UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 000-21467
ALTO INGREDIENTS, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
41-2170618 |
|
(State or
other jurisdiction of
incorporation or
organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
|
|
|
|
|
|
|
1300
South Second Street, Pekin, Illinois |
|
61554 |
|
(Address
of principal executive offices)
|
|
(zip
code)
|
|
(916)
403-2123
(Registrant’s telephone number, including area
code)
|
Securities registered pursuant to Section 12(b) of the
Act:
|
Title
of each Class |
|
Trading Symbol
|
|
Name of Exchange on Which Registered
|
| Common
Stock, $0.001 par value |
|
ALTO |
|
The Nasdaq Stock Market LLC
(Nasdaq Capital Market)
|
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| Large
accelerated filer ☐ |
Accelerated
filer ☒ |
| Non-accelerated
filer ☐ |
Smaller reporting company ☐ |
| Emerging growth
company ☐ |
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 6, 2022, there were 74,075,166 shares of Alto
Ingredients, Inc. common stock, $0.001 par value per share, and 896
shares of Alto Ingredients, Inc. non-voting common stock, $0.001
par value per share, outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
(unaudited) |
|
|
* |
|
|
ASSETS |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
36,184 |
|
|
$ |
50,612 |
|
|
Restricted cash |
|
|
23,799 |
|
|
|
11,513 |
|
|
Accounts receivable (net of allowance for doubtful accounts of $409
and $378, respectively) |
|
|
80,611 |
|
|
|
86,888 |
|
|
Inventories |
|
|
58,491 |
|
|
|
54,373 |
|
|
Derivative instruments |
|
|
19,498 |
|
|
|
15,839 |
|
|
Notes receivable, current |
|
|
12,385 |
|
|
|
3,125 |
|
|
Other current assets |
|
|
10,245 |
|
|
|
7,176 |
|
|
Total current assets |
|
|
241,213 |
|
|
|
229,526 |
|
|
Property and equipment, net |
|
|
220,996 |
|
|
|
222,550 |
|
|
Other Assets: |
|
|
|
|
|
|
|
|
|
Right of use operating lease assets, net |
|
|
15,099 |
|
|
|
13,413 |
|
|
Notes receivable, noncurrent |
|
|
—
|
|
|
|
11,641 |
|
|
Intangible assets, net |
|
|
9,460 |
|
|
|
2,678 |
|
|
Goodwill |
|
|
5,958 |
|
|
|
—
|
|
|
Other assets |
|
|
5,142 |
|
|
|
5,145 |
|
|
Total other assets |
|
|
35,659 |
|
|
|
32,877 |
|
|
Total Assets |
|
$ |
497,868 |
|
|
$ |
484,953 |
|
|
* |
Amounts derived from the audited financial
statements for the year ended December 31, 2021. |
See accompanying notes to consolidated financial statements.
ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except par value)
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
(unaudited) |
|
|
* |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable – trade |
|
$ |
21,750 |
|
|
$ |
23,251 |
|
| Accrued
liabilities |
|
|
19,479 |
|
|
|
21,307 |
|
| Current
portion – operating leases |
|
|
4,297 |
|
|
|
3,909 |
|
|
Derivative instruments |
|
|
27,487 |
|
|
|
13,582 |
|
|
Other current liabilities |
|
|
7,168 |
|
|
|
7,553 |
|
| Total
current liabilities |
|
|
80,181 |
|
|
|
69,602 |
|
| |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
53,681 |
|
|
|
50,361 |
|
|
Operating leases, net of current portion |
|
|
10,705 |
|
|
|
9,382 |
|
|
Other liabilities |
|
|
10,336 |
|
|
|
10,394 |
|
|
Total Liabilities |
|
|
154,903 |
|
|
|
139,739 |
|
|
Commitments and Contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
Alto Ingredients, Inc. Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 10,000 shares authorized;
Series A: 1,684 shares authorized; no
shares issued and outstanding as of March 31, 2022 and
December 31, 2021;
Series B: 1,581 shares authorized; 927 shares issued and
outstanding as of March 31, 2022 and December 31, 2021; liquidation
preference of $18,075 as of March 31, 2022 |
|
|
1 |
|
|
|
1 |
|
| Common stock,
$0.001 par value; 300,000 shares authorized; 74,411 and 72,778
shares issued and outstanding as of March 31, 2022 and
December 31, 2021, respectively |
|
|
74 |
|
|
|
73 |
|
| Non-voting
common stock, $0.001 par value; 3,553 shares authorized; 1 share
issued and outstanding as of March 31, 2022 and December 31,
2021 |
|
|
—
|
|
|
|
—
|
|
|
Additional paid-in capital |
|
|
1,037,869 |
|
|
|
1,037,205 |
|
|
Accumulated other comprehensive loss |
|
|
(284 |
) |
|
|
(284 |
) |
|
Accumulated deficit |
|
|
(694,695 |
) |
|
|
(691,781 |
) |
|
Total Stockholders’ Equity |
|
|
342,965 |
|
|
|
345,214 |
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
497,868 |
|
|
$ |
484,953 |
|
| * |
Amounts derived from the audited financial
statements for the year ended December 31, 2021. |
See accompanying notes to consolidated financial statements.
ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
| |
|
Three Months
Ended
March 31, |
|
| |
|
2022 |
|
|
2021 |
|
|
Net sales |
|
$ |
308,118 |
|
|
$ |
218,734 |
|
|
Cost of goods sold |
|
|
303,345 |
|
|
|
204,897 |
|
|
Gross profit |
|
|
4,773 |
|
|
|
13,837 |
|
|
Selling, general and administrative expenses |
|
|
7,629 |
|
|
|
7,014 |
|
|
Asset impairment |
|
|
—
|
|
|
|
1,200 |
|
|
Income (loss) from operations |
|
|
(2,856 |
) |
|
|
5,623 |
|
|
Interest expense, net |
|
|
(200 |
) |
|
|
(1,885 |
) |
|
Other income, net |
|
|
454 |
|
|
|
940 |
|
|
Income (loss) before provision for income taxes |
|
|
(2,602 |
) |
|
|
4,678 |
|
|
Provision for income taxes |
|
|
—
|
|
|
|
—
|
|
|
Net income (loss) |
|
$ |
(2,602 |
) |
|
$ |
4,678 |
|
|
Preferred stock dividends |
|
$ |
(312 |
) |
|
$ |
(312 |
) |
|
Net income (loss) available to common stockholders |
|
$ |
(2,914 |
) |
|
$ |
4,366 |
|
|
Net income (loss) per share, basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
0.06 |
|
|
Weighted-average shares outstanding, basic |
|
|
71,390 |
|
|
|
70,351 |
|
|
Weighted-average shares outstanding, diluted |
|
|
71,390 |
|
|
|
72,464 |
|
See accompanying notes to consolidated financial statements.
ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| |
|
Three Months
Ended
March 31, |
|
| |
|
2022 |
|
|
2021 |
|
| Operating Activities: |
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
(2,602 |
) |
|
$ |
4,678 |
|
|
Adjustments to reconcile consolidated net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization of intangibles |
|
|
6,134 |
|
|
|
5,860 |
|
| Asset
impairment |
|
|
— |
|
|
|
1,200 |
|
| Gains on
derivative instruments |
|
|
(5,316 |
) |
|
|
(10,543 |
) |
| Non-cash
compensation |
|
|
673 |
|
|
|
804 |
|
| Amortization of
deferred financing fees |
|
|
6 |
|
|
|
190 |
|
| Bad debt
expense |
|
|
31 |
|
|
|
91 |
|
| Changes in
operating assets and liabilities, net of business acquisition: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
11,775 |
|
|
|
(13,057 |
) |
| Inventories |
|
|
(2,773 |
) |
|
|
(17,291 |
) |
| Other
assets |
|
|
14,119 |
|
|
|
3,309 |
|
| Operating
leases |
|
|
(1,257 |
) |
|
|
(1,037 |
) |
| Assets
held-for-sale |
|
|
— |
|
|
|
1,241 |
|
| Liabilities
held-for-sale |
|
|
— |
|
|
|
(312 |
) |
|
Accounts payable and accrued liabilities |
|
|
(9,726 |
) |
|
|
20,391 |
|
|
Net cash provided by (used in) operating activities |
|
|
11,064 |
|
|
|
(4,476 |
) |
| Investing
Activities: |
|
|
|
|
|
|
|
|
| Additions to
property and equipment |
|
|
(2,334 |
) |
|
|
(4,411 |
) |
|
Purchase of Eagle Alcohol, net of cash acquired |
|
|
(14,655 |
) |
|
|
— |
|
|
Net cash used in investing activities |
|
|
(16,989 |
) |
|
|
(4,411 |
) |
| Financing
Activities: |
|
|
|
|
|
|
|
|
| Net proceeds
from Kinergy’s line of credit |
|
|
3,314 |
|
|
|
13,042 |
|
| Proceeds from
principal payments on notes receivable |
|
|
781 |
|
|
|
— |
|
| Proceeds from
stock option exercises |
|
|
—
|
|
|
|
462 |
|
| Preferred stock
dividends paid |
|
|
(312 |
) |
|
|
—
|
|
|
Principal payments on borrowings |
|
|
— |
|
|
|
(8,532 |
) |
|
Net cash provided by financing activities |
|
|
3,783 |
|
|
|
4,972 |
|
| Net decrease in cash, cash equivalents
and restricted cash |
|
|
(2,142 |
) |
|
|
(3,915 |
) |
| Cash, cash
equivalents and restricted cash at beginning of period |
|
|
62,125 |
|
|
|
48,187 |
|
| Cash, cash
equivalents and restricted cash at end of period |
|
$ |
59,983 |
|
|
$ |
44,272 |
|
| |
|
|
|
|
|
|
|
|
| Reconciliation of
total cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
36,184 |
|
|
$ |
44,146 |
|
| Restricted
cash |
|
|
23,799 |
|
|
|
126 |
|
| Total cash, cash
equivalents and restricted cash |
|
$ |
59,983 |
|
|
$ |
44,272 |
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
195 |
|
|
$ |
1,825 |
|
|
Income tax refunds |
|
$ |
81 |
|
|
$ |
— |
|
|
Accrued preferred stock dividends |
|
$ |
— |
|
|
$ |
312 |
|
See accompanying notes to consolidated financial statements.
ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
|
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Additional
Paid-In |
|
|
Accumulated |
|
|
Accum.
Other
Comprehensive |
|
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Total |
|
|
Balances,
January 1, 2022 |
|
|
927 |
|
|
$ |
1 |
|
|
|
72,778 |
|
|
$ |
73 |
|
|
$ |
1,037,205 |
|
|
$ |
(691,781 |
) |
|
$ |
(284 |
) |
|
$ |
345,214 |
|
|
Stock-based
compensation |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
—
|
|
|
|
673 |
|
|
|
—
|
|
|
|
—
|
|
|
|
673 |
|
|
Restricted
stock issued to employees and directors, net of cancellations and
tax |
|
|
—
|
|
|
|
—
|
|
|
|
684 |
|
|
|
— |
|
|
|
(9 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(9 |
) |
|
Shares
issued for Eagle Alcohol acquisition |
|
|
— |
|
|
|
— |
|
|
|
949 |
|
|
|
1 |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1 |
|
|
Preferred
stock dividends |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(312 |
) |
|
|
—
|
|
|
|
(312 |
) |
|
Net
loss |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,602 |
) |
|
|
—
|
|
|
|
(2,602 |
) |
|
Balances,
March 31, 2022 |
|
|
927 |
|
|
$ |
1 |
|
|
|
74,411 |
|
|
$ |
74 |
|
|
$ |
1,037,869 |
|
|
$ |
(694,695 |
) |
|
$ |
(284 |
) |
|
$ |
342,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
January 1, 2021 |
|
|
927 |
|
|
$ |
1 |
|
|
|
72,487 |
|
|
$ |
72 |
|
|
$ |
1,036,638 |
|
|
$ |
(736,598 |
) |
|
$ |
(3,878 |
) |
|
$ |
296,235 |
|
|
Stock-based
compensation |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
—
|
|
|
|
804 |
|
|
|
—
|
|
|
|
—
|
|
|
|
804 |
|
|
Restricted
stock issued to employees and directors, net of cancellations and
tax |
|
|
— |
|
|
|
—
|
|
|
|
550 |
|
|
|
1 |
|
|
|
(186 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(185 |
) |
|
Stock
option exercises |
|
|
— |
|
|
|
—
|
|
|
|
124 |
|
|
|
—
|
|
|
|
462 |
|
|
|
—
|
|
|
|
—
|
|
|
|
462 |
|
|
Preferred
stock dividends |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(312 |
) |
|
|
—
|
|
|
|
(312 |
) |
|
Net
income |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
4,678 |
|
|
|
—
|
|
|
|
4,678 |
|
|
Balances,
March 31, 2021 |
|
|
927 |
|
|
$ |
1 |
|
|
|
73,161 |
|
|
$ |
73 |
|
|
$ |
1,037,718 |
|
|
$ |
(732,232 |
) |
|
$ |
(3,878 |
) |
|
$ |
301,682 |
|
See
accompanying notes to consolidated financial
statements.
ALTO INGREDIENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND
BASIS OF PRESENTATION.
Organization and
Business – The consolidated financial statements
include, for all periods presented, the accounts of Alto
Ingredients, Inc., a Delaware corporation (“Alto Ingredients”), and
its direct and indirect wholly-owned subsidiaries (collectively,
the “Company”), including Kinergy Marketing LLC, an Oregon limited
liability company (“Kinergy”), Alto Nutrients, LLC, a California
limited liability company (“Alto Nutrients”), Alto Op Co., a
Delaware corporation (“Alto Op Co.”), Alto Pekin, LLC, a Delaware
limited liability company (“Alto Pekin”) and Alto ICP, LLC, a
Delaware limited liability company (“ICP”), and the Company’s
production facilities in Oregon and Idaho.
On May 14, 2021 and November 4, 2021, the Company completed the
sale of its production facilities located in Madera and Stockton,
California, respectively. The results of these facilities are
included in the Company’s results reported for the three months
ended March 31, 2021. As discussed in Note 2, on January 14, 2022,
the Company acquired 100% ownership of Eagle Alcohol Company LLC, a
Missouri limited liability company (“Eagle Alcohol”), which is now
a wholly-owned subsidiary of Alto Ingredients, Inc. The results of
Eagle Alcohol since the date of the acquisition are included in the
Company’s results reported for the three months ended March 31,
2022.
The Company is a leading producer and distributor of specialty
alcohols and essential ingredients. The Company also produces,
markets and distributes renewable fuel. The Company’s production
facilities in Pekin, Illinois are located in the heart of the Corn
Belt, benefit from low-cost and abundant feedstock and allow for
access to many additional domestic markets. In addition, the
Company’s ability to load unit trains and barges from these
facilities allows for greater access to international markets. The
Company’s two production facilities in Oregon and Idaho are located
in close proximity to both feed and renewable fuel ethanol
customers and thus enjoy unique advantages in efficiency, logistics
and product pricing.
The Company has a combined alcohol production capacity of 350
million gallons per year and produces, on an annualized basis,
nearly 1.2 million tons of essential ingredients on a dry matter
basis, such as dried yeast, corn gluten meal, corn gluten feed, and
distillers grains and liquid feed used in commercial animal feed
and pet foods. In addition, the Company sells alcohols acquired
from other producers, and markets and distributes fuel-grade
ethanol produced by third parties.
The Company focuses on four key markets: Health, Home &
Beauty; Food & Beverage; Essential
Ingredients; and Renewable Fuels. Products for the
Health, Home & Beauty market include specialty alcohols used in
mouthwash, cosmetics, pharmaceuticals, hand sanitizers,
disinfectants and cleaners. Products for the Food & Beverage
markets include grain neutral spirits used in alcoholic beverages
and vinegar as well as corn germ used for corn oils. Products for
Essential Ingredients markets include yeast, corn gluten and
distillers grains used in commercial animal feed and pet foods.
Renewable Fuels includes fuel-grade ethanol and distillers corn oil
used as a feedstock for renewable diesel fuel.
As of March 31, 2022, all of the Company’s production facilities
were operating. As market conditions change, the Company may
increase, decrease or idle production at one or more operating
facilities or resume operations at any idled facility.
Basis of
Presentation–Interim Financial
Statements – The accompanying unaudited consolidated
financial statements and related notes have been prepared in
accordance with accounting principles generally accepted in the
United States for interim financial information and the
instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Results for interim periods should not be
considered indicative of results for a full year. These interim
consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes
contained in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2021. The accounting policies used in
preparing these consolidated financial statements are the same as
those described in Note 1 to the consolidated financial statements
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair statement of the results for interim periods have been
included. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Accounts Receivable and
Allowance for Doubtful Accounts – Trade accounts
receivable are presented at face value, net of the allowance for
doubtful accounts. The Company sells specialty alcohols to large
consumer products companies, sells fuel-grade ethanol to gasoline
refining and distribution companies, sells essential ingredients to
animal feed customers, including distillers grains and other feed
co-products to dairy operators and animal feedlots and corn oil to
poultry and biodiesel customers generally without requiring
collateral.
The Company maintains an allowance for doubtful accounts for
balances that appear to have specific collection issues. The
collection process is based on the age of the invoice and requires
attempted contacts with the customer at specified intervals. If,
after a specified number of days, the Company has been unsuccessful
in its collection efforts, a bad debt allowance is recorded for the
balance in question. Delinquent accounts receivable are charged
against the allowance for doubtful accounts once uncollectibility
has been determined. The factors considered in reaching this
determination are the apparent financial condition of the customer
and the Company’s success in contacting and negotiating with the
customer. If the financial condition of the Company’s customers
were to deteriorate, resulting in an impairment of ability to make
payments, additional allowances may be required.
Of the accounts receivable balance, approximately $52,008,000 and
$63,929,000 at March 31, 2022 and December 31, 2021, respectively,
were used as collateral under Kinergy’s operating line of credit.
The allowance for doubtful accounts was $409,000 and $378,000 as of
March 31, 2022 and December 31, 2021, respectively. The Company
recorded a bad debt expense of $31,000 and $91,000 for the three
months ended March 31, 2022 and 2021, respectively. The Company
does not have any off-balance sheet credit exposure related to its
customers.
Financial
Instruments – The carrying values of cash and cash
equivalents, restricted cash, accounts receivable, notes
receivable, derivative assets, accounts payable, accrued
liabilities and derivative liabilities are reasonable estimates of
their fair values because of the short maturity of these items. The
Company believes the carrying value of its long-term debt
instruments are not considered materially different than fair value
because the interest rates on these instruments are variable.
Business
Combinations – Business acquisitions are accounted for
in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 805 “Business
Combinations”. FASB ASC 805 requires the reporting entity to
identify the acquirer, determine the acquisition date, recognize
and measure the identifiable tangible and intangible assets
acquired, the liabilities assumed and recognize and measure
goodwill or a gain from the purchase. Assets acquired and
liabilities assumed are recorded at their fair values and the
excess of the purchase price over the amounts assigned is recorded
as goodwill. Adjustments to fair value assessments are recorded to
goodwill over the measurement period (not longer than twelve
months).
Estimates and
Assumptions – The preparation of the consolidated
financial statements in conformity with accounting principles
generally accepted in the United States requires management to make
estimates and assumptions 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 revenues and expenses during the reporting
period. Significant estimates are required as part of determining
the allowance for doubtful accounts, net realizable value of
inventory, estimated lives of property and equipment, long-lived
asset impairments, fair value of warrants, valuation allowances on
deferred income taxes, the potential outcome of future tax
consequences of events recognized in the Company’s financial
statements or tax returns, and the valuation of assets acquired and
liabilities assumed as a result of business combinations. Actual
results and outcomes may materially differ from management’s
estimates and assumptions.
2. ACQUISITION OF EAGLE ALCOHOL.
On January 14, 2022, the Company purchased 100% of the membership
interests of Eagle Alcohol. The purchase price was $14.0 million in
cash plus an estimated net working capital adjustment of $1.3
million in cash. The selling members of Eagle Alcohol are eligible
to receive up to an additional $14.0 million of contingent
consideration, payable through a combination of $9.0 million in
cash over the next three years and an aggregate of $5.0 million in
the Company’s common stock on the fourth and fifth year
anniversaries of the closing date, subject to the satisfaction of
certain conditions, including continued employment with the
Company. With respect to these payments, the Company has recognized
an estimated $0.9 million for the three months ended March 31,
2022, in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
Eagle Alcohol specializes in break bulk distribution of specialty
alcohols. Eagle Alcohol purchases bulk alcohol from suppliers.
Eagle Alcohol then stores, denatures, packages, and resells alcohol
products in smaller sizes, including tank trucks, totes, and drums,
that garner a premium to bulk alcohols. Eagle Alcohol delivers
products to customers in the beverage, food, pharma, and
related-process industries via its own dedicated trucking fleet and
common carrier. The acquisition will provide the Company further
vertical integration and access to new markets in the specialty
alcohol industry.
Eagle Alcohol’s unaudited results for the three months ended March
31, 2022 and 2021 generated $3.8 million and $6.8 million in net
sales and $0.2 million and $0.9 million in net income,
respectively. The following table presents unaudited pro forma
combined financial information assuming the acquisition occurred on
January 1, 2021 (dollars in thousands except per share
amounts):
| |
|
Three Months
Ended
March 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
| Revenues – pro forma |
|
$ |
308,645
|
|
|
$ |
225,486 |
|
| Net income (loss) available to common
stockholders – pro forma |
|
$ |
(2,981 |
) |
|
$ |
4,508 |
|
| Diluted net income (loss) per share –
pro forma |
|
$ |
(0.04 |
) |
|
$ |
0.06 |
|
| Diluted shares |
|
|
72,339 |
|
|
|
73,413 |
|
The following preliminary allocation of the estimated purchase
price assumes, with the exception of property and equipment and
intangibles, carrying values approximate fair value. Estimates of
uncollectible accounts receivable are not considered material due
to the short-term nature and customer collection history. The
preliminary estimate of working capital is under review by
management and is subject to change. Based upon these assumptions,
the preliminary purchase price allocation is as follows (in
thousands):
| Cash and equivalents |
|
$ |
705 |
|
| Accounts receivables |
|
|
5,529 |
|
| Inventories |
|
|
1,345 |
|
| Total current assets |
|
|
7,579 |
|
| |
|
|
|
|
| Property and equipment |
|
|
1,066 |
|
| Right of use
assets |
|
|
2,749 |
|
| Total tangible
assets |
|
$ |
11,394 |
|
| |
|
|
|
|
| Current liabilities |
|
$ |
6,219 |
|
| Right of use
liabiltiy |
|
|
2,749 |
|
| Total
liabiltiies |
|
$ |
8,968 |
|
| |
|
|
|
|
| Net tangible assets acquired |
|
$ |
2,426 |
|
| Customer relationships |
|
|
6,556 |
|
| Tradename |
|
|
420 |
|
| Goodwill |
|
|
5,958 |
|
| Total Purchase Price |
|
$ |
15,360 |
|
Goodwill represents the value of the downstream integration that
the operations of Eagle Alcohol will add to the Company. The
Company expects the amortization of goodwill to be deductible for
tax purposes. For the identifiable intangible assets, the Company
has estimated 12 years for useful lives for customer relationships
and 10 years for tradename. For the three months ended March 31,
2022, the Company recorded amortization of these intangibles of
$108,000 and $9,000, respectively. Any changes to the initial
estimates of the fair value of the acquired assets and assumed
liabilities will be recorded as adjustments to those assets and
liabilities and residual amounts will be allocated to goodwill if
net assets acquired are less than the purchase price. The Company
did not incur any material acquisition costs.
3. SEGMENTS.
The Company reports its financial and operating performance in
three segments: (1) marketing and distribution, which includes
marketing and merchant trading for Company-produced alcohols and
essential ingredients on an aggregated basis and third-party
fuel-grade ethanol sales (2) Pekin production, which includes the
production and sale of alcohols and essential ingredients produced
at the Company’s Pekin, Illinois campus (“Pekin Campus”), and (3)
Other production, which includes the production and sale of
renewable fuel and essential ingredients produced at all of the
Company’s other production facilities on an aggregated basis
(“Other production”), none of which are individually so significant
as to be considered a reportable segment.
The following tables set forth certain financial data for the
Company’s operating segments (in thousands):
|
|
|
Three Months
Ended
March 31, |
|
|
Net Sales |
|
2022 |
|
|
2021 |
|
| Pekin Campus production, recorded as
gross: |
|
|
|
|
|
|
|
Alcohol sales |
|
$ |
116,050 |
|
|
$ |
95,083 |
|
| Essential
ingredient sales |
|
|
55,280 |
|
|
|
45,077 |
|
|
Intersegment sales |
|
|
256 |
|
|
|
1,473 |
|
| Total Pekin
Campus sales |
|
|
171,586 |
|
|
|
141,633 |
|
| Marketing and distribution: |
|
|
|
|
|
|
|
|
| Alcohol sales,
gross |
|
$ |
53,926 |
|
|
$ |
57,010 |
|
| Alcohol sales,
net |
|
|
351 |
|
|
|
452 |
|
|
Intersegment sales |
|
|
2,996 |
|
|
|
2,244 |
|
| Total marketing
and distribution sales |
|
|
57,273
|
|
|
|
59,706 |
|
| Other production, recorded as
gross: |
|
|
|
|
|
|
|
|
| Alcohol
sales |
|
$ |
59,805 |
|
|
$ |
15,969 |
|
| Essential
ingredient sales |
|
|
18,938 |
|
|
|
5,143 |
|
|
Intersegment sales |
|
|
12 |
|
|
|
305 |
|
| Total Other
production sales |
|
|
78,755 |
|
|
|
21,417 |
|
| |
|
|
|
|
|
|
|
|
| Corporate and other |
|
|
3,768
|
|
|
|
— |
|
| Intersegment
eliminations |
|
|
(3,264 |
) |
|
|
(4,022 |
) |
| Net sales as
reported |
|
$ |
308,118 |
|
|
$ |
218,734 |
|
|
Cost of goods
sold: |
|
|
|
|
|
|
|
Pekin Campus |
|
$ |
168,881 |
|
|
$ |
128,864 |
|
|
Marketing and distribution |
|
|
54,716 |
|
|
|
53,958 |
|
|
Other production |
|
|
78,244 |
|
|
|
24,117 |
|
|
Corporate and other |
|
|
2,872 |
|
|
|
— |
|
|
Intersegment eliminations |
|
|
(1,368 |
) |
|
|
(2,042 |
) |
|
Cost of goods sold as reported |
|
$ |
303,345 |
|
|
$ |
204,897 |
|
| Gross profit (loss): |
|
|
|
|
|
|
| Pekin Campus
production |
|
$ |
2,705 |
|
|
$ |
12,769 |
|
| Marketing and distribution |
|
|
2,557 |
|
|
|
5,748 |
|
| Other production |
|
|
511 |
|
|
|
(2,700 |
) |
| Corporate and other |
|
|
896 |
|
|
|
— |
|
| Intersegment
eliminations |
|
|
(1,896 |
) |
|
|
(1,980 |
) |
| Gross profit
(loss) as reported |
|
$ |
4,773 |
|
|
$ |
13,837 |
|
|
Income (loss) before provision for
income taxes: |
|
|
|
|
|
|
|
Pekin
Campus production |
|
$ |
85 |
|
|
$ |
10,012 |
|
|
Marketing and
distribution |
|
|
785 |
|
|
|
3,735 |
|
|
Other production |
|
|
(1,209 |
) |
|
|
(5,945 |
) |
|
Corporate and other |
|
|
(2,263 |
) |
|
|
(3,124 |
) |
|
|
|
$ |
(2,602 |
) |
|
$ |
4,678 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization: |
|
|
|
|
|
|
|
|
|
Pekin Campus production |
|
$ |
4,538 |
|
|
$ |
4,345 |
|
|
Other production |
|
|
1,456 |
|
|
|
1,498 |
|
|
Corporate and other |
|
|
140 |
|
|
|
17 |
|
|
|
|
$ |
6,134 |
|
|
$ |
5,860 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
Pekin Campus production |
|
$ |
—
|
|
|
$ |
519 |
|
|
Marketing and
distribution |
|
|
200 |
|
|
|
202 |
|
|
Other production |
|
|
—
|
|
|
|
136 |
|
|
Corporate and other |
|
|
—
|
|
|
|
1,028 |
|
|
|
|
$ |
200 |
|
|
$ |
1,885 |
|
The following table sets forth the Company’s total assets by
operating segment (in thousands):
| |
|
March
31,
2022 |
|
|
December 31,
2021 |
|
| Total assets: |
|
|
|
|
|
|
| Pekin Campus
production |
|
$ |
271,771 |
|
|
$ |
266,197 |
|
| Marketing and distribution |
|
|
127,499
|
|
|
|
130,302 |
|
| Other production |
|
|
62,168 |
|
|
|
57,046 |
|
| Corporate and
other |
|
|
36,430
|
|
|
|
31,408 |
|
| |
|
$ |
497,868 |
|
|
$ |
484,953 |
|
Inventories consisted primarily of bulk ethanol, specialty
alcohols, corn, essential ingredients and unleaded fuel, and are
valued at the lower of cost or net realizable value, with cost
determined on a first-in, first-out basis. Inventory is net of a
valuation adjustment of $249,000 and $0 as of March 31, 2022 and
December 31, 2021, respectively. Inventory balances consisted of
the following (in thousands):
| |
|
March
31,
2022 |
|
|
December 31,
2021 |
|
| Finished goods |
|
$ |
38,418 |
|
|
$ |
35,509 |
|
| Work in progress |
|
|
7,185 |
|
|
|
6,909 |
|
| Raw materials |
|
|
11,770 |
|
|
|
10,837 |
|
| Other |
|
|
1,118 |
|
|
|
1,118 |
|
| Total |
|
$ |
58,491 |
|
|
$ |
54,373 |
|
5. DERIVATIVES.
The business and activities of the Company expose it to a variety
of market risks, including risks related to changes in commodity
prices. The Company monitors and manages these financial exposures
as an integral part of its risk management program. This program
recognizes the unpredictability of financial markets and seeks to
reduce the potentially adverse effects that market volatility could
have on operating results.
Commodity
Risk – Cash
Flow Hedges – The Company uses derivative instruments to
protect cash flows from fluctuations caused by volatility in
commodity prices for periods of up to twelve months in order to
protect gross profit margins from potentially adverse effects of
market and price volatility on alcohol sales and purchase
commitments where the prices are set at a future date and/or if the
contracts specify a floating or index-based price. In addition, the
Company hedges anticipated sales of alcohol to minimize its
exposure to the potentially adverse effects of price volatility.
These derivatives may be designated and documented as cash flow
hedges and effectiveness is evaluated by assessing the probability
of the anticipated transactions and regressing commodity futures
prices against the Company’s purchase and sales prices.
Ineffectiveness, which is defined as the degree to which the
derivative does not offset the underlying exposure, is recognized
immediately in cost of goods sold. For the three months ended March
31, 2022 and 2021, the Company did not designate any of its
derivatives as cash flow hedges.
Commodity Risk –
Non-Designated Hedges – The Company uses derivative
instruments to lock in prices for certain amounts of corn and
ethanol by entering into exchange-traded forward contracts or
options for those commodities. These derivatives are not designated
for hedge accounting treatment. The changes in fair value of these
contracts are recorded on the balance sheet and recognized
immediately in cost of goods sold. The Company recognized net gains
of $5,316,000 and $10,543,000 as the change in the fair value of
these contracts for the three months ended March 31, 2022 and 2021,
respectively.
Non Designated
Derivative Instruments – The classification and amounts
of the Company’s derivatives not designated as hedging instruments,
and related cash collateral balances, are as follows (in
thousands):
|
|
As of March
31, 2022 |
|
| |
|
Assets |
|
Liabilities |
|
| Type
of Instrument |
|
Balance Sheet Location |
|
Fair
Value |
|
Balance Sheet Location |
|
Fair
Value |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash collateral balance |
|
Restricted cash |
|
$ |
23,799 |
|
|
|
|
|
|
|
Commodity contracts |
|
Derivative assets |
|
$ |
19,498 |
|
Derivative liabilities |
|
$ |
27,487 |
|
|
|
As of
December 31, 2021 |
|
| |
|
Assets |
|
Liabilities |
|
| Type
of Instrument |
|
Balance Sheet Location |
|
Fair
Value |
|
Balance Sheet Location |
|
Fair
Value |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash collateral balance |
|
Restricted cash |
|
$ |
11,513 |
|
|
|
|
|
|
| Commodity
contracts |
|
Derivative
assets |
|
$ |
15,839 |
|
Derivative
liabilities |
|
$ |
13,582 |
|
The above amounts represent the gross balances of the contracts;
however, the Company does have a right of offset with each of its
derivative brokers, but its intent is to close out positions
individually, therefore, they are reported at gross.
The classification and amounts of the Company’s recognized gains
for its derivatives not designated as hedging instruments are as
follows (in thousands):
|
|
|
|
Realized
Gains |
|
| |
|
|
|
For the
three months Ended March 31, |
|
| Type
of Instrument |
|
Statements of Operations Location |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Cost of goods sold |
|
$ |
15,562 |
|
|
$ |
6,185 |
|
| |
|
|
|
$ |
15,562 |
|
|
$ |
6,185 |
|
|
|
|
|
Unrealized
Gains (Losses) |
|
| |
|
|
|
For the
three months Ended March 31, |
|
| Type
of Instrument |
|
Statements of Operations Location |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Cost of goods sold |
|
$ |
(10,246 |
) |
|
$ |
4,358 |
|
| |
|
|
|
$ |
(10,246 |
) |
|
$ |
4,358 |
|
6. DEBT.
Long-term borrowings are summarized as follows (in thousands):
| |
|
March
31,
2022 |
|
|
December 31,
2021 |
|
| Kinergy line of
credit |
|
$ |
53,715 |
|
|
$ |
50,401 |
|
| Less unamortized debt financing
costs |
|
|
(34 |
) |
|
|
(40 |
) |
| Less short-term
portion |
|
|
—
|
|
|
|
—
|
|
| Long-term
debt |
|
$ |
53,681 |
|
|
$ |
50,361 |
|
Excess
Availability – As of March 31, 2022, Kinergy had $15.2
million in unused borrowing availability under its line of
credit.
7. COMMITMENTS AND CONTINGENCIES.
Sales
Commitments – At March 31, 2022, the Company had entered
into sales contracts with its major customers to sell certain
quantities of alcohol and essential ingredients. The Company had
open alcohol indexed-price contracts for 125,438,000 gallons as of
March 31, 2022 and open fixed-price alcohol sales contracts
totaling $124,713,000 as of March 31, 2022. The Company had open
fixed-price sales contracts for essential ingredients totaling
$23,023,000 and open indexed-price sales contracts of essential
ingredients for 5,242,000 tons as of March 31, 2022. These sales
contracts are scheduled to be completed throughout 2022.
Purchase
Commitments – At March 31, 2022, the Company had
indexed-price purchase contracts to purchase 17,439,000 gallons of
alcohol and fixed-price purchase contracts to purchase $81,601,000
of alcohol from its suppliers. The Company had fixed-price purchase
contracts to purchase $67,584,000 of corn from its suppliers as of
March 31, 2022. The Company had fixed-price purchase contracts for
natural gas totaling $13,439,000 and indexed-price purchase
contracts for natural gas totaling 2,140,000 MMBTU. The Company
also had future commitments for certain capital projects totaling
$26,769,000. These purchase commitments are scheduled to be
satisfied throughout 2022 and 2023.
Litigation –
General – The Company is subject to various claims and
contingencies in the ordinary course of its business, including
those related to litigation, business transactions,
employee-related matters, environmental regulations, and others.
When the Company is aware of a claim or potential claim, it
assesses the likelihood of any loss or exposure. If it is probable
that a loss will result and the amount of the loss can be
reasonably estimated, the Company will record a liability for the
loss. If the loss is not probable or the amount of the loss cannot
be reasonably estimated, the Company discloses the claim if the
likelihood of a potential loss is reasonably possible and the
amount involved could be material. While there can be no
assurances, the Company does not expect that any of its pending
legal proceedings will have a material impact on the Company’s
financial condition or results of operations.
8. PENSION PLANS.
The Company sponsors a defined benefit pension plan (the
“Retirement Plan”) and a healthcare and life insurance plan (the
“Postretirement Plan”).
The
Retirement Plan is noncontributory, and covers only “grandfathered”
unionized employees at the Company’s Pekin, Illinois facility who
fulfill minimum age and service requirements. Benefits are based on
a prescribed formula based upon the employee’s years of service.
The Retirement Plan, which is part of a collective bargaining
agreement, covers only union employees hired prior to November 1,
2010.
The
Company uses a December 31 measurement date for its Retirement
Plan. The Company’s funding policy is to make the minimum annual
contribution required by applicable regulations. As of December 31,
2021, the Retirement Plan’s accumulated projected benefit
obligation was $23.8 million, with a fair value of plan assets of
$20.0 million. The underfunded amount of $3.8 million is recorded
on the Company’s consolidated balance sheet in other liabilities.
For the three months ended March 31, 2022, the Retirement Plan’s
net periodic expense (income) was ($8,000), comprised of $164,000
in interest cost and $101,000 in service cost, more than offset by
$273,000 of expected return on plan assets. For the three months
ended March 31, 2021, the Retirement Plan’s net periodic expense
was $22,000, comprised of $151,000 in interest cost and $109,000 in
service cost, partially offset by $238,000 of expected return on
plan assets.
The
Postretirement Plan provides postretirement medical benefits and
life insurance to certain “grandfathered” unionized employees.
Employees hired after December 31, 2000 are not eligible to
participate in the Postretirement Plan. The Postretirement Plan is
contributory, with contributions required at the same rate as
active employees. Benefit eligibility under the plan reduces at age
65 from a defined benefit to a defined dollar cap based upon years
of service. As of December 31, 2021, the Postretirement Plan’s
accumulated projected benefit obligation was $4.3 million and is
recorded on the Company’s consolidated balance sheet in other
liabilities. The Company’s funding policy is to make the minimum
annual contribution required by applicable regulations. For the
three months ended March 31, 2022, the Postretirement Plan’s net
periodic expense was $32,000, comprised of $26,000 of interest cost
and $6,000 of service cost. For the three months ended March 31,
2021, the Postretirement Plan’s net periodic expense was $42,000,
comprised of $10,000 of interest cost, $26,000 of service cost and
$6,000 of amortization expense.
9. FAIR
VALUE MEASUREMENTS.
The fair
value hierarchy prioritizes the inputs used in valuation techniques
into three levels, as follows:
|
● |
Level 1 – Observable
inputs – unadjusted quoted prices in active markets for identical
assets and liabilities; |
|
● |
Level 2 – Observable
inputs other than quoted prices included in Level 1 that are
observable for the asset or liability through corroboration with
market data; and |
|
● |
Level 3 – Unobservable
inputs – includes amounts derived from valuation models where one
or more significant inputs are unobservable. For fair value
measurements using significant unobservable inputs, a description
of the inputs and the information used to develop the inputs is
required along with a reconciliation of Level 3 values from the
prior reporting period. |
Pooled separate accounts –
Pooled separate accounts invest primarily in domestic and
international stocks, commercial paper or single mutual funds. The
net asset value is used as a practical expedient to determine fair
value for these accounts. Each pooled separate account provides for
redemptions by the Retirement Plan at reported net asset values per
share, with little to no advance notice requirement, therefore
these funds are classified within Level 2 of the valuation
hierarchy.
Long-Lived Assets
Held-for-Sale – The Company recorded its long-lived
assets associated with its property and equipment held-for-sale at
fair value at March 31, 2022 and December 31, 2021 of $1,000,000.
The fair values of these assets are based on observable values for
the assets through corroboration with market data and are
designated as Level 3 inputs.
Other Derivative Instruments
– The Company’s other derivative instruments consist of commodity
positions. The fair values of the commodity positions are based on
quoted prices on the commodity exchanges and are designated as
Level 1 inputs.
The
following table summarizes recurring and nonrecurring fair value
measurements by level at March 31, 2022 (in thousands):
| |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments |
|
$ |
19,498 |
|
|
$ |
19,498 |
|
|
$ |
—
|
|
|
$ |
—
|
|
|
Long-lived
assets held-for-sale |
|
|
1,000 |
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000 |
|
| |
|
$ |
20,498 |
|
|
$ |
19,498 |
|
|
$ |
—
|
|
|
$ |
1,000 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative financial
instruments |
|
$ |
(27,487 |
) |
|
$ |
(27,487 |
) |
|
$ |
—
|
|
|
$ |
—
|
|
The
following table summarizes recurring and nonrecurring fair value
measurements by level at December 31, 2021 (in
thousands):
| |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Benefit Plan
Percentage
Allocation |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments |
|
$ |
15,839 |
|
|
$ |
15,839 |
|
|
$ |
—
|
|
|
$ |
—
|
|
|
|
|
|
| Long-lived assets
held-for-sale |
|
|
1,000 |
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000 |
|
|
|
|
|
| Defined benefit plan
assets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (pooled separate
accounts): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Large U.S.
Equity(2) |
|
|
5,612 |
|
|
|
—
|
|
|
|
5,612 |
|
|
|
—
|
|
|
|
28 |
% |
| Small/Mid U.S.
Equity(3) |
|
|
3,684 |
|
|
|
—
|
|
|
|
3,684 |
|
|
|
—
|
|
|
|
18 |
% |
| International
Equity(4) |
|
|
2,909 |
|
|
|
—
|
|
|
|
2,909 |
|
|
|
—
|
|
|
|
15 |
% |
|
Fixed
Income(5) |
|
|
7,782 |
|
|
|
—
|
|
|
|
7,782 |
|
|
|
—
|
|
|
|
39 |
% |
| |
|
$ |
36,826 |
|
|
$ |
15,839 |
|
|
$ |
19,987 |
|
|
$ |
1,000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative financial
instruments |
|
$ |
(13,582 |
) |
|
$ |
(13,582 |
) |
|
$ |
—
|
|
|
$ |
—
|
|
|
|
|
|
| (1) |
Included in other
assets in the consolidated balance sheets. |
| (2) |
This category includes
investments in funds comprised of equity securities of large U.S.
companies. The funds are valued using the net asset value method in
which an average of the market prices for the underlying
investments is used to value the fund. |
| (3) |
This category includes
investments in funds comprised of equity securities of small- and
medium-sized U.S. companies. The funds are valued using the net
asset value method in which an average of the market prices for the
underlying investments is used to value the fund. |
| (4) |
This category includes
investments in funds comprised of equity securities of foreign
companies including emerging markets. The funds are valued using
the net asset value method in which an average of the market prices
for the underlying investments is used to value the
fund. |
| (5) |
This category includes
investments in funds comprised of U.S. and foreign investment-grade
fixed income securities, high-yield fixed income securities that
are rated below investment-grade, U.S. treasury securities,
mortgage-backed securities, and other asset-backed securities. The
funds are valued using the net asset value method in which an
average of the market prices for the underlying investments is used
to value the fund. |
The
following tables compute basic and diluted earnings per share (in
thousands, except per share data):
| |
|
Three Months Ended
March 31, 2022 |
|
| |
|
Loss
Numerator |
|
|
Shares
Denominator |
|
|
Per-Share
Amount |
|
| Net loss |
|
$ |
(2,602 |
) |
|
|
|
|
|
|
|
|
| Less: Preferred stock
dividends |
|
|
(312 |
) |
|
|
|
|
|
|
|
|
| Basic and diluted loss
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss available to
common stockholders |
|
$ |
(2,914 |
) |
|
|
71,390 |
|
|
$ |
(0.04 |
) |
| |
|
Three Months Ended
March 31, 2021 |
|
| |
|
Income
Numerator |
|
|
Shares
Denominator |
|
|
Per-Share
Amount |
|
| Net income |
|
$ |
4,678 |
|
|
|
|
|
|
|
|
|
| Less: Preferred stock
dividends |
|
|
(312 |
) |
|
|
|
|
|
|
|
|
| Basic income per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Income available to
common stockholders |
|
$ |
4,366 |
|
|
|
70,351 |
|
|
$ |
0.06 |
|
| Add: Dilutive
securities |
|
|
|
|
|
|
2,113 |
|
|
|
|
|
| Diluted income per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Income available to
common stockholders |
|
$ |
4,366 |
|
|
|
72,464 |
|
|
$ |
0.06 |
|
There were
an additional aggregate potentially dilutive weighted-average
shares of 1,339,000 and 3,265,000 from convertible securities
outstanding for the three months ended March 31, 2022 and 2021.
These securities were not considered in calculating diluted net
income (loss) per share for the three months ended March 31, 2022
and 2021, as their effect would have been anti-dilutive. At March
31, 2022, the Company had outstanding unexercised warrants to
purchase 8.9 million shares of its common stock at an exercise
price of $9.76 per share. These warrants expired unexercised on
April 28, 2022.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The
following discussion and analysis should be read in conjunction
with our consolidated financial statements and notes to
consolidated financial statements included elsewhere in this
report. This report and our consolidated financial statements and
notes to consolidated financial statements contain forward-looking
statements, which generally include the plans and objectives of
management for future operations, including plans and objectives
relating to our future economic performance and our current beliefs
regarding revenues we might generate and profits we might earn if
we are successful in implementing our business and growth
strategies. The forward-looking statements and associated risks may
include, relate to or be qualified by other important factors,
including:
|
● |
fluctuations
in the market prices of alcohols and essential
ingredients; |
|
● |
fluctuations
in the costs of key production input commodities such as corn and
natural gas; |
|
● |
the
projected growth or contraction in the alcohol and essential
ingredients markets in which we operate; |
|
● |
our
strategies for expanding, maintaining or contracting our presence
in these markets; |
|
● |
anticipated
trends in our financial condition and results of operations;
and |
|
● |
our
ability to distinguish ourselves from our
current and future competitors. |
You are
cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date of this report, or in
the case of a document incorporated by reference, as of the date of
that document. We do not undertake to update, revise or correct any
forward-looking statements, except as required by law.
Any of the
factors described immediately above, or referenced from time to
time in our filings with the Securities and Exchange Commission or
in the “Risk Factors” section below could cause our financial
results, including our net income or loss or growth in net income
or loss to differ materially from prior results, which in turn
could, among other things, cause the price of our common stock to
fluctuate substantially.
Overview
We are a
leading producer and distributor of specialty alcohols and
essential ingredients, and the largest producer of specialty
alcohols in the United States.
We operate
five alcohol production facilities. Three of our production
facilities are located in the Midwestern state of Illinois and two
of our facilities are located in the Western states of Oregon and
Idaho. We have an annual alcohol production capacity of 350 million
gallons. We market and distribute all of the alcohols produced at
our facilities as well as fuel-grade ethanol produced by third
parties. In 2021, we marketed and distributed approximately 480
million gallons combined of our own alcohols as well as fuel-grade
ethanol produced by third parties, and over 1.2 million tons of
essential ingredients on a dry matter basis.
We report
our financial and operating performance in three segments: (1)
marketing and distribution, which includes marketing and merchant
trading for Company-produced alcohols and essential ingredients on
an aggregated basis and third party fuel-grade ethanol sales, (2)
Pekin production, which includes the production and sale of
alcohols and essential ingredients produced at our Pekin, Illinois
campus, or Pekin Campus, and (3) Other production, which includes
the production and sale of renewable fuel and essential ingredients
produced at all of our other production facilities on an aggregated
basis, none of which are individually so significant as to be
considered a reportable segment.
Our
mission is to expand our business as a leading producer and
distributor of specialty alcohols and essential ingredients. 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.
On January
14, 2022, we acquired Eagle Alcohol Company LLC, or Eagle Alcohol,
for $14.0 million in cash plus an estimated net working capital
adjustment of $1.3 million in cash. The members of Eagle Alcohol
are eligible to receive up to an additional $14.0 million of
contingent consideration, payable through a combination of cash and
our common stock over the next five years, subject to the
satisfaction of certain conditions, including continued
employment.
Eagle
Alcohol specializes in break bulk distribution of specialty
alcohols. Eagle Alcohol purchases bulk alcohol from suppliers.
Eagle Alcohol then stores, denatures, packages, and resells alcohol
products in smaller sizes, including tank trucks, totes, and drums,
that garner a premium to bulk alcohols. Eagle Alcohol delivers
products to customers in the beverage, food, pharma, and
related-process industries via its own dedicated trucking fleet and
common carrier. Eagle Alcohol generated over $35 million in
revenues in 2021. Eagle Alcohol is now one of our wholly-owned
subsidiaries, and its former president, Dan Croghan, who has many
years of experience and expertise in the chemical and alcohol
distribution industry, continues on as our employee.
Production
Segments
We produce
specialty alcohols, fuel-grade ethanol and essential ingredients,
focusing on four key markets: Health, Home & Beauty;
Food & Beverage; Essential Ingredients; and
Renewable Fuels. Products for the Health, Home & Beauty
market include specialty alcohols used in mouthwash, cosmetics,
pharmaceuticals, hand sanitizers, disinfectants and cleaners.
Products for the Food & Beverage markets include grain neutral
spirits used in alcoholic beverages and vinegar as well as corn
germ used for corn oils. Products for Essential Ingredients markets
include yeast, corn gluten and distillers grains used in commercial
animal feed and pet foods. Our Renewable Fuels products include
fuel-grade ethanol and distillers corn oil used as a feedstock for
renewable diesel fuel.
We produce
our alcohols and essential ingredients at our production facilities
described below. Our production facilities located in the Midwest
are in the heart of the Corn Belt, benefit from 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 on the
West Coast are near their respective fuel and feed customers,
offering significant timing, transportation cost and logistical
advantages.
All of our
production facilities are currently operating and have been
operating through all of the first quarter. As market conditions
change, we may increase, decrease or idle production at one or more
operating facilities or resume operations at any idled
facility.
|
|
|
|
|
Annual Production Capacity
(estimated, in gallons) |
|
|
Production Facility |
|
Location |
|
Fuel-Grade Ethanol |
|
|
Specialty Alcohol |
|
| Pekin
Campus |
|
Pekin, IL |
|
|
110,000,000 |
|
|
|
140,000,000 |
|
| Magic
Valley |
|
Burley, ID |
|
|
60,000,000 |
|
|
|
— |
|
| Columbia |
|
Boardman,
OR |
|
|
40,000,000 |
|
|
|
— |
|
Marketing and
Distribution Segment
We market
and distribute all of the alcohols and essential ingredients we
produce at our facilities. We also market and distribute alcohol
produced by third parties.
We have
extensive and long-standing customer relationships, both domestic
and international, for our specialty alcohols 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 fuel 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
with very little effort on their part. 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 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
our essential ingredient 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 and biodiesel customers. We do not market essential
ingredients from other producers.
See “Note
3 – Segments” to our Notes to Consolidated Financial Statements
included elsewhere in this report for financial information about
our business segments.
Current Initiatives and Outlook
Our decision to diversify further into specialty alcohols and
essential ingredients provided a buffer against macroeconomic
challenges and weak renewable fuel crush margins in the first
quarter of 2022. As a result, we generated positive gross margins
and, despite generating a net loss of $2.6 million, we generated
positive Adjusted EBITDA of $4.4 million for the quarter
notwithstanding a challenging market environment. We define
Adjusted EBITDA as earnings before interest, taxes, depreciation
and amortization, or EBITDA, adjusted for asset impairments, loss
on extinguishment of debt, acquisition-related expense and fair
value adjustments. A table reconciling Adjusted EBITDA to unaudited
net income or loss attributed to Alto Ingredients, Inc. is included
below.
During the quarter, we remained focused on managing the areas of
our business within our control by executing on our strategic
goals, investing for future growth and further diversifying and
high-grading our product offerings. As noted above, we acquired
Eagle Alcohol, an established leader in premium alcohol
distribution. The acquisition expands our product offerings and
broadens our target markets, including by accelerating our ability
to capture additional high-margin sales. We expect Eagle Alcohol to
contribute $4.0 million in EBITDA for 2022 and $9.0 million in
EBITDA annually starting in 2023, including synergies. We plan to
invest $5.0 million in 2022 to further enhance our specialty
alcohol quality and distribution before fourth quarter contract
negotiations begin.
In February, we expanded our portfolio of certifications by
qualifying for two additional internationally-recognized
certifications at our Pekin Campus. We received a certification for
active pharmaceutical ingredients and a second certification for
the use of excipients. Together with the certifications we received
in 2021, these new certifications create redundancy across our
entire Pekin Campus. The certifications increase our appeal to
customers who require a consistent, documented supply of high-grade
alcohols for use in pharmaceutical, health, home and beauty, and
distilled spirits products. As a result, we are expanding existing
relationships and attracting new customers domestically and in
growing international markets for these higher-margin specialty
alcohols.
As previously reported, we launched our first project to produce
enhanced protein at our dry mill in Magic Valley, Idaho by
installing Harvesting Technology’s patented CoPromaxTM
system. In the first quarter, we made progress installing the
system and expect to see initial benefits from the corn oil
extraction part of the system in the second half of this year,
generating $4.0 million of EBITDA on an annualized basis. We expect
to complete the protein enhancement part of the system by early
2023, producing an additional $5.0 million of EBITDA annually based
on current market prices.
We plan to roll out the CoPromax system at our three other dry
mills following its successful installation at our Magic Valley
facility with the goal of having them fully operational by 2025.
The total investment for all four facilities is $70.0 million.
Assuming similar economics across all four dry mills, we estimate
that the systems will contribute $34.0 million in EBITDA annually
based on current market values.
We have begun expanding corn storage at our Pekin Campus to
increase our corn-buying flexibility and reduce our need to
purchase product at premium prices when farmers and elevators have
stopped shipping corn, including during holidays or unfavorable
weather conditions. This capital improvement project represents an
investment of approximately $6.0 million, which we expect will
yield over $2.0 million in EBITDA annually with a payback in less
than three years beginning in the first quarter of 2023.
We continue to reinvest in our facilities by upgrading equipment
and operating systems to increase efficiency and plant reliability.
For example, after only a nominal expense, we are now able to load
corn oil into railcars across all our facilities, expanding our
access to higher value corn oil markets. We are planning similar
capital expenditure projects that are ongoing in nature. We will
provide periodic updates on these projects as they develop
throughout the year.
We are also evaluating an investment to bypass the local natural
gas utility at our Pekin Campus, which we estimate would reduce
natural gas prices by 11% based on 2021 values. This investment
would also create an opportunity to sell renewable natural gas
produced at our Pekin Campus directly into the pipeline. The
investment would be approximately $9.0 million in 2023 and yield a
return of approximately $5.0 million in EBITDA annually beginning
in 2024.
In addition, we remain actively engaged with third parties to
evaluate a carbon capture and sequestration program at our Pekin
Campus. We will continue to pursue additional profitable
opportunities with a focus on 2024 and beyond.
Earlier this year, we created an environmental, social and
governance, or ESG, committee consisting of senior executives,
subject matter experts and members of our board of directors. Our
ESG committee completed an extensive review with a third party and
refined our ESG strategy. As part of this process, we promoted
Stacy Swanson, who led our rigorous certification efforts, to head
our day-to-day ESG programs in the newly created position of Vice
President of Quality and Sustainability. As a producer and
distributor of high-quality, bio-based alcohols, we are committed
to creating a greener environment. We have launched initiatives,
set baselines and begun tracking resources to improve employee
health and safety and further reduce environmental impacts. As
illustrated by our quality certifications, we are committed to
producing ingredients for our customers that embody the highest
levels of integrity, purity and quality for products that touch
multiple areas of people’s lives. We look forward to providing
periodic updates on our ESG strategy and greater transparency of
our many accomplishments to date and of our activities moving
forward.
Use of Non-GAAP Measures
Management believes that certain financial measures not in
accordance with generally accepted accounting principles, or GAAP,
are useful measures of operations. We define Adjusted EBITDA as
unaudited net income (loss) attributed to Alto Ingredients, Inc.
before interest expense, interest income, provision (benefit) for
income taxes, asset impairments, loss on extinguishment of debt,
acquisition-related expense, fair value adjustments, and
depreciation and amortization expense. A table is provided below to
reconcile Adjusted EBITDA to its most directly comparable GAAP
measure, net income (loss) attributed to Alto Ingredients, Inc.
Management provides this non-GAAP 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. Adjusted EBITDA is not a measure of
financial performance under GAAP and should not be considered as an
alternative to net income (loss) attributed to Alto Ingredients,
Inc. 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 the company's results as reported under GAAP.
Information reconciling forward-looking EBITDA to forward-looking
net income (loss) attributed to Alto Ingredients, Inc. would
require a forward-looking statement of net income (loss) attributed
to Alto Ingredients, Inc. prepared in accordance with GAAP, which
is unavailable to us without unreasonable effort. We are not able
to provide a quantitative reconciliation of forward-looking EBITDA
to forward-looking net income (loss) attributed to Alto
Ingredients, Inc. because certain items required for reconciliation
are uncertain, outside of our control and/or cannot be reasonably
predicted, such as net sales, cost of goods sold, provision
(benefit) for income taxes, asset impairments and fair value
adjustments, which we view as the most material components of net
income (loss) attributed to Alto Ingredients, Inc. that are not
presently estimable.
Reconciliation of Adjusted EBITDA to Net Income (Loss)
| |
|
Three Months
Ended
March 31, |
|
|
(in thousands) (unaudited) |
|
2022 |
|
|
2021 |
|
| Net
income (loss) |
|
$ |
(2,602 |
) |
|
$ |
4,678 |
|
| Adjustments: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
200 |
|
|
|
1,885 |
|
|
Interest income |
|
|
(158 |
) |
|
|
(184 |
) |
|
Acquisition-related expense |
|
|
875 |
|
|
|
— |
|
| Asset
impairments |
|
|
— |
|
|
|
1,200 |
|
|
Depreciation and amortization expense |
|
|
6,134 |
|
|
|
5,860 |
|
|
Total adjustments |
|
|
7,051 |
|
|
|
8,761 |
|
|
Adjusted EBITDA |
|
$ |
4,449 |
|
|
$ |
13,439 |
|
Critical Accounting
Policies and Estimates
Our
discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which
have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of net
sales and expenses for each period. We believe that of our
significant accounting policies, the following critical accounting
policies and estimates are those policies that we believe are the
most important to the portrayal of our financial condition and
results of operations and that require management’s most difficult,
subjective or complex judgments, often as a result of the need to
make estimates about the effects of matters that are inherently
uncertain: revenue recognition; accounting for business
combinations; impairment of long-lived assets and held-for-sale
classification; valuation allowance for deferred taxes and
derivative instruments. Except as noted below, these significant
accounting principles are more fully described in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies and Estimates” in our
Annual Report on Form 10-K for the year ended December 31,
2021.
Accounting for
Business Combinations
Determining the fair
value of assets acquired and liabilities assumed in a business
combination is considered a critical accounting estimate because
the allocation of the purchase price to assets acquired and
liabilities assumed based upon fair values requires significant
management judgment and the use of subjective measurements.
Variability in industry conditions and changes in assumptions or
subjective measurements used to allocate fair value are reasonably
possible and may have a material impact on our financial position,
liquidity or results of operations.
Results of
Operations
The
following selected financial information should be read in
conjunction with our consolidated financial statements and notes to
our consolidated financial statements included elsewhere in this
report, and the other sections of “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
contained in this report.
Certain
performance metrics that we believe are important indicators of our
results of operations include:
|
|
|
Three
Months Ended
March
31,
|
|
|
Percentage |
|
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Renewable
fuel production gallons sold (in millions) |
|
|
49.2 |
|
|
|
39.0 |
|
|
|
26.2 |
% |
|
Specialty
alcohol production gallons sold (in millions) |
|
|
23.3 |
|
|
|
19.0 |
|
|
|
22.6 |
% |
|
Third
party renewable fuel gallons sold (in millions) |
|
|
30.7 |
|
|
|
54.0 |
|
|
|
(43.1 |
)% |
|
Total
gallons sold (in millions) |
|
|
103.2 |
|
|
|
112.0 |
|
|
|
(7.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gallons produced (in millions) |
|
|
74.3 |
|
|
|
58.0 |
|
|
|
28.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
capacity utilization |
|
|
86 |
% |
|
|
52 |
% |
|
|
65.4 |
% |
| Average
sales price per gallon |
|
$ |
2.46 |
|
|
$ |
1.94 |
|
|
|
26.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn
cost per bushel—CBOT equivalent |
|
$ |
6.22 |
|
|
$ |
4.98 |
|
|
|
24.9 |
% |
|
Average
basis(1) |
|
|
0.64 |
|
|
|
0.29 |
|
|
|
120.7 |
% |
|
Delivered
cost of corn |
|
$ |
6.86 |
|
|
$ |
5.27 |
|
|
|
30.2 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
essential ingredients tons sold (in thousands) |
|
|
398.8 |
|
|
|
276.9 |
|
|
|
44.0 |
% |
|
Essential
ingredients revenues as % of delivered cost of
corn(2)
|
|
|
36.4 |
% |
|
|
40.0 |
% |
|
|
(9.0 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Average
CBOT ethanol price per gallon |
|
$ |
2.16 |
|
|
$ |
1.60 |
|
|
|
35.0 |
% |
| Average
CBOT corn price per bushel |
|
$ |
6.73 |
|
|
$ |
5.40 |
|
|
|
24.6 |
% |
|
(1) |
Corn
basis represents the difference between the immediate cash price of
delivered corn and the future price of corn for Chicago
delivery. |
|
(2) |
Essential
ingredients revenues as a percentage of delivered cost of corn
shows our yield based on sales of essential ingredients, including
wet distillers grains and corn oil, generated from alcohol we
produced. |
Net Sales, Cost of Goods Sold and Gross Profit
The
following table presents our net sales, cost of goods sold and
gross profit in dollars and gross profit as a percentage of net
sales (in thousands, except percentages):
| |
|
Three
Months Ended
March
31,
|
|
|
Change
in |
|
| |
|
2022 |
|
|
2021 |
|
|
Dollars |
|
|
Percent |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net sales |
|
$ |
308,118 |
|
|
$ |
218,734 |
|
|
$ |
89,384 |
|
|
|
40.9 |
% |
| Cost of goods
sold |
|
|
303,345 |
|
|
|
204,897 |
|
|
|
98,448 |
|
|
|
48.0 |
% |
| Gross
profit |
|
$ |
4,773 |
|
|
$ |
13,837 |
|
|
$ |
(9,064 |
) |
|
|
(65.5 |
)% |
|
Percentage
of net sales |
|
|
1.5 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
Net
Sales
The
increase in our consolidated net sales for the three months ended
March 31, 2022 as compared to the same period in 2021 was primarily
due to an increase in our average sales price per gallon sold and
an increase in our production gallons sold, partially offset by a
decrease in third-party gallons sold. We marketed fewer third-party
gallons during the quarter as we ended our contractual relationship
with one of the ethanol plants for which we previously sold its
production.
On a consolidated basis, our average sales price per gallon
increased 26.8% to $2.46 for the three months ended March 31, 2022
as compared to $1.94 for the same period in 2021. The increase in
our average sales price per gallon primarily reflects supply
constraints that translated into higher ethanol prices. The average
Chicago Board of Trade, or CBOT, fuel-grade ethanol price per
gallon, increased 35.0% to $2.16 for the three months ended March
31, 2022 as compared to $1.60 for the same period in 2021.
Pekin
Campus Production Segment
Net
sales of alcohol from our Pekin Campus production segment increased
by $21.0 million, or 22%, to $116.1 million for the three months
ended March 31, 2022 as compared to $95.1 million for the same
period in 2021. Our total volume of production gallons sold
declined by 1.3 million gallons, or 3%, to 49.3 million gallons for
the three months ended March 31, 2022 as compared to 50.6 million
gallons for the same period in 2021. At our Pekin Campus production
segment’s average sales price per gallon of $2.35 for the three
months ended March 31, 2022, we generated $3.0 million less in net
sales from our Pekin Campus production segment from the 1.3 million
fewer gallons of alcohol sold in the three months ended March 31,
2022 as compared to the same period in 2021. The increase of $0.47,
or 25%, in our Pekin Campus production segment’s average sales
price per gallon in the three months ended March 31, 2022 as
compared to the same period in 2021 improved our net sales from our
Pekin Campus production segment by $24.0 million.
Net
sales of essential ingredients increased $10.2 million, or 23%, to
$55.3 million for the three months ended March 31, 2022 as compared
to $45.1 million for the same period in 2021. Our total volume of
essential ingredients sold increased by 12,000 tons, or 5%, to
242,000 tons for the three months ended March 31, 2022 from 230,000
tons for the same period in 2021. At our average sales price per
ton of $228.31 for the three months ended March 31, 2022, we
generated $2.8 million more in net sales from the 12,000 additional
tons of essential ingredients sold in the three months ended March
31, 2022 as compared to the same period in 2021. The increase of
$32.36, or 17%, in our average sales price per ton for the three
months ended March 31, 2022 as compared to the same period in 2021
increased our net sales from our Pekin Campus production segment by
$7.4 million.
Marketing
and Distribution Segment
Net sales
of alcohol from our marketing and distribution segment, excluding
intersegment sales, decreased by $3.2 million, or 6%, to $54.2
million for the three months ended March 31, 2022 as compared to
$57.4 million for the same period in 2021.
Our volume
of third party alcohol sold reported gross by our marketing and
distribution segment decreased by 6.8 million gallons, or 25%, to
19.9 million gallons for the three months ended March 31, 2022 as
compared to 26.7 million gallons for the same period in 2021. At
our marketing and distribution segment’s average sales price per
gallon of $2.71 for the three months ended March 31, 2022, we
generated $18.4 million less in net sales from our marketing and
distribution segment from the 6.8 million fewer gallons of
third-party alcohol sold gross in the three months ended March 31,
2022 as compared to the same period in 2021.
Our
volume of alcohol sold reported net by our marketing and
distribution segment decreased by 16.5 million gallons, or 60%, to
10.8 million gallons for the three months ended March 31, 2022 as
compared to 27.3 million gallons for the same period in 2021. The
decrease in third-party alcohol volume sold reported net reduced
net sales by less than $0.1 million.
The
$0.57 per gallon, or 27%, increase in our marketing and
distribution segment’s average sales price per gallon for the three
months ended March 31, 2022 as compared to the same period in 2021
resulted in a $15.3 million increase in our net sales from
third-party fuel-grade ethanol sold by our marketing and
distribution segment.
Other
Production Segment
Net
sales of alcohol from our other production segment increased by
$43.8 million, or 274%, to $59.8 million for the three months ended
March 31, 2022 as compared to $16.0 million for the same period in
2021. Our total volume of alcohol sold increased by 15.8 million
gallons, or 214%, to 23.2 million gallons for the three months
ended March 31, 2022 as compared to 7.4 million gallons for the
same period in 2021. At our other production segment’s average
sales price per gallon of $2.58 for the three months ended March
31, 2022, we generated $40.7 million of additional net sales from
our other production segment from the 15.8 million additional
gallons of alcohol sold in the three months ended March 31, 2022 as
compared to the same period in 2021. The increase of $0.42, or 20%,
in our other production segment’s average sales price per gallon
for the three months ended March 31, 2022 as compared to the same
period in 2021 improved our net sales from our other production
segment by $3.1 million.
Net
sales of essential ingredients increased by $13.8 million, or 271%,
to $18.9 million for the three months ended March 31, 2022 as
compared to $5.1 million for the same period in 2021. Our total
volume of essential ingredients sold increased by 110,000 tons, or
234%, to 157,000 tons for the three months ended March 31, 2022
from 47,000 tons for the same period in 2021. At our average sales
price per ton of $120.87 for the three months ended March 31, 2022,
we generated $13.2 million of additional net sales from our other
production segment from the 110,000 additional tons of essential
ingredients sold in the three months ended March 31, 2022 as
compared to the same period in 2021. The increase of $11.12, or
10%, in our average sales price per ton for the three months ended
March 31, 2022 as compared to the same period in 2021 increased our
net sales of essential ingredients from our other production
segment by $0.6 million.
Corporate and
other
Net sales
of alcohol from corporate and other represented $3.8 million
associated with our sales from Eagle Alcohol.
Cost of Goods Sold and Gross Profit
Our consolidated gross profit declined to $4.8 million for the
three months ended March 31, 2022 from $13.8 million for the same
period in 2021, representing a gross profit margin of 1.5% for the
three months ended March 31, 2022 compared to 6.3% for the same
period in 2021. Our consolidated gross profit declined due to
extreme commodity price volatility, drawn-out supply chains, rail
and operational disruptions, rising transportation costs and weak
renewable fuel crush margins. In addition, our cost of goods sold
includes $7.0 million in non-cash mark-to-market inventory
adjustments and unrealized losses recorded on our forward
derivative positions.
Pekin
Campus Production Segment
Our Pekin
Campus production segment’s gross profit declined by $9.9 million
to $3.3 million for the three months ended March 31, 2022 as
compared to $13.2 million for the same period in 2021. This decline
in gross profit is largely attributable to lower margins from sales
of essential ingredients. Our higher sales prices for essential
ingredients did not outweigh higher corn prices. In addition, we
had lower sales volumes from our Pekin Campus due to a lower
capacity utilization rate for the three months ended March 31, 2022
as compared to the same period in 2021 due to plant maintenance and
related shutdowns.
Marketing
and Distribution Segment
Our
marketing and distribution segment’s gross profit (loss) declined
by $4.0 million to a gross loss of $0.4 million for the three
months ended March 31, 2022 as compared to $3.6 million for the
same period in 2021. Of this decline, $3.9 million is attributable
to lower margins from sales of third-party fuel-grade ethanol due
to increased volatility in ethanol pricing and $0.1 million is
attributable to lower sales volumes for the three months ended
March 31, 2022 as compared to the same period in 2021 as we ended
our contractual relationship with one of the third-party ethanol
plants for which we previously sold its production.
Other
Production Segment
Our
other production segment’s gross profit improved by $4.0 million to
a gross profit of $1.0 million for the three months ended March 31,
2022 as compared to a gross loss of $3.0 million for the same
period in 2021. Of this improvement, $3.3 million is attributable
to improved margins on fuel-grade ethanol and $0.7 million is
attributable to higher sales volumes as we restarted our Magic
Valley facility in November 2021.
Corporate and
other
Gross
profit from corporate and other of $0.9 million was associated with
our sales from Eagle Alcohol.
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 |
|
| |
|
2022 |
|
|
2021 |
|
|
Dollars |
|
|
Percent |
|
|
Selling,
general and administrative expenses |
|
$ |
7,629 |
|
|
$ |
7,014 |
|
|
$ |
615 |
|
|
|
8.8 |
% |
|
Percentage
of net sales |
|
|
2.5 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
Our SG&A expenses increased for the three months ended March
31, 2022 as compared to the same period in 2021. The $0.6 million
period over period increase in SG&A expenses is primarily due
to a $0.9 million acquisition-related accrual for future cash
payments attributable to our acquisition of Eagle Alcohol,
partially offset by lower professional fees.
Net Income (Loss) Available to Common
Stockholders
The
following table presents our net income (loss) available to common
stockholders in dollars and as a percentage of net sales (in
thousands, except percentages):
| |
|
Three
Months Ended
March 31, |
|
|
Change
in |
|
| |
|
2022 |
|
|
2021 |
|
|
Dollars |
|
|
Percent |
|
|
Net income
(loss) available to Common Stockholders |
|
$ |
(2,914 |
) |
|
$ |
4,366 |
|
|
$ |
(7,280 |
) |
|
|
* |
|
|
Percentage
of net sales |
|
|
(0.9 |
)% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
The
decrease in net income available to common stockholders is
primarily due to our lower gross profit and higher SG&A
expenses, partially offset by lower interest expense, for the three
months ended March 31, 2022 as compared to the same period in
2021.
Liquidity
and Capital Resources
During the three months ended March 31, 2022, we funded our
operations primarily from cash generated by our operations,
proceeds from lines of credit and cash on hand. These funds were
also used to acquire Eagle Alcohol and for capital expenditures. As
of March 31, 2022, we had $60.0 million in cash, cash equivalents
and restricted cash and $15.2 million available for borrowing under
Kinergy’s operating line of credit. We believe we have sufficient
liquidity to meet our anticipated working capital, debt service and
other liquidity needs for the next twelve months from the date of
this report. We may, however, in the future, seek and obtain
additional capital in the form of secured debt to provide
additional funds for accretive projects.
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 consolidated
financial statements and notes to consolidated financial statements
included elsewhere in this report, and the other sections of
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” contained in this report (dollars in
thousands).
|
|
|
March 31,
2022 |
|
|
December 31,
2021 |
|
|
Change |
|
| Cash,
cash equivalents and restricted cash |
|
$ |
59,983 |
|
|
$ |
62,125 |
|
|
|
(3.4 |
)% |
| Current
assets |
|
$ |
241,213 |
|
|
$ |
229,526 |
|
|
|
5.1 |
% |
| Property
and equipment, net |
|
$ |
220,996 |
|
|
$ |
222,550 |
|
|
|
(0.7 |
)% |
| Current
liabilities |
|
$ |
80,181 |
|
|
$ |
69,602 |
|
|
|
15.2 |
% |
| Long-term
debt |
|
$ |
53,681 |
|
|
$ |
50,361 |
|
|
|
6.6 |
% |
| Working
capital |
|
$ |
161,032 |
|
|
$ |
159,924 |
|
|
|
0.7 |
% |
| Working
capital ratio |
|
|
3.01 |
|
|
|
3.30 |
|
|
|
(8.8 |
)% |
Changes
in Working Capital and Cash Flows
Working
capital improved to $161.0 million at March 31, 2022 from $159.9
million at December 31, 2021 as a result of an increase of $11.7
million in current assets, partially offset by an increase of $10.6
million in current liabilities.
Current
assets increased primarily due to an increase in notes receivable
as they became current due to their revised maturity date to June
30, 2022.
Our
current liabilities increased primarily due to an increase in
derivative instruments due to the end of period change in commodity
prices for open contracts.
Our
cash, cash equivalents and restricted cash declined by $2.1 million
primarily due to $17.0 million used in our investing activities,
partially offset by $11.1 million in cash provided by our operating
activities and $3.8 million in cash provided by our financing
activities.
Cash
provided by our Operating Activities
We
generated $11.1 million in cash from our operating activities
during the three months ended March 31, 2022, as compared to $4.5
million in cash used in our operations for the same period in 2021.
Specific factors that contributed to the change in cash from our
operating activities include:
|
● |
an
increase of $24.8 million related to higher accounts receivable
balances due to the timing of payments |
|
● |
an
increase of $14.5 million related to higher inventories due to
increased commodity prices; |
|
● |
an
increase of $10.8 million related to other assets primarily related
to derivative activity; and |
|
● |
an
increase of $5.2 million from gains on derivative instruments due
to the recent rise in corn prices. |
These
amounts were partially offset by:
|
● |
a
decrease of $7.3 million in our consolidated net income due to
lower margins from alcohol sales; and |
|
● |
a
decrease of $30.1 million related to accounts payable due to the
timing of payments. |
Cash
used in our Investing Activities
We
used $14.7 million of cash to acquire Eagle Alcohol, net of cash
acquired, and $2.3 million of cash for additions to property and
equipment in our investing activities for the three months ended
March 31, 2022.
Cash
provided by our Financing Activities
Cash
provided by our financing activities was $3.8 million for the three
months ended March 31, 2022, which reflects net proceeds of $3.3
million from Kinergy’s operating line of credit and $0.8 million in
principal payments received on our notes receivable, partially
offset by $0.3 million paid in preferred dividends.
Kinergy’s Operating Line of Credit
Kinergy
maintains an operating line of credit for an aggregate amount of up
to $100.0 million. The credit facility matures on August 8, 2023.
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 1.75% to 2.25%. The credit
facility’s monthly unused line fee is 0.25% to 0.375% of the amount
by which the maximum credit under the facility exceeds the average
daily principal balance during the immediately preceding month.
Payments that may be made by Kinergy to Alto Ingredients, Inc. as
reimbursement for management and other services provided by Alto
Ingredients, Inc. to Kinergy are limited under the terms of the
credit facility to $1.5 million per fiscal quarter. The credit
facility also includes the accounts receivable of our indirect
wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as
additional collateral. Payments that may be made by Alto Nutrients
to Alto Ingredients, Inc. as reimbursement for management and other
services provided by Alto Ingredients, Inc. to Alto Nutrients are
limited under the terms of the credit facility to $0.5 million per
fiscal quarter. Alto Nutrients markets our essential ingredients
and also provides raw material procurement services to our
subsidiaries.
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 2.0 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 a first-priority
security interest in all of their respective assets in favor of the
lender.
We
believe Kinergy and Alto Nutrients are in compliance with the
fixed-charge coverage ratio 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, |
|
| |
|
2022 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Charge
Coverage Ratio Requirement |
|
|
2.00 |
|
|
|
2.00 |
|
|
|
2.00 |
|
|
|
2.00 |
|
| Actual |
|
|
10.18 |
|
|
|
7.71 |
|
|
|
13.32 |
|
|
|
5.35 |
|
| Excess |
|
|
8.18 |
|
|
|
5.71 |
|
|
|
11.32 |
|
|
|
3.35 |
|
Alto
Ingredients, Inc. has guaranteed all of Kinergy’s obligations under
the credit facility. As of March 31, 2022, Kinergy had an
outstanding balance of $53.7 million and $15.2 million of unused
borrowing availability under the credit facility.
Effects
of Inflation
The
impact of inflation was not significant to our financial condition
or results of operations for the three months ended March 31, 2022
and 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
We
are exposed to various market risks, including changes in commodity
prices as discussed below. Market risk is the potential loss
arising from adverse changes in market rates and prices. In the
ordinary course of business, we may enter into various types of
transactions involving financial instruments to manage and reduce
the impact of changes in commodity prices. We do not have material
exposure to interest rate risk. We do not expect to have any
exposure to foreign currency risk as we conduct all of our
transactions in U.S. dollars.
We
produce alcohol and essential ingredients. Our business is
sensitive, in particular, to changes in the prices of ethanol and
corn. In the ordinary course of business, we may enter into various
types of transactions involving financial instruments to manage and
reduce the impact of changes in ethanol and corn prices. We do not
enter into derivatives or other financial instruments for trading
or speculative purposes.
We
are subject to market risk with respect to ethanol and corn
pricing. Ethanol prices are sensitive to global and domestic
ethanol supply; crude-oil supply and demand; crude-oil refining
capacity; carbon intensity; government regulation, including
governmental mandates for renewable fuel use; and consumer demand
for alternative fuels. Our ethanol sales are priced using contracts
that are either based on a fixed price or an indexed price tied to
a specific market, such as the CBOT or the Oil Price Information
Service. Under these fixed-priced arrangements, we are exposed to
the risk of a decrease in the market price of ethanol between the
time the price is fixed and the time the ethanol is
sold.
We
satisfy our physical corn needs, the principal raw material used to
produce alcohol and essential ingredients, based on purchases from
our corn vendors. Generally, we determine the purchase price of our
corn at or near the time we begin to grind. Additionally, we also
enter into volume contracts with our vendors to fix the purchase
price. As such, we are also subject to market risk with respect to
the price of corn. The price of corn is subject to wide
fluctuations due to unpredictable factors such as weather
conditions, farmer planting decisions, governmental policies with
respect to agriculture and international trade, including trade and
other sanctions that may be levied against grain producing
countries, and global supply and demand. Under the fixed price
arrangements, we assume the risk of a decrease in the market price
of corn between the time the price is fixed and the time the corn
is utilized.
Essential
ingredients are sensitive to various demand factors such as numbers
of livestock on feed, prices for feed alternatives, and supply
factors, primarily the production of alcohol co-products by plants
and other sources.
As
noted above, we may attempt to reduce the market risk associated
with fluctuations in the price of ethanol or corn by employing a
variety of risk management and hedging strategies. Strategies
include the use of derivative financial instruments such as futures
and options executed on the CBOT and/or the New York Mercantile
Exchange, as well as the daily management of physical corn
supplies.
These
derivatives are not designated for special hedge accounting
treatment, and as such, the changes in the fair values of these
contracts are recorded on the balance sheet and recognized
immediately in cost of goods sold. We recognized net gains of $5.3
million and $10.5 million related to the changes in the fair values
of these contracts for the three months ended March 31, 2022 and
2021, respectively.
At
March 31, 2022, we prepared a sensitivity analysis to estimate our
exposure to ethanol and corn. Market risk related to these factors
was estimated as the potential change in pre-tax income resulting
from a hypothetical 10% adverse change in the prices of our
expected ethanol and corn volumes. The analysis uses average CBOT
prices for the year and does not factor in future contracted
volumes. The results of this analysis for the three months ended
March 31, 2022, which may differ materially from actual results,
are as follows (in millions):
|
Commodity |
|
Volume |
|
|
Unit of Measure |
|
Approximate
Adverse Change to
Pre-Tax Income |
|
| Ethanol |
|
|
103.2 |
|
|
Gallons |
|
$ |
(15.7 |
) |
| Corn |
|
|
25.9 |
|
|
Bushels |
|
$ |
(17.4 |
) |
ITEM
4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We
conducted an evaluation under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. The
term “disclosure controls and procedures,” as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended, or Exchange Act, means controls and other procedures of
a company that are designed to ensure that information required to
be disclosed by the company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and
procedures also include, without limitation, controls and
procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and
principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding
required disclosure. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded as of March 31, 2022
that our disclosure controls and procedures were effective at a
reasonable assurance level.
Changes in Internal Control over Financial Reporting
There
has been no change in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Inherent
Limitations on the Effectiveness of Controls
Management
does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect
all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control systems are met.
Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent
limitations in a cost-effective control system, no evaluation of
internal control over financial reporting can provide absolute
assurance that misstatements due to error or fraud will not occur
or that all control issues and instances of fraud, if any, have
been or will be detected.
These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because
of a simple error or mistake. Controls can also be circumvented by
the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of
any system of controls is based in part on certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any
evaluation of controls effectiveness to future periods are subject
to risks. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance
with policies or procedures.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
We
are subject to legal proceedings, claims and litigation arising in
the ordinary course of business. While the amounts claimed may be
substantial, the ultimate liability cannot presently be determined
because of considerable uncertainties that exist. Therefore, it is
possible that the outcome of those legal proceedings, claims and
litigation could adversely affect our quarterly or annual operating
results or cash flows when resolved in a future period. However,
based on facts currently available, management believes such
matters will not adversely affect in any material respect our
financial condition, results of operations or cash
flows.
ITEM
1A. RISK FACTORS.
Before deciding to purchase, hold or sell our common stock, you
should carefully consider the risks described below in addition to
the other information contained in this Report and in our other
filings with the Securities and Exchange Commission, including
subsequent reports on Forms 10-Q and 8-K. The risks and
uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also affect our business. If
any of these known or unknown risks or uncertainties actually
occurs with material adverse effects on Alto Ingredients, our
business, financial condition, results of operations and/or
liquidity could be seriously harmed. In that event, the market
price for our common stock will likely decline, and you may lose
all or part of your investment.
Risks
Related to our Business
Our results of operations and our ability to operate at a profit
are largely dependent on our ability to manage the costs of corn,
natural gas and other production inputs, with the prices of our
alcohols and essential ingredients, all of which are subject to
volatility and uncertainty.
Our
results of operations are highly impacted by commodity prices,
including the cost of corn, natural gas and other production inputs
that we must purchase, and the prices of alcohols and essential
ingredients that we sell. Prices and supplies are subject to and
determined by market and other forces over which we have no
control, such as weather, domestic and global demand, supply
shortages, export prices and various governmental policies in the
United States and throughout the world.
Price
volatility of corn, natural gas and other production inputs, and
alcohols and essential ingredients, may cause our results of
operations to fluctuate substantially. We may fail to generate
expected levels of net sales and profits even under fixed-price and
other contracts for the sale of specialty alcohols used in consumer
products. Our customers may not pay us timely or at all, even under
longer-term, fixed-price contracts for our specialty alcohols, and
may seek to renegotiate prices under those contracts during periods
of falling prices or high price volatility.
Over
the past several years, for example, the spread between corn and
fuel-grade ethanol prices has fluctuated significantly.
Fluctuations are likely to continue to occur. A sustained narrow
spread, whether as a result of sustained high or increased corn
prices or sustained low or decreased alcohol or essential
ingredient prices, would adversely affect our results of operations
and financial condition. Revenues from sales of alcohols,
particularly fuel-grade ethanol, and essential ingredients could
decline below the marginal cost of production, which may force us
to suspend production, particularly fuel-grade ethanol production,
at some or all of our facilities.
In
addition, some of our fuel-grade ethanol marketing and distribution
activities will likely be unprofitable in a market of generally
declining prices due to the nature of our business. For example, to
satisfy customer demands, we maintain certain quantities of
fuel-grade ethanol inventory for subsequent resale. Moreover, we
procure much of our fuel-grade ethanol inventory outside of
third-party marketing and distribution arrangements and therefore
must buy fuel-grade ethanol at a price established at the time of
purchase and sell fuel-grade ethanol at an index price established
later at the time of sale that is generally reflective of movements
in the market price of fuel-grade ethanol. As a result, our margins
for fuel-grade ethanol sold in these transactions generally decline
and may turn negative as the market price of fuel-grade ethanol
declines.
We
can provide no assurance that corn, natural gas or other production
inputs can be purchased at or near current or any particular
prices, or that our alcohols or essential ingredients will sell at
or near current or any particular prices. Consequently, our results
of operations and financial condition may be adversely affected by
increases in the prices of corn, natural gas and other production
inputs or decreases in the prices of our alcohols and essential
ingredients.
Inflation, including as a result of commodity price inflation or
supply chain constraints due to the war in Ukraine, may adversely
impact our results of operations.
We
have experienced inflationary impacts on key production inputs,
wages and other costs of labor, equipment, services, and other
business expenses. Commodity prices in particular have risen
significantly over the past year. Inflation and its negative
impacts could escalate in future periods.
Ukraine
is the third largest exporter of grain in the world. Russia is one
of the largest producers of natural gas and oil and is the largest
exporter of fertilizers. The commodity price impact of the war in
Ukraine has been a sharp and sustained rise in grain and energy
prices, including corn and natural gas, two of our primary
production input commodities. In addition, the war in Ukraine has
adversely affected and may continue to adversely affect global
supply chains resulting in further commodity price inflation for
our production inputs. Lower fertilizer supplies may also impact
future growing seasons, further impacting grain supplies and
prices. Also, given high global grain prices, U.S. farmers may
prefer to lock in prices and export additional volumes, reducing
domestic grain supplies and resulting in further inflationary
pressures.
We
may not be able to include these additional costs in the prices of
the products we sell. As a result, inflation may have a material
adverse effect on our results of operations and financial
condition.
Increased alcohol or essential ingredient production or higher
inventory levels may cause a decline in prices for those products,
and may have other negative effects, adversely impacting our
results of operations, cash flows and financial
condition.
The
prices of our alcohols and essential ingredients are impacted by
competing third-party supplies of those products. For example, we
believe that the most significant factor influencing the price of
fuel-grade ethanol has been the substantial increase in production.
According to the Renewable Fuels Association, domestic fuel-grade
ethanol production capacity increased from an annualized rate of
1.5 billion gallons per year in January 1999 to a record 16.1
billion gallons in 2018. In addition, if fuel-grade ethanol
production margins improve, we anticipate that owners of production
facilities operating at below capacity, or owners of idled
production facilities, will increase production levels, thereby
resulting in more abundant fuel-grade ethanol supplies and
inventories. Increases in the supply of alcohols and essential
ingredients may not be commensurate with increases in demand for
alcohols and essential ingredients, thus leading to lower prices.
Any of these outcomes could have a material adverse effect on our
results of operations, cash flows and financial
condition.
The prices of our products are volatile and subject to large
fluctuations, which may cause our results of operations to
fluctuate significantly.
The
prices of our products are volatile and subject to large
fluctuations. For example, the market price of fuel-grade ethanol
is dependent upon many factors, including the supply of ethanol and
the price of gasoline, which is in turn dependent upon the price of
petroleum which itself is highly volatile and difficult to
forecast. Our fuel-grade ethanol sales are tied to prevailing spot
market prices rather than long-term, fixed-price contracts.
Fuel-grade ethanol prices, as reported by the CBOT, ranged from
$2.00 to $2.58 per gallon in the three months ended March 31, 2022,
$1.48 to $3.75 per gallon in 2021, from $0.81 to $1.62 per gallon
in 2020 and from $1.25 to $1.70 per gallon in 2019. In addition,
even under longer-term, fixed-price contracts for our specialty
alcohols, our customers may seek to renegotiate prices under those
contracts during periods of falling prices or high price
volatility. Fluctuations in the prices of our products may cause
our results of operations to fluctuate significantly.
Disruptions in our production or distribution may adversely affect
our business, results of operations and financial
condition.
Our
business depends on the continuing availability of rail, road,
port, storage and distribution infrastructure. In particular, due
to limited storage capacity at our production facilities and other
considerations related to production efficiencies, our facilities
depend on just-in-time delivery of corn. The production of alcohols
also requires a significant and uninterrupted supply of other raw
materials and energy, primarily water, electricity and natural gas.
Local water, electricity and gas utilities may fail to reliably
supply the water, electricity and natural gas that our production
facilities need or may fail to supply those resources on acceptable
terms. In the past, poor weather has caused disruptions in rail
transportation, which slowed the delivery of fuel-grade ethanol by
rail, the principal manner by which fuel-grade ethanol from our
facilities located in the Midwest is transported to market. In
addition, in 2020, we experienced closure of the Illinois River for
lock repairs which required greater use of less cost-effective
modes of product transport such as via rail and truck, which
resulted in higher costs and negatively affected our results of
operations.
Disruptions
in production or distribution, whether caused by labor
difficulties, unscheduled downtimes and other operational hazards
inherent in the alcohol production industry, including equipment
failures, fires, explosions, abnormal pressures, blowouts, pipeline
ruptures, transportation accidents and natural disasters such as
earthquakes, floods and storms, or human error or malfeasance or
other reasons, could prevent timely deliveries of corn or other raw
materials and energy, and could delay transport of our products to
market, and may require us to halt production at one or more
production facilities, any of which could have a material adverse
effect on our business, results of operations and financial
condition.
Some
of these operational hazards may also cause personal injury or loss
of life, severe damage to or destruction of property and equipment
or environmental damage, and may result in suspension of operations
and the imposition of civil or criminal penalties. Our insurance
may not fully cover the potential hazards described above or we may
be unable to renew our insurance on commercially reasonable terms
or at all.
The effects of the coronavirus pandemic may materially and
adversely affect our business, results of operations and
liquidity.
The
coronavirus pandemic has resulted in businesses suspending or
substantially curtailing operations and travel, quarantines, and an
overall substantial slowdown of economic activity. Federal, state
and foreign governments have implemented measures to contain the
virus, including social distancing requirements, travel
restrictions, border closures, limitations on public gatherings,
work-from-home orders, and closure of non-essential businesses.
Many of these measures remain or have been curtailed only
partially. Transportation fuels in particular, including fuel-grade
ethanol, experienced significant price declines and reduced demand.
A further or extended ongoing downturn in global economic activity,
or recessionary conditions in general, would likely lead to poor
demand for, and negatively affect the prices of, fuel-grade
ethanol, materially and adversely affecting our business, results
of operations and liquidity.
We may engage in hedging transactions and other risk mitigation
strategies that could harm our results of operations and financial
condition.
In an
attempt to partially offset the effects of volatility of our
product prices, in particular fuel-grade ethanol, corn and natural
gas costs, we may enter into contracts to fix the price of a
portion of our production or purchase a portion of our corn or
natural gas requirements on a forward basis. In addition, we may
engage in other hedging transactions involving exchange-traded
futures contracts for corn, natural gas and unleaded gasoline from
time to time. The financial statement impact of these activities is
dependent upon, among other things, the prices involved and our
ability to sell sufficient products to use all of the corn and
natural gas for which forward commitments have been made. Hedging
arrangements also expose us to the risk of financial loss in
situations where the other party to the hedging contract defaults
on its contract or, in the case of exchange-traded contracts, where
there is a change in the expected differential between the
underlying price in the hedging agreement and the actual prices
paid or received by us. In addition, our open contract positions
may require cash deposits to cover margin calls, negatively
impacting our liquidity. As a result, our hedging activities and
fluctuations in the price of corn, natural gas, fuel-grade ethanol
and unleaded gasoline may adversely affect our results of
operations, financial condition and liquidity.
Risks
Related to our Finances
We have incurred significant losses and negative operating cash
flow in the past and we may incur losses and negative operating
cash flow in the future, which may hamper our operations and impede
us from expanding our business.
We
have incurred significant losses and negative operating cash flow
in the past. For example, for the three months ended March 31, 2022
and year ended December 31, 2020, we incurred consolidated net
losses of approximately $2.6 million and $17.3 million,
respectively. We may incur losses and negative operating cash flow
in the future. We expect to rely on cash on hand, cash, if any,
generated from our operations, borrowing availability under our
lines of credit and proceeds from our future financing activities,
if any, to fund all of the cash requirements of our business.
Additional losses and negative operating cash flow may hamper our
operations and impede us from expanding our business.
We incur significant expenses to maintain and upgrade our
production facilities and operating equipment, and any interruption
in our operations would harm our operating
performance.
We
regularly incur significant expenses to maintain and upgrade our
production facilities and operating equipment. The machines and
equipment we use to produce our alcohols and manufacture our
essential ingredients are complex, have many parts, and some
operate on a continuous basis. We must perform routine equipment
maintenance and must periodically replace a variety of parts such
as motors, pumps, pipes and electrical parts. In addition, our
production facilities require periodic shutdowns to perform major
maintenance and upgrades. These scheduled shutdowns result in lower
sales and increased costs in the periods during which a shutdown
occurs and could result in unexpected operational issues in future
periods as a result of changes to equipment and operational and
mechanical processes made during shutdown.
Our ability to utilize net operating loss carryforwards and certain
other tax attributes may be limited.
Federal
and state income tax laws impose restrictions on our use of net
operating loss, or NOL, and tax credit carryforwards in the event
that an “ownership change” occurs for tax purposes, as defined by
Section 382 of the Internal Revenue Code, or Code. In general, an
ownership change occurs when stockholders owning 5% or more of a
corporation entitled to use NOL or other loss carryforwards have
increased their ownership by more than 50 percentage points during
any three-year period. The annual base limitation under Section 382
of the Code is calculated by multiplying the corporation’s value at
the time of the ownership change by the greater of the long-term
tax-exempt rate determined by the Internal Revenue Service in the
month of the ownership change or the two preceding months. Our
ability to utilize our NOL and other loss carryforwards may be
substantially limited. These limitations could result in increased
future tax obligations, which could have a material adverse effect
on our financial condition and results of operations.
Risks
Related to Legal and Regulatory Matters
We may be adversely affected by environmental, health and safety
laws, regulations and liabilities.
We
are subject to various federal, state and local environmental laws
and regulations, including those relating to the discharge of
materials into the air, water and ground; the generation, storage,
handling, use, transportation and disposal of hazardous materials
and wastes; and the health and safety of our employees. In
addition, some of these laws and regulations require us to operate
under permits that are subject to renewal or modification. These
laws, regulations and permits often require expensive pollution
control equipment or operational changes to limit actual or
potential impacts to the environment. A violation of these laws and
regulations or permit conditions can result in substantial fines,
natural resource damages, criminal sanctions, permit revocations
and/or production facility shutdowns. In addition, we have made,
and expect to make, significant capital expenditures on an ongoing
basis to comply with increasingly stringent environmental laws,
regulations and permits.
We
may be liable for the investigation and cleanup of environmental
contamination at each of our production facilities and at off-site
locations where we arrange for the disposal of hazardous substances
or wastes. If these substances or wastes have been or are disposed
of or released at sites that undergo investigation and/or
remediation by regulatory agencies, we may be responsible under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, or other environmental laws for all or part of the
costs of investigation and/or remediation, and for damages to
natural resources. We may also be subject to related claims by
private parties alleging property damage and personal injury due to
exposure to hazardous or other materials at or from those
properties. Some of these matters may require us to expend
significant amounts for investigation, cleanup or other
costs.
In
addition, new laws, new interpretations of existing laws, increased
governmental enforcement of environmental laws or other
developments could require us to make significant additional
expenditures. Continued government and public emphasis on
environmental issues will likely result in increased future
investments for environmental controls at our production
facilities. Present and future environmental laws and regulations,
and interpretations of those laws and regulations, applicable to
our operations, more vigorous enforcement policies and discovery of
currently unknown conditions may require substantial expenditures
that could have a material adverse effect on our results of
operations and financial condition.
The
hazards and risks associated with producing and transporting our
products (including fires, natural disasters, explosions and
abnormal pressures and blowouts) may also result in personal injury
claims or damage to property and third parties. As protection
against operating hazards, we maintain insurance coverage against
some, but not all, potential losses. However, we could sustain
losses for uninsurable or uninsured risks, or in amounts in excess
of existing insurance coverages. Events that result in significant
personal injury or damage to our property or third parties or other
losses that are not fully covered by insurance could have a
material adverse effect on our results of operations and financial
condition.
Future demand for fuel-grade ethanol is uncertain and may be
affected by changes to federal mandates, public perception,
consumer acceptance and overall consumer demand for transportation
fuel, any of which could negatively affect demand for fuel-grade
ethanol and our results of operations.
Although
many trade groups, academics and governmental agencies have
supported fuel-grade ethanol as a fuel additive that promotes a
cleaner environment, others have criticized fuel-grade ethanol
production as consuming considerably more energy and emitting more
greenhouse gases than other biofuels and potentially depleting
water resources. Some studies have suggested that corn-based
ethanol is less efficient than ethanol produced from other
feedstock and that it negatively impacts consumers by causing
increased prices for dairy, meat and other food generated from
livestock that consume corn. Additionally, critics of fuel-grade
ethanol contend that corn supplies are redirected from
international food markets to domestic fuel markets. If negative
views of corn-based ethanol production gain acceptance, support for
existing measures promoting use and domestic production of
corn-based ethanol as a fuel additive could decline, leading to a
reduction or repeal of federal ethanol usage mandates, which would
materially and adversely affect the demand for fuel-grade ethanol.
These views could also negatively impact public perception of the
fuel-grade ethanol industry and acceptance of ethanol as an
alternative fuel.
There
are limited markets for fuel-grade ethanol beyond those established
by federal mandates. Discretionary blending and E85 blending (i.e.,
gasoline blended with up to 85% fuel-grade ethanol by volume) are
important secondary markets. Discretionary blending is often
determined by the price of fuel-grade ethanol versus the price of
gasoline. In periods when discretionary blending is financially
unattractive, the demand for fuel-grade ethanol may decline. Also,
the demand for fuel-grade ethanol is affected by the overall demand
for transportation fuel. Demand for transportation fuel is affected
by the number of miles traveled by consumers and vehicle fuel
economy. Lower demand for fuel-grade ethanol and co-products would
reduce the value of our ethanol and related products, erode our
overall margins and diminish our ability to generate revenue or to
operate profitably. In addition, we believe that consumer
acceptance of E15 and E85 fuels is necessary before fuel-grade
ethanol can achieve any significant growth in market share relative
to other transportation fuels.
The United States fuel-grade ethanol industry is highly dependent
upon various federal and state laws and any changes in those laws
could have a material adverse effect on our results of operations,
cash flows and financial condition.
The
Environmental Protection Agency, or EPA, has implemented the
Renewable Fuel Standard, or RFS, under the Energy Policy Act of
2005 and the Energy Independence and Security Act of 2007. The RFS
program sets annual quotas for the quantity of renewable fuels
(such as fuel-grade ethanol) that must be blended into motor fuels
consumed in the United States. The domestic market for fuel-grade
ethanol is significantly impacted by federal mandates under the RFS
program for volumes of renewable fuels (such as ethanol) required
to be blended with gasoline. Future demand for fuel-grade ethanol
will largely depend on incentives to blend ethanol into motor
fuels, including the price of ethanol relative to the price of
gasoline, the relative octane value of ethanol, constraints in the
ability of vehicles to use higher ethanol blends, the RFS, and
other applicable environmental requirements.
Under
the provisions of the Clean Air Act, as amended by the Energy
Independence and Security Act of 2007, the EPA has limited
authority to waive or reduce the mandated RFS requirements, which
authority is subject to consultation with the Secretaries of
Agriculture and Energy, and based on a determination that there is
inadequate domestic renewable fuel supply or implementation of the
applicable requirements would severely harm the economy or
environment of a state, region or the United States in general. Our
results of operations, cash flows and financial condition could be
adversely impacted if the EPA reduces the RFS requirements from the
statutory levels specified in the RFS.
Various
bills in Congress introduced from time to time are also directed at
altering existing renewable fuels energy legislation, but none has
passed in recent years. Some legislative bills are directed at
halting or reversing expansion of, or even eliminating, the
renewable fuel program, while other bills are directed at
bolstering the program or enacting further mandates or grants that
would support the renewable fuels industry. Our results of
operations, cash flows and financial condition could be adversely
impacted if any legislation is enacted that reduces the RFS volume
requirements.
Risks
Related to Ownership of our Common Stock
Our stock price is highly volatile, which could result in
substantial losses for investors purchasing shares of our common
stock and in litigation against us.
The
market price of our common stock has fluctuated significantly in
the past and may continue to fluctuate significantly in the future.
The market price of our common stock may continue to fluctuate in
response to one or more of the following factors, many of which are
beyond our control:
| |
● |
fluctuations
in the market prices of our products; |
| |
|
|
| |
● |
fluctuations
in the costs of key production input commodities such as corn and
natural gas; |
| |
|
|
| |
● |
the
volume and timing of the receipt of orders for our products from
major customers; |
| |
|
|
| |
● |
the
coronavirus pandemic, including governmental and public responses
to the pandemic; |
| |
|
|
| |
● |
competitive
pricing pressures; |
| |
|
|
| |
● |
anticipated
trends in our financial condition and results of
operations; |
| |
|
|
| |
● |
changes
in market valuations of companies similar to us; |
| |
|
|
| |
● |
stock
market price and volume fluctuations generally; |
| |
|
|
| |
● |
regulatory
developments or increased enforcement; |
| |
|
|
| |
● |
fluctuations
in our quarterly or annual operating results; |
| |
|
|
| |
● |
additions
or departures of key personnel; |
| |
|
|
| |
● |
our
ability to obtain any necessary financing; |
| |
|
|
| |
● |
our
financing activities and future sales of our common stock or other
securities; and |
| |
|
|
| |
● |
our
ability to maintain contracts that are critical to our
operations. |
The
price at which you purchase shares of our common stock may not be
indicative of the price that will prevail in the trading market.
You may be unable to sell your shares of common stock at or above
your purchase price, which may result in substantial losses to you
and which may include the complete loss of your investment. In the
past, securities class action litigation has often been brought
against a company following periods of high stock price volatility.
We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert
management’s attention and our resources away from our
business.
Any
of the risks described above could have a material adverse effect
on our results of operations, the price of our common stock, or
both.
Because we do not intend to pay any cash dividends on our shares of
common stock in the near future, our stockholders will not be able
to receive a return on their shares unless and until they sell
them.
We
intend to retain a significant portion of any future earnings to
finance the development, operation and expansion of our business.
We do not anticipate paying any cash dividends on our common stock
in the near future. The declaration, payment, and amount of any
future dividends will be made at the discretion of our board of
directors, and will depend upon, among other things, our results of
operations, cash flows, and financial condition, operating and
capital requirements, and other factors as our board of directors
considers relevant. There is no assurance that future dividends
will be paid, and, if dividends are paid, there is no assurance
with respect to the amount of any such dividend. Unless our board
of directors determines to pay dividends, our stockholders will be
required to look solely to appreciation in the value of our common
stock to realize any gain on their investment. There can be no
assurance that any such appreciation will occur.
Our bylaws contain an exclusive forum provision, which could limit
our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers, employees or
agents.
Our
bylaws provide that, unless we consent in writing to the selection
of an alternative forum, the Delaware Court of Chancery shall be
the sole and exclusive forum for (a) any derivative action or
proceeding brought on our behalf, (b) any action asserting a claim
of breach of a fiduciary duty owed by any director, officer or
other employee of us to us or our stockholders, (c) any action
asserting a claim arising pursuant to any provision of the Delaware
General Corporation Law, or (d) any action asserting a claim
governed by the internal affairs doctrine.
For
the avoidance of doubt, the exclusive forum provision described
above does not apply to any claims arising under the Securities Act
of 1933, as amended, or the Securities Act, or the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Section 27
of the Exchange Act creates exclusive federal jurisdiction over all
suits brought to enforce any duty or liability created by the
Exchange Act or the rules and regulations thereunder, and Section
22 of the Securities Act creates concurrent jurisdiction for
federal and state courts over all suits brought to enforce any duty
or liability created by the Securities Act or the rules and
regulations thereunder.
The
choice of forum provision in our bylaws may limit our stockholders’
ability to bring a claim in a judicial forum that they find
favorable for disputes with us or our directors, officers,
employees or agents, which may discourage such lawsuits against us
and our directors, officers, employees and agents even though an
action, if successful, might benefit our stockholders. The
applicable courts may also reach different judgments or results
than would other courts, including courts where a stockholder
considering an action may be located or would otherwise choose to
bring the action, and such judgments or results may be more
favorable to us than to our stockholders. With respect to the
provision making the Delaware Court of Chancery the sole and
exclusive forum for certain types of actions, stockholders who do
bring a claim in the Delaware Court of Chancery could face
additional litigation costs in pursuing any such claim,
particularly if they do not reside in or near Delaware. Finally, if
a court were to find this provision of our bylaws inapplicable to,
or unenforceable in respect of, one or more of the specified types
of actions or proceedings, we may incur additional costs associated
with resolving such matters in other jurisdictions, which could
have a material adverse effect on us.
General
Risk Factors
Cyberattacks through security vulnerabilities could lead to
disruption of our business, reduced revenue, increased costs,
liability claims, or harm to our reputation or competitive
position.
Security
vulnerabilities may arise from our hardware, software, employees,
contractors or policies we have deployed, which may result in
external parties gaining access to our networks, data centers,
cloud data centers, corporate computers, manufacturing systems,
and/or access to accounts we have at our suppliers, vendors or
customers. External parties may gain access to our data or our
customers’ data, or attack the networks causing denial of service
or attempt to hold our data or systems in ransom. The
vulnerability could be caused by inadequate account security
practices such as failure to timely remove employee access when
terminated. To mitigate these security issues, we have implemented
measures throughout our organization, including firewalls, backups,
encryption, employee information technology policies and user
account policies. However, there can be no assurance that these
measures will be sufficient to avoid cyberattacks. If any of these
types of security breaches were to occur and we were unable to
protect sensitive data, our relationships with our business
partners and customers could be materially damaged, our reputation
could be materially harmed, and we could be exposed to a risk of
litigation and possible significant liability.
Further,
if we fail to adequately maintain our information technology
infrastructure, we may have outages and data loss. Excessive
outages may affect our ability to timely and efficiently deliver
products to customers or develop new products. Such disruptions and
data loss may adversely impact our ability to fulfill orders and
interrupt other processes. Delayed sales or lost customers
resulting from these disruptions could adversely affect our
financial results, stock price and reputation.
Our
and our business partners’ or contractors’ failure to fully comply
with applicable data privacy or similar laws could lead to
significant fines and require onerous corrective action. In
addition, data security breaches experienced by us or our business
partners or contractors could result in the loss of trade secrets
or other intellectual property, public disclosure of sensitive
commercial data, and the exposure of personally identifiable
information (including sensitive personal information) of our
employees, customers, suppliers, contractors and others.
Unauthorized
use or disclosure of, or access to, any personal information
maintained by us or on our behalf, whether through breach of our
systems, breach of the systems of our suppliers or vendors by an
unauthorized party, or through employee or contractor error, theft
or misuse, or otherwise, could harm our business. If any such
unauthorized use or disclosure of, or access to, such personal
information was to occur, our operations could be seriously
disrupted, and we could be subject to demands, claims and
litigation by private parties, and investigations, related actions,
and penalties by regulatory authorities. In addition, we could
incur significant costs in notifying affected persons and entities
and otherwise complying with the multitude of foreign, federal,
state and local laws and regulations relating to the unauthorized
access to, or use or disclosure of, personal information. Finally,
any perceived or actual unauthorized access to, or use or
disclosure of, such information could harm our reputation,
substantially impair our ability to attract and retain customers
and have an adverse impact on our business, financial condition and
results of operations.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
Unregistered
Sales of Equity Securities
None.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
None.
Dividends
Our
current and future debt financing arrangements may limit or prevent
cash distributions from our subsidiaries to us, depending upon the
achievement of specified financial and other operating conditions
and our ability to properly service our debt, thereby limiting or
preventing us from paying cash dividends.
For
the three months ended March 31, 2022 and 2021, we accrued an
aggregate of $0.3 million in dividends on our Series B Cumulative
Convertible Preferred Stock, or Series B Preferred Stock. We have
paid these dividends in cash and are current in our quarterly
dividend obligations.
We
have never declared or paid cash dividends on our common stock and
do not currently intend to pay cash dividends on our common stock
in the foreseeable future. We currently anticipate that we will
retain any earnings for use in the continued development of our
business.
The
holders of our outstanding Series B Preferred Stock are entitled to
dividends of 7% per annum, payable quarterly. Accrued and unpaid
dividends in respect of our Series B Preferred Stock must be paid
prior to the payment of any dividends in respect of shares of our
common stock.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
Not
applicable.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
ITEM
5. OTHER INFORMATION.
Not
applicable.
ITEM
6. EXHIBITS.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
| |
ALTO
INGREDIENTS, INC. |
| |
|
|
| Dated:
May 9, 2022 |
By: |
/s/
BRYON T. MCGREGOR |
| |
|
Bryon
T. McGregor |
| |
|
Chief
Financial Officer |
| |
|
(Principal
Financial and Accounting Officer) |
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