MGP Ingredients, Inc.

Good morning and welcome to the MGP Ingredients Incorporated third quarter 2020 results call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star and then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mike Houston. Please go ahead.

Thank you, Cameron. Good morning, everyone, and thank you for joining the MGP Ingredients conference call and webcast to discuss the company's financial results for the third quarter 2020. I'm Mike Houston with Lambert & Company, MGP's investor relations firm. And joining me today are members of their management team, including Dave Colo, President and Chief Executive Officer, and Brandon Gall, Vice President of Finance and Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call up to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of sales, operating income, gross margin, and effective tax rates, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call if anyone does not already have a copy of the press release issued by MGP today. You can access it at the company's website, www.mgpingredients.com. At this time, I'd like to turn the call over to MGP's President and Chief Executive Officer, Dave Colo. Dave?

Thank you, Mike, and thank you all for joining us. On this call, we will provide an overview of our results for the quarter, updates on key financial performance metrics, and a discussion of progress against our strategy. Then we will take your questions. Now I will turn to the results for the third quarter. I am very pleased with the strong results this quarter, which highlighted the diversity of growth across our product lines and segments. Aged whiskey sales experienced a record quarter, while new distillate and specialty ingredients also yielded strong double-digit sales growth. While we anticipate continued uncertainty related to the pandemic through the end of this year, and into 2021, we believe we remain well-positioned to execute our long-term strategic plan. The overall American whiskey market remains robust. Consumer trends seeking to increase the amount of plant-based protein and dietary fiber in their diets as part of an overall healthier lifestyle are also strong. We believe our portfolio of products are well-positioned to provide sustainable long-term growth while our position within each market remains strong. Looking at each segment individually, in our distillery product segment, sales for the quarter were up 11.4% to $81.6 million. We are very pleased with the continued strength of our aged whiskey sales this quarter, which equated to record results in strong double-digit revenue growth from the prior year period. Our objective of optimizing brown goods profits continued this quarter by delivering one of our best gross profit results. However, total segment gross margins were negatively impacted by approximately 350 basis points resulting from decreased barrel put away as we continue to align our aging whiskey inventory with projected demand. Segment gross profit increased to $17.3 million while gross margin decreased 50 basis points to 21.2% of segment sales reflecting the reduced putaways this quarter. Despite this year-over-year decline, we continue to achieve brown goods pricing in line with our expectations for both new distillate and aged whiskey sales. Premium beverage sales had a strong quarter, growing 20.9% over the prior year period. The strength of our aged sales this quarter was also very encouraging and highlights both the demand for aged whiskey and our unique ability to meet that demand. In fact, we have sold more barrels of aged whiskey year-to-date than we did all of last year, and the barrels sold this year represent a healthy balance of vintages across the portfolio. This demand is driven by our customers' desire to bring new brands to market sooner, fill holes in their inventory for their existing brands, and support their growth aspirations for brands they acquire. Our prior investment in building a diverse library of aging whiskey has us well positioned to meet those needs, and we believe we are well positioned to meet projected demand while delivering sustainable growth and value creation for the company. Brown Goods premium beverage sales this quarter were up 29.2% as compared to the third quarter of last year. While we are very pleased with the results this quarter, I would like to remind our listeners that there will continue to exist an inherent quarterly unpredictability in the business due to customers' buying patterns and inventory needs, as well as the ongoing potential impacts to on-premise sales related to the COVID-19 pandemic. While the consumer trends for American whiskey remain robust, we continue to believe that the underlying growth rate for our target market is gradually slowing to come more in line with the long-term trend for the overall category. We also continue to focus on the long-term, working to improve our position in the market by consistently recruiting new customers, strengthening our relationships with existing customers, and expanding our geographic sales coverage. New customer acquisition growth for our new distillate and aged whiskey products remains strong despite the uncertainty related to the pandemic. We are doing an outstanding job recruiting new customers for our new distillate and aged whiskey offerings, adding more new customers this quarter than both the year-ago period and last quarter. While we experience strong demand across the board for new distillate and aged whiskey this quarter, our craft brand customer sales continue to remain below the historical average due to the pandemic. As a result, our aged sales during the quarter were primarily driven by our national and multinational brand customers. Internationally, we are beginning to see more activity while gaining better traction abroad. International sales were up versus the prior year and are beginning to comprise a larger percentage of aged whiskey sales. The long-term macro trends supporting the ongoing growth of the American whiskey category remain encouraging. Continuing on to the other areas of the segment, sales of premium beverage white goods increased 6.5% for the quarter. Sales of industrial alcohol were down slightly, 0.3% for the quarter. Demand for our industrial alcohol products as a result of the COVID-19 pandemic continues to remain elevated with pricing slightly increasing over the prior year quarter. However, volume sales for industrial alcohol were down slightly, to support increased optimization in sales of white goods premium beverage alcohol. As a reminder from our last quarter's call, we are currently in the midst of contracting for next year's industrial alcohol customer needs, and we are experiencing improved pricing to date. Sales of dry distillers grains, or DDGs, decreased 7.7%, reflecting short-term microfactors. Our outlook for DDG pricing continues to be based on the unchanged macro environment that led to the lower pricing in the first quarter of 2017. Revenue from warehouse services increased 8.1%, reflecting in part growth in the number of customer barrels aging in our whiskey warehouses and other services we provide. Turning to ingredient solutions, sales grew 22.7%, to $21.3 million, while gross profit increased 102.9% to $5.9 million, or 27.4% of segment sales. We are very pleased with the overall progress in this segment as we achieved double-digit sales growth in both specialty wheat starches and proteins. The continued strength of our ingredient solution segment and its diverse customer mix are reflected in the strong results this quarter. the team has made admirable progress this year to expand the specialty ingredient customer base and includes repeat and new customers, as well as brands, both large and small. In addition to recognizing efficiencies to improve throughput and profitability, we were also successful in continuing to optimize our product mix this quarter. Consumer trends seeking to increase the amount of plant-based protein and dietary fiber in their diets, as part of an overall healthier lifestyle, continue to align well with our ingredient product portfolio, and underscore our confidence in the sustainability of these improved results going forward. Overall, both of our business segments continue to benefit from favorable consumer trends. We continue to see strong demand in pricing for our products and remain very confident and encouraged about the long-term outlook. This concludes my initial remarks. Let me now turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?