MGP Ingredients, Inc.

Good morning and welcome to the MGP Ingredients Second Quarter 2021 Financial Results Conference Call. All participants will be in a 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 do so by pressing star then one on your telephone keypad. 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 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 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. Turning to the results for the second quarter, the record consolidated quarterly results reflect the progress our team has made toward executing our long-term strategic plan. cells of premium beverage alcohol increased 54.2%, primarily driven by brown goods sales growth of 72.8% from last year, which was due to both higher-aged whiskey and new distillate sales. The American whiskey category remains robust, and we continue to optimize our significant share and scale advantage to grow the business. Integration of our recently completed Luxco acquisition remains on track, including achievement of the synergy expectations we shared earlier in the year. This additional platform is already improving our gross profit and cash flow generation profile and provides long-term growth opportunities for the company. We also recently announced three key leadership changes. David Bradshaw was elevated to Chief Operating Officer. Amal Pasajic was appointed Chief Information Officer. and Erica Lapish joined as Vice President, Human Resources. David, Amel, and Erica are proven leaders in further strengthening our capability of executing our long-term strategies. We experienced record results across each of our business segments this quarter, including the solid sales growth of aged whiskey, better-than-anticipated growth for our branded spirits segment, strong sales for our white beverage products, as well as record results in both revenue and gross profit for our ingredient solution segment. Each of our business segments showed top-line growth over the prior year, and as a result, our consolidated sales and profitability for the quarter achieved record levels. Looking at each segment individually, we posted another record quarter in our distillery product segment, with sales finishing the quarter up 20.8%, to $90.3 million, while gross profit improved to $32 million, or 35.4% of segment sales. We are very pleased with the record performance of our aged whiskey sales this quarter, representing solid revenue growth as compared to the prior year period from a diverse group of customers. This growth in aged whiskey reflects strong pricing, margins, and demand as the macro consumer trend supporting the ongoing growth of the American whiskey category remains solid. While we are very pleased with the unprecedented aged whiskey sales year-to-date, our full-year guidance reflects aged whiskey demand to moderate in the back half of the year and over the long term to grow in line with the overall American whiskey category. Our diverse aging whiskey library, along with a solid sales team and our ability to support a brand's growth regardless of its size, offers a sustained position of strength over time. White goods also posted solid growth of 22.4% from the prior year period, primarily due to improved prices. As for industrial alcohol products this quarter, sales decreased 35.7% despite 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. We have seen additional supply enter the market during the year, and we anticipate spot market margins will return to historical levels as demand also moderates over the next several quarters. Also of note, sales of dry distillers grains, or DDG, decreased 31.1% 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 13.1%, reflecting in part growth in the number of customer barrels aging in our whiskey warehouses and other services we provide. Turning to branded spirits, the results for this newly created segment exceeded our expectations this quarter. Sales totaled $60.4 million, primarily due to the Luxco acquisition. Gross profit increased to $18.4 million, or 30.5% of segment sales, compared to $0.1 million, or 38.5% of segment sales, in the second quarter 2020. Excluding the effects of purchase accounting related to the Luxco acquisition, gross profit increased to $21.6 million, and gross margin totaled 35.7% for the quarter. Of the $3.1 million impact to gross profit this quarter, as outlined in the purchase accounting table in our press release, $2.5 million is not expected to recur in future periods. We are very pleased with the ongoing consumer demand for our brands as we continue to focus on improving our portfolio profitability by optimizing gross profits and margins, as well as implementing the most effective marketing mix across all of our brands. Turning to ingredient solutions, sales grew 39.1% to a record $24.2 million, while gross profit increased to $6.4 million, also a record, representing 26.5% of segment sales. This reflects a significant increase in gross profit as compared to the prior year period. Specialty wheat starch sales grew 38.1% this quarter, while our specialty wheat protein sales grew 38.9%, both primarily driven by increased volume. We feel very good about the robust project pipeline for these products as well as our recently rebranded Proterra line of textured proteins and remain confident that they will drive long-term growth for this segment. We believe our diverse customer base and product offering continue to be aligned with strong consumer trends and remain encouraged by the robust gross margins as a result of our strategy to focus production and sales MIG on our highest margin products. Overall, each of our business segments continue to benefit from favorable consumer trends, providing additional confidence in our long-term strategy. This concludes my initial remarks. Let me now turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?