Alto Ingredients Inc (ALTO)

[Rule_62]

Remember those numbers are for Iowa. (EDIT) PEIX sells into the west coast market. Kel is the most knowledgeable when it comes to this as higher ethanol prices are in part offset by transportation costs for corn, however here is a snippet from pg. 30 of the 10-K that illustrates that point:

Our average sales price per gallon increased 5.7% to $2.59 for 2013 from $2.45 for 2012, even though the average CBOT ethanol price per gallon decreased 2.6% to $2.25 for 2013 from $2.31 for 2012. This disparity between our ethanol sales price per gallon and the CBOT average reflects both the additional basis costs for West Coast delivery of ethanol as well as the premium we receive by selling lower carbon intensity ethanol in the Western United States.

That said, I've been throwing around some numbers for earnings. What keeps concerning me is the following:

Income generated from warrant/option exercises: $12.1M

vs

Debt retirement ($19.4 + 13.0M): ($32.4M)
Non-cash write down: ($16.8M)

That's an additional $37.1M

By comparison, last quarter warrant and options revenues were not that significant; it also saw debt retirement of $13.3M.

The share count has also increased from 16.1 to 18M over last quarter.

So without factoring in the warrant dilution in order to maintain per share earnings, net profits need to increase $23.8M (all else remaining equal). To maintain the status quo. Factoring in the share increase, that increases by approx 12.5% to 26.8M

That might explain in part the wide discrepancies in earnings estimates ranging from $0.78/share to $3.30/share.

http://money.cnn.com/quote/quote.html?symb=PEIX
http://investing.businessweek.com/research/stocks/earnings/earnings.asp?ticker=PEIX

Obviously the company performance is pretty impressive this last quarter. Retiring that amount of debt alone is nothing to sneeze at. However, when I go back and review some of the numbers I was mulling over yesterday and remove the subsequent income generated after March 31st:

Cash as of Dec 31 $5.1M
Warrants exercised in Q1: $12.1M
Less debt reduction: $32.0M

Of course that's prior to Q1 income. However, might both of the above shed some light on the "why now" question? Especially with earnings estimates ranging from $0.78 - 3.30/share? Not to mention the subsequent additional dilution of another 1.75M shares due to the offering as well as the subsequent 0.49M warrants exercised through to April 15th? If the warrant dilution remains constant, by the release date that number could well be 1M.

Could the "why now" be a matter of a cash infusion, knowing that the reaction to the Q1 earnings per share might well be negative? Was theoffering triggered to take advantage of the opportunity while it presented itself? Especially given the timing, immediately on the heels of the close of Q1?

Should be an interesting week ahead.