Good day, and welcome to the MGP Ingredients, Inc. Fourth Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Amit Sharma, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to MGP Ingredients, Inc.'s fourth quarter earnings conference call. I am Amit Sharma, Vice President of Investor Relations, and this morning, I am joined on the call by Julie Francis, our Chief Executive Officer, and Brandon M. Gall, Chief Financial Officer. We will begin the call with management's prepared remarks and then open to questions. Before we begin, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's reports filed with the SEC. The company assumes no obligations 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 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, which was issued this morning before the markets opened and is available on our website at mgpingredients.com. At this time, I would like to turn the call over to Julie for her opening remarks.

Thank you, Amit. Good morning, everyone. As we close out 2025, I want to start with a clear message. We are doing what we said we would do. We made progress on each of the five initiatives, and we finished the year above the top end of our guidance. The operating backdrop remains challenging for the spirits industry, and we recognize that 2026 is likely to be another down year for the industry and our company. That said, we are increasingly optimistic about MGP Ingredients, Inc.'s future. Our confidence is grounded in three things: First, our ability to deliver sustained growth off our 2026 guidance expectations, which has been accelerated by our proactive self-help action. Second, our newfound strategic clarity prioritizing our right to win, which we believe will also position us for solid and sustainable growth. And third, our financial strength, which in this environment is a competitive advantage of increasing magnitude. As I mentioned on our last call, we undertook an exhaustive review of our businesses to create a clear strategic roadmap for the next phase of our growth. This was a well-defined process grounded in an objective, data-driven assessment. We have since shifted from broad strategic discussions to a clear enterprise roadmap, including an organizational structure aligned to the strategic priorities of our business, to further enhance our right to win. Strategy and structure are critical, but having the right talent and processes to execute with discipline is what we believe will lead to our ultimate success and sustainable growth. To that end, we recently announced organizational changes across our senior leadership teams. These were difficult decisions, but aligned with our strategic roadmap and positioned the company for long-term success. On our last call, I shared the hiring of our new Chief Marketing Officer and Senior Vice President of Operations. Since then, we have also added a Senior Vice President of Strategy and Insights. Each of these leaders brings to MGP Ingredients, Inc. track records of success and global best practices. In the coming quarters, they will be at the tip of the spear of building out best-in-class processes that are designed to enable disciplined execution and long-term success. Let me now provide a brief overview of our fourth quarter and full-year results before outlining key elements of our strategic roadmap and the progress we are making against our key initiatives in each business. Our fourth quarter and full-year 2025 results came in ahead of our expectations as the teams continue to act with diligence and focus. For the fourth quarter, consolidated sales declined 23% compared to a year ago, as double-digit sales growth in our Premium Plus portfolio was more than offset by the expected declines in the rest of our business. Adjusted EBITDA declined to $26 million while adjusted basic earnings per share reached $0.63. For the full year, we delivered consolidated sales, adjusted EBITDA, and adjusted basic EPS of $536 million, $116 million, and $2.85, respectively. Despite lower earnings, operating cash flows for the year increased by 19% to $122 million. Brandon will provide more detail on our financial results and 2026 guidance, but let me touch on the overall environment and our key initiatives that will shape our results over the next year. At the broader level, the spirits industry has historically shown great resilience across economic cycles and periods of consumer behavioral changes. While we are confident about the long-term outlook for the industry, we expect near-term category trends to remain below historical levels. Consumer sentiment and spending remain under pressure, with competition from spending from online gambling, gaming, and from cannabis-infused beverages, as well as an increased focus on health and well-being impacting consumer behavior. While we expect the near term to remain challenging, we are starting to see some encouraging signs, including a more balanced public conversation around alcohol and its role in social settings and in overall well-being. The recently released U.S. Dietary Guidelines place greater emphasis on moderation and individual occasions for alcohol consumption rather than the no-safe-level guidance of the past. As we know, across generations, cultures, and geographies, shared moments and occasions of celebration have included a drink among families and friends. In addition, a recent study from the American Heart Association concluded that low levels of alcohol consumption may not increase cardiovascular risk. The shift in overall tone is constructive and reinforces our long-term confidence in the category, but these developments are not expected to drive an immediate inflection in industry trends, and our 2026 outlook does not assume a return to historical growth rates for the overall industry. Shifting to our Branded Spirits segment, we believe this segment will continue to be our primary growth engine and the foundation of our long-term value creation strategy. In 2025, we executed well against our initiative to concentrate on more attractive growth opportunities. Our Nielsen-reported sales growth for the 52-weeks period ending December 27 came largely in line with the category, while our Premium Plus sales growth outperformed the overall category by 900 basis points during that same time period. As we look ahead, our focus here is clear. Win in the Premium Plus category with Penelope Bourbon, strengthen our focus brands, increase penetration in national accounts, and strengthen our digital marketing capabilities. Penelope is a key driver within this strategy. While Premium Plus American whiskey Nielsen-reported dollar sales declined 3.5% during the 52-week period ending December 27, Penelope's reported dollar sales increased by 80%, making it the second-fastest growing brand during this time period among the top 30 Premium Plus American whiskey brands. This growth was fueled by innovation and distribution gains, with Penelope Wheated and Penelope Ready-to-Pour Cocktail being two of our biggest new product launches in 2025. These products were very well received and helped deliver a 100% growth in points of distribution and a 12% increase in velocity. Our focus is on sustaining this ongoing momentum while strengthening our core by making incremental, targeted investments designed to drive brand awareness, improve in-store execution, and fill distribution gaps. Beyond Penelope, we have a portfolio of high-quality brands, evidenced by Yellowstone and Lux Row's inclusion in Whiskey Advocate’s prestigious Top 20 Whiskeys of 2025. We are the only company to have two brands in this year's Top 20 list. This external validation reinforces the strength across our portfolio and highlights the unrealized potential of a focused portfolio. To achieve this potential, we have established a comprehensive cross-functional portfolio management review process, which will take a deeper look at the long tail of our Branded Spirits portfolio, reduce complexity, and rationalize SKUs and brands. As a first step, we are targeting a rationalization of 20% of the portfolio's tail brands. We believe this new rigorous portfolio review process will help us make even clearer decisions about where we invest and where we protect to better position our brands across targeted consumer segments, channels, price points, and consumption occasions. Another key priority for the Branded Spirits segment is to increase our penetration in national accounts across both retail and on-premise accounts. We believe that having a greater presence with these customers not only creates additional distribution opportunities, but also drives greater scale, visibility, and recognition of our brands. Our continued commitment to invest behind our most attractive growth opportunities underpins these initiatives. We ended the year with Branded Spirits A&P spend at 12.5% of segment sales and expect it to increase modestly in 2026 to roughly 13.5%. We are also prioritizing investing in digital media, analytics, and tools designed to drive awareness and consideration for our key brands, to bring greater discipline in how we track and improve brand health, and allow us to connect more precisely with consumers around specific consumption occasions and social moments. Our Distilling Solutions segment saw sales and profitability reset in 2025 as many large customers paused purchases in an effort to balance their whiskey inventories and manage working capital. Full-year 2025 sales and gross margin declined significantly from 2024 but came in modestly ahead of our expectations, as our initiatives to strengthen our partnership with key customers led to improved visibility and alignment. We continue to stay close to these customers and expect to gain greater clarity on their brown goods needs for 2026 and beyond towards the end of the second quarter. Overall domestic whiskey production continues to decline sharply, and we continue to see media reports about closed or idle distilleries. According to the latest available TTP data through October 2025, domestic whiskey production was down 26%, 29%, and 27% for the trailing twelve-, six-, and three-month periods. In this environment, we are focused on creating a differentiated value proposition to better position MGP Ingredients, Inc. as a long-term strategic partner for both large and small customers. That means broadening our premium white good offerings to complement our brown goods portfolio, rebuilding our aged whiskey pipeline, and attracting and retaining a wider pool of customers by offering greater value-added services. Our increasing focus on premium white goods is designed to leverage the scale, heritage, and quality of our Indiana distillery to produce premium gin and GNS spirits that are customized for our customers. This would allow us to move beyond commoditized offerings to not just generate more attractive economics and better asset utilization, but also serve as a bridge to longer-term, deeper relationships with strategic customers. With respect to our aged whiskey strategy, producing and storing various vintages and mash bills is critical, and after taking a pause in 2025, we are committed to prudently building our aged whiskey offering. MGP Ingredients, Inc. is one of the few distillers with the technical depth and operational expertise to consistently produce high-quality whiskey at the precise specifications of our customers, and that capability continues to differentiate us. Our focus is on broadening our customer base, better leveraging the depth of our aging whiskey inventories, and capturing a greater share of aging whiskey sales. We also see meaningful opportunities to expand aged whiskey sales to both domestic and international private label whiskey customers, an area that has historically been underpenetrated for our brown goods business. While the industry-wide aged whiskey dynamic is unlikely to improve meaningfully in the near term, the strategic repositioning of our Distilling Solutions business and the actions initiated by our team give us confidence that our Distilling Solutions segment sales and profitability will approach trough levels in 2026. Turning to our Ingredient Solutions business, as expected, the outage of a key piece of equipment that impacted Q3 results remained a sales and profit headwind in the fourth quarter. The equipment came back online in November as planned. As I look ahead, I continue to draw confidence as our Ingredient Solutions business continues to enjoy consumer-driven tailwinds. Commercially, we continue to focus on driving growth through our three core platforms: specialty fiber with Fibersym, specialty protein with Arise, and extrusion protein through ProTerra. Each of these platforms serve large and growing end markets. Consumer demand for high-protein and high-fiber products remains strong, and we are leveraging our R&D and innovation capabilities to make MGP Ingredients, Inc. an even more integral part of our key customers' supply chains. In our textured protein business, the continued commercialization of a large multinational customer is a clear example of our ability to build strategic, growing, and sustainable relationships with leading food companies. With the commercial demand side of Ingredient Solutions on solid footing, our focus remains squarely on the supply side and returning to operational excellence. To that end, we are adding people, increasing capital investment, and implementing new processes to return operational execution back to historical levels. As a result, we are seeing early signs in more consistent throughput that these efforts are paying off in the form of reduced unplanned outages. This improved reliability gives us confidence to deliver strong double-digit growth in segment sales and improved gross margins in 2026. As I have spent more time focusing on this business, it has become clear that waste treatment and disposal is more complex and more costly than initially expected. The commercialization of the biofuel plant, along with our other waste stream handling initiatives, is helping to reduce these costs, but a portion of these costs will persist in the near to medium term and is reflected in our full-year guidance. Managing high disposal costs remains a key priority. We are evaluating additional measures and continue to expect to remove these costs over the long term. Finally, I want to highlight the progress we are making on our enterprise-wide productivity agenda, which was one of our five key initiatives in 2025. We are proud of our teams for delivering against all of our 2025 initiatives, and more importantly, productivity is becoming embedded in how we operate at MGP Ingredients, Inc. We are reinforcing an ownership cost mindset by incorporating productivity and cost discipline into our operating routines, performance management, and compensation metrics. Productivity and the cost management focus is becoming a part of our regular management routines, helping us uncover and track opportunities to eliminate waste and operate more efficiently and effectively across the organization. As we look ahead, we are encouraged by the progress we are making. Across all three businesses, our strategy is grounded in focus, execution, and discipline, and we are actively evaluating all available levers to operate more efficiently. I am committed to addressing our challenges directly, focusing on disciplined execution and accountability, while positioning MGP Ingredients, Inc. to emerge better aligned, more resilient, and well positioned for long-term value creation. With that, let me hand it over to Brandon for a more detailed review of our financial results and 2026 guidance.

Thank you, Julie. For 2025, consolidated sales decreased 23% compared to the year-ago period to $138 million. Branded Spirits segment sales declined by 1% in the fourth quarter and 3% for the full year. Our Premium Plus sales posted its strongest quarterly sales growth of the year with a 10% increase, driven primarily by Penelope Bourbon's continued momentum. Our mid and value price brands collectively declined by 11% for the quarter, slightly better than the 13% decline for the full year. Distilling Solutions sales declined 47%, including a 53% decline in our brown goods sales. Full-year segment sales declined 45% and gross profit declined 52%. Each of these came in ahead of our initial outlook, underscoring the improved visibility in our brown goods business. Ingredient Solutions sales declined by 10% for the fourth quarter and 7% for the full year. The equipment outage and higher waste stream disposal costs that Julie mentioned earlier were the key drivers of lower segment sales and profits. On the other hand, fourth quarter extrusion protein sales reached a new high. We continue to increase sales volume to new customers and expand our extrusion platform beyond wheat. Consolidated gross profit declined 35% to $48 million during the quarter, primarily due to lower gross profits in the Distilling Solutions and Ingredient Solutions operating segments. Consolidated gross margin declined by 630 basis points to 34.9% in the fourth quarter, while full-year gross margin decreased 350 basis points to 37.2%. Fourth quarter SG&A expenses increased by 5%. On an adjusted basis, SG&A increased by 18% as the reinstatement of performance incentives more than offset our cost savings initiatives. Excluding these incentives, adjusted SG&A declined by 5% for the quarter and 4% for the full year. Advertising and promotion expenses declined 11% in the fourth quarter and 23% for the full year as we realigned our spending behind our most attractive growth opportunities. For the full year, our Branded Spirits A&P was approximately 12.5% of Branded Spirits segment sales. Adjusted EBITDA decreased 51% to $26 million for the fourth quarter and decreased 41% to $116 million for the full year. Net income for the quarter declined to a loss of $135 million primarily due to a discrete non-cash adjustment of $153 million to lower the carrying amount of goodwill and certain indefinite-lived intangible assets in the Branded Spirits segment. On an adjusted basis, net income decreased 60% to $14 million. Basic earnings per common share decreased to a loss of $6.22 per share, while adjusted basic EPS decreased 60% to $0.63 per share. Despite lower earnings, our cash flow from operations increased 19% to $122 million for the full year as we continue to prioritize strong cash generation by managing our working capital, including barrel inventory put-away reduced from $33 million in 2024 to $19 million in 2025. Full-year capital expenditures of $32 million were down more than 50% from the year-ago level as we continue to optimize capital expenditures in the current environment. Turning to our 2026 outlook, we expect the operating environment to remain challenging, and we are planning accordingly. Our outlook assumes continued pressure in certain categories, lower contracting activity levels in Distilling Solutions, and improving execution in Ingredient Solutions as our operational initiatives take hold. Specifically for 2026, we expect net sales in the $480 million to $500 million range, adjusted EBITDA in the $90 million to $98 million range, adjusted basic earnings per share in the $1.50 to $1.80 range with average shares outstanding of approximately 21.4 million shares, and a full-year tax rate of approximately 27%. Our first quarter tax rate is expected to be approximately 75% due to the vesting impact of share-based awards granted during periods of higher share prices. Full-year CapEx is expected to be approximately $20 million. We expect first quarter adjusted EBITDA to represent approximately 15% of our full-year target and to be the lowest quarter of the year. 2026 Branded Spirits sales are expected to be down mid-single digits compared to 2025 as our continued momentum and growth in the Premium Plus category is expected to be offset by lower sales of our mid- and value-priced brands, as well as lower private label sales. We expect Branded Spirits segment gross margin to improve modestly in 2026. Given the ongoing brown goods environment, we expect 2026 to be another down year for our Distilling Solutions segment with sales down 35% and gross profit down 40% compared to 2025. We expect performance for both metrics to be down relatively more in the first half of the year than the second half when compared to the prior year as we cycle against completion of certain large contracts during 2025. However, as Julie outlined earlier, we believe that our proactive actions are helping us stabilize this business and position it for growth from the 2026 levels. We also believe our Ingredient Solutions business is poised to recover after a tough 2025. Given sustained commercial tailwinds and expected operational improvements, we expect segment sales in the $140 million to $150 million range and gross margin in the mid- to high-teens in 2026. As Julie stated, we expect first half gross margins to improve from 2025 to the low teens and improve again in the second half of 2026 as our operational efforts set in. We expect Branded Spirits A&P to be approximately 13.5% of segment sales and total company SG&A to be approximately 18% of total company sales, both of which are up versus prior year primarily due to our lower sales outlook. Maintaining a flexible balance sheet remains a priority. As we look ahead to 2026, we expect to pay $111 million in the second quarter as an earn-out payment related to our Penelope acquisition. We also expect to refinance $201 million of convertible notes in the fourth quarter. Given the Penelope earn-out payment, our net debt leverage is expected to peak and be approximately 3.75 times in 2026. We remain committed to reducing costs, prioritizing cash generation, managing working capital, and being deliberate about our capital allocation. We expect that these actions will allow us to delever over time following the Penelope payment. To that end, we expect 2026 CapEx to be approximately $20 million and net whiskey put-away in the $13 million to $18 million range, which represents a second consecutive year of meaningful capital optimization and stewardship. We expect full-year interest expense to be approximately $12 million and for it to increase sequentially during 2026 due to the Penelope payment and the convertible note refinancing. The Penelope earn-out payment will reduce our 2026 operating cash flow by nearly $50 million. Excluding the impact of this payment, we expect 2026 cash flows from operations in the range of $40 million to $45 million and free cash flow in the $20 million to $25 million range. To close, I want to echo Julie's comments. 2025 was a year of progress, discipline, and important foundational work, and we believe that the actions we are taking position MGP Ingredients, Inc. to emerge stronger, more focused, and more resilient over time. With that, I turn the call back over to Julie.

Thank you, Brandon. Before we wrap up, I want to thank the entire MGP Ingredients, Inc. team for all their hard work, persistence, and focus in a dynamic environment. This past year was not without its challenges. The operating environment remains difficult, and we are clear-eyed that 2026 will likely be another down year of sales and earnings. At the same time, 2025 was a year of important progress for MGP Ingredients, Inc. We delivered results in line with, and in several areas ahead of, expectations while beginning the hard work we feel is required to reposition the company for the future. I have shared that since joining in the third quarter, I have made it my priority to look within, to fully understand what makes this company unique and what actions we need to take. In doing so, I have traveled to all of our facilities, many times. I have spoken with customers and suppliers of all sizes, engaged in exhaustive business unit function reviews, and hosted more than 60 one-on-ones with employees. These insights were used to formulate our strategy, design an effective organizational structure, bring in the right talent to drive impact, make prioritization decisions, and implement processes designed to enable sustainable results and growth. The success we aim to achieve will not come overnight, nor will it be without tough decisions. But the progress we have made over the last six months has been made with expeditious prudence. We believe it has positioned us to deliver sustained growth off of our 2026 guidance expectations, to sharpen our strategic focus and strengthen execution across the organization, and to utilize our financial strength to position us for long-term and sustainable growth. While I am pleased with the progress we are making, what gives me the greatest confidence is the alignment I see across our teams. There is a growing clarity around where we can win, greater accountability for results, and a shared commitment to doing what we said we would do. We will now open for questions. Operator, please open the lines for questions.

Thank you. We will now begin the question and answer session.

The first question will come from Sean McGowan with ROTH Capital Partners. Please go ahead.

Thank you. First question is a general one. What are you seeing and what do you expect regarding pricing in the industry? Are you able to hold the prices that you have taken? And then a more technical question: does your credit facility allow, or is there any limitation on how you can use the credit facility regarding the Penelope payment? Thank you.

Good morning, Sean. It is Julie. How are you doing? I appreciate your question. On pricing, broadly speaking, I would say pricing is rational. You certainly have pockets across states and in a couple of different categories. Affordability is an issue, so our price-package architecture we have sharpened up. In particular, we are launching smaller sizes—50 mLs and 375 mLs—to have a more affordable price point out there. Broadly speaking, in Branded, I would say it is very rational. In Distilling, obviously, we have an oversupply situation, so while pricing is certainly impacted, we have the tools that we need, and we understand where we want to be on some of the barrel pricing, and we have been moderately pleased with our ability to work with our customers. Our partnership approach is working. We have not lost any customers to date, and so the ability to have those conversations and understand their intent really helps us in that matter. Now I will turn it over to Brandon for your second question.

Yes, Sean. As far as the credit facility as it relates to the Penelope earn-out, no limitations. As you recall, we upsized and extended the facility in the first part of last year. Our bank group views this payment as a positive thing. They are excited for Penelope. They view this as all good news, and we are very, very fortunate to have such a supportive bank group that we do have. We also have the ability to exercise our acquisition holiday in Q2 if needed, which actually gives us even more covenant headroom on that side of things should we desire to do that. So no limitations.

Great. Thank you. Thanks.

The next question will come from Seamus Cassidy with TD Cowen. Please go ahead.

Hi, this is Seamus Cassidy on for Robin. Thanks for the question. First, I am curious if your expectations for a down year for the industry take into account the slightly positive year-to-date trends we are seeing in scanner data. And then on brown goods, can you speak to your visibility, sort of on 2026 being the trough? I.e., are new distillate contracts largely locked in? And then, sort of on that point, you spoke to a pivot back to aged whiskey sales. This has historically been more choppy and difficult to predict demand for, so I am hoping you can talk us through that dynamic.

Yes, thanks so much. I appreciate the question. I would say, going back to Branded Spirits, our 2026 guidance does reflect both our Premium Plus momentum and then the mid-to-value expectations across the portfolio. We feel we have good visibility in what we are seeing, and we are pretty encouraged by some of the commercialization strategy planning and execution that we have newly introduced. We see that coming into play, but you would expect Penelope to continue to drive our Premium Plus brands. In addition, our other three focuses have some refinements in how we are looking at the mid-to-value price tier. We do think that there are a few key brands where we can really dial in some of our pricing, some of our architecture on offerings and sizes to really address that. But I would say, broadly speaking, our 2026 guidance reflects the industry and where we have visibility. And then switching to your Distilling question, from a guidance there, certainly most of our, I would say, under contract for a majority of our aged and distillate customers for the year. So we have good visibility in 2026. Our brown goods guide reflects similar spot ages to 2025 at current market pricing. The partnership approach is working, and so we have expanded with some of our larger customers into the premium white goods. So our guidance reflects premium white goods up double digits, and we really like this. Number one, it is sticky, right? We are deepening our relationship with some key customers. And two, it is a great mechanism to reduce costs of raw goods. And then our warehouse services continue to play an important role. Our customers are tight on working capital, and we can provide them this service, and it is also fairly strong cash flow generation. So that is a balanced approach, good visibility, but certainly I think our guidance reflects appropriately the oversupplied environment that we are seeing.

Understood. Thanks.

Thanks, Seamus.

The next question will come from Marc J. Torrente with Wells Fargo. Please go ahead.

Hey, good morning and thank you for the questions. I guess just building off the last one, any more visibility that you could provide into the guidance building blocks for Distilling? Just specifically, what is embedded from fully committed orders that you proactively worked with customers on? How much potential spot business is assumed? And then just any other color you can give on cadence through the year?

Yes, thanks for the question, Marc. For our brown goods business, let us start with aged. Aged was obviously ahead of our expectations last year, albeit they did start from an expectation standpoint at a pretty low point. So what we are guiding for this year is the same spot volume sales that we were able to do last year. We feel that level is appropriate in this environment given the success we were able to have last year. There are more aged sales above that, and that is really due to the team’s successful efforts in commercializing some private label large customers internationally and domestically, and so those aged sales are under contract. So that is factored into our guide. And then, as it relates to our new distillate, substantially all of that is under contract. So we feel that we are exercising the same discipline and visibility that we were able to exercise throughout the course of last year. As it relates to Ingredient Solutions, moving on there, as we said in our opening comments, 2025 was a tough year, and we learned quite a bit, and we are doing the right things. We are putting the right efforts against it. You will see sequential improvement as the year goes on. That is going to be seen in double-digit growth in sales as well as pretty substantial improvement in gross profit. So we are excited about what is to come this year with Ingredients. And Julie already spoke quite a bit to Branded Spirits, but those are our building blocks. As far as quarterly cadence goes, Q1 will likely be the low point for the year, which is pretty typical. Brown goods customers tend to take a little bit of a pause during the quarter, and Branded Spirits is historically softer coming out of the holidays, but we do expect to perform against all these expectations as well as contracts as the year goes on.

Okay. I appreciate that. And then on Branded, you spoke to the rationalization of tail brands. Maybe talk about the ability to reallocate resources behind your premium brands, where this can take Premium Plus as a percentage of the portfolio in the near term, and how to think about margin potential and, I guess, balance of the portfolio going forward? Thanks.

Thanks for that question. We did a pretty intense portfolio review process of all of our brands. We are starting this year again. We have a roadmap, so this strategic roadmap starts in 2026. As shared on the call, that 20% of the tail brands—and it is important to note they are tail brands—so availability and presence out in the marketplace is different across different states. These first 20% are not our high-visibility, high-volume ones, but certainly they take away focus. They take warehouse space, they take up raw ingredients, they take up production line availability, etc. So we are going to start there. It is not going to reduce any scale with distributors or anything like that because, again, broadly speaking, we have our lineup in Premium Plus, so I will not say there is a change to the Premium Plus lineup of our core four focuses. I attribute our commercial execution and planning that we are really ramping up in that area not directly to portfolio review, but really linked to having a new leader in marketing. We have dialed-in commercial strategies, dialed-in execution plans, and then tools and enablement at a distributor level to ensure that we are delivering the key value drivers we expect, and most importantly, what that look of success is that we expect in the different channels and the different customers. That is really what is going to drive some nice movement, we believe, with our Premium Plus and our distributors. But we do think portfolio management and rationalization plays an important role. As we get past this first 20%, you would expect towards the end of the year and into 2027 for us to focus on the next 20%, which we do feel is out there for rationalization.

Great. Thank you.

Thanks, Marc.

The next question will come from Mitchell Brad Pinheiro with Sturdivant & Co. Please go ahead.

Yes, hey. Good morning. So most of my questions have been asked. I did want to follow up on the Distilling Solutions business, where we are looking for a trough year here this year, and you talked about some of the reasons why you have some confidence there. What would cause you to miss that trough-year expectation?

I will start on that. What gives us the confidence are all the actions that we are taking, which we went into in a lot of detail in our opening remarks. Our connection and continued connection with our customers, especially those large customers that are pausing on brown goods buying. We are talking to them about other projects, whether it is ways to innovate with the barrels they currently have in their warehouses, or whether it is to do some of these really interesting premium white goods services and products that we have talked to. So just that connectivity definitely gives us a lot of confidence. But, as time goes on, they are going to have to come back to the table, and we have to continue to be good partners in the interim. We have shared that we hope to have more visibility by the midpoint of this year. Ultimately, we are going to do what is right for them and what is best for them, and what gives us a lot of confidence is just the levels we are at today, Mitch. The level of brown goods sales that we are forecasting and guiding to—a lot of the risk has been removed from that standpoint. Not to say that there is not ever risk out there, but we feel like a lot of that has been alleviated from our outlook.

Okay. And then when you look at the most recent sort of industry inventory data—it is over, like, thirteen years of inventory right now, and typically, back in the 2022–2023 range, it was down around nine or ten years. That delta of four years, some of it obviously has to do with consumer preferences for more aged product. But I am wondering, how does that compare to your inventory levels? Are you out there that long with your barrel distillate, or is your barrel distillate closer to your near-term demand needs? So I guess what I am trying to say is, had you overproduced on your barrel distillate, or do you feel that your performance is in a better shape than the industry?

I do not think anyone has gotten it exactly right over these last five years, ourselves included. But what we do feel, Mitch, is that we have taken actions very quickly. Industry numbers are down over the last twelve months anywhere between 25–30%. If you look at just our sales in Distilling Solutions and equate that loosely to production, we are down much more than that, and then we are also guiding this year for Distilling Solutions sales to be down another roughly 35%. So we have definitely taken our production down, but we are still putting away anywhere from $13 million to $20 million in both years for our future because both our brands and having a full aged portfolio offering are critical strategies of ours, and we are committed to those. But we do think we are doing the right things. We have also been able to do so in a very cost-effective manner. Our cost structure overall for brown goods is in a really, really great spot, due to the team’s ability to reduce costs, largely fixed costs, out of the operations, but also our ability to do unique things that our competitors cannot do, like offer premium white goods that can absorb a lot of the cost structure that otherwise would not be there.

The only thing I would add to that, Mitch—I think Brandon did a great job summarizing—is that volume and pricing is reflected in our guide. In the toughest of environments, we are still guiding to mid-30s, and as Brandon said, reducing our operating cost, the team has done a great job. We have cash-generating warehouse services, aged whiskey sales inventory. We have expanded into aged whiskey with private label contracts, and we are pleased that a couple of them—these take a long time to get through the process—but by the end of first half, we should have some sales for a couple of them. And we are entering into premium white goods, both services and saleable products. So again, tough environment. We are pleased with some of the progress, but certainly I think our actions are very appropriate, and we are pleased where some of the TTP data has come in.

Okay. Thanks. That is helpful color. One last question is, curious if you mentioned it before; I apologize, but I am curious where your marketing focus is on your Branded Spirits—what particular brands, what you intend to do, if you can talk about that.

Sure, Mitch. I would love to give you a little color. First, Premium Plus will be our primary growth engine. We are fairly pleased with our Penelope results. It continues to have a mass consumer appeal. Innovation has been robust. We would have another strong year as well in 2026, so you can certainly expect us to have that focus. We are going to have even more digital dollars on Premium Plus led by Penelope. Our A&P in 2025 was about 12.5% of sales. We are modestly going to take that up in 2026, but most importantly, we are going to shift to digital media. We are increasing over 200%. We are also taking a streamlined approach to our agencies—better brand briefs, better dialed-in RFPs. We think one to two points of shifting A&P to actual media or in-store dollars. From a commercial support perspective, we did shift from 55% brand building to 45% commercial support for 2025. We think this is appropriate given the current environment to bring those pull-throughs. So it will be mainly focused on Premium Plus—El Mayor, Yellowstone, Rebel, and also, obviously, Penelope. We have a great NASCAR activation program for the races this year with our number 8 Kyle Busch car. We are looking forward to that, but that is where we will be spending our dollars.

Great. Thank you very much. Thanks.

The next question will come from Ben Klieve with Benchmark/StoneX. Please go ahead.

Thanks for taking my questions. First question on the expectation of rationalizations in the Branded Spirits segment. I am wondering, Julie, if you can first of all characterize the degree to which those rationalizations are proactively built into your 2026 guidance that you laid out, or if there is going to be potential downside to the Branded Spirits outlook when those rationalizations come. And then second, the degree to which you think those are going to be monetizable versus just written off.

Good question. Number one, broadly speaking, they are not going to be an impact on our 2026 guidance; that is reflected in that. So the 20%—again, it is important I use the word it is our long tail—and by that, it is probably our heritage Luxco brands that are in value space in some categories and segments and states that are unique. So it should be no impact on 2026 guidance, and it is accounted for. Moving forward, we do have our next wave of that, and certainly, as you optimize SKUs, there are a few different things we can do. We think there is a handful of them that we will divest, and we think recovering at least our packaging and inventory cost is the minimal amount that we will get for those. We are also going to be prudent, efficient, and effective on how we draw those down—whether it is a write-off or there are several different places and/or states that we could go to that it may make sense. Those will come forward as they are expected in 2026. As we move forward to our next 20%, that is when we will move into some other stronger volume plays that we think streamlining them does provide us with the ability to replace some of these SKUs and their shelf presence with some higher-velocity SKUs. So that is our roadmap for portfolio management, and it is in progress, it is accounted for, and most importantly, it is not an episodic event.

And then my follow-up question, moving to the Ingredients segment. Great to see your encouraging outlook for that business in 2026. I am wondering if you can break down or quantify the impact of mechanical challenges and the elevated cost of the waste stream within 2025. I am wondering how much of a profit headwind those two buckets were. And then second, if you can characterize the degree to which those headwinds are going to persist in 2026. Especially in the waste stream, I thought that was going to be effectively zero with the emergence of the biofuel facility, but clearly those are going to persist a bit. So help me understand those dynamics.

I am going to take your questions together, and then Brandon can clean up any of the impacts that you seek. Let us talk Ingredient Solutions. First and foremost, there are significant consumer tailwinds—high fiber, high protein are on point right now—and our ability to have co-creation events with large customers. Many of these products are well known and very strong, and so our ability to partner with them on these, and we have consistent demand. We have been able to now, most importantly since late November, get out the production pounds and have had stronger operational reliability than we had in the last four months. You are going to see segment sales up well north of double digits in 2026. That being said, the effluent part—and yes, I think I was transparent in our remarks—has been a little bit more complex. It has been more costly. That plant was stood up sometime in 2025. There are multiple waste streams, one of which this biofuel cannot digest, and so we do have to send that out to a municipality. That municipality was offline since early December. We expect them to go back online sometime in 2026, so that certainly will help mitigate some costs. We have work underway—and this work is months, not weeks—on how to eliminate that final waste stream, or food stream, that we cannot mitigate right now. I will tell you, we are very bullish from the commercial side of the business. We have very good operational reliability. We are getting out the pounds, and the effluent certainly is the last kind of stool on this leg that we have to get better at. I would expect sequential improvement across gross margins and that waste stream across each quarter, and the back half of the year. In 2027, we do expect this to be in the 20s gross margin. It will take us to that time to get there, but we think those are comfortable ranges that we can get to. Brandon?

Well said. It really depends on the month and the quarter, but largely speaking, if you just look at Q4 in terms of what was the driver to the profitability headwinds in this segment, year over year, the segment was down $5.7 million in gross profit. A little more than half of that was due to that key equipment outage, and the other half or less was due to the effluent and disposals. As we get into Q1 of this year, that effluent disposal is expected to be more of the cost driver and headwind because, as Julie said, a lot of the front-end throughput and reliability issues are being resolved. If you look at it in three areas, the demand side is still intact and very constructive, the throughput and reliability is improving every day, which is really allowing us now to circle around the last item, which is the effluent, and that is what we are going to do.

Got it. Very helpful. Thank you both for taking my questions. I will get back in the queue.

Great. Thanks, Ben.

This concludes our question and answer session. I would like to turn the conference back over to Julie Francis for any closing remarks.

Thank you. In closing, thank you for your time and engagement with MGP Ingredients, Inc. We look forward to talking again soon and after our next quarterly announcement. Thank you.

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