6 million. Consolidated SG&A was $7.9 million, broadly flat year over year. Net interest expense was $1.6 million.
Liquidity, debt and cash flows
- At March 31, cash and cash equivalents were $29.3 million; restricted cash was $12.8 million, bringing total cash, cash equivalents and restricted cash to $42.1 million. The combined amount declined $3.4 million during the quarter.
- Working capital was $95.8 million and the current ratio was 2.74. Current assets were $150.8 million and current liabilities were $55.1 million.
- Borrowings were $92.2 million principal: $32.2 million on Kinergy’s line of credit and $60.0 million under the Orion term loan. Balance-sheet long-term debt, net of unamortized discount and financing costs, was $84.1 million. Kinergy had $25.9 million of unused line availability; up to $65.0 million under the Orion facility may be available for capital projects, subject to conditions.
- Investing activities used $6.0 million, including $4.6 million of property and equipment additions and $1.4 million of Eagle Alcohol deferred purchase payments. Financing activities provided $1.2 million, primarily from line-of-credit proceeds, offset by preferred dividends.
- Management stated it expects sufficient liquidity for anticipated needs over the next 12 months. Approximately $53.0 million of subsidiary net assets were restricted from transfer to the parent by credit-facility terms.
Material changes, outlook and notable items
- Management described the 2024 outlook as positive: crush margins improved in Q2 versus Q1, with further summer improvement expected. It cited solid corn inventories, improved ethanol export demand and the EPA summer waiver for E15 blends as supportive factors. No specific full-year revenue or earnings guidance was provided.
- Magic Valley was temporarily hot-idled in January because of negative regional crush margins and work on its corn oil and high-protein system. The company expected to resume production in late June or early July, subject to equipment delivery and installation. The system’s performance remains uncertain.
- The Pekin wet mill underwent a ten-day scheduled outage in April. Management expects the outage to weigh on Q2 sales and margins, while maintenance and upgrades are intended to improve reliability and production. Q1 repair and maintenance expense was $7.5 million; management maintained its estimate of $34 million for 2024.
- Alto continued planning its Pekin carbon capture and storage project with Vault 44.01. Agreements, permitting, design and energy arrangements remained in progress; the company’s goal was for Vault to submit an EPA Class VI permit application by the end of Q3. The largest project capital outlays were expected to begin in the first half of 2025. These plans depend on permits, financing, project execution and anticipated incentives.
- The company had contracted approximately 93 million gallons of fixed-price specialty alcohol sales for 2024 at an average premium of $0.31 per gallon over renewable fuel. At quarter-end, it also reported substantial 2024 sales and purchase commitments, including $10.8 million of capital-project commitments.
- Q1 results included $3.3 million of gains from changes in derivative fair values, versus $1.8 million of losses in Q1 2023. Management also cited $4.9 million of incremental natural-gas hedging costs, cold-weather transport and production disruption at Pekin, and equipment issues at its Colombia facility.
Risks, contingencies and controls
Key risks include volatile ethanol, specialty alcohol, essential-ingredient, corn and natural-gas prices; narrow or negative production margins; weather, logistics and equipment disruptions; reliance on renewable-fuel policies and blending demand; and the funding, permitting, cost and execution of capital projects. The company’s commodity sensitivity analysis estimated that a hypothetical 10% adverse price change could reduce pretax income by approximately $6.7 million for ethanol and $6.7 million for corn, based on stated volumes and assumptions.
Alto disclosed ordinary-course legal claims and contingencies; management did not expect pending matters to materially affect its financial condition or results, but noted outcomes remain uncertain. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether crush margins and selling prices improve as management expects, and how those changes affect gross margin and operating cash flow.
- Whether Magic Valley restarts on schedule and achieves the intended output, quality and cost improvements from its corn oil and high-protein system.
- Progress, permitting, financing, energy arrangements, capital requirements and expected economics for the CCS project, including the availability of related incentives.
- Liquidity available after accounting for restricted cash, subsidiary transfer limits, borrowing conditions, debt service and planned capital spending.
- The effect of Q2 Pekin outage impacts, 2024 maintenance costs and commodity derivatives on subsequent results; Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP results or cash flow.