MGP INGREDIENTS REPORTS STRONG THIRD QUARTER 2023 RESULTS
Consolidated gross profit increased 24%;
Continued gross margin expansion across all business segments;
Increases full year guidance
ATCHISON, Kan., November 2, 2023 - MGP Ingredients, Inc. (Nasdaq: MGPI), a leading provider of distilled spirits, branded spirits, and food ingredient solutions, today reported results for the third quarter ended September 30, 2023.
2023 third quarter consolidated results compared to 2022 third quarter:
•Sales increased 5% to $211.6 million.
•Gross profit increased 24% to $73.4 million, representing 34.7% of sales.
•Operating income decreased 41% to $19.8 million and net income decreased 45% to $13.1 million, primarily due to the impairment of assets and other one-time expenses of $18.3 million related to the planned Atchison distillery closure as well as the increase in fair value of contingent consideration of $4.2 million related to the Penelope acquisition.
•Adjusted operating income increased 26% to $42.7 million and adjusted net income increased 28% to $30.2 million.
•Adjusted EBITDA increased 24% to $48.1 million.
•Basic earnings per common share (“EPS”) decreased to $0.59 per share from $1.07 per share and diluted EPS decreased to $0.58 per share from $1.06 per share, primarily due to the impairment of assets and other one-time expenses related to the planned Atchison distillery closure as well as the increase in fair value of contingent consideration related to the Penelope acquisition.
•Adjusted basic EPS increased to $1.36 per share from $1.07 per share and adjusted diluted EPS increased to $1.34 per share from $1.06 per share.
“We are very pleased with our continued momentum this quarter, which has again yielded strong results across each of our business segments,” said David Colo, president and CEO of MGP Ingredients. “Sales of brown goods grew 28% from the prior year period, driven by strong demand for our new distillate and aged whiskey. The closure of the Atchison white goods and industrial alcohol distillery, which is consistent with our long-term strategic objectives, remains on track. Within our Branded Spirits segment, sales of our premium plus brands grew 33% from the prior year period, which led to additional gross margin expansion for the segment. Our Ingredient Solutions business once again generated record results during the quarter and continued to benefit from consumer preference toward high protein, low net carb diets. We remain committed to executing against our strategy and believe our continued strong performance underscores the strength of our business model.”
Distilling Solutions
In the third quarter 2023, sales for the Distilling Solutions segment increased 3% to $111.9 million year- over-year, driven by strong quarterly sales of brown goods, up 28% versus the prior year period. Gross profit
1
increased to $33.3 million or 29.8% of segment sales, compared to $25.9 million or 23.9% of segment sales in the third quarter 2022.
Branded Spirits
For the third quarter 2023, sales for the Branded Spirits segment increased 6% to $66.8 million, led by sales of premium plus brands, which increased 33% to $30.8 million. Gross profit increased to $29.0 million, or 43.5% of segment sales, compared to $25.1 million, or 39.9% of segment sales in the third quarter 2022.
Ingredient Solutions
In the third quarter 2023, sales in the Ingredient Solutions segment increased 11% to $33.0 million versus the prior-year period. Gross profit increased to $11.1 million, or 33.8% of segment sales, compared to $8.1 million, or 27.1% of segment sales in the third quarter 2022.
Other
Advertising and promotion expenses for the third quarter 2023 increased $2.2 million to $9.5 million as compared to the third quarter 2022.
Corporate selling, general and administrative ("SG&A") expenses for the third quarter 2023 increased $3.7 million to $21.6 million as compared to the third quarter 2022.
During the third quarter, the impairment of assets and other one-time expenses totaled $18.3 million related to the planned closure of the Atchison distillery, and the change in fair value of the contingent consideration totaled $4.2 million related to the Penelope acquisition.
The corporate effective tax rate for the third quarter 2023 was 25.0%, compared with 24.2% from the third quarter 2022.
2023 Outlook
MGP is offering the following revised consolidated guidance for fiscal 2023:
•Sales are projected to be in the range of $815 million to $835 million.
•Adjusted EBITDA is expected to be in the range of $192 million to $197 million.
•Adjusted basic EPS is forecasted to be in the $5.50 to $5.65 range, with basic weighted average shares outstanding expected to be approximately 22.1 million at year end.
Conference Call and Webcast Information
MGP Ingredients will host a conference call for analysts and institutional investors at 10 a.m. ET today to discuss these results and current business trends. The conference call and webcast will be available via:
Webcast: ir.mgpingredients.com on the Events & Presentations page
Conference Call: 844-308-6398 (domestic) or 412-717-9605 (international)
About MGP Ingredients, Inc.
MGP Ingredients, Inc. (Nasdaq: MGPI) is a leading producer of premium distilled spirits, branded spirits, and food ingredient solutions. Since 1941, we have combined our expertise and energy aimed at formulating excellence, bringing product ideas to life collaboratively with our customers.
As one of the largest distillers in the U.S., MGP’s offerings include bourbon and rye whiskeys, gins, and vodkas, which are created at the intersection of science and imagination, for customers of all sizes, from crafts to multinational brands. With distilleries in Kentucky, Indiana, and Kansas, and bottling operations in Missouri, Ohio, and Northern Ireland, MGP has the infrastructure and expertise to create on any scale.
2
MGP’s branded spirits portfolio covers a wide spectrum of brands in every segment, including iconic brands from Luxco, which was founded in 1958 by the Lux Family. Luxco is a leading producer, supplier, importer, and bottler of beverage alcohol products. Our branded spirits mission is to meet the needs and exceed the expectations of consumers, associates, and business partners. Luxco’s award-winning spirits portfolio includes well-known brands from four distilleries: Bardstown, Kentucky-based Lux Row Distillers, home of Ezra Brooks, Rebel, Blood Oath, David Nicholson and Daviess County; Lebanon, Kentucky-based Limestone Branch Distillery, maker of Yellowstone Kentucky Straight Bourbon Whiskey, Minor Case Straight Rye Whiskey and Bowling & Burch Gin; Jalisco, Mexico-based Destiladora González Lux, producer of 100% agave tequilas, El Mayor, Exotico and Dos Primos; and the historic Ross & Squibb Distillery in Lawrenceburg, Indiana, where Penelope Bourbon, Remus Straight Bourbon Whiskey and Rossville Union Straight Rye Whiskey are produced. The innovative and high-quality brand portfolio also includes Everclear Grain Alcohol, Pearl Vodka, Green Hat Gin, Saint Brendan’s Irish Cream, The Quiet Man Irish Whiskey, and other well-recognized brands.
In addition, our Ingredient Solutions segment offers specialty proteins and starches that help customers harness the power of plants and provide a host of functional, nutritional, and sensory benefits for a wide range of food products.
The transformation of American grain into something more is in the soul of our people, products, and history. We’re devoted to unlocking the creative potential of this extraordinary resource. For more information, visit mgpingredients.com.
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the strategy and strategic objectives of MGP Ingredients, Inc. (the “Company” or “MGP”), its business model strength, and the Company’s 2023 outlook, including its expectations for sales, adjusted EBITDA, adjusted basic EPS, and shares outstanding. Forward looking statements are usually identified by or are associated with words such as “intend,” “plan,” “believe,” “estimate,” “expect,” “anticipate,” “project,” “forecast,” “hopeful,” “should,” “may,” “will,” “could,” “encouraged,” “opportunities,” “potential,” and similar terminology. These forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance, Company financial results, and Company financial condition and are not guarantees of future performance.
All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Factors that could cause actual results to differ materially from our expectations include without limitation any effects of disruptions in our operations or a catastrophic event at our facilities; commodity price fluctuations; the effectiveness or execution of our strategic plan; our reliance on a limited number of suppliers; climate change and legal, regulatory or market measures to address climate change; product recalls or other product liability claims; damage to our reputation or that of any of our key customers or their brands; adverse public opinion about any of our specialty ingredients; warehouse expansion issues; our reliance on fewer, more profitable customer relationships; commercial, political, and financial risks; regulation and taxation requirements; tariffs, trade relations, and trade policies; labeling or warning requirements or limitations on the availability of our products; anti-corruption laws, trade sanctions and restrictions; changes in consumer preferences and purchases and our ability to anticipate or react to those changes; changes in public opinion about alcohol; our reliance on our distributors to distribute our branded spirits within their territories; failure to secure and maintain listings in control states; changes in excise taxes, incentives and customs duties; class action or other litigation; the availability and cost of raw materials, product ingredients, energy resources, or labor; global supply chain challenges; inflation; the ongoing military conflict between Ukraine and Russia; our ability to protect our intellectual property rights and defend against alleged intellectual property rights infringement claims; our dual-class stock structure and governing document provisions; our reliance on key information technology systems, networks, processes, associated sites, or service providers; acquisitions and potential future acquisitions; our ability to compete and competitive market conditions; work disruptions or stoppages; our reliance on key management personnel; covenants and other provisions in our credit arrangements; interest rate increases; pandemics or other health crises; and our planned closure of our Atchison, Kansas distillery. For further information on these risks and uncertainties and other factors that could affect the Company’s business, see the “Risk Factors”
3
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2023, as well as the Company’s other SEC filings. The Company undertakes no obligation to update any forward-looking statements or information in this press release, except as required by law.
Non-GAAP Financial Measures
In addition to reporting financial information in accordance with U.S. GAAP, the Company provides certain non-GAAP financial measures that are not in accordance with, or alternatives for, GAAP. In addition to the comparable GAAP measures, the Company has disclosed adjusted operating income, adjusted income before income taxes, adjusted net income, adjusted MGP earnings, adjusted EBITDA and adjusted basic and diluted EPS, as well as guidance for adjusted EBITDA and adjusted basic EPS. The presentation of these non-GAAP financial measures should be reviewed in conjunction with operating income, income before income taxes, net income, net income used in earnings per common share calculation, and basic and diluted EPS computed in accordance with U.S. GAAP and should not be considered a substitute for the GAAP measure. We believe that the non-GAAP measures provide useful information to investors regarding the Company's performance and overall results of operations. In addition, management uses these non-GAAP measures in conjunction with GAAP measures when evaluating the Company’s operating results compared to prior periods on a consistent basis, assessing financial trends, and for forecasting purposes. Non-GAAP financial measures may not provide information that is directly comparable to other companies, even if similar terms are used to identify such measures. The attached schedules provide a full reconciliation of historical non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure. Full year 2023 guidance measures of adjusted EBITDA and adjusted basic EPS are provided on a non-GAAP basis without a reconciliation to the most directly comparable GAAP measures because the Company is unable to predict with a reasonable degree of certainty certain items contained in the GAAP measures without unreasonable efforts. Such items include without limitation, acquisition related expenses, restructuring and related expenses, and other items not reflective of the Company's ongoing operations.
For More Information
Investors & Analysts:
Mike Houston
646-475-2998 or investor.relations@mgpingredients.com
Media:
Greg Manis
913-360-5440 or greg.manis@mgpingredients.com
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MGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD
(Dollars in thousands)
Operating income, quarter versus quarter
Operating Income
Change
Operating income for the quarter ended September 30, 2022
$
33,864
Increase in gross profit - Distilling Solutions segment
7,363
22
%
Increase in gross profit - Branded Spirits segment
3,973
12
pp(a)
Increase in gross profit - Ingredient Solutions segment
3,064
9
pp
Increase in advertising and promotion expenses
(2,226)
(7)
pp
Increase in SG&A expenses
(3,665)
(11)
pp
Impairment of long-lived assets and other
(18,334)
(54)
pp
Change in fair value of contingent consideration
(4,200)
(12)
pp
Operating income for the quarter ended September 30, 2023
$
19,839
(41)
%
Operating income, year to date versus year to date
Operating Income
Change
Operating income for the year to date ended September 30, 2022
$
119,250
Increase in gross profit - Distilling Solutions segment
10,356
9
%
Increase in gross profit - Ingredient Solutions segment
10,291
9
pp(a)
Increase in gross profit - Branded Spirits segment
8,827
7
pp
Increase in advertising and promotion expenses
(7,029)
(6)
pp
Increase in SG&A expenses
(13,620)
(11)
pp
Impairment of long-lived assets and other
(18,334)
(15)
pp
Change in fair value of contingent consideration
(4,200)
(4)
pp
Operating income for the year to date ended September 30, 2023
$
105,541
(11)
%
(a) Percentage points (“pp”).
5
MGP INGREDIENTS, INC.
EARNINGS PER COMMON SHARE (“EPS”) ROLLFORWARD
Change in EPS, quarter versus quarter
EPS
Change
Basic EPS for the quarter ended September 30, 2022
$
1.07
Change in operating income (b)
(0.48)
(45)
%
Change in other income (expense), net(b)
0.05
5
pp(a)
Change in interest expense, net (b)
(0.03)
(3)
pp
Change in effective tax rate
(0.02)
(2)
pp
Basic EPS for the quarter ended September 30, 2023
$
0.59
(45)
%
Impact of dilutive shares outstanding
(0.01)
(1)
pp
Diluted EPS for the quarter ended September 30, 2023
$
0.58
(46)
%
Change in EPS, year to date versus year to date
EPS
Change
Basic EPS for the year to date ended September 30, 2022
$
3.91
Change in operating income(b)
(0.47)
(12)
%
Change in other income (expense), net(b)
0.08
2
pp(a)
Change in effective tax rate
(0.08)
(2)
pp
Change in weighted average shares outstanding
(0.01)
—
pp
Basic EPS for the year to date ended September 30, 2023
$
3.43
(12)
%
Impact of dilutive shares outstanding
(0.02)
(1)
pp
Diluted EPS for the year to date ended September 30, 2023
$
3.41
(13)
%
(a) Percentage points (“pp”).
(b) Items are net of tax based on the effective tax rate for the base year (2022).
6
MGP INGREDIENTS, INC.
SALES BY OPERATING SEGMENT
(Dollars in thousands)
DISTILLING SOLUTIONS SALES
Quarter Ended September 30,
Quarter versus Quarter Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Brown goods
$
73,409
$
57,423
$
15,986
28
%
White goods
14,429
20,469
(6,040)
(30)
Premium beverage alcohol
87,838
77,892
9,946
13
Industrial alcohol
9,407
10,761
(1,354)
(13)
Food grade alcohol
97,245
88,653
8,592
10
Fuel grade alcohol
1,509
3,713
(2,204)
(59)
Distillers feed and related co-products
5,746
9,943
(4,197)
(42)
Warehouse services
7,353
6,335
1,018
16
Total Distilling Solutions
$
111,853
$
108,644
$
3,209
3
%
BRANDED SPIRITS SALES
Quarter Ended September 30,
Quarter versus Quarter Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Ultra premium
$
20,107
$
13,804
$
6,303
46
%
Super premium
3,637
3,350
287
9
Premium
7,099
6,013
1,086
18
Premium plus
30,843
23,167
7,676
33
Mid
17,650
20,834
(3,184)
(15)
Value
11,049
12,097
(1,048)
(9)
Other
7,277
6,663
614
9
Total Branded Spirits
$
66,819
$
62,761
$
4,058
6
%
INGREDIENT SOLUTIONS SALES
Quarter Ended September 30,
Quarter versus Quarter Sales Change Increase / (Decrease)
2023
2022
$ Change
% Change
Specialty wheat starches
$
17,196
$
16,241
$
955
6
%
Specialty wheat proteins
11,440
9,697
1,743
18
Commodity wheat starches
4,226
3,803
423
11
Commodity wheat proteins
90
—
90
N/A
Total Ingredient Solutions
$
32,952
$
29,741
$
3,211
11
%
7
MGP INGREDIENTS, INC.
SALES BY OPERATING SEGMENT
DISTILLING SOLUTIONS SALES
Year to Date Ended September 30,
Year to Date versus Year to Date Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Brown goods
$
214,857
$
175,899
$
38,958
22
%
White goods
47,199
57,996
(10,797)
(19)
Premium beverage alcohol
262,056
233,895
28,161
12
Industrial alcohol
29,911
35,141
(5,230)
(15)
Food grade alcohol
291,967
269,036
22,931
9
Fuel grade alcohol
5,963
10,307
(4,344)
(42)
Distillers feed and related co-products
23,053
30,127
(7,074)
(23)
Warehouse services
20,958
17,821
3,137
18
Total Distilling Solutions
$
341,941
$
327,291
$
14,650
4
%
BRANDED SPIRITS SALES
Year to Date Ended September 30,
Year to Date versus Year to Date Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Ultra premium
$
43,594
$
35,836
$
7,758
22
%
Super premium
9,614
9,522
92
1
Premium
20,144
17,928
2,216
12
Premium plus
73,352
63,286
10,066
16
Mid
55,575
63,408
(7,833)
(12)
Value
36,048
36,304
(256)
(1)
Other
16,343
14,080
2,263
16
Total Branded Spirits
$
181,318
$
177,078
$
4,240
2
%
INGREDIENT SOLUTIONS SALES
Year to Date Ended September 30,
Year to Date versus Year to Date Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Specialty wheat starches
$
48,977
$
47,445
$
1,532
3
%
Specialty wheat proteins
35,918
29,225
6,693
23
Commodity wheat starches
12,870
10,286
2,584
25
Commodity wheat proteins
611
38
573
1,508
Total Ingredient Solutions
$
98,376
$
86,994
$
11,382
13
%
8
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share and per share amounts)
Quarter Ended September 30,
Year to Date Ended September 30,
2023
2022
2023
2022
Sales
$
211,624
$
201,146
$
621,635
$
591,363
Cost of sales
138,176
142,098
402,068
401,270
Gross profit
73,448
59,048
219,567
190,093
Advertising and promotion expenses
9,505
7,279
25,877
18,848
Selling, general, and administrative expenses
21,570
17,905
65,615
51,995
Impairment of long-lived assets and other
18,334
—
18,334
—
Change in fair value of contingent consideration
4,200
—
4,200
—
Operating income
19,839
33,864
105,541
119,250
Interest expense, net
(2,353)
(1,350)
(4,630)
(4,491)
Other income (expense), net
(25)
(1,353)
5
(2,361)
Income before income taxes
17,461
31,161
100,916
112,398
Income tax expense
4,373
7,533
24,832
26,037
Net income
13,088
23,628
76,084
86,361
Net loss attributable to noncontrolling interest
123
180
324
444
Net income attributable to MGP Ingredients, Inc.
13,211
23,808
76,408
86,805
Income attributable to participating securities
(129)
(188)
(760)
(688)
Net income used in earnings per common share calculation
$
13,082
$
23,620
$
75,648
$
86,117
Weighted average common shares
Basic
22,066,159
22,008,381
22,056,270
22,000,026
Diluted
22,381,516
22,228,814
22,207,031
22,000,026
Earnings per common share
Basic
$
0.59
$
1.07
$
3.43
$
3.91
Diluted
$
0.58
$
1.06
$
3.41
$
3.91
9
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
September 30, 2023
December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents
$
28,030
$
47,889
Receivables, net
126,692
109,267
Inventory
342,401
289,722
Prepaid expenses
4,600
2,957
Refundable income taxes
2,193
4,327
Total Current Assets
503,916
454,162
Property, plant, and equipment
465,746
450,800
Less accumulated depreciation and amortization
(222,497)
(215,168)
Property, Plant, and Equipment, net
243,249
235,632
Operating lease right-of-use assets, net
15,551
15,042
Investment in joint ventures
5,343
5,534
Intangible assets, net
272,520
216,768
Goodwill
321,544
226,294
Other assets
4,242
4,779
TOTAL ASSETS
$
1,366,365
$
1,158,211
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt
$
6,400
$
5,600
Accounts payable
54,403
66,432
Federal and state excise taxes payable
2,719
4,627
Accrued expenses and other
26,586
28,716
Total Current Liabilities
90,108
105,375
Long-term debt, less current maturities
114,812
29,510
Convertible senior notes
195,465
195,225
Long-term operating lease liabilities
12,606
11,622
Contingent consideration
66,300
—
Other noncurrent liabilities
3,888
3,723
Deferred income taxes
65,000
67,112
Total Liabilities
548,179
412,567
Total equity
818,186
745,644
TOTAL LIABILITIES AND TOTAL EQUITY
$
1,366,365
$
1,158,211
10
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Year to Date Ended September 30,
2023
2022
Cash Flows from Operating Activities
Net income
$
76,084
$
86,361
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
16,272
16,257
Impairment of long-lived assets and other
18,334
—
Share-based compensation
5,651
3,086
Equity method investment loss
191
1,036
Deferred income taxes, including change in valuation allowance
(2,112)
(302)
Change in fair value of contingent consideration
4,200
—
Other, net
376
426
Changes in operating assets and liabilities, net of effects of acquisition:
Receivables, net
(14,980)
(15,582)
Inventory
(42,015)
(30,599)
Prepaid expenses
(1,517)
1,165
Income taxes payable (refundable)
2,134
(1,006)
Accounts payable
(10,069)
12,613
Accrued expenses and other
(2,471)
1,220
Federal and state excise taxes payable
(1,908)
(2,279)
Other, net
435
(143)
Net cash provided by operating activities
48,605
72,253
Cash Flows from Investing Activities
Additions to property, plant, and equipment
(42,062)
(29,217)
Purchase of business, net of cash acquired
(103,712)
—
Contributions to equity method investment
—
(2,232)
Other, net
(916)
(315)
Net cash used in investing activities
(146,690)
(31,764)
Cash Flows from Financing Activities
Payment of dividends and dividend equivalents
(8,006)
(7,984)
Purchase of treasury stock
(801)
(714)
Proceeds from long-term debt
105,000
—
Principal payments on long-term debt
(18,000)
(2,603)
Net cash provided by (used in) financing activities
78,193
(11,301)
Effect of exchange rate changes on cash and cash equivalents
33
(82)
Increase (decrease) in cash and cash equivalents
(19,859)
29,106
Cash and cash equivalents, beginning of period
47,889
21,568
Cash and cash equivalents, end of period
$
28,030
$
50,674
11
MGP INGREDIENTS, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO ADJUSTED NON-GAAP MEASURES (UNAUDITED)
(in thousands)
Quarter Ended September 30, 2023
Operating Income
Income before Income Taxes
Net Income(b)
MGP Earnings(a)
Basic EPS
Diluted EPS
Reported GAAP Results
$
19,839
$
17,461
$
13,088
$
13,082
$
0.59
$
0.58
Adjusted to remove:
Impairment of long-lived assets and other (c)
18,334
18,334
13,750
13,750
0.62
0.61
Fair value of contingent consideration(d)
4,200
4,200
3,150
3,150
0.14
0.14
Business acquisition costs (e)
314
314
235
235
0.01
0.01
Adjusted Non-GAAP results
$
42,687
$
40,309
$
30,223
$
30,217
$
1.36
$
1.34
Quarter Ended September 30, 2022
Operating Income
Income before Income Taxes
Net Income
MGP Earnings(a)
Basic EPS
Diluted EPS
Reported GAAP Results
$
33,864
$
31,161
$
23,628
$
23,620
$
1.07
$
1.06
Adjusted to remove:
No adjustments for the period
—
—
—
—
—
Adjusted Non-GAAP results
$
33,864
$
31,161
$
23,628
$
23,620
$
1.07
$
1.06
Year to Date Ended September 30, 2023
Operating Income
Income before Income Taxes
Net Income(b)
MGP Earnings(a)
Basic EPS
Diluted EPS
Reported GAAP Results
$
105,541
$
100,916
$
76,084
$
75,648
$
3.43
$
3.41
Adjusted to remove:
Impairment of long-lived assets and other (c)
18,334
18,334
13,824
13,824
0.63
0.62
Fair value of contingent consideration(d)
4,200
4,200
3,167
3,167
0.14
0.14
Business acquisition costs (e)
1,814
1,814
1,368
1,368
0.06
0.06
Adjusted Non-GAAP results
$
129,889
$
125,264
$
94,443
$
94,007
$
4.26
$
4.23
Year to Date Ended September 30, 2022
Operating Income
Income before Income Taxes
Net Income
MGP Earnings(a)
Basic and Diluted EPS
Reported GAAP Results
$
119,250
$
112,398
$
86,361
$
86,117
$
3.91
Adjusted to remove:
No adjustments for the period
—
—
—
—
—
Adjusted Non-GAAP results
$
119,250
$
112,398
$
86,361
$
86,117
$
3.91
(a)MGP Earnings is defined as "Net income used in Earnings Per Common Share calculation."
(b)The tax rate used for non-GAAP items for the quarter and year to date ended September 30, 2023 was 25.0% and 24.6%, respectively.
(c)The impairment of long-lived assets and other relates to the planned closure of the Atchison Distillery, which included $17,112 of impairment of assets as well as $1,222 of expenses related to severance costs, contract termination fees, and consulting fees. Impairment of long-lived assets and other are included in the Consolidated Statement of Income as a component of operating income and relates to the Distilling Solutions segment.
(d)Fair value of contingent consideration relates to the quarterly adjustment of the contingent consideration related to the acquisition of Penelope Bourbon LLC. It is included in the Consolidated Statement of Income as a component of operating income and relates to the Branded Spirits segment.
(e)Business acquisition costs are included in the Consolidated Statement of Income within the selling, general, and administrative line item and include transaction and integration costs associated with the acquisition of Penelope Bourbon LLC.
12
MGP INGREDIENTS, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (UNAUDITED)
(in thousands)
Quarter Ended September 30,
Year to Date Ended September 30,
2023
2022
2023
2022
Net Income
$
13,088
$
23,628
$
76,084
$
86,361
Interest expense
2,353
1,350
4,630
4,491
Income tax expense
4,373
7,533
24,832
26,037
Depreciation and amortization
5,782
5,333
16,272
16,257
Equity method investment loss (income)
(388)
856
191
1,036
Impairment of long-lived assets and other
18,334
—
18,334
—
Fair value of contingent consideration
4,200
—
4,200
—
Business acquisition costs
314
—
1,814
—
Adjusted EBITDA
$
48,056
$
38,700
$
146,357
$
134,182
The non-GAAP adjusted EBITDA measure is defined as earnings before interest expense, income tax expense, depreciation and amortization, equity method investment loss (income), impairment of long-lived assets and other, fair value of contingent consideration, and business acquisition costs. See "Reconciliation of selected GAAP measure to adjusted non-GAAP measures" for further details.
(a)Number of bonds outstanding is calculated by taking the principal amount of the bonds divided by the par value.
(b)Average share price is calculated by taking the average of the daily closing share price for the period. If the average share price is less than the conversion price of $96.23620 per share, the impact to EPS is anti-dilutive and therefore the shares were excluded from the diluted EPS calculation.
(c)Impact of conversion is calculated by taking the number of bonds outstanding multiplied by the initial conversion rate multiplied by the average share price. If the average share price is less than the conversion price then the impact of conversion is zero.
(d)The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares outstanding if the impact was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $96.23620 per share.
(e)Conversion premium in shares is calculated by taking the conversion premium divided by the average share price. If the average share price is less than the conversion price, then the conversion premium in shares is zero.
14
MGP INGREDIENTS, INC.
Purchase Accounting - Summary of Preliminary Fair Value Step Up
(UNAUDITED)
(in thousands)
The acquisition of Penelope Bourbon LLC, which closed on June 1, 2023, was accounted for as a business combination in accordance with Accounting Standard Codification 805, Business Combinations, and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value of the assets and liabilities are based upon a preliminary assessment of fair value and may change as valuations for certain tangible assets, intangible assets, and contingent liabilities are finalized and the associated income tax impacts are determined. The Company expects to finalize the purchase price allocation as soon as practicable, but no longer than one year from the acquisition date. The table below reflects the summary for distributor relationships preliminary purchase price accounting step up to fair value, the related amortization period, and the Income Statement caption within which the adjustment is included.
Impact of the Planned Closure of the Atchison Distillery
Segment Operating Results and Pro-Forma Results
Year to Date Ended September 30, 2023
(UNAUDITED) (in thousands)
Distilling Solutions
Year to Date Ended September 30, 2023
Increase/(Decrease)
As Reported (a)
Pro-Forma(b)
$ Change
% Change
Brown Goods
$
214,857
$
214,857
$
—
—
%
White Goods
47,199
11,378
(35,821)
(76)
Premium beverage alcohol
262,056
226,235
(35,821)
(14)
Industrial alcohol
29,911
—
(29,911)
(100)
Food grade alcohol
291,967
226,235
(65,732)
(23)
Fuel grade alcohol
5,963
16
(5,947)
(100)
Distillers feed and related co-products
23,053
7,749
(15,304)
(66)
Warehouse services
20,958
20,958
—
—
Total Sales
$
341,941
$
254,958
$
(86,983)
(25)
%
Gross profit
$
104,986
$
112,547
$
7,561
7
%
Gross margin %
30.7
%
44.1
%
13.4
pp(c)
Ingredient Solutions
Year to Date Ended September 30, 2023
Increase/(Decrease)
As Reported (a)
Pro-Forma(b)
$ Change
% Change
Specialty wheat starches
$
48,977
$
48,977
$
—
—
%
Specialty wheat proteins
35,918
35,918
—
—
Commodity wheat starches
12,870
12,870
—
—
Commodity wheat proteins
611
611
—
—
Total Sales
$
98,376
$
98,376
$
—
—
%
Gross profit
$
34,945
$
29,812
$
(5,133)
(d)
(15)
%
Gross margin %
35.5
%
30.3
%
(5.2)
pp(c)
Consolidated
Year to Date Ended September 30, 2023
Increase/(Decrease)
As Reported (a)
Pro-Forma(b)
$ Change
% Change
Sales
$
621,635
$
534,652
$
(86,983)
(14)
%
Gross profit
$
219,567
$
221,995
$
2,428
1
%
Gross margin %
35.3
%
41.5
%
6.2
pp(c)
(a)Represents actual results of the Company for the year to date ended September 30, 2023, as reported in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
(b)Represents the Company's results for the year to date ended September 30, 2023 excluding results associated with the Company's Atchison, Kansas distillery. These are pro-forma unaudited financial results and are preliminary. In some circumstances, white goods, industrial alcohol, fuel grade alcohol, and at times certain co-products are produced at the Company's Lawrenceburg, Indiana distillery. The pro-forma financial results assume the loss of the waste starch slurry credit and no gain or loss on the disposal. The results of the Branded Spirits segment for the year to date ended September 30, 2023 would not have been impacted by a closure of the Atchison, Kansas distillery.
(c)Percentage points (“pp”).
(d)The reduction in gross profit for the Ingredient Solutions segment is the result of increased cost of goods sold from no longer receiving an intercompany credit for the waste starch slurry by-product purchased by the adjoined Atchison, Kansas distillery. The value of the intercompany credit is derived from the value of corn which has fluctuated over time.
16
MGP INGREDIENTS, INC.
Impact of the Planned Closure of the Atchison Distillery
Segment Operating Results and Pro-Forma Results
Year Ended December 31, 2022
(UNAUDITED) (in thousands)
Distilling Solutions
Year Ended December 31, 2022
Increase/(Decrease)
As Reported (a)
Pro-Forma(b)
$ Change
% Change
Brown Goods
$
229,523
$
229,523
$
—
—
%
White Goods
74,510
24,110
(50,400)
(68)
Premium beverage alcohol
304,033
253,633
(50,400)
(17)
Industrial alcohol
46,812
907
(45,905)
(98)
Food grade alcohol
350,845
254,540
(96,305)
(27)
Fuel grade alcohol
13,681
41
(13,640)
(100)
Distillers feed and related co-products
40,354
9,477
(30,877)
(77)
Warehouse services
23,598
23,598
—
—
Total Sales
$
428,478
$
287,656
$
(140,822)
(33)
%
Gross profit
$
126,282
$
132,388
$
6,106
5
%
Gross margin %
29.5
%
46.0
%
16.5
pp(c)
Ingredient Solutions
Year Ended December 31, 2022
Increase/(Decrease)
As Reported (a)
Pro-Forma(b)
$ Change
% Change
Specialty wheat starches
$
62,567
$
62,567
$
—
—
%
Specialty wheat proteins
39,313
39,313
—
—
Commodity wheat starches
14,023
14,023
—
—
Commodity wheat proteins
38
38
—
—
Total Sales
$
115,941
$
115,941
$
—
—
%
Gross profit
$
31,503
$
26,017
$
(5,486)
(d)
(17)
%
Gross margin %
27.2
%
22.4
%
(4.8)
pp(c)
Consolidated
Year Ended December 31, 2022
Increase/(Decrease)
As Reported (a)
Pro-Forma(b)
$ Change
% Change
Sales
$
782,358
$
641,536
$
(140,822)
(18)
%
Gross profit
$
253,306
$
253,926
$
620
—
%
Gross margin %
32.4
%
39.6
%
7.2
pp(c)
(a)Represents actual results of the Company for the year ended December 31, 2022, as reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
(b)Represents the Company's results for the year ended December 31, 2022 excluding results associated with the Company's Atchison, Kansas distillery. These are pro-forma unaudited financial results and are preliminary. In some circumstances, white goods, industrial alcohol, fuel grade alcohol, and at times certain co-products are produced at the Company's Lawrenceburg, Indiana distillery. The pro-forma financial results assume the loss of the waste starch slurry credit and no gain or loss on the disposal. The results of the Branded Spirits segment for the year ended December 31, 2022 would not have been impacted by a closure of the Atchison, Kansas distillery.
(c)Percentage points (“pp”).
(d)The reduction in gross profit for the Ingredient Solutions segment is the result of increased cost of goods sold from no longer receiving an intercompany credit for the waste starch slurry by-product purchased by the adjoined Atchison, Kansas distillery. The value of the intercompany credit is derived from the value of corn which has fluctuated over time.
