MGP Ingredients, Inc.

Good morning and welcome to the MGP Ingredients Third Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 Amit Sharma, Vice President of Investor Relations. Please go ahead.

Thank you. I'm Amit Sharma, Vice President of Investor Relations, and joining me are members of the management team, including David Thatcher, Chief Executive Officer and President, and Ben Gall, Vice President of Finance and Chief Financial Officer. We'll begin the call with management's prepared remarks and then open 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. The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including risk factors described in the company's most recent and will apply with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call except as acquired by law. 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 compatible GAAP measures is 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 our website at www.mgpimpedia.com. At this time, I would like to turn the call over to MGP's Chief Executive Officer and President, David Thatcher.

David. Thank you, Amit. Good morning, everyone. I would like to begin with an overview of our third quarter performance and provide updates on key initiatives. I will then turn it over to Brandon to discuss our quarterly results in greater detail. Lastly, we will wrap up with discussions for our outlook for the full year, as well as brief comments on 2025, before opening it up for your questions. As for the third quarter, results were in line with the preliminary results we provided two weeks ago and below our prior expectations. Like many in the industry, we are facing challenges in our distilling the solution segment in regards to the American whiskey category. Consolidated sales decreased 24% from the prior year period. On a pro forma basis, when factoring in the Atchison distillery closure, consolidated sales decreased by 14%, primarily due to the combination of our wheat-brown goods performance and export headwinds in our ingredient solutions business. Brandon will discuss our quarterly results in greater detail, but let me spend a few minutes outlining the actions we are taking to strengthen our brown good business as the market corrects for excess whiskey inventories and increased distilling capacity. As we shared with you on our fourth quarter call at the start of the year, part of our strategic plan has been to actively reduce our exposure to age sales by increasing our new distillate business. Although our efforts are working as aged whiskey accounted for less than 20% of our consolidated gross profit in the third quarter, down from nearly half in Q1 of 2021, the aged market appears to be weakening at a faster pace than we originally anticipated. Softening whiskey consumption and elevated industry-wide barrel whiskey inventories are having a larger and quicker-than-expected impact on not only our aged whiskey spot sales, but also on our new dissonant volumes. As we moved through the third quarter, our spot sales slowed, and we saw some customers were having difficulties in meeting their contractual obligations to purchase whiskey. This dynamic is more pronounced in our sales to smaller craft customers who are likely to be more impacted by slower retail sales and ongoing destocking at a wholesale and retail level. To be clear, the American whiskey category is still growing, but slower growth and higher inventories are leading to lower demand, lower prices, and reduced visibility on our contract distilling sales. We believe that the underlying environment will remain challenging and likely put even more pressure on our brown good sales and profitability in 2025. We are disappointed by the impact this faster-than-expected deterioration is having on our financial results. Although the American whiskey category has successfully navigated periods of temporary supply, demand, and balance over the years, we are not sitting idle and waiting for the industry dynamics to improve. Let me highlight four proactive actions to stabilize our brown goods business. First, let me begin by reaffirming our commitment to remain a leading supplier of American whiskey to our craft and multinational customers. Our whiskey inventories remain an important part of the still-expanding American whiskey category, and we believe our ability to provide high-quality aged and new distillate with unique match bills at our scale is unmatched in the industry, evident in our partnership with several high-profile brands. Second, we are reducing our whiskey production and aging whiskey cutaways in 2025 to better align with lower category demands. While we are optimizing our distillery cost structures to mitigate the impact of low production volumes, it likely will be a margin headwind in the near term. Third, we are enhancing our efforts to expand into international markets, particularly Europe and Asia, to leverage the American whiskey category's strong growth potential outside of the United States. Fourth and lastly, our exposure to spot H sales is down substantially, and we continue to reduce it further by focusing on multi-year new dis-link contracts. We believe this is the right strategy in the current environment as we optimize our brown goods profits by increasing our volume share at market-based pricing. I am confident that our actions will put our distilling solution segment on solid footing over the longer term. However, given the pace of the changes in the brown goods contract selling category, we expect it to be an even bigger headwind in our 2025 results. With respect to brands, I am happy to report that our progress towards becoming a premier branded spirits company remains on track. We continue to focus on expanding our premium plus price tier portfolio to better align it with consumer preferences and structurally lift our margin profile. In fact, year-to-date, our premium plus sales are up 13% compared to last year. Premium plus now accounts for approximately half of our branded spirit segment sales, which is up from 30% for the full year 2021. Though our premium plus sales growth slowed down to 1% in the third quarter as we cycled the launch of Penelope in many key markets in the prior year period, the rest of our premium plus brands continue to post solid growth. As I look ahead, I expect further inventory tightening at the distributor level to be a headwind in the near term. While days on hand inventory for our unit cases remain stable, our shift to higher price premium plus brands adds cost to the distributor's balance sheets, leading to further tightening. That aside, I expect our Premium Plus portfolio, including Penelope, to continue to gain traction with our customers. With that, let me hand it over to Brandon for a review of our quarterly results and revised full-year guidance. Brandon?