ALTO - NASDAQ

Good day, and welcome to the Alto Ingredients Fourth Quarter and Year-End 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Harriet Fried of Alliance Advisors. Please go ahead.

Thank you, operator, and thank you all for joining us today for the Alto Ingredients Fourth Quarter and Year-end 2025 Results Conference Call. On the call today 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 fourth quarter of 2025. The company also prepared a presentation for today's call that is available on its website at altoingredients.com. A webcast and a webcast replay will be available on the Alto Ingredients website. Please note that the information on this call speaks only as of today, March 4. You are advised that time-sensitive information may no longer be accurate at the time of any replay. Please refer to the company's safe harbor statement in the slide deck posted to the company's website, which states that some of the comments in this presentation constitute forward-looking statements and considerations that involve risks and uncertainties. The actual future 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 impairments, unrealized derivative gains and losses, excess insurance proceeds, acquisition-related expense or recoveries and depreciation and amortization expense. To support the company's review of non-GAAP information, a reconciling table has been included in today's release. On today's call, Bryon will provide a review of the company's strategic plan and activities. Rob will comment on its financial results. Then Bryon will wrap up and open the call for Q&A. It's now my pleasure to introduce Bryon McGregor. Bryon, go ahead, please.

Thank you, Harriet, and thank you all for joining us today. I'll begin with a quick review of our fourth quarter results and achievements, after which I'll turn the call over to Rob for more details on our numbers. After that, I'll give you an overview of our major initiatives for 2026 and the opportunities we're seeing in our markets. We'll then open the call for Q&A. The fourth quarter capped a year of strong execution, and it was a pivotal milestone in our strategic realignment. Entering the year, we made tactical decisions to focus on opportunities that were within our control to maximize earnings. We adjusted staffing to align with our current organizational footprint, captured cost savings, invested in the throughput and efficiency of our plants, culled underperforming business activities in our Marketing and Distribution segment and maintained operational disciplines in support of our diversification efforts. Earnings for the fourth quarter were $21 million, a $63 million improvement compared to the fourth quarter of 2024. For the full year 2025, earnings were $12 million, a $72 million improvement. Further, adjusted EBITDA for the fourth quarter was $28 million, a $36 million positive swing from last year. For 2025, adjusted EBITDA grew to $45 million, a $53 million improvement compared to 2024. Increased crush margins, qualified 45

Thank you, Bryon. Thank you. First, I'd like to review the financial results for the fourth quarter of 2025 compared to the fourth quarter of 2024. Net sales were $232 million, $4 million lower than in the prior year. This reflects a reduction in volumes sold of 10.6 million gallons, primarily due to our decision to idle our Magic Valley facility at the end of 2024. On a consolidated basis, the average sales price per gallon increased to $2.10 from $1.88 per gallon, partially offsetting the reduction in volumes sold. Gross profit for Q4 2025 was $15.2 million, a significant increase of $16.6 million compared to Q4 2024's gross loss of $1.4 million. The significant improvement in gross profit was due to the following drivers: stronger market crush margin of $0.23 per gallon in Q4 2025 compared to $0.08 per gallon in 2024 accounted for approximately $8 million. An increase in renewable fuel export sales at premiums to domestic sales contributed $5 million on a higher volume and higher average sales price per gallon. We realized $2.6 million less in compensation costs for the quarter related to the staffing reduction implemented earlier in the year, including the impact of idling our Magic Valley plant and a gain on our annual pension valuation adjustment. The sale of Oregon carbon credits contributed an additional $2.9 million on improved market pricing. We continue to benefit from our Carbonic acquisition, which we completed at the beginning of 2025 as it contributed $1.4 million to our Western Production segment during the quarter. With the idling of Magic Valley, this segment had a positive gross profit for the quarter and the full year. With high-value liquid CO2 now in our product mix, our Western Essential Ingredients return improved to 48% in the fourth quarter from 30% a year ago and contributed to an increase in our consolidated return to 52% from 43%, and partially offsetting these positives was a net negative $4.2 million in combined realized and unrealized changes in derivatives. SG&A expenses decreased by $500,000 to $6.9 million. Once again, this is attributable to rightsizing staffing levels in the first half of the year. As you may recall, in Q4 of 2024, we recorded the final acquisition-related expenses for Eagle Alcohol of $5.7 million and $24.8 million of impairment charges related to Magic Valley and Eagle Alcohol, both of which were excluded from adjusted EBITDA. In the fourth quarter of 2025, we recorded $800,000 of asset impairment charges related to the cleanup of CapEx projects. As discussed on prior calls, in April 2025, we sustained damage to our Pekin campus River loading dock. After filing an insurance claim with our carrier, in Q4, we received our maximum insurance coverage payment of $10 million. Of these proceeds, $1.5 million was recorded as a reduction to cost of goods sold as a reimbursement for previously recorded expenses. $1.8 million was recorded in other income for lost profits related to the business interruption. And the remaining $6.7 million of income was recorded as excess insurance proceeds in accordance with GAAP, which will be used to fund the repairs and improvements in 2026. Since the excess proceeds were not related to operations, we excluded this gain from our calculation of adjusted EBITDA. As Bryon mentioned, we made significant progress in qualifying for 45

Thank you, Rob. In summary, we entered 2026 with a leaner cost structure, a higher mix of premium exports and carbon advantage volumes, expanded CO2 opportunities and potential upside from 45

[Operator Instructions] And the first question will come from Amit Dayal with H.C. Wainwright.

Bryon, congratulations on a very strong quarter. It looks like a lot of drivers in place for a strong 2026 as well. But I just want to focus on the 45

Sure. I'll take the front part of this, and then, Rob, if you want to round out anything that I otherwise missed. It's -- a lot of the drivers and opportunities around 45

Yes, sure. Thanks, Bryon. As we mentioned, one opportunity to capitalize further on the 45

Understood. And then you just mentioned it, Bryon, the traceability of the feedstock, this -- are we already in compliance with that? There's a treasury proposal around 45

We're active in that front. I wouldn't say that all of our bushels are traced. I think that there is some work that needs to be done around incentivizing our farmers to provide that information. So I think -- and it's not just something that we can do on a stand-alone basis, but it's going to require regulatory support as well and adoption across the entire industry. That said, we're doing what we can, and we're making some headway there.

Okay. And then just last one for me. On the Western asset, should we expect revenue pickup in 2026? I know operationally that is performing much better now. But do we see -- can we think of any revenue improvements coming through in 2026 for that segment?

Certainly intend to try and increase production capacity there or increase our overall -- that's what I'm looking for.

Yes. We definitely plan to work on improving our production utilization rate. And then as I think Bryon mentioned in the call, we're exploring opportunities to expand our CO2 throughput as well.

Your next question will come from Eric Stine with Craig-Hallum.

So you mentioned ethanol exports that you had locked in a portion of that. It sounds like a meaningful portion of that for the first half. I'm wondering if you can kind of quantify that a little bit. And then also curious, as you think about going forward, increasing volumes and increasing margins there, I know you have to have certain certifications to even access other markets. So just curious what kind of steps that would entail to both increase volumes and potentially the margins you get.

Yes, sure. So while we don't specifically provide that level of detail, what's, I think, important to understand for us is that it's to try and find the optimal balance to optimize the value of the product that we're making. So particularly for ICP and for -- or the distillery and the wet mill to the extent that we can produce higher quality products or export fuel products would be the highest marginal value for those products, and they sell at a premium to -- or predominantly sell at a premium to what would be domestic fuel, even including 45

Yes. No, that's good.

Yes. I mean, clearly, back half of the year, I mean the purchases or the exports to some of those European markets were quite significant. So okay. Then I mean, I think the main question that I have is -- and this might be, Bryon, a really hard question to answer. But I mean, you've clearly raised the floor here to the business. I mean I know in the past, you had the platform when the crush is strong that you would do quite well. But conversely, when it was really tough, I mean, it would definitely show in results. I mean, is there a way to think about what the business looks like, maybe not in a worst-case scenario, but in some of the bad markets that we've seen in the past because correct me if I'm wrong, but it seems like you have -- you've raised the floor pretty meaningfully versus where it's been in the past.

Yes. So I think there's a number of factors that go into that. I think part of it is as you think back at the maturation and kind of the evolution of the company where we were originally focused around destination facilities, the brilliance in the destination was is that they're able to -- they perform really, really well when you see supply constraints, right? But they also demonstrate their vulnerability when you get an oversupplied ethanol market, which has been largely the case for most of the, call it, 18, 20 years where we've been producing over 15 billion, 14 billion gallons of capacity in the industry. So what we've been able to do is, to some degree, both through monetization and exiting certain locations, but as well then being able to shore up the financial viability of those assets with other revenue sources and be able to lower operating costs around that, you're able to take out some of the vulnerabilities around the floor in tight crush margins. And then again, the other focus in what would be the origin facilities at Pekin is around optimizing the value of those revenue streams or the value of those products that generate that revenue stream, and then being diligent and efficient about how we execute. So it's about cost management and then making sure that we're investing in projects that not only either increase revenue, but also reduce operating expenses and/or improve efficiencies as well. So if we can do all 3, that's a home run. And I think we've been able to see a lot of those benefits over the last couple of years.

Got it. And so this is -- I mean, it sounds like you'd characterize it more as -- I mean, this has been many, many, many years in the making if you've gotten rid of a lot or you've sold the 2 California plants. But then what you've done in the next -- or I'm sorry, in the last, call it, 2-plus years, you've just kind of taken it to that next level. Is that fair?

Yes, I think that's right.

And that will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Bryon McGregor for any closing remarks. Please go ahead.

Thank you, Chuck. Thanks again, everyone, for joining us to hear about our progress that we've been able to make and our initiatives for 2026. As always, we appreciate your feedback and support. Have a great day.