Alto Ingredients(ALTO) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The unaudited statements show decreased net sales, a shift to a gross loss, and a significantly wider net loss year-over-year Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $149,725 | $153,118 | | Total Assets | $393,065 | $401,438 | | Total Current Liabilities | $42,513 | $57,804 | | Long-term debt, net | $118,323 | $92,904 | | Total Liabilities | $185,220 | $176,375 | | Total Stockholders' Equity | $207,845 | $225,063 | Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $218,436 | $236,468 | $444,976 | $477,097 | | Gross profit (loss) | $(1,937) | $7,553 | $(3,744) | $5,153 | | Loss from operations | $(8,108) | $(1,408) | $(17,105) | $(11,740) | | Net loss | $(10,997) | $(3,106) | $(22,676) | $(14,831) | | Net loss per share | $(0.15) | $(0.05) | $(0.31) | $(0.21) | Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(19,079) | $(12,299) | | Net cash used in investing activities | $(10,534) | $(12,097) | | Net cash provided by financing activities | $23,893 | $7,327 | | Net change in cash | $(5,720) | $(17,069) | Notes to Consolidated Financial Statements Notes detail the $7.6 million Kodiak Carbonic acquisition, segment performance shifts, increased debt, and commodity hedging activities - On January 1, 2025, the company acquired Kodiak Carbonic, LLC, a beverage-grade liquid CO2 processor, for $7.6 million in cash to achieve further vertical integration[27][38] - Long-term debt increased to $118.3 million as of June 30, 2025, from $92.9 million at December 31, 2024, primarily due to increased borrowings on the Kinergy line of credit[55] - The company recognized net gains of $4.4 million and $11.6 million from non-designated commodity hedging contracts for the six months ended June 30, 2025 and 2024, respectively[51][179] Gross Profit (Loss) by Segment (in thousands) | Segment | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Pekin Campus production | $(5,845) | $10,144 | $(8,920) | $14,410 | | Marketing and distribution | $4,002 | $3,172 | $7,916 | $6,702 | | Western production | $1,858 | $(3,761) | $601 | $(12,347) | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Adjusted EBITDA improved by nearly $6.0 million YoY in Q2 2025 due to cost savings and operational enhancements Financial Review, Current Initiatives and Outlook Adjusted EBITDA improved by nearly $6.0 million YoY despite a net loss, with a focus on high-return projects and Section 45Z tax credits - Adjusted EBITDA improved by nearly $6.0 million in Q2 2025 compared to Q2 2024, driven by rightsizing corporate overhead and other efficiency initiatives[94] - The Western assets segment became profitable, with gross profit improving by $5.6 million year-over-year, due to the CO2 facility acquisition and the decision to cold-idle the Magic Valley facility[96] - The company expects to benefit from the Section 45Z tax credits, estimating up to $4.0 million in 2025 and $8.0 million in 2026 for its Colombia plant, with plans to increase credits across all eligible facilities[103] - A new Illinois law (Senate Bill 1723) prohibits CO2 sequestration through the Mahomet aquifer, impacting the company's current carbon capture and storage (CCS) project plans[101] Results of Operations Q2 2025 saw a 7.6% YoY decrease in net sales and a wider net loss, driven by lower prices and operational issues - The decline in Q2 gross profit was primarily due to a net unfavorable change of $5.6 million in derivatives, $5.5 million from lower market crush margins, and a $2.7 million adverse impact from a loading dock outage[129][130][132] - The Pekin Campus segment's gross profit declined by $16.0 million YoY in Q2, while the Western Production segment's gross profit improved by $5.3 million[133][136] Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | Variance ($) | Variance (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $218,436 | $236,468 | $(18,032) | (7.6)% | | Gross profit (loss) | $(1,937) | $7,553 | $(9,490) | NM | | SG&A expenses | $6,171 | $8,961 | $(2,790) | (31.1)% | Liquidity and Capital Resources The company maintains sufficient liquidity for the next twelve months with $30.5 million in cash and available credit - The company believes it has sufficient liquidity to meet its needs for at least the next twelve months, with $4.8 million available under its line of credit and $65.0 million potentially available for capital projects[155] - For the six months ended June 30, 2025, cash used in operations was $19.1 million, cash used in investing was $10.5 million, and cash provided by financing was $23.9 million[161] Liquidity Position (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $30,491 | $36,211 | | Working capital | $107,212 | $95,314 | | Long-term debt, noncurrent portion | $118,323 | $92,904 | Quantitative and Qualitative Disclosures About Market Risk The company faces significant commodity price risk, with a 10% adverse change potentially impacting pre-tax income by over $12 million - The company's business is sensitive to price changes in ethanol and corn, and it uses derivative instruments to manage this risk[174][178] Market Risk Sensitivity Analysis (Pre-Tax Income Impact) | Commodity | Hypothetical Adverse Change | Approximate Impact (in millions) | | :--- | :--- | :--- | | Ethanol | 10% | $(13.5) | | Corn | 10% | $(12.9) | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[181] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[182] PART II - OTHER INFORMATION Legal Proceedings Ordinary course legal proceedings are not expected to have a material adverse effect on the company's financials - The company is subject to ordinary course legal proceedings but does not expect them to have a material adverse impact on its financial condition or operations[186] Risk Factors The company faces significant business, financial, and regulatory risks, including commodity volatility and CCS project hurdles Risks Related to our Business Profitability is highly dependent on volatile commodity spreads, and the business is exposed to operational disruption risks - The company's results are highly dependent on its ability to manage volatile commodity prices for inputs like corn and natural gas against the prices of its alcohol and essential ingredient products[189] - Disruptions in production or distribution, such as the damage to the Pekin Campus loadout dock in April 2025, can negatively impact logistics and increase costs[199] - The company may suffer losses from hedging activities, which are used to mitigate price volatility but also expose the company to counterparty and market risks[196][197] Risks Related to our Finances A history of net losses, substantial indebtedness, and significant execution risks for capital projects threaten financial stability - The company has a history of significant losses, including a consolidated net loss of $23.3 million for the first six months of 2025[211] - The Carbon Capture and Storage (CCS) project is subject to significant risks, including regulatory hurdles and new Illinois legislation (Senate Bill 1723) that prohibits sequestration through the Mahomet aquifer, impacting current plans[212][213] - The ability to qualify for and receive anticipated Section 45Z tax credits is uncertain and depends on producing low carbon fuel at specific volumes and carbon intensities[218] Risks Related to Legal and Regulatory Matters Dependence on renewable fuel mandates and new state laws impacting the CCS project pose significant regulatory risks - The domestic market for fuel-grade ethanol is significantly impacted by federal mandates, and any changes to these regulations could materially harm results[233] - The company's CCS project may be adversely affected by the SAFE CCS Act and Illinois Senate Bill 1723, which impose new safety requirements, a moratorium on pipeline construction, and prohibit sequestration in a key aquifer[227][228] - The recent Supreme Court decision overturning the Chevron doctrine may result in less favorable agency interpretations of laws and regulations, potentially affecting the Renewable Fuel Standard and tax credits[240] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales, withheld shares for tax obligations, and does not plan to pay dividends - No unregistered sales of equity securities occurred during the period[257] - The company does not intend to pay cash dividends on its common stock in the foreseeable future[263] Repurchases of Equity Securities (Q2 2025) | Month | Number of Shares Withheld | Deemed Purchase Price Per Share | Aggregate Purchase Price | | :--- | :--- | :--- | :--- | | April | 340,886 | $1.12 | $381,792 | | May | — | $— | $— | | June | — | $— | $— | Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - There were no defaults upon senior securities[265] Mine Safety Disclosures The company has no mine safety disclosures to report for the period - There are no mine safety disclosures[266] Other Information No directors or officers reported the adoption or termination of Rule 10b5-1 trading arrangements during the quarter - No directors or officers reported the adoption or termination of a Rule 10b5-1 trading arrangement during the quarter[267] Exhibits The filing includes required CEO/CFO certifications and Inline XBRL data files as exhibits - The report includes required certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1) and XBRL data files[268]