Alto Ingredients(US:ALTO)2019-11-08 20:30Financial Data and Key Metrics Changes - For Q3 2019, net sales were $365 million, an increase from $346 million in Q2 2019, primarily driven by third-party gallons sold [15] - Cost of goods sold was $300 million, leading to a gross loss of $14.8 million compared to a gross profit of $4 million in the prior quarter [15] - Adjusted EBITDA was negative $12.4 million, a decline from $7.2 million in Q2 2019 [16] - Loss available to common shareholders was $27.6 million or $0.58 per share, compared to $8 million or $0.17 per share in the previous quarter [15] Business Line Data and Key Metrics Changes - The company operated at a combined run rate of 82% during the quarter, with one plant shut down and the rest running below full capacity [10] - The ethanol industry faced significant production margin challenges due to factors such as small refinery exemptions and trade disputes, leading to production capacity reductions [9] Market Data and Key Metrics Changes - Ethanol exports are projected to reach just over 1.5 billion gallons for the year, marking the second-largest year for export volumes despite a decrease from the previous year [12] - Industry inventories are near two-year lows, indicating a more balanced supply and demand environment [17] Company Strategy and Development Direction - The company is focused on strengthening its balance sheet, improving liquidity, and reducing debt through asset sales and strategic initiatives [8] - The company anticipates that regulatory changes, particularly the final rule for the 2020 Renewable Fuel Standard blending requirements, will increase domestic ethanol demand [11] - The company is optimistic about the potential for increased ethanol exports, especially with the resolution of trade disputes with China [12] Management's Comments on Operating Environment and Future Outlook - Management noted that production margins have rebounded to levels better than any time in the last two years, with positive margins expected to be sustainable [10] - The company is cautiously optimistic about maintaining supply and demand balance in the industry, despite risks of overproduction [24] - Management emphasized the importance of incremental demand and regulatory support for the growth trajectory of the ethanol industry [25] Other Important Information - The company is engaged in discussions with lenders regarding amendments and extensions to existing loan facilities, which are part of their strategic initiatives [9] - The California low carbon fuel standard continues to provide significant carbon emission reductions, with the carbon value trading at historic highs [12] Q&A Session Summary Question: Comments on elevated basis and co-product volumes - Management explained that elevated corn basis levels impacted the quarter due to slow harvest and farmers holding onto storage, but they expect basis levels to normalize as harvest progresses [20][21] Question: Outlook on production ramp-up - Management indicated that production is still running about 5% to 6% below prior year levels, and while margins have improved, clarity on future profitability is needed before ramping up production [23][24] Question: Impact of E15 availability on production and demand - Management noted that E15 availability has had a modest impact, emphasizing the need for regulatory support to drive higher blending rates [30][31] Question: Timeline for regulatory rulings - Management confirmed that the EPA is committed to finalizing the rule by the end of the year, which will be effective in 2020 [34] Question: Status of strategic initiatives - Management stated that all options remain on the table for strategic initiatives, with favorable market conditions aiding in the completion of transactions [36]