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. 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 in Idaho, were operating for all of 2024 and 2025, 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 – 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. 19 See “Note 3 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. Financial Review, Current Initiatives and Outlook In the third quarter, strong market conditions combined with the benefits realized from our recent strategic realignment delivered improvements across all segments of our business compared to the same period in 2024. Gross profit increased nearly $18 million and net income (loss) improved nearly $17 million while Adjusted EBITDA grew by over $9 million. These robust quarterly improvements were driven by multiple key factors. First, we increased higher-margin renewable fuel export sales, illustrating the advantage of our platform’s flexibility to shift our product mix to meet market demand to capture the highest value for our products. Second, we benefitted from strong demand for liquid CO 2 , particularly on the West Coast, illustrating the success of our liquid CO 2 plant acquisition in early 2025. Finally, we reduced costs and improved efficiencies, including through the continued effects of rationalizing unprofitable business activities, successfully lowering expenses year-over-year. We continue to prioritize shorter-term projects based on their anticipated cost, timing and return on investment. We believe this strategy will contribute incremental profitability. Our goals include lowering our carbon intensity score to capture a greater portion of the Section 45Z tax credits available under the Inflation Reduction Act of 2022 and increasing our CO 2 utilization at our Pekin Campus and at our Columbia plant in Boardman, Oregon, building on our successful liquid CO 2 plant acquisition. As we manage liquidity and continue focusing on our priorities, capital expenditures have been lower than historical averages. In addition, through the third quarter, we recorded $24 million in repairs and maintenance expense, in line with our estimate of $32 million for the full year. Once we complete the groundwork to qualify for Section 45Z tax credits, we expect to earn $0.10 per gallon at our Columbia plant for 2025. In addition, with the updated indirect land use change, referred to as iLUC, we expect to lower our carbon intensity scores for 2026, increasing available tax credits to $0.20 per gallon at our Columbia facility and $0.10 per gallon at our Pekin Campus dry mill for the year. If we produce at nameplate capacity at all of our facilities, the total value of Section 45Z tax credits could be up to $18 million for 2025 and 2026, in aggregate, before any related monetization costs. Since Section 45Z tax credits are transferrable tax assets, we have started the process to forward sell these assets to monetize the credits for 2026 through 2029. The recent Section 45Z updates have improved the intrinsic value of our facilities as a whole. We have improved our CO 2 utilization as a result of acquiring Kodiak Carbonic in early 2025 and related initial capital expenditure programs at our Columbia facility. Our efforts to further improve plant reliability and ethanol production rates have improved synergies between the ethanol plant and adjacent liquid CO 2 plant, and include measures to increase CO 2 throughput and add storage capacity. A number of these ethanol production improvements were completed in October. Given the benefits of owning the liquid CO 2 plant adjacent to our Columbia ethanol facility, we are now considering options for other liquid CO 2 plants. We also believe the opportunity to add liquid CO 2 production capacity is compelling since the demand for liquid CO 2 continues to rise, particularly in Oregon and Idaho, resulting from significant supply shortfalls and increased consumption in the region. These market dynamics have positioned producers in the region to leverage strong liquid CO 2 market pricing. We continue to evaluate options for our Magic Valley facility in Idaho, including its sale, potential CO 2 utilization at the plant and Section 45Z tax credits, the latter two of which may support restarting the facility from its current cold idled state. At our Pekin Campus, our ability to react to market signals and shift production enables us to capture the highest value for our products and continues to create opportunities. As the export market for renewable fuel began to grow, we earned the necessary certifications to export our products to Europe and began exports in the fourth quarter of 2024. This strategy continues to pay off. In the third quarter, the fuel export market and related pricing was stronger than the domestic market. As such, we produced and sold more gallons into the export market, capturing more of the available demand for this product. In the third quarter, we also leveraged our production flexibility and these market dynamics to forward contract significant export volumes for the fourth quarter and first-half of 2026 to lock in favorable premiums to domestic renewable fuel. We believe the export market for renewable fuel will continue to grow. California Assembly Bill 30, which authorizes E15 fuel sales year-round in the state, unlocks significant demand for domestically produced ethanol. California is the largest market that allows E15 blends year-round, adding potentially over 600 million additional gallons per year at full blend rates for gasoline sold in the state. Assembly Bill 30 expands consumer choice for lower-carbon, cheaper fuels in California during a time when refineries are being idled and gasoline capacity in the state is tightening. We are well positioned to help fill the gap through our marketing and distribution services on the West Coast. Our high-quality alcohol products continue to deliver a premium to domestic renewable fuel and our contracting season for 2026 is on pace with 2025. Carbon capture and storage at our Pekin Campus is delayed due to regulatory and environmental constraints enacted in Illinois, including drilling restrictions specifically impacting our planned site. We continue to be flexible about our options to maximize CO 2 utilization as we collaborate with Vault 44.01 to address changes in the law and determine a path forward. Our long-standing CO 2 customers who sell into the food and beverage markets have shown interest in a potential expansion of our CO 2 capture capabilities at our Pekin Campus. We are vetting additional low-cost options at our plants to further reduce our carbon intensity scores, including lowering our energy consumption, changing our energy sources to lower their carbon intensity impact, shifting to low carbon corn, and undertaking smaller projects to improve efficiencies and throughput. 20 Our Pekin Campus dock, damaged in April by rapidly rising river levels, remains under repair. During the third quarter, our dock outage resulted in $0.8 million in business interruption, additional logistics and preliminary property repairs. Although we have temporarily remedied the situation, we continue to work with our insurance carrier to assess our level of coverage and determine the timing of reimbursements. To minimize business interruption, we are relying on local third parties to transport our essential ingredients. To create redundancy, we intend to build a second alcohol loadout dock for use while we repair the original dock. Once the original dock is restored, the second dock will effectively remove a frequent bottleneck by improving loadout capacity, accelerating loadout times and lowering costs. We are in the process of finalizing designs, obtaining permits and contracting work crews to begin the repairs and new dock installation starting this coming spring. 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 Income (Loss) Three Months Ended September 30, Nine Months Ended September 30, (in thousands) (unaudited) 2025 2024 2025 2024 Net income (loss) $ 14,208 $ (2,441 ) $ (8,468 ) $ (17,272 ) Adjustments: Interest expense, net 2,800 1,867 8,340 5,170 Interest income (56 ) (194 ) (206 ) (519 ) Unrealized derivative losses (gains) (1,841 ) 6,199 (1,357 ) (8,079 ) Acquisition-related (income) expense — 675 (460 ) 2,025 Depreciation and amortization expense 6,257 6,058 18,888 17,860 Total adjustments 7,160 14,605 25,205 16,457 Adjusted EBITDA $ 21,368 $ 12,164 $ 16,737 $ (815 ) 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 September 30, Percentage Nine Months Ended September 30, Percentage 2025 2024 Variance 2025 2024 Variance Alcohol Sales (gallons in millions) Pekin Campus renewable fuel gallons sold 31.6 31.1 1.6 % 93.1 93.6 (0.5 )% Western production renewable fuel gallons sold 8.1 18.0 (55.0 )% 24.7 38.2 (35.3 )% Third-party renewable fuel gallons sold 27.1 25.2 7.5 % 81.2 89.3 (9.1 )% Total renewable fuel gallons sold 66.8 74.3 (10.1 )% 199.0 221.1 (10.0 )% Specialty alcohol gallons sold 22.4 22.5 (0.4 )% 66.6 69.8 (4.6 )% Total gallons sold 89.2 96.8 (7.9 )% 265.6 290.9 (8.7 )% Sales Price per Gallon Pekin Campus $ 2.05 $ 2.02 1.5 % $ 1.97 $ 1.96 0.5 % Western production $ 2.14 $ 2.02 5.9 % $ 2.03 $ 1.94 4.6 % Marketing and distribution $ 2.17 $ 2.17 — % $ 2.04 $ 2.01 1.5 % Consolidated sales price per gallon $ 2.09 $ 2.06 1.5 % $ 1.99 $ 1.97 1.0 % Alcohol Production (gallons in millions) Pekin Campus 55.5 53.4 3.9 % 160.8 157.0 2.4 % Western production 8.2 19.2 (57.3 )% 24.8 37.5 (33.9 )% Total production gallons 63.7 72.6 (12.3 )% 185.6 194.5 (4.6 )% Corn Cost per Bushel Pekin Campus $ 4.44 $ 4.40 0.9 % $ 4.64 $ 4.55 2.0 % Western production $ 5.36 $ 5.52 (2.9 )% $ 5.67 $ 5.69 (0.4 )% Consolidated cost per bushel $ 4.55 $ 4.68 (2.8 )% $ 4.77 $ 4.76 0.2 % Average Market Metrics PLATTS Ethanol price per gallon $ 1.84 $ 1.81 1.7 % $ 1.76 $ 1.72 2.3 % CME Corn cost per bushel $ 4.01 $ 3.92 2.3 % $ 4.41 $ 4.23 4.3 % Board corn crush per gallon (1) $ 0.41 $ 0.41 — % $ 0.19 $ 0.21 (9.5 )% Essential Ingredients Sold (in thousands of tons) Pekin Campus Distillers grains 91.3 83.7 9.1 % 252.2 251.1 0.4 % CO 2 55.6 53.5 3.9 % 146.0 135.9 7.4 % Corn wet feed 22.9 30.0 (23.7 )% 86.1 80.4 7.1 % Corn dry feed 27.1 26.5 2.3 % 72.3 65.2 10.9 % Corn oil and germ 19.5 18.8 3.7 % 58.0 54.1 7.2 % Syrup and other 9.7 8.0 21.3 % 29.7 28.6 3.8 % Corn meal 9.8 9.8 — % 27.5 26.1 5.4 % Yeast 6.3 6.3 — % 18.5 17.8 3.9 % Total Pekin Campus 242.2 236.6 2.4 % 690.3 659.2 4.7 % Western production Distillers grains 59.2 116.6 (49.2 )% 179.2 250.2 (28.4 )% CO 2 16.1 14.7 9.5 % 43.0 43.1 (0.2 )% Syrup and other 0.7 21.4 (96.7 )% 2.7 37.6 (92.8 )% Corn oil 0.9 2.1 (57.1 )% 3.2 4.5 (28.9 )% Total Western Production 76.9 154.8 (50.3 )% 228.1 335.4 (32.0 )% Total Essential Ingredients Sold 319.1 391.4 (18.5 )% 918.4 994.6 (7.7 )% Essential Ingredients return % (2) Pekin Campus Return 52.4 % 49.0 % 6.9 % 48.1 % 49.7 % (3.2 )% Western Production Return 53.5 % 28.6 % 87.1 % 51.1 % 33.0 % 54.8 % Consolidated Total Return 52.5 % 42.8 % 22.7 % 48.6 % 46.0 % 5.7 % (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 The following table presents our net sales, cost of goods sold and gross profit in dollars and gross profit as a percentage of net sales (in thousands, except percentages): Three Months Ended September 30, Variance in Nine Months Ended September 30, Variance in 2025 2024 Dollars Percent 2025 2024 Dollars Percent Net sales $ 240,986 $ 251,814 $ (10,828 ) (4.3 )% $ 685,962 $ 728,911 $ (42,949 ) (5.9 )% Cost of goods sold 217,492 245,854 (28,362 ) (11.5 )% 666,212 717,798 (51,586 ) (7.2 )% Gross profit $ 23,494 $ 5,960 $ 17,534 294.2 % $ 19,750 $ 11,113 $ 8,637 77.7 % Percentage of net sales 9.7 % 2.4 % 2.9 % 1.5 % Three Months ended September 30, 2025 as compared to the Three Months ended September 30, 2024 Net Sales The decrease in our consolidated net sales for the three months ended September 30, 2025 as compared to the same period in 2024 is primarily attributable to lower sales volumes, predominately related to cold idling our Magic Valley facility and rationalizing unprofitable business activities in our marketing and distribution segment, partially offset by an increase in our average sales price per gallon. Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment increased $2.8 million, or 3%, to $109.3 million for the three months ended September 30, 2025 as compared to $106.5 million for the same period in 2024. Our total volume of production gallons sold increased by 0.5 million gallons, or 1%, to 53.3 million gallons for the three months ended September 30, 2025 as compared to 52.8 million gallons for the same period in 2024. The increase of $0.03, or 2%, in the segment’s average sales price per gallon for the three months ended September 30, 2025 as compared to the same period in 2024 increased our net sales from the segment by $1.0 million. With the segment’s average sales price per gallon of $2.05 for the three months ended September 30, 2025, we generated $1.8 million in additional net sales from the 0.5 million additional gallons of alcohol sold in the three months ended September 30, 2025 as compared to the same period in 2024. Net sales of essential ingredients from our Pekin Campus production segment improved by $4.1 million, or 10%, to $45.3 million for the three months ended September 30, 2025 as compared to $41.2 million for the same period in 2024. Our total volume of essential ingredients sold increased 5,600 tons, or 2%, to 242,200 tons for the three months ended September 30, 2025 from 236,600 tons for the same period in 2024. The increase of $12.86, or 7%, in the segment’s average sales price per ton for the three months ended September 30, 2025 as compared to the same period in 2024 increased our net sales from the segment by $3.0 million. With the segment’s average sales price per ton of $187.06 for the three months ended September 30, 2025, we generated $1.1 million in additional net sales from the 5,600 additional tons of essential ingredients sold in the three months ended September 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, increased $4.1 million, or 8%, to $58.7 million for the three months ended September 30, 2025 as compared to $54.6 million for the same period in 2024. Our volume of third-party alcohol sold reported gross by the segment increased 1.9 million gallons, or 8%, to 27.1 million gallons for the three months ended September 30, 2025 as compared to 25.2 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $2.17 for the three months ended September 30, 2025, we generated $4.1 million in additional net sales from the 1.9 million additional gallons of third-party alcohol sold gross in the three months ended September 30, 2025 as compared to the same period in 2024. 23 Western Production Segment Net sales of alcohol from our Western production segment declined by $19.0 million, or 52%, to $17.4 million for the three months ended September 30, 2025 as compared to $36.4 million for the same period in 2024. Our total volume of alcohol sold decreased by 9.9 million gallons, or 55%, to 8.1 million gallons for the three months ended September 30, 2025 as compared to 18.0 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $2.14 for the three months ended September 30, 2025, we realized $21.2 million less in net sales from the 9.9 million fewer gallons of alcohol sold in the three months ended September 30, 2025 as compared to the same period in 2024. The increase of $0.12, or 6%, in the segment’s average sales price per gallon for the three months ended September 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 decreased by $2.4 million, or 23%, to $8.0 million for the three months ended September 30, 2025 as compared to $10.4 million for the same period in 2024. Our total volume of essential ingredients sold decreased 77,900 tons, or 50%, to 76,900 tons for the three months ended September 30, 2025 from 154,800 tons for the same period in 2024. With the segment’s average sales price per ton of $104.25 for the three months ended September 30, 2025, we generated $8.1 million less in net sales from the 77,900 fewer tons of essential ingredients sold in the three months ended September 30, 2025 as compared to the same period in 2024. The increase of $37.02, or 55%, in our average sales price per ton for the three months ended September 30, 2025 as compared to the same period in 2024 increased our net sales of essential ingredients from the segment by $5.7 million. Corporate and other Net sales of alcohol from corporate and other declined by $0.4 million, or 15%, to $2.3 million for the three months ended September 30, 2025 as compared to $2.7 million for the same period in 2024. These sales are from Eagle Alcohol’s business, which represented 0.7 million gallons and 0.8 million gallons, respectively. Cost of Goods Sold and Gross Profit Our consolidated gross profit improved to a gross profit of $23.5 million for the three months ended September 30, 2025 from a gross profit of $6.0 million for the same period in 2024, representing a gross margin of 9.7% and 2.4% for the three months ended September 30, 2025 and 2024, respectively. Seasonally strong crush margins remained comparable for both year-over-year quarterly periods at $0.41 per gallon. Gross profit improved primarily due to an $8.0 million year-over-year change in unrealized noncash derivatives, $5.6 million of margin attributable to higher renewable fuel exports, $2.0 million of margin attributable to our Alto Carbonic liquid CO 2 business at our Columbia site, $3.6 million attributable to higher essential ingredients return resulting from strong corn oil pricing and a shift in our production mix to higher value proteins, plus the cost savings associated with the cold idling of our Magic Valley facility, all of which were partially offset by $2.9 million of lower premiums for high quality alcohol. We also continued to benefit from other prior cost reduction efforts, including rationalization of unprofitable businesses. Pekin Campus Production Segment Our Pekin Campus production segment’s gross profit, net of intercompany activity, improved by $12.8 million to a gross profit of $19.8 million for the three months ended September 30, 2025 as compared to gross profit of $7.0 million for the same period in 2024. Of this improvement, $12.6 million is attributable to higher alcohol sales margins and $0.2 million is attributable to higher sales volumes. Marketing and Distribution Segment Our marketing and distribution segment’s gross profit, net of intercompany activity, increased by $0.9 million to a gross profit of $2.2 million for the three months ended September 30, 2025 as compared to a gross profit of $1.3 million for the same period in 2024. Of this improvement, $0.8 million is attributable to higher margins from sales of third-party renewable fuel and $0.1 million is attributable to higher sales volumes. 24 Western Production Segment Our Western production segment’s gross profit, net of intercompany activity, increased by $3.4 million to a gross profit of $1.3 million for the three months ended September 30, 2025 as compared to a gross loss of $2.1 million for the same period in 2024. Of this improvement, $4.9 million is attributable to higher renewable fuel margins, in part due to lower expenses due to the cold idling of our Magic Valley plant, and increased CO 2 sales, partially offset by $1.5 million attributable to lower sales volumes. Corporate and other Gross profit from corporate and other increased by $0.4 million to a gross profit of $0.2 million for the three months ended September 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. Nine Months ended September 30, 2025 as compared to the Nine Months ended September 30, 2024 Net Sales The decrease in our consolidated net sales for the nine months ended September 30, 2025, as compared to the same period in 2024, is primarily attributable to lower sales of renewable fuel and essential ingredients, predominately related to cold idling our Magic Valley facility and rationalizing unprofitable business activities in our marketing and distribution segment, 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 $4.8 million, or 2%, to $310.7 million for the nine months ended September 30, 2025 as compared to $315.5 million for the same period in 2024. Our total volume of production gallons sold decreased by 2.7 million gallons, or 2%, to 158.0 million gallons for the nine months ended September 30, 2025 as compared to 160.7 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $1.97 for the nine months ended September 30, 2025, we generated $5.3 million less in net sales from the 2.7 million fewer gallons of alcohol sold in the nine months ended September 30, 2025 as compared to the same period in 2024.The increase of $0.01, or less than 1%, in the segment’s average sales price per gallon for the nine months ended September 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 Pekin Campus production segment increased by $2.2 million, or 2%, to $129.5 million for the nine months ended September 30, 2025 as compared to $127.3 million for the same period in 2024. Our total volume of essential ingredients sold increased by 31,100 tons, or 5%, to 690,300 tons for the nine months ended September 30, 2025 from 659,200 tons for the same period in 2024. With the segment’s average sales price per ton of $187.59 for the nine months ended September 30, 2025, we generated $5.8 million in additional net sales from the 31,100 additional tons of essential ingredients sold in the nine months ended September 30, 2025 as compared to the same period in 2024. The decrease of $5.52, or 3%, in the segment’s average sales price per ton for the nine months ended September 30, 2025 as compared to the same period in 2024 reduced our net sales from the segment by $3.6 million. Marketing and Distribution Segment Net sales of alcohol from our marketing and distribution segment, excluding intersegment sales, declined by $13.4 million, or 7%, to $165.9 million for the nine months ended September 30, 2025 as compared to $179.3 million for the same period in 2024. 25 Our volume of third-party renewable fuel sold reported gross by the segment decreased by 8.1 million gallons, or 9%, to 81.2 million gallons for the nine months ended September 30, 2025 as compared to 89.3 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $2.04 for the nine months ended September 30, 2025, we realized $16.5 million less in net sales from the 8.1 million fewer gallons of third-party renewable fuel sold gross in the nine months ended September 30, 2025 as compared to the same period in 2024. The $0.03 per gallon, or 1%, increase in the segment’s average sales price per gallon for the nine months ended September 30, 2025 as compared to the same period in 2024 resulted in a $3.1 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 $23.9 million, or 32%, to $50.2 million for the nine months ended September 30, 2025 as compared to $74.1 million for the same period in 2024. Our total volume of alcohol sold decreased by 13.5 million gallons, or 35%, to 24.7 million gallons for the nine months ended September 30, 2025 as compared to 38.2 million gallons for the same period in 2024. With the segment’s average sales price per gallon of $2.03 for the nine months ended September 30, 2025, we generated $27.4 million less in net sales from the 13.5 million fewer gallons of alcohol sold in the nine months ended September 30, 2025 as compared to the same period in 2024. The increase of $0.09, or 5%, in the segment’s average sales price per gallon for the nine months ended September 30, 2025 as compared to the same period in 2024 increased our net sales from the segment by $3.5 million. Net sales of essential ingredients from our Western production segment decreased by $0.1 million, or less than 1%, to $24.1 million for the nine months ended September 30, 2025 as compared to $24.2 million for the same period in 2024. Our total volume of essential ingredients sold decreased 107,300 tons, or 32%, to 228,100 tons for the nine months ended September 30, 2025 from 335,400 tons for the same period in 2024. With the segment’s average sales price per ton of $105.5 for the nine months ended September 30, 2025, we generated $11.3 million less in net sales from the 107,300 fewer tons of essential ingredients sold in the nine months ended September 30, 2025 as compared to the same period in 2024. The increase of $33.45, or 46%, in our average sales price per ton for the nine months ended September 30, 2025 as compared to the same period in 2024 increased our net sales of essential ingredients from the segment by $11.2 million. Corporate and other Net sales of alcohol from corporate and other declined by $3.0 million, or 35%, to $5.6 million for the nine months ended September 30, 2025 as compared to $8.6 million for the same period in 2024. These sales are from Eagle Alcohol’s business, which represented 1.7 million gallons and 2.7 million gallons, respectively. Cost of Goods Sold and Gross Profit Our consolidated gross profit increased to a gross profit of $19.8 million for the nine months ended September 30, 2025 from gross profit of $11.1 million for the same period in 2024, representing a gross margin of 2.9% and 1.5% for the nine months ended September 30, 2025 and 2024, respectively. Similar to the three-month period ending September 30, 2025, gross profit for the nine-month period improved due to higher renewable fuel exports, our Alto Carbonic liquid CO 2 business at our Columbia site, a higher essential ingredients return and cost savings associated with the cold idling of our Magic Valley facility as well as other prior cost reduction efforts, including rationalization of unprofitable businesses. 26 Pekin Campus Production Segment Our Pekin Campus production segment’s gross profit, net of intercompany activity, declined by $11.4 million to a gross profit of $11.2 million for the nine months ended September 30, 2025 as compared to gross profit of $22.6 million for the same period in 2024. Of this decline, $11.2 million is attributable to lower alcohol sales margins and $0.2 million is attributable to lower sales volumes. Marketing and Distribution Segment Our marketing and distribution segment’s gross profit, net of intercompany activity, improved by $3.4 million to a gross profit of $6.1 million for the nine months ended September 30, 2025 as compared to a gross profit of $2.7 million for the same period in 2024. Of this improvement $4.0 million is attributable primarily to higher margins from sales of third-party renewable fuel, partially offset by $0.6 million from lower sales volumes for the nine months ended September 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 $16.5 million to a gross profit of $2.4 million for the nine months ended September 30, 2025 as compared to a gross loss of $14.1 million for the same period in 2024. Of this improvement, $17.8 million is attributable to higher renewable fuel margins, in part due to lower expenses due to the cold idling of our Magic Valley plant, and increased CO 2 sales, partially offset by $1.3 million attributable to lower sales volumes. Corporate and other Gross profit from corporate and other increased by $0.3 million to a gross profit of $0.2 million for the nine months ended September 30, 2025 as compared to gross loss 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 September 30, Variance in Nine Months Ended September 30, Variance in 2025 2024 Dollars Percent 2025 2024 Dollars Percent Selling, general and administrative expenses $ 6,514 $ 7,510 $ (996 ) (13.3 )% $ 19,875 $ 24,403 $ (4,528 ) (18.6 )% Percentage of net sales 2.7 % 3.0 % 2.9 % 3.3 % 27 Our SG&A expenses declined for the three and nine months ended September 30, 2025 as compared to the same periods in 2024. The decrease in SG&A expenses for the three-month period is primarily due to a realignment of our staffing levels and a $0.7 million reduction in acquisition-related expenses. The decreases in SG&A expenses for the nine-month period are primarily due to a $2.5 million reduction in acquisition-related expenses, a $0.2 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 $1.3 million reduction in non-cash stock compensation. We are now exceeding our target annualized total 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. We expect a continuation of these cost savings and similar SG&A levels going forward. Net Income (Loss) Attributable to Common Stockholders The following table presents our net income (loss) attributable to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages): Three Months Ended September 30, Variance in Nine Months Ended September 30, Variance in 2025 2024 Dollars Percent 2025 2024 Dollars Percent Net income (loss) attributable to common stockholders $ 13,889 $ (2,760 ) $ 16,649 NM* $ (9,414 ) $ (18,222 ) $ 8,808 (48.3 )% Percentage of net sales 5.8 % (1.1 )% (1.4 )% (2.5 )% * Not meaningful The improvement in our net income (loss) attributable to common stockholders for the three and nine months ended September 30, 2025 as compared to the same periods in 2024 is primarily due to higher crush margins and lower operating costs at our Western production segment due to the cold idling of our Magic Valley plant, as well as the other factors contributing to higher gross profit as discussed above. Liquidity and Capital Resources During the nine months ended September 30, 2025, we funded our operations primarily from cash on hand, cash flow from operating activities and proceeds from Kinergy’s operating line of credit. We generated $22.8 million of cash from our operations for the three months ended September 30, 2025. 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 during the nine-month period. As of September 30, 2025, we had $33.1 million in cash, cash equivalents and restricted cash, $20.3 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 September 30, 2025, our derivative net asset position was $3.5 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. 28 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). September 30, 2025 December 31, 2024 Change Cash, cash equivalents and restricted cash $ 33,139 $ 36,211 (8.5 )% Current assets $ 150,923 $ 153,118 (1.4 )% Property and equipment, net $ 203,528 $ 214,742 (5.2 )% Current liabilities $ 42,419 $ 57,804 (26.6 )% Long-term debt, noncurrent portion $ 100,598 $ 92,904 8.3 % Working capital $ 108,504 $ 95,314 13.8 % Working capital ratio 3.56 2.65 34.3 % Restricted Net Assets At September 30, 2025, we had approximately $47.2 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 $108.5 million at September 30, 2025 from $95.3 million at December 31, 2024 as a result of a decrease of $15.4 million in current liabilities, partially offset by a decrease of $2.2 million in current assets. Current assets decreased primarily due to decreases in cash and cash equivalents, restricted cash and accounts receivable, 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 $3.1 million due to $12.2 million in cash used in our investing activities, partially offset by $3.7 million in cash provided by our operating activities and $5.4 million in cash provided by our financing activities. Cash provided by our Operating Activities We generated $3.7 million of cash from our operations for the nine months ended September 30, 2025 as compared to $6.3 million for the same period in 2024. Significant factors that contributed to the change in cash provided by our operating activities include: ● an increase of $11.8 million related to inventories due to reduced production volumes and the timing of sales; and ● an increase of $3.5 million related to changes in accounts receivable balances due to the timing of our collections. 29 These amounts were partially offset by: ● an improvement in our net loss of $8.8 million due to higher margins; and ● an increase in our accounts payable and accrued expenses of $7.1 million due to timing of payments. Cash used in our Investing Activities We used a total of $12.2 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 third quarter, we used $1.6 million for capital expenditures, an amount much lower than historical averages to manage our liquidity and focus on other priorities. Cash provided by our Financing Activities Cash provided by our financing activities was $5.4 million for the nine months ended September 30, 2025, which reflects net proceeds of $6.3 million from Kinergy’s operating line of credit, partially offset by $0.9 million in preferred stock dividends paid. During the third quarter, we used $18.5 million in cash to repay debt on Kinergy’s operating line of credit to lower our interest expense and pay preferred dividends. 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 September 30, Years Ended December 31, 2025 2024 2024 2023 Fixed-Charge Coverage Ratio Requirement 1.10 1.10 1.10 1.10 Actual 3.73 3.80 3.53 5.22 Excess 2.63 2.70 2.43 4.12 Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of September 30, 2025, Kinergy had an outstanding balance of $46.0 million and $20.3 million of unused borrowing availability under the credit facility. 30 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. 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. 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 nine months ended September 30, 2025 and 2024. As of September 30, 2025 and December 31, 2024, the principal amount outstanding under the Term Loan was $60.0 million. Other Cash Obligations As of September 30, 2025, we had future commitments for certain capital projects totaling $6.3 million. These commitments are scheduled to be satisfied through 2025.