MGP Ingredients, Inc.

Good morning and welcome to the MGP Ingredients fourth quarter and full year 2020 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a 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, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mike Houston, Investor Relations. Please go ahead.

Thanks, Gary. Good morning, everyone. 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, 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 rate, 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 and year, updates on key financial performance metrics, and a discussion of progress against our strategy. Then we will take your questions. 2020 represented a solid year of improved effectiveness in our tactical execution while accelerating the pace of our strategic implementation. Our objective to optimize Brown Goods profit By increasing volume share at market-based pricing, paid dividends as gross profits for the distillery product segment and company finished the quarter and year at record levels. Additionally, our ability to improve throughput and profitability in our ingredient solution segment resulted in an increase of 97% in gross profit for the year. Consolidated sales for the year increased 9%, while gross profit increased 29.1% to a record $98.8 million, representing 25% of consolidated sales. Reported operating income increased 14.8%, while adjusted operating income increased 20.9%. We are very pleased with the continued momentum by each of our segments this quarter, reflecting strong growth for the year. Each quarter this year posted a record gross profit result versus the respective prior year's quarters, and the fourth quarter was no exception. Aged whiskey sales experienced another record quarter, which drove an 11.4% increase in premium beverage alcohol sales for the year, also a record. Specialty ingredient sales posted strong double-digit growth for the quarter and grew 19.2% for the year. Looking at each segment individually, in our distillery product segment, fourth quarter sales increased 7% and was primarily driven by a 28.2% increase in brown goods sales. Full year sales of premium beverage alcohol were up 11.4%, with record sales of aged whiskey being the primary catalyst for growth. Aged whiskey sales also served as the primary driver to the increase in gross margins in the period. The average age of barrels sold was the highest it has been since we began making these aged whiskey barrels available for sale to our customers in meaningful quantities. Our growth in sales of brown goods this year has outpaced the longer-term market trends. This was primarily due to increased demand from national and multinational customers as they filled gaps in their aged brown goods inventory levels. Sales of new distillate for the year declined slightly from last year as we experienced more demand for aged whiskey as compared to new distillate, which we also believe was driven by some of our customers leveraging our aging whiskey inventory as a solution to fill gaps in their inventory. During the first half of the year, Kraft customers represented a smaller proportion of total sales volume of aged whiskey but that trend reversed in the back half of the year as their purchases increased to be more in line with historical averages. While consumer demand for American whiskey remains robust and our diverse customer mix has positioned us well, we remain uncertain as to when the growth rates will begin to normalize and come more in line with the long-term trend for the overall category. We believe our significant share and scale advantage will position us well if this increased period of demand continues. During 2020, we plan to increase our focus toward growing volume share in the global American whiskey category and refine how we approach the selling process with potential new or infrequent customers. As anticipated, this action did not result in significant changes to our overall pricing, but supported additional margin expansion and record gross profit results for the quarter and year. Our record gross profit results confirm the long-term value of our aging whiskey inventory, supported by our ability to cultivate solid partnerships with existing customers, as well as attract additional aged whiskey and new distillate customers. Continuing on to other areas of the segment, sales of premium beverage white goods increased 2.4% for the year, while sales of industrial alcohol increased 1.1% for the year with improved margins. Historically, MGP has provided third-party sales and marketing services to sell industrial alcohol produced by ICP, our former joint venture partner. Going forward, ICP will market and sell these products, and we anticipate discontinuing these services during the first half of 2021, with sales for the year totaling approximately 20% of historical levels. For reference, in 2020, we sold approximately $24 million of product for ICP reflected as industrial alcohol revenue within our distillery product segment at low single-digit gross margins. To be clear, this has no impact on MGP's internal production volumes or direct customer relationships. Sales of our distiller's grains byproduct decreased 2.4% for the year primarily due to the need to convert from selling dry distiller's grains to wet distiller's grains due to a fire in our byproduct drying system that occurred during the fourth quarter at our Atchison distillery. The byproduct dryer is no longer in service and will need to be replaced due to the fire. Thankfully, no employees were injured during the event. As a result of this, we made operational changes to restart production of the Atchison facility within a week in order to continue to supply our customers' needs. The operational changes include the ability to process and sell or spent distillers grains as wet byproduct feed versus dried byproduct feed, as well as supplementing our distillation capacity with purchased product that we further rectify to produce beverage grade alcohol. We will continue to operate in this manner until we complete installation of a new byproduct drying and handling system that we expect will be operational in the back half of the year. Brandon will cover this in greater detail during his prepared remarks. Revenue from warehouse services increased 6.7% for the year, reflecting in part growth in the number of customers, barrels, aging in our whiskey warehouses, and other services we provide. Turning to ingredient solutions, sales for the year grew 19.2%, while gross profit increased to $20.8 million, or 26.7% of segment sales. We finished 2020 with continued momentum with the fourth quarter being one of our strongest ever. The solid revenue and profit growth this quarter and year reflect our diverse customer base and our ability to further optimize the product mix. Our product offerings remain aligned with strong consumer trends as evidenced by our ability to effectively recruit new business and grow with existing customers. We are very pleased with the revenue and profit results for each of our segments this year. Overall, both of our business segments continue to benefit from favorable consumer trends, and our strategic plan has us well positioned to fully capture the potential these trends offer. This concludes my initial remarks. Let me now turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?