Prepared remarks
Good afternoon and welcome to the Alto Ingredients Second Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press *2. Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.
Thank you, Danielle, and thank you all for joining us today for Alto Ingredients Second Quarter 2026 Results Conference Call. With me on the call are our President and CEO, Bryon McGregor, and CFO, Robert R. Olander. Alto Ingredients issued a press release after the market closed today providing details of the company's financial results for the second quarter of 2026. A webcast and webcast replay will be available on the Alto Ingredients website at altoingredients.com. Please note that the information on this call speaks only as of today, 08/05/2026. You are advised that time-sensitive information may no longer be accurate at the time of any replay. The company also prepared a presentation for today's call that is available on its website. Please refer to the company's safe harbor statement in the presentation which states that some of the comments constitute forward-looking statements and contain risks and uncertainties. The actual results of Alto Ingredients could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, events, risks, and other factors previously and from time to time disclosed in Alto Ingredients filings with the SEC. Except as required by applicable law, the company assumes no obligation to update any forward-looking statements. In management's prepared remarks, non-GAAP measures will be referenced. Management uses these non-GAAP measures to monitor the company's financial performance of its operations and believes these measures will assist investors in assessing the company's performance for the periods reported. The company defines adjusted EBITDA as unaudited consolidated net income or loss before interest expense, interest income, provision or benefit for income taxes, asset impairments, unrealized derivative gains and losses, acquisition-related expenses, excess insurance proceeds, and depreciation and amortization expense. To support the company's review of non-GAAP information, a reconciling table has been included in the second quarter earnings release and presentation. With that, it is now my pleasure to introduce Bryon McGregor. Bryon, please go ahead.
Thanks, Jody. And thanks everyone for joining us today. I will begin with a high-level review of our second quarter results and operational activities. Then I will turn the call over to Robert for a detailed review of our financial results for the quarter. After that, I will wrap up and open the call for Q&A. We delivered our fourth consecutive quarter of positive gross profit, income from operations, net income, and adjusted EBITDA. We have been consistently profitable during this period even without the contribution of 45Z tax credits. These results demonstrate the strength of our diversified operating model, which gives us the flexibility to shift production toward the most attractive end markets and capture premium value opportunities. We remain focused on disciplined execution of our strategic plan and unlocking additional value across our portfolio. Our latest 12-month results are also a testament to our efforts to drive profitability and maximize our asset base and to make smart capital allocation decisions, including purchasing Alto Carbonic, investing in our dry mill optimization and carbon intensity reduction projects. We have executed well on these initiatives and more. For the second quarter, our results reflect strong domestic demand and improved essential ingredient values compared to the same period last year. The quarter's market crush margins improved significantly to $0.33 per gallon from $0.11 per gallon in the same period last year. This increase was driven by robust export demand, strong domestic blending activity, and tighter ethanol inventories following industry-wide spring maintenance outages. As a result, ethanol prices improved during the quarter supported by strong Renewable Volume Obligation, or RVO, blending requirements. Meanwhile, favorable crop conditions and larger projected grain supplies contributed to lower corn costs and higher margins. Q2 crush margins were not only significantly higher than the same period last year, but were also strong by historical standards. Q3 margins, which in the past have marked the seasonal peak of the year, continue to be healthy and profitable. While European demand remained robust, ongoing geopolitical disruption in the Middle East negatively impacted export economics from the United States during the quarter. Higher freight costs and reduced certainty of vessel availability to move exports from the Gulf Coast compressed the U.S.-to-Europe arbitrage, increasing the competitiveness of Brazil exports into Europe. As a result, our renewable fuel export volumes declined compared to the second quarter of last year. Given the strength of domestic ethanol markets, we successfully optimized our product mix toward fuel-grade ethanol sales in the U.S. markets. This underscores the benefits of our diversified commercial platform enabling us to adapt and capture the value of strong crush margin environments. Also, we believe that the geopolitical disruption in the Middle East created favorable conditions that drive domestic support for implementing E15 blending. More on that in a minute. During the quarter, we continued to improve utilization, reliability, and throughput, with the goal of increasing total 2026 volumes over 2025. At our Pekin campus, we completed the dry mill planned outage along with our debottlenecking project to increase annual production capacity by about 8%, or 5 million gallons. This project demonstrates our dedication to highly attractive ROI investments. By increasing production at our most efficient facility, we are positioning Alto for incremental gross margin and to qualify for additional 45Z tax credits. After a successful dry mill restart, we are now ramping up to our new production levels and still expect to realize the full benefit of the additional capacity in the fourth quarter. We also performed our routine spring outage at ICP during the quarter. We remain on track to finish the repairs on our existing dock and the installation of the second alcohol load-out by the end of the year, improving our logistics and loading capacity. At our Columbia facility, we began working to add a third CO2 storage tank and expect it to be operational in Q4. The expanded storage capacity will allow us to further capitalize on growing demand for premium CO2 in the Pacific Northwest. We continue advancing multiple pathways to further monetize our CO2 stream, including both utilization and sequestration opportunities. Our strategy emphasizes low capital, high-return projects while preserving flexibility as regulatory and commercial markets continue to evolve. Our intent is to move quickly by pursuing partnerships with stakeholders that already have compression capabilities, allowing us to accelerate commercialization. In the meantime, we are focused on increasing our 45Z credits by producing more volume. We also continue to explore opportunities to lower our carbon scores without significant capital investment by working with our farmer partners to encourage them to lower the carbon intensity of their corn. We remain on track to qualify 90 million gallons or more of combined production this year supporting our expectation for generating a minimum of $15 million in income from tax credits after monetization costs. We are encouraged by the growing momentum for year-round E15 adoption. As an example, recently the Renewable Fuels Association reported that about 72% of U.S. voters favor year-round E15 blending, the highest level recorded since polling began in 2016. Nationally, support continues to build around the promise of E15 to reduce fuel cost, strengthen energy security, and to increase demand for domestically produced renewable fuels. Meanwhile, several Midwestern states have moved forward with permanent year-round E15 access, providing an important blueprint for broader adoption. California is also making progress following the passage of Assembly Bill 30. While final implementation steps remain, we believe the state's transition toward E15 represents a meaningful long-term demand opportunity given its position as one of the largest gasoline markets in the country. Taken together, expanding E15 adoption at both the federal and state levels has the potential to drive significant incremental ethanol demand, improved industry capacity utilization, and support a more favorable margin environment over time. With that, I will turn the call over to Robert for a more detailed review of our second quarter financial results.
Thank you, Bryon. I will start with a review of the second quarter 2026 income statement compared to the second quarter of 2025. Consolidated net sales were $246 million, up $27 million. We sold 88.5 million gallons of ethanol and specialty alcohols, an increase of 1.8 million gallons at an average sales price of $2.15 per gallon, which was $0.20 per gallon or 10% higher than last year. With the 2026 RVO regulations finalized during the second quarter, ethanol and RIN prices supported higher domestic ethanol sales and improved crush margins. With the diverse production capabilities at the Pekin campus, we are well positioned to serve this changing market demand by shifting our production and sales mix. Revenue from renewable fuel exports increased by $800 thousand reflecting a 2.2 million gallon reduction in gallons sold at a significantly higher premium to domestic renewable fuel than last year. This decrease in volume reflects the impact of the conflict in the Middle East on the cost and availability of freight. High-quality alcohol volumes increased by 3.6 million gallons. Although average premiums over ethanol narrowed, reducing revenue by approximately $2.9 million, realized gains from our derivative positions largely offset the impact as intended, limiting the net premium decline to $0.02 per gallon. As a result, the higher volumes generated a modest increase in profitability despite the lower premium environment. Essential ingredient sales increased $6.1 million on overall improved average sales prices. Dry distiller grain sales were supported by a strong export market and tighter domestic supply as a result of the seasonal spring maintenance downtime in the industry. In addition, the 2026 RVO set strong demand for corn oil and germ as a feedstock for biodiesel and renewable diesel, which drove prices up. Coupled with a 5% decrease in our cost of corn, our essential ingredients return improved to 51.6% compared to 45.2% for the second quarter last year. Gross profit increased by $19 million year over year to $17 million. In addition to the sales mix changes, the improvement was primarily driven by stronger industry crush margins, which increased to $0.33 per gallon from $0.11 per gallon in the second quarter of last year, contributing approximately $17 million of incremental gross profit. We also benefited from lower utility costs, with natural gas and electricity expenses declining by nearly $600 thousand year over year. Offsetting these positives, we incurred approximately $2 million more in repairs and maintenance expense due to our Pekin dry mill and ICP spring outages, and continued work at our Carbonic facility to ensure we are prepared to reliably support the increased demand for our premium CO2 during the seasonally strong summer months. Even with these higher expenses, our Western facilities remain profitable on a gross profit basis for Q2 2026. As a reminder, we employ hedging strategies to protect the premiums over ethanol on our high-quality alcohol contractual commitments and to adjust our fixed price corn back to market. For the second quarter, realized derivative gains increased $1.2 million while unrealized derivative losses related to future shipments increased $1.5 million. As of the end of the second quarter, our open derivative positions resulted in a net asset of $3.9 million. SG&A expenses increased by $1.8 million. Because of our strong second quarter and year-to-date results, we accrued performance compensation for the first and second quarters in the amount of $800 thousand whereas last year, we did not accrue performance compensation until the second half of the year. Last year's SG&A expense also included a one-time $800 thousand gain related to the final payment for the Eagle Alcohol acquisition. Excluding these notable items, SG&A was comparable, reflecting the actions taken last year to rightsize our staff levels and cut costs. We continue to maintain strict discipline over our spending. Moving down the income statement, we generated $5.1 million in 45Z tax credit earnings reflecting $4 million of credits earned in the second quarter and $1.1 million in final adjustments on our 2025 sales proceeds as we completed the sale of our 2025 credits in June. In Q2 2025, we did not recognize any 45Z tax credit earnings as we were not yet accounting for them on a quarterly basis. Year to date, we have accrued $7.9 million in net 2026 45Z tax credits which we expect to monetize in the future. Interest expense decreased $900 thousand on lower debt balances, reflecting our continued focus on minimizing idle cash and reducing our interest expense burden by paying down debt. Adjusted EBITDA improved by $23.9 million to $23.7 million compared to negative adjusted EBITDA in the prior year period. The improvement was driven by a combination of the $19 million swing to positive gross profit and a $5.1 million increase in 45Z tax credit earnings, partially offset by higher SG&A expenses. Net income attributable to common stockholders was $11.4 million or $0.15 per share compared to a net loss of $11.3 million or a negative $0.15 per share for Q2 2025 — a significant improvement of $22.7 million. Our tax provision amount is zero; we expect to use a portion of our NOLs to offset income this year. Turning to the balance sheet, as of 6/30/2026, our cash balance was $24 million. During the second quarter, we generated $28.5 million in cash flow from operating activities. Capital expenditures for the quarter amounted to $10.6 million and $11.5 million year to date. We are on track with our annual targeted CapEx spend of $25 million. With strong earnings and positive cash flow from operations, we paid down an additional $8.5 million in principal on our term debt facility and ended the quarter with $29.9 million in term debt outstanding, bringing our total principal payments this year to $25.1 million. At quarter end, our total borrowing availability was $106 million, consisting of $41 million under our operating line of credit and $65 million under our term loan facility. Todd, we established a $50 million at-the-market equity program. Alongside our available borrowing capacity and operating cash flow, the ATM gives us additional financial flexibility and a prudent and low-cost tool to effectively access equity capital. We see a number of attractive high-return organic opportunities across our platform. Having the ATM in place allows us to remain prepared to pursue these opportunities when expected returns, market conditions, and shareholder interests align. Any use of the program would be disciplined, measured, and evaluated against other available sources of capital. With that, I will turn the call back to Bryon.
Thanks, Robert. Our results for the past four quarters demonstrate the success to date of this strategic realignment we began three years ago. With a diversified product portfolio and a leaner cost structure, we have positioned Alto to capture higher-value revenue opportunities to enhance profitability and drive shareholder value. Our operating model is now capable of generating annual positive adjusted EBITDA through the commodity cycles while providing meaningful upside when market conditions are favorable. In addition, this year we are executing high-return capital projects focused on capacity expansion, CO2 optimization, and process efficiency improvements. These projects represent over $10 million of capital investment offering attractive returns and are expected to generate paybacks of just over one year on average. Importantly, these investments are within our control and are designed to enhance earnings and cash flow regardless of commodity market conditions. These are only a few of many compelling organic opportunities that we intend to pursue, while maintaining our disciplined approach to capital allocation. In summary, we remain on track to increase production volumes in 2026 compared to 2025. We will continue optimizing our product mix, capturing more value from our unique asset base, executing high-return opportunities and improving profitability and cash flow. Our diversified strategy is working. Our operating model is stronger, and our financial results reinforce our confidence in Alto's ability to generate sustainable earnings and create long-term shareholder value. Danielle, we are ready to begin the Q&A session.
Questions and answers
Thank you. We will now begin the question and answer session. You are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. The first question comes from Eric Stine from Craig-Hallum. Please go ahead.
Hi, Bryon. Hi, Robert. So, I mean, obviously, you have laid out these capital projects and the progress you're making, but also alluding to a host of others. Should we think about that as going deeper on the paths that you are already on, or are there others? And if so, could you give some details on what those other areas might be?
Sure. In general, they are deeper moves along some of the same things that we have been talking about. We are clearly focused on monetizing CO2, taking advantage of the 45Z opportunities that are available at least through 2029 to help monetize that value and be able to reinvest those dollars into other longer-term projects. It is about leaning into our efficient projects and expanding capacity where it makes sense to do so, particularly in our most efficient locations and making less efficient locations more efficient. It's probably not appropriate to share the exact details yet because we have not committed full capital to those projects, but we will certainly be sharing more as we commit. As I mentioned in our prepared remarks, we see really exciting organic opportunities with excellent paybacks that we see as obligations to pursue. That is the focus of the company, and we will share more as we commit capital to those projects.
Understood. Maybe just on improving the carbon intensity scores and working with farmers. Given that 45Z is relatively new to the market, how open are farmers to participating? Is that an opportunity that has been largely mined, or is it still ripe to make further strides in that area?
It is relatively fresh for the farmers, especially because the rules were not fully established until a month or two ago. With the rules now in place, and while there are still some clarifications that need to be made, I think the pathway is clear. There is a lot of inquiry and a lot of work being done on our part and by others in the industry. Farmers are very keen. If you think about it, on a relative basis, if we were to save an additional $0.10 or generate an additional $0.10 in carbon intensity credit, that translates into almost $0.30 per bushel for those farmers who are participating. That is real dollars, especially where corn prices this year and last are somewhat difficult to justify the investment farmers are making. Some of the steps are incredibly easy for farmers to do, such as registration and basic practices. We see this as a real opportunity and more and more farmers are asking questions and taking steps to get on board.
Got it. Last one: you had the dry mill planned outage in Q2 and got through that. It limited production to an extent. When you think about Q3, as you ramp back up, given the favorable market conditions, do you expect to capture more value now that you are through the outage?
As we said in the prepared remarks, we expect to fully realize the benefits in Q4. We don't want to rush our team too quickly when making changes not only to the debottlenecking but improvements to DCS, IT systems and the like. You want to line everything out and keep operations safe. That said, we are excited about the opportunity. We have seen real promise at the plant — excess capacity and improved performance. This facility is one of our lowest-cost, if not our lowest-cost, facilities in operations, so it will drive profitability to the bottom line. Also, those additional gallons are eligible for 45Z credits, so it has a multiplying effect. We are really excited about that opportunity.
Okay. Thank you.
Thank you. The next question comes from Sameer Joshi from C. Wainwright. Please go ahead.
Hey, good afternoon, Bryon, Robert. Thanks for taking my questions and congratulations on a great quarter. Stepping back, when you make decisions whether to delever or to invest, because you do have these projects to improve CI scores, monetize CO2, and expand capacity while also paying back principal, what are the takes and puts in that decision-making?
We have a full, committed process around evaluating each of our projects, stacking them and weighing them against other opportunities. Some projects may not have as solid a return, but they are core or foundational to expanding into other areas. A good example is the debottlenecking at the Pekin dry mill — it lays the foundation to do a significantly higher expansion on that facility going forward. That expansion, however, would require significantly more capital than the debottlenecking. Those are things we take into account and weigh against the cost of capital and against other projects that may have higher or lower returns. We prioritize and stack projects accordingly. Robert, anything to add?
Yeah, I would add that with our strong profitability and cash flows year to date, we have been able to fund a lot of our low-cost, high-return projects. As opposed to letting that cash sit idle in the bank, we would rather put that to work and reduce our interest expense burden. So we are taking the opportunity to pay down debt, which also improves our profitability.
Thanks for that color. My second question: regarding the European disruption and shipping, would your EBITDA have been higher if you had been able to take advantage of the European opportunity versus redirecting efforts toward domestic sales?
It is a dynamic market and a commodity space, so it can be speculative. All things being equal, if we had the same price and volume as in Q1 and Q4 of last year, yes, we would have generated more. That said, margins were significantly higher in Q2 for domestic fuel as well compared to Q1. The arbitrage with Brazil made exports into Europe more competitive during the quarter, but those dynamics can change with exchange rates, freight availability, and global supply. We remain optimistic over the longer term and are pleased to have a strong domestic market to place product when export economics become less favorable.
A clarification on the 45Z: I thought I heard that you had accounted for $7.9 million in credits that you plan to sell in the second half. Can you explain what that number refers to?
Yes, that is correct. We have a minimum baseline target expectation of $15 million in net 45Z proceeds, and that is based on 90 million gallons. We are pursuing opportunities to qualify more volume through the Pekin debottlenecking, improving reliability and uptime, and potentially qualifying other volume that might otherwise have been exported. Additionally, efforts to reduce energy consumption and secure low carbon intensity corn will help. Year to date, we have recognized just under $8 million of net 45Z credits for the year. We are currently on track for the $15 million to $16 million range.
Understood. Great. Thanks for that. I'll take my other questions offline.
Thank you. The next question comes from Justin Dobrioglo from Domo Capital Management. Please go ahead.
Hey. Thanks for taking my call. Two quick questions. First, did I hear correctly that after the quarter ended you paid down an additional approximately $6 million in debt?
No. During the quarter we paid down $8.5 million of debt.
Got it. And then regarding the 45Z credits you have generated, that will be cash coming in later in the year that could be used for further debt reduction, I assume?
Yes. We are in preliminary discussions with buyers on the 2026 credits, so we expect to monetize those in the not-too-distant future.
I would add a clarification: the proceeds are not necessarily dedicated to debt reduction. We will evaluate uses of the proceeds in light of covenants and EBITDA ratios under our agreements. If it makes economic sense to pay down debt rather than deploying the proceeds elsewhere, we will certainly consider that, but we will evaluate all options.
And regarding farming practices: is it possible to realize an extra $0.10 per gallon in 2026 if you get farmers aligned, and would that apply to all gallons produced at Pekin and potentially other facilities? Would that apply for the entire year's production?
We are in discussions with our farmer partners, but we are not at the point where we can support recognizing that benefit yet. We are setting ourselves up for the future and exploring how many bushels or how much volume could qualify under low carbon intensity corn, and then applying that against our production to calculate the carbon intensity reduction. We cannot say definitively at this time, but we are laying the groundwork.
To add, if we can achieve that reduction in 2026, we certainly would act on it. But some practices, like cover crops, if not already implemented, would typically show more benefit in 2027 when practices are in place through the growing season. So while there could be incremental benefits in 2026, the more significant impacts will likely be realized in 2027 and beyond as adoption increases.
Alright. Fantastic quarter. Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Bryon McGregor for closing remarks.
Thanks, Danielle. Thanks to everyone for joining us today. As always, we appreciate your interest in and support of Alto Ingredients. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.