Alto Ingredients(ALTO) - 2021 Q4 - Annual Report

Part I Business 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] - Operations are divided into three reportable segments: Marketing and Distribution, Pekin Production, and Other Production[11] - 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][23][24] 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] Risk Factors 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][85] - 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][89] - 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][115][116] - 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] - Cybersecurity vulnerabilities pose a risk of business disruption, data loss, and potential litigation, which could harm the company's reputation and financial results[125][126] Unresolved Staff Comments 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] Properties 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] - 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] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable[133] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - As of March 11, 2022, there were 73,726,517 shares of common stock outstanding[137] - The company has never paid cash dividends on common stock and does not anticipate doing so in the foreseeable future[142] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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][163] - 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][161] - 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][214][216] - The company received full forgiveness for $9.9 million in loans obtained under the CARES Act's Paycheck Protection Program (PPP)[196][217] Results of Operations (2021 vs. 2020) 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][182] Liquidity and Capital Resources 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] Quantitative and Qualitative Disclosures About Market Risk 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][241] 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] Financial Statements and Supplementary Data 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 The company reported no changes in or disagreements with its accountants regarding accounting or financial disclosure - None reported[246] Controls and Procedures 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] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[251] - The independent auditor, RSM US LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[251][273] Other Information The company reported no other information for this item - None reported[254] Part III Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accountant Fees and Services 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] Part IV Exhibits and Financial Statement Schedules 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] Form 10-K Summary No Form 10-K summary was provided in this report - None provided[262]