MGP Ingredients, Inc.

Good day and welcome to the NGP Ingredients fourth quarter and full year 2022 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 press star then one on a 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, Investor Relations. Please go ahead.

Thank you. I'm Mike Houston with Lambert & Company, MGP's investor relations firm. And joining me 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 up the call 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 trends. 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 report filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call today. 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'd 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 and full year ended December 31st, 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. The strength and value of our business model and long-term growth strategy underpinned our performance during 2022. Strong execution from the team enabled MGP to meet increased customer demand for our products and deliver another year of record results across each of our segments. During the year, we continue to experience healthy demand for new distillate and aged whiskey in our distilling solution segment, while also continuing to invest in marketing support and innovation to grow our American whiskey and tequila brands. Additionally, our ingredient solution segment recorded another record year from a sales and gross profit perspective as consumer demand for plant-based, high-protein, and lower net carbohydrate foods continued. Consolidated sales for the year increased 25% to $782.4 million, while gross profit increased 27% to $253.3 million, representing 32.4% of sales. Operating income and adjusted operating income increased 18% and 23%, respectively, to $149 million. Adjusted EBITDA increased 20% to $169.3 million. The demand for American whiskey continues to drive growth in our distilling solution segment and resulted in brown goods sales increasing 65% and 42% on a quarterly and annual basis, respectively. Our premium plus spirits brands grew 23% in the quarter, driving further gross margin expansion in our branded spirits segment. Our ingredient solution segment delivered record results, both on a fourth quarter and full year basis, with sales growth of 28% and gross profit growth of 42% for the year. Looking at each segment in greater detail, sales in our distilling solution segment increased 22% for the year to $428.5 million. Gross profit for the year improved to $126.3 million for 29.5% of segment sales. Full-year sales of premium beverage alcohol increased 28% versus the prior year driven primarily by strong demand for both new distillate and aged whiskey. Brown Goods sales growth continues to outpace longer-term market trends and has been primarily driven by craft as well as multinational customers. Our team has done an excellent job capturing market share and unfilled demand, and our strong sales results would not have been possible without our sales team's expertise and the relationships we have cultivated, across a diverse customer base, which now stands at more than 750 Brown Goods customers. This expertise and strength of customer relationships have resulted in the vast majority of our new distillate whiskey being committed and the majority of our aged whiskey being committed for 2023. We're pleased with the improvement in demand visibility and consistency that we have achieved in Brown Goods. Whole year sales for white goods decreased 2% versus the prior year. The decline was primarily due to lower sales volumes for our white goods, premium beverage products. Sales of our industrial alcohol products decreased 25% for the year, also due to lower sales volumes. The impact of increased input costs, primarily corn and natural gas costs, along with excess supply available in the market, remained a drag to white goods and industrial alcohol gross margins. As we have previously discussed on prior calls, these unfavorable dynamics resulted in negative gross margins for industrial alcohol and white goods and reduced gross profit by $21.2 million and gross margin by approximately 1,600 basis points on a combined basis when compared to the prior year. As we look ahead to 2023, we anticipate these headwinds to continue, and comparing to 2022, we estimate 2023 industrial and white goods gross profit dollars on a combined basis are anticipated to decline another $4 million to $7 million. That said, we have taken steps to mitigate these headwinds over time. Over the past two years, we have shifted volume from industrial alcohol to white goods, which historically have better margins and better customer retention characteristics. As the market dynamics have continued to evolve due to the additional capacity for both industrial and white goods that has entered the market, in combination with higher corn and natural gas costs, we are implementing further reductions in volumes of our industrial alcohol and white goods premium beverage products to minimize the impact on our business as we enter 2023. These reductions will result in lower volumes, a decrease in full year revenue, and an unfavorable impact to gross margins for these respective product lines, which have been factored into the fiscal year 2023 guidance we will discuss later in the call. Moving to branded spirits, segment sales for the year increased 30% versus the prior year to $237.9 million. The full year increase was primarily driven by the inclusion of the Luxco brands acquired as part of the merger on April 1st, 2021. For the last three quarters of the year, Total Branded Spirits revenue was consistent with the prior year as we continue to focus on investing behind our premium plus brands while allowing our mid and value priced brands to perform in line with the overall category declines in these price tiers. For this same timeframe, investments in Premium Plus brands have resulted in revenue increasing 17% and 23% in the fourth quarter, primarily driven by our American whiskey and tequila brands' performance. For the full year, Premium Plus brands' revenue has increased from 30% of total branded spirits revenue in 2021 to 36% in 2022. Our team continues to innovate around these brands, and we're proud of the progress we've made on that front, with announced line extensions that include Remus Gatsby Reserve, Yellowstone Single Malt, Old Ezra Rye Seven Year, and El Mayor Cristalino. Importantly, these products are margin accretive to their respective brand families, and to our overall Branded Spirits gross margin profile. Gross profit for the segment increased to $95.5 million for the year for 40.1% of segment sales, which is a 600 basis point improvement in gross margin percentage versus the prior year. This increase can primarily be attributed to continued focus on investing in our premium plus American whiskey and tequila brands. Turning to ingredient solutions, sales for the year increased 28% to a record $115.9 million, while gross profit increased to $31.5 million for 27.2% of segment sales. The increase was driven primarily by higher sales of specialty wheat starches and specialty wheat proteins and strong consumer demand for foods containing higher levels of plant-based proteins and lower net carbohydrates continues. We have also begun initial shipments of Proterra seasoned crumbles utilized as a meat alternative to colleges and universities as we pilot the development of this product line in the food service channel. Construction of the textured protein extrusion facility that we previously announced remains on schedule with an expected start update during the fourth quarter of 2023. We believe the continued momentum we have realized across our specialty wheat and emerging pea-based products will enable long-term sustainable growth for the segment. Our experienced sales, innovation, and R&D teams continue to work effectively and collaboratively throughout the year to meet our customers' needs as we accomplish these record results for the year. These achievements were supported by record production levels, a direct result of productivity improvements due to our continuous improvement initiative. Before I turn the call over to Brandon, I want to thank our team for their tremendous efforts and 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 deliver strong results for the year. This concludes my initial remarks. Let me now turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?