MGP Ingredients, Inc.

Good day and welcome to the MGP Ingredients Third Quarter 2022 Financial Results. 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, and please note that this event is being recorded. I would now like to turn the conference over to Mike Houston with Investor Relations. Please go ahead, sir.

Thank you. I'm Mike Houston with Lambert, 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 and overall consumer and industry trend. 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. 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 September 30, 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. Our team delivered another strong performance during the third quarter as we continue to experience momentum from favorable consumer trends that support each of our business segments. Consolidated sales for the quarter increased 14% to $201.2 million, while gross profit increased 3% to $59.1 million, representing 29.4% of sales. Reported operating income increased 3% to $33.9 million. In our distilling solutions segment, we continue to benefit from strong demand for new distillate and aged whiskey. These favorable trends continue to support overall growth for this segment. For our branded spirits segment, we continue to experience solid consumer demand trends in our premium plus brands, which includes premium, super premium, and ultra premium spirits brands. Our premium plus American whiskey and tequila offerings continue to be the primary drivers of top line growth, as well as gross margin expansion for the segment. As for our ingredient solution segment, our team continues to execute at a high level, The team has done an exceptional job optimizing the product mix to benefit from the shift in consumer behavior toward adding plant-based foods in their diet. These continued efforts contributed to record segment sales in the third quarter. Looking at each segment in greater detail, we achieved a record in third quarter sales within our distilling solution segment. Sales increased 19% to $108.6 million. Gross profit for the quarter decreased from $27 million to $25.9 million, or 23.9 percent of segment sales. The decline in gross profit can be primarily attributed to the negative impact of increased commodity and natural gas costs, as well as excess supply in the markets for our industrial and white good offerings. These factors were consistent with our expectations for the quarter. Cells of premium beverage alcohol increased 22%, while brown goods sales increased 34% from last year due to higher new distillate and aged whiskey sales. Demand from each of our customer categories within brown goods remained strong and contributed to the meaningful sales growth versus the prior year. We remain confident that our significant share, scale advantage, and our aging whiskey inventory position will further support ongoing consumer demand for the American whiskey category. We believe these trends will remain favorable through the balance of the year and into 2023. Moving to white goods, sales decreased 3% versus the prior year quarter. The decline was primarily due to lower volumes for our white goods premium beverage products. Sales of our industrial alcohol products decreased 27%, also due to lower volumes. With the additional supply that has entered the market, as well as the impact of increased input costs, primarily corn and natural gas costs, we continue to believe that margins for both industrial alcohol and white goods products will remain at or below historical levels. During the quarter, industrial alcohol and white goods incurred negative gross margins as a result of these dynamics. We expect these headwinds to continue into the fourth quarter as well. Previously, we expected to see an approximate 1,100 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 market dynamics, we now believe this decline could approach 1,500 basis points for the full year for a total year-over-year impact of $20 million which is $5 million more than what we estimated last quarter. That said, we remain committed to pricing through these commodity increases where possible, and our full-year consolidated guidance, which I will discuss in my closing comments, contemplates these inflationary and industry headwinds. Moving to branded spirits, segment sales for the third quarter increased 2% versus the prior year period to $62.8 million, We benefited from sustained strength in our Premium Plus brands, which grew revenue by 17% from the prior year period, primarily reflecting higher case volume and higher average selling prices. Gross profit for the segment increased to a record $25.1 million, or 39.9% of segment sales. The increase can be attributed to increased distribution of Premium Plus brands, and improved pricing on our brands as well as product mix. Since the Luxco acquisition, this was a record quarter for both sales and gross profit dollars for our branded spirits segment. We remain committed to successfully executing our premiumization strategy and will continue to invest in marketing support to achieve sustainable and profitable growth as we continue to focus on brands that are positioned amongst growing spirit categories and price tiers. We continue to be encouraged by the top-line growth and margin expansion we have achieved for our Premium Plus brand since closing the Lexco transaction last April. Turning to ingredient solutions, sales for the quarter increased 24% to a record $29.7 million. Consistent with the segment's recent performance, the increase in sales was primarily driven by higher average selling prices and increased volumes. Our experienced sales, innovation, and R&D teams continue to execute at a high level, collaborating with our customers to meet specific needs. We believe the continued momentum we have realized across our products will enable long-term, sustainable growth for the segment. We have also begun to receive initial orders from colleges and universities for our recently launched Proterra brand of ready-to-use texturized pea-based proteins targeted against the food service channel. Before I turn the call over to Brandon, I want to thank our team for their continued execution. Their ability to build on the momentum we have generated throughout the year and the continued alignment of our product offerings to meet consumer trends enabled us to achieve strong results for the third quarter. This concludes my initial remarks. Let me now turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?