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 condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this report. This report and our condensed consolidated financial statements and notes to condensed 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; ● regulatory developments relating to our initiatives and projects or to our business; ● our ability to qualify for and receive Section 45Z clean fuel production tax credits under the Internal Revenue Code, as added by the Inflation Reduction Act of 2022, including in anticipated amounts and at the expected times; ● 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. - 15 - 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 330 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 2025, we marketed and distributed approximately 350 million gallons combined of our own produced alcohols as well as fuel-grade ethanol produced by third parties, and over 1.2 million tons of essential ingredients. We also own and operate a liquid carbon dioxide, or 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 and distribute specialty alcohols, produced by us and third parties. We report our financial and operating performance in three distinct segments: ● Pekin production , which includes the production and sale of alcohols and other products we refer to as “essential ingredients” described below, 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 produced at our production facilities located in Burley, Idaho and Boardman, Oregon, 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, as well as corn germ used for corn oils. Products for Industry & Agriculture markets include alcohols and other products for paint applications, inks, vehicle fluids and fertilizers. Products for Essential Ingredients markets include dried yeast, corn protein meal, corn protein feed, corn germ, distillers grains, gas and liquid CO 2 and liquid feed used in commercial animal feed and pet foods. We also sell yeast and gas 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. Our specialty alcohols for the Industry & Agriculture, Food & Beverage and Health, Home & Beauty markets represented approximately 11%, 6% and 2%, respectively, of our sales in 2025 to customers in these three markets. - 16 - We produce our alcohols and essential ingredients at our facilities described above. 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, were operating for all of 2025, other than for scheduled and unscheduled downtimes to address facility repair and maintenance. Our Magic Valley facility remained cold-idled for all of 2025, the first quarter of 2026 and through the filing of this report to minimize financial losses. We continue to provide ethanol terminaling services at the plant and may resume operations at the facility if the economic environment in the region sustainably improves. 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 2 – Segments” to our Notes to Condensed Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. - 17 - Current Initiatives and Outlook The first quarter is a seasonally weak period for us and for the ethanol industry, reflecting the build-up of inventories and lower demand following the winter months. In contrast, our first quarter 2026 results were strong relative to our historical performance for this period. We generated profitability on both an adjusted EBITDA and net income basis, supported by higher crush margins, an improved product mix that emphasized higher-value renewable fuel export sales and incremental earnings from transferrable Section 45Z clean fuel production tax credits. Importantly, even without the contribution from Section 45Z tax credits, our operations were profitable in the quarter. We believe these results demonstrate the benefits of our strategic realignment, operational improvements, and continued success in capturing premiums over domestic renewable fuel. We remain focused on maximizing value from our diversified portfolio of assets and on pursuing multiple revenue opportunities in response to market demand. Our priorities are to improve utilization and reliability across our platform, execute our 2026 optimization and capital projects on time and within budget, and advance our commercial strategy, including expanding the value we capture from Section 45Z tax credits and optimally monetizing the value of our biogenic CO 2 production across our facilities to lower our carbon footprint. During the first quarter of 2026, unusually cold weather in the first half of the quarter disrupted river logistics and led us to curtail production at our Pekin Campus. We used this unplanned downtime to accelerate a portion of our planned wet mill biennial outage work that had originally been scheduled for the second quarter. This will allow us to recapture some of the lost production later in the year when crush margins are typically stronger and help us stay on track toward our goal of increasing total 2026 alcohol volumes and prioritizing product mix that delivers premiums to domestic renewable fuel. We also executed a planned outage at our Columbia facility during what is typically a seasonally slower quarter for liquid CO 2 sales. Combined with an outage taken in December 2025, this work addressed certain deferred process-related activities intended to improve production performance and plant reliability for the remainder of 2026. These efforts are designed to help ensure our Columbia plant can run at optimal rates to support the growing needs of our CO 2 offtake customers during the higher-demand summer months and to enable us to qualify additional gallons for Section 45Z tax credits. We are planning a normal outage at our ICP facility in the second quarter, consistent with 2025. At our Pekin Campus, we began both the repairs on our original loading dock and the construction of a second loadout dock. As previously discussed, the second dock is intended to provide redundancy and enhance our logistical capabilities. We are currently on track to complete both projects by the end of 2026. Once the original dock is restored and the second dock is in service, we expect to reduce bottlenecks and increase loadout capacity. We also commenced a project to increase throughput and storage capacity at our Columbia liquid CO 2 processing facility by adding a third storage tank. We believe this project will position us to further capitalize on favorable liquid CO 2 market conditions, particularly the growing demand in the Pacific Northwest and limited supply of premium liquid CO 2 in the region. Combined with the process improvements described above, this investment is intended to enhance our ability to serve existing customers, support incremental volumes and monetize more of the CO 2 produced at our Columbia plant. At our Pekin dry mill, which is our most efficient ethanol plant, we are moving the planned outage from the third quarter into June. During this downtime, we expect to complete a debottlenecking project designed to increase annual production capacity by approximately 8%, or about 5 million gallons. We expect to fully realize the benefits of these improved production rates in the fourth quarter of 2026. If successful, this project should provide incremental margin and allow us to qualify additional volumes for Section 45Z tax credits. - 18 - In addition to the capital projects already underway or planned for 2026, we continue to evaluate large-scale CO 2 utilization and sequestration opportunities at our Pekin Campus. These potential projects are intended to lower our facilities’ carbon intensity scores and provide additional earnings opportunities through Section 45Z tax credits and higher-value liquid CO 2 sales. With respect to Section 45Z transferable tax credits for 2026, we expect to qualify approximately 90 million gallons of combined annual production at our Columbia and Pekin dry mill facilities at $0.20 per gallon, which would result in approximately $15 million of net proceeds after estimated monetization costs. For the first quarter of 2026, we recorded $3.9 million in Section 45Z credit earnings. The sale of all of our 2025 Section 45Z credits is underway at values consistent with previously recorded estimates, and we currently expect to complete that transaction in the second quarter of 2026. We are working to qualify additional gallons and further reduce our carbon intensity scores in order to capture more of the Section 45Z benefits in future periods. As we manage liquidity and continue to focus on our priorities, we remain disciplined in our capital allocation. We expect to spend approximately $25 million on capital expenditures in 2026, primarily on maintenance and optimization projects with the highest projected returns. Capital expenditures in the first quarter of 2026 were approximately $1 million, with the majority of spending planned over the remaining three quarters as our 2026 projects progress. We also repaid $16.6 million of term debt in the first quarter, as planned, and ended the quarter with $38.4 million outstanding on our term loan. With a lower debt balance, interest expense decreased compared to the prior-year quarter, reflecting our focus on minimizing idle cash, maintaining ample borrowing availability and reducing our interest burden. We are closely monitoring macroeconomic and geopolitical developments, including unrest in the Middle East, which can indirectly affect our business through energy and commodity price volatility, as well as freight and export logistics. We seek to actively manage these exposures through our commercial strategy, hedging activities and operational flexibility. We are also encouraged by continued progress on E15. In California, Assembly Bill 30 has provided a pathway for year-round E15 sales, and we are monitoring the state’s implementation process. At the federal level, momentum in Congress for legislation allowing year-round E15 continues to build. We view expanded E15 access as an important demand-side complement to production incentives such as Section 45Z because it can help ensure the market is able to absorb additional low-carbon renewable fuel gallons over time. Without corresponding demand growth, production incentives alone could contribute to industry overproduction and margin pressure. Overall, we believe our first quarter 2026 results demonstrate that our operating model—focusing on improving margins through higher-value revenue opportunities and disciplined cost management—is working. With multiple product streams, we have the flexibility to respond quickly as markets shift and we are continuing to strengthen our ability to perform through commodity cycles. We intend to continue executing on our 2026 optimization and capital projects, improving utilization and reliability across our asset base, and advancing our commercial strategy, including expanding the value we capture from Section 45Z credits and further monetizing our biogenic CO 2 production across our facilities. We remain committed to further enhancing shareholder value over both the near- and longer-term. - 19 - 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 Adjusted EBITDA as a non-GAAP financial measure 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 Adjusted EBITDA as unaudited consolidated net income or loss before interest expense, interest income, unrealized derivative gains and losses, excess insurance proceeds, acquisition-related expense or recoveries, provision or benefit for income taxes, asset impairments, 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). Adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative 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. Adjusted EBITDA has limitations as an analytical tool and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Information reconciling forward-looking 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 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 March 31, (in thousands) (unaudited) 2026 2025 Consolidated net income (loss) $ 4,271 $ (11,679 ) Adjustments: Interest expense, net 2,198 2,729 Interest income (77 ) (84 ) Unrealized derivative gains (8,073 ) (1,634 ) Depreciation and amortization expense 6,366 6,266 Total adjustments 414 7,277 Adjusted EBITDA $ 4,685 $ (4,402 ) Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations is based on our condensed 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 critical accounting estimates, defined as those estimates 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: impairment of long-lived assets and valuation allowance for deferred taxes. These critical accounting estimates are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2025. Results of Operations Selected Financial Information The following selected financial information should be read in conjunction with our condensed consolidated financial statements and notes to our condensed 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. - 20 - Certain performance metrics that we believe are important indicators of our results of operations: Three Months Ended March 31, 2026 2025 (unaudited) Alcohol Sales (gallons in millions) Pekin Campus renewable fuel gallons sold 31.2 32.6 Western production renewable fuel gallons sold 8.2 8.3 Third party renewable fuel gallons sold 23.5 24.4 Total renewable fuel gallons sold 62.9 65.3 Specialty alcohol gallons sold 23.0 24.3 Total gallons sold 85.9 89.6 Sales Price per Gallon Pekin Campus $ 2.00 $ 1.90 Western production $ 2.03 $ 1.95 Marketing and distribution $ 2.01 $ 2.01 Average sales price per gallon $ 2.00 $ 1.93 Alcohol Production (gallons in millions) Pekin Campus 51.2 54.3 Western production 7.9 8.3 Total 59.1 62.6 Corn Cost per Bushel Pekin Campus $ 4.45 $ 4.65 Western production $ 5.54 $ 5.95 Average corn cost per bushel $ 4.58 $ 4.81 Average Market Metrics PLATTS Ethanol price per gallon $ 1.73 $ 1.71 CME Corn cost per bushel $ 4.38 $ 4.72 Board corn crush per gallon (1) $ 0.17 $ 0.02 Essential Ingredients Sold (thousand tons) Pekin Campus: Distillers grains 80.4 90.7 CO 2 43.3 45.3 Corn wet feed 29.9 34.5 Corn dry feed 21.0 23.8 Corn oil and germ 18.1 19.6 Syrup and other 9.2 8.2 Corn meal 9.5 9.4 Yeast 6.1 6.4 Total Pekin Campus essential ingredients sold 217.5 237.9 Western production: Distillers grains 60.1 58.1 CO 2 12.8 12.6 Syrup and other 0.8 0.8 Corn oil 0.8 1.4 Total Western production essential ingredients sold 74.5 72.9 Total Essential Ingredients Sold 292.0 310.8 Essential ingredients return % (2) Pekin Campus return 54.0 % 48.0 % Western production return 49.9 % 49.0 % Consolidated total return 53.4 % 48.2 % (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. - 21 - 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 March 31, Change in 2026 2025 Dollars Percent Net sales $ 224,680 $ 226,540 $ (1,860 ) (0.8 )% Cost of goods sold 215,461 228,347 (12,886 ) (5.6 )% Gross profit (loss) $ 9,219 $ (1,807 ) $ 11,026 NM Percentage of net sales 4.1 % (0.8 )% Net Sales The decrease in our consolidated net sales for the three months ended March 31, 2026 as compared to the same period in 2025 is attributable to fewer total gallons sold as well as lower volumes and lower average sales prices of essential ingredients due to a lower commodity price environment, partially offset by an increase in our average sales prices per gallon for both specialty alcohols and renewable fuel. Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment increased by $0.7 million, or 1%, to $108.0 million for the three months ended March 31, 2026 as compared to $107.3 million for the same period in 2025. The segment’s average sales price per gallon increased by $0.10, or 5%, to $2.00 for the three months ended March 31, 2026 from $1.90 for the same period in 2025. Our total volume of production gallons sold decreased by 2.6 million gallons, or 5%, to 53.9 million gallons for the three months ended March 31, 2026 as compared to 56.5 million gallons for the same period in 2025. The increase of $0.10, or 5%, in the segment’s average sales price per gallon for the three months ended March 31, 2026 as compared to the same period in 2025 increased our net sales from the segment by $5.9 million. With the segment’s average sales price per gallon of $2.00 for the three months ended March 31, 2026, we generated $5.2 million in fewer net sales from the 2.6 million fewer gallons of alcohol sold in the three months ended March 31, 2026 as compared to the same period in 2025. Net sales of essential ingredients from our Pekin Campus production segment declined by $0.6 million, or 1%, to $44.0 million for the three months ended March 31, 2026 as compared to $44.6 million for the same period in 2025. Our total volume of essential ingredients sold decreased by 20,400 tons, or 9%, to 217,500 tons for the three months ended March 31, 2026 from 237,900 tons for the same period in 2025. The increase of $14.72, or 8%, in the segment’s average sales price per ton for the three months ended March 31, 2026 as compared to the same period in 2025 increased our net sales from the segment by $3.5 million. With the segment’s average sales price per ton of $202.27 for the three months ended March 31, 2026, we generated $4.1 million less in net sales from the 20,400 fewer tons of essential ingredients sold in the three months ended March 31, 2026 as compared to the same period in 2025. Marketing and Distribution Segment Net sales of alcohol from our marketing and distribution segment, excluding intersegment sales, declined by $1.7 million, or 3%, to $47.3 million for the three months ended March 31, 2026 as compared to $49.0 million for the same period in 2025. - 22 - Our volume of third-party alcohol sold reported gross by the segment declined by 0.9 million gallons, or 4%, to 23.5 million gallons for the three months ended March 31, 2026 as compared to 24.4 million gallons for the same period in 2025. With the segment’s average sales price per gallon of $2.01 for the three months ended March 31, 2026, we generated $1.7 million less in net sales from the 0.9 million fewer gallons of third-party alcohol sold gross in the three months ended March 31, 2026 as compared to the same period in 2025. Western Production Segment Net sales of alcohol from our Western production segment increased by $0.5 million, or 3%, to $16.7 million for the three months ended March 31, 2026 as compared to $16.2 million for the same period in 2025. Our total volume of alcohol sold decreased by 0.1 million gallons, or 1%, to 8.2 million gallons for the three months ended March 31, 2026 as compared to 8.3 million gallons for the same period in 2025. With the segment’s average sales price per gallon of $2.03 for the three months ended March 31, 2026, we generated $0.2 million less in net sales from the 0.1 million fewer gallons of alcohol sold in the three months ended March 31, 2026 as compared to the same period in 2025.The increase of $0.08, or 4%, in the segment’s average sales price per gallon for the three months ended March 31, 2026 as compared to the same period in 2025 increased our net sales from the segment by $0.7 million. Net sales of essential ingredients from our Western production segment declined by $0.5 million, or 6%, to $7.3 million for the three months ended March 31, 2026 as compared to $7.8 million for the same period in 2025. Our total volume of essential ingredients sold increased by 1,600 tons, or 2%, to 74,500 tons for the three months ended March 31, 2026 from 72,900 tons for the same period in 2025. With the segment’s average sales price per ton of $97.72 for the three months ended March 31, 2026, we generated $0.2 million in increased net sales from the 1,600 additional tons of essential ingredients sold in the three months ended March 31, 2026 as compared to the same period in 2025. However, the decrease of $9.39, or 9%, in our average sales price per ton for the three months ended March 31, 2026 as compared to the same period in 2025 reduced our net sales of essential ingredients from the segment by $0.7 million. Corporate and other Net sales of alcohol from corporate and other declined by $0.2 million, or 13%, to $1.4 million for the three months ended March 31, 2026 as compared to $1.6 million for the same period in 2025. These sales are from Eagle Alcohol’s business. Cost of Goods Sold and Gross Profit (Loss) Our consolidated gross profit improved to $9.2 million for the three months ended March 31, 2026 from a gross loss of $1.8 million for the same period in 2025, representing a gross margin of 4.1% and a negative gross margin of 0.8% for the three months ended March 31, 2026 and 2025, respectively. Higher gross margin for the first quarter of 2026 was primarily driven by improved crush margins, including from a product mix that emphasized higher-value renewable fuel export sales, and unrealized gains on our derivative instruments. Pekin Campus Production Segment Our Pekin Campus production segment’s gross profit, net of intercompany activity, improved by $11.2 million to a gross profit of $9.0 million for the three months ended March 31, 2026 as compared to a gross loss of $2.2 million for the same period in 2025. Of this improvement, $11.7 million is attributable to higher margins, partially offset by $0.5 attributable to lower sales volumes for the three months ended March 31, 2026 as compared to the same period in 2025. - 23 - Marketing and Distribution Segment Our marketing and distribution segment’s gross profit, net of intercompany activity, decreased by $0.7 million to a gross profit of $1.1 million for the three months ended March 31, 2026 as compared to a gross profit of $1.8 million for the same period in 2025. Of this decrease, $0.6 million is attributable to slightly lower margins from sales of third-party fuel-grade ethanol and $0.1 million is attributable to lower sales volumes for the three months ended March 31, 2026 as compared to the same period in 2025. Western Production Segment Our Western production segment’s gross profit, net of intercompany activity, remained flat at a gross loss of $1.3 million for the three months ended March 31, 2026 and 2025. Corporate and other Gross profit from corporate and other improved by $0.5 million to a gross profit of $0.4 million for the three months ended March 31, 2026 as compared to a gross loss of $0.1 million for the same period in 2025, all of which were from Eagle Alcohol’s business. Selling, General and Administrative Expenses The following table presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands, except percentages): Three Months Ended March 31, Change in 2026 2025 Dollars Percent Selling, general and administrative expenses $ 6,699 $ 7,190 $ (491 ) (6.8 )% Percentage of net sales 3.0 % 3.2 % Our SG&A expenses declined by $0.5 million for the three months ended March 31, 2026 as compared to the same period in 2025. The decline in SG&A expenses primarily reflects reduced compensation expenses and professional fees. 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 March 31, Change in 2026 2025 Dollars Percent Net income (loss) attributable to common stockholders $ 3,959 $ (11,991 ) $ 15,950 NM Percentage of net sales 1.8 % (5.3 )% The significant improvement in net income (loss) attributable to common stockholders is primarily due to higher margins, income from transferable tax credits, lower SG&A expenses and lower interest expense as well as the other factors affecting gross profit discussed above. - 24 - Liquidity and Capital Resources During the three months ended March 31, 2026, our operations generated positive cash flow, and we supplemented our liquidity with cash on hand and net proceeds from Kinergy’s operating line of credit. In addition to funding our operations, our capital resources were used to make principal payments on our term debt. As of March 31, 2026, we had $21.6 million in cash, cash equivalents and restricted cash, $29.3 million of unused borrowing availability under Kinergy’s operating line of credit and $65.0 million that may be available for capital improvement projects under our Orion term loan. We believe we have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs for at least the next twelve months from the date of this report. Quantitative Year-End Liquidity Status We believe that the following amounts provide insight into our liquidity and capital resources. The following selected financial information should be read in conjunction with our condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report (dollars in thousands). March 31, 2026 December 31, 2025 Change Cash, cash equivalents and restricted cash $ 21,643 $ 25,673 (15.7 )% Current assets $ 158,552 $ 155,917 1.7 % Property and equipment, net $ 193,199 $ 198,501 (2.7 )% Current liabilities $ 41,652 $ 59,071 (29.5 )% Long-term debt, noncurrent portion $ 73,056 $ 63,027 15.9 % Working capital $ 116,900 $ 96,846 20.7 % Working capital ratio 3.81 2.64 44.3 % Restricted Net Assets At March 31, 2026, we had approximately $59.1 million in 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 $116.9 million at March 31, 2026 from $96.8 million at December 31, 2025 as a result of a decrease of $17.4 million in current liabilities and an increase of $2.6 million in current assets. Current assets increased primarily due to an increase in accounts receivable, transferable tax credits and derivative instruments, partially offset by a decrease in cash and cash equivalents and restricted cash and inventories. Our current liabilities decreased primarily due to lower current portion of long-term debt and derivative instruments, partially offset by increases in accounts payable and accrued liabilities as a result of timing of payments. - 25 - Our cash, cash equivalents and restricted cash declined by $4.0 million due to $7.3 million in cash used in our financing activities and $0.9 million used in our investing activities, partially offset by $4.2 million in cash provided by our operating activities. Cash provided by our Operating Activities We generated $4.2 million of cash from our operations for the three months ended March 31, 2026 as compared to $18.2 million of cash used in our operations for the same period in 2025. Significant factors that contributed to the change in cash provided by our operating activities include: ● an increase in net income of $15.9 million; ● an increase of $10.6 million related to lower inventories due to reduced production volumes and the timing of sales; and ● an increase of $3.9 million related to changes in accounts payable and accrued liabilities. These amounts were partially offset by: ● income from transferable tax credits of $3.9 million; ● an increase of $2.4 million related to changes in accounts receivables; and ● an increase of approximately $6.6 million related to our derivative instruments. Cash used in our Investing Activities We used $0.9 million in cash during the three months ended March 31, 2026 for capital expenditures. Cash used in our Financing Activities Cash used in our financing activities was $7.3 million for the three months ended March 31, 2026, which reflects $16.6 million in principal payments on our term debt and $0.3 million in preferred stock dividends paid, partially offset by $9.6 million in proceeds from Kinergy’s operating line of credit. Kinergy’s Operating Line of Credit Kinergy maintains an operating line of credit for an aggregate amount of up to $85.0 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 provides for an unused line fee, payable monthly in arrears, at an annual rate of 0.25% to 0.375% on the amount by which the maximum credit under the facility exceeds the average daily principal balance during the 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. - 26 - 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 1.10 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). The obligations of Kinergy and Alto Nutrients under the credit facility are secured by all of our tangible and intangible assets. We believe Kinergy and Alto Nutrients are in compliance with the fixed-charge coverage ratio financial covenant as of the filing of this report. The following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented: Three Months Ended March 31, Years Ended December 31, 2026 2025 2025 2024 Fixed-Charge Coverage Ratio Requirement 1.10 1.10 1.10 1.10 Actual 4.89 3.49 4.03 3.53 Excess 3.79 2.39 2.93 2.43 Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of March 31, 2026, Kinergy had an outstanding balance of $39.2 million and $29.3 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 is secured by a first priority lien on certain of our assets and a second priority lien on certain assets of Kinergy and Alto Nutrients. Interest accrues on the unpaid principal amount of the Term Loan at a fixed rate of 10% per annum. The Term Loan matures on November 7, 2028, or earlier upon acceleration. We must prepay amounts outstanding under the Term Loan on a semi-annual basis beginning with the six-month period ending December 31, 2023 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. As of March 31, 2026 and December 31, 2025, the principal amount outstanding under the Term Loan was $38.4 million and $55.0 million, respectively. Other Cash Obligations As of March 31, 2026, we had future commitments for certain capital projects totaling $18.4 million. These commitments are scheduled to be satisfied in 2026.