Alto Ingredients(ALTO) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk, and internal controls FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for the periods ended June 30, 2023, and 2022, including balance sheets, statements of operations, cash flows, and stockholders' equity, with detailed notes Consolidated Balance Sheets As of June 30, 2023, total assets slightly decreased to $471.4 million, liabilities remained stable, and stockholders' equity decreased to $300.8 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $179,529 | $199,121 | | Total Assets | $471,410 | $478,321 | | Total Current Liabilities | $58,686 | $78,017 | | Total Liabilities | $170,617 | $170,232 | | Total Stockholders' Equity | $300,793 | $308,089 | Consolidated Statements of Operations Q2 2023 net income was $7.6 million on $317.3 million net sales, compared to $22.1 million on $362.2 million net sales in Q2 2022, which included a $22.7 million grant Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $317,297 | $362,189 | $631,188 | $670,307 | | Gross profit | $17,181 | $8,844 | $14,017 | $13,617 | | Income (loss) from operations | $9,270 | $(152) | $(2,350) | $(3,008) | | Income from cash grant | — | $22,652 | — | $22,652 | | Net income (loss) | $7,595 | $22,115 | $(5,571) | $19,513 | | Net income (loss) per share, diluted | $0.10 | $0.29 | $(0.08) | $0.26 | Consolidated Statements of Cash Flows Net cash used in operating activities was $12.9 million for the six months ended June 30, 2023, a shift from $20.7 million provided in the prior year, leading to a $24.4 million decrease in total cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(12,904) | $20,695 | | Net cash used in investing activities | $(21,468) | $(9,651) | | Net cash provided by financing activities | $9,937 | $1,568 | | Net change in cash, cash equivalents and restricted cash | $(24,435) | $12,612 | Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased by $7.3 million to $300.8 million due to net loss, share repurchases, and preferred stock dividends - Total stockholders' equity decreased by $7.3 million in the first six months of 2023, from $308.1 million to $300.8 million[19] - Key activities affecting equity included a net loss for the period, stock repurchases of $2.7 million, and preferred stock dividends paid[19] Notes to Consolidated Financial Statements The notes detail the company's organization, accounting policies, segment reporting, inventories, derivative instruments, debt structure, and commitments - The company operates in three segments: (1) marketing and distribution, (2) Pekin production, and (3) Other production[33] - As of June 30, 2023, the company had $49.4 million in unused borrowing availability under the Kinergy line of credit and $40.0 million available under the Orion term loan[50] - The company uses derivative instruments (exchange-traded futures) to hedge commodity price risk for corn and alcohols, recognizing net gains of $5.2 million for the six months ended June 30, 2023[43][169] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management reported improved crush margins and positive Adjusted EBITDA for Q2 2023, despite lower net sales, while investing in capital projects to diversify revenue and increase future EBITDA Key Performance Indicators (in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Sales | $317.3M | $362.2M | | Gross Profit | $17.2M | $8.8M | | Net Income (loss) | $7.6M | $22.1M | | Adjusted EBITDA | $15.5M | $29.9M | - The decline in net sales was primarily due to fewer gallons of specialty alcohol sold and lower average sales prices for both alcohol and essential ingredients[112] - The company is focused on strategic capital projects, including carbon capture and sequestration (CCS), which is expected to generate over $30 million in annual EBITDA. The long-term goal is to increase annualized EBITDA by approximately $125 million by the end of 2026 through these initiatives[95][100] - As of June 30, 2023, the company had $25.1 million in cash and cash equivalents, plus $49.4 million available on its line of credit and $40 million on its term loan, which management believes provides sufficient liquidity for the next twelve months[145] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is commodity price volatility for ethanol, corn, and natural gas, mitigated by derivatives, with a 10% adverse price change potentially impacting pre-tax income by over $30 million - The business is highly sensitive to changes in the prices of ethanol and corn[165] - The company uses derivative instruments, such as futures and options, to manage and reduce the impact of commodity price changes[168] Market Risk Sensitivity Analysis (in millions) | Commodity | Approximate Adverse Change to Pre-Tax Income (from 10% price change) | | :--- | :--- | | Ethanol | $(30.9) | | Corn | $(30.4) | CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[171] - There were no material changes to the company's internal control over financial reporting during the most recently completed fiscal quarter[172] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures LEGAL PROCEEDINGS The company is involved in ordinary course legal proceedings, which management believes will not materially adversely affect financial condition or results - The company is subject to legal proceedings arising in the ordinary course of business[175] - Management does not expect these proceedings to have a material adverse impact on the company's financial condition or results[175] RISK FACTORS Major risks include volatile commodity prices, operational disruptions, substantial debt, and changes to federal renewable fuel mandates - Business results are highly dependent on volatile commodity prices, including corn, natural gas, and alcohols, which are subject to forces beyond the company's control[177] - The company faces risks from production or distribution disruptions caused by weather, equipment failures, and other operational hazards, including those related to climate change[189][193] - Substantial indebtedness may limit operational flexibility and expose the company to risks if it cannot generate sufficient cash to service its debt[203] - The fuel-grade ethanol industry is highly dependent on federal and state laws, and any changes, such as reductions in the Renewable Fuel Standard, could materially harm results[215][217] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered equity sales occurred, but the company repurchased 389,000 shares for $1.0 million under a program limited by lender consent - No unregistered sales of equity securities were made during the period[234] Share Repurchases - Q2 2023 (in thousands, except per share data) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Three months ended June 30, 2023 | 389,000 | $2.57 | - The share repurchase program is authorized for up to $50 million, but lender consent is required for amounts over $5 million, and board/preferred stockholder authorization is needed for amounts over $10 million[239] DEFAULTS UPON SENIOR SECURITIES Not applicable - Not applicable[243] MINE SAFETY DISCLOSURES Not applicable - Not applicable[243] OTHER INFORMATION No directors or officers reported 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[244] EXHIBITS This section lists exhibits including CEO/CFO certifications and Inline XBRL data files - The report includes required CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[245] - Inline XBRL documents, including schema, calculation, definition, label, and presentation linkbases, are filed as exhibits[245]