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Alto Ingredients(ALTO) - 2022 Q4 - Annual Report

Sales Performance - The Pekin Campus production segment generated net sales of $521.3 million in 2022, up from $498.2 million in 2021 and $330.4 million in 2020 from alcohol sales[51]. - The Other production segment reported net sales of $253.6 million in 2022, compared to $107.9 million in 2021 and $137.7 million in 2020 from alcohol sales[52]. - The marketing and distribution segment generated net sales of $228.9 million in 2022, down from $381.2 million in 2021 and $257.7 million in 2020 from alcohol sales[52]. - The company sold approximately 201.1 million gallons of alcohols in 2022, a decrease from 213.0 million gallons in 2021 and an increase from 193.9 million gallons in 2020[51]. Strategic Initiatives - The company is pursuing strategic opportunities such as joint ventures and synergistic acquisitions as financial resources allow[22]. - The company completed Together for Sustainability certification at its Pekin Campus in February 2023, enhancing its corporate social responsibility standards[22]. Market Trends - The essential ingredients market is expected to grow significantly due to global demand for higher-grade protein feed[36]. - The Renewable Fuel Standard mandates the use of 15.0 billion gallons of conventional ethanol for 2023, increasing to 15.25 billion gallons for 2024 and 2025[38]. - The domestic fuel-grade ethanol industry produced 15.4 billion gallons in 2022, up from 15.0 billion gallons in 2021[39]. Customer and Supplier Relationships - The company has extensive customer relationships, with sales to its two largest customers representing approximately 20% of net sales in 2022[54]. - In 2022, purchases of corn from the two largest suppliers represented approximately 27% of total corn purchases, up from 16% in both 2021 and 2020[56]. - Approximately 69% of total third-party ethanol purchases in 2022 came from the four largest suppliers, down from 76% in 2021[58]. Production Capacity and Operations - The company operates five production facilities with an annual alcohol production capacity of 350 million gallons, including 210 million gallons of fuel-grade ethanol and up to 140 million gallons of specialty alcohols[59]. - The company has an annual production capacity of 60 million gallons at its idled facility in Burley, ID, and 40 million gallons at its operating facility in Boardman, OR[62]. - The company purchased and resold approximately 220 million gallons of fuel-grade ethanol in 2022, compared to 204 million gallons in 2021 and 163 million gallons in 2020[57]. Price Fluctuations and Risk Management - Fuel-grade ethanol prices ranged from $2.00 to $2.88 per gallon in 2022, while corn prices ranged from $5.64 to $8.18 per bushel during the same period[64]. - The company employs various risk mitigation techniques to manage commodity price fluctuations, including purchasing forward a portion of corn and natural gas requirements[63]. - The price of corn is subject to wide fluctuations due to factors like weather conditions, governmental policies, and global supply and demand[262]. - The company enters into volume contracts with corn vendors to fix purchase prices, which exposes it to market risk if prices decrease after the price is fixed[262]. - The company employs risk management and hedging strategies, including the use of derivative financial instruments such as futures and options[263]. Financial Performance and Sensitivity Analysis - The company recognized net gains of $19.3 million, $21.6 million, and $14.8 million related to the change in the fair values of derivative contracts for the years ended December 31, 2022, 2021, and 2020, respectively[264]. - A sensitivity analysis estimated that a hypothetical 10% adverse change in ethanol prices could result in a pre-tax income change of approximately $65.1 million, based on an expected volume of 418.9 million gallons[265]. - For corn, a 10% adverse price change could lead to a pre-tax income change of approximately $74.6 million, based on an expected volume of 107.5 million bushels[265]. - Changes in the fair values of derivative contracts are recorded on the balance sheet and recognized immediately in cost of goods sold[264]. - The analysis of market risk does not factor in future contracted volumes, indicating potential variability in actual results[264]. Workforce and Labor Relations - The company has approximately 439 employees, with 44% represented by a labor union[81]. - The company is the largest producer of specialty alcohols in the United States, competing with significant producers like Archer-Daniels-Midland Company and MGP Ingredients[68].