Good day and welcome to the MGP Ingredients First Quarter 2021 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mike Houston. Please go ahead.

Thank you. I'm Mike Houston with Lambert & Company, 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'll 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. 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 and quarterly reports filed with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the press 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 thank you all for joining us. On this call, we will provide an overview of our results for the quarter, updates on key financial performance metrics, and a discussion of progress against our strategy. Then we will take your questions. We are very pleased with our continued momentum this quarter, which has again yielded record consolidated results. Sales of premium beverage alcohol increased 31.1%, primarily due to higher aged whiskey and new distillate sales. As expected during the quarter, we experienced temporary softness in our Ingredient Solutions segment, primarily due to a natural gas curtailment that impacted approximately two weeks of production in February. However, we anticipate improved results in the second quarter as we have cycled past the weather-related events in the first quarter. Consolidated sales for the quarter increased 9.3%, while gross profit increased 39.2% to a record $32.3 million, representing 29.8% of consolidated sales. Reported operating income increased 49.6%, while adjusted operating income increased 56.7%. Looking at each segment individually, in our Distillery Products segment, sales increased 11.5%, primarily driven by sales in brown goods, which increased 49.3% from the prior year period. Strong aged whiskey and new distillate sales led to these results. Aged whiskey sales also served as the primary driver for the increase in gross margins for the period. Our objective to optimize brown goods profit, by increasing volume share at market-based pricing continues to benefit both the segment and consolidated results for the quarter. The macro consumer trend supporting the ongoing growth of the American whiskey category remains solid, which is confirmed by the demand we're experiencing from new and existing brown goods customers. We also experienced strong aged whiskey demand from craft distillers, as a percentage of our overall aged sales mix during the quarter, which was more comparable to pre-COVID levels in relation to our national and multinational customers. While our consumer demand for American whiskey remains robust and our diverse customer mix has positioned us well, we anticipate our growth rates will begin to normalize and come more in line with overall category growth. Continuing on to other areas of the segment, sales of premium beverage white goods declined 0.3% for the quarter, while sales of industrial alcohol decreased 19.8% with improved pricing and margins. As mentioned in our last call, the decline in industrial alcohol sales was primarily attributed to reduced third-party sales of industrial alcohol produced by ICP, our former joint venture partner. Going forward, ICP will market and sell these products, and we anticipate these services will be substantially complete by the end of the second quarter of 2021, with sales for the year totaling approximately $4 million. For reference, in 2020, we sold approximately $24 million of product for ICP, reflected as industrial alcohol revenue within our Distillery Products segment at low single-digit gross margins. Excluding the impact of this third-party agreement, industrial alcohol sales would have increased 6% from the prior year period. We are pleased with the improved pricing and margins, following contract negotiations that occurred during the fourth quarter of last year, but we anticipate spot market margins will normalize and return to historical levels as demand moderates and additional supply enters the market over the next several quarters. Sales of our distillers grains by-product decreased 28.9% for the quarter, primarily due to the need to convert from selling dried distillers grains by-products to wet distillers grains by-product due to the dryer incident in Q4 of last year. We expect continued comparative declines in revenue for our distillers grains this year until the dryer system installation is complete, which we expect to occur in the fourth quarter of this year. Revenue from warehouse services increased 5.1% for the quarter, reflecting in part growth in the number of customer barrels aging in our whiskey warehouses and other services we provide. Turning toIngredients Solutions, sales for the quarter grew 0.3%, while gross profit decreased to $4 million representing 20.7% of segment sales. As expected, this quarter's results do not properly reflect the solid demand we continue to experience in the Ingredient Solutions segment. In addition to the temporary natural gas curtailments, which resulted in loss production in February of this year and reduced margins by more than 400 basis points in the quarter, we also experienced issues with backlogs at various ports, as well as shortages for shipping containers needed to deliver our products abroad. Despite the impact these issues had on product mix, we finished the quarter with strong sales and margins in March and anticipate improved results in the second quarter as we have cycled past the weather-related events that occurred in the first quarter. We believe our diverse customer base and optimal product mix continue to be aligned with strong consumer trends. We are very pleased with the revenue and profit results this quarter. Overall, both of our business segments continue to benefit from favorable consumer trends, and our strategic plan has us well positioned to fully capture the potential these trends offer. This concludes my initial remarks. Let me now turn things over to Brandon Gall for a review of the key metrics and numbers.

Thanks, Dave. For the quarter, consolidated sales increased 9.3% to $108.3 million, as a result of double-digit growth in premium beverage alcohol within the Distillery Products segment. Gross profit increased 39.2% to $32.3 million due to improved gross profits in the Distillery Products segment. Gross margin increased by 640 basis points to 29.8%. As noted in our last earnings call, we experienced a fire at the Atchison facility during the fourth quarter which damaged feed drying equipment and caused a temporary loss of production time. During the first quarter, we recorded a $3.6 million partial settlement from our insurance carrier. We are working to construct a replacement drying system that is anticipated to be operational in the fourth quarter of this year. Until the replacement system is operational, however, we anticipate this will continue to affect gross profit results. However, we expect a portion, if not all of these losses will be offset by our business interruption insurance coverage, similar to the past two quarters. Please note, however, the timing of any insurance recovery despite best efforts is outside of our control and may not occur in the same period as the recognized loss. Corporate selling, general and administrative expenses for the quarter increased $2.3 million to $11.8 million compared to the first quarter of 2020, primarily due to business acquisition costs related to the Luxco transaction. We will incur additional transaction related costs, the majority of which will occur in the second quarter of 2021. We anticipate fully transitioning our legacy MGP brands into the Luxco sales and marketing organization during the second quarter, which will be reflected in our quarterly results and reported under the newly established branded Spirits segment going forward. Operating income for the first quarter increased 49.6% to $20.5 million primarily due to strong brown goods sales within the Distillery Products segment. Non-GAAP operating income increased 56.7% to $22.4 million exclusive of business acquisition costs related to the Luxco transaction. Our corporate effective tax rate for the quarter was 23% compared with 24.7% a year ago, primarily due to additional tax credits recognized as a result of the new drying system investment. Net income for the first quarter increased 56.7% to $15.4 million and earnings per share increased to $0.90 from $0.57 per share, primarily due to higher operating income. Non-GAAP EPS for the quarter increased to $1.01 per share from $0.61 per share exclusive of business acquisition costs related to the Luxco transaction. Cash flow from operations was $17 million in the first quarter, which was up from approximately $500,000 in the first quarter of 2020, reflecting the strong cash generating capability of our business. In addition to improved operating results, our operating cash flows were also driven by the combination of record aged sales and reduced put away for aging whiskey inventory. MGP's balance sheet and access to capital remain strong, allowing us to continue to invest to grow and drive long-term shareholder value. We remain well capitalized with debt totaling $39.9 million and a strong cash position of $22.6 million. Our capital allocation strategy continues to provide sustainable growth opportunities that are consistent with our long-term strategy and strengthen our position in growing markets. Our investment in inventory of aging whiskey decreased by $6.7 million to $98.7 million at cost at the end of the first quarter. This net decrease was driven by strong sales of aged whiskey and reduced put-away of whiskey for aging during the quarter. We are pleased with the continued execution of this critical component of our long-term strategy. MGP is offering the following guidance for fiscal 2021, excluding Luxco's financial results and acquisition related costs. 2021 adjusted sales growth is projected in the 0% to 2% range versus 2020, reflecting reduced sales of third-party industrial alcohol and reduced average sales prices resulting from the selling of wet versus dry distillers grains by-product. The Company's estimate of growth in adjusted operating income in 2021 is 7% to 12% which is exclusive of Luxco acquisition costs. Adjusted earnings per share are forecasted to be in the $2.05 to $2.15 range, with shares outstanding expected to be approximately $22 million at year-end. Full-year adjusted EPS guidance includes the impact of the 5 million shares issued in connection with the Luxco acquisition, while first quarter EPS results were calculated based on 17 million shares outstanding prior to the transactions close. We anticipate providing 2021 consolidated guidance inclusive of Luxco during our second quarter earnings call, at which point we will have completed the finance and accounting requirements associated with the transaction. In light of our strategy to pursue growth through investing in our business and the recent closing of the Luxco acquisition, the Board authorized a quarterly dividend in the amount of $0.12 per share, which is payable on June 4 to stockholders of record as of May 21. The Board continues to view dividends as an important way to share the success of the company with shareholders. Let me now turn things back over to Dave for concluding remarks.

Thanks, Brandon. We remain committed to the execution of our long-term growth strategy, further building on the momentum from last year. We recently achieved a significant milestone in our strategic plan with the completion of the Luxco acquisition in April and have begun the integration and synergy work streams necessary to optimize our combined business while setting ourselves on a path for anticipated future growth. The newly combined company will greatly expand our portfolio of higher value added branded spirits from coast-to-coast. We now have three business segments that are uniquely aligned with strong consumer trends, which we believe will create long-term and sustainable shareholder value. I wanted to provide additional context around the guidance Brandon shared, as it relates to the legacy parts of our business for the full year. While we are off to a strong start to the year, we remain mindful of the market factors associated with our overall business, in particular the market factors associated with our aging brown goods products. We have learned in the past several years that there can be significant variability in our customer demand patterns for these products based on a number of factors, including the lack of forward visibility to customer demand as most of this product continues to be sold on a spot versus contract basis. As we stated earlier, although we experienced significant growth in aged brown goods revenue and gross profit in the quarter, well ahead of the historical growth for the broader American whiskey category, we anticipate our growth rates will moderate over time and be more in line with the overall category growth. This is factored into our guidance for the full year as we continue to execute our long-term strategic plan. Inventory of aging whiskey at quarter end declined $6.7 million from the fourth quarter to $98.7 million at cost, reflecting strong sales of aged whiskey and reduced put-away of whiskey for aging. We are very pleased with the continued execution of this critical component of our long-term strategy, and we believe we have reached a point of equilibrium recognizing that this is a dynamic versus static state. We will continue to evaluate our aged whiskey inventory and put-away levels on an ongoing basis with the objective of carrying adequate inventory levels of various ages and mash bills to meet projected customer demand and the demand of our branded Spirits segment. Our library of various mash bills and vintages has truly enabled MGP to provide additional value to customers while contributing significant levels of profit and cash flow for the company. Although we delivered strong results for the quarter, we continue to experience two primary headwinds for 2021. The first headwind relates to increased commodity costs. As you may be aware, during the past several months, there have been significant increases in corn commodity exports from the U.S. as well as downward revisions to 2020 corn crop yields and stocks resulting in higher corn and wheat costs. As a reminder, we employ an extensive risk management program that includes purchasing the corresponding grain at the same time we contract volume and pricing for our products. However, for various reasons, we do not contract 100% of our sales and as a result, we cannot provide assurance that we will always be able to price through increases in commodity costs to our customers in the open market. Second, like many other businesses, we are experiencing disruptions in our supply chain. We continue to experience transportation availability issues both domestically and with backlogs at various ports, as well as shortages for shipping containers needed to deliver our products abroad. While these logistical issues are likely the result of the global supply chain disruption caused by the COVID-19 pandemic, it is unclear how long these delays and issues will persist. However, demand for our products remains robust and we believe our business continues to be well positioned to mitigate these challenges through the balance of the year. Our focus on continually refining the effectiveness of our tactical execution, accelerating the pace of our strategic implementation, and leveraging the strong foundation we have built has positioned MGP for sustainable long-term growth. That concludes our prepared remarks. Operator, we are ready to begin the question and answer portion of the call.

Our first question today will come from Alex Fuhrman with Craig-Hallum.

Wanted to ask about the implications of the Luxco acquisition to the numbers. I know it's tough from where you're sitting right now to really give a firm projection for 2021 including Luxco, but can you kind of help us out, just given that it's going to have a really significant impact on the numbers. What would it have added in the last three quarters of 2020? Just any sort of base case or historical framing of what Luxco has done in terms of top-line and EBITDA contribution would be really helpful as we think about our model.

Yes, Alex, this is Brandon. First of all, thanks for the question and happy to provide some clarity where I can. So I would point back to the investor presentation we released in January when we announced the Luxco transaction. Yes, there were some of the financials shared at the time on an adjusted unaudited basis for 2019, but also on an LTM basis as of October 2020, that should be pretty directionally, I think for what you're trying to accomplish. I will share also that as we're now more than a month into the integration of Luxco, we are still working on the numbers as we mentioned already, but revenue surprises and things are progressing along very nicely on that front.

That's really helpful. As we consider the sales of aged whiskey, it's notable that you've experienced three consecutive quarters of good success in this area. You mentioned the difficulty in forecasting future demand. Given the current strong demand, can we expect to see solid sales this year as long as that demand remains? Any insights you can provide about your current situation would be appreciated. I understand there’s limited visibility for the long term, but looking ahead to the next few months, is that what you have been observing? Any guidance would be beneficial.

Yes, we have seen very strong demand for our aged whiskey, as we noted in the last three to four quarters, including a robust performance in Q1. We believe that over time, our growth rate should align with the overall growth rates of the American whiskey category. We understand that our growth may fluctuate from quarter to quarter, as evidenced by Q1, but we view the growth of the American whiskey category as a good benchmark for our future growth. Additionally, we have managed our inventory levels effectively over the past year and believe we are at a stable level now. Moving forward, we plan to set aside whiskey based on our anticipated demand for the year. We feel confident that our inventory is much more balanced today than it was a year ago, and we will continue to adjust our production in accordance with our projected demand.

And then my last question, the Ingredient Solution side of the business, I mean that's been a really top performing segment for a while now, and it sounds like from your prepared remarks that the demand from your customers for your offerings remains very strong, and there were some reasons why we didn't see that in the numbers this quarter. Can you talk a little bit more about that and when we should start to see reported results start to match what you're seeing in terms of customer demand?

Yes, I think in Q1 we kind of gave a forecast of this in our Q4 call. We had, in the month of February, we lost about two weeks of production in our Ingredients business due to the cold weather that came through the Midwest, our natural gas supply was curtailed which resulted in us needing to shut down operations through that period. As we restarted operations and got into March, we had a very strong March, both from a top-line and gross margin performance more in line with what historically we've printed on that business last year. And as we go into Q2 and the balance of the year, we still are having very strong demand, and we would expect the business to have similar gross margins to what we've been reporting in the prior year. So we're still very confident in that business. We have cycled past the weather-related events in Q1 and feel like we're back on track for the balance of the year.

Our next question will come from Bill Chappell with Truist Securities.

I have a question regarding the guidance, particularly related to the distillery business and its growth in line with the category. First, can you quantify the impact of the white goods issue on this year's performance? And more importantly, I'm trying to understand why, despite selling aged inventory with a higher price point compared to new distillate, your sales growth is only in line with the category. If you continue to sell aged products for the foreseeable future, shouldn't your sales growth outpace the category?

Yes Bill, this is Brandon. First of all on the switchover, the total sales through ICP which is third-party contractors we’ve set a partnership with last year was around $24 million in total and that hits our industrial alcohol product line. This year, we expect to finish selling by the second quarter of this year and we expect the total to be somewhere around $4 million in total sales for 2021. As it relates to your brown question, which is a really good one. There as Dave mentioned, there is variability within brown even within the mix, there is pricing as you correctly pointed out for aged is much greater than new distillate. And then as we sell one, two, three, and four-year old, there's different pricing for each of those as well. So as we cycle over quarters, we may sell a lot of aged one quarter that even more than we did the prior comparative quarter, but if it's a different vintage, if we're signing more one year old versus four year old, it may not have what you think would be the desired result from selling that much more volume. So it's not that straightforward. What we do know is that we've seen four or five straight quarters now of extreme demand for our brown goods specifically for aged, and there are underlying trends that would indicate that that can continue. But as we know there could also be, as we've experienced some variability to that business due to the customer buying patterns that we've discussed.

So just to clarify, is your guidance for the rest of the year based on the assumption that there will be no further aged sales, which would indicate potential upside? Or do you anticipate that the aged sales are front-loaded this year and that there will be a decrease as we progress through the year?

Yes, it's likely more of the latter, Bill. As we established our guidance early in the year, particularly after experiencing a strong quarter and a few solid quarters for aged products, it's noticeable that the past three quarters have been somewhat front-loaded. However, for the full year, we expect our total brown sales to grow more in line with the category.

And then second question, can you give us any update on at least top-line trends for Luxco for the first quarter? I mean, have they continued to grow? Has there been any issues? Anything we should be thinking about?

Yes, can't share a lot on the first quarter at this point, and believe me Bill, it's not because I don't want to. We've been working on this for a long time, we're really excited about the deal, we can't wait to share more with you in Q2. What I will share is what I already mentioned a little bit to Alex, is that we have not seen any surprises since January, and that would make us feel differently about the numbers we shared at that point in time, which again are still on our website and available. But we do have to finish running the traps and put together the required accounting that's necessary to really provide more informed guidance. We hate to get a little bit ahead of ourselves now, only to have to slow you or revise that at all a quarter now. We're just going to be prudent in our approach, and I will be as clear as possible with you and with the investors when the time is right.

And then last two questions. Sorry, one, going back to brown spirits, I mean, it seems that the conversion over the past year of how you're viewing the aged has been from creating an asset that you can sell for top dollar to creating a library for your customers to shop whenever they want. And I didn't know if that's having a negative impact on new distillate because now your customers can see like, look we can buy on consignment and just buy it in three, four years, we don't need to buy it upfront, that's having an adverse effect near term or expected to on your new distillate business?

Yes, we still sell a lot of new distillates, and many of our customers are on a contract basis. Over the last three to four quarters, largely due to COVID, we've observed a significant return of craft distillers to the aged market, bringing them back in line with their historical purchasing patterns. Long-term, we view the balance between aged and new distillate as consistent with what we've seen over the last three to four years. We assess this balance on a quarterly basis, and it influences how much MGP-owned inventory we set aside. Currently, we continue to sell a significant amount of new distillate, and we anticipate ongoing sales along with positive growth patterns in the aged segment of the business.

I have just one final question. Regarding the insurance settlement for the quarter, I wasn't sure if that is accounted for in the figures and your full year guidance. I may be mistaken, but I would appreciate any clarification on whether it affects gross margin or is included in SG&A.

We recognized a partial insurance settlement of approximately $3.5 million to $3.7 million in the quarter, which is accounted for as a reduction in the cost of goods sold, thus impacting the gross margin. The actual amount received was around $8.5 million. The remaining amount is on our balance sheet for the time being, as part of it will be allocated to various areas, such as business interruption or the driver placement. Until we have more clarity and perhaps complete the replacement drive system, we will keep this on our balance sheet for conservativeness and will recognize it once we have better visibility and understanding.

But the $3.7 is in the non-GAAP EPS for the quarter and then in your full year guidance to $2 to $2.15 for the year, is that correct?

It's actually, yes, it's in the GAAP reported for the quarter because we did receive and recover it in the quarter. And yes, we are factoring that for the year. We are going to offset the majority, if not all of our business interruption impacts with insurance.

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

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.