MGP Ingredients, Inc.

Good morning and welcome to the MGP Ingredients first quarter 2023 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 touch-tone phone. To withdraw from the question queue, 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 at Lambert. Please go ahead.

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 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. Additionally, this call will contain reference to certain non-GAAP measures which we believe are useful in evaluating the company's performance. Reconciliations of these measures to most directly comparable GAAP measures are included in today's earnings release. If anyone does not already have a copy of the earnings 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 March 31st, 2023, 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 year is off to another strong start, and we remain encouraged by our continued momentum this quarter. During the first quarter, we achieved our second best quarterly gross profit and adjusted EBITDA performance in company history. The results this quarter were second only to the first quarter of 2022, which represented a record for the company. The continued strength and value of our business model and long-term growth strategy underpinned our success this quarter. Consolidated sales for the first quarter of 2023 increased 3% to $201 million, while gross profit decreased 3% to $69.8 million, representing 34.7% of consolidated sales. In our distilling solution segment, we achieved record sales of brown goods, resulting in an increase of 10% from the prior year period. The increase was driven primarily by strong new distillate customer commitments higher pricing across all brown goods, and stronger than expected customer demand for spot purchases. In our Branded Spirits segment, revenue increased 2% for the quarter, while revenue for our Premium Plus price tier brands decreased 14% compared to the prior year quarter. As we mentioned during last quarter's earnings call, our Branded Spirits Premium Plus price tier revenue primarily related to our Yellowstone brand, was impacted during the quarter by higher than normal inventory levels at distributors. Excluding sales of our Yellowstone brand from current and prior year periods, premium plus brand revenues were up high single digit percentages compared to the prior year. During the quarter, we completed a realignment of our national distribution capabilities with Republic National Distributing Company or RNDC. Associated with this realignment, we positioned inventory at additional RNDC distribution centers as part of the transition, which resulted in increased shipments primarily related to our mid and value brands toward the end of the first quarter. Turning to our ingredient solution segment, the team has maintained a high level of execution and continues to optimize the product mix to benefit from broader consumer trends, including the shift toward plant-based diets. These continued efforts are reflected by the segment sales growth of 10% and gross profit growth of more than $4 million during the quarter. Each of these figures represents another record for the segment. Looking at each segment in greater detail. Sales for our distilling solution segment increased 2% to $113.2 million during the quarter. Gross profit decreased to $33 million, or 29.2% of segment sales. The decline in gross profit can primarily be attributed to higher input costs for white goods and industrial alcohol, as well as our inability to pass through these costs due to excess supply of these products in the market. As expected, planned volume reductions for aged brown goods within the quarter also impacted gross profit, although this was primarily or partially offset by increased volume for new distillate and increased pricing across all brown goods. Sales of our premium beverage alcohol increased 2% with continued strength in brown good sales this quarter, supported by ongoing solid demand for our new distillate and aged whiskey. We remain confident that our significant share, scale advantage, and our aging whiskey inventory position will continue to support the demand within the American whiskey category. We're pleased with the improvement in demand visibility and consistency that we achieved in brown goods as brown goods sales growth continues to outpace longer-term market trends and is primarily driven by craft as well as multinational customers. In an effort to moderate the impact of increased input costs and excess supply available in the market for industrial alcohol and white goods, as discussed on our previous call, we reduced the volumes produced and sold of our industrial alcohol and white goods products during the first quarter to minimize the negative impact on our profitability. As a result, white goods sales for the quarter decreased by 21%, and sales of our industrial alcohol products decreased 9%. As anticipated, industrial alcohol and white goods incurred negative gross margins for the quarter. On a combined basis, when compared to the prior year, industrial alcohol and white goods gross profit decreased $2.8 million, which was in line with our expectations. As stated in our last quarter call, we anticipate these headwinds to persist throughout the year. We continue to believe 2023 industrial alcohol and white goods gross profit dollars on a combined basis for the full year will decline $4 million to $7 million compared to the prior year. We continue to explore further actions that can be taken with respect to our white goods and industrial alcohol products to minimize the headwinds associated with these products. Turning to branded spirits, segment sales for the first quarter increased 2% versus the prior year period to $56.9 million, driven by increased volume of our mid and value price tier brands, resulting from the recent realignment of our national distribution capabilities toward the end of the first quarter, as well as increased pricing. Gross profit decreased slightly to $24.6 million for 43.2% of segment sales. The decline in gross profit can primarily be attributed to decreased shipments of the Yellowstone brand as described earlier in the call. This was partially offset by the benefit of cycling through lower cost inventory at the start of the year. We anticipate the product mix of our overall branded spirits portfolio to normalize as we cycle through these dynamics for the balance of the year. Sales for our Premium Plus portfolio decreased by 14% compared to the prior year. As previously mentioned, the decline reflects cycling over a record quarter of Premium Plus sales last year as distributors purchased more than expected, resulting in a tough year-over-year comparison. We remain encouraged by the ongoing strength and demand for premium plus American whiskey and tequila brands and will continue to invest in marketing support to achieve sustainable and profitable organic growth for our brands in these spirits categories. Turning to ingredient solutions, sales for the quarter increased 10% to $30.9 million, while gross profit increased to $12.2 million, or 39.5% of segment sales. The increase in sales was primarily driven by higher sales of specialty wheat proteins, as well as commodity protein and commodity wheat starches, as rising consumer demand for plant-based proteins and food products with lower net carbohydrates continue to gain popularity. Gross profit this quarter also benefited from cycling through lower cost inventory at the start of the year driving the segments gross margin higher. The momentum we continue to realize across our specialty ingredients products is driven by ongoing consumer demand for foods containing plant-based proteins and high fiber content. As we continue to align with these trends, construction of the textured protein extrusion facility that we previously announced remains on schedule with an expected start date during the fourth quarter of 2023. Finally, I want to thank our team for their tremendous efforts and continued execution. Their ability to build on the momentum we generated in 2022 to meet consumer demand and align with long-term trends enabled us to deliver strong results in the first 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?