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, and the availability of, and our ability to qualify for and receive, Section 45Z tax credits; ● 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. 16 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. All of our production facilities, other than our Magic Valley plant in Idaho, were operating for all of 2024 and 2025, subject to scheduled and unscheduled downtimes to address facility repair and maintenance. 17 In January 2024, we temporarily hot-idled our Magic Valley facility to minimize losses from negative regional crush margins – that is, revenue from ethanol minus the cost of corn, also referred to as market crush – 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. The cold-idling of our Magic Valley facility has had 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. 18 Financial Review, Current Initiatives and Outlook Although our net loss worsened to $11.0 million in the second quarter, primarily due to the non-cash effects of hedging activities, our Adjusted EBITDA improved by nearly $6.0 million compared to the same period in 2024, reflecting the successful execution of our initiatives to increase efficiency and productivity. The quarter-over-quarter improvement in our Adjusted EBITDA reflects the benefit of multiple initiatives. We improved our operating model company-wide by rightsizing our corporate overhead to a level that aligns with our current business footprint and we are on track to exceed our goal of saving approximately $8.0 million on an annualized basis from this initiative. We will continue to evaluate our options to improve operational efficiency and throughput, focus on growth in profitable market segments, and identify additional cost-saving opportunities that, while smaller in amount than from our recent corporate reorganization, should in the aggregate meaningfully affect our long-term profitability. In the second quarter, the annual uptick in demand from the summer driving season helped lift ethanol prices and improve crush spreads. While it is difficult to predict market fluctuations, we have seen additional spread improvement in the third quarter, with market crush averaging 30 cents per gallon for July, and we remain optimistic for positive margins through the remainder of the summer. Our Western assets turned profitable, improving gross profit by $5.6 million compared to the prior year’s quarter, driven by our CO 2 facility acquisition at the beginning of 2025 and other improvements at our Columbia ethanol plant, collectively improving gross profit by $3.0 million, as well as our decision to cold-idle our Magic Valley facility due to adverse market conditions in the region, which improved gross profit by $2.6 million. We continue to use our Magic Valley facility primarily as a terminal. Our marketing and distribution business also improved, reflecting the integration of our bulk volume customers from our Eagle Alcohol business, a fostering of third-party ethanol marketing relationships that met profitability criteria, and our transition away from business that offered limited returns. Our Pekin Campus was negatively impacted by quarter-over-quarter changes in derivatives and the continued impact of damage sustained to our loadout dock in April. However, we partially offset these effects by leveraging our operational flexibility by increasing sales of higher-margin International Sustainability and Carbon Certification, or ISCC, products exported to Europe. Given our success with these efforts, we continue to focus on shorter-term projects with more immediate returns to support our path to profitability. We intend to prioritize projects by anticipated cost, timing and return on investment. Projects under consideration include improvements to lower our carbon intensity and capture more of the Section 45Z benefits available under the Inflation Reduction Act of 2022, expansion of our CO 2 utilization at our Pekin Campus and at our Colombia facility, building on our success from our Alto Carbonic acquisition, and projects to improve our prospects to monetize our Western assets. In addition, as we did in the first and second quarters, we will continue projects to improve efficiency and productivity. Year to date, we have recorded $16 million in repairs and maintenance expense, in line with our 2025 estimate of $32 million. Working with our bankers, we continue to make progress on our plan to optimize and monetize our Western assets. We are also evaluating strategic alternatives and interest for our Pekin Campus and for the company as a whole. Illinois Senate Bill 1723, which prohibits CO 2 sequestration directly through the Mahomet aquifer, as contemplated in our Class VI permit application with the EPA for our carbon capture and storage, or CCS, project, was signed into law on August 1, 2025. We are developing alternatives with Vault 44.01, our CCS partner, and evaluating other promising, non-sequestration options to optimize the value of our CO 2 production. 19 The damage sustained by our Pekin Campus loadout dock in April due to rapidly rising river levels impacted production, logistics and overall economics for most of the second quarter. Since our last update in May, we have made progress recovering from this setback. We were able to respond quickly to take interim steps with third-party river transload vendors which, while more costly, helped minimize business interruption. In addition, we worked with our insurance carrier to confirm coverage for both property damage and business interruption. Finally, we are reviewing remediation plans with our carrier to ensure the best path forward. While we expect work to extend into next year, we intend to commence the remediation project ahead of the Midwest winter. The One Big Beautiful Bill Act made positive updates to the Section 45Z regulations, including extending tax credits through the end of 2029 as well as additional spending on farm programs, that benefit the renewable fuels industry and improve our earnings profile and the intrinsic value of our production facilities. The act also increased focus on domestic renewable fuel production and introduced new eligibility restrictions, particularly around foreign involvement. For example, only fuel derived from feedstocks grown or produced in North America is eligible for the Section 45Z tax credit. Initially, two of our plants, our Columbia plant and our Pekin dry mill, will participate in applying for Section 45Z tax credits. An additional benefit of the act is its disincentivizing exports from most dry mills, creating an opportunity for our Pekin Campus wet mill and ICP distillery to place more of our products into European markets at a premium to domestic market prices. We intend to pursue additional options to capitalize on the Section 45Z tax credits, including through improvements to our Colombia plant to increase our anticipated credit from 10 cents per gallon for 2025, based on our current carbon intensity scores, to up to 20 cents per gallon in 2026. We expect our Pekin Campus dry mill to qualify for 10 cents per gallon starting in 2026. These credit amounts, based on nameplate production capacities and carbon intensity scores, equal up to approximately $4.0 million in 2025 and $8.0 million in 2026 for which our Colombia plant may be eligible and up to $6.0 million in 2026 for which our Pekin Campus dry mill may be eligible. We plan to make improvements to our plants to increase credit amounts across all eligible facilities. One potential improvement is through low-carbon corn, which, while more expensive, may be economically beneficial to source that particular feedstock to reduce our carbon footprint. Through the two other plants at our Pekin Campus, we will continue to produce higher quality alcohol and also take advantage of ISCC export market premiums for renewable fuel as the new rules incentivize domestic ethanol sales from Section 45Z eligible dry mills. The One Big Beautiful Bill Act also seeks to positively impact farm programs by boosting sector profitability, reducing financial volatility, enhancing asset values and strengthening the overall industry safety net with the intent to improve operational stability and long-term farm enterprise value. Also contained in the act is an increase in USDA commodity reference prices and base acres. Corn will increase from $3.70 per bushel to $4.10 per bushel and soybeans will increase from $8.40 per bushel to $10.00 per bushel. Lastly, an additional 30 million base acres may now enroll in farm programs. As a result, farmers will need new and expanded markets to absorb the additional production. We believe these developments bode well for the future of higher ethanol blends and new uses of American-grown feedstocks, making the U.S. an even more attractive origin for international sourcing of ethanol and other renewable fuel products. The EPA extended E15 blending waivers nationally for the duration of the summer, offering continued support for near-term domestic ethanol blending. In California, regulatory momentum continues to build for E15 blending but full-scale implementation is still pending further administrative review and regulatory updates. In the second quarter, we finalized our Scope 1 and 2 greenhouse gas verifications and submitted our 2025 EcoVadis scorecard. 20 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. 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 income and 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 June 30, Six Months Ended June 30, (in thousands) (unaudited) 2025 2024 2025 2024 Net loss $ (10,997 ) $ (3,106 ) $ (22,676 ) $ (14,831 ) Adjustments: Interest expense 2,811 1,669 5,540 3,303 Interest income (67 ) (150 ) (150 ) (325 ) Unrealized derivative losses (gains) 2,117 (11,089 ) 483 (14,279 ) Acquisition-related (income) expense (460 ) 675 (460 ) 1,350 Depreciation and amortization expense 6,365 6,074 12,631 11,802 Total adjustments 10,766 (2,821 ) 18,044 1,851 Adjusted EBITDA $ (231 ) $ (5,927 ) $ (4,632 ) $ (12,980 ) 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 include the following: Three Months Ended June 30, Percentage Six Months Ended June 30, Percentage 2025 2024 Variance 2025 2024 Variance Alcohol Sales (gallons in millions) Pekin Campus renewable fuel gallons sold 28.8 30.7 (6.2 )% 61.4 62.5 (1.8 )% Western production renewable fuel gallons sold 8.3 9.0 (7.8 )% 16.6 20.2 (17.8 )% Third-party renewable fuel gallons sold 29.7 34.4 (13.7 )% 54.1 64.1 (15.6 )% Total renewable fuel gallons sold 66.8 74.1 (9.9 )% 132.1 146.8 (10.0 )% Specialty alcohol gallons sold 19.9 21.0 (5.2 )% 44.2 47.3 (6.6 )% Total gallons sold 86.7 95.1 (8.8 )% 176.3 194.1 (9.2 )% Sales Price per Gallon Pekin Campus $ 1.95 $ 1.98 (1.5 )% $ 1.92 $ 1.94 (1.0 )% Western production $ 2.00 $ 1.94 3.1 % $ 1.98 $ 1.86 6.5 % Marketing and distribution $ 1.96 $ 2.04 (3.9 )% $ 1.98 $ 1.94 2.1 % Consolidated sales price per gallon $ 1.95 $ 2.00 (2.5 )% $ 1.94 $ 1.93 0.5 % Alcohol Production (gallons in millions) Pekin Campus 50.9 50.0 1.8 % 105.2 103.6 1.5 % Western production 8.3 8.6 (3.5 )% 16.6 18.3 (9.3 )% Total production gallons 59.2 58.6 1.0 % 121.8 121.9 (0.1 )% Corn Cost per Bushel Pekin Campus $ 4.86 $ 4.50 8.0 % $ 4.75 $ 4.62 2.8 % Western production $ 5.71 $ 5.78 (1.2 )% $ 5.83 $ 5.84 (0.2 )% Consolidated cost per bushel $ 4.98 $ 4.68 6.4 % $ 4.89 $ 4.81 1.7 % Average Market Metrics PLATTS Ethanol price per gallon $ 1.72 $ 1.79 (3.9 )% $ 1.72 $ 1.67 3.0 % CME Corn cost per bushel $ 4.51 $ 4.43 1.8 % $ 4.62 $ 4.39 5.2 % Board corn crush per gallon (1) $ 0.11 $ 0.21 (47.6 )% $ 0.07 $ 0.10 (30.0 )% Essential Ingredients Sold (in thousands of tons) Pekin Campus Distillers grains 70.2 79.7 (11.9 )% 160.9 167.4 (3.9 )% CO 2 45.1 43.3 4.2 % 90.4 82.4 9.7 % Corn wet feed 28.7 24.8 15.7 % 63.2 50.4 25.4 % Corn dry feed 21.4 19.8 8.1 % 45.2 38.7 16.8 % Corn oil and germ 18.9 17.5 8.0 % 38.5 35.3 9.1 % Syrup and other 11.7 11.1 5.4 % 19.9 20.6 (3.4 )% Corn meal 8.3 8.0 3.8 % 17.7 16.3 8.6 % Yeast 5.7 5.8 (1.7 )% 12.1 11.5 5.2 % Total Pekin Campus 210.0 210.0 — % 447.9 422.6 6.0 % Western production Distillers grains 61.8 61.8 — % 119.9 133.6 (10.3 )% CO 2 14.4 15.1 (4.6 )% 27.0 28.4 (4.9 )% Syrup and other 1.2 2.0 (40.0 )% 2.0 16.2 (87.7 )% Corn oil 1.0 0.9 11.1 % 2.4 2.4 — % Total Western Production 78.4 79.8 (1.8 )% 151.3 180.6 (16.2 )% Total Essential Ingredients Sold 288.4 289.8 (0.5 )% 599.2 603.2 (0.7 )% Essential Ingredients return % (2) Pekin Campus Return 44.2 % 48.8 % (9.4 )% 46.1 % 50.0 % (7.8 )% Western Production Return 50.8 % 35.1 % 44.7 % 49.9 % 37.4 % 33.4 % Consolidated Total Return 45.2 % 45.6 % (0.9 )% 46.7 % 47.8 % (2.3 )% (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 Profit (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 June 30, Variance in Six Months Ended June 30, Variance in 2025 2024 Dollars Percent 2025 2024 Dollars Percent Net sales $ 218,436 $ 236,468 $ (18,032 ) (7.6 )% $ 444,976 $ 477,097 $ (32,121 ) (6.7 )% Cost of goods sold 220,373 228,915 (8,542 ) (3.7 )% 448,720 471,944 (23,224 ) (4.9 )% Gross profit (loss) $ (1,937 ) $ 7,553 $ (9,490 ) NM * $ (3,744 ) $ 5,153 $ (8,897 ) NM * Percentage of net sales (0.9 )% 3.2 % (0.8 )% 1.1 % * Not meaningful Three Months ended June 30, 2025 as compared to the Three Months ended June 30, 2024 Net Sales The decrease in our consolidated net sales for the three months ended June 30, 2025 as compared to the same period in 2024 is primarily attributable to lower average sales prices per gallon for both specialty alcohol and renewable fuel as well as lower average sales prices of essential ingredients due to a lower commodity price environment. In addition, we had lower sales of renewable fuel, specialty alcohol and essential ingredients due to the cold-idling of our Magic Valley plant at the end of 2024 and logistical constraints at our Pekin Campus due to a damaged loading dock starting in April 2025. Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment declined by $6.5 million, or 6%, to $94.2 million for the three months ended June 30, 2025 as compared to $100.7 million for the same period in 2024. Our total volume of production gallons sold decreased by 2.7 million gallons, or 5%, to 48.1 million gallons for the three months ended June 30, 2025 as compared to 50.8 million gallons for the same period in 2024. The decrease of $0.03, or 2%, in the segment’s average sales price per gallon for the three months ended June 30, 2025 as compared to the same period in 2024 reduced our net sales from the segment by $1.4 million. With the segment’s average sales price per gallon of $1.95 for the three months ended June 30, 2025, we generated $5.1 million less in net sales from the 2.7 million fewer gallons of alcohol sold in the three months ended June 30, 2025 as compared to the same period in 2024. Net sales of essential ingredients from our Pekin Campus production segment improved by $0.2 million, or less than 1%, to $39.6 million for the three months ended June 30, 2025 as compared to $39.4 million for the same period in 2024. Our total volume of essential ingredients sold remained stable at 210,000 tons for the three months ended June 30, 2025 and 2024. The increase of $0.92, or less than 1%, in the segment’s average sales price per ton for the three months ended June 30, 2025 as compared to the same period in 2024 increased our net sales from the segment by $0.2 million. Marketing and Distribution Segment Net sales of alcohol from our marketing and distribution segment, excluding intersegment sales, declined by $12.0 million, or 17%, to $58.2 million for the three months ended June 30, 2025 as compared to $70.2 million for the same period in 2024. Our volume of third-party alcohol sold reported gross by the segment decreased by 4.7 million gallons, or 14%, to 29.7 million gallons for the three months ended June 30, 2025 as compared to 34.4 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $1.96 for the three months ended June 30, 2025, we realized $2.8 million less in net sales from the 4.7 million fewer gallons of third-party alcohol sold gross in the three months ended June 30, 2025 as compared to the same period in 2024. The $0.08 per gallon, or 4%, decrease in the segment’s average sales price per gallon for the three months ended June 30, 2025 as compared to the same period in 2024 resulted in a $9.2 million decline in our net sales from third-party renewable fuel sold by the segment. 23 Western Production Segment Net sales of alcohol from our Western production segment declined by $0.9 million, or 5%, to $16.6 million for the three months ended June 30, 2025 as compared to $17.5 million for the same period in 2024. Our total volume of alcohol sold decreased by 0.7 million gallons, or 8%, to 8.3 million gallons for the three months ended June 30, 2025 as compared to 9.0 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $2.00 for the three months ended June 30, 2025, we realized $1.4 million less in net sales from the 0.7 million fewer gallons of alcohol sold in the three months ended June 30, 2025 as compared to the same period in 2024. The increase of $0.06, or 3%, in the segment’s average sales price per gallon for the three months ended June 30, 2025 as compared to the same period in 2024 increased our net sales from the segment by $0.5 million. Net sales of essential ingredients from our Western production segment increased by $2.3 million, or 39%, to $8.2 million for the three months ended June 30, 2025 as compared to $5.9 million for the same period in 2024. Our total volume of essential ingredients sold decreased 1,400 tons, or 2%, to 78,400 tons for the three months ended June 30, 2025 from 79,800 tons for the same period in 2024. The increase of $30.67, or 41%, in our average sales price per ton for the three months ended June 30, 2025 as compared to the same period in 2024 increased our net sales of essential ingredients from the segment by $2.5 million. With the segment’s average sales price per ton of $105.23 for the three months ended June 30, 2025, we generated $0.2 million less in net sales from the 1,400 fewer tons of essential ingredients sold in the three months ended June 30, 2025 as compared to the same period in 2024. Corporate and other Net sales of alcohol from corporate and other declined by $1.1 million, or 40%, to $1.7 million for the three months ended June 30, 2025 as compared to $2.8 million for the same period in 2024. These sales are from Eagle Alcohol’s business. Cost of Goods Sold and Gross Profit (Loss) Our consolidated gross profit (loss) declined to a gross loss of $1.9 million for the three months ended June 30, 2025 from gross profit of $7.6 million for the same period in 2024, representing a gross margin of negative 0.9% and positive 3.2% for the three months ended June 30, 2025 and 2024, respectively. Our consolidated gross profit declined due to lower sales and lower gross margins driven by a few key factors. Our period-over-period change in unrealized non-cash derivatives was negative $13.2 million and our realized derivative gain was $7.6 million, resulting in a net unfavorable change of $5.6 million compared to the same period in 2024. Although crush margins continued to improve during the second quarter, market crush was on average 10 cents per gallon lower than for the same period in 2024, totaling $5.5 million of lower crush margin for the second quarter of 2025. In addition, high quality alcohol premiums were 15 cents per gallon less in the second quarter than for the same period in 2024 due to increased competition during the annual contracting process. This premium differential translated to $3.0 million in margin, which we were able to offset by shifting higher volumes into more profitable ISCC export markets, demonstrating the benefits of our strategy to diversify production to take advantage of market opportunities. Our essential ingredients return at our Pekin Campus declined to 44.2% but without affecting profitability as we offset the impact with our effective hedging strategy. The total adverse impact to gross profit of our loading dock outage was $2.7 million for the second quarter. We are working with our insurance carrier to recover losses in excess of our deductibles. Pekin Campus Production Segment Our Pekin Campus production segment’s gross profit, net of intercompany activity, declined by $16.0 million to a gross loss of $5.1 million for the three months ended June 30, 2025 as compared to gross profit of $10.9 million for the same period in 2024. Of this decline, $16.3 million is attributable to lower alcohol sales margins, partially offset by $0.3 million attributable to lower sales volumes at negative margins. Marketing and Distribution Segment Our marketing and distribution segment’s gross profit, net of intercompany activity, increased by $1.0 million to a gross profit of $1.5 million for the three months ended June 30, 2025 as compared to a gross profit of $0.5 million for the same period in 2024. Of this improvement, $1.3 million is attributable to higher margins from sales of third-party renewable fuel, partially offset by $0.3 million attributable to lower sales volumes. Western Production Segment Our Western production segment’s gross profit, net of intercompany activity, increased by $5.3 million to a gross profit of $1.6 million for the three months ended June 30, 2025 as compared to a gross loss of $3.7 million for the same period in 2024. Of this improvement, $5.4 million is attributable to higher renewable fuel margins, partially offset by $0.1 million attributable to lower sales volumes. 24 Corporate and other Gross profit from corporate and other increased by $0.2 million to a breakeven gross profit for the three months ended June 30, 2025 as compared to a gross loss of $0.2 million for the same period in 2024, all of which were from Eagle Alcohol’s business. Six Months ended June 30, 2025 as compared to the Six Months ended June 30, 2024 Net Sales The decrease in our consolidated net sales for the six months ended June 30, 2025 as compared to the same period in 2024 is primarily attributable to lower sales of renewable fuel and essential ingredients, partially offset by higher average sales prices per gallon from both our western production and marketing and distribution segments. Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment declined by $7.6 million, or 4%, to $201.4 million for the six months ended June 30, 2025 as compared to $209.0 million for the same period in 2024. Our total volume of production gallons sold decreased by 3.2 million gallons, or 3%, to 104.7 million gallons for the six months ended June 30, 2025 as compared to 107.9 million gallons for the same period in 2024. The decrease of $0.02, or 1%, in the segment’s average sales price per gallon for the six months ended June 30, 2025 as compared to the same period in 2024 reduced our net sales from the segment by $1.8 million. With the segment’s average sales price per gallon of $1.92 for the six months ended June 30, 2025, we generated $5.8 million less in net sales from the 3.2 million fewer gallons of alcohol sold in the six months ended June 30, 2025 as compared to the same period in 2024. Net sales of essential ingredients from our Pekin Campus production segment declined by $1.9 million, or 2%, to $84.2 million for the six months ended June 30, 2025 as compared to $86.1 million for the same period in 2024. Our total volume of essential ingredients sold increased by 25,300 tons, or 6%, to 447,900 tons for the six months ended June 30, 2025 from 422,600 tons for the same period in 2024. The decrease of $15.74, or 8%, in the segment’s average sales price per ton for the six months ended June 30, 2025 as compared to the same period in 2024 reduced our net sales from the segment by $6.6 million. With the segment’s average sales price per ton of $187.95 for the six months ended June 30, 2025, we generated $4.7 million in additional net sales from the 25,300 additional tons of essential ingredients sold in the six months ended June 30, 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 $17.5 million, or 14%, to $107.2 million for the six months ended June 30, 2025 as compared to $124.7 million for the same period in 2024. Our volume of third-party renewable fuel sold reported gross by the segment decreased by 10.0 million gallons, or 16%, to 54.1 million gallons for the six months ended June 30, 2025 as compared to 64.1 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $1.98 for the six months ended June 30, 2025, we realized $19.8 million less in net sales from the 10.0 million fewer gallons of third-party renewable fuel sold gross in the six months ended June 30, 2025 as compared to the same period in 2024. The $0.04 per gallon, or 2%, increase in the segment’s average sales price per gallon for the six months ended June 30, 2025 as compared to the same period in 2024 resulted in a $2.3 million increase in our net sales from third-party renewable fuel sold by the segment. Western Production Segment Net sales of alcohol from our Western production segment declined by $4.9 million, or 13%, to $32.8 million for the six months ended June 30, 2025 as compared to $37.7 million for the same period in 2024. Our total volume of alcohol sold decreased by 3.6 million gallons, or 18%, to 16.6 million gallons for the six months ended June 30, 2025 as compared to 20.2 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $1.98 for the six months ended June 30, 2025, we generated $7.1 million less in net sales from the 3.6 million fewer gallons of alcohol sold in the six months ended June 30, 2025 as compared to the same period in 2024. The increase of $0.12, or 7%, in the segment’s average sales price per gallon for the six months ended June 30, 2025 as compared to the same period in 2024 increased our net sales from the segment by $2.2 million. Net sales of essential ingredients from our Western production segment increased by $2.3 million, or 17%, to $16.1 million for the six months ended June 30, 2025 as compared to $13.8 million for the same period in 2024. Our total volume of essential ingredients sold decreased 29,300 tons, or 16%, to 151,300 tons for the six months ended June 30, 2025 from 180,600 tons for the same period in 2024. The increase of $29.85, or 39%, in our average sales price per ton for the six months ended June 30, 2025 as compared to the same period in 2024 increased our net sales of essential ingredients from the segment by $5.4 million. With the segment’s average sales price per ton of $106.13 for the six months ended June 30, 2025, we generated $3.1 million less in net sales from the 29,300 fewer tons of essential ingredients sold in the six months ended June 30, 2025 as compared to the same period in 2024. 25 Corporate and other Net sales of alcohol from corporate and other declined by $2.5 million, or 43%, to $3.3 million for the six months ended June 30, 2025 as compared to $5.8 million for the same period in 2024. These sales are from Eagle Alcohol’s business. Cost of Goods Sold and Gross Profit (Loss) Our consolidated gross profit declined to a gross loss of $3.7 million for the six months ended June 30, 2025 from gross profit of $5.2 million for the same period in 2024, representing a gross margin of negative 0.8% and positive 1.1% for the six months ended June 30, 2025 and 2024, respectively. Pekin Campus Production Segment Our Pekin Campus production segment’s gross profit, net of intercompany activity, declined by $23.5 million to a gross loss of $7.8 million for the six months ended June 30, 2025 as compared to gross profit of $15.7 million for the same period in 2024. Of this decline, $23.8 million is attributable to lower alcohol sales margins, partially offset by $0.3 million attributable to lower sales volumes. Marketing and Distribution Segment Our marketing and distribution segment’s gross profit, net of intercompany activity, improved by $2.4 million to a gross profit of $3.8 million for the six months ended June 30, 2025 as compared to a gross profit of $1.4 million for the same period in 2024. Of this improvement $3.1 million is attributable primarily to higher margins from sales of third-party renewable fuel, partially offset by $0.7 million from lower sales volumes for the six months ended June 30, 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 $12.4 million to a gross profit of $0.4 million for the six months ended June 30, 2025 as compared to a gross loss of $12.0 million for the same period in 2024. Of this improvement, $12.5 million is attributable to higher renewable fuel margins and increased CO 2 sales, partially offset by $0.1 million attributable to lower sales volumes. Corporate and other Gross profit from corporate and other declined by $0.2 million to a gross loss of $0.1 million for the six months ended June 30, 2025 as compared to gross profit of $0.1 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 June 30, Variance in Six Months Ended June 30, Variance in 2025 2024 Dollars Percent 2025 2024 Dollars Percent Selling, general and administrative expenses $ 6,171 $ 8,961 $ (2,790 ) (31.1 )% $ 13,361 $ 16,893 $ (3,532 ) (20.9 )% Percentage of net sales 2.8 % 3.8 % 3.0 % 3.5 % 26 Our SG&A expenses declined for the three and six months ended June 30, 2025 as compared to the same periods in 2024. The period over period decreases in SG&A expenses are primarily due to a $1.1 million reduction in acquisition-related expenses for our acquisition of Eagle Alcohol, a $0.9 million decrease in compensation expenses from our efforts to rationalize our business and right size our staffing to better align with our current operational footprint and a $0.9 million reduction in non-cash stock compensation. We are now exceeding our target annualized overhead savings of $8.0 million. We also took additional steps to further lower our future costs, including, for example, negotiating lower property taxes, improving terms with suppliers, reducing reliance on outside services and other changes which we expect, in aggregate, will make a meaningful difference to our future profitability. 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 June 30, Variance in Six Months Ended June 30, Variance in 2025 2024 Dollars Percent 2025 2024 Dollars Percent Net loss attributable to common stockholders $ (11,312 ) $ (3,422 ) $ 7,890 230.6 % $ (23,303 ) $ (15,462 ) $ 7,841 50.7 % Percentage of net sales (5.2 )% (1.4 )% (5.2 )% (3.2 )% The increase in our net loss attributable to common stockholders for the three and six months ended June 30, 2025 as compared to the same periods in 2024 is primarily due to higher unrealized non-cash derivative losses, lower crush margins, lower high quality alcohol premiums and the impact of our loading dock outage, as discussed above. Liquidity and Capital Resources During the six months ended June 30, 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, make our final payments relating to our acquisition of Eagle Alcohol and for capital expenditures. As of June 30, 2025, we had $30.5 million in cash, cash equivalents and restricted cash, $4.8 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. As of June 30, 2025, our derivative net asset position was $1.7 million. 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. 27 Quantitative Period-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). June 30, 2025 December 31, 2024 Change Cash, cash equivalents and restricted cash $ 30,491 $ 36,211 (15.8 )% Current assets $ 149,725 $ 153,118 (2.2 )% Property and equipment, net $ 207,997 $ 214,742 (3.1 )% Current liabilities $ 42,513 $ 57,804 (26.5 )% Long-term debt, noncurrent portion $ 118,323 $ 92,904 27.4 % Working capital $ 107,212 $ 95,314 12.5 % Working capital ratio 3.52 2.65 32.8 % Restricted Net Assets At June 30, 2025, we had approximately $49.5 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 $107.2 million at June 30, 2025 from $95.3 million at December 31, 2024 as a result of a decrease of $15.3 million in current liabilities, partially offset by a decrease of $3.4 million in current assets. Current assets decreased primarily due to a decrease in cash and cash equivalents and restricted cash, partially offset by an increase in inventories from December 31, 2024. Our current liabilities decreased primarily due to lower accounts payable and accrued liabilities as a result of the timing of payments, and a decrease in other current liabilities as we paid the remaining purchase price for our acquisition of Eagle Alcohol. Our cash, cash equivalents and restricted cash declined by $5.7 million due to $19.1 million in cash used in our operating activities and $10.5 million in cash used in our investing activities, partially offset by $23.9 million in cash provided by our financing activities. Cash used in our Operating Activities We used $19.1 million of cash in our operations for the six months ended June 30, 2025 as compared to $12.3 million for the same period in 2024. Significant factors that contributed to the change in cash provided by our operating activities include: ● a decrease of $12.5 million related to lower inventories due to reduced production volumes and the timing of sales; ● an increase of $7.8 million in net loss due to lower margins; and ● a decrease of $1.5 million related to other assets, primarily due to the timing of payments on prepaid assets. 28 These amounts were partially offset by: ● an increase of $7.2 million related to period-end commodity prices applicable to our derivative instruments; and ● an increase of $5.8 million related to changes in accounts receivable balances due to the timing of our collections. Cash used in our Investing Activities We used a total of $10.5 million in cash during the period for our acquisition of Kodiak Carbonic, the final payment for our acquisition of Eagle Alcohol and various capital expenditures. During the second quarter, we used $0.5 million for capital expenditures, an amount much lower than historical averages to manage liquidity and focus on our priorities. Cash provided by our Financing Activities Cash provided by our financing activities was $23.9 million for the six months ended June 30, 2025, which reflects net proceeds of $24.5 million from Kinergy’s operating line of credit, partially offset by $0.6 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 June 30, Years Ended December 31, 2025 2024 2024 2023 Fixed-Charge Coverage Ratio Requirement 1.10 1.10 1.10 1.10 Actual 3.64 4.29 3.53 5.22 Excess 2.54 3.19 2.43 4.12 Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of June 30, 2025, Kinergy had an outstanding balance of $64.2 million and $4.8 million of unused borrowing availability under the credit facility. 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 matures on November 7, 2028, or earlier upon acceleration. 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. 29 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 and six months ended June 30, 2025 and 2024. As of June 30, 2025 and December 31, 2024, the principal amount outstanding under the Term Loan was $60.0 million. Other Cash Obligations As of June 30, 2025, we had future commitments for certain capital projects totaling $11.5 million. These commitments are scheduled to be satisfied through 2025.