Good afternoon, and welcome to the Alto Ingredients Inc. Second Quarter 2024 Financial Results Conference Call. All participants are in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Kirsten Chapman with LHS Investor Relations, a division of Alliance Advisors. Please go ahead.

Thank you, and thank you all for joining us today for the Alto Ingredients second quarter 2024 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. The company has also prepared a presentation for today's call that is available on the company's website at altoingredients.com. A telephone replay of today's call will be available through August 13, the details of which are included in today's press release. A webcast replay will also be available at Alto Ingredients website. Please note that the information on this call speaks only as of today, August 6. 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 on Slide 2 of the presentation available online, 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 for income taxes, asset impairments, loss and extinguishment of debt, unrealized derivative gains and losses, acquisition-related expense and depreciation and amortization. To support the company's review of any non-GAAP information a reconciling table was included in today's press release. On today's call, Bryon will provide a review of our strategic plan and activities and Rob will comment on our financial results. Then Bryon will wrap up and open the call for Q&A. It is now my pleasure to introduce Bryon McGregor. Please go ahead, sir.

Thank you, Kirsten. We welcome our investors, valued customers and other stakeholders joining us today. The Pekin campus has been producing alcohol for over 150 years through many market cycles, and we will continue to produce well into the future. Over the last few years, we've been leaning on our strong balance sheet by utilizing cash flow from operations and excess liquidity to fund capital upgrades in repair and maintenance to strengthen our facilities and to improve our long-term profitability. While these additional expenses can impact our short-term results, our recent efforts are beginning to yield operational improvements, and we are confident we will reap long-term benefits. In Q2, our initiatives increased production in our Pekin campus, positioning us to benefit from improving ethanol margins. These efforts further demonstrate the advantages of our production facilities located there, including the ability to operate profitably on a consistent basis. More specifically in Q2, even with over $5 million relating to spring outages, our Pekin campus generated over $10 million of gross profit, up from over $4 million in Q1, reflecting these programs and higher crush margins in June. In Q2 2024 the average Chicago crush margin increased to $0.21 per gallon compared to just above breakeven in Q1 2024. In July, the average Chicago crush margin rose further to $0.48 per gallon. These improvements align with the optimism we expressed on our Q1 call regarding strengthening crush margins, solid corn supplies and growing export demand. Assuming margins remain strong, we expect to deliver solid financial results in Q3. That said, our consolidated Q2, 2024 net loss and adjusted EBITDA were negatively impacted by the cost of our biannual wet mill outage, preventative repairs and maintenance at all our facilities, lower feed and carbon prices, particularly with respect to our Columbia facility and realized losses on hedging activities. Rob will discuss our financial results in greater detail in a moment. To generate more sustainable profitability in the long-term, we've been actively expanding our revenue streams. I'll review our operations and strategic initiatives, beginning with carbon capture and storage, or CCS. We'll expect that the regulatory developments in carbon market fluctuations will affect this initiative on an ongoing basis. Most recently, Illinois signed into law the SAFE CCS Act on July 18, establishing stringent safety, financial and insurance requirements on carbon dioxide pipelines. This act also imposes a moratorium on construction of new carbon pipelines until the federal Pipeline and Hazardous Materials Safety Administration finalizes its new safety rules or July 1, 2026, whichever occurs sooner. This timing aligns with our current proposed CCS project permitting and construction schedules. We believe the act will add clarity for the industry on CCS projects, although we do anticipate increased compliance and other requirements. The CCS market also remains dynamic. For instance, on the economic front, current prices in the low carbon fuel standard markets are at historic lows and voluntary carbon markets are nascent. As such, it is difficult to project with certainty beyond the value of the 45Q tax credits that began at $85 a metric ton with the dollar values of the associated environmental attributes will be over the life of our proposed CCS project. Given our plans to take a capital-light approach to this project, we need to align Alto and its various partners, resources to best bear the various risks while retaining the appropriate financial benefits. Given these evolving dynamics, it's important that we bring the right partners to the table, and we believe we're doing so effectively as we continue to work collaboratively with Vault and other parties. Moving to operations. As previously discussed, we conducted our biannual wet mill repairs and maintenance outage at Pekin campus in April. This scheduled outage was completed on time within budget and is now demonstrating improvements over prior operational performance. For example, we increased production at the wet mill improving capacity utilization while reducing our fixed cost per unit. The Pekin campus is now fully operational and taking advantage of the summer driving season economics. We remain on track to achieve 90 million gallons or more of specialty alcohol sales in 2024. We are encouraged by the demand from existing and new customers. We're capitalizing on our proximity to the river, which gives us access to the Gulf and the ability to export product. We're building a second loading dock in our Pekin campus that will increase barge volume, reduce our overall transportation costs and provide critical redundancy. We expect the cost of the second dock to be less than $3 million. Now let's pivot to review our Western plants. We built these facilities at a time when destination plans delivered a solid and differentiated value proposition. As competition in corn basis increased and carbon values declined, we began investing in these plants to broaden our revenue streams and improve profitability. Ultimately, our goal is to optimize their value, which could include operating them long-term as part of our portfolio of production assets or evaluating the sale of one or both plants. At Magic Valley, we continue to work with our high-protein system vendor, Harvest Technology to produce increased levels of corn oil into higher protein feed products that garner higher prices. In January of this year, we had hot idled the plant due to negative regional crush margins and to address the excess water and mass balance challenges that inhibited our ability to operate the plant at capacity and to achieve the target results from our corn oil and high-protein system. We made significant modifications that included the installation of additional equipment and adjustments to the design process flows. Also in Q2 to optimize plant efficiency upon restart, we accelerated routine maintenance activities, including tuning other major plant equipment and operating systems, performing routine cleanings and flushing prior process residuals. We resumed operations in early July and are encouraged by the initial results. We expect to increase production rates in the coming weeks as we complete the system upgrades. We intend to do so carefully to ensure that processes remain balanced and our products meet quality expectations. We anticipate having a clearer picture with respect to the effectiveness of the system modifications and the general performance of the plant later this summer. In Q2, we significantly improved the production rates at our Columbia plant by addressing centrifuge limitations we experienced in Q1. As a result, we increased capacity utilization rates in Q2 and anticipate further improvements as the summer driving season continues. We're currently working on other ways to improve the facility's profitability and hope to share more information with you over the coming quarters. Before I turn the call to Rob, I'd like to note that customers have indicated their support of our efforts to continue to improve our sustainability and lower our carbon footprint. In July, our ICP and Pekin plants received the 2024 Bronze Medal sustainability rating from EcoVadis, which honors the top 35% of companies assessed. EcoVadis is a globally recognized business sustainability rating service that sets corporate sustainability standards.

Thanks, Bryon. I'll review the financial results for the second quarter of 2024 compared to the second quarter of 2023. During Q2, 2024, we sold 95.1 million gallons, relatively consistent with 94.4 million gallons sold during Q2 of 2023. However, due to lower market prices in 2024, Q2, 2024 net sales were $236 million compared to $317 million in Q2, 2023. Although ethanol prices decreased, crush margins remained consistent; therefore, lower ethanol prices did not materially impact gross profit. In fact, during Q2 2024, our Pekin campus contributed over $10 million to gross profit even after considering its average costs, loss production margins and derivative losses. Total gross profit for the quarter was $7.6 million, down $9.6 million from Q2, 2023, yet up over $10 million from Q1, 2024. Various factors impacted our gross profit and bottom line results while our essential ingredients return improved 46% in Q2 of 2024 compared to 38% a year ago, revenues decreased in Q2 in 2024 compared to Q2 2023. This is largely the result of a compression on protein prices due to an increase in soybean meal supply, a consequence of production growth in soy crush, driven by the demand for renewable diesel. Next, renewable fuel revenue and bottom line results at our Columbia plant were negatively impacted by historic low carbon market pricing. Additionally, as Bryon outlined on our last call, in Q2 we completed repairs and maintenance initiatives, including our Pekin wet mill outage to improve our operational performance heading into Q3. It's important to note that costs associated with wet mill outages are more substantial than those for dry grind facilities due to the nature and extent of the maintenance activities, the extended downtime required and the opportunity costs. The biannual outage cost $3.6 million and the planned ICP outage cost $1.8 million in Q2, 2024. This does not include lost revenue associated with approximately 3.5 million fewer production gallons. During Q2, on a consolidated basis, we recorded $11.3 million in repairs and maintenance expense, including a portion of the outage costs, and we remain on track for our 2024 estimate of $34 million in total repairs and maintenance expense for all plants. Finally, realized derivative losses for Q2 of 2024 were $2.9 million compared to $5.5 million in realized derivative gains for the same quarter in 2023. As covered previously, we employ a variety of risk management strategies to mitigate the price volatility of different commodities throughout the year as a normal course of business. Our consolidated net loss for Q2 2024 was $3.1 million compared to net income of $7.6 million in Q2 of 2023. Adjusted EBITDA for Q2 2024 was negative $5.9 million, including $3.6 million in costs related to our wet mill outage and the $2.9 million in realized losses on derivatives. This compares to positive adjusted EBITDA of $14 million, including $5.5 million in realized derivative gains in Q2 2023. As of June 30, our cash balance was $27 million, and our total loan borrowing availability was $95 million, including $30 million under our operating line of credit and $65 million subject to certain conditions under our term loan facility. In Q2 2024, we used $13.7 million in our operating activities, bringing the year-to-date total to a net use of $12.3 million. We invested $4.7 million in CapEx, bringing the year-to-date total to $9.3 million, in line with our $25 million plan for 2024. As Bryon noted, we are pleased with the margins in July and if they remain strong, and we continue to meet our production targets, we expect to deliver positive adjusted EBITDA for Q3.

Thank you, Rob. We've been executing our plan to improve our profitability and leverage our strengths and opportunities. The major planned outages we completed in the second quarter positioned us to benefit from positive crush margins in the second half of 2024. We're excited to see our initiatives come to fruition, bolstering our ability to continue to serve our customers for many years to come. Operator, we're ready to begin Q&A.

We will now begin the question-and-answer session. Your first question comes from Sameer Joshi with H. C. Wainwright.

Good afternoon, guys. Thanks for taking my questions. Let me start with the last point you discussed about the CapEx of $25 million on target or in line with the guidance. So far, you have spent $9.3 million. What is the rest of the CapEx slated for this second half?

Yes, sure. We've got a variety of different CapEx projects that we've reviewed and approved, and we have planned for later this year. I will note that we've spent less year-to-date, but there is also more spend slated in the second half of 2024.

Any particular areas you're focused on for that?

A lot of the areas involve the things that we talked about before, increasing plant efficiencies, upgrading various systems, things like that.

Would also include the $3 million for the new pipeline. The new loading facility.

Right. The new alcohol dock, yes.

Got it. And then these various upgrades that are being done, and you talked about increasing capacity utilization at each – as a result of each of these maintenance and upgrades. Can you quantify it? Like what levels were you achieving before? And what are the expected levels for Q3 and Q4 of utilization at these plants?

So Sameer, it depends on what we're talking about, and that's why we didn't provide specific details in the prepared remarks. Overall, we’re seeing improvements of somewhere between 10% and 15% from production prior to the event. As an example, we’ve seen about a 10% improvement in ethanol production. Overall, that would include both specialty and fuel; we've seen up to 15% improvements in essential ingredients. A lot of our quality essential products that come out, including yeast that comes out of the wet mill. Overall, very pleased. And we hope to see continued improvement in that over the coming period.

Thanks for that clarification. And then just one clarification, maybe the OpEx was up slightly. I know that these other costs have not run through the OpEx line, but was there a reason for this slight bump in OpEx?

Yes. We are here, sorry. I mean there's a lot going into the other OpEx category. One of the things to note is until we've officially approved the path forward related to our carbon capture and storage project, some of the upfront costs run through that line item.

Some upfront costs, okay about it. Thanks.

That activity clearly picked up. Yes, Sameer sorry, that activity has clearly picked up year-over-year. And so that would account for a material portion of it.

Thanks. I'll take my other questions offline. Thanks.

Okay. Thanks, Sameer.

Thank you.

Your next question comes from Eric Stine with Craig-Hallum Capital Group.

Hi, Bryon. Hi, Rob.

Hey, Eric.

So just on carbon capture. I can appreciate the timeline in July 1st of 2026 and how that matches up. But I also know there are a number of steps that were targeted kind of in the interim. So just curious how you think about that, how your partners are thinking about that, the various steps, whether it's the Class 6 permit, negotiating with those financing partners and thinking about an investment in your region versus maybe some other region where they're not running into the same issues. So just some thoughts on that would be great.

Sure. As I mentioned in our prepared remarks, we think that we picked the right partners. We're working diligently ahead. They've been very collaborative and cooperative, clearly having to address issues as they arise. In the capital-light approach, there are risks and adjustments that you need to make that you would otherwise not need to make if you were just doing it all on balance sheet. I think that we have those parties that are there and are best suited to be able to handle those risks, but it's also doing it in an organized way so that you are not assuming risks that you otherwise don’t need to take beforehand. For example, if you think about the Class 6 permit, that's a two-year program, right, at a minimum from EPA. You have to make decisions as to when you want to start your purchasing for compression. Do you start right out of the box and order that before you have your Class 6 permits? Or do you wait until you've got your Class 6 permit approved and submitted and awaiting final approval? Those are all the things that are going into consideration. There are a number of parties out there willing to sell as an example, carbon credits or environmental attributes well in advance to finance their terms. Is that the appropriate approach? And are you giving up too much? Or do you try to retain those values and wait for those to come in the future? Those are a few things that come into the calculus when you're working through this process. So it's in balance of risk and return.

Sure. I mean but net effect, you do feel comfortable with Vault or some of the financial partners you are in negotiations with that those are the right parties that are willing to deal with the needed flexibility just given the situation?

Correct.

Okay. All right. I appreciate that. And then maybe just turning to Magic Valley, so good to hear that you've got the restart, and it's been going for, what, a month or so. Just curious like what – it sounds like you've taken the right approach to be measured in it, but what do you kind of need to see to where you're convinced that you're on the right track? And does this push out a little bit the decision in terms of maybe rolling this technology out to other plants?

So we are pleased with what we've seen so far from the steps we took to expand and add additional equipment to be able to give additional leniency into the process so that you don't have to have everything aligned fully all the time. We are currently running at around 70% of capacity today. To achieve what we would define as successes is to be able to achieve maximum capacity compared to before we implemented the project and be able to achieve the goals and targets we had established with Harvest Technology to put that system into place. With regards to other applications within our portfolio of assets, it's still an open option, but we think it's prudent to be measured and to see the success, not only because we've been waiting a long time but to show investors the results of this investment. We want to see that through before we make any comments or decisions regarding what we're going to do going forward at our other sites.

Okay. Thanks a lot.

Thanks, Eric.

Your next question comes from Justin Dopierala with DOMO Capital.

Hi, guys. Thanks for taking my questions.

Hello, Justin.

Hi. Just to tack on to that last thing. In the prepared remarks, you mentioned that you're expecting a Magic Valley update later this summer. Is that something that would be prior to your next earnings call then?

It's a good question. Well – to the extent that there's material disclosure, yes, we'll make sure that we do that. Otherwise, it may line out appropriately with the third quarter call. If you think about it, you're not only talking about reaching capacity but also placing your product and getting the penetration you were hoping for regarding higher proteins and corn oil. So whether it's, I guess what we'd like to say is let's play it by ear, but we'll ensure that we provide information as appropriate.

Okay. And I imagine the success of that would probably go a long way towards your ability to monetize the Western assets as well. Would that be fair to say?

Well, it certainly wouldn't hurt.

Absolutely. You highlighted…

It hasn't hurt us either to have that asset on, right? I mean these are unique assets. So that we maximize value for shareholders, whether it's whichever way it is.

Okay. And you highlighted the shutdown costs of Pekin. I was wondering if you could quantify the impact of Magic Valley being idled as well as far as that Western gross margin?

Yes. We don't typically provide those levels of specifics. But if you recall, we chose to bring the plant down earlier this year when the crush margin environment was less favorable. And so in large, that kind of offset our operating losses, which underscores the reason why we're incorporating this technology, which is to improve our profitability and crush margins in more challenging market environments. So it's kind of hard to quantify the lost opportunity cost in that case.

Got it. And I guess just my last question for you guys is, as you noted, in July, crush margins have doubled. So I am a little bit surprised by your guidance of positive adjusted EBITDA versus coming out and announcing or guiding towards positive net income. Are there any major Q3 uncapitalized costs we should be aware of? Or are you guys just being ultra-conservative?

I'll take that one. Yes, I mean, Justin, we try to be conservative but also transparent in what's going on. In our comments stem from July being behind us now and us being pleased with the financial results. As we stated on the call, as long as our crush margins remain strong, and we continue to produce at the levels we are, it should be a very favorable quarter.

Okay. Thank you.

Keep in mind, we operate in the commodity markets. And so things ebb and flow.

And there are some things that are beyond the impact of net income that you may or may not be able to control, as an example, your realized gains and losses and unrealized gains and losses in derivatives and the like. So it probably falls into the conservative CAM – has under promise, over deliver.

All right. Hold you to it.

I know you will...

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

Thank you, and thanks, everyone, for joining us today. In September, we hope to see you at the H.C. Wainwright Annual Conference. We appreciate your ongoing feedback and support. Have a good day.

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