MGP Ingredients, Inc.

Good morning and welcome to the MGP Ingredients first quarter earnings 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 remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your 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 Amit Sharma, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to MGP's first quarter earnings conference call. I'm Amit Sharma, Vice President of Investor Relations. And joining me is Brandon Gall, Interim President and Chief Executive Officer and Chief Financial Officer, and Mark Davidson, Vice President, Corporate Controller, and Head of Treasury. We will begin the call with management's prepared remarks before opening the call to analyst questions. Before we begin, 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 the risk factors described in in the company's annual and quarterly reports filed with the SEC. The company assumes no obligations to upgrade any forward-looking statements made during the call, except as required by the law. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release, which was issued this morning before the market opened and is available on our website at www.mgpingredients.com. At this time, I would like to turn the call over to Brandon Gall. Brandon.

Thank you, Amit. Good morning, everyone. I'd like to begin by offering a few highlights from our first quarter results. I'll then share some comments on the progress we're making on the key initiatives shared on our last earnings call to stabilize our brown goods business, reposition our branded spirits and ingredients businesses for growth, accelerate our company-wide productivity agenda, and fortify our balance sheet. I'll then turn things over to Mark for a detailed review of our quarterly financials. Our first quarter results delivered an encouraging start to the year and set us on course to meet our four-year guidance. While industry-wide barrel whiskey inventories remain elevated and consumers are more cautious in the current environment, we saw signs of positive progress across all three of our businesses as our teams are focusing on our most impactful initiatives in executing with great discipline. These early signs of stabilization are encouraging and give us confidence that the proactive steps we're taking are beginning to take hold. Our productivity initiatives are off to a strong start, and we are leaning harder on our competitive strengths and positioning, enabling us to reaffirm our 2025 outlook. At the same time, we also took meaningful steps to fortify our balance sheet and further increase our financial flexibility during the first half of the year. As for the first quarter of 2025, results were in line with our expectations. We believe this sets us up for improved performance throughout the rest of the year. Consolidated sales and adjusted EBITDA decreased 29% and 46% respectively from the prior year period, primarily due to the expected decline in the distilling solutions performance and cadence of the planned rebound in ingredient solutions results. Branded spirits segment sales declined by 4%. but our premium plus portfolio posted solid growth. Adjusted earnings per common share declined to 36 cents per share, while operating cash flows increased by nearly 82% to $44.7 million. I'll now take a moment to highlight the current operating environment and the progress we're making against each of our key initiatives. Starting with the Branded Spirits segment, our key initiative for our Branded Spirits segment this year is focus, to focus on fewer, but more attractive growth opportunities within our branded portfolio. Our Premium Plus portfolio continues to be the growth engine of the Branded Spirits segment. And we believe our Penelope, El Mayor, and Rebel 100 brands are particularly well positioned to benefit from our focused initiative. After demonstrated strong growth in 2024, these brands were the primary drivers of the 7% growth in our Premium Plus portfolio during the first quarter, as we refocused our brand investments behind our best opportunities. These actions, which include targeted digital campaigns, key sponsorship and sampling activations, and sharper in-store execution, are expected to expand consumer and trade awareness and engagement for these brands. Penelope's momentum continued with another quarter of strong growth. Innovation is a key component of the Penelope brand, and that trend continued with the launches of Penelope Weeded and Penelope Ready to Serve cocktails during the quarter. Penelope Wheated Bourbon is off to a strong start in several key markets with plans to further expand distribution over the coming months. Penelope Ready to Serve is the brand's first foray into the fast-growing prepared cocktail segment. It's now available in select markets in the Penelope Peach Old Fashioned flavor with plans to expand to additional markets and flavors throughout the summer. Our Rebel 100 premium offering also continues to gain momentum as we realign our Rebel brand. Our partnership with Richard Childress Racing and the number eight Kyle Busch race car is enabling Rebel 100 to expand into markets and channels that are aligned with targeted consumer cohorts for this brand. Tequila continues to expand its share of the Total Spirits category, and our premium tequila brand El Mayor is well positioned to benefit from this trend. We're launching updated packaging for El Mayor, including a new bottle in expanded sizes to complement our 750 ml offering. The updated packaging is based on feedback and collaboration with our key partners. It is expected to lift El Mayor's shelf presence in in-store merchandising activities. As we look ahead, we have a pipeline of exciting innovation to further strengthen our tequila portfolio and amplify our portfolio's rich heritage and craftsmanship. At the same time, and as expected, sales of our mid and value-tier brands declined during the quarter. This ongoing decline is consistent with overall consumer trends. However, we are taking appropriate actions intended to reduce this rate of decline while opportunistically meeting consumers where they are in the current economic environment. For our distilling solution segment, the main initiative is to strengthen our partnerships with customers. While brown goods volumes and pricing were down during the quarter, they were consistent with our expectations. As I mentioned on the fourth quarter conference call, we're taking decisive proactive actions designed to de-risk our brown goods business. These actions, which include working with customers to align on their volume needs at market-based pricing, are resonating. Our partnership-first approach is leading to more collaborative and constructive discussions, and in many cases, amending and extending supply contracts. This is an encouraging trend that seemed less likely just a few months ago. We're also taking steps to improve our partnership with Kraft customers, which has long been the foundation of MGP's brown goods heritage. We're tailoring solutions to attract new and past customers and to establish MGP as their preferred brown goods partner. At the same time, our efforts to optimize our distillery cost structure are off to a good start, helping us cushion the impact of lower brown goods volumes and enabling us to manage margins and offer more competitive prices to our customers. We continue to be disciplined with our brown goods production and inventories. Our net whiskey put away is expected to be down materially in 2025 as compared to 2024, reflecting our decision to right-size excess inventory and further improve cash flows. The overall American whiskey category is also responding to the current environment with deeper production cuts. The most recent TTB production data, which was released after our fourth quarter earnings call, is through the end of December 2024. This production data shows an increasing rate of decline in industry production volumes, with total whiskey production down 4% for the full year, down 8% for the last six months of 2024, and down 15% in the last three months of 2024. These declines are consistent with several recent news articles about closures or furloughs by a number of whiskey distilleries. While it's difficult to accurately predict the timing and extent of the production reset, we believe the actions we are seeing across the industry are a clear signal that rationalization is underway We believe the combination of scale, quality, reliability, and customization that we bring to our Brown Goods customers is unmatched in the industry. We also believe that our proactive actions position us well to emerge with a stronger competitive position and give us confidence in our four-year sales and profitability outlook for the distilling solution segment. Turning to our ingredient solution segment, our key initiative here is execution. As expected, quarterly sales were impacted by supply disruption resulting from adverse weather and complexities associated with the closure of the Atchison Distillery, as well as the commercialization of new customers. That said, the quarter was largely in line with our expectations, and we expect sequential improvement in the second quarter as projects come online and customer order patterns normalize. Underlying demand for our specialty ingredients remains strong, and we're executing with great urgency. Our Fibrosyn branded specialty starch continues to gain traction with food manufacturers seeking FDA-approved dietary fiber solutions. In specialty proteins, we're making good headway with new customers in North America, especially in the plant-based and functional food categories. Operationally, we're executing several key initiatives. Our deep well project is fully operational, and our new biofuel facility is on track to go live in the second half of 2025. We believe these investments will reduce disposal costs, improve efficiency, and further differentiate our capabilities in a competitive market. At the same time, we're increasing investments in our ingredients facility that are designed to increase throughput, improve reliability, and further streamline operations. Our teams are energized, our customer pipeline is growing, and our commercial execution is improving. We're fostering operational execution with greater cross-functional collaboration to increase transparency accountability, and responsiveness. We believe these actions will help to unlock additional growth opportunities and further solidify our position as a leading specialty wheat ingredient supplier. Despite the soft quarter, we believe the ingredient solution segment is well positioned for stronger performance for the remainder of the year. Turning now to our financial position, we made substantial progress in our initiative to fortify our balance sheet and enhance our liquidity with the upsizing of our credit facility. and the extension of our private placement shelf on favorable terms. Mark will provide more details on this in a moment, but I'm encouraged by the liquidity and financial flexibility the amended facilities provide in support of our growth agenda and other capital needs. Our balance sheet remains strong with net debt leverage well within our target range. We continue to generate solid operating cash flow, and we remain disciplined in our capital allocation, including working capital and CapEx. Our initiative to drive greater productivity across the enterprise is also taking hold. We have high productivity targets for the quarter and full year, and I'm pleased with our team's dedication and progress on this initiative. Our teams are identifying new efficiencies throughout the supply chain, streamlining processes, and working to leverage our scaling capabilities to generate additional savings. While it's early days, we believe these efforts are laying the foundation for stronger execution of our strategic initiatives. With respect to tariffs, At present, based on what has been formally announced, we do not expect tariffs to have a material impact on our four-year results. We will continue to closely monitor the tariff environment, particularly related to its potential impact on consumer confidence and purchasing behavior. Similar to our industry peers, we're not completely immune to tariff impacts and are looking across our supply chain for additional opportunities to mitigate any potential headwinds. Given the encouraging first quarter results, we are reaffirming our 2025 guidance as we continue to expect net sales in the $520 million to $540 million range, adjusted EBITDA in the $105 million to $115 million range, and adjusted basic EPS in the $2.45 to $2.75 range, with average shares outstanding of approximately $21.3 million and four-year effective tax rate of approximately 25%. Let me now hand it over to Mark for a review of our first quarter results.