MGP Ingredients, Inc.

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. Additionally, this call will contain reference to certain non-GAAP measures which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. 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 thanks, everyone, for joining the call today. On this call, we will begin with an overview of our performance for the quarter ended June 30th, 2022, provide updates on key financial performance metrics, and discuss the progress we have made against our strategy. At the end of the call, we will open the line for Q&A. Turning to review our performance during the second quarter, we made meaningful progress towards executing our long-term strategic plan and remain encouraged by the demand for our products across all business segments. Consolidated sales for the quarter increased 11% to $195 million. Gross profit increased 4% to $59.2 million, representing 30.4% in sales. Reported operating income increased 28% to $35.3 million. In our Distilling Solutions segment, we continue to experience strong demand for new distillate and aged whiskey. This momentum continues to contribute favorably to top-line growth, with a 29% increase in brown goods sales for the quarter versus the prior year quarter. As for our Branded Spirits segment, consumer demand for our Premium Plus brands, which includes Premium, Super Premium, and Ultra Premium Spirits brands such as Yellowstone, Remus, and El Mayor, also remains strong and continues to drive gross margin expansion. Our ingredient solution segment continues to execute at a high level and during the quarter achieved record results. Further optimization of the segment product mix to align with consumer demand trends resulted in a 21% increase to segment sales compared to the prior year period. Looking at each segment in greater detail, we posted another strong quarter in our distilling solution segment, with sales increasing 19% to $107.1 million. Gross profit for the quarter decreased to $29.8 million, or 27.8% of segment sales. The decline in gross profit can be attributed primarily to the impact of increased commodity and natural gas costs, and additional supply entering the markets for our industrial alcohol and white goods offerings. These factors were consistent with our expectations for the quarter. We continue to benefit from strong demand in each of our customer categories for brown goods. Our diverse aged whiskey library coupled with the seasoned sales and customer service team and the team's high level of execution continues to support the segment's growth trajectory and has enabled us to maintain strong pricing and margins. Sales of new distillate also posted strong growth during the second quarter. This growth was attributed to an increase in demand compared to the prior year quarter. Our significant market share and scale advantage continues to position us well to support ongoing growth in the American whiskey category. As discussed during our call last quarter, demand for aged whiskey continues to be very strong. We will continue to be strategic with our aged whiskey sales to enable us to meet expected customer needs for the balance of this year, as well as position us to meet anticipated customer needs in the coming years. Turning to white goods, sales decreased 4% versus the prior year quarter. The decline was primarily due to lower volumes for our white goods premium beverage products. Similar to last quarter, our industrial alcohol product sales decreased 13%. The decline in industrial sales was, in part, attributed to reduced third-party sales volume of industrial alcohol produced by ICP, our former joint venture partner. Consistent with last quarter, we expect margins for both industrial alcohol and white goods products to remain at levels in the low single digits and, in some cases, to incur negative gross margins. This is a result of additional supply entering the market and its anticipated impact on profitability, as well as increased input costs, primarily corn and natural gas costs. We continue to focus on migrating away from industrial alcohol and toward our white goods premium beverage products, whose customers historically are longer term in nature and pricing is less susceptible to white swings. Turning to branded spirits, Sales totaled $58.6 million for the quarter, a decline of 3% versus the prior year quarter. While our premium plus brands performed well, we experienced a decline in sales driven by lower volumes in the mid and value price points categories. Even with a slight decline in sales versus the prior year quarter, gross profit increased to $21 million, or 35.8% of segment sales. The increase in gross margin can be attributed to the favorable performance of our higher margin brands and to a required non-recurring accounting step-up in the prior year period. The branded spirits segment remains focused on improving our portfolio profitability by optimizing margin through expansion and innovation in the premium plus price categories. We remain committed to successfully executing our premiumization strategy and will continue to invest in marketing support to achieve sustainable and profitable growth for our brands in this category. Evidence of our commitment can be seen on larger media buys resulting in television commercials, increased social media presences, and the use of key influencers to drive brand awareness for our Premium Plus brands. Our strategy is simple. grow profitability through leveraging the expansion of our Premium Plus brand portfolio with particular focus on tequila and American whiskey, both which continue to expand around the globe. Turning to ingredient solutions, sales for the quarter increased 21% to a record $29.3 million. Similar to last quarter, the increase in sales was primarily due to higher average selling prices of specialty wheat starches and proteins. We are pleased with the progress we have achieved in this segment to date. We are confident that our extensive project pipeline for these products, along with further optimization of the segment product mix to meet our customers' needs, will drive long-term growth for the segment. An example of this will be seen in the second half of this year as we launch our Proterra brand into a new channel of distribution selling to colleges and universities for their use in their menus as a plant-based meat alternative. Before I turn the call over to Brandon, I want to reiterate how encouraged we are by our diverse customer base and our product offerings continuing to align with consumer trends. Our robust gross margins and ability to execute against our long-term strategy continue to provide us with the momentum required to achieve our fiscal 2022 goals. 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. For the second quarter of 2022, consolidated sales increased 11% to $195 million as a result of sales growth in the distilling solutions and ingredient solution segments. Gross profit increased 4% to $59.2 million. Gross margin decreased 30.4%. As Dave mentioned earlier, we remain committed to making investments in marketing as part of our premiumization strategy. As such, our advertising and promotion expenses for the second quarter of 2022 increased $2.7 million to $6.1 million as compared to the second quarter of 2021. primarily driven by incremental investment in the ultra-premium, super-premium, and premium price tier in our brand and spirit segment. Corporate selling, general, and administrative expenses for the second quarter of 2022 decreased $7.9 million to $17.9 million as compared to the second quarter of 2021, primarily due to the one-time acquisition costs in 2021 related to the Luxco acquisition that did not recur in 2022. Operating income for the second quarter increased 28% to $35.3 million, primarily due to the increase in sales and gross profits and, as previously discussed, the reduction in SG&A. Adjusted operating income decreased 4% from $36.9 million due to the increased investment in advertising and promotion in support of our brand spirit segment. Our corporate effective tax rate for the second quarter 2022 was 22.4%, compared with 24.2% from the year-ago period, resulting from favorable tax benefits concerning our capital spend and foreign operations. Net income for the second quarter increased 26% to $25.4 million. Basic and diluted earnings per share increased to $1.15 per share from $0.91 per share. Basic and Deleted Adjusted EPS decreased to $1.15 per share from $1.27 per share. Adjusted EBITDA for the quarter was $40.1 million, a 5% decrease from the year-ago period, driven primarily by increased advertising and promotion expenses for our premium plus tier spirits brands, as well as increased commodity costs specific to industrial and white goods alcohol, and the price elasticity resulting from from the additional supply that has entered these markets. Additionally, relative to the prior year quarter, our input costs for corn increased 54%, wheat flour increased 23%, and natural gas increased 74%. Although the average selling price for industrial alcohol and white goods increased for the quarter, it was not enough to offset the higher input costs. Previously, we expected to see an approximate 700 basis point decline in year-over-year gross margin percent for our white goods and industrial alcohol products on a combined basis in 2022. Given these recent market dynamics, we now believe this decline could approach 1,100 basis points for the full year. That said, we remain committed to pricing through these increases where possible, and our full-year consolidated guidance contemplates these inflationary headwinds. Year-to-date cash flow from operations totaled $43 million, reflecting the consistent and strong cash generating capability of our business. Strong free cash flows further highlight the value and execution of our long-term strategy, providing MGP with adequate support for M&A in our expansionary projects. MGP's balance sheet also remains strong, allowing us to continue to invest to grow. We remain well capitalized, with debt totaling $232 million and a strong cash position of $37.4 million. During the quarter, our investment in inventory of aging whiskey increased by $4.9 million to $184.9 million at cost. This net increase was driven by increased put-away during the quarter. Matching whiskey put-away with growing future distilling solutions and branded spirit segment sales is one of our priorities and long-term strategies. We announced last quarter that we expect approximately $47.2 million in capital expenditures during 2022. which represents an approximate $10 million increase above the forecast we provided during the fourth quarter 2021 earnings call. We continue to prioritize investments that enhance our operational capabilities and have identified opportunities to accelerate ongoing projects. These opportunities include the construction of the textured protein facility in Atchison, Kansas, as well as new opportunities that will strengthen our competitive position in the markets we serve. Each of these projects remains on track. The board authorized a quarterly dividend in the amount of 12 cents per share, which is payable on September 2nd to stockholders of record as of August 19th. The board continues to view dividends as an important way to show the success of the company with shareholders. We continue to believe our capital allocation strategy focused on organic and acquisitive growth aligns well with our long-term strategy. Leveraging this approach, we are able to better position the business to benefit from underlying consumer trends. We will continue to pursue M&A and conduct expansionary projects to accelerate growth and increase our capabilities and product offerings. And now, let me turn things back over to Dave for concluding remarks.