MGP Ingredients, Inc.

Good day and welcome to the MGP Ingredients First Quarter 2021 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 touchtone phone. 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. Please go ahead.

Thank you. 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'll 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 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 would 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. We are very pleased with our continued momentum this quarter, which has again yielded record consolidated results. Sales of premium beverage alcohol increased 31.1%, primarily due to higher-aged whiskey and new distillate sales. As expected during the quarter, we experienced temporary softness in our ingredient solutions segment, primarily due to a natural gas curtailment that impacted approximately two weeks of production in February. However, we anticipate improved results in the second quarter as we have cycled past the weather-related events in the first quarter. Consolidated sales for the quarter increased 9.3%, while gross profit increased 39.2% to a record $32.3 million. representing 29.8% of consolidated sales. Reported operating income increased 49.6%, while adjusted operating income increased 56.7%. Looking at each segment individually. In our distillery product segment, sales increased 11.5%, primarily driven by sales in brown goods, which increased 49.3% from the prior year period. Strong aged whiskey and new distillate sales led to these results. Aged whiskey sales also served as the primary driver to the increase in gross margins for the period. Our objective to optimize brown goods profit by increasing volume share at market-based pricing continued to benefit both the segment and consolidated results for the quarter. The macro consumer trend supporting the ongoing growth of the American whiskey category remained solid. which is confirmed by the demand we're experiencing from new and existing brown goods customers. We also experienced strong aged whiskey demand from craft distillers as a percent of our overall aged sales mix during the quarter, which was more comparable to pre-COVID levels in relation to our national and multinational customers. While consumer demand for American whiskey remains robust and our diverse customer mix has positioned as well, we anticipate our growth rates will begin to normalize and come more in line with overall category growth. Continuing on to other areas of the segment, sales of premium beverage white goods declined 0.3% for the quarter, while sales of industrial alcohol decreased 19.8% with improved pricing and margins. As mentioned in our last call, The decline in industrial alcohol sales was primarily attributed to reduced third-party sales of industrial alcohol produced by ICP, our former joint venture partner. Going forward, ICP will market and sell these products, and we anticipate these services will be substantially complete by the end of the second quarter of 2021, with sales for the year totaling approximately $4 million. 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. Excluding the impact of this third party agreement, industrial alcohol sales would have increased 6% from the prior year period. We are pleased with the improved pricing and margins following contract negotiations that occurred during the fourth quarter of last year, but anticipate spot market margins will normalize and return to historical levels as demand moderates and additional supply enters the market over the next several quarters. Sales of our distillers grains byproduct decreased 28.9% for the quarter, primarily due to the need to convert from selling dry distillers grains byproducts. to wet distillers grains byproducts due to the dryer incident in Q4 of last year. We expect continued comparative declines in revenue for our distillers grains this year until the dryer system installation is complete, which we anticipate occurring in the fourth quarter of this year. Revenue from warehouse services increased 5.1% for the quarter, 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 for the quarter grew 0.3% while gross profit decreased to $4 million, representing 20.7% of segment sales. As expected, this quarter's results do not properly reflect the solid demand we continue to experience in the ingredient solutions segment. In addition to the temporary natural gas curtailments, which resulted in lost production in February of this year and reduced margins by more than 400 basis points in the quarter, we also experienced issues with backlogs at various ports, as well as shortages for shipping containers needed to deliver our products abroad. Despite the impact these issues had on product mix, we finished the quarter with strong sales and margins in March and anticipate improved results in the second quarter as we have cycled past the weather-related events that occurred in the first quarter. We believe our diverse customer base and optimal product mix continue to be aligned with strong consumer trends. We are very pleased with the revenue and profit results this quarter. 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? Thanks, Dave.