MGPI - Earnings call transcript Q2 2021

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Operator

Good morning and welcome to the MGP Ingredients Second Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mike Houston. Please go ahead.

Mike Houston

you. Thank with MGP's Houston, Relations & Lambert Mike Investor Co., firm. I'm Gall, of me Chief team, Brandon Finance today joining Officer. their Chief Executive President Financial and are and and And President members management of Colo, including Officer; Vice Dave

with the open questions. prepared remarks We the call and up call will management's begin to then

effective that as begin and involve and certain may we is rate, does reports projections Exchange of by before gross issued call sales, have tax update call, However, this time, any income, release my Dave? the responsibility the as statements such well this could statements number the on made the it company's At access the call turn today's to company's Dave business. Securities plans of annual operating company no like to a Executive the and recent during the not inform would anyone over materially made with quarterly described Officer, www.mgpingredients.com. and MGP the you at as factors, of forward-looking objectives The Chief of call. obligation company's from factors actual and differ can to the press assumes risk filed If Colo. already forward-looking MGP's to statements forward-looking The Commission. website, I any President company's copy today, most including today due in a results you to margin it statements

Dave Colo

financial and will questions. us. discussion an this of the our overview take against quarter, on you, for thank Thank we for performance a Then we call, our Mike, and metrics provide will your progress all key On of strategy. you results joining updates

category to to long-term year, the scale in by This consolidated of quarter, our XX.X%, remains plan. XX.X% last the significant driven for which completed increased primarily from and due growth platform strategic earlier profit on and grow toward including progress our Whiskey Sales higher we brown the The results we opportunities expectations executing results cash and company. provides new aged shared distillate reflect year. our Integration is growth both synergy goods and of whiskey Turning second already remains Luxco the premium of alcohol was team the sales. has made track, beverage acquisition our to the record robust, the long-term continue achievement share American the recently improving our quarterly and for of to additional generation optimize advantage flow business. profile gross sales

leadership Vice proven are Officer; David, this strategies. long-term Officer; the segment. elevated Each We for both aged Lapish Human of line record growth David recently levels. sales quarter, prior was business over leaders a of our and consolidated as strengthen growth for gross announced Ingredient each Erika including results our revenue top joined capability appointed our business further and quarter of for sales better-than-anticipated showed And well our as achieved our and profit profitability sales Solutions growth record as branded segment, white record our the strong beverage spirits in year. our result, products, for Chief was of President, key changes: executing to Bratcher our Operating Amel, experienced results and Resources. Information three also Amel across as We Pasagic and Chief Erika segments solid segments whiskey, the

$XX XX.X% million segment in another Distillery finishing our or Looking sales segment, each improved $XX.X to gross million, segment with XX.X% quarter up individually, record we of while profit quarter Products at sales. posted the to

consumer revenue and from growth the the as aged solid. strong trend reflects the This are sales margins of the growth ongoing prior pleased representing with group We the whiskey period diverse remains to in performance category macro year record growth American pricing, this quarter, of customers. very whiskey our Whiskey supporting a aged compared of demand solid as

While very and overall unprecedented reflects over aged to year whiskey grow in the aged American with in long-term, with whiskey guidance year, our demand line half full year-to-date, sales the Whiskey pleased the the the back we category. of are to moderate

diverse prices. along and posted growth sales regardless a the of time. prior goods whiskey primarily support with to a its brand's ability our period, Our to aging solid strength growth over from year library, XX.X% of White a solid offers due position improved of size, team also sustained

quarter, As improved sales this despite and pricing for decreased XX.X% industrial alcohol margins. products

our former produced the third-party alcohol sales in decline venture alcohol reduced ICP, primarily to in call, mentioned last partner. As our joint by attributed industrial of industrial sales was

in market or have We as QX will XX.X%, anticipate grains need distillers the of the levels to dried convert over grains, year. of distillers spot DDG, dried due return incident demand note, quarters. byproducts moderates dryer to last of to decreased also the distillers the selling and we primarily year, from grains the margins several historical seen byproducts, during sales additional supply to next Also enter to due wet market

other We occurring aging expect installation quarter the our for the whiskey distillers provide. number is continued in system year grains until this fourth part, growth in in we complete, the this of year. XX.X%, customer of revenue services warehouses in services comparative from declines which our warehouse reflecting, Revenue and dryer in barrels increased we anticipate

this for due to of increased results XX.X% created exceeded XX.X% in of second compared this million $XX.X Sales of quarter. Luxco or Spirits, segment to quarter Gross million, the segment the to XXXX. expectations profit segment sales, our Branded or $XX.X million, to sales, totaled $X.X acquisition. Turning primarily the newly

this XX.X% to to quarter. and increased Of purchase million the recur gross in expected is periods. profit profit totaled of to outlined effects as $X.X for purchase table release, the accounting impact future $X.X not to quarter, the gross the press margin million the in $XX.X Luxco related million our acquisition, in gross Excluding accounting

implementing and our marketing effective on all optimizing mix profitability are focus profits We pleased brands. demand we with the for as by of consumer most improving very portfolio across the gross as continue well as our ongoing brands to our margins

our to a reflects of XX.X% record, also to period. prior a to Turning wheat with a the sales. protein specialty segment. and year about the remain confident XX.X% gross significant both $X.X of private base robust Specialty our our rebranded margins as This sales Solutions, robust product be sales as consumer Ingredient segments encouraged grew result diverse million, remarks. while sales our in focus products. profit from continue production and increased benefit of textured increase while sales $XX.X quarter, the remain believe my trends, a on This to good million, and business our customer representing grew continue gross ProTerra to consumer to favorable increased concludes grew wheat strong strategy for that providing driven gross record trends compared XX.X%, mix as margin products, strategy. We profit these starch confidence initial recently they each very line by XX.X% to of in by primarily well proteins drive as and this this volume. for feel pipeline segment additional aligned long-term long-term We Overall, growth will offering highest our our

over of the to Let review Brandon metrics Brandon? for a me numbers. and key turn Gall now things

Brandon Gall

Dave. Thanks,

gross XX.X% XX% of to XXX% Non-GAAP of of in increased gross XXX% million, $XX.X consolidated sales profit consolidated strong to increased record segments. in Consolidated segments. each the business a million, of representing the $XXX.X growth consolidated sales, to XX.X% to profit reporting quarter, the profit gross due million each representing For as result $XX.X of increased sales.

year, time. As we last of the a damaged which production our experienced the equipment fourth during drying quarter Atchison of noted last facility and caused loss earnings in call, at a fire feed temporary

second insurance a During quarter, carrier. $X.X million the we partial settlement from recorded our

We Until the the however, quarter are anticipated to we replacement is this this continue results. year. affect a construct that working system gross system replacement is to operational of anticipate will be in profit to fourth drying operational,

these selling, business insurance control loss. efforts, same our losses administrative expect portion, in quarters. coverage, be may the The best and similar any period if despite of occur will as all, Corporate not outside insurance by offset We recovery, the and three recognized general, is the our interruption of a expenses not past quarter expenses, to timing compared of the income $XX.X as were Consolidated quarter. to million. $X.X one-time Non-GAAP costs. $XX.X acquisition-related XXX% the to by compared for prior XXXX, million during the operating quarter SG&A as increased increased to second of in million, $XX.X $XX.X well million driven income assumption Luxco year as operating million, XXX% of to primarily the

of rate year the quarter, to results increased year $XX.X EPS tax effective share Our in Non-GAAP effective period. higher per year credits in tax to million, prior from increase per year second pre-tax These million, XXXX. to the from was prior Adjusted proportionate lessened to to the for increases representing $XX.X income, the from increased due in to improved period. corporate per received. of all compared the tax prior compared XXX% $X.XX, to and in million, which prior share segments. Net current quarter $XX.X of quarter, $X.XX due income quarter primarily a share rate from share, as an to per reporting EBITDA $X.XX increased increased three effects $X.XX the earnings XXX% second XX.X% in were XX.X% the

updates on Luxco providing on balance Before wanted share financials the update to our sheet, position related I acquisition. move on I to cash strong to and the an

robust with strong on-premise especially segment does channel, our channel. growth, the mentioned, have expectations, as margin off-premise Spirits which the compared as of a profile gross to Dave As not Branded results exceeded top within line the

inventory, reload year. margins the fully on-premise to open and more that their expect gross business As throughout we establishments segment the impact slightly

synergies as from in of parts year. business. of times us million a the due by capabilities of cash track to last generating the This million approximately quarter flow revenue fiscal from $XX.X totaled invest ratio quarter, Additionally, EBITDA the next capability in business. the up was positive second of remain by adjusted cash allows fundamental well on the even we operations $X.X $X.X as Cash previously flows cost X.X flow the year of second to we operating leverage the to mentioned and which million third strong generation achieve cash free as strong year, provide other

with total second Prudential our million. feature the accordion capacity. facility unused quarter, shelf also $XXX increased by brings $XXX to private an million. $XXX credit to This Global which Investment $XXX the We've During placement now our the an facility to plus existing agreement, amount million, amount in increased principal amended million also the principal Management, up available which totals on credit the maximum additional facility of amendment we

expenditures Luxco. million million, related capital CapEx $XX.X for year to from to anticipated have primarily Our due increased the to $XX.X

of and through funded be $XX insurance costs related replacement, we a $XX approximately $XX dryer reminder, between total million proceeds. the anticipate in will the that to As million million total of

and grow sheet long-term strong, allowing transaction. drive to and the Our to balance continues integrate access as to be to continue Luxco capital to shareholder value us invest we

ended As such, with of balance the $XX.X a cash debt of a quarter we and balance $XXX.X million million.

be including offering to million. guidance to expected earnings which we've the XX.X with be in of are in million. range brown million to time maximize for record $XXX of some Sales Last year, We in In $X.XX to be since, in effort consolidated approach to per profit is EBITDA to million following expected be an sold projected the share for XXXX, are turn, at range has sales. Luxco's are approximately results. in helped aged the profitability our weighted-average of to financial on fiscal adjustments $XXX company. year-end. drive forecasted $XXX goods, shared brown we $X goods in volumes the our shares go-to-market the the Adjusted Adjusted $XXX to million range, record outstanding

you moment, to paid reduced, we is older to sufficient some have ability aged through customers, This, our to is in our of many contemplated our as those While to large inventory a transact the of August important share older Dave of a a sales of Recently, dividend. with an will quarter Board dividends company we barrels. XX. in sold way view addition have XXth dividend the as guidance. vintages the headwinds volume consolidated service continue marks of in The on MGP in with stockholders that to Board record as September share authorized the continues consecutive This year the amount to share, per payable $X.XX has success shareholders. the of second X to which is

Let to now Dave things concluding for over remarks. turn me back

Dave Colo

Brandon. Thanks,

on initiatives plan. like would some that our to touch long-term support additional I strategic Now,

for results XXXX. strong delivered we manage we Although and headwinds three and year-to-date, the monitor to quarter primary continue for

The first it a on potential headwind resurgence, relates the to uncertainty business. COVID have our impact may surrounding including

The costs, second to headwind and commodity namely corn relates wheat increased higher costs.

contract the corresponding same risk time includes purchasing reminder, volume products. As a management we grain employ we and pricing program at an our the that extensive for

to price provide do always a result, experience in in of cannot customers market. including packaging be other the chain, for many sales. assurance we our we However, as disruptions increases supplies, we to various XXX% transportation lastly, our in and And similar ingredients able businesses, we reasons, to open various not that contract And cost supply will continue our commodity through availability to issues.

While supply how by likely are COVID-XX these issues persist. global long will unclear of the delays these chain disruption is result it caused the and the pandemic, issues

However, demand robust, believe the mitigate through to for to our and products challenges business continues year. well-positioned remains our of we the these balance be

have headwinds. headwinds and guidance into these factored of monitor of each continue these potential full-year We each closely our to

We on will provide additional updates calls. future

amount sits inventory strategy, of sales Turning total with aged the million, now to cost. at aging Luxco's our whiskey, whiskey $XXX.X at addition aging our now whiskey

of are additional addition offset last last barrels a call confirms during customers of putting quarter Luxco's achieving MGP-owned equilibrium. to as close This to aging inventory, our at those we've inventory to commentary as come similar to aged levels, quarter's sales. cost, away the result sold Excluding that

We negating inventory the going MGP-owned at to trends, continue forward. need and an to update based broader putaway on cost, make decisions forecasted market will sales quarterly provide

We but quarter-to-quarter vary to putaway each provide will and inventory on quarter, can based levels combined the whiskey aging this that keep mind in continue figure demand. sales figure please

remains Our unchanged. objective long-term

brands We solid to Branded our support will needs. levels adequate our to made this continue customers' quarter. target inventory own progress spirits and

be Currently, available can the states up the all before be from in just legacy MGP they XX over months. found We expect Luxco XX states, our next XX states XX acquisition. will brands in

During in channel an uptick experienced the quarter, sales. we also our on-premise

more full capacity open reload expect through as We end establishments this the continue the year to and to of inventory. calendar

Going of sales the on be forward, a on-premise COVID may impacted resurgence. potential dependent

each recently with of skill addition unique leadership to Lux, MGP's we as Board additions well new announced, as its changes to sustained Clark, for and capabilities and Rauckman Directors. enhance acumen, consumer have and growth. that strategy. products pleased backgrounds This the to Donn Tom the backgrounds well In Gerke, and Neha am three I growth our M&A legal significant experience, long-term long-term the Kevin spirits position further group's branded sets company financial

Before strong we strategy Operator, will we of the for sustainable now well-positioned that ready reiterate macro we consumer each to question-and-answer would begin portion call call. trends, and business open I the our growth. to like remain confidence continue to long-term against our believe are of our questions, that the segments drive

Operator

from with Thank you. ahead [Operator Pinheiro, Instructions] And the go first question Please with question. will Mitch your be Sturdivant.

Mitch Pinheiro

Thanks, good morning.

Dave Colo

Mitch. Good morning,

Mitch Pinheiro

that So, first just, interesting aged sales, put is similar to the, barreled last what's whiskey said distillate so, kind that the – was you quarter, and the of in you quarter. the away strong one very

that legacy had quarter? that right? so put I strong – why So, getting Is that didn't just was Is really this I to trying in the but you sales, you together. had the much Am MGP that? grow anticipated barrels

Dave Colo

inventory the levels able needs. is trying you sales MGP-owned both; we same able were at our are to do, end support we that were our we're you will, were feel our make last do this make as had with brands' maintain Dave. of at the case, we And maintain enough and level to legacy, customers' Mitch, Yes in quarter, business that growth if needs quarter. Does what away we this this whiskey to they put in levels to I our know, increased is to inventory future what the sure sense? particular adequate mean, the that at is of

Mitch Pinheiro

toward second, the these? inventories fluctuation to near-term does. a Luxco portion any for in we it Are see the And going just then in distillate is on barreled Yes, that? balance staying

Dave Colo

away appropriate of to the portion to at decisions anticipate of growth is And is The amount well those support that those have support to make we as this the into Whiskey, the American we Luxco brands of within believe time, point, the Over growth amount future. brands. our as exclusively whiskey, brands the whiskey proper to inventory the we'll put to grow, portfolio. support that adequate we

Mitch Pinheiro

Luxco, in about and categories, this are just the you on worth value, dynamics any that rates and quarter? Okay. Staying ultra-premium, growth out et cetera, premium, talk could the calling

Dave Colo

premium categories, we American – be focusing the ultra-premium about on portfolio, in brands, of some of we're think as well to key the think I portfolio. continue to the Yeah, before And with Whiskey which brands within spoken seeing that I we've brands. part tequila pleased see primarily very as both those the growth we're in would we're

with the and those So, paying at on consumers brands. is focus the and the level distributors and marketing off retail putting we're the efforts the

So, as those kind expectations tiers expect, that on we're of very for value mid the category our grow would would brands. overall those in-line the, rates are and that. price-positioned of portfolio particular And pleased with with you our

Mitch Pinheiro

aspect, quarter about second quarter relative there any this what is fourth Was third quarters? for – is unusual seasonal look for and in from to a the should we Luxco there anything

Dave Colo

Yeah.

out of in some into we're see was the sales on-premise start we part if starting think I to called script, more as Mitch, accounts to will. what on-premise we saw strong fully pretty you open, – that

some see the that on-premise amount resurgence should close But limit balance it. do of impact locations on-premise we think occur, do we called the than out if that's potentially they is potential some, say allow start balance down continues. the think I'd anticipated. channel expect year. the the that continue that see inventory throughout more as on-premise We can could of little as the that if of of to doesn't up bit strength growth headwind, continue to and throughout COVID, that The is the consumers year maybe COVID, driven that a to only So, risk what a to loading or We we we heats in. we

Mitch Pinheiro

one the moving just growth question, Solutions And on It was side. really quarter. the tremendous Okay. more Ingredient in to

of has figure Is Just this months the segment thinking about? beyond that be business? we the think category it XX% should there to growth. out, or this X to trying XX%, some at is to more Is kind to of high for about growth sales growth there in growth stay be how we months category a XX rate next should a type or going got of – level

Dave Colo

QX quarter, year our growth days I ingredients we security cyber the company, QX. our Mitch, is and a impacted take the one into Ingredients it in this about in had ability to produce thing think for consideration, to event hit in last XX

in So year that sales impacted last our QX.

So, we're the cycling a up against numbers inflates which that, bit.

at I not It'd previous not is Ingredients. these not of but some anticipate rates a what with, do sustainable we XX%, think rates. to would haul. calls certainly So, be long the types line this business continue to to going number talked in be XX% of about in over those more that quarter-after-quarter on growth growth It's going it's kind we've grow,

Mitch Pinheiro

the I’ll thank get in back Okay, you. queue.

Dave Colo

thanks Mitch. Alright,

Operator

be [Operator with The Alex go from Instructions] next Craig-Hallum. ahead. question will Fuhrman, Please

Alex Fuhrman

for another correctly, color as more math it Obviously, put on to least you of would question but out get that you in aged quarter, the and your understanding I'm little about inventory. you as is the thanks second kind skewing roughly like, you're much strong away what there, inventory. if sold of bit at saying my here. a sounds taking really on congratulations quarter guys, I love also Luxco said Hey you there

a of sort reaching equilibrium So, there. of kind

you QX slice no QX. and like what then year, it, of guidance Just is kind Because you full-year way, just like raised how is but in profitability either QX seems which guidance you impressive about isn't reported the repeatable it your why reported just if very matter that's half feat? understand, the for the what a case, of for that's implying it trying to QX in seems

that So, remains job aged to you you that better rate could this product? kind if robust, we a just run know could see, do aged be, a trying of understand new better, demand for selling of as

Dave Colo

said in vintages. the in Yes. the to keep were these in spoke sixth to now Brandon point, out this to reason is, thing where at key you're think Alex, is is in it got mind the think we sales out unprecedented and I whiskey of we've selling keep and selling, or sales, what the is you've been that aged we remarks, mind your I is, I significant fifth it, a some prepared row very older called quarter we've believe, had right,

in were was XXXX, whiskeys there So, that an whiskey XXXX, the as put of limited that XXXX, put was example, defined that away amounts away.

strong either these reduced. whiskey quarters, the of So, is at or those amount through inventory as sold we've point of vintages that this of significantly lot had a is

saying it's not we're after why practical level after that that's quarter to growth So of sustain quarter. quarter

first So, that's part. the

of we whiskey quarter market is, based part to is every we the put how much on decide category be. second dynamics future do, we get think going The to the of our though, going the growth to we're away and read what

appropriate quarter. whiskey to So, in QX, last very of we maintain, down levels did MGP-owned inventory similar amounts to lay our will, at levels if you

Alex Fuhrman

I Okay. selling older lot out mean, have in were in you like the selling in That a that maybe of of? mash bit a assortment? that is anything sounds you [indiscernible] you I terms demand was your of a of inventory. that was particularly there. little stuff particular there mean, definitely your bills, high it helpful in Anything were

Dave Colo

consistent. versus last this of several. bills mash it's demand pretty quarter The been I different think we for types the the saw

mash know, there you mix Alex, good quarters. performance. particular would bill call provides typical kind lay that for and was more, I been any selling well. this down that future what really mash So, the bill, wasn't that what one we've insight last to on the drove over But really of us several our It as

Alex Fuhrman

they can you with obviously, juice the brands lastly is got is now of going thinking portfolio whiskey that inventory. to of have maybe million MGP's Are like that than there's Luxco's remarks that to into going opportunities your something Luxco's demand greater had be to is if, makes for there's a have or that into that time, I optimize more from Luxco then Just of inventory, go $XXX-plus topic portfolio doing. would inventory That mean, Luxco that on But And sounds opportunities been optimize kind that maybe prepared Okay. bigger your to it quite bulk of and brands? thought sense. curious acquisition. there's something a over just, their what the maybe perhaps do for market you it's there one of

Dave Colo

mean greatest we kind our to use figure of best is and margin that's the out on that that what I get return drives – do, charged highest to the inventory.

However, here's the good news.

With the for Luxco that it inventory, American Whiskey, and demand our margin to And XXX% going a of on highest going bulk brand, the whiskey we sell be to again, to that inventory, think at versus sales. Kentucky-based this as is the we're brands point inventory. use strong enough have utilize to that's

point, we'll to growth put that years. support the we Kentucky profile So, see continue this intention those whiskey that's of at the and our brands next away to over several

Alex Fuhrman

That’s very Thank guys you much. great.

Dave Colo

Alex. Thanks

Brandon Gall

Thanks Alex.

Operator

remarks. like over the back Colo Dave session. this question-and-answer gentlemen, conference turn to our would I any and to closing Ladies for concludes

Dave Colo

interest you Thank you again our and the your second our company for for third with Thank quarter speaking us We forward call. quarter. after today in to look you. for joining

Operator

you thank presentation. now Thank attending And concluded. conference today’s The sir. for you has

You may now disconnect.

MGP Ingredients (MGPI) 8 Aug 212021 Q2 Earnings call transcript