Good afternoon. And welcome to Alto Ingredients Second Quarter 2022 Results Conference Call. All participants will be in a listen-only mode [Operator instructions]. Please note this event is being recorded. I would now like to turn the conference over to Kirsten Chapman, LHA Investor Relations. Please go ahead.

Thank you, Gary. And thank you all for joining us today for the Alto Ingredients second quarter 2022 results conference call. On the call today are Mike Kandris, CEO; and Bryon McGregor, CFO. Alto Ingredients issued a press release after the market closed today, providing details of the company's quarterly results. The company also prepared a presentation for today's call that is available on the company's website at altoingredients.com. A telephone replay of today's call will be available through August 15th, the details of which are included in today's earnings press release. A webcast replay will also be available at Alto Ingredients website. Please note that information on this call speaks only as of today, August 8th, and you are advised that any time-sensitive information may no longer be accurate at the time of the replay. Please refer to the company's safe harbor statement on slide 2 of the presentation available online, which states that some of the comments in this presentation constitute forward-looking statements and considerations that involve a number of risks and uncertainties. The actual future 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 financial performance of operations and believes these measures will assist investors in assessing the company's performance for the period being reported. The company defines adjusted EBITDA as unaudited net income or loss attributed to Alto Ingredients before interest expense, interest income, provision or benefit for income taxes, asset impairment, loss on extinguishment of debt, acquisition related expense, fair value adjustments and depreciation and amortization expense. To support the company's review of non-GAAP information later this call, a reconciling table was included in today's press release. On today’s call, Mike Kandris will begin with some highlights and review the vision and quarterly activities. Bryon McGregor will then provide detail on our Q2 2022 financial results. Then Mike will wrap-up with a summary and open the call for Q&A. It's now my pleasure to introduce Mike Kandris, CEO. Mike, please go ahead.

Thank you, Kirsten and thank you everyone for joining us today. Our diversification into specialty alcohols and essential ingredients continues to serve us well. As we continue to build for the future. Our plan includes upgrading equipment and operating systems to increase efficiency and plant reliability, expanded our corn storage capacity, enhancing our specialty alcohol production and broadening its distribution and reinvesting in essential ingredients. In short, these capital projects strengthen and improve our current asset base and will generate even greater profitability. Before I update you on our progress, I'll note we recorded positive net income and adjusted EBITDA for the second quarter of 2022, which included $22.7 million in cash from the USDA’s Biofuel Producer Program. Bryan will review this and other financial information in more detail in a moment. I'll now review our efforts related to our long-term strategic plan. During this time of macro-economic challenges, we are managing projects within our control. In the second quarter with our improved liquidity, we accelerated a litany of repair and maintenance projects as well as several equipment upgrades throughout the portfolio. First, we recently purchased two new boilers for the Pekin campus. They will enhance our steam capabilities at both Pekin and ICP and increase the interconnectivity between the two facilities. With a greater capacity of the state-of-the-art boilers, we will replace three of our old units, more reliable and efficient. Our new system will have lower energy usage and cost. Plus the additional redundancy will increase our control of energy access across the campus. Regarding our Eagle Alcohol acquisition, the break-bulk tote and drum sales are in line with our expectations. Although currently increased freight costs have resulted in some profit compression. The integration is complete, and we have made progress against our plan to leverage Eagle’s distribution…

Thank you, Mike. I'll provide some additional color around our results and metrics for the second quarter of 2022. Net sales were $362 million, up from the $298 million in the second quarter of 2021. This increase is primarily due to the addition of our Idaho plant production and higher average sales price per gallon of renewable fuel, which largely reflects fuel and corn supply constraints that translated into higher ethanol prices. For the quarter while our crush margins were positive, they did not reflect the full cost of delivered corn to our sites. In short, the improvement in board crush was largely offset by the rising corn bases. As such our specialty alcohol and higher value essential ingredient production contributed the majority of the quarter’s gross profit. Alcohol sales were $275 million and essential ingredient sales were $83 million. We sold $77 million total production gallons. And the 17% increase from the second quarter 2021 was partially offset by a reduction in third party sales, reflecting our strategy to focus our marketing and trading efforts around core assets. Specialty alcohols contributed $26 million gallons, in line with our 2022 contracted volume of $90 million gallons. The 6% increase over second quarter 2021 reflects the expanded capacity, as well as increased exports and industrial demand. Cost of Goods Sold were $353 million versus $283 million in the second quarter of 2021. This reflects high corn bases, greater delivery costs, and logistical and service disruptions. Notably, our freight costs significantly increased year-over-year and doubled sequentially. Also, we recorded $10 million of non-cash unrealized gains on our forward derivative positions. This was largely offset by a $10 million noncash lower of cost or market adjustment on ending inventories largely related to an unplanned power outage at our Pekin campus resulting from a…

In summary, only two years ago, in the second quarter of 2020, we began the Alto Ingredients’ transformation to emphasize higher margin products, specialty alcohols and essential ingredients. In this short time since April of 2020, we have generated significant financial benefits yielded over $70 million in net income, and $190 million in adjusted EBITDA and more is on the horizon. With a strong balance sheet, we have accelerated critical infrastructure projects. These projects continue our ongoing work to increase plant efficiency, reliability, redundancy, and capacity. Blended with our efforts to extend our distribution and expand our relationships. We are improving our position to capture a variety of opportunities and drive profitable growth. Finally, I'd like to invite investors to meet with us at the HC Wainwright Conference in New York City in September. With that, I'd like to open the call for questions. Operator?

[Operator Instructions] Our first question is from Shahriar Pourreza with Guggenheim, please go ahead.

Hi, good afternoon team. It's actually Constantine here for Shahriar. I just wanted to start off with the kind of work that you're doing around the carbon capture and storage. And obviously the IRAs that is kind of being contemplated as a big benefit. Just thinking about the threshold for an investment decision, and potentially some of the timing around the engineering work and partnerships that you have done. If there's anything there.

Yes, so as we said, this is Bryon. As we mentioned in our prepared remarks or Mike mentioned, there is we're pursuing a number of different options concurrently, and really just need to make a decision with regards to which way is the most beneficial for shareholders and for the company. There are certainly advantages to going it alone and building the plant. And especially with regards to distance and pipeline. And at the same time, there's also risks that you absorb with that as compared to going with a pipeline. And being able to allocate those risks on to a third party. So clearly, with this approved legislation, it certainly changes the economic dynamics, but also then makes it much more clear for us as to how we want and where we would potentially want to go with this. But be assured that we're very much cognizant of the importance of timing, and have been very active in this in our process, not only for the last six, particularly the last six months, I'd say over the last year. And we hope to move quickly in making a decision and moving forward and providing more clarity around that, understanding that if we were to go out on our own, it would also be important not to do to get out in front of some of the other work that needs to be done in laying the groundwork, if you're going to be out, trying to delay some pipeline, right to not change the economics around that. So just ask everybody be patient and we look forward to being able to provide a lot more information in that regard.

Excellent. That's a lot of great detail. And maybe, if you just have any commentary on the engineering work that's been done at this point. Is there improvised cost structure that you're contemplating in your planning, and how does that kind of relate with maybe some of the broader industry benchmarks that we've seen?

I think they're very much similar. I would say that depending on which direction you're going some of that work has been done, but I would say the long pole in the tent at this point is largely your permitting and not necessarily your engineering and design, there is a lot of work that has been done in that regard. And there's actually been a lot of field work that's been done as well as identifying locations and the like. So it's not as if we're the only party in that neighborhood. And indeed, there's a reason that pipelines are coming by our location, or near our location, relatively for injection purposes.

Okay, excellent. And maybe last month for me, in terms of your capital location more broadly. Have your considerations changed, given kind of the backdrop year-to-date between the IRA and the commodity environments, any changes, then maybe to the amount and timing of capital that you plan to deploy on cost efficiency versus kind of increasing protein and other product expansion?

Certainly, yes. And as Mike had indicated, there's a lot of projects that actually we haven't really enumerated yet that we look forward to sharing more on. And those may actually have an impact as well as to what and how we prioritize those projects. There are some that may actually have even a better return on investment than the currently the ones that we've identified for you. And so we'll stage those appropriately to make sure that we're bringing the best and highest return to the fore and accelerating those projects. Does that help?

No, yes, thanks [Multiple Speakers]

Yes, I just do not to be too obtuse, but the idea is, as well as is we don't really want to talk about projects that haven't yet been approved, or that may have some confidentiality associated with it that we wouldn't want to disclose before their time.

The next question is from Eric Stine with Craig-Hallum.

Hi, Mike. Hi, Bryan. Hey, so just going back to the carbon capture a little bit and putting aside the fact that you don't want to get in front of some capital projects that you might already have underway or are getting closer. Is this more a decision between speed the market, and then potentially the pipeline, or at least the activity there, and those that are being built, are a little bit further along. Or greater economics, it just seems I don't know what the CaPex would be if you went standalone, I'd love to hear that. But it would seem like $50 million plus in EBITDA a year is pretty attractive to go at it alone unless there is a reason to go the other route.

Eric, I think the really good news is we have a lot of interest, a lot of options, a lot of folks we've been talking to, it is a critical decision for the company, both from a capital standpoint, future economics. And we really have been diligent in terms of trying to wet all the different options that we have out there. With this legislation and the potential change there. It greatly changes the economics of some of these options. And so if everything goes as planned and a passes, it's certainly going to kind of shake up the some of the work that we've done up to this point, I kind of feel like we're fortunate we are where we are, we haven't launched into a one of the options that maybe would change with this legislation. So I think we're going to be really, really thoughtful as we go through this. And you're right, it does take a lot of capital to do it on your own. But the economics are very compelling. So those are the kinds of things we have to sort out and we're working hard at it.

Okay, yes, I guess I'll stay tuned on that, in terms of some of the strategic projects operational initiatives, comparing what you've gotten in your deck with what you had last quarter, so it doesn't look like you've necessarily taken on additional projects. It is more about acceleration, I guess confirming is that the case? And then, I mean, should we look at that as I think you've laid out $50 million in incremental EBITDA as part of these projects, should we just look at that, as you've pulled that forward two quarters or something along those lines.

I think that's right. Definitely the projects that we have, particularly corn oil, is what I mentioned in the script. It definitely is giving great returns, and it's one that we've kind of shifted to Phase 1, Phase 2 of the CoPromax. We had you, the economics are there, we're very much looking at the project of generating the returns that we've talked about, but the corn oil part, and we can accelerate that. So we're constantly looking at these projects. And it's a very dynamic situation. So given where we are, as a company, we're going to take advantage of the things that give us the greater, returns. And that's one example of a shift that we've made, as opposed to rolling out, CoPromax full on at all our locations are going to accelerate the corner oil portion. And then we'll look to when we complete the protein piece in Magic Valley, and I would add that we're already talking to potential customers in Magic Valley about what that would look like. And we're very optimistic about the returns where we will get on the protein side also. But we're constantly looking at what makes sense where we need to go how to deploy the capital, we want to be very prudent, as we do that. And at the same time, other projects come up from time to time, and we need to evaluate them and where they stack up in the return profile. So it's an ongoing deal, and it's very dynamic.

Okay, understood on that. And maybe last one, for me just one more model related, but you mentioned the turnarounds that you plan to do in the third quarter, I mean, any clarity on links? Or maybe it's an overall utilization rate you expect in the quarter would be helpful.

Yes, I would expect that there'd probably be well, it's difficult to say, because we actually had a number of interruptions, as you say, if you look on the total production rate that we had, as compared to capacity for the quarter, we were down a little bit, quarter-over-quarter, railroad interruptions or like, particularly for our western plants. So if you look at it, the aggregate it may be about the same, but we're trying to manage as best we can, to make sure that we're taking advantage of these windows where you see cost increasing to be able to efficiently do your repairs and maintenance and scheduled outage before you hit move into the winter periods. So we're glad that we have that optionality. And we expect that you'll see a moderation in bases and corn prices once we get into harvest.

The next question is from Amit Dayal with HC Wainwright.

Thank you. And good afternoon, everyone. And with respect to the alcohol distribution business, I know you commented a little bit that you are seeing some freight costs related impacts on margins in that business. But there's talk about potential recession, et cetera. Can you give us any sense how you're positioning for that type of market environment for this segment?

Yes we've said before the Eagle acquisition really had multiple layers to it. There's the base business in St. Louis, what they currently were doing, that business was a 30 plus million dollar business with about $4 million of EBITDA, during the integration and with some of the freight logistics. That's -- there's been some pressure on that. But we're fully now that the integration is behind us. We're fully expecting to have that piece of the acquisition continue to generate good performance. But the other parts of the acquisition are equally or maybe even more important. And that is adding vertical integration with totes and drums for our Alto business and expanding that capability, and not just be in a position where you provide bulk product that we now have the option to do totes and drums or we will also look to expand that distribution business. We think it's a good business and we, the expansion could be within Alto, but it could also be taking the Eagle platform and expanding that geographically. And then the last piece of that acquisition really is around using the relationships that Eagle has built over the years to enhance our sales into the beverage space with specialty alcohol and just generally grow the Alto business with the relationships the Eagle folks have. So it's kind of a multifaceted acquisition, it isn't just buying the St. Louis distribution.

Maybe I think I’ll add, what I'd add to that, Amit, as well as is that it is a freight impacted compression that we've seen, ultimately will adjust itself, right. I mean, as you go into new contractors and negotiations, you make sure to make the appropriate adjustments for that, while you may not have the flexibility in the given year, under a one year contract to certainly make sure adjustment true up in the renewal periods.

Right. And does that, Bryon, also potentially play out for the ethanol sales as well? I mean as [Inaudible] got around those types of trailers coming out faster than we're guessing for the fall on crush margins? Could we see some upside maybe towards the end of the year in that --?

I don’t know that you would see it. Yes, Amit, sorry, I don't know that you would see that at the end of the year, but you would certainly see as we go into contracted negotiations, or contract negotiations in fourth quarter, because of the late harvest for our specially alcohols that you would be making the appropriate adjustment, where this when you've got fixed price contracts, it's unusual to have freight adjustments. So you have to work your way through that. And you make your as you enter this new fall negotiation for 2023 you make the appropriate adjustments for your input costs.

Apparently, understood, thank you for that. And I think, Bryon, you mentioned some planned shutdown in the third quarter. How long will this be for a week or two?

Yes. I don't know that it would be a week but some of the call it 2, 3, 4 days. And a couple of the plant, it does not actually include the wet mill this year, the wet mill will be done about every -- we did the last, I guess it was last August, that we did the wet mill, so you probably got somewhere between another nine months to a year before we bring down the wet mill. And that by far is as the most significant impact because of the continuous fermentation and all of the associated services and production around that is -- that has a material shut down in some way or an impact of probably one to two weeks.

[Operator Instructions] The next question is from David Bastian with Kingdom Capital Advisors.

Hi, Mike. Hey, Bryon. Good afternoon. I guest first question is on the specialty alcohol, you've provided guidance for the $90 million gallons of contracted this year. Are we going to get guidance on gross profit there like we did last year?

I guess I'd say is we haven't been able to give it so far. And it's a good question. It's certainly something that we've tried to tackle. I don't know that it will give you much comfort. If by the end of the Q3, we can give you Q4 but we'll give you as much guidance as we can and visibility as we can as long as we can. But we're not able to give you that guidance for this quarter.

Okay, could you maybe give some commentary on how the specialty market is looking both for the remainder of this year and as you start looking towards contracting later this fall for 2023.

I would say nothing's really changed. We were on track. As we mentioned in our prepared remarks. We're certainly on track with the contracted volume and do we expect to sell in excess of what we had indicated to you and this industry. We indicated $90 million gallons and we're on track to sell in excess of that. We're seeing a pickup in industrial and export sales as well. And we would expect in 2023 to be able to place more product and hopefully be able to upgrade and up market those products, particularly as we, as Mike mentioned in his prepared remarks around raising the quality of product at our wet mill to achieve the highest quality products available. And we hope to have that completed in Q at the end of Q3, to be able -- to be available. While, we wouldn't expect to place all that product, we would certainly expect to be able to place more of that product year-over-year into a higher value market.

Got it. That's good to hear. Switching gears to the protein upgrades, you'd mentioned that $9 million uplift for ‘23. If you're going to get an extra $9 million or so gallons of corn or in Magic Valley, at current prices, that would be what almost a $9 million contribution on its own. So are you seeing a lot of that $25 million, you're hoping for them getting accelerated as a result of accelerating the corn oil at the other sites?

I think that's a fair comment, David. And quite frankly, the preliminary results that we're seeing coming out of Magic Valley are very impressive. And I think that's led to our decision to take phase one and accelerated across the platform. The numbers, again, they're preliminary, the system was just completed. But we're very optimistic about where we can go with it.

And then we're actually see -- even seeing with the corn oil part of the system, we're seeing significantly good results with regards to the protein. So we're excited about that even before having the protein plant facility in place.

This concludes our question and answer session. I would like to turn the conference back over to CEO Mike Kandris is for any closing remarks.

Thank you, Gary. Thank you again, for joining us today and for your continued support. We feel very good about the future, the direction of the company. And again, we want to thank you for your continued support and have a good afternoon. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.