Alto Ingredients, Inc. (NASDAQ:ALTO) Q1 2022 Earnings Conference Call May 9, 2022 5:00 PM ET Company Participants Kirsten Chapman - LHA Investor Relations Mike Kandris - Chief Executive Officer Bryon McGregor - Chief Financial Officer. Conference Call Participants Constantine Lednev - Guggenheim Partners Eric Stine - Craig-Hallum Operator Welcome to Alto Ingredients First Quarter 2022 Results Conference call. All participants will be in a listen-only mode [Operator Instructions] After today’s presentation, ...

Part I - Financial Information [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) The company reported a net loss of $2.6 million for the three months ended March 31, 2022, a significant downturn from the $4.7 million net income in the same period of 2021 Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Items | March 31, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $36,184 | $50,612 | | Total current assets | $241,213 | $229,526 | | Property and equipment, net | $220,996 | $222,550 | | **Total Assets** | **$497,868** | **$484,953** | | **Liabilities & Equity** | | | | Total current liabilities | $80,181 | $69,602 | | Long-term debt | $53,681 | $50,361 | | **Total Liabilities** | **$154,903** | **$139,739** | | **Total Stockholders' Equity** | **$342,965** | **$345,214** | Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net sales | $308,118 | $218,734 | | Gross profit | $4,773 | $13,837 | | Income (loss) from operations | ($2,856) | $5,623 | | **Net income (loss)** | **($2,602)** | **$4,678** | | **Net income (loss) per share, diluted** | **($0.04)** | **$0.06** | Consolidated Statement of Cash Flows Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $11,064 | ($4,476) | | Net cash used in investing activities | ($16,989) | ($4,411) | | Net cash provided by financing activities | $3,783 | $4,972 | | **Net decrease in cash, cash equivalents and restricted cash** | **($2,142)** | **($3,915)** | [Notes to Financial Statements: Organization and Business](index=8&type=section&id=1.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION.) Alto Ingredients is a leading producer and distributor of specialty alcohols and essential ingredients, with a combined annual alcohol production capacity of 350 million gallons - The company has a combined alcohol production capacity of **350 million gallons per year** and produces nearly **1.2 million tons of essential ingredients annually**[22](index=22&type=chunk) - The company focuses on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels[23](index=23&type=chunk) [Notes to Financial Statements: Acquisition of Eagle Alcohol](index=9&type=section&id=2.%20ACQUISITION%20OF%20EAGLE%20ALCOHOL.) On January 14, 2022, the company acquired 100% of Eagle Alcohol for $14.0 million in cash, plus a $1.3 million working capital adjustment - Acquired Eagle Alcohol on January 14, 2022, for **$14.0 million cash** plus a **$1.3 million working capital adjustment**, with up to **$14.0 million in additional contingent consideration**[32](index=32&type=chunk) - The acquisition provides further vertical integration and access to new markets in the specialty alcohol industry[34](index=34&type=chunk) [Notes to Financial Statements: Segments](index=11&type=section&id=3.%20SEGMENTS.) The company operates in three segments: Marketing and Distribution, Pekin Production, and Other Production Net Sales by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Pekin Campus production | $171,586 | $141,633 | | Marketing and distribution | $57,273 | $59,706 | | Other production | $78,755 | $21,417 | Gross Profit (Loss) by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Pekin Campus production | $2,705 | $12,769 | | Marketing and distribution | $2,557 | $5,748 | | Other production | $511 | ($2,700) | [Notes to Financial Statements: Derivatives](index=13&type=section&id=5.%20DERIVATIVES.) The company uses non-designated derivative instruments to manage commodity price risk for corn and ethanol - Recognized net gains of **$5,316,000** on non-designated hedge contracts for the three months ended March 31, 2022, compared to gains of **$10,543,000** in the same period of 2021[51](index=51&type=chunk) Fair Value of Derivative Instruments (in thousands) | Date | Derivative Assets | Derivative Liabilities | | :--- | :--- | :--- | | March 31, 2022 | $19,498 | $27,487 | | December 31, 2021 | $15,839 | $13,582 | [Notes to Financial Statements: Commitments and Contingencies](index=15&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES.) As of March 31, 2022, the company had significant sales and purchase commitments - As of March 31, 2022, the company had open fixed-price alcohol sales contracts of **$124.7 million** and open fixed-price essential ingredient sales contracts of **$23.0 million**[57](index=57&type=chunk) - Purchase commitments included **$81.6 million for alcohol**, **$67.6 million for corn**, and **$26.8 million for capital projects**[58](index=58&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) Management reported a net loss of $2.6 million and Adjusted EBITDA of $4.4 million for Q1 2022, citing a challenging market with commodity price volatility and supply chain disruptions - Despite a net loss of **$2.6 million**, the company generated positive Adjusted EBITDA of **$4.4 million** for Q1 2022[87](index=87&type=chunk) Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Line Item | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net income (loss) | ($2,602) | $4,678 | | Adjustments | $7,051 | $8,761 | | **Adjusted EBITDA** | **$4,449** | **$13,439** | - The acquisition of Eagle Alcohol is expected to contribute **$4.0 million in EBITDA for 2022** and **$9.0 million annually starting in 2023**[88](index=88&type=chunk) - The CoPromax protein system installation at Magic Valley is expected to generate **$4.0 million of EBITDA annually** from corn oil extraction in H2 2022, and an additional **$5.0 million annually** from protein enhancement by early 2023[91](index=91&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) For Q1 2022, net sales increased 40.9% to $308.1 million, driven by a 26.8% increase in the average sales price per gallon Key Performance Metrics | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Total gallons sold (millions) | 103.2 | 112.0 | (7.9)% | | Average sales price per gallon | $2.46 | $1.94 | 26.8% | | Delivered cost of corn per bushel | $6.86 | $5.27 | 30.2% | | Total essential ingredients tons sold (thousands) | 398.8 | 276.9 | 44.0% | Consolidated Results Summary (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $308,118 | $218,734 | 40.9% | | Cost of goods sold | $303,345 | $204,897 | 48.0% | | **Gross profit** | **$4,773** | **$13,837** | **(65.5)%** | | Gross profit margin | 1.5% | 6.3% | - | - Consolidated gross profit declined due to extreme commodity price volatility, supply chain disruptions, rising transportation costs, weak renewable fuel crush margins, and **$7.0 million** in non-cash mark-to-market inventory adjustments and unrealized losses on forward derivative positions[114](index=114&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2022, the company had $60.0 million in cash, cash equivalents, and restricted cash, with an additional $15.2 million available under its Kinergy operating line of credit - As of March 31, 2022, the company had **$60.0 million** in cash, cash equivalents, and restricted cash, and **$15.2 million** available for borrowing under its line of credit[121](index=121&type=chunk) - Cash from operations was **$11.1 million** in Q1 2022, a significant improvement from the **$4.5 million** used in Q1 2021[124](index=124&type=chunk) - The company used **$14.7 million of cash** to acquire Eagle Alcohol and **$2.3 million** for capital expenditures during the quarter[125](index=125&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) The company is primarily exposed to market risks from changes in commodity prices, specifically ethanol and corn - The business is sensitive to changes in the prices of ethanol and corn[132](index=132&type=chunk) - The company recognized net gains of **$5.3 million** and **$10.5 million** from changes in fair values of non-designated derivative contracts for the three months ended March 31, 2022 and 2021, respectively[136](index=136&type=chunk) Commodity Price Sensitivity Analysis (in millions) | Commodity | Volume | Unit of Measure | Approximate Pre-Tax Income Change from 10% Adverse Price Change | | :--- | :--- | :--- | :--- | | Ethanol | 103.2 | Gallons | ($15.7) | | Corn | 25.9 | Bushels | ($17.4) | [Controls and Procedures](index=34&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES.) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of March 31, 2022 - The CEO and CFO concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[140](index=140&type=chunk) - No changes in internal control over financial reporting occurred during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[141](index=141&type=chunk) Part II - Other Information [Legal Proceedings](index=35&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS.) The company is subject to various legal proceedings and claims arising in the ordinary course of business - The company is subject to legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect on its financial condition or results of operations[145](index=145&type=chunk) [Risk Factors](index=35&type=page&id=ITEM%201A.%20RISK%20FACTORS.) The company faces significant risks, primarily related to commodity price volatility for corn, natural gas, and its end products (alcohols, essential ingredients) - Business operations are highly dependent on managing volatile commodity prices for inputs (corn, natural gas) and outputs (alcohols, essential ingredients)[147](index=147&type=chunk) - Inflation, exacerbated by supply chain constraints and the war in Ukraine, may adversely impact results by increasing costs of key inputs like grain and energy[151](index=151&type=chunk)[152](index=152&type=chunk) - Future demand for fuel-grade ethanol is uncertain and depends on federal mandates (RFS), which are subject to change and could materially affect results[174](index=174&type=chunk)[179](index=179&type=chunk) - The company has a history of significant losses and may incur them in the future, which could impede operations and expansion[165](index=165&type=chunk) - The company's stock price is highly volatile, and it does not intend to pay cash dividends on common stock in the near future, meaning returns depend on stock appreciation[182](index=182&type=chunk)[186](index=186&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS.) The company reported no unregistered sales of equity securities and no purchases of its equity securities during the period - The company has never declared or paid cash dividends on its common stock and does not intend to in the foreseeable future[199](index=199&type=chunk) - For Q1 2022, the company accrued and paid in cash an aggregate of **$0.3 million** in dividends on its Series B Cumulative Convertible Preferred Stock[198](index=198&type=chunk)

Part I [Business](index=5&type=section&id=Item%201.%20Business.) Alto Ingredients is the largest U.S. producer of specialty alcohols, operating five facilities across three segments and strategically expanding its essential ingredients business - The company is the largest producer of specialty alcohols in the U.S. with an annual production capacity of **350 million gallons** across five facilities[10](index=10&type=chunk) - Operations are divided into three reportable segments: Marketing and Distribution, Pekin Production, and Other Production[11](index=11&type=chunk) - Key strategic elements include focusing on customer relationships, expanding break bulk capabilities via the Eagle Alcohol acquisition, broadening product offerings through quality certifications, and implementing new technologies[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) Production Facility Overview | Production Facility | Location | Milling Process | Annual Alcohol Production Capacity (million gallons) | | :--- | :--- | :--- | :--- | | Pekin Wet Facility | Pekin, IL | Wet | 100 | | Pekin Dry Facility | Pekin, IL | Dry | 60 | | Pekin ICP Facility | Pekin, IL | Dry | 90 | | Magic Valley Facility | Burley, ID | Dry | 60 | | Columbia Facility | Boardman, OR | Dry | 40 | - Major customers in 2021 included Shell Trading US Company, Chevron Products USA, and Valero Energy Corporation, which collectively accounted for approximately **23% of net sales**[55](index=55&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors.) The company faces significant risks from commodity price volatility, inflation, regulatory changes, operational disruptions, and cybersecurity threats - Business operations are highly dependent on volatile commodity prices, including corn, natural gas, and alcohols, where a sustained narrow spread could adversely affect results[83](index=83&type=chunk)[85](index=85&type=chunk) - Inflation, exacerbated by events like the war in Ukraine, has increased input costs, which may not be fully passed on to customers, potentially harming results[88](index=88&type=chunk)[89](index=89&type=chunk) - The business is highly dependent on federal and state laws, particularly the Renewable Fuel Standard (RFS), where any reduction could materially harm fuel-grade ethanol demand[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - The company has a history of significant net losses, including **$17.3 million in 2020** and **$101.3 million in 2019**, and may incur future losses[102](index=102&type=chunk) - Cybersecurity vulnerabilities pose a risk of business disruption, data loss, and potential litigation, which could harm the company's reputation and financial results[125](index=125&type=chunk)[126](index=126&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reports no unresolved written comments from the SEC staff as of the end of the 2021 fiscal year - There are no unresolved staff comments from the SEC as of the end of the 2021 fiscal year[131](index=131&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties.) The company owns its main Pekin campus and a facility in Idaho, while leasing properties in Oregon, California, and Missouri - The company owns its main **145-acre Pekin, IL campus** and a **25-acre facility in Burley, ID**[132](index=132&type=chunk) - Key leased properties include a **25-acre facility in Boardman, OR** (lease expires 2076), **10,000 sq. ft. of office space in Sacramento, CA** (expires 2029), and **84,000 sq. ft. of warehouse space in St. Louis, MO** (expires 2030)[132](index=132&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings.) The company is involved in ordinary course legal proceedings, which management does not expect to have a material adverse financial impact - The company is subject to ordinary course legal proceedings but does not expect them to have a material adverse financial impact[133](index=133&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - Mine safety disclosures are not applicable[133](index=133&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on Nasdaq under ALTO, with no common stock dividends paid, while preferred stock dividends were fully paid in 2021 - The company's common stock is traded on The Nasdaq Capital Market under the ticker symbol **ALTO**[136](index=136&type=chunk) - As of March 11, 2022, there were **73,726,517 shares of common stock outstanding**[137](index=137&type=chunk) - The company has never paid cash dividends on common stock and does not anticipate doing so in the foreseeable future[142](index=142&type=chunk) - In 2021, the company paid all accrued and unpaid dividends for 2019 and 2020 on its Series B Preferred Stock and resumed regular quarterly dividend payments[143](index=143&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) In 2021, Alto Ingredients achieved **$1.2 billion** in net sales and **$44.2 million** net income, driven by higher alcohol prices and strategic investments, while strengthening liquidity 2021 vs. 2020 Financial Highlights (in millions) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,207.9 | $897.0 | +34.7% | | Gross Profit | $67.8 | $52.9 | +28.2% | | Income from Operations | $40.1 | $9.9 | +306.7% | | Net Income (Loss) | $46.1 | ($17.3) | NM | | Diluted EPS | $0.61 | ($0.28) | NM | - The company acquired Eagle Alcohol in January 2022 to expand its break bulk distribution of specialty alcohols, expecting to contribute **$4.0 million in EBITDA for 2022** and **$8.0-$9.0 million annually starting in 2023**[149](index=149&type=chunk)[163](index=163&type=chunk) - A key initiative is the installation of the CoPromax system to produce enhanced protein feed, with the first project at Magic Valley expected to contribute over **$9.0 million in annual EBITDA**, and a total of **$34.0 million by 2024** from a **$70.0 million investment** across all four dry mills[160](index=160&type=chunk)[161](index=161&type=chunk) - The company fully repaid its Pekin Credit Facility, ICP Credit Facility, and Senior Secured Notes in 2021, primarily using proceeds from the sales of its Stockton and Madera facilities[211](index=211&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) - The company received full forgiveness for **$9.9 million** in loans obtained under the CARES Act's Paycheck Protection Program (PPP)[196](index=196&type=chunk)[217](index=217&type=chunk) [Results of Operations (2021 vs. 2020)](index=35&type=section&id=Results%20of%20Operations) In 2021, net sales increased **35%** to **$1.2 billion**, driven by higher alcohol prices, while gross profit improved to **$67.8 million** despite segment-specific shifts Segment Net Sales (in millions) | Segment | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Pekin Campus Production | $687.7 | $460.7 | +49.3% | | Marketing and Distribution | $381.2 | $257.7 | +47.9% | | Other Production | $139.0 | $178.6 | -22.2% | Segment Gross Profit (Loss) (in millions) | Segment | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Pekin Campus Production | $54.0 | $74.5 | ($20.5) | | Marketing and Distribution | $10.8 | $5.6 | +$5.2 | | Other Production | $3.0 | ($27.2) | +$30.2 | - The increase in consolidated net sales was driven by a **51% rise** in the average sales price per gallon of alcohol, which offset a **10.6% decrease** in total gallons sold[179](index=179&type=chunk)[182](index=182&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity improved in 2021, ending with **$50.6 million** cash and **$159.9 million** working capital, driven by asset sales and debt repayment Liquidity Metrics (as of Dec 31) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $50,612 | $47,667 | | Working capital | $159,924 | $127,119 | | Long-term debt, noncurrent | $50,361 | $71,807 | Cash Flow Summary (Year Ended Dec 31, in thousands) | Cash Flow | 2021 | 2020 | | :--- | :--- | :--- | | Provided by Operating Activities | $26,821 | $71,681 | | Provided by Investing Activities | $27,116 | $23,316 | | Used in Financing Activities | ($39,999) | ($66,422) | - The company anticipates capital expenditures to range between **$22 million and $28 million** in 2022[200](index=200&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company is exposed to market risk from ethanol and corn price fluctuations, managing it with derivatives, with a **10%** adverse change potentially reducing pre-tax income by over **$100 million** - The business is sensitive to changes in ethanol and corn prices and uses derivative financial instruments to manage this risk[238](index=238&type=chunk)[241](index=241&type=chunk) Market Risk Sensitivity Analysis (2021) | Commodity | Potential Adverse Change to Pre-Tax Income (in millions) | | :--- | :--- | | Ethanol | $52.9 | | Corn | $50.7 | - For the year ended December 31, 2021, the company recognized net gains of **$21.6 million** related to the change in fair value of its derivative contracts[242](index=242&type=chunk) [Financial Statements and Supplementary Data](index=48&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) The 2021 consolidated financial statements show significant improvement with **$1.21 billion** net sales and **$46.1 million** net income, supported by strong assets and an unqualified auditor opinion Consolidated Statement of Operations Highlights (in thousands) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net sales | $1,207,892 | $897,023 | $1,424,881 | | Gross profit (loss) | $67,784 | $52,859 | ($9,938) | | Income (loss) from operations | $40,070 | $9,853 | ($74,683) | | Consolidated net income (loss) | $46,082 | ($17,282) | ($101,282) | | Income (loss) per share, diluted | $0.61 | ($0.28) | ($1.90) | Consolidated Balance Sheet Highlights (in thousands) | Line Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $229,526 | $214,046 | | Total assets | $484,953 | $476,818 | | Total current liabilities | $69,602 | $86,927 | | Total liabilities | $139,739 | $180,583 | | Total stockholders' equity | $345,214 | $296,235 | Consolidated Cash Flow Highlights (in thousands) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $26,821 | $71,681 | ($31,227) | | Net cash provided by (used in) investing activities | $27,116 | $23,316 | ($3,281) | | Net cash provided by (used in) financing activities | ($39,999) | ($66,422) | $19,014 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=48&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reported no changes in or disagreements with its accountants regarding accounting or financial disclosure - None reported[246](index=246&type=chunk) [Controls and Procedures](index=48&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified auditor attestation - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[247](index=247&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[251](index=251&type=chunk) - The independent auditor, RSM US LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[251](index=251&type=chunk)[273](index=273&type=chunk) [Other Information](index=49&type=section&id=Item%209B.%20Other%20Information.) The company reported no other information for this item - None reported[254](index=254&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=50&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - This information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[256](index=256&type=chunk) [Executive Compensation](index=50&type=section&id=Item%2011.%20Executive%20Compensation.) Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement - This information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[257](index=257&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=50&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information on security ownership and related stockholder matters is incorporated by reference from the 2022 Proxy Statement - This information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[258](index=258&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=50&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - This information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[259](index=259&type=chunk) [Principal Accountant Fees and Services](index=50&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Information regarding principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement - This information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[260](index=260&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=51&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section provides references to the financial statements and a list of all exhibits filed with the report[262](index=262&type=chunk) [Form 10-K Summary](index=51&type=section&id=Item%2016.%20Form%2010-K%20Summary.) No Form 10-K summary was provided in this report - None provided[262](index=262&type=chunk)

Alto Ingredients, Inc. (NASDAQ:ALTO) Q4 2021 Results Conference Call March 10, 2022 5:00 PM ET Company Participants Dusty Buell - LHA IR Mike Kandris - CEO Bryon McGregor - CFO Conference Call Participants Eric Stine - Craig-Hallum Amit Dayal - H.C. Wainwright Operator Ladies and gentlemen, thank you for standing by, and welcome to Alto Ingredients Fourth Quarter 2021 and Year-end Financial Results. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] ...

Financial Data and Key Metrics Changes - For Q3 2021, net sales were $306 million, an increase from $298 million in Q2 2021, driven by an increase in third-party gallons sold and higher average prices per gallon [15][20] - The company reported a net loss available to common shareholders of $3.5 million or $0.05 per share, compared to income of $8.1 million or $0.11 per diluted share in Q2 2021 [20] - Gross loss was $3.4 million, down from a gross profit of $15.2 million in the previous quarter, primarily due to the wet mill outage and high corn prices [18][20] Business Line Data and Key Metrics Changes - Alcohol sales totaled $253 million, with $53 million in revenue from essential ingredients [15] - Specialty alcohol production was 20 million gallons, down 4 million gallons sequentially, attributed to the wet mill shutdown [16] - The company expects the yeast facility and Pekin dryer upgrades to contribute approximately $5 million in EBITDA annually starting in 2022 [8][24] Market Data and Key Metrics Changes - The average price per gallon of fuel-grade ethanol reflects a high correlation with elevated corn prices [15] - The company anticipates continued volatility in sanitizer and disinfectant demand, with expectations for a more stable demand-supply equilibrium as COVID-19 impacts dissipate [18] - Co-product prices have lagged behind rising corn prices, leading to declining co-product returns [18] Company Strategy and Development Direction - The company is focusing on expanding its essential ingredients business and investing in infrastructure improvements [6] - Plans to enhance protein production at dry mills aim to diversify revenue sources and improve earnings quality [7][24] - The company is exploring opportunities for vertical integration and carbon capture and sequestration programs [13][32] Management's Comments on Operating Environment and Future Outlook - Management noted that the wet mill outage and volatile market conditions negatively impacted revenues and increased operational expenses [9] - The company expects to contract for more gallons in 2022 than in 2021, despite current uncertainties in the market [11] - Management expressed optimism about future EBITDA growth from various projects, estimating an additional $18.5 million in EBITDA in 2022 from completed improvements [24][25] Other Important Information - The company completed the sale of its fuel-grade ethanol production facility for $24 million, which will help retire approximately $150 million in term debt [12][20] - The company has secured utility costs and other variable input costs for the next 12 months to mitigate risks associated with commodity price volatility [22][23] Q&A Session Summary Question: Can you elaborate on the supply-demand imbalance and its normalization? - Management indicated that the supply-demand imbalance is driven by export markets and logistical constraints, with expectations for normalization over the next few quarters [28][30] Question: What is the update on carbon capture opportunities? - Management discussed the potential benefits from the recent infrastructure bill, including increased tax credits for carbon capture, and ongoing discussions with multiple parties regarding carbon sequestration [34][36] Question: How much higher could the gross profit guidance be if things move forward positively? - Management expressed optimism about the $40 million gross profit guidance but noted challenges in the market that could affect upside potential [40][42] Question: Is there potential for acquisitions to diversify the product portfolio? - Management confirmed that they are exploring both acquisitions and internal development to enhance their specialty alcohol portfolio and improve operational capabilities [45][46]

Business Transformation & Focus - Alto Ingredients is transforming corn into specialty alcohol and high-value essential ingredients for consumer and commercial products[3] - The company is focusing on four key areas: Health, Home & Beauty, Food & Beverage, Essential Ingredients, and Renewable Fuels[3] - Approximately 50% of Alto Ingredients' production is specialty alcohols, which are high-margin products with low price volatility[6, 13] Production & Capacity - Alto Ingredients has 5 facilities with a combined alcohol production capacity of 410 MGY (Million Gallons per Year)[3] - The company has 140 MGY capacity in specialty alcohols, with 120 MGY idled[3] - The Pekin campus has a total alcohol production capacity of approximately 250 MGY, with roughly 50% dedicated to specialty alcohols and 50% to fuel-grade ethanol[16] Financial Performance & Visibility - As of June 30, 2021, Alto Ingredients had $508 million in cash and cash equivalents[11] - For the six months ended June 30, 2021, net sales were $516844 million and gross profit was $29070 million[11] - Alto Ingredients is targeting $60 million in gross profit from the production of specialty alcohols in 2021[13] - Over 80% of specialty alcohol sales are contracted annually in advance, providing good visibility on near-term results[13] Debt & Capitalization - Alto Ingredients is net "term debt" free, with $193 million in net proceeds from asset sales used to prepay senior notes[11] - The company has less than $18 million remaining in term and plant debt loan balances[13]