UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number: 000-21467

ALTO INGREDIENTS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (916) 403-2123

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant computed by reference to the closing sale price of such stock, was approximately $210.8 million as of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 12, 2024, there were 75,697,150 shares of the registrant’s common stock, $0.001 par value per share, and 896 shares of the registrant’s non-voting common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference certain information from the registrant’s proxy statement (the “Proxy Statement”) for the 2024 Annual Meeting of Stockholders to be filed on or before April 29, 2024.

TABLE OF CONTENTS

CAUTIONARY STATEMENT

All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements or characterizations of historical fact, are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements concerning projected net sales, costs and expenses, and margins; projected additional EBITDA or Adjusted EBITDA; the expected timing, cost and effects of our capital improvement projects, including our carbon capture and storage project and our corn oil and high protein system at our Magic Valley facility, and other strategic and business initiatives; expectations surrounding our repairs and maintenance activities and their timing, costs and effects; our business outlook and expected performance in future periods; the sufficiency of our liquidity and capital resources; our ability to continue as a going concern; our accounting estimates, assumptions and judgments; the demand for specialty alcohols and essential ingredients; the competitive nature of and anticipated growth in our industry; production capacity and goals; our ability to consummate acquisitions, if any, and integrate their operations successfully; and our prospective needs for additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under “Risk Factors” in Item 1A of this report. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

PART I 

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. We have an annual alcohol production capacity of 350 million gallons, including both fuel-grade ethanol and specialty alcohols ranging from industrial-, pharmaceutical-, and high-quality food- and beverage-grade alcohols. Of this amount, we can produce up to 110 million gallons annually of specialty alcohols, depending on our product mix among high-quality beverage-grade alcohol and alcohols of other quality specifications. 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.

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. We deliver products to customers in the beverage, food, industrial and related-process industries via our own dedicated trucking fleet and common carrier.

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.

Our mission is to produce the highest quality, sustainable ingredients from renewable resources that make everyday products better. We intend to accomplish this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream.

Production Segments

We produce specialty alcohols, 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. 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. 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. Our products for the Renewable Fuels markets include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels. Our specialty alcohols for the Industry & Agriculture, Food & Beverage and Health, Home & Beauty markets represented approximately 6%, 4% and 2%, respectively, of our sales in 2023 from these three product segments.

We produce our alcohols and essential ingredients at our production facilities described below. Our production facilities located in Illinois are in the heart of the Corn Belt, benefit from relatively low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, 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. 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. In January 2024, we again temporarily hot-idled our Magic Valley production facility to minimize losses from negative regional crush margins and to expedite the installation of additional equipment needed to achieve our intended production rate, quality and consistency from our corn oil and high protein system. 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.

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 customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

Our renewable fuel customers are located throughout the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery. Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities. We secure additional fuel-grade ethanol supplies from third-party ethanol producers. We arrange for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest from a variety of sources.

We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market essential ingredients from other producers.

See “Note 5 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

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. Information contained on our website is not part of this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission and other Securities and Exchange Commission filings are available free of charge through our website as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

Business Strategy

The key elements of our business and growth strategy include:

Competitive Strengths

We believe that our competitive strengths include:

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.

Health, Home & Beauty

Our products for the health, home and beauty markets include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. We offer a variety of specialty alcohols for the health, home and beauty markets, depending on usage and regulatory requirements, including API-grade, United States Pharmacopeia, or USP, -grade ethyl alcohols, and industrial-grade ethyl alcohol.

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. 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.

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 CO₂ used for beverage carbonation and dry ice. 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.

We believe the key drivers in the food and beverage market include consumer preferences for the social currency of brand authenticity and heritage; consumers seeking unique and personalized experiences; improved consumer access to spirits products; the growth of craft distillers; and the ability to meet wide-ranging consumer preferences through a broad diversity of spirits categories and cocktails.

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. The raw materials for our essential ingredients are generated as co-products from our production of alcohols. These co-products are further manufactured, altered and refined into our essential ingredients, including for special customer applications.

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. Our high quality and high purity manufacturing enable our customers to use some of our essential ingredients in human foods while others are used in pet foods and animal feed.

We expect the essential ingredients market to grow significantly due to global demand for higher-grade protein feed, such as feed used in fisheries and other applications.

Renewable Fuels

Our renewable fuels products include fuel-grade ethanol used as transportation fuel and distillers corn oil used as a biodiesel feedstock. Our renewable fuels business is supported by our own production of fuel-grade ethanol as well as fuel-grade ethanol produced by third parties.

Renewable fuels, primarily fuel-grade ethanol, are used for a variety of purposes, including as octane enhancers for premium gasoline and to enable refiners to produce greater quantities of lower octane blend stock; for fuel blending to extend fuel supplies and reduce reliance on crude oil and refined products; and to comply with a variety of governmental programs, in particular, the national Renewable Fuel Standard, or RFS, which was enacted to promote alternatives to fossil fuels. 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. 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”.

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. 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. We anticipate that continued limited opportunities for gasoline refinery expansions and the growing importance of reducing CO₂ 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. Modern alcohol production requires large amounts of corn, or other high-starch grains, and water as well as chemicals, enzymes and yeast, in addition to natural gas and electricity.

Dry Milling Process

In the dry milling process, corn or other high-starch grain is first ground into flour, then slurried with water to form a mash. 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.

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. For fuel-grade ethanol, the resulting anhydrous alcohol is then blended with approximately 2.5% denaturant, which is usually gasoline, and is then ready for shipment to renewable fuels markets. For specialty alcohols, the products can be sold pure or as one of the Tobacco Tax & Trade Bureau (TTB) approved specially denatured alcohol (SDA) formulations to meet customer specifications.

The residual stillage is separated into a coarse grain portion and a liquid portion through a screw press or centrifugation process. The soluble liquid portion is concentrated to about 40% dissolved solids by an evaporation process. This intermediate state is called condensed distillers solubles, or syrup. The coarse grain and syrup portions are then mixed to produce wet distillers grains, or WDG, or can be mixed and dried to produce dried distillers grains with solubles, or DDGS. Both WDG and DDGS are high-protein animal feed products.

Wet Milling Process

In the wet milling process, corn or other high-starch grain is first soaked or “steeped” in sulfurous acid for approximately 24 hours to soften the whole corn kernel ahead of milling. After steeping, the grain goes through coarse milling to gently open the kernels to separate the corn germ from which the corn oil can be further extracted in a separate process. The remaining fiber, gluten and starch components are further separated and sold.

The stillage from the fermentation process is concentrated in an evaporator and is co-dried with the fiber component to be sold as corn gluten feed. The gluten component is filtered and dried to produce a high protein corn gluten meal.

The starch is then processed into alcohol through fermentation. 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. Our plants produce both WDG and DDGS. WDG is sold to customers proximate to the plants and DDGS is delivered by truck, rail and barge to customers in domestic and international markets. Producing WDG also allows us to use up to one-third less process energy, thus reducing production costs and lowering the carbon footprint of our production facilities.

Historically, the market price for distillers grains has generally tracked the price of corn. We believe that the market price of WDG and DDGS is determined by a number of factors, including the market prices of corn, soybean meal and other competitive ingredients, the performance or value of WDG and DDGS in a particular feed formulation and general market forces of supply and demand, including export markets for these co-products. 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. 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 have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients, including yeast for pet food and human foods. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

Our renewable fuel customers are located throughout the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery. We secure additional fuel-grade ethanol supplies from third-party fuel-grade ethanol plants.

We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry, renewable diesel and biodiesel customers. We do not market essential ingredients from other producers.

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. 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.

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.

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 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 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.

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.

Our Corporate and other segment generated $15.8 million in net sales from Eagle Alcohol’s business for each of the years ended December 31, 2023 and 2022, and sold 4.0 million gallons of alcohols for each of those years.

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. 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.

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. When resources are available, we seek to limit the exposure of our production operations to raw material price fluctuations by purchasing forward a portion of our corn requirements on a fixed price basis and by purchasing corn and other raw materials futures contracts and options.

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.

Marketing and Distribution Segment

Our marketing and distribution operations include alcohols and essential ingredients we produce but also depend upon various third-party producers of fuel-grade ethanol. In addition, we provide transportation, storage and delivery services through third-party service providers with whom we have contracted to receive fuel-grade ethanol at agreed upon locations from our third-party suppliers and to store and/or deliver the ethanol to agreed-upon locations on behalf of our customers. 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 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.

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.

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. 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. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility. The tables below provide an overview of our five production facilities.

Pekin Campus Production Facilities

Western Production Facilities

Commodity Risk Management

We employ various risk mitigation techniques. 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. 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. Proper execution of these risk mitigation strategies can reduce the volatility of our gross profit margins.

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. 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.

Climate-Related and Other Risks

Short- to medium-term climate-related and other risks include high sensitivity to certain commodity prices such as corn and natural gas; regulatory changes and political volatility, both domestic and international; ethanol supply and demand imbalances; logistics and storage constraints from river access during inclement or volatile weather conditions; lack of automation of process optimization; high repair, maintenance and production costs resulting from older facilities; poor cooling capacity of our older facilities as water temperatures increase; and international market competition.

Long-term climate-related risks include water resource limitations; lower or volatile grain availability in local markets; market transition away from combustion fuels that include renewables; and the energy cost impact of technology such as wet milling and multiple distillation processes for high-quality alcohol. 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. We also market and distribute alcohols produced by third parties.

Competition

We are the largest producer of specialty alcohols in the United States.

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 40% of the total installed fuel-grade ethanol production capacity in the United States. In addition, there are many mid-sized fuel-grade ethanol producers with several plants under ownership, smaller producers each with one or two plants, and several fuel-grade ethanol marketers that create significant competition. 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.

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. 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.

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. 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. These laws, their underlying regulatory requirements and their potential enforcement, some of which are described below, impact, or may impact, nearly every aspect of our operations, including our production of alcohols (including distillation), our production of essential ingredients, our storage facilities, and our water usage, wastewater discharge, disposal of hazardous wastes and emissions, and other matters pertaining to our existing and proposed business by imposing:

In addition, some governmental regulations are helpful to our production and marketing business. The fuel-grade ethanol industry in particular is supported by federal and state mandates and environmental regulations that favor the use of fuel-grade ethanol in motor fuel blends in North America. Some of the governmental regulations applicable to our production and marketing business are briefly described below.

Food and Drug Regulation

Our products for the Health, Home & Beauty, Food & Beverage and Essential Ingredients markets are subject to regulation by the FDA as well as similar state agencies. Under the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA regulates the processing, formulation, safety, manufacture, packaging, labeling and distribution of food ingredients, vitamins, cosmetics and pharmaceuticals for active and inactive ingredients. Many of the FDA’s and FDCA’s rules and regulations apply directly to us as well as indirectly through their application in our customers’ products. To be properly marketed and sold in the United States, a relevant product must be generally recognized as safe, approved and not adulterated or misbranded under the FDCA and relevant regulations issued under the FDCA. The FDA has broad authority to enforce the provisions of the FDCA. 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.

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. Under the provisions of the Energy Independence and Security Act of 2007, the EPA has the authority to waive the mandated RFS requirements in whole or in part. To grant a waiver, the EPA administrator must determine, in consultation with the Secretaries of Agriculture and Energy, that there is inadequate domestic renewable fuel supply or implementation of the requirement would severely harm the economy or environment of a state, region or the United States as a whole.

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. 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.

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 after. According to the Renewable Fuels Association, E15 is explicitly approved by the manufacturer for use in approximately 95% of model year 2024 cars and light trucks based on its annual review of vehicle owner’s manuals and warranty statements. Commercial sales of E15 have begun in a majority of states. E15 has historically been prohibited in most states during the summer driving season due to concerns over evaporative emissions and to meet federal clean air standards. For the 2022 and 2023 summer driving seasons, the EPA issued emergency fuel waivers to allow the sale of E15 to help alleviate high gasoline prices. E15 may, however, be sold year-round in states that have a reformulated gasoline program. In addition, the EPA proposed in late 2023 that E15 be permitted for sale year-round in various Midwestern states effective in April 2024. The U.S. Office of Management and Budget approved the proposal in February 2024 but deferred the effective date to April 2025.

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. 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.

Additional Environmental Regulations

In addition to the governmental regulations applicable to the alcohol production and marketing industry described above, our business is subject to additional federal, state and local environmental regulations, including regulations established by the EPA and state regulatory agencies related to water quality and air pollution control. 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. 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. 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. At the direction and with the involvement of an environmental, social and governance, or ESG, committee established by our board of directors, we have established an ESG working committee that draws from our many administrative and operational departments to review key policies and procedures, conduct employee engagement surveys and training, champion volunteering and charitable drives, develop and implement recruiting efforts which promote diversity and inclusion and prioritize collecting and improving on key metrics from industry frameworks such as the Global Reporting Initiative and Sustainability Accounting Standards Board standards which are maintained by the International Sustainability Standards Board of the IFRS Foundation.

Item 1A. Risk Factors.

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other information contained in this Report and in our other filings with the Securities and Exchange Commission, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Alto Ingredients, our business, financial condition, results of operations and/or liquidity could be seriously harmed. In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment.

Risks Related to our Business

Our results of operations and our ability to operate at a profit are largely dependent on our ability to manage the costs of corn, natural gas and other production inputs, with the prices of our alcohols and essential ingredients, all of which are subject to volatility and uncertainty.

Our results of operations are highly impacted by commodity prices, including the cost of corn, natural gas and other production inputs that we must purchase, and the prices of alcohols and essential ingredients that we sell. Prices and supplies are subject to and determined by 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.

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. Our customers may not pay us timely or at all, even under longer-term, fixed-price contracts for our specialty alcohols, and may seek to renegotiate prices under those contracts during periods of falling prices or high price volatility.

Over the past several years, for example, the spread between corn and fuel-grade ethanol prices has fluctuated significantly. Fluctuations are likely to continue to occur. A sustained negative or narrow spread, whether as a result of sustained high or increased corn prices or sustained low or decreased alcohol or essential ingredient prices, would adversely affect our results of operations and financial condition. Revenues from sales of alcohols, particularly fuel-grade ethanol, and essential ingredients 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. 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.

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. Moreover, we procure much of our fuel-grade ethanol inventory outside of contracted third-party marketing and distribution arrangements and therefore must buy fuel-grade ethanol at a price established at the time of purchase and sell fuel-grade ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of fuel-grade ethanol. As a result, our margins for fuel-grade ethanol sold in these transactions generally decline and may turn negative as the market price of fuel-grade ethanol declines.

We can provide no 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. 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.

The prices of our products are volatile and subject to large fluctuations. For example, the market price of fuel-grade ethanol is dependent upon many factors, including the supply of ethanol and the price of gasoline, which is in turn dependent upon the price of petroleum which itself is highly volatile, 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. 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.

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. In addition, even under longer-term, fixed-price contracts for our specialty alcohols, our customers may seek to renegotiate prices under those contracts during periods of falling prices or high price volatility. Fluctuations in the prices of our products may cause our results of operations to fluctuate significantly.

We may engage in hedging transactions and other risk mitigation strategies that could harm our results of operations and financial condition.

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, we may engage in other hedging transactions involving exchange-traded futures contracts for corn, natural gas and unleaded gasoline from time to time. The financial statement impact of these activities is dependent upon, among other things, the prices involved and our ability to sell sufficient products to use all of the corn and natural gas for which forward commitments have been made. We have recognized losses in the past, and may suffer losses in the future, from our hedging arrangements. 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.

Hedging arrangements also expose us to the risk of financial loss in situations where our counterparty to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. In addition, our open contract positions may require cash deposits to cover margin calls, negatively impacting our liquidity. As a result, our hedging activities and fluctuations in the price of corn, natural gas, fuel-grade ethanol and unleaded gasoline may adversely affect our results of operations, financial condition and liquidity.

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.

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. 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 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. 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 addition, in 2020, we experienced closure of the Illinois River for lock repairs which required greater use of less cost-effective modes of product transport such as via rail and truck, which resulted in higher costs and negatively affected our results of operations.

Disruptions in production or distribution, whether caused by labor difficulties, unscheduled downtimes and other operational hazards inherent in the alcohol production industry, including equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents, climate change and natural disasters such as earthquakes, floods and storms, or other weather effects, or human error or malfeasance or other reasons, could prevent timely deliveries of corn or other raw materials and energy, and could delay transport of our products to market, and may require us to halt production at one or more production facilities, any of which could have a material adverse effect on our business, results of operations and financial condition.

Some of these operational hazards may also cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not fully cover the potential hazards described above or we may be unable to renew our insurance on commercially reasonable terms or at all.

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. In addition, if fuel-grade ethanol production margins improve, we anticipate that owners of production facilities operating at below capacity, or owners of idled production facilities, will increase production levels, thereby resulting in more abundant fuel-grade ethanol supplies and inventories. Increases in the supply of alcohols and essential ingredients may not be commensurate with increases in demand for alcohols and essential ingredients, thus leading to lower prices. Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition.

We may suffer impairments in the value of our long-lived assets which may materially and adversely affect our results of operations.

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. 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.

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. 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. 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. Competitors and other third parties may develop new alcohols and processes that improve on any of these or other real or perceived problems with corn-based alcohols, including ethanol. If viable competing products or new process technologies are developed and attract widespread or even modest adoption, we may be forced to modify our production facilities, including our process technologies, if possible, to transition in full or in part to these other products or process technologies to remain competitive. Modifying our production facilities may require expertise that our personnel may not possess and would likely require significant capital expenditures the funding for which we may not have. An inability to remain competitive due to the introduction and adoption of competing products or new process technologies, or significant costs associated with the adoption of new products and process technologies, would materially and adversely affect our business, financial condition and results of operations.

Inflation and sustained higher prices may adversely impact our results of operations and financial condition.

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. 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. 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.

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. 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.

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:

New legislation in the United States to address climate change issues, including at the federal, state and local levels, likely will continue. This includes new or expanded cap-and-trade programs that may layer additional costs on any business that emits greenhouse gases. New legislation, including new or expanded cap-and-trade programs, could materially and adversely impact our production cost structure and the market viability of our products.

Any of these factors could materially and adversely harm our business, results of operations and financial condition.

Risks Related to our Finances

We have incurred significant losses and negative operating cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our operations and impede us from expanding our business.

We have incurred significant losses and negative operating cash flow in the past. For example, for the three months ended 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. 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 are engaged in a wide variety of capital improvement projects. These projects, and their financing, costs, timing and effects, are based on our plans, expectations and various assumptions that may not eventuate. We may therefore be unable to timely achieve, or achieve at all, the results we expect, including as to projected additional EBITDA and Adjusted EBITDA.

We are engaged in a wide variety of capital improvement projects to diversify and enhance our revenue streams and to expand margins and profitability by reducing costs. These projects have different timelines, returns on investment and risk profiles. In addition, we must raise significant additional capital to complete some of our projects, including our carbon capture and storage project. Our expected financial and other results from these projects are based on assumptions around many factors, including their costs, timing, operation and market prices prevailing at project completion and thereafter, as well as tax and other favorable environmental attributes associated with low carbon ethanol that may accrue to our benefit. For example, our assumptions around the anticipated results of our CCS project rely heavily on the tax benefits that may accrue to us under the Inflation Reduction Act of 2022 as well as other favorable environmental attributes associated with carbon capture and storage and low carbon alcohol production. These tax and other benefits may change, including as a result of new or repealed laws, new administrations and the implementation or interpretation of existing laws. We can provide no assurances that any particular benefit will be available to us upon completion of our CCS project, or thereafter, or any other capital improvement project.

Capital improvement projects require significant outlays of capital and are often subject to material execution risks. We may have insufficient financial resources, and we may be unable to raise sufficient capital, to complete our projects timely or at all. Although we intend to use reputable third-party contractors with expertise in their fields to implement our projects, adverse conditions and events as well as delays in capital projects are not uncommon. Moreover, the projects’ interaction with existing processes may result in the degradation of other plant operations. For example, operation of our corn oil and high protein system at our Magic Valley facility has resulted in inconsistent product quality and degraded other operations at the plant, including production rates. We continue to work to resolve the system’s issues but can provide no assurance that the system will perform as anticipated or perform sufficiently well to justify continued operation or expansion to our three other dry mills. In the past, we have extended our expected completion dates for various projects and, as circumstances require, may have to do so again.

We can provide no assurances that our projects will be completed, or if completed, will be completed timely. We also can provide no assurances that our project assumptions will reflect prevailing future conditions or that our projects will achieve the results we expect, including as to projected additional EBITDA and Adjusted EBITDA. 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.

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. We must perform routine equipment maintenance and must periodically replace a variety of parts such as motors, pumps, pipes and electrical parts, and engage in other repairs. In addition, our production facilities require periodic shutdowns to perform major maintenance and upgrades. Our production facilities also occasionally require unscheduled shutdowns to perform repairs. For example, in the third quarter of 2023 we experienced unusually high unscheduled production downtime for repairs and maintenance at our Pekin Campus which reduced sales volumes and increased losses. 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.

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 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. In addition, our indebtedness could:

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. We cannot provide any assurance that we will be able to timely service or satisfy our debt obligations, including our financial covenants. 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.

Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.

Federal and state income tax laws impose restrictions on our use of net operating loss, or NOL, and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code, or Code. In general, an ownership change occurs when stockholders owning 5% or more of a corporation entitled to use NOL or other loss carryforwards have increased their ownership by more than 50 percentage points during any three-year period. The annual base limitation under Section 382 of the Code is calculated by multiplying the corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service in the month of the ownership change or the two preceding months. Our ability to utilize our NOL and other loss carryforwards may be substantially limited. These limitations could result in increased future tax obligations, which could have a material adverse effect on our financial condition and results of operations.

Risks Related to Legal and Regulatory Matters

We may be adversely affected by environmental, health and safety laws and regulations, as well as related liabilities that may not be adequately covered by insurance.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials and wastes; and the health and safety of our employees. In addition, some of these laws and regulations require us to operate under permits that are subject to renewal or modification. These laws, regulations and permits often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. 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, we have made, and expect to make, significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental laws, regulations and permits.

We may be liable for the investigation and cleanup of environmental contamination at each of our production facilities and at off-site locations where we arrange for the disposal of hazardous substances or wastes. If these substances or wastes have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from those properties. Some of these matters may require us to expend significant amounts for investigation, cleanup or other costs not covered by insurance.

In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures. Continued government and public emphasis on environmental issues will likely result in increased future investments for environmental controls at our production facilities. Present and future environmental laws and regulations, and interpretations of those laws and regulations, applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a material adverse effect on our results of operations and financial condition.

The hazards and risks associated with producing and transporting our products (including fires, natural disasters, explosions and abnormal pressures and blowouts) may also result in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. However, we could sustain losses for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverages. Events that result in significant personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could have a material adverse effect on our results of operations and financial condition.

We may be adversely affected by food and drug laws and regulations, as well as related liabilities that may not be adequately covered by insurance.

Some of our products are subject to regulation by the U.S. Food and Drug Administration, or FDA, as well as similar state agencies. The FDA regulates, under the Federal Food, Drug, and Cosmetic Act, or FDCA, the processing, formulation, safety, manufacture, packaging, labeling and distribution of food ingredients, vitamins, cosmetics and pharmaceuticals for active and inactive ingredients. Many of the FDA’s and FDCA’s rules and regulations apply directly to us as well as indirectly through their application in our customers’ products. To be properly marketed and sold in the United States, a relevant product must be generally recognized as safe, approved and not adulterated or misbranded under the FDCA and relevant regulations issued under the FDCA.

If we fail to comply with laws and FDA regulations or those of similar state agencies, we may be prevented from selling certain of our products and may also be subject to government agency enforcement liability. In addition, we may be subject to product liability and other claims by our customers or by individuals alleging personal injury from our products as food and drug additives.

We maintain insurance coverage against some, but not all, potential losses. 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. Events that result in significant personal injury or other losses that are not fully covered by insurance could have a material adverse effect on our results of operations 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.

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. 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.

The EPA has implemented the Renewable Fuel Standard under the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. 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. The EPA finalized mandatory volumes of 15.0 billion gallons for each of 2023, 2024, and 2025 of conventional renewable fuel, or corn-based fuel-grade ethanol, which could decline in future years.

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. Court of Appeals for the Fifth Circuit, in the fourth quarter of 2023, struck down the EPA’s decision to deny numerous small refinery waivers, finding that the EPA’s denials were impermissibly retroactive, contrary to law and counter to evidence in the litigation record. 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. Some legislative bills are directed at halting or reversing expansion of, or even eliminating in its entirety, the renewable fuel program.

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.

Future demand for fuel-grade ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel, any of which could negatively affect demand for fuel-grade ethanol and our results of operations.

Although many trade groups, academics and governmental agencies 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. Some studies suggest that corn-based ethanol is less efficient than ethanol produced from other feedstock and that it negatively impacts consumers by causing increased prices for dairy, meat and other food generated from livestock that consume corn. Additionally, critics of fuel-grade ethanol contend that corn supplies are redirected from international food markets to domestic fuel markets. If negative views of corn-based ethanol production gain broader acceptance, support for existing measures promoting use and domestic production of corn-based ethanol as a fuel additive could decline, leading to a reduction or repeal of federal ethanol usage mandates, which would materially and adversely affect the demand for fuel-grade ethanol. These views could also negatively impact public perception of the fuel-grade ethanol industry and acceptance of ethanol as an alternative fuel.

There are limited markets for fuel-grade ethanol beyond those established by federal mandates. Discretionary blending and E85 blending (i.e., gasoline blended with up to 85% fuel-grade ethanol by volume) are important secondary markets. Discretionary blending is often determined by the price of fuel-grade ethanol relative to the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for fuel-grade ethanol may decline. Also, the demand for fuel-grade ethanol is affected by the overall demand for transportation fuel. Demand for transportation fuel is affected by the number of miles traveled by consumers and vehicle fuel economy. Lower demand for fuel-grade ethanol and 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. 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.

Risks Related to Ownership of our Common Stock

Our stock price is highly volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us.

The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. The market price of our common stock may continue to fluctuate in response to one or more of the following factors, or any of the other risks or uncertainties discussed in this report, many of which are beyond our control:

The price at which you purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you and which may include the complete loss of your investment. In the past, securities class action litigation has often been brought against a company following periods of high stock price volatility. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and our resources away from our business.

Any of the risks described above could have a material adverse effect on our results of operations, the price of our common stock, or both.

Because we do not 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.

We intend to retain a significant portion of any future earnings to finance the development, operation and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment, and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, our results of operations, cash flows, and financial condition, operating and capital requirements, compliance with any applicable debt covenants, and other factors our board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance of the amount of any such dividend. Unless our board of directors determines to pay dividends, our stockholders will be required to look solely to appreciation in the value of our common stock to realize any gain on their investment. There can be no assurance that any such appreciation will occur.

Our bylaws contain 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.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Delaware Court of Chancery shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (d) any action asserting a claim governed by the internal affairs doctrine.

Our bylaws also provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by applicable law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, or the Securities Act, including all causes of action asserted against any defendant named in such complaint, including our officers and directors, underwriters for any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering.

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. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

The choice of forum 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. The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. With respect to the provision making the Delaware Court of Chancery the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the Delaware Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Finally, if a court were to find 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.

General Risk Factors

Cyberattacks through security vulnerabilities could lead to disruption of our business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security vulnerabilities may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external parties gaining access to our networks, data centers, cloud data centers, corporate computers, manufacturing systems, and/or access to accounts we have at our suppliers, vendors or customers. External parties may gain access to our data or our customers’ data, or attack the networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused by inadequate account security practices such as the failure to timely remove employee access when terminated. To mitigate these security issues, we have implemented measures throughout our organization, including firewalls, backups, encryption, employee information technology policies and user account policies. However, there can be no assurance that these measures will be sufficient to avoid cyberattacks. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation and possible significant liability.

Further, if we fail to adequately maintain our information technology infrastructure, we may have outages and data loss. Excessive outages may affect our ability to timely and efficiently deliver products to customers or develop new products. Such disruptions and data loss may adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.

Our and our business partners’ or contractors’ failure to fully comply with applicable data privacy or similar laws could lead to significant fines and require onerous corrective action. In addition, data security breaches experienced by us or our business partners or contractors could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personally identifiable information (including sensitive personal information) of our employees, customers, suppliers, contractors and others.

Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments.

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2023 fiscal year and that remain unresolved.

Item 1C. Cybersecurity.

We recognize the critical importance of maintaining the trust and confidence of our customers, business partners, employees and other stakeholders. We engage in active oversight of cybersecurity, a cornerstone of our comprehensive enterprise risk management (ERM) program. Our cybersecurity framework is rooted in the National Institute of Standards and Technology, or NIST, Cybersecurity Framework, or CSF, as well as the International Organization for Standardization (ISO/IEC 27001), reflecting our commitment to uphold the highest cybersecurity standards. We align our policies, standards and practices with these benchmarks and dynamically refine them to address evolving cybersecurity threats.

Risk Management and Strategy

We maintain a cybersecurity program aligned with NIST CSF standards designed to identify critical assets and vulnerabilities, protect them with appropriate safeguards, promptly detect cybersecurity events, respond effectively to mitigate their impact and recover from incidents to restore services. Our cybersecurity program is designed to safeguard the confidentiality, integrity and availability of information. Our cybersecurity risk management strategy includes:

Technical Safeguards

We deploy technical defenses against cybersecurity risks of attack and other incidents, including firewalls, intrusion detection and prevention systems and access controls. We refine these measures based on our ongoing assessments, including cybersecurity threat intelligence updates.

As of the filing of this report, we do not believe that any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect, Alto Ingredients, Inc.

Governance

Engagement and Continuous Improvement

We periodically evaluate our cybersecurity measures through internal and external audits and assessments to ensure our cybersecurity program is at the forefront of industry best practices. The results of these audits and assessments inform adjustments to our cybersecurity program to improve our resilience against emerging cybersecurity threats.

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. Louis, Missouri, we lease warehouse space totaling approximately 84,000 square feet under a lease expiring in 2030. We have plants located in Boardman, Oregon, at a 25-acre facility, and Burley, Idaho, at a 25-acre facility. The land in Boardman, Oregon is leased under a lease expiring in 2076. We own the land in Burley, Idaho. The 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 3. Legal Proceedings.

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible that the outcome of those legal proceedings, claims and litigation could adversely affect our quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not adversely affect in any material respect our financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

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.

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. 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.

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.

The graph assumes $100 invested at the indicated starting date in our common stock and in each of The Nasdaq Composite Index and the Peer Group, with the reinvestment of all dividends. We have not paid or declared any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns. 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.

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. We anticipate that we will retain any earnings for use in the continued development of our business.

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. Further, the holders of our outstanding Series B Preferred Stock are entitled to dividends of 7% per annum, payable quarterly in arrears. Accrued and unpaid dividends in respect of our Series B Preferred Stock must be paid prior to the payment of any dividends in respect of shares of our common stock.

For 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.

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:

Item 6. [Reserved]

Not Applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. This discussion contains forward-looking statements, reflecting our plans and objectives that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this report.

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. 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. 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. 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. 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. We deliver products to customers in the beverage, food, industrial and related-process industries via our own dedicated trucking fleet and common carrier.

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.

Our mission is to produce the highest quality, sustainable ingredients from renewable resources that make everyday products better. We intend to accomplish this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream.

Production Segments

We produce specialty alcohols, 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. 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. 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. Our products for the Renewable Fuels markets include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels.

We produce our alcohols and essential ingredients at our production facilities. Our production facilities located in Illinois are in the heart of the Corn Belt, benefit from relatively low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages.

All of our production facilities are currently operating except our Magic Valley plant, which we temporarily hot-idled in January 2024 to minimize losses from negative regional crush margins and to expedite the installation of additional equipment needed to achieve our intended production rate, quality and consistency from our corn oil and high protein system. 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.

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. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

Our renewable fuel customers are located throughout the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery. Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities. We secure additional fuel-grade ethanol supplies from third-party ethanol producers. We arrange for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest from a variety of sources.

We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market essential ingredients from other producers.

See “Note 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. We invested significant capital in our facilities to improve efficiency and capacity utilization rates and to expand margins long term. These strategies have begun to mitigate the impact of negative commodity price fluctuations. Although ethanol crush margins exhibited greater volatility in the second half of 2023, both our fourth quarter and full year 2023 results significantly outperformed those same periods in 2022 despite lower overall plant utilization rates.

Gross loss declined by $18.8 million in the fourth quarter of 2023 compared to the same period in 2022. We generated $16 million in gross profit for the full year 2023, an improvement of $43 million over 2022.

We reported positive Adjusted EBITDA of $3 million for the fourth quarter of 2023, an improvement of $19 million compared the same period in 2022. We also reported positive Adjusted EBITDA of approximately $21 million for all of 2023, an increase of $27 million over the prior year, representing a significant year-over-year improvement, particularly in light of $20 million less in USDA cash grants in 2023 as compared to 2022.

We define EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, provision for income taxes and depreciation and amortization expense. 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. As a result, we shifted part of our production to renewable fuel to take advantage of the higher margin environment. Ethanol crush margins exhibited extreme volatility in the second half of 2023, peaking in the mid-60 cents per gallon in September and declining thereafter to slightly negative in December. Margin volatility impacted the production volumes we were willing to sell, the prices at which we sold and the volume of third-party production we contracted for sale. Overall sales volume declined for 2023 due to these factors as well as the hot-idling of our Magic Valley facility in the first quarter of the year, ongoing challenges with the corn oil and high protein system at the facility, and longer than expected unscheduled downtime in the third quarter at our Pekin Campus.

Thus far in 2024, although crush margins have been break-even or slightly negative, they have begun to improve compared to the end of 2023. In addition, margins were approximately 20 cents per gallon higher for January and February 2024 compared to the same period in 2023. In January 2024, however, a polar vortex in the Midwest negatively impacted both operations and logistics at our Pekin Campus. Despite significant preparations ahead of the freeze and timely recovery response efforts, we experienced a shift to lower margin feed products and reduced alcohol production by approximately one million gallons due to frozen river conditions. In addition, the hot-idle of our Magic Valley facility in January 2024 will lower renewable fuel production, shifting sales volumes to higher third-party production compared to the fourth quarter of 2023.

We have contracted approximately 93 million gallons of fixed-price, high-quality alcohol at an average premium to renewable fuel of 31 cents per gallon, with additional capacity to take advantage of spot sales.

Our overall outlook for 2024 is favorable in light of good corn inventories, low corn and natural gas prices, higher sugar prices, domestic regulatory support for summer blending and expected global demand growth for U.S.-sourced ethanol. These factors should result in an improved crush margin environment in the coming months and yield positive crush spreads through most of 2024. Markets are dynamic but we remain agile and financially prudent while we seek to capitalize on the best opportunities. We remain enthusiastic about our prospects and confident in our long-term growth strategy.

During the fourth quarter, repairs and maintenance expense across our plants was $7.7 million compared to $7.1 million for the same period in 2022, bringing total repairs and maintenance expense to $29.5 million for 2023 as compared to $30.0 million for 2022.

Our wet mill, yeast facility and distillery capabilities at our Pekin Campus provide significant differentiation and greater production capabilities than the typical dry mill. However, given the nature and age of these facilities, they require consistent, ongoing repairs and maintenance, and capital upgrades integral to the longevity, sustainable performance and modernization of these assets. To maintain reliable and efficient operations, we normally address smaller concerns as needed and conduct larger scheduled outages approximately every two years.

We originally scheduled our biennial Pekin Campus wet mill repair and maintenance outage for August 2023 but due to favorable crush margins and sufficient corn supply at the time, we postponed the outage to this coming April. We expect the repairs and maintenance activities will take approximately ten days, lowering production in the second quarter. The repairs and maintenance are projected to cost approximately $4.0 million. For the full year 2024, we expect to track to our typical repairs and maintenance run rate of around $30.0 million, bringing the total, including the upcoming outage expense, to $34.0 million for 2024.

We invested $5.0 million in capital expenditures in the fourth quarter of 2023, bringing our year-end total to $30.0 million for all of 2023, compared to $13.0 million in the fourth quarter of 2022 and $38.0 million for all of 2022. We plan for capital expenditures of approximately $25.0 million in 2024 for equipment upgrades, process improvements and projects with short-term paybacks. We believe that these ongoing repairs and maintenance efforts and our capital improvement projects position us for a much stronger future. Our biennial outages have historically increased reliability and production run rates. We expect these positive effects will benefit 2024, in particular as we head into the typically more favorable summer months.

We continue to pursue a number of strategic capital investment initiatives. In the fourth quarter of 2023 and into 2024, we continued our ongoing evaluation of these initiatives. Based on current market dynamics, recent findings from our updated front-end engineering and design (FEED) studies, interest from potential strategic partners and expected project return profiles, we decided to designate our carbon capture and storage, or CCS, project as our top priority.

Under the Inflation Reduction Act, we have a compelling opportunity to capture and store biogenic CO₂ we generate at our Pekin Campus. Together with associated energy upgrades, we believe that our CCS project provides excellent economics. Given the significant time, personnel and financial resources necessary to complete our CCS project, we decided to pause further development of our primary yeast and biogas conversion projects. These projects continue as opportunities for potential future development as resources permit.

We are encouraged by recent progress on many aspects of CCS. This progress includes overall system design, community outreach, financing, vendor negotiations, EPA application preparation and schedule alignment to procure equipment and install power and compression. We have also signed an exclusive non-binding letter of intent with Vault 44.01 and we are nearing the execution of definitive agreements to develop our CCS project. The project, as currently planned, involves our installation of equipment to capture CO₂ generated at our Pekin Campus and our project partner safely transporting and permanently storing those emissions deep underground in a secure geologic reservoir located in close proximity to the facility. Our intent is to substantially reduce CO₂ emissions from the alcohol production process while providing direct value to the surrounding communities. Unfortunately, the EPA has extended its CCS application approval process from 18 to 24 months, and equipment manufacturing and installation times have grown longer than originally anticipated. We intend to make positive use of this additional time to better align our various project schedules and reduce our overall financial risk. Overall, we believe we can generate over $30.0 million in EBITDA annually from our CCS project, after accounting for operating and storage costs, and excluding any of the substantial additional economic benefits of the environmental attributes associated with low carbon ethanol.

In addition to CCS, we are pursuing two attractive alternatives to increase energy capacity at our Pekin Campus with either our current utility provider or a highly regarded, independent energy company that would build, own and operate onsite energy facilities. Both alternatives would greatly reduce our capital requirements and long-term energy costs while lowering our carbon footprint. These capital-light energy alternatives may result in better earnings accretion from our CCS project than originally estimated.

We continue to assess our current portfolio of assets, especially our Western production facilities, as we evaluate our path to higher margins, improved profitability and the highest return to our shareholders. Our intent is to leverage the distinct strengths and opportunities of these facilities by investing in new equipment and applications. While we work on these projects, we may also consider disposing of one or both of our Western production facilities. As demonstrated with the sale of our California and Nebraska facilities, we remain steadfast in our commitment to appropriate decisions to optimize long-term value.

Over the past two years we have completed numerous upgrades. Some of our larger in-progress or completed initiatives over the prior twelve months include the completion in February 2024 of a new, high efficiency boiler at our Pekin Campus that replaced two inefficient, high-pressure boilers. We expect full boiler utilization by the end of the first quarter, reducing our energy needs and operating costs, and increasing annualized incremental EBITDA by $2.0 million. In addition, in the second quarter of 2023, our new grain silo at our Pekin Campus became fully operational, doubling our days of corn storage capacity. This achieved our goal to increase flexibility around the timing of corn deliveries while lowering costs related to quick or last-minute shipments and to reduce corn premiums during extended weekends and harsh weather conditions. This project has already exceeded our target of contributing annualized incremental EBITDA of $2.0 million.

We continue to expand into higher quality alcohol and our ability to differentiate our product offerings has been very important considering market trends. For example, in 2021 and for part of 2022, the higher margin for specialty alcohol attracted many new producers, increasing product availability and supply. These factors, combined with ebbing consumer demand growth and supply chain dynamics, resulted in margin compression over the past 18 months. Starting in 2022, in anticipation these changing market conditions, we began strategic investments to produce a higher volume of beverage grade alcohols that leverage the capabilities of our Pekin Campus. We developed our highly differentiated 192 proof and low-moisture 200 proof grain neutral spirits, or GNS, which became available in early 2023. These new products were well received by our customers and actively sold in the spot market, generating significant sales and bolstering our gross margins for the year.

In our pursuit to expand higher margin corn oil and high-protein products at our Magic Valley facility, working with our corn oil and high protein system vendor, Harvesting Technology, we engaged equipment manufacturers and independent third-party engineers in the fourth quarter of 2023 to conduct an in-depth analysis of our challenges. The team formulated a plan, including extensive design modifications, to achieve the intended production rate, quality and consistency. We decided in January 2024 to temporarily hot-idle the facility to minimize losses from negative regional crush margins and expedite the installation of additional equipment at the plant. Harvesting Technology has borne the direct costs associated with their design and equipment. We are confident in the extensive design modifications under way and in achieving our corn oil and high-protein targets in 2024. We intend to restart production in the second quarter once the upgrades are complete and crush margins have improved. The operation of the upgraded high-protein system at our Magic Valley facility will influence our decision and timing to roll out the system at our other dry mills. In the interim, we are operating the Magic Valley facility as a terminal to service our renewable fuel customers. We are also working with the local feed distributor and our feed customers to meet their supply requirements.

Going forward, we intend to discuss our various capital projects individually and not in the aggregate, using three categories: In Operation, which includes completed projects, such as our corn storage and boiler upgrades, our beverage grade GNS alcohols and Eagle Alcohol distribution infrastructure; Under Development, which includes high priority strategic opportunities that have the greatest expected returns as well as initiatives that support our near-term operational goals, such as CCS and potential partnerships for cogeneration and a natural gas pipeline; and For Future Evaluation, which includes potential opportunities with attractive expected returns to be assessed as resources permit, such as primary yeast, biogas conversion, the installation of higher margin corn oil and high protein systems at our three other dry mills, sustainable aviation fuel, blue ethanol, ethanol-to-jet fuel and synthetic natural gas.

As a renewables company, we remain dedicated to implementing sustainable best practices that are good for our business, our stakeholders and our planet. In December, we published our first Sustainability Summary. Our Sustainability Summary provides a review of our strategy and vision for advancements in sustainability, responsible sourcing and risk management. We are focused on continuous improvement in environmental, health and safety, product quality, and diversification by integrating innovative practices at our facilities to ensure optimal efficiency, contributing to a lower carbon footprint. Our efforts improved our sustainability scores across the board with all three rating agencies, which is important to our customers. 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. Management provides EBITDA and Adjusted EBITDA as non-GAAP financial measures so that investors will have the same financial information that management uses, which may assist investors in properly assessing our performance on a period-over-period basis.

To increase transparency to our operating physical margins and conform our reporting to management’s evaluation of our financial performance, we now exclude the impact of unrealized non-cash derivative gains and losses when calculating Adjusted EBITDA. Unrealized derivative gains and losses are non-cash, mark-to-market adjustments of derivative instruments on open positions related to future period purchases and sales that are recorded as part of cost of goods sold.

A table is provided below to reconcile Adjusted EBITDA to its most directly comparable GAAP measure, consolidated net income (loss). EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP and should not be considered as alternatives to consolidated net income (loss) or any other measure of performance under GAAP, or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP.

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. We are not able to provide a quantitative reconciliation of forward-looking EBITDA or Adjusted EBITDA to forward-looking consolidated net income (loss) because certain items required for reconciliation are uncertain, outside of our control and/or cannot reasonably be predicted, such as net sales, cost of goods sold, unrealized derivative gains and losses, asset impairments and provision (benefit) for income taxes, which we view as the most material components of consolidated net income (loss) that are not presently estimable.

Reconciliation of Adjusted EBITDA to Consolidated Net Loss

2023 Financial Performance Summary

Our consolidated net sales declined by $0.1 billion to $1.2 billion for 2023 from $1.3 billion for 2022. 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:

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 also market essential ingredients produced by our production facilities, including 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 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 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. 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.

We believe that our gross profit margins depend primarily on six key 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. For example, we may seek to reduce inventory levels in anticipation of declining alcohol or essential ingredient prices and increase production and inventory levels in anticipation of rising alcohol or essential ingredient prices. We may also seek to alter our proportion or timing, or both, of purchase and sales commitments.

Our inability to anticipate the factors described above or their relative importance, and adverse movements in the factors themselves, could result in declining or even negative gross profit margins over certain periods of time. Our ability to anticipate these factors or favorable movements in these factors may enable us to generate above-average 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.

Certain performance metrics that we believe are important indicators of our results of operations include:

Sales and Operating Metrics (unaudited)

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

 F

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 average sales price per gallon decreased primarily due to lower fuel-grade ethanol prices largely driven by lower oil and gasoline prices. Fewer total gallons sold for 2023 as compared to 2022 resulted primarily from the hot-idling of our Magic Valley facility in the first quarter of 2023 coupled with unusually high unscheduled production downtime later in the year at our Pekin Campus for repairs and maintenance. 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. 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.

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. 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. 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. 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 total volume of essential ingredients sold increased by 28,100 tons, or 3%, to 878,400 tons for 2023 from 850,300 tons for 2022. Sales volumes of essential ingredients were higher in 2023 due to an extended shut down for maintenance during the summer of 2022. 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. 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.

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.

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. This increase resulted from a shift in the source of renewable fuel from our Magic Valley facility, as we hot-idled the facility in early 2023, to third-party suppliers. 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. 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.

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.

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. 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. 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. 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. 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.

Corporate and Other Segment

Net sales from our Corporate and other segment were flat at $15.8 million for each of 2023 and 2022. These sales are from Eagle Alcohol’s business.

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. Our consolidated gross profit improved due to improved commodity crush margins, particularly for renewable fuel, primarily due to lower corn costs, but was partially offset by $9.7 million in unrealized non-cash derivative losses from mark-to-market adjustments on open positions related to future period sales and $2.2 million in lower-of-cost-or-market charges in the fourth quarter of 2023 on our ending renewable fuel inventories and related fixed corn purchase commitments due to negative crush margins heading into year-end 2023 and the first quarter of 2024.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross profit improved by $35.5 million to a gross profit of $13.7 million from a gross loss of $21.8 million. Of this increase, $35.2 million is attributable to higher commodity crush margins and $0.3 million is attributable to increased sales volumes in 2023 as compared to 2022.

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. 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.

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. 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. 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. SG&A expenses increased primarily due to higher compensation-related expenses and litigation accruals, partially offset by lower accruals for deferred cash payments attributable to our acquisition of Eagle Alcohol.

Asset Impairments

We recorded an asset impairment charge of $6.5 million for 2023 as compared to none for 2022, of which $6.0 million is attributable to an impairment to the goodwill associated with our acquisition of Eagle Alcohol in 2022. This charge primarily reflects revisions to current market premiums and adjustments to projections in our required annual goodwill valuation.

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. We are neither required to repay the grants nor will they recur in the future.

Interest Expense, net

Interest expense, net, increased by $5.6 million to $7.4 million for 2023 from $1.8 million for 2022. The increase in interest expense, net, is primarily due to higher debt balances under our term loan to fund our capital improvement projects, as well as higher interest rates under Kinergy’s line of credit consistent with an overall higher interest rate environment.

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.

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. In addition to funding our operations, we used our capital resources to continue our capital improvement projects, make an annual payment related to our acquisition of Eagle Alcohol, repurchase shares of our common stock and pay preferred stock dividends.

As of December 31, 2023, we had $30.0 million in cash and cash equivalents and $33.3 million available for borrowing under Kinergy’s operating line of credit. In addition, we have up to an additional $65.0 million that may be available for capital improvement projects under our Orion term loan, subject to certain conditions. 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. 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).

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.

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.

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.

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.

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. Specific factors that contributed significantly to the change in cash generated by our operating activities include:

These amounts were partially offset by:

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.

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.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for an aggregate amount of up to $100.0 million. The credit facility matures on November 7, 2027. Interest accrues under the credit facility at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging from 1.25% to 1.75%. The credit facility’s monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum credit under the facility exceeds the average daily principal balance during the immediately preceding month. Payments that may be made by Kinergy to Alto Ingredients, Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal quarter. The credit facility also includes the accounts receivable of our indirect wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as additional collateral. Payments that may be made by Alto Nutrients to Alto Ingredients, Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Alto Nutrients are limited under the terms of the credit facility to $0.5 million per fiscal quarter. Alto Nutrients markets our essential ingredients and also provides raw material procurement services to our subsidiaries. In addition, the amount of cash distributions that Kinergy or Alto Nutrients may make to us is also limited to up to 75% of excess cash flow.

For all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and Alto Nutrients must collectively maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 1.1 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). The obligations of Kinergy and Alto Nutrients under the credit facility are secured by all of our tangible and intangible assets.

We believe Kinergy and Alto Nutrients are in compliance with the fixed-charge coverage ratio covenant as of the filing of this report. The following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented: