Alto Ingredients, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. This report and our consolidated financial statements and notes to consolidated financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might earn if we are successful in implementing our business and growth strategies. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors, including: ● fluctuations in the market prices of alcohols and essential ingredients; ● fluctuations in the costs of key production input commodities such as corn and natural gas; ● our ability to fund, and the costs, timing and effects of, our plant improvement initiatives and other capital projects, including our carbon capture and storage, or CCS, initiative; ● regulatory developments relating to our initiatives and projects or to our business, including our CCS initiative; ● the projected growth or contraction in the alcohol and essential ingredients markets in which we operate; ● our strategies for expanding, maintaining or contracting our presence in these markets; ● anticipated trends in our financial condition and results of operations; and ● our ability to distinguish ourselves from our current and future competitors. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of a document incorporated by reference, as of the date of that document. We do not undertake to update, revise or correct any forward-looking statements, except as required by law. Any of the factors described immediately above or referenced from time to time in our filings with the Securities and Exchange Commission or in the “Risk Factors” section below could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. Overview We are a leading producer and distributor of specialty alcohols, renewable fuels and essential ingredients in the United States. We operate five alcohol production facilities. Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho. We have an annual alcohol production capacity of 350 million gallons, including both renewable fuels and specialty alcohols ranging from industrial-, pharmaceutical-, and high-quality food- and beverage-grade alcohols. Of this amount, we can produce up to 110 million gallons annually of specialty alcohols, depending on our product mix among high-quality beverage-grade alcohol and other quality specification alcohols. We market and distribute all of the alcohols produced at our facilities as well as alcohols produced by third parties. In 2024, we marketed and distributed approximately 386 million gallons combined of our own produced alcohols as well as fuel-grade ethanol produced by third parties, and over 1.4 million tons of essential ingredients on a dry matter basis. - 17 - We also own and operate a liquid CO 2 production facility adjacent to our plant in Oregon for the offtake of CO 2 gas from the plant for conversion to liquid CO 2 and subsequent sale. In addition, we break bulk distribute specialty alcohols, produced by us and third parties, through our Eagle Alcohol business. We report our financial and operating performance in three distinct segments: ● Pekin production , which includes the production and sale of alcohols and essential ingredients produced at our three production facilities located in Pekin, Illinois, which we refer to as our Pekin Campus; ● Marketing and distribution , which includes marketing and merchant trading for company-produced alcohols and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced from third parties; and ● Western production , which includes the production and sale of renewable fuels and essential ingredients and, beginning in 2025, liquid CO 2 produced at our western production facilities, including our liquid CO 2 plant, on an aggregated basis, none of which are individually so significant as to be considered a separately reportable segment. Our mission is to produce the highest quality, sustainable ingredients that make everyday products better. We intend to accomplish this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream. Production Segments We produce specialty alcohols, renewable fuels and essential ingredients, focusing on five key markets: Health, Home & Beauty ; Food & Beverage ; Industry & Agriculture ; Essential Ingredients ; and Renewable Fuels . Products for Health, Home & Beauty markets include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar and corn germ used for corn oils. Products for Industry & Agriculture markets include alcohols and other products for paint applications and fertilizers. Products for Essential Ingredients markets include dried yeast, corn protein meal, corn protein feed, corn germ, distillers grains, liquid CO 2 and liquid feed used in commercial animal feed and pet foods. We also sell yeast and liquid CO 2 for human consumption. Our products for the Renewable Fuels markets include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels. We produce our alcohols and essential ingredients at our facilities described below. Our production facilities located in Illinois are in the heart of the Corn Belt, benefit from relatively low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, product transportation cost and logistical advantages. - 18 - All of our production facilities, other than our Magic Valley plant, were operating for all of 2024, subject to scheduled and unscheduled downtimes to address facility repair and maintenance. In January 2024, we temporarily hot-idled our Magic Valley facility to minimize losses from negative regional crush margins and to expedite the installation of additional equipment to achieve the intended production rate, quality and consistency from our corn oil and high protein system at the facility. We restarted our Magic Valley facility in July 2024 and by October 2024, the facility consistently achieved average ethanol production rates at full capacity, the protein content yield from the plant reached 50% or greater, and we were able to expand our corn oil yields. Increases in regional corn basis and declining market prices for protein and corn oil resulted in overall margin compression, outweighing the economic benefits of our plant improvements. As a consequence, we cold-idled our Magic Valley facility on December 31, 2024 to minimize financial losses. We continue to provide terminal services at the plant and intend to resume operations at the facility when the economic environment in the region sustainably improves. We believe that the cold-idling of our Magic Valley facility will have a positive impact on our overall financial results in 2025 compared to 2024. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility. Marketing and Distribution Segment We market and distribute all the alcohols and essential ingredients we produce at our facilities. We also market and distribute alcohols produced by third parties. We have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols, renewable fuels and essential ingredients. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms. Our renewable fuels customers are located throughout the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery. Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities. We secure additional fuel-grade ethanol supplies from third-party ethanol producers. We arrange for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest from a variety of sources. We market food-grade essential ingredients to human and pet food markets, our feed products (such as distillers grains) primarily to export markets from our Pekin Campus, and other feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry, renewable diesel and biodiesel customers. See “Note 3 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. Current Initiatives and Outlook Our first quarter results for 2025 improved compared to the same period in 2024, as reflected in part by better gross margin and Adjusted EBITDA. Adjusted EBITDA improved to negative $4.4 million for the first quarter from negative $7.1 million for the same period in 2024. Adjusted EBITDA is defined and reconciled against consolidated net loss below. These results include a savings of $4.8 million due to the cold-idling of our Magic Valley plant at the end of the fourth quarter. These results also reflect our operational uptime and our carbon optimization initiative, which was driven by our acquisition on January 1, 2025 of a beverage-grade liquid CO 2 processing plant adjacent to our Columbia facility. The combined ownership of our Columbia assets contributed $2.9 million of improvement to our Adjusted EBITDA for the first quarter and has enabled synergies, allowing for reduced management and staffing costs while enhancing operational coordination and overall productivity across the combined site. We continue to optimize these assets, which should facilitate additional benefits, such as longer-term feed sales commitments and expanded premium liquid CO 2 sales. As anticipated, this acquisition improved our Columbia facility’s economics and increased its asset valuation. During the first quarter, we continued our efforts to rationalize our business and right size our staffing to better align with our current operational footprint. During the fourth quarter and into the first quarter, we reduced headcount by a total of 16%. As a result, we expect to save approximately $8 million annually, with the financial benefit starting in the second quarter. We have completed our planned reorganization but will continue to evaluate opportunities to reduce expenses. We are prioritizing quick-return projects, including water and energy optimization, that would reduce utility costs and lower our carbon footprint. Our Pekin Campus’s results for the first quarter illustrate our ability to quickly shift production to capitalize on favorable market trends. For example, to diversify our revenue streams, we earned International Sustainability and Carbon Certification, or ISCC, in the third quarter and in the fourth quarter began exporting qualified renewable fuel to European markets. This certification has enabled us to access higher margin sales compared to domestic markets. During the first quarter, we experienced solid demand for ISCC certified renewable fuel priced at a premium to domestic fuel-grade ethanol. In the first quarter, we also grew ISCC sales as a percentage of our total renewable fuel volume sold from our Pekin Campus. As a result, ISCC sales partially offset some domestic market challenges. - 19 - Premiums on domestic high quality alcohol for the first quarter were generally lower than in the same period in 2024 due to increased competition in the marketplace. In addition, prices for essential ingredients declined as a result of higher industry supply from increased soy crush to support renewable diesel fuel demand. In late March and early April, we completed our scheduled seasonal outages at our Pekin Campus facilities. The repairs and maintenance successfully achieved our goal of sustaining the improved plant utilization rates set last year following our biennial outage in the second quarter of 2024. Unfortunately, in early April, during a period of rapidly rising river levels, our Pekin Campus loadout dock was damaged, negatively impacting production, logistics and overall Pekin Campus economics. In response, we implemented temporary solutions and we are now back to full operation. We are assessing our long-term remediation options and we are also working with our insurance carrier to mitigate the financial impact of the damage and the interruption to our business. Thus far in 2025, we have experienced typical seasonal market patterns with spreads between corn and ethanol prices comparable year over year. These crush margins improved sequentially each month during the first quarter and have further improved in April as a result of lower production rates associated with industry-wide scheduled springtime plant outages. Despite these improvements, margin expansion remains largely restrained due to high industry inventory levels with production outpacing demand. Absent a meaningful reduction in ethanol supply or a relative increase in demand, substantial crush spread improvements may be constrained. Although we remain optimistic that margins will continue to improve with higher demand during the summer driving season, we have concerns over tariffs and restrictions on Chinese vessels, introducing greater uncertainty around the export market. While these factors are largely beyond our control, we will continue our efforts to minimize their impact on our business. Nevertheless, as noted above, we have experienced solid exports in the first quarter from our ISCC sales into European markets. The Environmental Protection Agency, or EPA, issued a recent E15 fuel waiver allowing higher blending rates for an extended period through May 20 th . Although this is a temporary waiver, we expect the EPA to issue new waivers to permit E15 blending through summer. We are also optimistic that pending national legislation will pass later this year resulting in long-sought after permanent year-round E15 adoption nationwide. In addition, there is growing support for E15 adoption in California. The California Assembly recently passed a bill aimed at accelerating the approval process for E15 fuel blends. Moreover, California’s Governor Newsom has directed the California Air Resources Board to expedite its review, citing potential benefits such as lower gas prices and reduced emissions. According to the latest Energy Information Administration reports, California’s 13.4 billion gallons of annual fuel consumption represents 11.6% of national volume. A five-percentage point increase in ethanol blending from 10% to 15% in California alone could result in an additional 670 million gallons sold annually. Further, national adoption of year-round E15 blending could boost ethanol demand by an estimated 5 to 7 billion gallons. Since the U.S. has approximately 18 billion gallons of ethanol production capacity and domestic demand is approximately 14.4 billion gallons, the national adoption of year-round E15 blending combined with strong exports would utilize, over time, much of the excess production capacity and produce greater margin stability. Beyond supply and demand considerations, we also believe that year-round E15 adoption would have positive economic and environmental impacts, such as reducing greenhouse gas emissions, supporting farmers and lowering fuel costs for consumers. Senate Bill 1723 in Illinois is under consideration to prevent CO 2 sequestration activity that overlies, underlies or passes through a sole-source aquifer. This would include the Mahomet Aquifer, which underlies multiple counties across Illinois including an area currently contemplated for storage in our Class VI permit application for our CCS initiative. Together with our CCS partner, Vault 44.01, and other potentially affected parties, we are working with elected officials to address concerns to minimize or eliminate the potential legal impact of this legislation on our CCS initiative. We are also developing alternatives to ensure that we optimize the value of our CO 2 production despite the outcome of this legislation, including the potential relocation of our proposed CO 2 storage location. In addition, we are working with leaders in Illinois on Senate Bill 41, named the Clean Transportation Standard Act, to develop clean ground transportation standards to reduce the lifecycle carbon intensity of fuels that are similar to the standards adopted on the West Coast. We continue to execute our long-term plan to diversify revenue and mitigate the volatility of commodities. We have leveraged our plant flexibility and our efforts are working. New initiatives in beverage-grade CO 2 and ISCC qualified renewable fuel have been economically beneficial. Additionally, our efficiency measures have reduced our expense run rate going forward. Although the regulatory environment remains dynamic, there are encouraging developments, including the increasing state and potential national adoption of year-round E15 blending. Also, as noted above, the Illinois Clean Transportation Standard Act presents exciting possibilities that could further support industry growth and innovation. Our team will continue to proactively evaluate alternatives for new revenue streams and value, leverage our flexible and unique plant assets, and work to drive long-term shareholder value on a sustainable, consistent basis. Use of Non-GAAP Financial Measures Management believes that certain financial measures not in accordance with generally accepted accounting principles, or GAAP, are useful measures of operations. Management provides EBITDA and Adjusted EBITDA as non-GAAP financial measures so that investors will have the same financial information that management uses, which may assist investors in properly assessing our performance on a period-over-period basis. - 20 - We define EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, provision for income taxes and depreciation and amortization expense. We define Adjusted EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, unrealized derivative gains and losses, acquisition-related expense, asset impairments, provision for income taxes and depreciation and amortization expense. A table is provided below to reconcile Adjusted EBITDA to its most directly comparable GAAP measure, consolidated net income (loss). EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP and should not be considered as alternatives to consolidated net income (loss) or any other measure of performance under GAAP, or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Information reconciling forward-looking EBITDA or Adjusted EBITDA to forward-looking consolidated net income (loss) would require a forward-looking statement of consolidated net income (loss) prepared in accordance with GAAP, which is unavailable to us without unreasonable effort. We are not able to provide a quantitative reconciliation of forward-looking EBITDA or Adjusted EBITDA to forward-looking consolidated net income (loss) because certain items required for reconciliation are uncertain, outside of our control and/or cannot reasonably be predicted, such as net sales, cost of goods sold, unrealized derivative gains and losses, asset impairments and provision (benefit) for income taxes, which we view as the most material components of consolidated net income (loss) that are not presently estimable. Reconciliation of Adjusted EBITDA to Consolidated Net Loss Three Months Ended March 31, (in thousands) (unaudited) 2025 2024 Consolidated net loss $ (11,679 ) $ (11,725 ) Adjustments: Interest expense, net 2,729 1,634 Interest income (84 ) (175 ) Unrealized derivative gains (1,634 ) (3,190 ) Acquisition-related expense — 675 Depreciation and amortization expense 6,266 5,728 Total adjustments 7,277 4,672 Adjusted EBITDA $ (4,402 ) $ (7,053 ) Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses for each period. We believe that of our significant accounting policies, the following critical accounting policies and estimates are those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain: accounting for business combinations; revenue recognition; impairment of long-lived assets; valuation allowance for deferred taxes and derivative instruments. Except as noted below, these significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2024. Results of Operations Selected Financial Information The following selected financial information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report. - 21 - Certain performance metrics that we believe are important indicators of our results of operations: Three Months Ended March 31, (unaudited) 2025 2024 Alcohol Sales (gallons in millions) Pekin Campus renewable fuel gallons sold 32.6 31.8 Western production renewable fuel gallons sold 8.3 11.2 Third party renewable fuel gallons sold 24.4 29.7 Total renewable fuel gallons sold 65.3 72.7 Specialty alcohol gallons sold 24.3 26.3 Total gallons sold 89.6 99.0 Sales Price per Gallon Pekin Campus $ 1.90 $ 1.90 Western production $ 1.95 $ 1.80 Marketing and distribution $ 2.01 $ 1.83 Average sales price per gallon $ 1.93 $ 1.86 Alcohol Production (gallons in millions) Pekin Campus 54.3 53.6 Western production 8.3 9.7 Total 62.6 63.3 Corn Cost per Bushel Pekin Campus $ 4.65 $ 4.73 Western production $ 5.95 $ 5.89 Average corn cost per bushel $ 4.81 $ 4.92 Average Market Metrics PLATTS Ethanol price per gallon $ 1.71 $ 1.56 CME Corn cost per bushel $ 4.72 $ 4.35 Board corn crush per gallons (1) $ 0.02 $ 0.01 Essential Ingredients Sold (thousand tons) Pekin Campus: Distillers grains 90.7 87.7 CO2 45.3 39.1 Corn wet feed 34.5 25.6 Corn dry feed 23.8 18.9 Corn oil and germ 19.6 17.8 Syrup and other 8.2 9.5 Corn meal 9.4 8.3 Yeast 6.4 5.7 Total Pekin Campus essential ingredients sold 237.9 212.6 Western production: Distillers grains 58.1 71.8 CO2 12.6 13.3 Syrup and other 0.8 14.2 Corn oil 1.4 1.5 Total Western production essential ingredients sold 72.9 100.8 Total Essential Ingredients Sold 310.8 313.4 Essential ingredients return % (2) Pekin Campus return 48.0 % 52.1 % Western production return 49.0 % 39.3 % Consolidated total return 48.2 % 49.8 % (1) Assumes corn conversion of 2.80 gallons of alcohol per bushel of corn. (2) Essential ingredients revenues as a percentage of total corn costs consumed. - 22 - Net Sales, Cost of Goods Sold and Gross Loss The following table presents our net sales, cost of goods sold and gross profit (loss) in dollars and gross profit (loss) as a percentage of net sales (in thousands, except percentages): Three Months Ended March 31, Change in 2025 2024 Dollars Percent Net sales $ 226,540 $ 240,629 $ (14,089 ) (5.9 )% Cost of goods sold 228,347 243,029 (14,682 ) (6.0 )% Gross loss $ (1,807 ) $ (2,400 ) $ (593 ) (24.7 )% Percentage of net sales (0.8 )% (1.0 )% Net Sales The decrease in our consolidated net sales for the three months ended March 31, 2025 as compared to the same period in 2024 is attributable to fewer total gallons sold as well as lower volumes and lower average sales prices of essential ingredients due to a lower commodity price environment, partially offset by an increase in our average sales prices per gallon for both specialty alcohols and renewable fuel. Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment declined by $1.2 million, or 1%, to $107.2 million for the three months ended March 31, 2025 as compared to $108.4 million for the same period in 2024. Our total volume of production gallons sold decreased by 0.7 million gallons, or 1%, to 56.5 million gallons for the three months ended March 31, 2025 as compared to 57.2 million gallons for the same period in 2024. The segment’s average sales price per gallon remained flat for the three months ended March 31, 2025 as compared to the same period in 2024. With the segment’s average sales price per gallon of $1.90 for the three months ended March 31, 2025, we generated $1.2 million less in net sales from the 0.7 million fewer gallons of alcohol sold in the three months ended March 31, 2025 as compared to the same period in 2024. Net sales of essential ingredients from our Pekin Campus production segment declined by $2.1 million, or 4%, to $44.6 million for the three months ended March 31, 2025 as compared to $46.7 million for the same period in 2024. Our total volume of essential ingredients sold increased by 25,300 tons, or 12%, to 237,900 tons for the three months ended March 31, 2025 from 212,600 tons for the same period in 2024. The decrease of $32.15, or 15%, in the segment’s average sales price per ton for the three months ended March 31, 2025 as compared to the same period in 2024 reduced our net sales from the segment by $6.8 million. With the segment’s average sales price per ton of $187.55 for the three months ended March 31, 2025, we generated $4.7 million more in net sales from the 25,300 additional tons of essential ingredients sold in the three months ended March 31, 2025 as compared to the same period in 2024. Marketing and Distribution Segment Net sales of alcohol from our marketing and distribution segment, excluding intersegment sales, declined by $5.4 million, or 10%, to $49.1 million for the three months ended March 31, 2025 as compared to $54.5 million for the same period in 2024. Our volume of third-party alcohol sold reported gross by the segment declined by 5.3 million gallons, or 18%, to 24.4 million gallons for the three months ended March 31, 2025 as compared to 29.7 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $2.01 for the three months ended March 31, 2025, we generated $10.6 million less in net sales from the 5.3 million fewer gallons of third-party alcohol sold gross in the three months ended March 31, 2025 as compared to the same period in 2024. - 23 - The $0.18 per gallon, or 10%, increase in the segment’s average sales price per gallon for the three months ended March 31, 2025 as compared to the same period in 2024 resulted in a $5.2 million increase in our net sales from third-party fuel-grade ethanol sold by the segment. Western Production Segment Net sales of alcohol from our Western production segment declined by $4.0 million, or 20%, to $16.2 million for the three months ended March 31, 2025 as compared to $20.2 million for the same period in 2024. Our total volume of alcohol sold decreased by 2.9 million gallons, or 26%, to 8.3 million gallons for the three months ended March 31, 2025 as compared to 11.2 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $1.95 for the three months ended March 31, 2025, we generated $5.6 million less in net sales from the 2.9 million fewer gallons of alcohol sold in the three months ended March 31, 2025 as compared to the same period in 2024. However, the increase of $0.15, or 8%, in the segment’s average sales price per gallon for the three months ended March 31, 2025 as compared to the same period in 2024 increased our net sales from the segment by $1.6 million. Net sales of essential ingredients from our Western production segment remained flat at $7.8 million for the three months ended March 31, 2025 and 2024. Our total volume of essential ingredients sold decreased by 27,900 tons, or 28%, to 72,900 tons for the three months ended March 31, 2025 from 100,800 tons for the same period in 2024. With the segment’s average sales price per ton of $107.11 for the three months ended March 31, 2025, we generated $2.9 million less in net sales from the 27,900 fewer tons of essential ingredients sold in the three months ended March 31, 2025 as compared to the same period in 2024. However, the increase of $29.47, or 38%, in our average sales price per ton for the three months ended March 31, 2025 as compared to the same period in 2024 improved our net sales of essential ingredients from the segment by $2.9 million. Corporate and other Net sales of alcohol from corporate and other declined by $1.4 million, or 47%, to $1.6 million for the three months ended March 31, 2025 as compared to $3.0 million for the same period in 2024. These sales are from Eagle Alcohol’s business. Cost of Goods Sold and Gross Loss Our consolidated gross loss improved to a gross loss of $1.8 million for the three months ended March 31, 2025 from a gross loss of $2.4 million for the same period in 2024, representing a gross margin of negative 0.8% and 1.0% for the three months ended March 31, 2025 and 2024, respectively. Our gross loss and gross margin improved due to multiple factors, including the cold-idling of our Magic Valley facility, which reduced cost of goods sold by $10.0 million including cost savings of $4.8 million, over $1.0 million in lower repairs and maintenance expenses, premium liquid CO 2 sales from our newly acquired Alto Carbonic processing facility and other synergistic benefits totaling $2.9 million at our Columbia facility, and a $1.4 million benefit from ISCC certified renewable fuel exports priced at a premium to domestic fuel-grade ethanol, all of which were partially offset by $4.6 million in lower premiums for high quality alcohol, $3.8 million associated with lower returns on our essential ingredients, predominately from our Pekin Campus, and $1.6 million less in unrealized gains on derivatives compared to the prior year’s quarter. For the first quarter, we recorded $7.0 million in repairs and maintenance expense, in line with our full-year 2025 estimate of $32 million. Pekin Campus Production Segment Our Pekin Campus production segment’s gross profit, net of intercompany activity, declined by $7.3 million to a gross loss of $2.2 million for the three months ended March 31, 2025 as compared to a gross profit of $5.1 million for the same period in 2024. All of this decline is attributable to lower ethanol margins. - 24 - Marketing and Distribution Segment Our marketing and distribution segment’s gross profit, net of intercompany activity, improved by $1.1 million to a gross profit of $1.7 million for the three months ended March 31, 2025 as compared to a gross profit of $0.6 million for the same period in 2024. Of this improvement, $1.5 million is attributable to higher margins from sales of third-party fuel-grade ethanol, partially offset by $0.4 million attributable to lower sales volumes for the three months ended March 31, 2025 as compared to the same period in 2024. Western Production Segment Our Western production segment’s gross profit, net of intercompany activity, improved by $7.1 million to a gross loss of $1.3 million for the three months ended March 31, 2025 as compared to a gross loss of $8.4 million for the same period in 2024. Of this improvement, $6.7 million is attributable to improved renewable fuel margins and $0.4 million is attributable to lower sales volumes at negative margins of both renewable fuel and essential ingredients, both of which are primarily due to the cold-idling of our Magic Valley facility. Corporate and other Gross profit from corporate and other declined by $0.4 million to a gross loss of less than $0.1 million for the three months ended March 31, 2025 as compared to a gross profit of $0.3 million for the same period in 2024, all of which were from Eagle Alcohol’s business. Selling, General and Administrative Expenses The following table presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands, except percentages): Three Months Ended March 31, Change in 2025 2024 Dollars Percent Selling, general and administrative expenses $ 7,190 $ 7,932 $ (742 ) (9.4 )% Percentage of net sales 3.2 % 3.3 % Our SG&A expenses decreased $0.7 million for the three months ended March 31, 2025 as compared to the same period in 2024. The reduction in SG&A expenses primarily reflects the conclusion of our acquisition-related expenses for our acquisition of Eagle Alcohol. Interest Expense, net The following table presents our interest expense, net, in dollars and as a percentage of net sales (in thousands, except percentages): Three Months Ended March 31, Change in 2025 2024 Dollars Percent Interest expense, net $ 2,729 $ 1,634 $ 1,095 67.0 % Percentage of net sales 1.2 % 0.7 % - 25 - Our interest expense, net, increased for the three months ended March 31, 2025 as compared to the same period in 2024, primarily due to higher average debt balances and higher average interest rates compared to the prior year period. Net Loss Attributable to Common Stockholders The following table presents our net loss attributable to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages): Three Months Ended March 31, Change in 2025 2024 Dollars Percent Net loss attributable to Common Stockholders $ (11,991 ) $ (12,040 ) $ 49 0.4 % Percentage of net sales (5.3 )% (5.0 )% The slight decrease in net loss attributable to common stockholders is primarily due to lower SG&A expenses and lower net sales at negative margins as well as the other factors affecting gross profit discussed above, partially offset by lower premiums for high quality alcohol, lower unrealized gains on derivatives and higher interest expense, as also discussed above. Liquidity and Capital Resources During the three months ended March 31, 2025, we funded our operations primarily from cash on hand and proceeds from Kinergy’s operating line of credit. In addition to funding our operations, our capital resources were used to purchase Kodiak Carbonic and for capital expenditures. As of March 31, 2025, we had $27.2 million in cash, cash equivalents and restricted cash, $11.7 million available for borrowing under Kinergy’s operating line of credit and $65.0 million that may be available for capital improvement projects under our Orion term loan, subject to certain conditions. We believe we have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs for at least the next twelve months from the date of this report. Quantitative Year-End Liquidity Status We believe that the following amounts provide insight into our liquidity and capital resources. The following selected financial information should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report (dollars in thousands). March 31, 2025 December 31, 2024 Change Cash, cash equivalents and restricted cash $ 27,171 $ 36,211 (25.0 )% Current assets $ 153,461 $ 153,118 0.2 % Property and equipment, net $ 212,624 $ 214,742 (1.0 )% Current liabilities $ 53,116 $ 57,804 (8.1 )% Long-term debt, noncurrent portion $ 110,664 $ 92,904 19.1 % Working capital $ 100,345 $ 95,314 5.3 % Working capital ratio 2.89 2.65 9.1 % - 26 - Restricted Net Assets At March 31, 2025, we had approximately $55.6 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc. in the form of dividends, distributions, loans or advances due to restrictions contained in our subsidiaries’ credit facilities. Changes in Working Capital and Cash Flows Working capital improved to $100.3 million at March 31, 2025 from $95.3 million at December 31, 2024 as a result of a decrease of $4.7 million in current liabilities and an increase of $0.3 million in current assets. Current assets increased primarily due to an increase in accounts receivable, inventories, other current assets and derivative instruments, partially offset by a decrease in cash and cash equivalents and restricted cash. Our current liabilities decreased primarily due to lower accounts payable and accrued liabilities as a result of timing of payments, and a decrease in derivative liabilities from changes in commodity prices for open contracts. Our cash, cash equivalents and restricted cash declined by $9.0 million due to $18.2 million in cash used in our operating activities and $7.8 million used in our investing activities, partially offset by $17.0 million in cash provided by our financing activities. Cash used in our Operating Activities We used $18.2 million of cash in our operations for the three months ended March 31, 2025 as compared to $1.4 million of cash provided by our operations for the same period in 2024. Significant factors that contributed to the change in cash provided by our operating activities include: ● a decrease of $11.1 million related to lower inventories due to reduced production volumes and the timing of sales; ● a decrease of $7.7 million related to accounts receivable balances due to the timing of collections; ● a decrease of $1.7 million related to other assets, primarily due to the timing of payments on prepaid assets; and ● an increase of $1.4 million related to accounts payable and accrued expenses due to the timing of payments. These amounts were partially offset by: ● an increase of $1.6 million related to period-end commodity prices applicable to our derivative instruments. Cash used in our Investing Activities We used $7.8 million in cash during the quarter for the acquisition of Kodiak Carbonic and other capital expenditures. - 27 - Cash provided by our Financing Activities Cash provided by our financing activities was $17.0 million for the three months ended March 31, 2025, which reflects net proceeds of $17.3 million from Kinergy’s operating line of credit, partially offset by $0.3 million in preferred stock dividends paid. Kinergy’s Operating Line of Credit Kinergy maintains an operating line of credit for an aggregate amount of up to $100.0 million. The credit facility matures on November 7, 2027. Interest accrues under the credit facility at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging from 1.25% to 1.75%. The credit facility’s monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum credit under the facility exceeds the average daily principal balance during the immediately preceding month. Payments that may be made by Kinergy to Alto Ingredients, Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal quarter. The credit facility also includes the accounts receivable of our indirect wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as additional collateral. Payments that may be made by Alto Nutrients to Alto Ingredients, Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Alto Nutrients are limited under the terms of the credit facility to $0.5 million per fiscal quarter. Alto Nutrients markets our essential ingredients and also provides raw material procurement services to our subsidiaries. In addition, the amount of cash distributions that Kinergy or Alto Nutrients may make to us is also limited to up to 75% of excess cash flow. For all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and Alto Nutrients must collectively maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 1.1 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). The obligations of Kinergy and Alto Nutrients under the credit facility are secured by all of our tangible and intangible assets. We believe Kinergy and Alto Nutrients are in compliance with the fixed-charge coverage ratio financial covenant as of the filing of this report. The following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented: Three Months Ended March 31, Years Ended December 31, 2025 2024 2024 2023 Fixed-Charge Coverage Ratio Requirement 1.10 1.10 1.10 1.10 Actual 3.49 4.66 3.53 5.22 Excess 2.39 3.56 2.43 4.12 Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of March 31, 2025, Kinergy had an outstanding balance of $57.0 million and $11.7 million of unused borrowing availability under the credit facility. - 28 - Orion Term Loan On November 7, 2022, we entered into a credit agreement with certain funds managed by Orion Infrastructure Capital, or Lenders, under which the Lenders extended a senior secured credit facility in the amount of up to $125.0 million, or Term Loan. The Term Loan is secured by a first priority lien on certain of our assets and a second priority lien on certain assets of Kinergy and Alto Nutrients. Interest accrues on the unpaid principal amount of the Term Loan at a fixed rate of 10% per annum. The Term Loan matures on November 7, 2028, or earlier upon acceleration. We must prepay amounts outstanding under the Term Loan on a semi-annual basis on each June 30 th and December 31 st in an amount equal to a percentage of our excess cash flow based on a specified leverage ratio, as follows: (i) if our leverage ratio is greater than or equal to 3.0x, then the mandatory prepayment amount will equal 100% of our excess cash flow, (ii) if our leverage ratio is less than 3.0x and greater than or equal to 1.5x, then the mandatory prepayment amount will equal 50% of our excess cash flow, and (iii) if our leverage ratio is less than 1.5x, then the mandatory prepayment amount will equal 25% of our excess cash flow. No prepayment was made or required to be made for the three months ended March 31, 2025 and 2024. As of March 31, 2025 and December 31, 2024, the principal amount outstanding under the Term Loan was $60.0 million. Other Cash Obligations As of March 31, 2025, we had future commitments for certain capital projects totaling $10.8 million. These commitments are scheduled to be satisfied in 2025. In connection with our acquisition of Eagle Alcohol, contingent payments of up to $2.7 million in cash and 948,932 shares of common stock are contractually scheduled for the first half of 2025, all of which were accrued for in 2024.