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What changed in Alto Ingredients, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Alto Ingredients, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+376 added−333 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-14)

Top changes in Alto Ingredients, Inc.'s 2023 10-K

376 paragraphs added · 333 removed · 245 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

79 edited+21 added−13 removed44 unchanged
Biggest changeWe 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 sales of fuel-grade ethanol sourced from third parties, (2) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at our three production facilities located in Pekin, Illinois, which we refer to as our Pekin Campus, 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 separately reportable segment.
Biggest changeWe report our financial and operating performance in three segments: (1) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at our three production facilities located in Pekin, Illinois, which we refer to as our Pekin Campus, (2) marketing and distribution, which includes marketing and merchant trading for company-produced alcohols and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced from third parties, and (3) Western production, which includes the production and sale of renewable fuel and essential ingredients produced at our two western production facilities on an aggregated basis, none of which are individually so significant as to be considered a separately reportable segment.
Collectively, our customers require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities. We secure additional fuel-grade ethanol supplies from third-party ethanol producers.
Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities. We secure additional fuel-grade ethanol supplies from third-party ethanol producers.
The principal specialty alcohol we offer for beverage-grade product is our grain neutral spirits, or GNS, alcohol. In addition, we primarily sell FCC 190 and USP 190 Ultra into vinegar markets. We are also introducing new high-quality 190 proof and low-moisture 200-proof GNS products to our existing and target customers in the beverage, food, flavor, personal care and pharmaceutical industries.
The principal specialty alcohol we offer for beverage-grade product is our grain neutral spirits, or GNS, alcohol. In addition, we primarily sell FCC 190 and USP 190 Ultra into vinegar markets. We are also introducing new high-quality 192 proof and low-moisture 200-proof GNS products to our existing and target customers in the beverage, food, flavor, personal care and pharmaceutical industries.
The fermentation process for alcohol at this stage is similar to the dry milling process. In addition, we separate and dry yeast to produce distillers yeast. Overview of Distillers Grains Market Distillers grains are produced as a co-product of alcohol production and are valuable components of feed rations primarily to dairies and beef cattle markets, both nationally and internationally.
The fermentation process for alcohol at this stage is similar to the dry milling process. In addition, we separate and dry yeast to produce distillers yeast. -7- Overview of Distillers Grains Market Distillers grains are produced as a co-product of alcohol production and are valuable components of feed rations primarily to dairies and beef cattle markets, both nationally and internationally.
We also may be impacted by costs and regulatory burdens associated with carbon emissions from our production and distribution as well as truck transport and packaging associated with Eagle Alcohol’s use of drums and totes. See “Risk Factors.” -10- Marketing Arrangements We market all the alcohols and essential ingredients produced at our facilities.
We also may be impacted by costs and regulatory burdens associated with carbon emissions from our production and distribution as well as truck transport and packaging associated with Eagle Alcohol’s use of drums and totes. See “Risk Factors.” Marketing Arrangements We market all the alcohols and essential ingredients produced at our facilities.
In particular, barge access via the Illinois River to the Mississippi River enables us to efficiently bring our products to international markets. -4- ◾ The relatively unique wet milling process at one of our production facilities at our Pekin Campus allows us to extract the highest use and value from each component of the corn kernel.
In particular, barge access via the Illinois River to the Mississippi River enables us to efficiently bring our products to international markets. ● The relatively unique wet milling process at one of our production facilities at our Pekin Campus allows us to extract the highest use and value from each component of the corn kernel.
Our senior executives have successfully navigated a wide variety of business and industry-specific challenges and deeply understand the business of successfully producing and marketing specialty alcohols and essential ingredients. ● The strategic location of our Midwest production facilities . We operate three distinct but integrated production facilities at our Pekin Campus in the Midwest.
Our senior executives have successfully navigated a wide variety of business and industry-specific challenges and deeply understand the business of successfully producing and marketing specialty alcohols and essential ingredients. -4- ● The strategic location of our Midwest production facilities . We operate three distinct but integrated production facilities at our Pekin Campus in the Midwest.
Our production facilities located in Illinois 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 in Illinois are in the heart of the Corn Belt, benefit from relatively low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge.
For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn and natural gas requirements through fixed-price or variable-price contracts with our suppliers, as well as entering into derivative contracts for fuel-grade ethanol, corn and natural gas.
For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn and natural gas requirements through fixed-price or variable-price contracts with our suppliers, as well as entering derivative contracts for fuel-grade ethanol, corn and natural gas.
We arrange for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through our agreements with a variety of third-party service providers in the Western United States as well as in the Midwest. We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities.
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.
Suppliers Pekin Campus and Other Production Segments Our production operations depend upon various raw materials suppliers, including suppliers of corn, natural gas, electricity and water. The cost of corn is the most important variable cost associated with our alcohol production. We source corn for our plants using standard contracts, including spot purchase, forward purchase and basis contracts.
Suppliers Pekin Campus and Western Production Segments Our production operations depend upon various raw materials suppliers, including suppliers of corn, natural gas, electricity and water. The cost of corn is the most important variable cost associated with our alcohol production. We source corn for our plants using standard contracts, including spot purchase, forward purchase and basis contracts.
Other significant producers of specialty alcohols in the United States are Archer-Daniels-Midland Company, MGP Ingredients, Inc., Grain Processing Corporation, CIE and Greenfield Global Inc., which collectively make up a significant majority of the total installed specialty alcohol production capacity in the United States along with many smaller producers.
Other significant producers of specialty alcohols in the United States are Archer-Daniels-Midland Company, Grain Processing Corporation, CIE and Greenfield Global Inc., which collectively make up a significant majority of the total installed specialty alcohol production capacity in the United States along with many smaller producers.
The largest producers of fuel-grade ethanol in the United States are POET, LLC, Valero Renewable Fuels Company, LLC, Archer-Daniels-Midland Company and Green Plains Inc., collectively with approximately 41% of the total installed fuel-grade ethanol production capacity in the United States.
The largest producers of fuel-grade ethanol in the United States are POET, LLC, Valero Renewable Fuels Company, LLC, Archer-Daniels-Midland Company and Green Plains Inc., collectively with approximately 40% of the total installed fuel-grade ethanol production capacity in the United States.
See “—Competitive Strengths”. -11- Governmental Regulation Our business is subject to a wide range of federal, state and local laws and regulations directed at protecting public health and the environment, including those promulgated by the Occupational Safety and Health Administration, or OSHA, the U.S. Food and Drug Administration, or FDA, the EPA, and numerous state, local and international authorities.
See “—Competitive Strengths.” Governmental Regulation Our business is subject to a wide range of federal, state and local laws and regulations directed at protecting public health and the environment, including those promulgated by the Occupational Safety and Health Administration, or OSHA, the U.S. Food and Drug Administration, or FDA, the EPA, and numerous state, local and international authorities.
We anticipate that continued limited opportunities for gasoline refinery expansions and the growing importance of reducing CO 2 emissions through the use of renewable fuels will generate additional growth in the demand for fuel-grade ethanol. Overview of Alcohol Production Process Alcohol production from starch- or sugar-based feedstock is a highly-efficient process.
We anticipate that continued limited opportunities for gasoline refinery expansions and the growing importance of reducing CO 2 emissions using renewable fuels will generate additional growth in the demand for fuel-grade ethanol. Overview of Alcohol Production Process Alcohol production from starch- or sugar-based feedstock is a highly-efficient process.
See “Note 5 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. -2- Company History We are a Delaware corporation formed in February 2005. Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO”. Our Internet website address is http://www.altoingredients.com.
See “Note 5 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. -2- Company History We are a Delaware corporation formed in 2005. Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO.” Our Internet website address is http://www.altoingredients.com.
We believe that our competitive strengths include our customer and supplier relationships, the barriers to entry to our most profitable lines of business—including our modern technologies and certifications at our production facilities—our experienced management, and the strategic location of our Midwest production facilities.
We believe that our competitive strengths include our customer and supplier relationships, our diverse product mix, the barriers to entry to our most profitable lines of business—including our modern technologies and certifications at our production facilities—our experienced management, and the strategic location of our Midwest production facilities.
We are evaluating and plan to implement new equipment and technologies to increase our production yields, improve our operating efficiencies and reliability, reduce our overall carbon footprint, diversify our products and revenues, and increase our profitability as financial resources and market conditions justify these investments.
We are evaluating and plan to implement new equipment and technologies to increase our production yields, improve our operating efficiencies and reliability, reduce our overall carbon footprint, diversify our products and revenues, and increase our profitability as financial resources and market conditions justify these investments. -3- ● Increase our break bulk capabilities.
For 2022, 2021 and 2020, sales to our two largest customers, Shell Trading US Company and Chevron Products USA represented an aggregate of approximately 20%, 22% and 12%, of our net sales, respectively. For 2022, 2021 and 2020, sales to each of our other customers represented less than 10% of our net sales.
For 2023, 2022 and 2021, sales to our two largest customers, Shell Trading US Company and Chevron Products USA represented an aggregate of approximately 16%, 20% and 22% of our net sales, respectively. For 2023, 2022 and 2021, sales to each of our other customers represented less than 10% of our net sales.
During 2022, 2021 and 2020, purchases of fuel-grade ethanol from our four largest third-party suppliers represented 69%, 76% and 62%, respectively, of our total third-party ethanol purchases for each of those periods. Purchases from each of our other third-party ethanol suppliers represented less than 10% of total third-party ethanol purchases in each of 2022, 2021 and 2020.
During 2023, 2022 and 2021, purchases of fuel-grade ethanol from our four largest third-party suppliers represented 86%, 69% and 76%, respectively, of our total third-party ethanol purchases for each of those periods. Purchases from each of our other third-party ethanol suppliers represented less than 10% of total third-party ethanol purchases in each of 2023, 2022 and 2021.
Overview of Our Key Markets and Market Opportunity 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 .
Overview of Our Key Markets and Market Opportunity We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on five key markets: Health, Home & Beauty ; Food & Beverage ; Industry & Agriculture; Essential Ingredients ; and Renewable Fuels .
We have extensive and long-standing close customer and supplier relationships, both domestic and international, for our specialty alcohols and essential ingredients. We have an excellent reputation for developing specialty alcohols under stringent quality control standards, particularly at our Pekin Campus.
Competitive Strengths We believe that our competitive strengths include: ● Customer and supplier relationships . We have extensive and long-standing close customer and supplier relationships, both domestic and international, for our specialty alcohols and essential ingredients. We have an excellent reputation for developing specialty alcohols under stringent quality control standards, particularly at our Pekin Campus.
Our Pekin Campus production segment generated $521.3 million, $498.2 million and $330.4 million in net sales for the years ended December 31, 2022, 2021 and 2020, respectively, from the sale of alcohols.
Our Pekin Campus production segment generated $502.2 million, $521.3 million and $498.2 million in net sales for the years ended December 31, 2023, 2022 and 2021, respectively, from the sale of alcohols.
The tables below provide an overview of our five production facilities. -9- Pekin Campus Production Facilities Pekin Wet Facility Pekin Dry Facility Pekin ICP Facility Location Pekin, IL Pekin, IL Pekin, IL Current operating status Operating Operating Operating Approximate maximum annual alcohol production capacity (in millions of gallons) 100 60 90 Approximate maximum annual specialty alcohol production capacity (in millions of gallons) 74 — 66 Production milling process Wet Dry Dry Primary energy source Natural Gas Natural Gas Natural Gas Western Production Facilities Magic Valley Facility Columbia Facility Location Burley, ID Boardman, OR Current operating status Idled Operating Approximate maximum annual fuel-grade ethanol production capacity (in millions of gallons) 60 40 Production milling process Dry Dry Primary energy source Natural Gas Natural Gas Commodity Risk Management We employ various risk mitigation techniques.
Pekin Campus Production Facilities Pekin Wet Facility Pekin Dry Facility Pekin ICP Facility Location Pekin, IL Pekin, IL Pekin, IL Current operating status Operating Operating Operating Approximate maximum annual alcohol production capacity (in millions of gallons) 100 60 90 Approximate maximum annual specialty alcohol production capacity (in millions of gallons) 74 — 66 Production milling process Wet Dry Dry Primary energy source Natural Gas Natural Gas Natural Gas Western Production Facilities Magic Valley Facility Columbia Facility Location Burley, ID Boardman, OR Current operating status Hot-Idled Operating Approximate maximum annual fuel-grade ethanol production capacity (in millions of gallons) 60 40 Production milling process Dry Dry Primary energy source Natural Gas Natural Gas Commodity Risk Management We employ various risk mitigation techniques.
The market price of distillers grains is also often influenced by nutritional models that calculate the feed value of distillers grains by nutritional content, as well as reliability of consistent supply. -7- Customers We market and sell through our wholly-owned subsidiary, Kinergy Marketing LLC, or Kinergy, all of the alcohols we produce.
The market price of distillers grains is also often influenced by nutritional models that calculate the feed value of distillers grains by nutritional content, as well as reliability of consistent supply. Customers We market and sell through our wholly-owned subsidiary, Kinergy Marketing LLC, or Kinergy, all of the alcohols we produce. Kinergy also markets fuel-grade ethanol produced by third parties.
Our marketing and distribution segment generated $228.9 million, $381.2 million and $257.7 million in net sales for the years ended December 31, 2022, 2021 and 2020, respectively, from the sale of all alcohols.
Our marketing and distribution segment generated $263.0 million, $228.9 million and $381.2 million in net sales for the years ended December 31, 2023, 2022 and 2021, respectively, from the sale of all alcohols.
These contracts generally run from year-to-year, subject to termination by either party upon advance written notice before the end of the then-current annual term. During 2022, 2021 and 2020, we purchased and resold from third parties an aggregate of approximately 220 million, 204 million and 163 million gallons, respectively, of fuel-grade ethanol.
These contracts generally run from year-to-year, subject to termination by either party upon advance written notice before the end of the then-current annual term. -9- During 2023, 2022 and 2021, we purchased and resold from third parties an aggregate of approximately 103 million, 118 million and 229 million gallons, respectively, of fuel-grade ethanol.
Item 1. Business. Business 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 Illinois, one is located in Oregon and another is located in Idaho.
Item 1. Business. Business Overview We produce and distribute renewable fuel and essential ingredients. We are also the largest producer of specialty alcohols in the United States. We operate five alcohol production facilities. Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho.
Under the RFS, the mandated use of all renewable fuels rises incrementally and peaks at 36.0 billion gallons by 2022, of which 15.0 billion gallons are required from conventional, or corn-based, ethanol. The RFS allows the Environmental Protection Agency, or EPA, to adjust the annual requirement based on certain facts and circumstances.
Under the RFS, the mandated use of all renewable fuels rose incrementally and peaked at 36.0 billion gallons in 2022, of which 15.0 billion gallons were required to be produced from conventional, or corn-based, ethanol. The RFS allows the Environmental Protection Agency, or EPA, to adjust the annual requirement based on certain facts and circumstances.
Kinergy also markets fuel-grade ethanol produced by third parties. We market and sell through our wholly-owned subsidiary, Alto Nutrients, LLC, all of the essential ingredients we produce. We also sell break bulk quantities through Eagle Alcohol to customers in the beverage, food, industrial and related-process industries.
We market and sell through our wholly-owned subsidiary, Alto Nutrients, LLC, all of the essential ingredients we produce. We also sell break bulk quantities through Eagle Alcohol to customers in the beverage, food, industrial and related-process industries.
Our Other production segment generated $253.6 million, $107.9 million and $137.7 million in net sales for the years ended December 31, 2022, 2021 and 2020, respectively, from the sale of alcohols.
Our Western production segment generated $167.0 million, $253.6 million and $107.9 million in net sales for the years ended December 31, 2023, 2022 and 2021, respectively, from the sale of alcohols.
Our Other production segment generated $90.2 million, $31.1 million and $40.9 million in net sales for the years ended December 31, 2022, 2021 and 2020, respectively, from the sale of essential ingredients.
Our Western production segment generated $57.3 million, $90.2 million and $31.1 million in net sales for the years ended December 31, 2023, 2022 and 2021, respectively, from the sale of essential ingredients.
During 2022, 2021 and 2020, purchases of corn from our two largest suppliers represented an aggregate of approximately 27%, 16% and 16% of our total corn purchases, respectively, for those periods. Purchases from each of our other corn suppliers represented less than 10% of total corn purchases in each of 2022, 2021 and 2020.
During 2023, 2022 and 2021, purchases of corn from our three largest suppliers represented an aggregate of approximately 26%, 38% and 28% of our total corn purchases, respectively, for those periods. Purchases from each of our other corn suppliers represented less than 10% of total corn purchases in each of 2023, 2022 and 2021.
Some of these benefits include matching 401K contributions of up to 6% of salary, health and wellness programs and a paid service day for employees to give back to their communities.
We use a mix of competitive salaries and other benefits to attract and retain employees and executives. Some of these benefits include matching 401K contributions of up to 6% of salary, health and wellness programs and a paid service day for employees to give back to their communities.
Our specialty alcohols for the Food & Beverage and Health, Home & Beauty markets represented approximately 10% and 4%, respectively, of our sales in 2022 from our two production segments. -1- We produce our alcohols and essential ingredients at our production facilities described below.
Our specialty alcohols for the Industry & Agriculture, Food & Beverage and Health, Home & Beauty markets represented approximately 6%, 4% and 2%, respectively, of our sales in 2023 from these three product segments. -1- We produce our alcohols and essential ingredients at our production facilities described below.
The resulting alcohol is concentrated to 190 proof using conventional distillation methods and then is dehydrated to approximately 200 proof, representing 100% alcohol levels, in either a molecular sieve system or a grits system.
After fermentation, the resulting “beer” is transferred to distillation where the alcohol is separated from the residual “stillage.” The resulting alcohol is concentrated to 190 proof using conventional distillation methods and then is dehydrated to approximately 200 proof, representing 100% alcohol levels, in either a molecular sieve system or a grits system.
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.
Marketing and Distribution Segment We market and distribute all the alcohols and essential ingredients we produce at our facilities. We also market and distribute alcohols produced by third parties. We have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients.
These co-products are further manufactured, altered and refined into our essential ingredients, including for special customer applications. -5- Many of our essential ingredients are used in a variety of food products to affect their nutrition, including protein and fat content, as well as other product attributes such as taste, texture, palatability and stability.
Many of our essential ingredients are used in a variety of food products to affect their nutrition, including protein and fat content, as well as other product attributes such as taste, texture, palatability and stability.
To mitigate fuel-grade ethanol inventory price risks, we may sell a portion of our production forward under fixed- or index-price contracts, or both. We may hedge a portion of the price risks by entering into exchange-traded futures contracts and options. Proper execution of these risk mitigation strategies can reduce the volatility of our gross profit margins.
To mitigate fuel-grade ethanol inventory price risks, we may sell a portion of our production forward under fixed- or index-price contracts, or both. We may hedge a portion of the price risks by entering exchange-traded futures contracts and options.
According to the United States Department of Energy, total annual gasoline consumption in the United States is approximately 134.8 billion gallons and total annual fuel-grade ethanol consumption represented approximately 11% of this amount in 2021.
According to the United States Department of Energy, total annual gasoline consumption in the United States is approximately 137 billion gallons and total annual fuel-grade ethanol blended with gasoline represented approximately 10.4% of this amount in 2023.
In 2022, the EPA proposed 15.0 billion gallons from conventional ethanol for 2023, increasing to 15.25 billion gallons for both 2024 and 2025. See “—Governmental Regulation”. According to the Renewable Fuels Association, the domestic fuel-grade ethanol industry produced 15.4 billion gallons of ethanol in 2022, up from 15.0 billion gallons in 2021.
The EPA has set its annual requirements for conventional ethanol to 15.0 billion gallons for each of 2023, 2024 and 2025. See “—Governmental Regulation”. -6- According to the Renewable Fuels Association, the domestic fuel-grade ethanol industry produced over 15.5 billion gallons of ethanol in 2023, up from 15.4 billion gallons in 2022.
Enzymes are added to the mash to convert the starch into dextrose, a simple sugar. The mash is processed through a high temperature cooking procedure, which reduces bacteria levels prior to fermentation.
Enzymes are added to the mash to convert the starch into dextrose, a simple sugar. The mash is processed through a high temperature cooking procedure, which reduces bacteria levels prior to fermentation. The mash is then cooled and transferred to fermenters, where yeast is added and the conversion of sugar to alcohol and CO2 begins.
In addition: ◾ We believe that our Midwest location enhances our overall hedging opportunities with a greater correlation to the highly-liquid physical and paper markets in Chicago. ◾ Our Midwest location provides excellent logistical access via rail, truck and barge.
We are able to participate from that location in the largest regional specialty alcohol market in the United States as well as international markets. ● We believe that our Midwest location enhances our overall hedging opportunities with a greater correlation to the highly liquid physical and paper markets in Chicago. ● Our Midwest location provides excellent logistical access via rail, truck and barge.
For example, fuel-grade ethanol prices, as reported by the Chicago Board of Trade, or CBOT, ranged from $2.00 to $2.88 per gallon during 2022, $1.48 to $3.75 per gallon during 2021 and from $0.81 to $1.62 per gallon during 2020; and corn prices, as reported by the CBOT, ranged from $5.64 to $8.18 per bushel during 2022, $4.84 to $7.73 per bushel during 2021 and from $3.03 to $4.84 per bushel during 2020.
For example, fuel-grade ethanol prices, as reported by the Chicago Mercantile Exchange, or CME, ranged from $1.58 to $2.67 per gallon during 2023, from $2.00 to $2.88 per gallon during 2022 and from $1.48 to $3.75 per gallon during 2021; and corn prices, as reported by the CME, ranged from $4.50 to $6.85 per bushel during 2023, from $5.64 to $8.18 per bushel during 2022 and from $4.84 to $7.73 per bushel during 2021.
Production Facilities We operate five production facilities. Three of our production facilities are located in Pekin, Illinois at our Pekin Campus, one is located in Oregon and another is located in Idaho. We have an annual alcohol production capacity of 350 million gallons, comprised of 210 million gallons of fuel-grade ethanol and up to 140 million gallons of specialty alcohols.
Production Facilities We operate five alcohol production facilities. Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho. We have an annual alcohol production capacity of up to 350 million gallons, including both fuel-grade ethanol and specialty alcohols ranging from industrial-, pharmaceutical-, and high-quality food- and beverage-grade alcohols.
We cannot predict the manner by which, or extent to which, these regulations will harm or help our business or the alcohol production and marketing industry in general. Human Capital Resources As of March 13, 2023, we had approximately 439 employees, including 439 full-time employees.
We cannot predict the manner by which, or extent to which, these regulations will harm or help our business or the alcohol production and marketing industry in general. Human Capital Resources As of March 12, 2024, we had approximately 460 full-time employees. Our human capital resources objectives include attracting and retaining well-qualified and highly skilled and motivated employees and executives.
During 2022, 2021 and 2020, our Other production segment sold an aggregate of approximately 92.3 million, 37.6 million and 78.0 million gallons of alcohols and 785,900, 361,000 and 619,000 tons of essential ingredients, respectively, on a dry matter basis.
During 2023, 2022 and 2021, our Western production segment sold an aggregate of approximately 67.0 million, 92.4 million and 37.6 million gallons of alcohols and 642,300, 787,100 and 361,000 tons of essential ingredients, respectively, on a dry matter basis.
As a result, the wet milling process generates a higher level of cost recovery from corn than that produced at a dry mill. ◾ Our Midwest location allows us deep market insight and engagement in major specialty alcohol, fuel-grade ethanol, pet food and feed markets, thereby improving pricing opportunities.
As a result, the wet milling process generates a higher level of cost recovery from corn than that produced at a dry mill. ● Our Midwest location allows us deep market insight and engagement in major specialty alcohol, fuel-grade ethanol, pet food and feed markets, thereby improving pricing opportunities. ● Our Midwest location sits atop the Mount Simon formation, identified as one of the best and largest aquafers in the country for carbon storage, potentially allowing us to benefit from this close proximity to store CO 2 .
Essential Ingredients Our essential ingredients include dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods. We also sell yeast for human consumption. The raw materials for our essential ingredients are generated as co-products from our production of alcohols.
Industry & Agriculture Our products for the industry and agriculture market include alcohols and other products for paint applications and fertilizers. Essential Ingredients Our essential ingredients include dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods. We also sell yeast for human consumption.
Commercial sale of E15 has begun in a majority of states, and the EPA has enacted a rule allowing for year-round use of E15. Various states including California, Oregon and Washington, and other regions such as the Canadian province of British Columbia, have implemented low-carbon fuel standards focused on reducing the carbon intensity of transportation fuels.
Various states including California, Oregon and Washington, and other regions such as the Canadian province of British Columbia, have implemented low carbon fuel standards focused on reducing the carbon intensity of transportation fuels.
Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages. Our production facilities were operating for all of 2022.
Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages. All of our production facilities, other than our Magic Valley plant, were operating for all of 2023, subject to scheduled and unscheduled downtimes to address facility repair and maintenance.
In 2020, we expanded our range of available product offerings within the health, home and beauty markets through quality management systems certifications. We have ISO 9001, ICH Q7 and EXCiPACT certifications at each of our Pekin Campus production facilities, all of which are viewed as important attestations of quality control standards.
We have ISO 9001, ICH Q7 and EXCiPACT certifications at each of our Pekin Campus production facilities, all of which are viewed as important attestations of quality control standards.
Products for Essential Ingredients market include dried yeast, corn gluten meal, corn gluten feed, corn germ, and distillers grains and liquid feed used in commercial animal feed and pet foods. We also sell yeast for human consumption. Products for the Renewable Fuels market include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels.
Products for Essential Ingredients markets include dried yeast, corn protein meal, corn protein feed, corn germ, and distillers grains and liquid feed used in commercial animal feed and pet foods. We also sell yeast for human consumption.
Overall, we believe there are over 200 fuel-grade ethanol production facilities in the United States with a total installed production capacity of approximately 17.5 billion gallons and many brokers and marketers with whom we compete for sales of fuel-grade ethanol and its co-products.
Overall, we believe there are over 200 fuel-grade ethanol production facilities in the United States with a total installed production capacity of approximately 17.8 billion gallons and many brokers and marketers with whom we compete for sales of fuel-grade ethanol and its co-products. -11- Our fuel-grade ethanol also competes on a global market against production from other countries, such as Brazil, which may have lower production costs than United States producers.
In 2022, we marketed and distributed approximately 420 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and over 1.6 million tons of essential ingredients.
We market and distribute all the alcohols produced at our facilities as well as alcohols produced by third parties. In 2023, we marketed and distributed approximately 383 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and over 1.5 million tons of essential ingredients on a dry matter basis.
Our wholly-owned subsidiary, Eagle Alcohol Company LLC, or Eagle Alcohol, specializes in break bulk distribution of specialty alcohols. Eagle Alcohol purchases bulk alcohol from suppliers and then stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and drums, that typically garner a premium price to bulk alcohols.
We also specialize in break bulk distribution of specialty alcohols through our Eagle Alcohol subsidiary. We purchase bulk alcohol from suppliers and then store, denature, package, and resell alcohol products in smaller sizes, including tank trucks, totes and drums that typically garner a premium price to bulk alcohols.
Food & Beverage Our products for the food and beverage market include specialty alcohols used in alcoholic beverages, flavor extracts and vinegar as well as corn germ used for corn oils and carbon dioxide, or CO 2 , used for beverage carbonation and dry ice.
These certifications enable us to offer products to a wider group of customers and generally at more profitable margins. -5- Food & Beverage Our products for the food and beverage market include specialty alcohols used in alcoholic beverages, flavor extracts and vinegar as well as corn germ used for corn oils and CO 2 used for beverage carbonation and dry ice.
Renewable Fuels Energy Legislation Under the RFS, the mandated use of all renewable fuels, including fuel-grade ethanol, rose incrementally and peaked at 36.0 billion gallons in 2022, of which 15.0 billion gallons are required from conventional, or corn-based, ethanol.
Failure to comply with the laws and regulations of the FDA or similar state agencies could prevent us from selling certain of our products or subject us to liability. -12- Renewable Fuels Energy Legislation Under the RFS, the mandated use of all renewable fuels, including fuel-grade ethanol, rose incrementally and peaked at 36.0 billion gallons in 2022, of which 15.0 billion gallons are required from conventional, or corn-based, ethanol for each of 2023, 2024 and 2025.
Although we continue to produce more fuel-grade ethanol than specialty alcohols, we have repositioned our business to focus on expanding the production and sale of specialty alcohols and essential ingredients. As a result, our business is now more service-oriented and focused on specialty products compared to a price-oriented business focused on commodity products.
Business Strategy The key elements of our business and growth strategy include: ● Focus on our customer relationships. Although we continue to produce more fuel-grade ethanol than specialty alcohols, we have repositioned our business to focus on expanding the production and sale of specialty alcohols and essential ingredients.
On January 1, 2023, we temporarily hot-idled our Magic Valley production facility due to extreme natural gas prices, other unfavorable market conditions and to facilitate the installation of our new high protein systems. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
On January 1, 2023, we temporarily hot-idled our Magic Valley production facility due to extreme natural gas prices, other unfavorable market conditions and to facilitate the installation of our new corn oil and high protein system. We brought the facility back online in April 2023.
Our Corporate and other segment generated $15.8 million in net sales from Eagle Alcohol and sold 7.6 million gallons of alcohols. -8- During 2022, 2021 and 2020, we produced or purchased from third parties and resold an aggregate of 418.9 million, 479.6 million and 536.3 million gallons of alcohols to approximately 114, 99 and 65 customers, respectively.
During 2023, 2022 and 2021, we produced or purchased from third parties and resold an aggregate of 382.5 million, 418.9 million and 479.6 million gallons of alcohols to approximately 88, 114 and 99 customers, respectively.
We are pursuing initiatives to broaden our product offerings to appeal to a wider range of customers and uses in our key markets. For example, we have secured ISO 9001, ICH Q7 and EXCiPACT certifications at all of our Pekin Campus production facilities.
For example, we have secured ISO 9001, ICH Q7 and EXCiPACT certifications at all of our Pekin Campus production facilities.
We have never had a work stoppage or strike and we consider our relations with our employees to be good. Our compensation program is designed to attract, retain and motivate our personnel. We use a mix of competitive salaries and other benefits to attract and retain employees and executives.
As of that same date, approximately 44% of our employees were represented by a labor union and covered by a collective bargaining agreement. We have never had a work stoppage or strike and we consider our relations with our employees to be good. Our compensation program is designed to attract, retain and motivate our personnel.
In particular, our ICH Q7 certification qualifies our specialty alcohols for use as an API, and our EXCiPACT certification qualifies our specialty alcohols for use as an excipient in the pharmaceutical industry. These certifications enable us to offer products to a wider group of customers and generally at more profitable margins.
In particular, our ICH Q7 certification qualifies our specialty alcohols for use as an API, and our EXCiPACT certification qualifies our specialty alcohols for use as an excipient in the pharmaceutical industry.
As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
We intend to restart Magic Valley production in the second quarter once the upgrades are complete and crush margins have improved. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
Specialty alcohols have relatively low price volatility and are usually priced at significant premiums to fuel-grade ethanol. The market price of fuel-grade ethanol is volatile, however, and subject to large fluctuations. Given the nature of our business, we cannot effectively hedge against extreme volatility or certain market conditions.
Proper execution of these risk mitigation strategies can reduce the volatility of our gross profit margins. -10- Specialty alcohols have relatively low price volatility and are usually priced at significant premiums to fuel-grade ethanol. The market price of fuel-grade ethanol is volatile, however, and subject to large fluctuations.
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. -12- The EPA has allowed fuel and fuel-additive manufacturers to introduce into commercial gasoline up to 15% fuel-grade ethanol by volume, or E15, for vehicles from model year 2001 and beyond.
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.
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 market include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils.
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 Industry & Agriculture markets include alcohols and other products for paint applications and fertilizers.
In addition, fuel-grade ethanol from sugarcane feedstock qualifies as an advanced biofuel, unlike corn ethanol, allowing certain producers to economically satisfy an advanced biofuel standard. Moreover, new products and production technologies are under continuous development, many of which, if adopted by competitors, could harm our ability to compete.
Moreover, new products and production technologies are under continuous development, many of which, if adopted by competitors, could harm our ability to compete.
Our specialized equipment, technologies and processes, together with our quality management certifications, strict regulatory requirements, and close customer and supplier relationships create significant barriers to entry to new market participants. ● Our experienced management . Our senior management team has a proven track record with significant operational and financial expertise and many years of experience in the alcohol production industry.
Our senior management team has a proven track record with significant operational and financial expertise and many years of experience in the alcohol production industry.
Our fuel-grade ethanol also competes on a global market against production from other countries, such as Brazil, which may have lower production costs than United States producers. Lower feedstock input costs such as sugarcane used in Brazil as compared to corn used in the Unites States may give foreign producers a competitive advantage.
Lower feedstock input costs such as sugarcane used in Brazil as compared to corn used in the Unites States may give foreign producers a competitive advantage. In addition, fuel-grade ethanol from sugarcane feedstock qualifies as an advanced biofuel, unlike corn ethanol, allowing certain producers to economically satisfy an advanced biofuel standard.
In addition, we market and sell the entire fuel-grade ethanol production volume of a third-party producer. Competition We are the largest producer of specialty alcohols in the United States.
We also market and distribute alcohols produced by third parties. Competition We are the largest producer of specialty alcohols in the United States.
Our Pekin Campus production segment generated $225.8 million, $189.5 million and $130.3 million in net sales for the years ended December 31, 2022, 2021 and 2020, respectively, from the sale of essential ingredients.
Our Pekin Campus production segment generated $217.7 million, $225.9 million and $189.5 million in net sales for the years ended December 31, 2023, 2022 and 2021, respectively, from the sale of essential ingredients. -8- During 2023, 2022 and 2021, our Pekin Campus production segment sold an aggregate of approximately 208.9 million, 204.6 million and 213.0 million gallons of alcohols and 878,400, 850,300 and 875,100 tons of essential ingredients, respectively, on a dry matter basis.
We can now store, denature, package and resell alcohol in smaller sizes, including tank trucks, totes and drums, that typically garner a premium price to bulk specialty alcohols. We deliver these products to customers in the Health, Home & Beauty , Food & Beverage and related-process industries using our own trucking fleet and common carrier. ● Expand product offerings.
With the addition of Eagle Alcohol, we have further diversified our business to include break bulk distribution of specialty alcohols. We can now store, denature, package and resell alcohol in smaller sizes, including tank trucks, totes and drums that typically garner a premium price to bulk specialty alcohols.
Eagle Alcohol delivers products to customers in the beverage, food, industrial and related-process industries via its own dedicated trucking fleet and common carrier. 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 .
Production Segments We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on five key markets: Health, Home & Beauty ; Food & Beverage ; Industry & Agriculture ; Essential Ingredients ; and Renewable Fuels . Products for the Health, Home & Beauty markets include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners.
We strive to make our business ever more customer-centric to enable our premium services to support premium prices and new differentiated and higher-margin products. ● Increase our break bulk capabilities. With the addition of Eagle Alcohol, we have further diversified our business to include break bulk distribution of specialty alcohols.
We strive to make our business ever more customer-centric to enable our premium services to support premium prices and new differentiated and higher-margin products. ● Implement carbon capture and storage at our Pekin Campus, lowering our carbon footprint .
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Current Initiatives and Outlook.” ● Evaluate and pursue strategic opportunities . We are examining opportunities to expand our business such as joint ventures, strategic partnerships, synergistic acquisitions and other opportunities.
We are also in the process of expanding our distribution territory into new geographies such as Southern California. ● Evaluate and pursue strategic opportunities . We are examining opportunities to expand our business such as joint ventures, strategic partnerships, synergistic acquisitions and other opportunities. We intend to pursue these opportunities as financial resources and business prospects make these opportunities desirable.
Our quality management systems are supported by ISO 9001, ICH Q7, TfS and EXCiPACT certifications which are viewed by our customers as important attestations of our quality control standards. ● Barriers to entry . Our production facilities use specialized equipment, technologies and processes to achieve stringent quality controls, higher yields and efficient production of alcohols and essential ingredients.
Our production facilities use specialized equipment, technologies and processes to achieve stringent quality controls, higher yields and efficient production of alcohols and essential ingredients. Our specialized equipment, technologies and processes, together with our quality management certifications, strict regulatory requirements, and close customer and supplier relationships create significant barriers to entry to new market participants. ● Our experienced management .
Blending fuel-grade ethanol into gasoline is one of the primary means of attaining these goals.
Other states, including New York, Vermont, Massachusetts, Michigan, Illinois, Colorado and New Mexico, currently have proposed legislation or policies that would establish a low carbon fuel standard program. Blending fuel-grade ethanol into gasoline is one of the primary means of attaining these goals.
Removed
We have an annual alcohol production capacity of 350 million gallons, comprised of 210 million gallons of fuel-grade ethanol and up to 140 million gallons of specialty alcohols. We market and distribute all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe market price of our common stock may continue to fluctuate in response to one or more of the following factors, or any of the other risks or uncertainties discussed in this report, 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; ● 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; ● the timing, cost and results of our capital improvement projects; ● 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.
Biggest changeThe market price of our common stock may continue to fluctuate in response to one or more of the following factors, or any of the other risks or uncertainties discussed in this report, many of which are beyond our control: ● fluctuations in our quarterly or annual operating results; ● fluctuations in the market prices of our products; ● fluctuations in the costs of key production input commodities such as corn and natural gas; ● the timing, cost and effects of our capital improvement projects, including with respect to our CCS project and our corn oil and high protein system at our Magic Valley facility; ● anticipated trends in our financial condition and results of operations; ● our ability to obtain any necessary financing; ● the volume and timing of the receipt of orders for our products from major customers, including annual contracted sales volumes for our specialty alcohols; ● competitive pricing pressures; ● changes in market valuations of companies similar to us; -23- ● stock market price and volume fluctuations generally; ● regulatory developments or increased enforcement; ● additions or departures of key personnel; ● environmental, product or other liabilities we may incur; ● 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.
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, difficult to forecast and influenced by a wide variety of geopolitical and global economic conditions, including decisions concerning petroleum output by the Organization of Petroleum Exporting Countries (OPEC) and their allies, an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market.
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, difficult to forecast and influenced by a wide variety of global economic and geopolitical conditions, including decisions concerning petroleum output by the Organization of Petroleum Exporting Countries (OPEC) and their allies, an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market.
Although many trade groups, academics and governmental agencies support fuel-grade ethanol as a fuel additive that promotes a cleaner environment, others criticize fuel-grade ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and potentially depleting water resources.
Although many trade groups, academics and governmental agencies support ethanol as a fuel additive that promotes a cleaner environment, others criticize fuel-grade ethanol production and use as consuming considerably more energy and emitting more greenhouse gases than other biofuels and potentially depleting water resources.
Revenues from sales of alcohols, particularly fuel-grade ethanol, and essential ingredients have in the past and could in the future 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.
Revenues from sales of alcohols, particularly fuel-grade ethanol, and essential ingredients have in the past and could in the future decline below the marginal cost of production, which have in the past and may again in the future force us to suspend production, particularly fuel-grade ethanol production, at some or all of our facilities.
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.
In addition, we believe that additional 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.
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.
Price volatility of corn, natural gas and other production inputs, and alcohols and essential ingredients, may cause our results of operations to fluctuate significantly. 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.
In an attempt to partially offset the effects of production input and product price volatility, in particular, corn and natural gas costs and fuel-grade ethanol prices, we may enter into contracts to purchase a portion of our corn or natural gas requirements on a forward basis or fix the sale price of portions of our alcohol production.
To partially offset the effects of production input and product price volatility, in particular, corn and natural gas costs and fuel-grade ethanol prices, we may enter into contracts to purchase a portion of our corn or natural gas requirements on a forward basis or fix the sale price of portions of our alcohol production.
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.
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 demand, we maintain certain quantities of fuel-grade ethanol inventory for subsequent resale.
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 United States fuel-grade ethanol industry is highly dependent upon various federal and state laws and regulations and any changes in those laws or regulations could have a material adverse effect on our results of operations, cash flows and financial condition.
For example, in 2022, a lightning strike at the utility servicing our Pekin Campus disrupted our operations, cutting power to our facilities and materially affecting our production, resulting in unexpected repair and maintenance costs, lost production and degradation in the quality of work-in-progress inventories.
In 2022, a lightning strike at the utility servicing our Pekin Campus disrupted our operations, cutting power to our facilities and materially affecting our production, resulting in unexpected repair and maintenance costs, lost production and degradation in the quality of work-in-progress inventories.
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. -14- 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.
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. -14- We can provide no assurances that corn, natural gas or other production inputs can be purchased at or near current or any specific prices, or that our alcohols or essential ingredients will sell at or near current or any particular prices.
There can be no assurance that any such appreciation will occur. Our bylaws contain an exclusive forum provision that could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
There can be no assurance that any such appreciation will occur. Our bylaws contain exclusive forum provisions that could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
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 on the ability of vehicles to use higher ethanol blends, the RFS and the EPA’s established volumes from time to time, small refinery waivers, and other applicable environmental requirements.
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 on the ability of vehicles to use higher ethanol blends, and the Environmental Protection Agency’s, or EPA’s, established volumes from time to time, small refinery waivers, and other applicable environmental requirements.
Other factors that may result from climate change, or that may result from governmental regulations aimed at addressing climate-related issues, may also adversely affect our business, including the following: ● Water is one of our key production inputs; water resource limitations may result from drought and other inclement weather; water resource limitations may also result from rationing and other governmental regulations limiting water use; ● Higher water temperatures due to increased global or regional temperatures may negatively affect production efficiencies due to water temperature production requirements given the poor cooling capacities of our older facilities; ● Flooding and other inclement weather may negatively affect our river access, other transportation logistics and costs, and storage requirements; ● An overall increase in energy costs will negatively impact our production costs generally and may critically impact certain high energy-intensive production technologies, such as our wet milling and multiple distillation processes for high-quality alcohol; ● Regulatory and market transition away from combustion fuels and fuel-grade ethanol blending may threaten the viability of our renewable fuels business; and -16- ● Costs and regulatory burdens associated with governmental regulations that limit or tax greenhouse gas emissions, such as carbon dioxide, from alcohol production and distribution, or from truck transport and packaging associated with Eagle Alcohol’s business and use of drums and totes, will negatively impact us.
Higher natural gas prices would likewise increase our production input costs. -17- Other factors that may result from climate change, or that may result from governmental regulations aimed at addressing climate-related issues, may also adversely affect our business, including the following: ● water is one of our key production inputs; water resource limitations may result from drought and other inclement weather; water resource limitations may also result from rationing and other governmental regulations limiting water use; ● higher water temperatures due to increased global or regional temperatures may negatively affect production efficiencies due to water temperature production requirements given the poor cooling capacities of our older facilities; ● flooding and other inclement weather may negatively affect our river access, other transportation logistics and costs, and storage requirements; ● an overall increase in energy costs will negatively impact our production costs generally and may critically impact certain high energy-intensive production technologies, such as our wet milling and multiple distillation processes for high-quality alcohol; ● regulatory and market transition away from combustion fuels and fuel-grade ethanol blending may threaten the viability of our renewable fuels business; and ● costs and regulatory burdens associated with governmental regulations that limit or tax greenhouse gas emissions, such as CO 2 , from alcohol production and distribution, or from truck transport and packaging associated with Eagle Alcohol’s business and use of drums and totes, will negatively impact us.
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.
Finally, if a court were to find these provisions 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.
Prices and supplies are subject to and determined by numerous market and other forces over which we have no control, such as weather, domestic and global demand, supply shortages, export prices, inflationary conditions, global geopolitical tensions and various governmental policies in the United States and throughout the world.
Prices and supplies are subject to and determined by numerous market and other forces over which we have no control, such as inclement or favorable weather, domestic and global demand, supply excesses or shortages, export conditions, inflationary conditions, global geopolitical tensions and various governmental policies in the United States and throughout the world.
Even if inflation stabilizes or abates, the prices of key production inputs, wages and other costs of labor, equipment, services, and other business expenses may remain at elevated levels. We may not be able to include these additional costs in the prices of the products we sell.
Even if inflation stabilizes or abates, the prices of key production inputs, wages and other costs of labor, equipment, services, and other business expenses, and for our capital projects, may remain at elevated levels. We may not be able to include these additional costs in the prices of the products we sell.
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. -20- 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.
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 plan to pay any cash dividends on our shares of common stock, our stockholders will not be able to receive a return on their shares unless and until they sell them.
In addition, our indebtedness could: ● make it more difficult to pay or refinance our indebtedness if it becomes due during adverse economic and industry conditions; -17- ● limit our flexibility to pursue strategic opportunities or react to changes in our business and the industries in which we operate and, consequently, place us at a competitive disadvantage to our competitors who have less debt; ● require a substantial portion of our cash flows from operations for debt service payments, thereby reducing the availability of our cash flows to fund working capital, additional capital expenditures, acquisitions, dividend payments and for other general corporate purposes; or ● limit our ability to procure additional financing for working capital or other purposes.
In addition, our indebtedness could: ● make it more difficult to repay or refinance our indebtedness if it becomes due during adverse economic and industry conditions; ● result in adverse consequences due to a breach of our financial or other covenants and obligations in favor of our lenders; ● limit our flexibility to pursue strategic opportunities or react to changes in our business and the industries in which we operate and, consequently, place us at a competitive disadvantage to our competitors who have less debt; ● require a substantial portion of our cash flows from operations for debt service payments, thereby reducing the availability of our cash flows to fund working capital, additional capital expenditures, acquisitions, dividend payments and for other general corporate purposes; or ● limit our ability to procure additional financing for working capital or other purposes.
Our ability to generate sufficient cash to make all required principal and interest payments when due depends on our performance, which is subject to a variety of factors beyond our control, including the cost of key production inputs, the supply of and demand for specialty alcohols and essential ingredients, and many other factors related to the industries in which we operate.
Our ability to generate operating results and sufficient cash to make all required principal and interest payments when due, and to satisfy our financial covenants and other obligations, depends on our performance, which is subject to a variety of factors beyond our control, including the cost of key production inputs, the supply of and demand for alcohols and essential ingredients, and many other factors related to the industries in which we operate.
Risks Related to Legal and Regulatory Matters We may be adversely affected by environmental, health and safety laws, regulations and liabilities, and which may not be adequately covered by insurance .
Risks Related to Legal and Regulatory Matters We may be adversely affected by environmental, health and safety laws and regulations, as well as related liabilities that may not be adequately covered by insurance .
In addition, governmental regulators may disfavor carbon-based energy sources, such as natural gas, leading to regulations that disincentivize their use or otherwise make their production more difficult and costly, driving up their prices. Higher natural gas prices would likewise increase our production input costs.
In addition, governmental regulators may disfavor carbon-based energy sources, such as natural gas, leading to regulations that disincentivize their use or otherwise make their production more difficult and costly, driving up their prices.
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 $2.88 per gallon in 2022, from $1.48 to $3.75 per gallon in 2021 and from $0.81 to $1.62 per gallon in 2020.
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 Chicago Mercantile Exchange, ranged from $1.58 to $2.67 per gallon in 2023, from $2.00 to $2.88 per gallon in 2022 and from $1.48 to $3.75 per gallon in 2021.
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.
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. We have recognized losses in the past, and may suffer losses in the future, from our hedging arrangements.
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. -21- Further, if we fail to adequately maintain our information technology infrastructure, we may have outages and data loss.
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.
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 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.
Inclement weather from climate change, including extreme temperatures or drought, may adversely affect growing conditions, which may reduce available corn supplies, our primary production input, and other grain substitutes, driving up prices and thereby increasing our production input costs.
Our business is highly sensitive to commodity prices, in particular, the prices of corn and natural gas. Inclement weather from climate change, including extreme temperatures or drought, may adversely affect growing conditions, which may reduce available corn supplies, our primary production input, and other grain substitutes, driving up prices and thereby increasing our production input costs.
For example, for the three months and year ended December 31, 2022 and for the year ended December 31, 2020, we incurred consolidated net losses of approximately $33.1 million, $41.6 million and $17.3 million, respectively. We may incur losses and negative operating cash flow in the future.
For example, for the three months ended December 31, 2023 and the years ended December 31, 2023 and 2022, we incurred consolidated net losses of approximately $19.0 million, $28.0 million and $41.6 million, respectively. We may incur losses and negative operating cash flow in the future.
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.
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. The prices of our products are volatile and subject to large fluctuations, which may cause our results of operations to fluctuate significantly.
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.
For the avoidance of doubt, the exclusive forum provisions described above do not apply to any claims arising under the Securities Act or the Securities Exchange Act of 1934, as amended, or the Exchange Act, to the extent federal law requires otherwise.
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.
Alcohol production 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 particular, the EPA may issue small refinery waivers, in full or in part, to reduce or eliminate annual renewable fuel volume requirements for small refineries that process fewer than 75,000 barrels of petroleum daily.
The EPA may issue small refinery waivers, in full or in part, to reduce or eliminate annual renewable fuel volume requirements for small refineries that process fewer than 75,000 barrels of petroleum daily. In the past, the EPA has issued small refinery waivers that have materially and adversely affected overall demand for and the price of fuel-grade ethanol. The U.S.
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.
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 not covered by insurance.
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.
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. -25- 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.
As a result, inflation and higher prices in general 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.
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, materially and adversely impacting our results of operations, cash flows and financial condition. The prices of our alcohols and essential ingredients are highly impacted by competing third-party supplies of those products.
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.
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.
Climate change, and governmental regulations aimed at addressing climate-related issues, may affect conditions to which our business is highly sensitive, many of which could materially and adversely harm our business, results of operations and financial condition. Our business is highly sensitive to commodity prices, in particular the prices of corn and grain substitutes, and natural gas.
As a result, inflation and sustained higher prices may have a material adverse effect on our results of operations and financial condition. Climate change, and governmental regulations aimed at addressing climate-related issues, may affect conditions to which our business is highly sensitive, many of which could materially and adversely harm our business, results of operations and financial condition.
In the past, poor weather has caused disruptions in rail transportation, which slowed the delivery of fuel-grade ethanol by rail, a key method by which fuel-grade ethanol from our Pekin Campus is transported to market.
In the past, poor weather has caused disruptions in rail transportation, which slowed the delivery of fuel-grade ethanol by rail, a key method by which fuel-grade ethanol from our Pekin Campus is transported to market. For example, in the third quarter of 2023 we experienced unusually high unscheduled production downtime for repairs and maintenance which reduced sales volumes and profits.
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.
Lower demand for fuel-grade ethanol and essential ingredients, including through the transition by consumers to alternative fuel vehicles such as electric vehicles and hybrid vehicles, 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.
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.
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. -24- The choice of forum provisions 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, agents or other third parties, which may discourage such lawsuits against us and our directors, officers, employees, agents and other third parties even though an action, if successful, might benefit our stockholders.
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.
Our results of operations, cash flows and financial condition could be adversely impacted if the EPA reduces mandatory volumes or issues significant small refinery waivers, or if any legislation is enacted that reduces volume requirements. -22- 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.
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.
Failure to achieve our expected results may have a material adverse effect on our business, financial condition and results of operations. We regularly incur significant expenses to repair, maintain and upgrade our production facilities and operating equipment, and any interruption in our operations would harm our operating performance.
Our indebtedness may expose us to risks that could negatively impact our business, prospects, liquidity, cash flows and results of operations. We have incurred, and anticipate incurring additional, substantial indebtedness to engage in capital improvement projects. We expect that these projects, when completed, will generate financial returns sufficient to service and ultimately repay or refinance our indebtedness.
We have incurred, and anticipate incurring additional, substantial indebtedness for our capital improvement projects. We expect that these projects, when completed, will generate financial returns sufficient to service and ultimately repay or refinance our indebtedness. However, the costs, timing, and effects of our capital improvement projects may not meet our projections.
The 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 through 2022.
The EPA, in coordination with the Secretary of Energy and the Secretary of Agriculture, determines 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.
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.
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. -20- 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.
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.
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.
We cannot provide any assurance that we will be able to timely service or satisfy our debt obligations. Our failure to timely service or satisfy our debt obligations would have a material adverse effect on our business, business prospects, liquidity, cash flows and results of operations.
Our failure to timely service or satisfy our debt obligations, including to meet our financial covenants, could result in our indebtedness being immediately due and payable, and would have a material adverse effect on our business, business prospects, liquidity, financial condition, cash flows and results of operations.
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.
Some legislative bills are directed at halting or reversing expansion of, or even eliminating in its entirety, the renewable fuel program.
Continued government and public emphasis on environmental issues will likely result in increased future investments for environmental controls at our production facilities.
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.
Disruptions in our production or distribution, including as a result of climate change and other weather effects, 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.
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. -15- Disruptions in our production or distribution, including from climate change and other weather effects, may adversely affect our business, results of operations and financial condition.
A violation of these laws and regulations or permit conditions may 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.
Any violation of these laws and regulations or permit conditions may result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or production facility shutdowns.
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.
These scheduled and unscheduled 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 resulting from changes to equipment and operational and mechanical processes made during shutdown. -19- Our indebtedness may expose us to risks that could negatively impact our business, prospects, liquidity, cash flows and results of operations.
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.
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.
Various bills in Congress introduced from time to time are also directed at altering existing renewable fuels energy legislation, but none have passed in recent years.
Accordingly, small refinery waivers from the EPA may be more likely in the future and could again materially and adversely affect overall demand for and the price of fuel-grade ethanol. Various bills in Congress introduced from time to time are also directed at altering existing renewable fuels energy legislation, but none have passed in recent years.
Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition. -15- 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.
Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition. -16- We may suffer impairments in the value of our long-lived assets which may materially and adversely affect our results of operations.
In particular, due to limited storage capacity at some of our production facilities and other considerations related to production efficiencies, certain 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.
Our business depends on the continuing availability of rail, road, port, storage and distribution infrastructure. In particular, due to limited storage capacity at some of our production facilities and other considerations related to production efficiencies, certain facilities depend on timely delivery of corn.
Some of these matters may require us to expend significant amounts for investigation, cleanup or other costs not covered by insurance. -18- 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.
Some of these matters, if they arise, may require us to expend significant amounts for investigation and defense or other costs not covered by insurance. We could sustain losses for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverages.
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 or continues to issue significant small refinery waivers. -19- 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.
The domestic market for fuel-grade ethanol is significantly impacted by federal mandates for volumes of renewable fuels (such as ethanol) required to be blended with gasoline.
The machines and equipment we use to produce our alcohols and 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.
We regularly incur significant expenses to repair, maintain and upgrade our production facilities and operating equipment, estimated at an average of $30.0 million per year. The machines and equipment we use to produce our alcohols and essential ingredients are complex, have many parts, and some operate on a continuous basis.
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.
In addition, our open contract positions may require cash deposits to cover margin calls, negatively impacting our liquidity.
Inflation, including as a result of commodity price inflation or supply chain constraints due to the war in Ukraine, and higher prices in general 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.
We have experienced adverse inflationary impacts on key production inputs, wages and other costs of labor, equipment, services, and other business expenses. In addition, we have experienced adverse inflationary impacts on our budgets and expenses for many of our in-process and planned capital projects. Inflation and its negative impacts could escalate in future periods.
Removed
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.
Added
For example, we hot-idled our Magic Valley facility in early 2023 due to unfavorable market conditions and again hot-idled our Magic Valley facility in early 2024 in part due to unfavorable market conditions.
Removed
The commodity price impact of the war in Ukraine has been a sharp and sustained rise in grain and energy prices, including for corn and natural gas, our two most important production input commodities.
Added
The prices of our products are volatile and subject to large fluctuations.
Removed
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.
Added
Other important factors that impact the price of petroleum include war and threats of war, attacks on or threats to shipping vessels as has recently occurred in the Red Sea, the consequent rerouting of supply lines to less direct or more expensive paths, and other supply chain disruptions.
Removed
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 on key production inputs.
Added
For example, for the year ended December 31, 2023, we recognized net losses of $8.0 million related to the change in the fair values of hedging contracts.
Removed
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.
Added
We evaluate our long-lived assets annually for impairment or when circumstances indicate that the full carrying value of an asset may be unrecoverable. These evaluations rely on financial and other assumptions concerning the assets, any of which may not materialize in the future.
Removed
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.
Added
For example, we recognized asset impairments of $6.5 million and $3.1 million for the years ended December 31, 2023 and 2021, respectively. We may recognize additional impairments of the values of our long-lived assets in the future based on then-prevailing financial and other circumstances. Impairments of our long-lived assets may materially and adversely affect our results of operations.
Removed
However, the timing, cost and results of our capital improvement projects may not meet our projections.
Added
Our alcohol production relies on traditional corn-based feedstock and process technologies. New technologies could make corn-based alcohol production and traditional process technologies less competitive or even obsolete, materially and adversely harming our business. We produce our alcohols from corn. Moreover, our plants are constructed and operate exclusively as corn-based alcohol production facilities.
Removed
After 2022, the EPA is to determine volume requirements in coordination with the Secretary of Energy and the Secretary of Agriculture. The EPA has proposed new post-2022 mandatory volumes of 15.0 billion and 15.25 billion gallons for 2023 and 2024, respectively, in compliance with a consent decree by the United States District Court for the District of Columbia.
Added
Competitors and other third parties have undertaken research to develop competing products to corn-based alcohols, and ethanol in particular, as well as new process technologies.
Removed
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.
Added
These research efforts seek alternatives to corn-based ethanol and traditional process technologies aimed at improving real or perceived problems with the fuel, such as the carbon and energy intensity of its production, its lower energy content compared to gasoline and its hydrophobic nature resulting in water separation in transit or at other times.
Removed
This authority is subject to consultation with the Secretaries of Agriculture and Energy and is 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe plants and facilities in Oregon and Idaho comprise our Other production segment. See “Business—Production Facilities”. Our properties will be subject to deeds of trust and other encumbrances in favor of our lenders.
Biggest changeThe plants and facilities in Oregon and Idaho comprise our Western production segment. See “Business—Production Facilities.” Our properties are subject to deeds of trust and other encumbrances in favor of our lenders.
Item 2. Properties. Our corporate headquarters, located in Pekin, Illinois, consists of plants and facilities comprising our Pekin Campus production segment and totaling 145 acres on land we own. In Sacramento, California, we lease office space totaling approximately 11,000 square feet under a lease expiring in 2029. In St.
Item 2. Properties. Our corporate headquarters, located in Pekin, Illinois, consists of plants and facilities comprising our Pekin Campus production segment and totaling 145 acres on land we own. In Sacramento, California, we lease office space totaling approximately 3,400 square feet under a lease expiring in 2026. In St.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+1 added−5 removed6 unchanged
Biggest changeFor 2022, we declared and paid cash dividends on our outstanding shares of Series B Preferred Stock as they became due and, in addition, in 2021, we paid in cash all accrued and unpaid dividends for 2021 and 2020 in respect of our Series B Preferred Stock.
Biggest changeFor 2023, 2022 and 2021, we declared and paid cash dividends on our outstanding shares of Series B Preferred Stock as they became due. Recent Sales of Unregistered Securities None.
Performance Graph The graph below shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total return on The Nasdaq Composite Index and The Nasdaq Clean Edge Green Energy Index, or Peer Group, in each case over the five-year period ended December 31, 2022.
Performance Graph The graph below shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total return on The Nasdaq Composite Index and The Nasdaq Clean Edge Green Energy Index, or Peer Group, in each case over the five-year period ended December 31, 2023.
(3) Amount represents the share repurchase program size of $50 million less approximately $1.3 million in aggregate share repurchases, but is subject to authorizations for purchases in excess of our lenders’ purchase authorization of $5 million and our board and preferred stockholders’ initial purchase authorization of $10 million.
(3) Amount represents the share repurchase program size of $50 million less approximately $5 million in aggregate share repurchases, but is subject to authorizations for purchases in excess of our lenders’ purchase authorization of $5 million and our board and preferred stockholders’ initial purchase authorization of $10 million. -30-
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO”. We also have non-voting common stock outstanding, which is convertible into our voting common stock, and which is not listed on an exchange.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO.” We also have non-voting common stock outstanding, which is convertible into our voting common stock, and which is not listed on an exchange.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth information about repurchases of our common stock for the three months ended December 31, 2022: Period Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of publicly- announced plans or programs (2) Approximate dollar value of shares that may yet be purchased under plans or programs (2)(3) October 1 to October 31, 2022 — $ — — $ — November 1 to November 30, 2022 92,000 $ 3.51 92,000 $ 48,675,000 December 1 to December 31, 2022 — $ — — $ — Three months ended December 31, 2022 92,000 $ 3.51 92,000 $ 48,675,000 (1) We repurchased 92,000 shares as part of our publicly announced share repurchase program during the three months ended December 31, 2022 and received no shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during the period.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth information about repurchases of our common stock for the three months ended December 31, 2023: Period Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of publicly- announced plans or programs (2) Approximate dollar value of shares that may yet be purchased under plans or programs (2)(3) October 1 to October 31, 2023 — $ — — $ — November 1 to November 30, 2023 436,000 $ 2.27 436,000 $ 45,001,000 December 1 to December 31, 2023 — $ — — $ — Three months ended December 31, 2023 436,000 $ 2.27 436,000 $ 45,001,000 (1) We repurchased 436,000 shares as part of our publicly announced share repurchase program during the three months ended December 31, 2023 and received no shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during the period.
These holders of record include depositories that hold shares of stock for brokerage firms which, in turn, hold shares of stock for numerous beneficial owners. On March 13, 2023, the closing sales price of our common stock on The Nasdaq Capital Market was $1.865 per share.
These holders of record include depositories that hold shares of stock for brokerage firms which, in turn, hold shares of stock for numerous beneficial owners. On March 12, 2024, the closing sales price of our common stock on The Nasdaq Capital Market was $2.01 per share.
Security Holders As of March 13, 2023, we had 75,144,522 shares of common stock outstanding held of record by approximately 320 stockholders and 896 shares of non-voting common stock outstanding held of record by one stockholder.
Security Holders As of March 12, 2024, we had 75,697,150 shares of common stock outstanding held of record by approximately 320 stockholders and 896 shares of non-voting common stock outstanding held of record by one stockholder.
We anticipate that we will retain any earnings for use in the continued development of our business. -24- 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.
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.
This graph assumes that the value of the investment in our common stock and each of the comparison groups was $100 on December 31, 2017. -23- 12/17 12/18 12/19 12/20 12/21 12/22 Alto Ingredients, Inc. 100.00 18.92 14.29 119.34 105.71 63.30 Nasdaq Composite 100.00 97.16 132.81 192.47 235.15 158.65 Nasdaq Clean Edge Green Energy 100.00 87.89 125.39 357.14 347.70 242.88 Dividend Policy We have never paid cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.
This graph assumes that the value of the investment in our common stock and each of the comparison groups was $100 on December 31, 2018. -29- Years Ended 12/2018 12/2019 12/2020 12/2021 12/2022 12/2023 Alto Ingredients, Inc. 100.00 75.49 630.66 558.65 334.49 308.94 Nasdaq Composite 100.00 136.69 198.10 242.03 163.28 236.17 Nasdaq Clean Edge Green Energy 100.00 142.67 406.35 395.62 276.35 248.97 Dividend Policy We have never paid cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.
Removed
For 2020, we accrued but did not declare or pay cash dividends under an agreement with the holders of our Series B Preferred Stock in an effort to preserve liquidity.
Added
We anticipate that we will retain any earnings for use in the continued development of our business.
Removed
Recent Sales of Unregistered Securities On November 7, 2022, we entered into a credit agreement with certain funds managed by Orion Infrastructure Capital to borrow up to $125,000,000.
Removed
In connection with that transaction, we committed to issue to the lenders pro rata an aggregate of 1,282,051 shares of our common stock at the initial funding and up to an additional 320,513 shares of our common stock based upon certain further fundings under the credit facility.
Removed
On November 23, 2022, we received our initial funding of $60,000,000 under the credit facility and issued an aggregate of 1,282,051 shares of our common stock to the lenders. We received no separate consideration for the shares of common stock issued.
Removed
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Orion Term Loan.” Exemption from the registration requirements of the Securities Act for the transaction described above is claimed under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

86 edited+71 added−56 removed47 unchanged
Biggest changeCertain performance metrics that we believe are important indicators of our results of operations include: Years Ended December 31, Percentage Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Renewable fuel production gallons sold (in millions) 208.5 161.1 181.0 29.5 % (11.0 )% Specialty alcohol production gallons sold (in millions) 92.5 89.5 90.9 3.4 % (1.5 )% Third-party renewable fuel gallons sold (in millions) 117.9 229.0 264.4 (48.5 )% (13.4 )% Total gallons sold (in millions) 418.9 479.6 536.3 (12.7 )% (10.6 )% Total gallons produced (in millions) 300.0 251.7 262.1 19.2 % (4.0 )% Production capacity utilization 86 % 60 % 53 % 43.3 % 13.2 % Average sales price per gallon $ 2.64 $ 2.46 $ 1.63 7.3 % 50.9 % Corn cost per bushel—CBOT equivalent $ 6.92 $ 5.70 $ 3.56 21.4 % 60.1 % Average basis (1) $ 0.85 $ 0.52 $ 0.28 63.5 % 85.7 % Delivered cost of corn $ 7.77 $ 6.22 $ 3.84 24.9 % 62.0 % Total essential ingredients tons sold (in thousands) 1,637.4 1,236.2 1,447.5 32.5 % (14.6 )% Essential ingredient revenues as % of delivered cost of corn (2) 33.8 % 33.7 % 44.1 % 0.3 % (23.6 )% Average CBOT ethanol price per gallon $ 2.16 $ 2.11 $ 1.25 2.4 % 68.8 % Average CBOT corn price per bushel $ 6.94 $ 5.67 $ 3.63 22.4 % 56.2 % (1) Corn basis represents the difference between the immediate cash price of delivered corn and the future price of corn for Chicago delivery.
Biggest changeResults of Operations Selected Financial Information The following selected financial information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report. -37- Certain performance metrics that we believe are important indicators of our results of operations include: Sales and Operating Metrics (unaudited) Years Ended December 31, Percentage Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Alcohol Sales (gallons in millions) Pekin Campus renewable fuel gallons sold 136.2 116.1 123.5 17 % (6 )% Western production renewable fuel gallons sold 67.0 92.4 37.6 (27 )% 146 % Third party renewable fuel gallons sold 102.6 117.9 229.0 (13 )% (49 )% Total renewable fuel gallons sold 305.8 326.4 390.1 (6 )% (16 )% Specialty alcohol gallons sold 76.7 92.5 89.5 (17 )% 3 % Total gallons sold 382.5 418.9 479.6 (9 )% (13 )% Sales Price per Gallon Pekin Campus $ 2.40 $ 2.55 $ 2.34 (6 )% 9 % Western production $ 2.49 $ 2.75 $ 2.87 (9 )% (4 )% Marketing and distribution $ 2.56 $ 2.83 $ 2.69 (10 )% 5 % Total $ 2.47 $ 2.64 $ 2.46 (6 )% 7 % Alcohol Production (gallons in millions) Pekin Campus 209.7 208.8 212.9 0 % (2 )% Western production 68.1 91.2 38.8 (25 )% 135 % Total 277.8 300.0 251.7 (7 )% 19 % Corn Cost per Bushel Pekin Campus $ 6.32 $ 7.32 $ 6.06 (14 )% 21 % Western production $ 7.45 $ 8.97 $ 7.40 (17 )% 21 % Total $ 6.58 $ 7.77 $ 6.22 (15 )% 25 % Average Market Metrics PLATTS Ethanol price per gallon $ 2.22 $ 2.47 $ 2.29 (10 )% 8 % CME Corn cost per bushel $ 5.64 $ 6.94 $ 5.82 (19 )% 19 % Board corn crush per gallon(1) $ 0.21 $ - $ 0.21 Essential Ingredients Sold (thousand tons) Pekin Campus: Distillers grains 332.7 334.4 338.5 (1 )% (1 )% CO2 182.4 164.8 164.9 11 % 0 % Corn wet feed 95.0 89.9 88.1 6 % 2 % Corn dry feed 90.6 81.6 78.8 11 % 4 % Corn oil and germ 73.8 66.7 69.0 11 % (3 )% Syrup and other 41.2 56.9 77.9 (28 )% (27 )% Corn meal 36.8 32.1 33.9 15 % (5 )% Yeast 25.9 23.9 24.0 8 % 0 % Total Pekin Campus essential ingredients sold 878.4 850.3 875.1 3 % (3 )% Western production: Distillers grains 459.7 643.7 274.0 (29 )% 135 % Syrup and other 119.1 77.4 26.3 54 % 194 % CO2 55.5 55.8 57.1 (1 )% (2 )% Corn oil 8.0 10.2 3.7 (22 )% 176 % Total Western production essential ingredients sold 642.3 787.1 361.1 (18 )% 118 % Total Essential Ingredients Sold 1,520.7 1,637.4 1,236.2 (7 )% 32 % Essential Ingredients Return % (2) Pekin Campus return 45.7 % 41.3 % 40.4 % 11 % 2 % Western production return 33.4 % 31.6 % 31.5 % 6 % 0 % Consolidated total return 42.4 % 37.9 % 38.8 % 12 % (2 )% (1) Assumes corn conversion of 2.80 gallons of alcohol per bushel of corn.
See “Note 5 – Segments” of the Notes to Consolidated Financial Statements for our revenue-breakdown by type of contract. Impairment of Long-Lived Assets and Held-for-Sale Classification Our long-lived assets have been primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation and any subsequent impairment.
See “Note 5 – Segments” of the Notes to Consolidated Financial Statements for our revenue-breakdown by type of contract. Impairment of Long-Lived Assets and Held-for-Sale Classification Our long-lived assets have been primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation and amortization and any subsequent impairment.
Our production facilities located in Illinois 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 in Illinois are in the heart of the Corn Belt, benefit from relatively low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge.
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 the Health, Home & Beauty markets 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.
Sales and Margins We generate sales by marketing all of the alcohols produced by our three production facilities in Illinois, all of the fuel-grade ethanol produced by our production facility in Oregon, all of the fuel-grade ethanol produced by our production facility in Idaho, and fuel-grade ethanol purchased from third-party suppliers throughout the United States.
Sales and Margins We generate sales by marketing all of the alcohols produced by our three production facilities in Illinois, all of the fuel-grade ethanol produced by our production facilities in Oregon and Idaho, and fuel-grade ethanol purchased from third-party suppliers throughout the United States.
We allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognize the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance obligations. -39- When we are the agent, the supplier controls the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide the product, has inventory risk before the product has been transferred to a customer and has discretion in establishing the price for the product.
We allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognize the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance obligations. -46- When we are the agent, the supplier controls the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide the product, has inventory risk before the product has been transferred to a customer and has discretion in establishing the price for the product.
The selection of normal purchase or sales contracts, and use of hedge accounting, are accounting policies that can change the timing of recognition of gains and losses in the statement of operations.
The selection of normal purchase or sales contracts, and use of hedge accounting, are accounting policies that can change the timing of recognition of gains and losses in the statement of operations. -48-
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. -40- We evaluate our deferred tax asset balance for realizability.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. We evaluate our deferred tax asset balance for realizability.
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 sales of fuel-grade ethanol sourced from third parties, (2) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at our three production facilities located in Pekin, Illinois, which we refer to as our Pekin Campus, 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 separately reportable segment.
We report our financial and operating performance in three segments: (1) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at our three production facilities located in Pekin, Illinois, which we refer to as our Pekin Campus, (2) marketing and distribution, which includes marketing and merchant trading for company-produced alcohols and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced from third parties, and (3) Western production, which includes the production and sale of renewable fuel and essential ingredients produced at our two western production facilities on an aggregated basis, none of which are individually so significant as to be considered a separately reportable segment.
Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020 An analysis of our financial results comparing 2021 to 2020 can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 15, 2022, which is available free of charge on the Securities and Exchange Commission’s website at www.sec.gov.
Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021 An analysis of our financial results comparing 2022 to 2021 can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission on March 14, 2023, which is available free of charge on the Securities and Exchange Commission’s website at www.sec.gov.
Information reconciling forward-looking EBITDA to forward-looking consolidated net income (loss) would require a forward-looking statement of consolidated net income (loss) prepared in accordance with GAAP, which is unavailable to us without unreasonable effort.
Information reconciling forward-looking EBITDA or Adjusted EBITDA to forward-looking consolidated net income (loss) would require a forward-looking statement of consolidated net income (loss) prepared in accordance with GAAP, which is unavailable to us without unreasonable effort.
However, given the difficulty associated with successfully forecasting any of these factors, we are unable to estimate our future gross profit margins.
However, given the difficulty associated with successfully forecasting any of these factors, we are unable to estimate our future sales or gross profit margins.
Results of Operations Selected Financial Information The following selected financial information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report.
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).
We seek to optimize our gross profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions and taking other actions designed to limit risk and address these factors.
We seek to optimize our gross profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions and taking other actions designed to lock in margins, limit risk and otherwise address these factors.
See “Item 5 – Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Purchases of Equity Securities by the Issuer and Affiliated Purchasers.” For the year ended December 31, 2022, we repurchased 351,000 shares of our common stock as part of our publicly announced share repurchase program at an average price per share of $3.77 for an aggregate expenditure of $1.3 million during the period.
See “Item 5 – Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Purchases of Equity Securities by the Issuer and Affiliated Purchasers.” For the year ended December 31, 2023, we repurchased 1,685,000 shares of our common stock as part of our publicly announced share repurchase program at an average price per share of $2.18 for an aggregate expenditure of $3.7 million during the period.
In connection with our acquisition of Eagle Alcohol, we committed to contingent payments of up to $9.0 million in cash over the next three years if certain targets are met. -38- 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.
In connection with our acquisition of Eagle Alcohol, we committed to contingent payments of up to $5.5 million in cash over the next two years if certain financial targets and other conditions are met. -45- 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.
Our profitability is highly dependent on various commodity prices, including the market prices of corn, natural gas and fuel-grade ethanol. Our consolidated average alcohol sales price increased by 7% to $2.64 per gallon for 2022 compared to $2.46 per gallon for 2021.
Our profitability is highly dependent on various commodity prices, including the market prices of corn, natural gas and fuel-grade ethanol. Our consolidated average alcohol sales price declined by 6% to $2.47 per gallon for 2023 compared to $2.64 per gallon for 2022.
The following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented: Years Ended December 31, 2022 2021 Fixed Charge Coverage Ratio Requirement 1.10 2.00 Actual 3.54 13.32 Excess 2.44 11.32 Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility.
The following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented: Years Ended December 31, 2023 2022 Fixed Charge Coverage Ratio Requirement 1.10 1.10 Actual 5.22 3.54 Excess 4.12 2.44 Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility.
Other Cash Obligations As of December 31, 2022, we had future commitments for certain capital projects totaling $21.0 million. These commitments are scheduled to be satisfied through 2023.
Other Cash Obligations As of December 31, 2023, we had future commitments for certain capital projects totaling $15.6 million. These commitments are scheduled to be satisfied through 2024.
As of December 31, 2022, Kinergy had an outstanding balance of $18.1 million and $57.9 million of unused borrowing availability under the credit facility. -37- Orion Term Loan On November 7, 2022, we entered into a credit agreement with certain funds managed by Orion Infrastructure Capital, or Lenders, under which the Lenders extended a senior secured credit facility in the amount of up to $125,000,000, or Term Loan.
As of December 31, 2023, Kinergy had an outstanding balance of $30.7 million and $33.3 million of unused borrowing availability under the credit facility. -44- Orion Term Loan On November 7, 2022, we entered into a credit agreement with certain funds managed by Orion Infrastructure Capital, or Lenders, under which the Lenders extended a senior secured credit facility in the amount of up to $125.0 million, or Term Loan.
Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages. Our production facilities were operating for all of 2022.
Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages.
We believe that our gross profit margins depend primarily on six key factors: ● the prices of our specialty alcohols and the market price of fuel-grade ethanol, the latter of which is impacted by the price of gasoline and related petroleum products, and government regulation, including government ethanol mandates; ● the market prices of key production input commodities, including corn (and corn basis) and natural gas; ● the prices of our essential ingredients; ● our ability to anticipate trends in the prices of our alcohols, essential ingredients, and key input commodities, and our ability to implement appropriate risk management and opportunistic pricing strategies; -30- ● the proportion of our sales of specialty alcohols to our sales of fuel-grade ethanol produced at our facilities; and ● the proportion of our sales of fuel-grade ethanol produced at our facilities to our sales of fuel-grade ethanol produced by unrelated third-parties.
We believe that our gross profit margins depend primarily on six key factors: ● the prices of our specialty alcohols and the market price of fuel-grade ethanol, the latter of which is impacted by the price of gasoline and related petroleum products, and government regulation, including government ethanol mandates; ● the market prices of key production input commodities, such as corn (including corn basis) and natural gas; ● the market prices of our essential ingredients; ● our ability to anticipate trends in the market and contracted prices of our alcohols, essential ingredients, and costs of key input commodities, and our ability to implement appropriate risk management through hedging and other means, and opportunistic pricing strategies; ● the proportion of our sales of specialty alcohols to our sales of fuel-grade ethanol produced at our facilities relative to their respective market and contracted prices; and ● the proportion of our sales of fuel-grade ethanol produced at our facilities to our sales of fuel-grade ethanol produced by unrelated third-parties relative to the market price of fuel-grade ethanol and marketing and distribution fees payable for third-party sales.
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 Illinois, one is located in Oregon and another is located in Idaho.
Overview We produce and distribute renewable fuel and essential ingredients. We are also the largest producer of specialty alcohols in the United States. We operate five alcohol production facilities. Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho.
Cash provided by our Operating Activities We generated $6.0 million in cash from our operating activities during 2022, as compared to $26.8 million in 2021.
Cash provided by our Operating Activities We generated $22.0 million in cash from our operating activities during 2023, as compared to $6.0 million in 2022.
We had pre-tax consolidated income of $47.6 million for the year ended December 31, 2021. We had pre-tax consolidated losses of $39.7 million and $17.3 million for the years ended December 31, 2022 and 2020, respectively.
We had pre-tax consolidated net losses of $27.9 million and $39.7 million for the years ended December 31, 2023 and 2022, respectively. We had pre-tax consolidated net income of $47.6 million for the year ended December 31, 2021.
The Term Loan is secured by a first priority lien on certain of our assets and a second priority lien on certain assets of Kinergy and Alto Nutrients. The Lenders agreed to advance to us up to $100,000,000, with up to an additional $25,000,000 upon the satisfaction of certain conditions.
The Term Loan is secured by a first priority lien on certain of our assets and a second priority lien on certain assets of Kinergy and Alto Nutrients. The Lenders agreed to advance to us up to $125.0 million upon the satisfaction of certain conditions.
Valuation Allowance for Deferred Taxes We account for income taxes under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse.
We did not record any impairments for assets held-for-sale for December 31, 2023 or 2022. -47- Valuation Allowance for Deferred Taxes We account for income taxes under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse.
Our average sales price for our essential ingredients increased primarily due to higher corn prices. ● Gross Profit (Loss) .
Our average sales price for our essential ingredients also declined primarily due to lower corn prices. -36- ● Gross Profit (Loss) .
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.
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 alcohols produced by third parties. We have extensive and long-standing customer relationships, both domestic and international, for our 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.
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. -31- Production Segments We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on five key markets: Health, Home & Beauty ; Food & Beverage ; Industry & Agriculture; Essential Ingredients ; and Renewable Fuels .
At the segment’s average sales price per gallon of $2.75 for 2022, net sales were $150.3 million higher as a result of the 54.7 million additional gallons sold in 2022 as compared to 2021. This increase was partially offset by a $0.12 reduction in our sales price per gallon for 2022.
At the segment’s average sales price per gallon of $2.56 for 2023, net sales were $56.6 million higher as a result of the 22.1 million additional gallons sold in 2023 as compared to 2022. This increase was partially offset by the $0.27 decrease in our average sales price per gallon for 2023.
Our volume of third-party fuel-grade ethanol gallons sold reported net by the segment decreased by 50.7 million gallons, or 58%, to 37.4 million gallons for 2022 as compared to 88.1 million gallons for 2021. The decrease in sales reported net resulted in a decrease of $0.5 million in net sales.
Our volume of third-party fuel-grade ethanol sold reported net by the segment declined by 37.4 million gallons, or 100%, to no gallons sold net for 2023 as compared to 37.4 million gallons for 2022. The decline in sales reported net resulted in a decrease of $0.9 million in net sales.
In 2022, we marketed and distributed approximately 420 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and over 1.6 million tons of essential ingredients on a dry matter basis.
In 2023, we marketed and distributed approximately 383 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and over 1.5 million tons of essential ingredients on a dry matter basis. We also specialize in break bulk distribution of specialty alcohols through our Eagle Alcohol subsidiary.
As of December 31, 2022, the amount outstanding under the Term Loan was $60,000,000. Share Repurchase Program For the three months ended December 31, 2022, we repurchased 92,000 shares of our common stock as part of our publicly announced share repurchase program at an average price per share of $3.51 for an aggregate expenditure of $0.3 million during the period.
Share Repurchase Program For the three months ended December 31, 2023, we repurchased 436,000 shares of our common stock as part of our publicly announced share repurchase program at an average price per share of $2.27 for an aggregate expenditure of approximately $1.0 million during the period.
Net Sales The increase in our consolidated net sales for 2022 as compared to 2021 was primarily due to an increase in our average sales price per gallon for our alcohols and a higher volume of essential ingredients sold at higher sales prices per ton, partially offset by a decrease in our total gallons sold.
Net Sales The decline in our consolidated net sales for 2023 as compared to 2022 was due to a decrease in the average sales price per gallon for our alcohols, fewer total gallons sold and lower volumes of essential ingredients sold at lower prices.
Our net income available to common stockholders declined by $87.1 million to a loss of $42.9 million for 2022 from income of $44.2 million for 2021. Factors that contributed to these results of operations for 2022 include: ● Net sales .
Our net loss available to common stockholders improved by $13.6 million to a net loss of $29.3 million for 2023 from a net loss of $42.9 million for 2022. Factors that contributed to these results of operations for 2023 include: ● Net sales .
On November 23, 2022, we received our initial funding of $60,000,000 under the credit facility and issued an aggregate of 1,282,051 shares of our common stock to the Lenders. We received no separate consideration for the shares of common stock issued. Interest accrues on the unpaid principal amount of the Term Loan at a fixed rate of 10% per annum.
On November 23, 2022, we received our initial funding of $60.0 million under the credit facility and issued an aggregate of 1,282,051 shares of our common stock to the Lenders. We received no separate consideration for the shares of common stock issued.
Marketing and Distribution Segment Our marketing and distribution segment’s gross profit declined by $11.2 million to a gross loss of $0.4 million for 2022 from a gross profit of $10.8 million for 2021.
Marketing and Distribution Segment Our marketing and distribution segment’s gross profit improved by $4.1 million to a gross profit of $3.7 million for 2023 from a gross loss of $0.4 million for 2022.
Finally, Kinergy has an exclusive sales agreement with a third-party owned fuel-grade ethanol plant under which it sells the plant’s fuel-grade ethanol production for a fee plus the costs to deliver the ethanol to Kinergy’s customers. These sales are referred to as third-party agent sales.
Finally, in 2022 and 2021, Kinergy had exclusive sales agreements with two third-party owned fuel-grade ethanol plants under which it sold the plants’ fuel-grade ethanol production for a fee plus the costs to deliver the ethanol to Kinergy’s customers. Kinergy has since terminated these contracts. These sales are referred to as third-party agent sales.
The average price of corn as reported by the CBOT increased 22% to $6.94 per bushel for 2022 from $5.67 per bushel for 2021.
The average price of corn as reported by the CME declined by 19% to $5.64 per bushel for 2023 from $6.94 per bushel for 2022.
At our average sales price per ton of $265.26 for 2022, we generated $6.3 million less in net sales from the 24,000 fewer tons of essential ingredients sold in 2022 as compared to 2021.
At our average sales price per ton of $247.84 for 2023, we generated $6.9 million in additional net sales from the 28,100 additional tons of essential ingredients sold in 2023 as compared to 2022.
Our total volume of production gallons sold, however, decreased by 11.9 million gallons, or 6%, to 201.1 million gallons for 2022 as compared to 213.0 million gallons for 2021, due to an extended shut down for maintenance over the summer of 2022.
Our total volume of production gallons sold, however, increased by 4.3 million gallons, or 2%, to 208.9 million gallons for 2023 as compared to 204.6 million gallons for 2022, due to an extended shut down for maintenance during the summer of 2022.
Changes in Working Capital and Cash Flows Working capital declined to $121.1 million at December 31, 2022, from $159.9 million at December 31, 2021, as a result of a $30.4 million decrease in current assets and an $8.4 million increase in current liabilities.
Changes in Working Capital and Cash Flows Working capital declined to $103.5 million at December 31, 2023 from $121.1 million at December 31, 2022 as a result of a $30.3 million decrease in current assets, partially offset by a $12.7 million decrease in current liabilities.
An increase of $0.13, or 5%, in our average sales price per gallon in 2022 as compared to 2021 resulted in a $19.0 million increase in net sales from our third party fuel-grade ethanol gallons sold by the segment compared to 2021.
The decrease of $0.27, or 10%, in our average sales price per gallon in 2023 as compared to 2022 resulted in a $21.6 million decline in net sales from our third-party renewable fuel sold by the segment compared to 2022.
At the segment’s average sales price per gallon of $2.59 for 2022, we generated $30.8 million less in net sales from the segment because of the 11.9 million fewer gallons of alcohol sold in 2022 as compared to 2021.
At the segment’s average sales price per gallon of $2.49 for 2023, we generated $10.3 million in additional net sales from the 4.3 million additional gallons of alcohol sold in 2023 as compared to 2022.
A decrease of $0.12, or 5%, in our average sales price per gallon in 2022 as compared to 2021 resulted in a $4.6 million decrease in net sales of alcohol from the segment compared to 2021. -33- Net sales of essential ingredients increased by $59.1 million, or 190%, to $90.2 million for 2022 as compared to $31.1 million for 2021.
A decline of $0.26, or 9%, in our average sales price per gallon in 2023 as compared to 2022 resulted in a $23.4 million decrease in net sales of alcohol from the segment compared to 2022. Net sales of essential ingredients declined by $32.9 million, or 36%, to $57.3 million for 2023 as compared to $90.2 million for 2022.
The average price of fuel-grade ethanol as reported by the Chicago Board of Options Trade, or CBOT, increased 2% to $2.16 per gallon for 2022 compared to $2.11 per gallon for 2021. Our average delivered cost of corn increased 25% to $7.77 per bushel for 2022 from $6.22 per bushel for 2021.
The average price of fuel-grade ethanol as reported by the Chicago Mercantile Exchange, or CME, declined by 10% to $2.22 per gallon for 2023 compared to $2.47 per gallon for 2022. Our average cost of corn declined by 15% to $6.58 per bushel for 2023 from $7.77 per bushel for 2022.
Our cash, cash equivalents and restricted cash decreased by $12.6 million due to $37.7 million used in our investing activities, partially offset by $19.0 million in cash provided by our financing activities and $6.0 million in cash provided by our operating activities.
Our cash, cash equivalents and restricted cash declined by $4.0 million due to $33.0 million used in our investing activities primarily for our capital improvement projects, partially offset by $22.0 million in cash provided by our operating activities and $7.0 million in cash provided by our financing activities.
Cost of Goods Sold and Gross Profit (Loss) Our consolidated gross profit (loss) declined from a gross profit of $67.8 million, representing a gross margin of 5.6%, for 2021, to a gross loss of $27.6 million, representing a gross margin of negative 2.1%, for 2022.
These sales are from Eagle Alcohol’s business. -40- Cost of Goods Sold and Gross Profit (Loss) Our consolidated gross profit (loss) improved to a gross profit of $15.7 million, representing a gross margin of 1.3% for 2023, from a gross loss of $27.6 million, representing a gross margin of negative 2.1%, for 2022.
In addition, we have $40.0 million available for capital improvement projects under our term loan. We believe we have sufficient liquidity to meet our anticipated working capital, debt service, capital expenditure and other liquidity needs for at least the next twelve months from the date of this report.
We believe we have sufficient sources of liquidity to meet our anticipated working capital, debt service, capital expenditure and other liquidity needs for at least the next twelve months from the date of this report. Quantitative Year-End Liquidity Status We believe that the following amounts provide insight into our liquidity and capital resources.
Liquidity and Capital Resources During the year ended December 31, 2022, we funded our operations primarily from cash flow from operations, cash proceeds from a USDA grant, proceeds from payments on notes receivable, and proceeds from a term loan.
Liquidity and Capital Resources During the year ended December 31, 2023, we funded our operations primarily from cash on hand, cash flow from operations and proceeds from Kinergy’s operating line of credit.
Products for Essential Ingredients markets include dried yeast, corn gluten meal, corn gluten feed, corn germ, and distillers grains and liquid feed used in commercial animal feed and pet foods. We also sell yeast for human consumption. Our Renewable Fuels products include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels.
Products for Industry & Agriculture markets include alcohols and other products for paint applications and fertilizer s. Products for Essential Ingredients markets include dried yeast, corn protein meal, corn protein feed, corn germ, and distillers grains and liquid feed used in commercial animal feed and pet foods. We also sell yeast for human consumption.
Use of Non-GAAP Financial Measures Management believes that certain financial measures not in accordance with generally accepted accounting principles, or GAAP, are useful measures of operations.
Looking ahead, we are working to obtain third-party greenhouse gas verifications, improve transportation safety and earn additional EcoVadis awards. Use of Non-GAAP Financial Measures Management believes that certain financial measures not in accordance with generally accepted accounting principles, or GAAP, are useful measures of operations.
Cash provided by our Financing Activities Cash provided by our financing activities was $19.0 million for 2022, of which $59.1 million is attributable to net proceeds from our term loan, partially offset by $32.3 million in paydowns on Kinergy’s line of credit, $5.2 million in debt issuance costs, $1.3 million in stock repurchases and $1.3 million of preferred stock dividends.
Cash used in our Investing Activities We used $33.0 million of cash in our investing activities for 2023, of which $29.5 million is attributable to additions to property and equipment resulting from our capital improvement projects and $3.5 million is attributable to cash paid for our acquisition of Eagle Alcohol. -43- Cash provided by our Financing Activities Cash provided by our financing activities was $7.0 million for 2023, of which $12.6 million is attributable to net proceeds from Kinergy’s line of credit, partially offset by $3.7 million in repurchases of our common stock, $1.3 million of preferred stock dividends and $0.7 million of debt issuance costs.
In addition, our sales price increased $28.78 per gallon for 2022. An increase of $28.78, or 34%, in our average sales price per ton in 2022 as compared to 2021 resulted in an increase of $10.3 million in net sales of essential ingredients from the segment compared to 2021.
In addition, our sales price declined by $25.45 per ton for 2023. The decline of $25.45, or 22%, in our average sales price per ton in 2023 as compared to 2022 resulted in a decrease of $20.0 million in net sales of essential ingredients from the segment compared to 2022.
Current assets decreased primarily due to decreases in accounts receivable, cash and equivalents, inventories and derivative instruments due to changes in volumes and commodity prices. Our current liabilities increased primarily due to an increase in accounts payable and accrued expenses due to the timing of payments.
Current assets declined primarily due to decreases in cash and cash equivalents, accounts receivable, inventories and derivative instruments, partially offset by an increase in restricted cash. Our current liabilities declined primarily due to decreases in accounts payable, accrued liabilities and other current liabilities, partially offset by increases in derivative instruments and the current portion of our operating lease payment obligations.
Other Production Segment Net sales of alcohol from our Other production segment increased by $145.7 million, or 135%, to $253.6 million for 2022 as compared to $107.9 million for 2021. Our total volume of gallons sold increased by 54.7 million gallons, or 145%, to 92.3 million gallons for 2022 as compared to 37.6 million gallons for 2021.
Western Production Segment Net sales of alcohol from our Western production segment declined by $86.6 million, or 34%, to $167.0 million for 2023 as compared to $253.6 million for 2022. Our total volume of gallons sold declined by 25.4 million gallons, or 27%, to 67.0 million gallons for 2023 as compared to 92.4 million gallons for 2022.
However, an increase of $0.25, or 11%, in the segment’s average sales price per gallon in 2022 as compared to 2021 resulted in a $53.9 million increase in net sales from the segment as compared to 2021. -32- Net sales of essential ingredients increased by $36.3 million, or 19%, to $225.8 million for 2022 as compared to $189.5 million for 2021.
However, a decrease of $0.14, or 6%, in the segment’s average sales price per gallon in 2023 as compared to 2022 resulted in a $29.4 million decline in net sales as compared to 2022. Net sales of essential ingredients declined by $8.2 million, or 4%, to $217.7 million for 2023 as compared to $225.9 million for 2022.
Our average sales price per gallon increased primarily due to higher fuel-grade ethanol prices largely driven by higher oil and gas prices. We sold more tons of essential ingredients primarily due to higher fuel-grade ethanol production in 2022 compared to 2021. Our average sales price for our essential ingredients increased primarily due to higher corn prices.
In addition, we produced and sold fewer tons of essential ingredients primarily due to lower alcohol production in 2023 compared to 2022. Our average sales price for our essential ingredients declined primarily due to lower corn prices.
At the segment’s average sales price per gallon of $2.83 for 2022, net sales were $170.8 million lower as a result of the 60.4 million fewer gallons sold in 2022 as compared to 2021. This decline was partially offset by the $0.13 increase in our sales price per gallon for 2022.
This decline in sales volume primarily resulted from lower production from our Magic Valley facility as we hot-idled the facility in the first quarter of 2023. At the segment’s average sales price of $2.49 per gallon for 2023, net sales were $63.2 million lower as a result of the 25.4 million fewer gallons sold in 2023 as compared to 2022.
Our total volume of essential ingredients sold increased by 424,900 tons, or 118%, to 785,900 tons for 2022 from 361,000 tons for 2021. At our average sales price per ton of $114.78 for 2022, net sales were $48.8 million higher as a result of the 424,900 additional tons sold in 2022 as compared to 2021.
Our total volume of essential ingredients sold declined by 144,800 tons, or 18%, to 642,300 tons for 2023 from 787,100 tons for 2022. At our average sales price of $89.15 per ton for 2023, net sales were $12.9 million lower as a result of the 144,800 fewer tons sold in 2023 as compared to 2022.
Other Production Segment Our Other production segment’s gross profit declined by $12.0 million to a gross loss of $9.0 million for 2022 as compared to a gross profit of $3.0 million for 2021.
Western Production Segment Our Western production segment’s gross loss improved by $3.5 million to a gross loss of $5.5 million for 2023 as compared to a gross loss of $9.0 million for 2022, despite lower production from our Magic Valley facility during the year.
Gross profit from our Corporate and other segment increased by $4.0 million due to sales from Eagle Alcohol. Selling, General and Administrative Expenses Our selling, general and administrative, or SG&A, expenses increased $2.4 million to $31.6 million for 2022 as compared to $29.2 million for the same period in 2021.
This gross profit was from Eagle Alcohol’s business. Selling, General and Administrative Expenses Our selling, general and administrative, or SG&A, expenses increased by $1.1 million to $32.7 million for 2023 as compared to $31.6 million for 2022.
(2) Essential ingredient revenues as a percentage of delivered cost of corn shows our yield based on sales of essential ingredients, including WDG and corn oil, generated from ethanol we produced. -31- Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Results as a Percentage Dollar Percentage of Net Sales for the Years Ended Change Change Years Ended December 31, Favorable Favorable December 31, 2022 2021 (Unfavorable) (Unfavorable) 2022 2021 (dollars in thousands) Net sales $ 1,335,621 $ 1,207,892 $ 127,729 10.6 % 100.0 % 100.0 % Cost of goods sold 1,363,171 1,140,108 223,063 19.6 % 102.1 % 94.4 % Gross profit (loss) (27,550 ) 67,784 (95,334 ) NM * (2.1 )% 5.6 % Selling, general and administrative expenses (31,579 ) (29,185 ) (2,394 ) (8.2 )% (2.4 )% (2.4 )% Gain (loss) on sale (disposal) of assets (2,230 ) 4,571 (6,801 ) NM (0.2 )% 0.4 % Asset impairments — (3,100 ) 3,100 100.0 % — % (0.3 )% Income (loss) from operations (61,359 ) 40,070 (101,429 ) NM (4.6 )% 3.3 % Income from cash grant 22,652 — 22,652 NM 1.7 % — % Income from loan forgiveness — 9,860 (9,860 ) (100.0 )% — % 0.8 % Interest expense, net (1,827 ) (3,587 ) 1,760 49.1 % (0.1 )% (0.3 )% Other income, net 862 1,208 (346 ) (28.6 )% 0.1 % 0.1 % Income (loss) before income taxes (39,672 ) 47,551 (87,223 ) NM (3.0 )% 3.9 % Provision (benefit) for income taxes 1,925 1,469 (456 ) (31.0 )% 0.1 % 0.1 % Consolidated net income (loss) $ (41,597 ) $ 46,082 $ (87,679 ) NM (3.1 )% 3.8 % Preferred stock dividends (1,265 ) (1,265 ) — — % (0.1 )% (0.1 )% Income allocated to participating securities — (600 ) 600 100.0 % — % (0.0 )% Income (loss) available to common stockholders $ (42,862 ) $ 44,217 $ (87,079 ) NM (3.2 )% 3.7 % * Not meaningful.
(2) Essential ingredient revenues as a percentage of total corn costs consumed. -38- Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 F Results as a Percentage Dollar Percentage of Net Sales for the Years Ended Change Change Years Ended December 31, Favorable Favorable December 31, 2023 2022 (Unfavorable) (Unfavorable) 2023 2022 (dollars in thousands) Net sales $ 1,222,940 $ 1,335,621 $ (112,681 ) (8.4 )% 100.0 % 100.0 % Cost of goods sold 1,207,287 1,363,171 155,884 11.4 % 98.7 % 102.1 % Gross profit (loss) 15,653 (27,550 ) 43,203 *NM 1.3 % (2.1 )% Selling, general and administrative expenses (32,664 ) (31,579 ) (1,085 ) (3.4 )% (2.7 )% (2.4 )% Loss on disposal of assets (293 ) (2,230 ) 1,937 86.9 % (0.0 )% (0.2 )% Asset impairments (6,544 ) — (6,544 ) (100.0 )% (0.5 )% — % Loss from operations (23,848 ) (61,359 ) 37,511 61.1 % (2.0 )% (4.6 )% Income from cash grant 2,812 22,652 (19,840 ) (87.6 )% 0.2 % 1.7 % Interest expense, net (7,425 ) (1,827 ) (5,598 ) (306.4 )% (0.6 )% (0.1 )% Other income, net 553 862 (309 ) (35.8 )% 0.0 % 0.1 % Loss before income taxes (27,908 ) (39,672 ) 11,764 29.7 % (2.3 )% (3.0 )% Provision for income taxes 97 1,925 1,828 95.0 % 0.0 % 0.1 % Consolidated net loss $ (28,005 ) $ (41,597 ) $ 13,592 32.7 % (2.3 )% (3.1 )% Preferred stock dividends (1,265 ) (1,265 ) — — % (0.1 )% (0.1 )% Loss available to common stockholders $ (29,270 ) $ (42,862 ) $ 13,592 31.7 % (2.4 )% (3.2 )% * Not meaningful.
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). -35- December 31, 2022 December 31, 2021 Change Cash and cash equivalents $ 36,456 $ 50,612 (28.0 )% Current assets $ 199,121 $ 229,526 (13.2 )% Property and equipment, net $ 239,069 $ 222,550 7.4 % Current liabilities $ 78,017 $ 69,602 12.1 % Long-term debt, noncurrent portion $ 68,356 $ 50,361 35.7 % Working capital $ 121,104 $ 159,924 (24.3 )% Working capital ratio 2.55 3.30 (22.7 )% Restricted Net Assets At December 31, 2022, we had approximately $69.3 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc. in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities of the subsidiaries.
December 31, 2023 December 31, 2022 Change Cash, cash equivalents and restricted cash $ 45,480 $ 49,525 (8.2 )% Current assets $ 168,770 $ 199,121 (15.2 )% Property and equipment, net $ 248,748 $ 239,069 4.0 % Current liabilities $ 65,288 $ 78,017 (16.3 )% Long-term debt, noncurrent portion $ 82,097 $ 68,356 20.1 % Working capital $ 103,482 $ 121,104 (14.6 )% Working capital ratio 2.59 2.55 1.6 % -42- Restricted Net Assets At December 31, 2023, we had approximately $64.6 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc. in the form of dividends, distributions, loans or advances due to restrictions contained in our subsidiaries’ credit facilities.
As we did in 2021, we continued to intentionally reduce sales of third-party fuel-grade ethanol to focus on sales of inventory from our own production in 2022. o Our volume of essential ingredients sold increased by 401 tons, or 32%, to 1,637 tons for 2022 from 1,236 tons for 2021 primarily due to higher fuel-grade ethanol production.
As we did in 2021 and 2022, we continued to intentionally reduce sales of third-party fuel-grade ethanol in geographical areas less important to our business and to instead focus on sales of inventory from our own production in 2023.
The Term Loan matures on November 7, 2028, or earlier upon acceleration.
Interest accrues on the unpaid principal amount of the Term Loan at a fixed rate of 10% per annum. The Term Loan matures on November 7, 2028, or earlier upon acceleration.
The program was created as part of the CARES Act in 2020, which allocated $700 million to support biofuel producers who experienced market losses due to the pandemic. We are neither required to repay the grant nor will it recur in the future.
Income from Cash Grant We received cash grants under the USDA’s Biofuel Producer Program in the amount of $2.8 million and $22.7 million for 2023 and 2022, respectively. The program was created as part of the CARES Act of 2020, which allocated $700 million to support biofuel producers that experienced market losses due to the pandemic.
As we did in 2021, we continued to intentionally reduce sales of third-party fuel-grade ethanol to focus on sales of inventory from our own production in 2022. Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment increased by $23.1 million, or 5%, to $521.3 million for 2022 as compared to $498.2 million for 2021.
Pekin Campus Production Segment Net sales of alcohol from our Pekin Campus production segment declined by $19.1 million, or 4%, to $502.2 million for 2023 as compared to $521.3 million for 2022.
We have an annual alcohol production capacity of 350 million gallons, comprised of 210 million gallons of fuel-grade ethanol and up to 140 million gallons of specialty alcohols. We market and distribute all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties.
Of this amount, we are able to produce up to 110 million gallons annually of specialty alcohols, depending on our product mix among high-quality beverage-grade alcohol and alcohols of other quality specifications. We market and distribute all of the alcohols produced at our facilities as well as alcohols produced by third parties.
Of this decrease, $11.6 million is attributable to lower margins from sales of third-party fuel-grade ethanol primarily due to higher fuel-grade ethanol delivery costs, partially offset by $0.4 million attributable to lower marketing volumes of third-party fuel-grade ethanol sold at negative margins in 2022 as compared to 2021.
Of this increase, $3.3 million is attributable to higher margins from sales of third-party renewable fuel, and $0.8 million attributable to higher marketing volumes of third-party renewable fuel sold reported gross in 2023 as compared to 2022.
In our review, we determine the fair value of these assets using market multiples and discounted cash flow modeling and compare it to the net book value of the acquired assets. Assets held-for-sale are assessed for impairment by comparing the carrying values to their expected net sales proceeds.
We review our intangible assets, including goodwill, with indefinite lives at least annually or more frequently if impairment indicators arise. In our review, we determine the fair value of these assets using market multiples and discounted cash flow modeling and compare it to the net book value of the reporting unit.
Net sales from our Corporate and other segment increased by $15.8 million due to sales from Eagle Alcohol.
Corporate and Other Segment Net sales from our Corporate and other segment were flat at $15.8 million for each of 2023 and 2022.
On January 1, 2023, we temporarily hot-idled our Magic Valley production facility due to extreme natural gas prices, other unfavorable market conditions and to facilitate the installation of our new high protein systems. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
We intend to restart Magic Valley production in the second quarter once the upgrades are complete and crush margins have improved. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
Of this decline, $74.7 million is attributable to lower margins primarily due to higher corn costs and $1.5 million is attributable to increased sales volumes at negative margins in 2022 as compared to 2021.
Of this improvement, $1.4 million is attributable to higher margins for renewable fuel and $2.1 million is attributable to lower sales volumes at negative margins in 2023 as compared to 2022. Corporate and Other Segment Gross profit from our Corporate and other segment was flat at $3.7 million for each of 2023 and 2022.
Marketing and Distribution Segment Net sales of fuel-grade ethanol from our marketing and distribution segment, excluding intersegment sales, decreased by $152.3 million, or 40%, to $228.9 million for 2022 as compared to $381.2 million for 2021.
A decrease of $17.80, or 7%, in our average sales price per ton in 2023 as compared to 2022 resulted in a $15.1 million decline in net sales as compared to 2022. -39- Marketing and Distribution Segment Net sales of renewable fuel from our marketing and distribution segment, excluding intersegment sales, increased by $34.1 million, or 15%, to $263.0 million for 2023 as compared to $228.9 million for 2022.
We define Adjusted EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, provision 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, consolidated net income (loss).
We define Adjusted EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, unrealized derivative gains and losses, acquisition-related expense, asset impairments, provision for income taxes and depreciation and amortization expense. Renewable fuel margins were strong for the second and third quarters of 2023.
Specific factors that contributed significantly to the change in cash generated by our operating activities include: ● a decrease in net income of $87.7 million primarily due to lower margins resulting from higher corn and delivery costs; and ● a decrease in other assets of $31.3 million from 2021 due to sales of plant assets.
Specific factors that contributed significantly to the change in cash generated by our operating activities include: ● a decline of $13.6 million in net loss primarily due to improved commodity crush margins resulting from lower corn costs; ● an increase related to inventories of $27.3 million due to the timing of production and sales where an increase in production did not result in a commensurate increase in sales by the end of the period; and ● an increase of $27.3 million related to changes in the fair value of our derivative instruments due to changes in commodity prices at period end 2023 as compared to 2022.
Our volume of third-party fuel-grade ethanol gallons sold reported gross by the segment decreased by 60.4 million gallons, or 43%, to 80.5 million gallons for 2022 as compared to 140.9 million gallons for 2021. This decline is the result of our continued strategic analysis to focus our sales of third-party gallons to certain regions in which we operate.
Our volume of third-party renewable fuel sold reported gross by the segment increased by 22.1 million gallons, or 28%, to 102.6 million gallons for 2023 as compared to 80.5 million gallons for 2022.
See “Note 5 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. -27- Current Initiatives and Outlook During the fourth quarter, and December in particular, extreme commodity price volatility from regional natural gas price spikes, high corn basis costs and a dramatic decline in fuel-grade ethanol prices negatively impacted our business.
See “Note 5 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments. Financial Review, Current Initiatives and Outlook In 2023, we continued our transformation to produce a variety of essential ingredients and the highest-grade beverage alcohol in the industry.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIn 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.
Biggest changeWe produce and distribute specialty alcohol, fuel-grade ethanol and essential ingredients. Our business is sensitive 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.
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.
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 CME prices for the year and does not factor in future contracted volumes.
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.
Strategies include the use of derivative financial instruments such as futures and options executed on the CME and/or the New York Mercantile Exchange, as well as the daily management of physical corn.
We recognized net gains of $19.3 million, $21.6 million and $14.8 million related to the change in the fair values of these contracts for the years ended December 31, 2022, 2021 and 2020, respectively. We prepared a sensitivity analysis as of December 31, 2022 to estimate our exposure to ethanol and corn.
We recognized net losses of $8.0 million, net gains of $19.3 million and net gains of $21.6 million related to the change in the fair values of these contracts for the years ended December 31, 2023, 2022 and 2021, respectively. -49- We prepared a sensitivity analysis as of December 31, 2023 to estimate our exposure to ethanol and corn.
Our alcohol 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.
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 Chicago Ethanol (Platts) or the Oil Price Information Service.
The results of this analysis for the year ended December 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 418.9 Gallons $ 65.1 Corn 107.5 Bushels $ 74.6 -42-
The results of this analysis for the year ended December 31, 2023, 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 305.9 Gallons $ 45.5 Corn 72.6 Bushels $ 41.0
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.
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.
Ethanol prices are sensitive to global and domestic ethanol supply; crude-oil supply and demand; crude-oil refining capacity; carbon intensity; government regulation; and consumer demand for alternative fuels.
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; and consumer demand for alternative fuels.
Removed
We do not expect to have any exposure to foreign currency risk as we conduct all of our transactions in U.S. dollars. -41- We produce alcohol and essential ingredients. Our business is sensitive to changes in the prices of ethanol and corn.

Other ALTO 10-K year-over-year comparisons