Good day, and welcome to the MGP Ingredients First Quarter 2020 Financial Results Conference Call. I would now like to turn the conference over to Mike Hudson. Please go ahead, sir.

Thank you. I'm Mike Hudson with Lambert Global, MGP's Investor Relations firm. And joining me are members of their management team, including David Bratcher, Chief Executive Officer and President; and Brandon Gall, Vice President of Finance and Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual report filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures is included in today's earnings release. If anyone does not already have a copy of the earnings release issued by MGP today, you can access it at the company's website, www.mgpingredients.com. At this time, I would like to turn the call over to MGP's Chief Executive Officer and President, David Bratcher. David?

Thank you, Mike, and thanks, everyone, for joining the call today. On this call, we will begin with an overview of our performance for the quarter ended March 31, 2024, provide updates on key financial performance metrics and discuss the progress we have made towards our strategic plan. At the end of the call, we will open the line for Q&A. I am pleased with the results we posted this quarter and the progress we have made towards our long-term strategic plan. On a pro forma basis, when factoring in the Atchison distillery closure, our Distilling Solutions segment achieved sales growth when looking at our business today compared to a prior year period without the adjusted distiller results. We also had solid sales growth in Ingredient Solutions in our Premium Plus brands within branded spirits. All in all, this quarter was in line with our financial expectations as described during our previous earnings call. Other highlights for the quarter include the promotion of Amel Pasagic to the Chief Commercial Officer role, the commissioning of our newly built textured lead protein facility and several incredible brand initiatives, each of which we will talk about on the call today. Starting with the promotion of Amel to his newly created role, he will continue to leverage the business intelligence and predictive data insights he developed as CIO and apply them across all 3 business segments. Amel's wealth of experience and his unique strategic view of our business will be critical in driving the next phase of growth for MGP. We are excited about the insights he will bring to our business as our commercial leader. Turning to our Distilling Solutions segment. We are pleased to have completed the Atchison distillery closure in December of 2023, which led to a record quarterly segment gross margin in Q1 of 2024 as well as accomplishing our strategic intent of being brand-focused in our distilling solutions business. As we reported last quarter, we have the vast majority of our anticipated total brown goods volume committed for 2024. Also, as we previously indicated, we expect the last 3 quarters of 2024 will result in stronger profits as compared to Q1 due to the variation in the timing of customer demand and the timing of our Bardstown, Kentucky distillery expansion project coming online in April. Turning to branded spirits. We are very pleased with the continued growth of our Premium Plus sales as they represent 42% of segment sales this quarter. This represents a stark improvement from the 33% figure we experienced in the first quarter of 2023. This meaningful improvement was partially offset by lower volumes of our allocated Single Barrel Premium Plus brands as compared to 2023 due to the seasonal nature of these specialty programs. While the seasonal nature of these special programs put pressure on our gross profits this quarter, we were still able to expand gross margin to 44.9%, which is a testament to our continued investment in premiumization. Our branded spirits strategy remains focused on growing points of distribution by leveraging the expansion of our Premium Plus brand portfolio with particular focus on our tequila and American whiskey brands. As an example, we shipped finally into 2 new states during the quarter. Our brand marketing initiatives during the first quarter included entering into a sponsorship of Power bush #8 car under Richard Solders Racing, which broadly showcases our Revelerben brand and will continue throughout the racing season. In addition, we had 6 brands win double gold at the San Francisco World Spirits competition and successfully launched new innovative items such as Penelope Turkey, Penelope Rio and Yellowstone Rum Cask Finish. These are just a few examples of our innovation and marketing efforts to increase the sales velocity of our Premium Plus brands portfolio. Turning to Ingredient Solutions. Sales for the quarter were a record and primarily reflect continued rising consumer preference towards high protein, low net carb diets, which drove higher sales of our specialty products. We expect to see this trend continue in upcoming quarters as can be seen by anyone visiting their local grocery store and seeing the proliferation of keto and low net carb alternatives, which ties well to our Ingredient Solutions growth strategy. In addition, we are extremely proud of the grand opening of our textured protein facility, which was dedicated to Ladd Seaberg, the late husband of our Chairman, Karen Seaberg. It was absolutely fab to see Karen and her family celebrate his memory and the indelible mark he left on the company with such a beautiful facility dedication. This concludes my initial remarks. Let me turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?

Thanks, David. For the first quarter of 2024, consolidated sales decreased 15% compared to the prior year period to $170.6 million due to the Atchison distillery closure. Excluding the impact of the Atchison distillery in both periods, consolidated sales were in line with the prior year period. Also impacting consolidated sales during the quarter, branded sales were down 3% driven primarily by the temporary shutdown of the Luxury distillery of Bardstown, Kentucky, to complete the distillation expansion as well as expected declines in our mid and value branded spirits price tiers. As expected, gross profit decreased 10% to $62.8 million, representing 36.8% of sales. This decrease was primarily due to lower sales of mid and value price tier brands as a result of the distributor realignment in 2023, lower sales of allocated single barrel Premium Plus brand spirits offerings in Q1 as planned, the temporary shutdown of our Luxco distillery of Arslan, Kentucky and the incremental costs incurred in Ingredient Solutions related to the drying of the waste starch streams ready for commercial sale as well as our new extrusion manufacturing facility. Excluding the impact of the Atchison distillery in the current period, gross margin was 37.3%. Advertising and promotion expenses for the first quarter increased $1 million to $8.7 million, primarily driven by increased advertising and promotion investment in support of our Premium Plus portfolio of brands. Brand sports-related A&P totaled $7.8 million for the quarter, representing 15.5% of segment sales. This remains consistent with our premiumization strategy. We will continue to invest in marketing spend against our higher-margin Premium Plus price tier brands. Operating income for the first quarter decreased 30% to $28.9 million. Adjusted operating income decreased 19% to $33.6 million. Net income for the first quarter decreased 34% to $20.6 million, while adjusted net income decreased 22% to $24.2 million. Basic earnings per common share decreased to $0.92 per share from $1.40 per share and diluted earnings per share decreased to $0.92 per share from $1.39 per share. Adjusted basic and diluted earnings per common share decreased to $1.07 per share from $1.40 and $1.39 per share, respectively. Adjusted EBITDA for the quarter was in line with our expectations and totaled $40.2 million, a decrease of 17% compared to the year-ago period, driven by the factors highlighted on our previous earnings call. In accordance with the applicable accounting guidance, we no longer expect to present the results of the Atchison distillery as discontinued operations in our financial statements. However, for reference, we have quantified the impact of the associated results in the pro forma schedules included in this morning's earnings release. Moving to cash flow. Cash flow from operations was $24.6 million in the quarter, a record for any first quarter and up from $5 million in the first quarter of 2023. Our balance sheet remains healthy, and we remain well capitalized with debt totaling $300.8 million and a cash position of $19.5 million. Turning to capital allocation. We remain focused on organic and acquisitive growth opportunities that align with our long-term strategy as well as underlying consumer trends, which we believe our business is well positioned to leverage. We will continue to evaluate M&A opportunistically with the goal of accelerating growth and increasing our capabilities and product offerings. Effectively managing our growing Distilling Solutions and brand Spirits segment sales remains a key priority and is critical to our long-term strategy. Our investment in inventory of aging whiskey increased slightly this quarter to $254.5 million at cost, an increase of $4.3 million from the end of the year. Investing in capital expenditures to enhance our operational capabilities is another important capital allocation priority, and it resulted in capital expenditures of $13.1 million for the first quarter. We continue to expect approximately $85.8 million in capital expenditures for the year, which will be used for facility improvement and expansion, such as additional warehouses to support our recent capacity increases, driving investment to support our Luxco distillery expansion, the purchase of our previously leased bottling facility in St. Louis, Missouri, and a main fuel plant in Atchison, Kansas to better monetize the waste start strain in our Ingredient Solutions segment. During the quarter, the Board approved a $100 million share repurchase program, and we repurchased 59,984 shares of our common stock for approximately $5 million. The Board of Directors also authorized a quarterly dividend of $0.12 per share. It was payable on May 31 to stockholders of record as of May 17. The Board continues to view dividends as an important way to share the success of the company with shareholders. We will continue to focus efforts on optimizing product mix across all 3 of our business segments and invest in areas that we expect to generate the greatest long-term value for our shareholders. We expect the consumer fundamentals that have supported the historical growth in our business to remain intact throughout 2024. While we continue to monitor the potential impact of the inventory levels of distributors, overall American Lite supply and consumption patterns and inflation on consumers. Despite these industry headwinds, we feel uniquely positioned to grow as a company in this dynamic operating environment. These factors, in combination with the strength of our underlying business support the confirmation of our 2024 financial outlook. Sales are projected to be in the range of $742 million to $756 million following the closure of the Atchison distillery. Adjusted EBITDA is to be in the range of $218 million to $222 million, inclusive of the add-back of share-based compensation expense. Adjusted basic earnings per common share are forecasted to be in the $6.12 to $6.23 range, with basic weighted average shares outstanding expected to be approximately $22.3 million at year-end. And now let me turn things back over to David for concluding remarks.

Thanks, Brandon. We are pleased with our positioning to achieve our 2024 objectives. Demand for our products in each of the 3 segments remains strong, and we believe our plans will continue to position the business for long-term success. Despite some reported softening within the branded spirits industry, we feel very optimistic about the long-term health of this industry and are encouraged by the continued growth of the Premium Plus category across the industry. Our strategy is to build a portfolio of branded spirits to increase our points of distribution, accelerating our sales velocity within those points of distribution through effective marketing, expanding our product offerings through innovation and closing a meaningful margin accretive M&A transactions. In closing, I would like to restate what I said last quarter and that we are committed to evolving our company into a dedicated branded spirits company with desirable brands across the price point universe with a special focus on Premium Plus and higher-margin offerings as well as continuing to supply our market-leading premium American whiskey in bulk to both craft and multinational entities. We believe this is the optimal way to provide desired returns to our shareholders. That concludes our prepared remarks. Operator, we are ready to begin the question-and-answer portion of the call.

We will now begin the question-and-answer session. The first question comes from Gerald Pascarelli from Belport Securities.

Regarding your brown goods business within Distilling Solutions, I have a housekeeping question. The decline of 3% is noted, and while you mentioned that the quarter met your expectations on a consolidated basis, was the low single-digit decline in brown goods what you anticipated? Looking ahead, do you still expect brown goods to grow faster than the category overall? Additionally, could you provide some insight on whether there has been any change in customer sentiment about demand for Newfield this year? Any information you can share would be appreciated.

The quarter met our expectations as outlined in our prepared remarks. We noted the closure of the Luxco distillery as we prepare for its expansion, which will be operational in April. Consequently, we could not sell new distillate from that facility during the quarter. If we exclude Q1 of last year, the year-over-year growth in brown goods has actually increased. Therefore, this aligns with our expectations. We still anticipate growth in brown goods throughout the year. Regarding customer sentiment, the majority of our sales are committed, and we are closely collaborating with our customers to ensure we can meet their production needs. We reaffirmed our outlook this morning.

Yes, I would add that as you think about what Brandon and I said last quarter, we have really good visibility into the rest of the year because of the strategy that we put in place at the distilling solutions. So as you continue on, I mean we haven't heard or seen or felt anything that's any different than what we had previously stated.

Perfect. Next question is just on branded spirits. When we look at your gross margin in that segment, which continues to expand nicely, and we compare that to your profit before tax margin, there's a fairly meaningful delta there, not just this quarter, but even historically speaking. So I guess like understanding right now that you're in the process of building out your portfolio and the need to invest, I guess, longer term, can you talk about if there are opportunities or measures you could take to improve that profit before tax margin to maybe better align with finished goods peers? It does seem like that would offer a pretty big notable upside to earnings over time. So any color there would be great.

Yes, that's a great question. The pro forma for branded spirits was indeed low in the quarter. One major reason for this is the contingent liability affecting the SG&A from the Beneli acquisition, which amounted to $4.1 million during the period. This will have a negative impact. However, as we continue to carry out our strategy, particularly focusing on the higher-margin Premium Plus brands, we anticipate gaining leverage from both our SG&A infrastructure and our A&P investment. It's important to note that many of our premium brands are relatively young and more regional. As we keep investing in building consumer awareness, we expect to see positive results over time.

And Gerald, I want to emphasize that we mentioned last quarter and reiterated this quarter that our goal is to become a branded spirits company. Therefore, we fully anticipate that we need to have margins that are competitive compared to our peers. This is the reason behind our current strategy. As we continue to evolve and focus on what truly matters, that remains our plan. We expect this growth to be ongoing.

The next question comes from Marc Torrente from Wells Fargo.

Just a couple here. On the guidance from here, Q1 obviously had some headwinds to work through, which you called out at the start of the year. There's some modest upside in the quarter versus expectations. Guidance was maintained. Maybe just some comments on your increased level of comfort on the guide now and how you see the quarterly progression implied through the rest of the year?

Yes, Mark, thanks for the question. Yes, we shared a lot on the last quarterly call in anticipation of this just because there were some things to navigate. We wanted to message that as clearly as possible to you and the rest of the investor community. But yes, as you mentioned, Q1 played out exactly how we thought it might, maybe even slightly better in some ways. And our view for Q2 through Q4 are entirely consistent with what we shared on the Q4 call. We expect branded spirit sales to pick up as the year goes on, primarily in Premium Plus, which is typical for our industry. On the Distilling Solutions side, as David mentioned, Luxco will come online in April. So we can utilize that facility and the expansion we've gotten there on new distillate sales. We also have our customer commitments ramping up for brown goods. And then finally, even within Ingredient Solutions, we've got a ProTerra facility that just opened and we're really excited for. But we don't necessarily have the sales immediately now to offset and absorb a lot of those costs. As the year goes on and as we further commercialize that facility and that asset, those costs will be absorbed. And over time, probably as we can with next year, that facility and our product line will become more and more accretive to that segment.

I think as we look at our guidance numbers and think about our business moving forward, from now from 90 days ago, Brandon, and I still feel very comfortable with the guidance and the expectations that we established. Our total team is focused on that, and we are moving in that direction.

Okay. Great. And then just a few on brown goods demand. Volumes held up pretty well in the quarter. We saw pricing was down 11%. How did the mix of new versus aged trends throughout the quarter? How much of that pricing is due to that underlying mix shift that you conveyed? How much of that is due to actual pricing? And then margins for the total segment also held in quite well, even with assumed lower mix. Maybe just how you see volumes versus pricing and margins evolving through the rest of the year.

Yes. Good question. So we can start off with volumes. We expect volumes to increase as we did in Q1, but throughout the rest of the year. And the main reason for that is due to the success we've had in obtaining new distillate commitments. As for price, yes, price/mix was down, but that was driven by mix, and that's why we shared about kind of our mix evolution within Distilling solutions on our last quarterly call. So new distillate sales were very strong in the quarter as anticipated. And then our aged sales also came in as anticipated. But the reason why the margin set held steady in that low 40s as we shared it might, is because of the pricing we've been able to get in new distillate. Even though it's a larger proportion of our total sales, the pricing in the gross margin contribution is greater this year and in future years. We anticipate that to be better in the past.

The next question comes from Sean McGowan from ROTH MKM.

A question on margins, but just one on Ingredient Solutions. Can you talk about what some of the puts and takes are going on there? And how should we look at what we saw in the quarter as indicative of what the rest of the year might bring?

Yes. So yes, as you noted, Sean, gross margins for ingredients were in the teens, mid-upper teens in the quarter and really 3 main drivers. The first one is the beef starch intercompany credit. The segment used to receive when the distillery was operational is no longer there. And so that's going to be an ongoing item. That's going to be a natural headwind to the margin set of the segment. But the other 2 items we view as more transitory. The first one being the incremental costs that we're incurring to dry and ready that starch stream for commercial sale. We expect that to continue being a headwind for the course of this year. But once we get the mini fuel plant distillery up and running, then we expect that to be largely offset and then, in fact, maybe have some positive gross profit to come with it at that point in time. And then the third and final thing, which we also believe is more transitory is are the incremental startup costs associated with the ProTerra facility. As I already noted, we expect as time goes on and we commercialize that asset to have the revenue and the gross profit to absorb those costs. So again, as we get more into 2025, we expect the margins to be reflective of that. So that being said, we do view Q1 as a low watermark for gross margins for the segment. We expect the segment to finish the year probably as we've said last call, in the mid-20s gross margin-wise. But then as we get into next year for a lot of those things I mentioned to start benefiting the segment once again.

Okay. And I don't think I heard you talk as you usually do about some of the input cost headwinds. Is that because there's been some stabilization there? Or you just kind of cut it out for brevity.

Yes. So some stabilization. Another main reason is the closure of the Atchison distillery. As you'll recall, the product lines that we sold primarily out of their industrial-grade alcohol, white goods, and fuel are much, much more susceptible to even modest swings in underlying input commodity costs. So with the closure of that facility, corn and the related basis went from being our #1 raw material to fourth or fifth. And with that, a lot of that risk went with it. However, wheat flour for our Green Solutions segment, which is now our largest input that we buy commodity-wise, was up about 2% in the quarter, whereas Rye natural gas were both down year-over-year. I will remind you that a lot of our pricing on our brown goods, especially for new distillate is model priced for what's committed and contracted. So pricing for that will move up and down with those underlying commodities so that we're able to lock in our margin.

The next question comes from Bill Chappell from Truist Securities.

Just first question on the branded spirits side, you'll face an easier comparison, certainly in the second quarter with the kind of the destocking distributors last year. Kind of maybe any update on where the distributor inventory levels sit? Are you continuing to see pressure there? Or is that for at least MGP and maybe for the industry, is that largely kind of path at this stage?

I'm not going to speculate for the industry because you do get kind of mixed views on that from what other reports. I can tell you, in our business, yes, it's stabilized. We've worked really hard with our distributors and understanding the inventory levels and managing those levels within to meet customer demand. So destocking for us at a distributor level is not a core as you know.

So you see that as a favorable comparison since the majority of the destocking occurred around this time last year, is that correct?

It's a favorable comp, yes.

Perfect. And then just also maybe a little clarification on the branded growth this year. I know you had talked about rationalizing a few brands. I didn't know if you quantified what that impacted in the quarter or what that would impact for the full year? Just kind of an idea of how the brands are growing, excluding that rationalization.

Yes. So the mid and value decline in the quarter was primarily driven by the R&DC distributor change and subsequent load-in of the mid- and value brands in Q1 of last year. So that's really what drove the majority of the declines in mid and value in the quarter. We expect to have easier comps for those 2 product lines as the year plays out. And as we shared on our last call, because of the rationalization, the rationalization, the prices we're taking on some of our mid- and value brands as well as the load-in. We expect a lot of that has largely offset the gains we expect to continue to make growth-wise in Premium Plus. So we still expect our branded spirits growth for the year to be flattish to low single digits, but we do expect to continue to get gross margin expansion as the year goes on.

Yes, Bill, this is perfectly with your other question. I mean at this point last year, we were making a large wholesaler change, and you prepped them in inventory. So on a comparative basis, over time, we've been able to not only successfully make that change, but get that inventory managed to the right level as well.

Great. And sneaking one more. Dave, why do you think you haven't made another acquisition since Penelope almost a year, maybe quantify just the number of opportunities you're seeing? Is it price? Or is it just really looking for the right fit?

It's really looking for the right fit, Bill. There are things, obviously, with some of the headwinds we've seen in the overall industry, I think there are some people that would normally be on the larger scale multinational sellers sitting tight for the moment for all the reasons that you know of. But we're starting to see some movement. But the real reason is, is we want to do it the right way. We want to make sure that we're finding something that goes into our portfolio that's margin accretive, and that helps us evolve to that brand and spirits company. So to do that, we have been disciplined, very disciplined in our cost, but I have very, very high confidence that we're going to be able to do some things in the near future.

The next question comes from Ben Klieve from Lake Street Capital Markets.

Just one quick one for me on the brown goods side. You talked about the vast majority of volume is committed for the balance of this year. Probably earnings call, you talked about how your sales force is looking into bookings into 2025. Wondering if you can provide any updates on kind of the longer-term sales funnel coming out of brown goods looking into '25.

Yes. Ben, this is Brandon. I'll start. So that's something we've highlighted about what we like about the new distillate business is that those sales and those contracts are multiyear in nature. So we do already have some visibility into 2025. We'll probably quantify that better for you as the year goes on just as we did last year. But what I will say is with EML's leadership and some other efforts we've been making, we're looking to the U.S. as we always do, but we're also getting more and more optimistic about opportunities for our brown goods outside the U.S. So as the year goes on, we expect to provide updates along the way.

Yes. I would add that Brandon mentioned Amel, but that really is the key focus of what Amel's really thriving on right now is the distilled solutions business, doing everything that we've already said to you to what we're going to do and then all the opportunities in brands. His role here, taking on just the commercial aspect of that is really giving us the platform to properly execute and do the things that we've been talking about, and that is continue to do what we do in the U.S., look at things internationally, and how do we continue to maximize the business.

I'll get back in queue. The next question comes from Mitchell Pinheiro from Sturdivant & Co.

I have a couple of questions. In the branded spirits business, are you observing any changes in consumer behavior, specifically regarding trade down? You've mentioned premiumization, but in other categories, it seems consumers are tightening their spending. I'm interested to know what you're observing or what you expect for the remainder of the year.

Yes, I'll address that. We are obviously continuing to focus on the Premium Plus category. Within Premium Plus, when you examine the different price tiers, there are shifts occurring, possibly from Ultra to Premium or the other way around. However, we believe, and the data supports, that the Premium Plus category remains a key focus point for growth in our business across the industry. As consumer inflation and economic conditions change, people do adjust their purchasing decisions, but the strength of our branded business lies in our comprehensive representation at all price points across the main categories. To summarize, while consumer pricing may experience some shifts, the data indicates that the Premium Plus market continues to thrive.

Do you have options you can implement if conditions tighten, or are your plans set with not much room for change?

Yes. One of the best levers we have as a company, and we feel is a little bit unique to us is points of distribution. And we feel like in the states we're in, in the United States, there's a lot of runway there for us to continue to expand our brands out on the shelf, not only on the shelves in the chains and retailers that we're in, but also ones altogether. So that's what our focus is. We talked about it on previous calls, and we're going to continue to spend a lot of time executing there.

I think what Brandon said is right on because at the end of the day, our growth in that section is about pod expansion first and foremost. As we expand our pods, you'll see the increase, you'll see the margin accretion and you'll see the sales happen. As you expand those pods though, we do through our marketing efforts and what I've said in the script, we really do focus on velocity, which is a marketing piece of it. So you have to go and we are, at this moment, continuing to expand our business on a pod driven basis and then back it up with the market needs to get it pulled through.

Okay. And then I guess last question on Branded is in your view, David, from your long history in the business, it seems, at least from my view, and I'm curious in your view, there is a huge influx of just new brands, new age classifications, new toasted and all sorts of stuff, it almost to the point where the proliferation seems overkill and also maybe hurting the category. Do you think we're over-branded in the branded spirits business up and down the category? Or do you expect any kind of pullback in brands? Or you think the set is going to stay kind of firm?

Well, in 30 years of doing this, what I can tell you what you're seeing in the U.S. American category, that's where you're focused. There are a lot of SKUs. I could go all the way back to the bucket as we go to yourself now. There's still a lot of competition on the shelves. You see that now in American whiskey, and you're going to see that on tequila. That's kind of the history of the industry, which if you think about it in business fundamentals, not a bad thing, it means that suppliers like ourselves are shifting to where that consumer demand is. But the challenge is, is keeping up with that consumer. That is the challenge at the end of the day. That's why when we talk about our business and our branded spirits business, yes, we're a leader in American whiskey, but we can't sit on that all the time. You have to have offerings and you have to be able to go across not only the price point and the portfolios because like you said, there are a lot of fast followers out there. When people see categories growth, it's a natural tendency for people to go in and bring more SKUs in it. What we do is what you try to do is we go in and we establish dominance on that particular brand to be the brand of choice. But don't take our eye off the ball to the other categories either.

The next question comes from Robert Moskow from Cowen.

For the question wanted to ask about the gross margin dilution in Distilling Solutions, I guess, down 100 basis points on a pro forma basis. Is that because of the mix shift? Is that the main driver of that?

It is. And so if you look at the pro forma for 2023 for Distilling Solutions, the gross margins for last year would have been right around 45%. We showed this on our last call, but happy to share it again. The mix shift is going to result in slightly lower margins. We expect it to be in the low 40s for the segment going forward, which is higher than I think a lot of people may have anticipated just because of the pricing we've been able to get on new distillates. So there is a little bit of a headwind there, Rob. But it's still a very, very nice margin for the segment, and it's one that we feel is sustainable as we go forward.

Okay. Got it. And then I guess the follow-up to that is in that you have price mix down 11%, and it really is that mix impact. But I don't remember you quantifying how much of that 11% was mix. Like can you quantify how much price was up excluding that factor?

We're not giving any specific numbers. Each pricing was up in new distillate pricing. If you look at it on a customer-by-customer basis, it was also up. We did have one of our larger relatively lower-priced multinational customers in the quarter by a lot. So they brought the average price down for new distillate. But like I said, on a customer by customer basis, we're very pleased with the pricing, and we expect the same to continue as we go forward.

We're not providing any specific numbers. Each pricing was up in new distillate pricing. When looking at it on a customer-by-customer basis, it was also up. We did have one of our larger, relatively lower-priced multinational customers in the quarter, which significantly lowered the average price for new distillate. However, as I mentioned, we are very pleased with the pricing on a customer-by-customer basis, and we expect this trend to continue moving forward.

I understand that this is included in the adjusted EBITDA and adjusted net income. However, is there a way to determine what that contingent liability will be and for how long it will remain on the income statement?

Yes, the earn-out from the Penelope transaction will continue through December 2025. We anticipate it to fluctuate around $4 million, based on the quarterly Monte-Carlo simulations, and we expect it to increase gradually as the brand performs according to our predictions. This will continue until the end of 2025. The figure may vary due to market volatility, interest rates, forecasts, and actual results, along with various inputs we provide. I wish I could provide a clearer answer, but I hope this information is helpful for your understanding.

It does. But I want to clarify two things. First, will it eventually result in cash? And second, should we feel more positive about it if the performance is better, indicating they are outperforming?

That's exactly right. It will be a cash outflow by the end of 2025 or sooner if they hit their metrics sooner is the way it's drawn up. It can be as much as approximately $110 million. And you're exactly right. It's definitely something as that number gets bigger, it's a positive for the brand. That means it's performing in line or better than our expectations.

This concludes the question-and-answer session. I would now like to turn the conference back over to David Bratcher for any closing remarks.

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

The Conference is now concluded, thank you for attending today's presentation. You may now disconnect. Goodbye.