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Alto Ingredients(ALTO) - 2022 Q4 - Annual Report
ALTOAlto Ingredients(ALTO)2023-03-13 16:00
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Sales Performance - The Pekin Campus production segment generated net sales of 521.3millionin2022,upfrom521.3 million in 2022, up from 498.2 million in 2021 and 330.4millionin2020fromalcoholsales[51].−TheOtherproductionsegmentreportednetsalesof330.4 million in 2020 from alcohol sales[51]. - The Other production segment reported net sales of 253.6 million in 2022, compared to 107.9millionin2021and107.9 million in 2021 and 137.7 million in 2020 from alcohol sales[52]. - The marketing and distribution segment generated net sales of 228.9millionin2022,downfrom228.9 million in 2022, down from 381.2 million in 2021 and 257.7millionin2020fromalcoholsales[52].−Thecompanysoldapproximately201.1milliongallonsofalcoholsin2022,adecreasefrom213.0milliongallonsin2021andanincreasefrom193.9milliongallonsin2020[51].StrategicInitiatives−Thecompanyispursuingstrategicopportunitiessuchasjointventuresandsynergisticacquisitionsasfinancialresourcesallow[22].−ThecompanycompletedTogetherforSustainabilitycertificationatitsPekinCampusinFebruary2023,enhancingitscorporatesocialresponsibilitystandards[22].MarketTrends−Theessentialingredientsmarketisexpectedtogrowsignificantlyduetoglobaldemandforhigher−gradeproteinfeed[36].−TheRenewableFuelStandardmandatestheuseof15.0billiongallonsofconventionalethanolfor2023,increasingto15.25billiongallonsfor2024and2025[38].−Thedomesticfuel−gradeethanolindustryproduced15.4billiongallonsin2022,upfrom15.0billiongallonsin2021[39].CustomerandSupplierRelationships−Thecompanyhasextensivecustomerrelationships,withsalestoitstwolargestcustomersrepresentingapproximately20257.7 million in 2020 from alcohol sales[52]. - The company sold approximately 201.1 million gallons of alcohols in 2022, a decrease from 213.0 million gallons in 2021 and an increase from 193.9 million gallons in 2020[51]. Strategic Initiatives - The company is pursuing strategic opportunities such as joint ventures and synergistic acquisitions as financial resources allow[22]. - The company completed Together for Sustainability certification at its Pekin Campus in February 2023, enhancing its corporate social responsibility standards[22]. Market Trends - The essential ingredients market is expected to grow significantly due to global demand for higher-grade protein feed[36]. - The Renewable Fuel Standard mandates the use of 15.0 billion gallons of conventional ethanol for 2023, increasing to 15.25 billion gallons for 2024 and 2025[38]. - The domestic fuel-grade ethanol industry produced 15.4 billion gallons in 2022, up from 15.0 billion gallons in 2021[39]. Customer and Supplier Relationships - The company has extensive customer relationships, with sales to its two largest customers representing approximately 20% of net sales in 2022[54]. - In 2022, purchases of corn from the two largest suppliers represented approximately 27% of total corn purchases, up from 16% in both 2021 and 2020[56]. - Approximately 69% of total third-party ethanol purchases in 2022 came from the four largest suppliers, down from 76% in 2021[58]. Production Capacity and Operations - The company operates five production facilities with an annual alcohol production capacity of 350 million gallons, including 210 million gallons of fuel-grade ethanol and up to 140 million gallons of specialty alcohols[59]. - The company has an annual production capacity of 60 million gallons at its idled facility in Burley, ID, and 40 million gallons at its operating facility in Boardman, OR[62]. - The company purchased and resold approximately 220 million gallons of fuel-grade ethanol in 2022, compared to 204 million gallons in 2021 and 163 million gallons in 2020[57]. Price Fluctuations and Risk Management - Fuel-grade ethanol prices ranged from 2.00 to 2.88pergallonin2022,whilecornpricesrangedfrom2.88 per gallon in 2022, while corn prices ranged from 5.64 to 8.18perbushelduringthesameperiod[64].−Thecompanyemploysvariousriskmitigationtechniquestomanagecommoditypricefluctuations,includingpurchasingforwardaportionofcornandnaturalgasrequirements[63].−Thepriceofcornissubjecttowidefluctuationsduetofactorslikeweatherconditions,governmentalpolicies,andglobalsupplyanddemand[262].−Thecompanyentersintovolumecontractswithcornvendorstofixpurchaseprices,whichexposesittomarketriskifpricesdecreaseafterthepriceisfixed[262].−Thecompanyemploysriskmanagementandhedgingstrategies,includingtheuseofderivativefinancialinstrumentssuchasfuturesandoptions[263].FinancialPerformanceandSensitivityAnalysis−Thecompanyrecognizednetgainsof8.18 per bushel during the same period[64]. - The company employs various risk mitigation techniques to manage commodity price fluctuations, including purchasing forward a portion of corn and natural gas requirements[63]. - The price of corn is subject to wide fluctuations due to factors like weather conditions, governmental policies, and global supply and demand[262]. - The company enters into volume contracts with corn vendors to fix purchase prices, which exposes it to market risk if prices decrease after the price is fixed[262]. - The company employs risk management and hedging strategies, including the use of derivative financial instruments such as futures and options[263]. Financial Performance and Sensitivity Analysis - The company recognized net gains of 19.3 million, 21.6million,and21.6 million, and 14.8 million related to the change in the fair values of derivative contracts for the years ended December 31, 2022, 2021, and 2020, respectively[264]. - A sensitivity analysis estimated that a hypothetical 10% adverse change in ethanol prices could result in a pre-tax income change of approximately 65.1million,basedonanexpectedvolumeof418.9milliongallons[265].−Forcorn,a1065.1 million, based on an expected volume of 418.9 million gallons[265]. - For corn, a 10% adverse price change could lead to a pre-tax income change of approximately 74.6 million, based on an expected volume of 107.5 million bushels[265]. - Changes in the fair values of derivative contracts are recorded on the balance sheet and recognized immediately in cost of goods sold[264]. - The analysis of market risk does not factor in future contracted volumes, indicating potential variability in actual results[264]. Workforce and Labor Relations - The company has approximately 439 employees, with 44% represented by a labor union[81]. - The company is the largest producer of specialty alcohols in the United States, competing with significant producers like Archer-Daniels-Midland Company and MGP Ingredients[68].