Alto Ingredients, Inc. (ALTO) Q3 2026 Earnings Call Transcript

Operator: Please note, this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Jody Burfening: Thank you, Kim, and thank you all for joining us today for Alto Ingredients third quarter 2026 results conference call. With me on the call are President and CEO Bryon McGregor and CFO Rob Olander. Alto Ingredients issued a press release after the market closed today providing details of the company's financial results for the third quarter of 2026. The webcast and webcast replay will be available on the Alto Ingredients website, altoingredients.com. Please note that the information on this call speaks only as of today, November 4, 2026. You are advised that time-sensitive information may no longer be accurate at the time of any replay. The company also prepared a presentation for today's call that is available on its website. Please refer to the company's safe harbor statement in the presentation, which states that some of the comments constitute forward-looking statements and considerations that involve risks and uncertainties. The actual results of Alto Ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, events, risks, and other factors previously and from time to time disclosed in Alto Ingredients' filings with the SEC. Except as required by applicable law, the company assumes no obligation to update any forward-looking statements. In management's prepared remarks, non-GAAP measures will be referenced. Management uses these non-GAAP measures to monitor the financial performance of operations and believes these measures will assist investors in assessing the company's performance for the periods reported. The company defines adjusted EBITDA as unaudited consolidated net income or loss before interest expense, interest income, provision or benefit for income taxes, asset impairment, unrealized derivative gains and losses, acquisition-related expense, excess insurance proceeds, and depreciation and amortization expense. To support the company's review of the non-GAAP information, a reconciling table has been included in the third quarter earnings release and presentation. On today's call, Bryon will review the company's third quarter performance, Rob will review the financial results, and Bryon will wrap up and open up the call for Q and A. It is now my pleasure to turn the call over to Bryon McGregor. Bryon, please do go ahead.

Bryon McGregor: Thank you, Jody, and thank you everyone for joining us today. I will start with high-level observations about our third quarter financial results and operational activities. Then I will turn the call over to Rob for a more detailed review of our financial results. After that, I will wrap up and open the call for Q and A. Over the past three years, we have made smart capital allocation decisions, improved profitability, and enhanced asset returns. On our last quarterly call, we reported our fourth consecutive quarter of positive gross profit, income from operations, net income, and adjusted EBITDA. Those results demonstrated that our diversified product strategy is working and that our improved operating model is capable of generating annual positive adjusted EBITDA through commodity cycles. For the third quarter, Alto built on these achievements. Once again, we delivered positive gross profit, income from operations, net income, and adjusted EBITDA. These results are driven by the strength of our core operations, with 45Z tax credit earnings adding to an already solid foundation. As our track record grows, so does our confidence in the durable earnings power of our operational model and the strength of our diversified logistical platform, which helps us to pursue the highest value for our products under prevailing market conditions. We continue to execute our strategic plan with discipline, focusing on enhanced profitability, unlocking premium value opportunities, and optimizing return on our assets. The industry crush margin remained healthy and profitable for the third quarter at $0.30 per gallon. Higher domestic blend rates, in part due to greater adoption of E15 reacting to high gasoline and RIN prices, and continued strong industry export demand supported improved ethanol pricing. Corn prices rose along with expectations for lower yields on this year's harvest. While higher corn costs contributed to an $0.11 decline in market crush year-over-year, they also supported improved values for our essential ingredients. On a year-to-date basis through the third quarter, crush margins were $0.27 per gallon, representing an improvement of $0.08 or 42% higher than the same period last year. For October, crush margins were healthy and profitable at $0.32. During the quarter, we finished the renewable fuel export shipments under the contract we entered in late 2025. With global market conditions shifting, we chose to sell domestically, where our economics are currently better than selling into Europe. Although we expect our domestic sales to remain the more attractive option through year-end, we are beginning to see more compelling economics for resuming renewable fuel exports to Europe in 2027. Operationally, we continue to make good progress with our production and capital improvement initiatives. At the Pekin dry mill, the debottlenecking project completed last quarter is performing in line with our plan following the restart. We are on target to increase annual production capacity by approximately 8% or 5 million gallons, allowing us to exit the year at our new targeted annual run rate of approximately 65 million gallons. We are also progressing our barge dock project. The first phase of the project, adding new liquid load-out, is complete and operational. The second phase, improvements to the existing dock, is expected to be completed by year-end. These investments will provide greater logistics flexibility and loading capacity while helping us better leverage the strategic value of the Pekin location. Finally, we expect to complete installation of our third CO2 storage tank at Columbia before year-end, providing additional capacity to capture more of our existing production and the growing demand for liquid CO2 in the Pacific Northwest. We remain on track to qualify 90 million gallons or more of combined production for 45Z tax credits this year, and now expect to generate a minimum of $20 million in tax credit earnings, net of monetization costs, as Rob will discuss shortly. In addition to increasing production capacity at our Pekin dry mill, we have begun partnering with farmers to lower the carbon intensity of our qualified production. With clarifying rules on recognizing climate-smart farming practices, we are working to convert these practices into value for Alto and our ag partners. This quarter, we signed our first multi-year agreement with a local farmer cooperative to supply a meaningful portion of our Pekin campus low-carbon intensity corn needs and share the resulting 45Z benefit with the cooperative members. We are currently working on finalizing additional agreements. We expect these earning contributions from our first agreement to be modest in 2026, but to build in 2027 as participating farmers adopt additional measures beginning this fall. In addition, at our Columbia plant, we are completing phase one of our energy reduction project this quarter to further lower our carbon score and support our 45Z earning initiatives. In addition to the specifics I have shared, we continue to work diligently to capture more 45Z earnings in 2026 and beyond, primarily by qualifying more gallons and by exploring additional opportunities to lower our carbon footprint. With that, I will turn the call over to Rob for a more detailed review of our third quarter financial results.

Rob Olander: Thank you, Bryon. I will start with a review of the third quarter 2026 income statement compared to last year's third quarter. Consolidated net sales were $258 million, reflecting the sale of 89 million gallons of renewable fuel and specialty alcohol, with volume flat year-over-year at an average price per gallon of $2.23, $0.14 higher than last year. Renewable fuel prices improved due to continued demand from strong domestic blending and global exports, and were supported by higher corn prices. On a consolidated basis, we sold 21.5 million gallons of specialty alcohols in the third quarter, 900,000 fewer gallons than the same period a year ago. The net impact on gross profit, inclusive of the change in realized derivative gains, was a $400,000 improvement, or a $0.02 per gallon increase. We contract our specialty alcohols at fixed prices in advance, and with rising ethanol prices, the premium we earned over renewable fuel narrowed by $1.8 million compared to the prior year quarter. Our hedging strategy, which effectively locks in the premium when we contract, offset this reduction with a positive $2.2 million of realized hedging gains quarter-over-quarter, recorded as a reduction to cost of goods sold. Renewable fuel exports were down $2.4 million this quarter, driven by lower sales volume, albeit at a higher average premium. As Bryon noted, with global market conditions shifting, we are selling more renewable fuel domestically, where economics are currently more favorable. Essential ingredient sales totaled $58.8 million, $5.5 million higher than Q3 2025. This increase reflects improved sales prices, supported by rising corn costs on slightly higher sales volumes. With the RVO requirements set, improved demand for corn oil as a feedstock for renewable diesel and biodiesel drove prices up, positively impacting the sales price of our corn oil and germ products. Our essential ingredients return improved to 53.5% compared to 52.5% for Q3 2025. Gross profit was $14.8 million for the third quarter of 2026, a decline of $8.7 million compared to last year. The primary driver is a lower industry crush margin, which declined $0.11 per gallon to $0.30 per gallon in Q3 2026, compared to $0.41 per gallon in the prior year quarter, negatively impacting the change in gross profit by $6.5 million. Of this swing, $4.9 million is reflected in our change in net realized derivative losses as part of cost of goods sold, as we establish corn hedges to bridge the period of time between contracting the corn and grinding it. This allows us to capture the approximate market crush margin at the point of sale in our gross profit. SG&A expenses were $7.8 million, an increase of $1.3 million, due primarily to inflationary impacts on compensation and benefit costs, higher professional fees associated with our efforts to qualify for additional 45Z credits, and business development costs as we assess options to further improve our production processes and modernize our facilities. For the third quarter, we recognized $7.6 million in 2026 vintage 45Z tax credit earnings, bringing our year-to-date total to $15.8 million net of estimated transaction costs. We expect to fully monetize these 2026 credits in the first half of 2027. As a result of our efforts to continue lowering our carbon scores, we now project the Columbia facility to qualify for $0.30 per gallon and the Pekin dry mill to qualify for $0.20 per gallon on a gross credit basis. Together with 90 million or more of qualifying gallons, we now expect to generate a minimum of $20 million in net tax credit earnings this year. Interest expense for the quarter amounted to $1.5 million, a reduction of $1.3 million on lower outstanding debt balances. Our tax provision remained at zero, as we expect to use a portion of our NOLs to offset taxable income this year. We are pleased to report adjusted EBITDA was a robust $21 million this quarter. Turning to our balance sheet and capital allocation, in the third quarter, we generated $13 million of positive cash flow from operations, which supported a $6.5 million paydown on our line of credit and $4 million in additional CapEx. Year-to-date, we have reduced our total debt by $26.5 million and spent $16 million on CapEx, and we remain on track to spend $25 million on CapEx this year. At quarter end, our cash balance was $24 million, and our total borrowing availability was $108 million. Over the past four quarters, we have been keenly focused on strengthening our balance sheet and on expanding our funding capacity to support investments in our production assets. Through deliberate actions to manage our liquidity and with improving profitability and positive cash flow from operations, over the last 12 months, we have reduced our term debt by $30 million, resulting in lower debt servicing costs going forward by approximately $4.3 million annually. With that, I will turn the call back to Bryon.

Bryon McGregor: Thanks, Rob. Looking ahead, industry tailwinds are supporting healthy ethanol demand and strengthening our strategic position. The outlook for E15 improved meaningfully in September when California enacted legislation clearing the way for E15 sales in the state. California is one of the nation's largest gasoline markets, and we believe E15 could add an estimated 600 million gallons or more of annual ethanol demand as adoption ramps up. Together with year-round E15 in several Midwestern states, this sets the stage for a more favorable margin environment and improved industry utilization. Our Columbia plant and Western marketing and distribution capabilities position Alto well to serve this market. On top of the earnings power of our core operations, 45Z tax credits provide incremental cash to strengthen our balance sheet and invest in growth. With increased production at Pekin and our farmer partnerships, we expect to qualify more gallons and further lower our carbon scores, which should drive additional 45Z tax credit earnings. Today, having completed a strategic realignment over the past three years, Alto is in the strong position to create value. Our cost structure is leaner, our operating model is working as intended, and our diversified production portfolio is unlocking premium value opportunities. Near term, our capital priority is high-return projects that expand capacity and improve efficiency. Longer term, we will pursue additional ways to monetize our CO2 revenue stream relative to alternatives. In summary, we are well-positioned to benefit from favorable industry fundamentals and are executing plans to grow, drive profitability, and build shareholder value. Kim, we're ready to begin the Q and A session. Operator?

Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Eric Stine with Craig-Hallum.

Eric Stine: Hi, Bryon. Hi, Rob.

Bryon McGregor: Hey.

Eric Stine: Hey. So maybe just starting with your CO2 initiatives, Bryon, there at the end, you just mentioned that beyond what you are doing currently, longer term, looking at things like sequestration, increased utilization, central U.S., et cetera. So maybe, although you have got some things that are more near term on your plate, maybe an update on those initiatives longer term.

Bryon McGregor: Sure. So, as you know, we have existing relationships with ag companies, particularly Pekin, and those, at all of our facilities that are operating. There is an opportunity to be able to work with them, particularly with changes that were made to the program to be able to earn credits both for utilization and sequestration. So, we are working with those parties to make sure that we have a program in place and to minimize the amount of new CapEx required in order to be able to maximize the value there. That said, we certainly produce more than what we have used historically, and we vent a lot of that CO2. So, the opportunities ahead of us are to be able to bring that to bear and generate revenues off of those, and turn what is otherwise a vented CO2 into a revenue stream, and a profitable one at that. That is really where the area of focus on the long term, is being able to do that in a capitally efficient way.

Eric Stine: Okay. And so, just to be clear, I mean, so it does sound like initiatives there underway to some extent, but I mean, you're not looking anything close to what some of the CapEx numbers you might have had in the past when you were talking about some of these initiatives, carbon capture and sequestration.

Bryon McGregor: Yeah. I mean, it's not as if those aren't possibilities, but the idea is to be capitally efficient. As you think about where we spend capital, whether it's in expansion in production, whether it's in expansion and capture of CO2, we're going to weigh each one of those opportunities against the other alternatives and make sure that we optimize the investment opportunity.

Eric Stine: Mm-hmm. Okay, good. Thanks for that. Then, interested in the agreement, this first agreement with the co-op for Pekin. Just to clarify, I'm not sure if you gave a specific percentage of what that covers of Pekin, but just curious now with this first one in hand, more clarity in the market, what type of reception are you seeing from farmers to expand this across Pekin and then potentially across the rest of the platform?

Bryon McGregor: There's certainly a lot of interest, and we are, as you know, we're not the only ethanol producer in and around our area. So, along with other competitors, we have engaged in discussions and in agreements to be able to make sure that we're sharing some of those incentives for them to be able to make those investments on farm in low-carbon initiatives. So, the amount that we would share depends on how much they bring to the table with regards to savings, and that we can actually turn, convert into 45Z credits. But we remain optimistic. We're excited about it. The farmers are excited about it. Really, it's just, what's the best way for them to be able to optimize the value and the opportunity for them to be able to bring that value to the table. Anything else you want to add, Rob?

Rob Olander: Yeah. Just to address your question about the size. As a reminder, it's a three-year agreement with the cooperative for up to 20 million bushels of low CI corn. As Bryon said, we are continuing to engage with other farmers to address the rest of our low carbon intensity needs. As Bryon said, it is a sliding scale. We will be sharing the benefits of any 45Z credits with our farmer partners. We expect modest impact for the 2026 year, but a lot of the CSA or climate-smart ag practices to start after this year's harvest.

Eric Stine: Okay. Thank you for that.

Operator: Our next question comes from Ben Klieve with StoneX.

Ben Klieve: All right. Thanks for taking my questions, and congratulations on a nice quarter coming off of a tough comp here. I want to follow up the previous conversation here on the relationships now you have in place with farmers, and I'm curious about a couple of things. First of all, can you talk about the relative ease of which you think you're going to be able to also secure these types of agreements for low-carbon corn for grain destined to your Western assets? I'm just wondering if it's a lot easier for you to negotiate here with your neighbors in Illinois than it is for somebody that's maybe not necessarily right next door.

Bryon McGregor: Sure. There's a couple items in there. As you apply the smart options that are available, right, everything from first is around registration and making sure you're capturing the information. For that's a fairly easy lift, I think, for farmers. As you try and move either up or down, depending on how you're looking at it, to reduce your further, your carbon score, they become much more challenging, and you've got to be doing cover crops and low nitrogen applications, things like that. Those will become more challenging, but still achievable. We think that those, if you look across the industry, for most of the dollar that's available, up to $0.40 cents of that would be, $0.40-$0.50 cents of that would be eligible for sharing with farmers. If you translate that for a farmer, times that times 2.9 gallons per bushel of corn, that's a significant benefit for them. You can see why there's incentive to do that, and that would apply to both those who we're working with locally, either in Illinois or for those that we also have a significant amount of local corn that's available up in the Columbia, in the Pacific Northwest, Western Washington area, and Western Oregon. So those are discussions that we're having, but then there's also potentially eligible applications that you can use for the rail corn that comes in, as long as you can trace it. Then there's still clarifications that need to be made around some of the rules as to how that's applied. Rob, anything that I missed?

Rob Olander: Yeah. No, I agree with you, Bryon, specifically to how it pertains to Columbia. Even though the majority of corn is not sourced locally like it is for our Pekin campus, the farmers in the Midwest also want to participate in this program, and we will be working with our grain merchandising partners to pursue that avenue as well.

Ben Klieve: Got it. Very helpful. I look forward to learning more about this in the quarters to come. One more from me, then I'll get back in line here, is around the dynamic you talked about in your prepared remarks regarding the contract you had for exported volumes, and the kind of relative margin dynamic between domestic and exports. Can you talk about, can you kind of quantify the degree to which that was a challenge here within the third quarter or year-to-date? Challenge is the wrong word, but can you quantify kind of the delta of your profit that maybe you had from having to force your production into the export market versus being able to capitalize on the domestic market?

Bryon McGregor: Yeah, I am going to let Rob go first on this, and then I will fill in some of the details behind the scenes if I need to.

Rob Olander: Yeah, you are referring to the renewable fuel exports volume. Is that correct, Ben?

Ben Klieve: That is correct.

Rob Olander: Okay. Yeah. That volume was definitely down quarter-over-quarter. We capitalized on that last year, but since then, even though global export demand remains strong, Brazil has really been the lower-cost supplier this year. That means really for the second half of 2026 is being met by their ethanol. That does is even though the European demand is strong and global exports are high, that is helping maintain balance in the domestic markets, where for Alto, we can actually get a better value for our product selling it domestically until that arbitrage opens back up. We do think there will be an opportunity to be competitive with Brazil again in 2027.

Ben Klieve: Got it. Okay. Very good. I appreciate you taking my questions. Congratulations again on a good quarter, and I'll get back in line.

Bryon McGregor: Thank you, Ben.

Operator: Our next question comes from Sameer Joshi with H.C. Wainwright.

Sameer Joshi: Hey. Good afternoon, Bryon, Rob. Thanks for taking my questions.

Bryon McGregor: You bet.

Sameer Joshi: Many of the questions I had have been answered, but just a clarification on the expected 45Z during 2026. I think it is $20 million, and I think $16.6 million as of 3Q is already booked. I also heard a $15.8 million number. Just wanted to understand, what are we expecting in 4Q? Just that clarification for now.

Rob Olander: Yeah, I can take that, Bryon. The difference in the number, the $16.6 million is the total tax credit earnings that we've recognized year-to-date in 2026, but about $1 million of that was related to the final monetization of 2025 credits. So really, the $15.8 million that we talked about year-to-date that we've recorded is associated with just the 2026 vintage year tax credits. Since you brought it up, just like to point out that the increase in the 45Z credit expectations really reflects the progress of us working hard to lower our CI scores. Because of those efforts and those investments in our production processes and lowering our carbon footprint, we've updated the calculations, and that's why for Columbia, they now qualify for $0.30 per gallon of gross credits, which is up from the $0.20 per gallon that they calculated out to through the second quarter. The Pekin dry mill is still targeting at $0.20 a gallon. For the year, we do expect to realize a minimum of $20 million net of monetization costs for the full-year of 2026, and we fully expect to monetize those credits in the first half of 2027.

Sameer Joshi: Got it. Understood. Thanks for that clarification. My second question was actually going to be around that $0.30 and $0.20 for Columbia and Pekin respectively. Just to make sure, the CI scores that they relate to do not take into account any of the low corn, sorry, low carbon CI, low CI, sorry, I am mumbling. Low CI—

Rob Olander: Just a mouthful.

Sameer Joshi: —corn.

Rob Olander: That is correct. That is correct.

Sameer Joshi: Sorry.

Rob Olander: The LCI or low carbon intensity corn will be incremental to what we are seeing today.

Sameer Joshi: Okay. Then we expect more than a few of these agreements coming in rest of the year and 2027 with these co-ops or more farmers, right?

Bryon McGregor: That's correct.

Rob Olander: Correct. That is our intent.

Bryon McGregor: To just be clear, if it wasn't already, is when Rob says it's incremental, it's in addition to what otherwise we're already capturing. Right, it's what the farmers bring to the table and then what we're able to monetize and apply through our system in which they'll share.

Sameer Joshi: This last one, I think you already addressed, but just a clarification. I think the CapEx for this year was year-to-date is $16 million and targeting $25 million. What is the or maybe correct me if I'm wrong there, but what is being planned in Q4? Is it the second phase of the dock repairs or is there anything else in there as well?

Rob Olander: Yeah. No, you're correct. We've incurred about $16 million or $17 million year-to-date through Q3. We are still on track for $25 million for the full-year. Q4 will include the Pekin dock repairs and also the addition of a second alcohol load-out dock, as well as the third CO2 storage tank at Columbia.

Sameer Joshi: Oh, so the CO2 tank is coming up, or at least the CapEx for that is during this quarter. That's good to know. I think that's all I have. I will take my questions, other questions offline. Thanks.

Bryon McGregor: Great. Thank you.

Rob Olander: Thanks, Sameer.

Operator: Our next question comes from Justin Dopierala with DOMO Capital Management.

Justin Dopierala: Hi. Good afternoon. Fantastic quarter.

Rob Olander: Thank you, Justin.

Bryon McGregor: Thanks, Justin. How are you?

Justin Dopierala: Doing well. So a couple questions. I think there's a lot of concern in the market last quarter when you mentioned, when you announced the ATM that could potentially dilute shareholders. I was just wondering if you could update us on how many shares you've sold and what we should expect on that moving forward.

Rob Olander: Yeah.

Bryon McGregor: Yeah, we have—

Rob Olander: There's two questions.

Bryon McGregor: Oh, go ahead, Rob.

Rob Olander: Oh, okay. Yeah. Again, as we said before, we view the ATM as a flexible capital markets tool. It's not something that we need to use every quarter, and we have not used the ATM yet. We didn't believe that issuing shares was necessary or in the best interest of the shareholders given our current strong liquidity position and the healthy market fundamentals. However, we will continue to evaluate the ATM based on what our capital needs are, the share price, and the potential uses of that capital.

Justin Dopierala: Got it. It's not something you were contemplating in the $5 range and now here at $3, $4. I'm sure it's the similar thinking.

Rob Olander: Yeah.

Justin Dopierala: Got it.

Rob Olander: Exactly.

Justin Dopierala: Perfect. Last question. I just want to piggyback on the Brazilian, the export situation. I was just curious. You expect the arbitrage situation would potentially change again in 2027. Is that because of I know after the Brazilian election, the real significantly depreciated. Is that one of the main reasons you're expecting to resume exports to Europe in 2027, or are there some other dynamics going on?

Bryon McGregor: That's certainly part of it. It's a bit of a complex calculus, but as Rob had mentioned, I think it's a kind of a high-level way to explain it is that when you take into account the exchange rates, prices of sugar, alternative uses for ethanol that comes out of Brazil in relation to and largely driven by sugarcane versus what is produced by corn both here and in Brazil. When you take that into all into account, historically or a year ago, the U.S. and particularly our product was incredibly attractive and thus accounted for significant amount of sales that we made into Europe last summer and fall and actually into six months into this year. But that arbitrage opportunity, as Rob described it, had closed. Justin, you're right. With the recent elections, we saw significant changes in the exchange rate between U.S. dollar and the real. That certainly starts to open the door. You also have to think about when supplies are available, at what time are there volumes in excess, and when are they in need of product in Brazil for their domestic consumption. All those things kind of go in together, but that's what gives us optimism around looking into 2027 and as we're in discussions with various parties for that product.

Justin Dopierala: Thank you.

Bryon McGregor: Thanks, Justin.

Rob Olander: Okay. Thank you, Justin.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Bryon McGregor, CEO, for any closing remarks. Go ahead, Bryon.

Bryon McGregor: Thank you, operator. Thanks to everyone for joining us today. We look forward to meeting with investors at the Craig-Hallum Alpha Select Conference on November 17 and the StoneX One-on-One Conference on December 10. Have a great day.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.