Q1 2020 Earnings Call

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Good morning. The MGP call will still be starting in a few moments. Please continue to hold again will be starting in a few moments. Thank you.

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Come to the MGP Ingredients first quarter 2020 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star than one on your telephone keypad to withdraw your question, please press * then two months. Please note. This event is being recorded. I would not like to turn the conference over to Mike Houston investor relations, please go ahead.

Thank you, Danielle. Good morning everyone and thank you for joining the MGP Ingredients conference call and webcast to discuss the company's Financial results for the first quarter 20, 25 days. I might Houston with Lambert & Company mgp's investor relations firm and joining me today are members of their management team including Gus Griffin chief executive officer Dave kholo President's Chief Operating Officer and Brandon Gall Vice President of Finance and Chief Financial Officer will begin the call with Management's prepared remarks and then open the call up to questions. I ever 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 Revenue earnings and capital structure as well as achievements 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 ww.w GP ingredients at this time. I'd like to turn the call over to Chief Executive Officer Gus Gus.

Thank you Mike. And thank you all for joining us at the conclusion of our call in February. None of us could have imagined power war was going to change in just a few short months off on the call this morning will provide details of our performance for the first quarter as usual. But we also spend some time in our comments discussing the items, which we will I will be of interest to you when you wake the covid-19 endemic before we turn to the results for this quarter. I'd like to welcome Dave to the call this morning as our recent appointed president and Chief Operating Officer calling my retirement in may they will assume the role of CEO.

I feel very fortunate to have had the opportunity to lead such a talented passionate in collaborative organization.

I also appreciate the strong ongoing support of our board.

I've worked close to the days since he joined the board in 2015 and I am confident. He'll be a terrific successor in leading MGP.

As a director on our board, they put a critical role in supporting the company's growth over the past several years and we're very excited to have them on Executive leadership wage.

I will turn to the results for the first quarter.

We are very pleased with the results this quarter with Consolidated sales increasing 11.2% and gross profit increasing 39.3%

These results reflect strong customer demand in both business segments and improved Effectiveness and our tactical execution our results for the record reflect growth in premium beverage Brown Goods sales as well as significant year-over-year increases in sales of our specialty we starches and proteins.

Looking at each segment individually.

In order to story product segment sales finished the quarter up 7.3% to eighty million dollars while gross profit increased to 18.2 million months or 22.8% of segment sales.

These results reflect in 240 basis point increase in gross profit margin as compared to the prior-year.

They also premium beverage alcohol. We're up 9.4% for the quarter.

He's improved results were primarily driven. They both cells.

new District in which led to a 17.1% increase in sales of brown Goods

We saw strong demand for inventory of Asia including sales of whisky from our 2015 and 2016 vintages.

sales, twisting reflect the lower pricing versus the prior-year quarter, but in line with our expectations

despite some significant changing Dynamics at the retail level and potential challenges to specific customers. We believe the underlying macro consumertrack supporting the ongoing growth of the American whiskey category remains strong.

stay at home owners have had a devastating impact on on premise sales over the past six weeks while consumers appear to be increasing their consumption at home driving record increases and off-premise sales during the.

Well Channel specific Trends going forward are uncertain the category Trends seem to be holding strong with American whiskey continuing to be one of the top grossing categories.

Well sales are premium beverage white boots were down 1.6% for the quarter margins improved do to lower input costs.

La continuing to implement our broader growth plan. We are also focusing on helping our industrial alcohol customers navigate the challenges they are confronted with as a result of the covid-19 pandemic.

We remain committed to continuing the Legacy. Our company was founded on more than 75 years ago by supporting the relief effort with both financial aid and an increased production of alcohol for hand sanitizer and Commercial disinfected needs.

MGP uniquely position to serve as the backbone of the increased industrial alcohol production in this country, and we're proud to expand our efforts at Arkansas in Indiana facilities during this critical time.

sales of industrial alcohol increase for the quarter by 5.7%

As a reminder to those new to the story, we typically run our alcohol production close to full capacity to optimize the cost structure of our facilities.

Why we have experienced increased demand related to covid-19 over the past several weeks. It's important to point out that a significant portion of or alcohol and premium beverage white goods production was already contracted for a set price last fall.

Improve demand for industrial alcohol has come into play in the near-term, but we do not do this pandemic has an opportunity to maximize short-term Financial results on this product line.

Also of note sales have dried distillers grains with a G experienced a decline of 1.5% as compared to the first quarter of 2019.

This was due to a slight decrease in sales volume partially offset by favorable average selling prices.

Revenue from Warehouse Services increased by 10.5% reflecting in part that growth in the number of customer barrels Aging in our whiskey warehouses and other services we provide.

turning two ingredients Solutions

Sales, grew 31.4% to 19.1 million dollars gross profit increased to five million dollars or 26% of segments sales rep reflecting a significant increase in gross profit margin as compared to the prior-year.

Our ingredients Solutions posted it's 14 consecutive quarter of year-over-year sales growth.

We've been very pleased with the continued strength momentum of our ingredients business over the past several years and we are encouraged by the robust roast month. We were able to achieve this quarter. The majority of this increase was due to our ability to optimize sales and production court or highest margin products.

We also benefit from decreased input costs in the absence of blood related cost.

Especially which starch sales grew 48.4% this quarter while especially protein sales grew 43.3% both driven by increase volume in favorable average selling prices.

We believe our Specialty Storage portfolio for typically our line of fiber products and our recently rebranded proterra line of texture proteins continues to be a wine with strong consumer trends.

While the covid-19 pandemic continues to create a period of uncertainty and potential challenges. We remain committed to taking the measures necessary off help ensure the safety and well-being of our employees.

We began our response to the pandemic by mobilizing a central crisis response to which has been up and running since mid-march.

This broad reading range from Team includes members from operations. HR legal it finance and are exactly which meet on a weekly basis.

We also created a specialized sub-group of this team which meets daily.

This subgroup was established to manage proactive and responsive actions across our operations.

We have direct engagement with all areas of the organization on a daily basis and have enacted centralized protocols for responding to operational issues as Thursday.

We're proud of the aggressive actions put in place to safeguard our employees while they perform their essential work.

We continue to look to the CDC whro and state and local Health departments for guidance as we move forward with each of our facilities and offices.

This concludes my remarks. Let me now turn things over to Brandon golf review of the key metrics in numbers, Brandon.

Thanks guys for the quarter Consolidated sales increased 11.2% to 99.1 million dollars reflecting a 7.3% increase in The Distillery your products suck and a thirty 1.4% increase in the agree and solutions segment Consolidated gross profit increased 39.3% to 23.2 million dollars back to the increase gross profit and both that a silly products and ingredients Solutions segments Consolidated gross margin increased by 470 basis points to 23.54% of sales up from 18.7% in the prior year quarter.

Corporate selling General and administrative expenses totaled nine point five million dollars for the first quarter twenty-twenty representing an increase of 16.6% compared to the first quarter 2019 primarily due to increased incentive compensation expense inclusive of certain incremental costs incurred relating to the transition at the CEO position Consolidated operating income increased 61% the 13.7 million dollars through the increase gross profit in both that is silly products and Green Solutions segment partially offset by increased corporate selling General and administrative expenses. Non-gaap operating income increased 67.9% of 14.5 million dollars, exclusive of CEO transition costs.

Our corporate effective tax rate was 24.7% in the current quarter compared to a tax benefit of 17.7% in the prior-year quarter that resulted from a sizable besting of share-based awards.

Consolidated net income for the quarter increased slightly to nine point eight billion dollars or earnings per share remained flat for the prior-year. At $0.57 per share EPS was affected by improved operating results, but partially offset by a prior year. Tax benefit resulting for the vessel share base Awards.

MGP stylesheet and access to Capital remain strong, you are made well capitalized and through. Additional funds on our revolving credit facility during the quarter to maintain a conservative cash position and have sufficient liquidity in the event depends emack directly impacted operations as such we ended the quarter with a debt balance of 96.1 million dollars in a cash pack a 42 point seven million dollars as of March 31st, 2020 approximately $245 million dollars remain available under the $300 revolving credit life. Our leverage continues to be very low and given we have an experienced any significant economic hardship on our business to date as a result of covid-19. We have not participated. In fact of the lending programs provided by the care tax.

First quarter 2020 cash flow provided by operations was $5 compared to a use of cash of approximately three point eight billion dollars in the prior-year wage an improvement of four point three million dollars accounts receivable and Day sales outstanding increased eleven point five million dollars at 7 and 1/2 days during the quarter effectively. This increase is consistent with the development of longer sales histories with craft customers new relationships with export customers and new long-term Supply agreements with large customer all of which we discuss on this call in previous quarters.

Customers we extend credit to our mostly large in nature in all have a combination of strong balance sheets and long payment histories of MGP.

As a result, we're not experiencing issues with collections historically first quarter operating cash flow has not been indicative of the whole year.

During the. We also invested in that 7.2 million dollars for growing our burial distillate inventory for aging as a reminder of those that might be new on the call today while we did reduce our annual volume down expectations for Aged Whiskey on our call last February. We believe our library of various Mass bills and vintages will continue to contribute significant levels of profit for the company going forward. We also believe our inventory set aside for Aged whiskey sales in the US market is close to reaching equilibrium on a net basis in any feature inventory increase will be for export sales rep new match bills in a support the growth of our own brands.

Past or even recent quarters are not necessarily indicative of barrel discipline investment in subsequent quarters fluctuations in our quarterly investment can be impacted by number of factors including customer demand for new desolate production efficiencies mixing capacity Warehouse capacity in sales of aged, whiskey.

Our warehouse expansion program has been another important initiative to support new distillate demand for our customers as well as our investment in aging inventory as of March 31st, 2028. We spent approximately 49.7 million dollars forty nine point eight billion dollars. We projected as a total investment the program remains on track to be completed later this year.

During the quarter.

We purchased shares in the open market as part of the $25 million-dollar common stock repurchase program announced in February of 2019. We repurchased 159,000 100,000 shares for approximately four point 1 million dollars or weighted average all-in cost per share of $25.47 during the first quarter of 2020 and we concluded our purchases on March 16th.

Recently the board authorized a second quarter dividend in the amount of $0.12 per share Ford continues to view as an important way to share the success of the company with shareholders money. Let me now turn things over to Dave for concluding remarks. Thanks Brandon. Now, I would like to touch on some additional initiatives that support our long-term strategic plan. The first addressed are out for the balance of the Year while we were off to a strong start to the year with ample access to Capital and encouraging customer demand our financial results for the balance of the Year could be impacted by the covid-19 virus.

Given the uncertainty this pandemic is caused for nearly every industry across the world. It is impossible to predict with any level of precision the pandemics cumulative impact on our financial results for these reasons. We are withdrawing our previous twenty twenty guidance and we'll reassess this position based on the visibility of the macroeconomic received our balance sheet and access to Capital continue to be strong by we seek to optimize cash management during this pandemic.

Although our long-term capital allocation strategy may experience little change we seek to maintain a conservative cash position as outlined by Brandon earlier about renewing our credit facility and expanding our borrowing capacity earlier this year. We have enhanced our access to Capital with attractive pricing and terms.

Yes, we navigate the effects of this pandemic. We will remain focused on prudent Capital Management, which is why we have elected to curtail stock repurchases while maintaining a quarterly dividend the management team in close collaboration with the board has the ability to initiate the buyback program or adjust quarterly dividends as circumstances warrant.

The American whiskey category continues to experience strong growth and we will continue to invest to support that growth the demand and pricing in line with our expectations demonstrate the health of this category. If you'll recall from our Communications last quarter, we continue to have a significant share in scale advantage and plan to increase our Focus toward growing volume share in the global American whiskey category. We do not believe this equates to significant changes to overall pricing but rather refinements to how easy the selling process the products be offer and the markets we focus on

our objective

Going forward will be to optimize our Brown Goods profit by increasing volume share at market-based pricing.

Although we believe the American whiskey category Trends are long-term in nature. We have identified a handful of potential headwinds for the balance of the year as a result of the pandemic.

Well, we did not experience any significant impact from these potential headwinds during the quarter. We wanted to proactively share what we're seeing across the industry.

The first relates to the potential Pantry loading that may have been occurring over the past several weeks causing off-premise sales to significantly Spike. We are unsure how long these purchasing behaviors wage continued and what potential impacts they might have on future off-premise cells when stay-at-home orders are lifted Across the Nation second, the stay-at-home order of closers of bars restaurants and tasting rooms are having an immediate impact on our craft customer sells the past several weeks. We would anticipate these Trends to remember is these establishments reopen but it is difficult to predict when that might occur in a meaningful way.

The third potential headwind is related to our multinational customers. While most have strong balance sheets and access to Capital. It is unclear how their conservation of cash may impact or brown good cells throughout the balance of the year.

The last potential headwind we have identified is our near-term ability to grow International sales and Export are distilled Spirits overseas in the first quarter. We began to experience meaningful progress against our ability to expand our International sales.

We continue to believe that our investments to expand International sales will provide long-term shareholder value. However, as travel has been curtailed in tariffs and Kia. Choice market persist our ability to further develop this opportunity has been delayed.

We continue to closely monitor each of these potential headwinds and will provide additional updates as they become available. Our warehouse Expansion Project is substantially complete package has to increase or storage capacity to meet the growing demand for our new distillate. We anticipate the conclusion of this project to occur in the second quarter is Brandon mentioned. We also invested an additional seven point two million dollars in our aging whiskey inventory this brings our inventory of Aging whiskey to 111.4 million dollars off cost.

The positive Brown Goods results this quarter continue to demonstrate the long-term value of our aged whiskey inventory.

While our focus in The Distillery product segment will always be supplying other brand owners with premium distilled Spirits. We continue to progress Our Brands initiative with the acquisition of new Columbia distillers based in Washington DC. We're thrilled to add the green hat gin brand to our award-winning portfolio this acquisition enhances the depth of expertise and commitment category we've developed over the years. We continue to develop our existing markets markets focused on increasing retail distribution and velocity per point of distribution office or our portfolio of Brands. Although the current environment is not generally conducive to m&a activity. We will continue to assess opportunities to strengthen our position in growing markets in concert with our financial position in the upcoming quarters.

Are pandemic response plan, which is desire.

To accommodate evolving information and guidance provided by government agencies and health officials focuses on protecting our employees and customers and doing our part to help stop the spread the virus the central crisis response team and specialize sub-group guts mentioned earlier have helped to ensure the safety of our employees as well as to comply with various government restrictions for stay-at-home orders has directed by these two teams. We will continue to implement social distancing at each of our facilities and offices pay an hourly wage bonus to our production employees cross-trained team members to ensure coverage for critical positions.

Provide Health screenings and monitoring for employees as well as extending our sick leave policy restrict travel across the organization Implement work from home policies where we are able and lastly we will continue to have a weekly risk assessment of our supply chain, which includes a daily monitoring of our contractors transport Partners in Port input producers and all other suppliers and vendors to mitigate any potential disruptions to our supply chain.

Before we conclude our prepared remarks and begin the question-and-answer portion of the call. I would like to express my gratitude to Gus for his success in leading the company joining in 2014 guts was able to focus the entire organization on a clear strategy led a successful implementation and very importantly help restoring my GPS special culture. We are well-positioned for the next chapter in our story and we sincerely thank Gus for his years of dedicated service to MGT and the lasting contributions. He has made to the company.

Be aggressive implementation of our strategic plan put in place by Gus over the past several years has positioned MGP for sustainable long-term growth moving forward with management team will be focused on continually refining the effectiveness of our tactical execution accelerating the pace of our strategic implementation and leveraging the strong Foundation. We have built in 2020 and Beyond we remain confident that focusing on our key strategies will Drive Superior long-term shareholder value moving forward.

Operator we are now ready to begin the question-and-answer portion of the call.

We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time Applause momentarily to fill the roster.

The first question comes from Van Cleve of National Security Corporation, please go ahead. All right. Thanks for taking my questions. First a couple of questions on the ingredients side down. First of all, if you could kind of break into that the growth numbers that you saw in the first quarter to what degree was there, you know, any lumpy one-time sales in there or you know, maybe a uh, you know, I'm buying at the end of the quarter in advance of you know, anticipated volume from from consumer goods companies. Really, how can we how can we look about look at that that you know the results from that quarter wage in that segment of kind of you know in the context of the covid-19 era.

business is

Dave I'll take that. So I think is is you heard on the call or ingredients business, you know as its continued to demonstrate good growth and I think it's primarily driven by the fact that we have a page position portfolio both on the wheat protein and the wheat starch side. So I think what you're seeing is kind of a continuation of strong consumer demand is is Cathy is my great. We continue to migrate to a healthier diet and with our plant-based proteins in the ingredients sector. We we really didn't see any anomalies if you will in q1 in that business. I think you know, we're just seeing goods from underlying consumer Trends with a well positioned portfolio to support those trends.

Got it. That's great. And then sticking to that segment to what degree do you see the consumer goods companies kind of adjusting their R&D process, you know in the era of social distancing. I mean are you you know, are you seeing delays? Are you seeing are you saying cock shutdowns from that process, you know, or is that continuing relatively uninterrupted? I mean, how what are you guys seeing on your own? Yeah. I mean for the most part on the relative to the ingredients It's relatively been uninterrupted at this point. Although we are seeing some impact in the Food Service Channel primarily related to customer serve if you think about sporting events stadiums entertainment venues of that nature on the products, they produced to support those venues. We we have seen a slight Slowdown.

Some of those product lines, but for the most part our portfolio is positioned against, you know breads pastas snacks, and obviously those continue to be on life and and in great demand during even during this pandemic got it perfect turning over to The Distillery segment. You comment it a couple of times on the wage movement from the export Market. Wondering if you can comment on a couple of things their first of all to what degree did you see kind of a broad macro Improvement in the export Market versus, you know, maybe just just kind of uniquely uniquely strong execution from your team.

Yeah, I think you know we're that's kind of a new part of the organization for us trying to penetrate export cells in our comments were relative to the fact that we both started to see some pretty good traction with customer interest and engagement during the first half of the quarter the last half of the quarters been impacted by covid-19 fact that I'm essentially all travel has been shut down. So it's been difficult to continue the engagement with the customers. It requires travel primarily into the us or for our team go International but the comments were really specific to the work that's been done today started to say pay some dividends in q1, but we do see that being delayed until May and damn it clears and were able to get back, you know, and have more active engagement with our customers. Got it for last one for me and then I'll get back in queue Dave you commented on Thursday.

It kind of you know, maybe.

In the pause button, if you will on pursuit of m&a activity, which you know certainly is understandable in the current environment my question around that is to what degree do you look at the m&a market right now, especially in the Branded Spirit side and see a meaningful, you know, maybe decrease in valuations, uh is or is it too early to know that yet? I mean, what kind of job are you seeing in that in that space right now over the last, you know, the world has evolved over the last six weeks. Yeah. I think there's been a significant slowdown in m&a activity off globally if you will and you know, if you're looking at its Spirits brands or companies an interesting thing with With The covid-19 Pack Is with the off-premise month sales spiking, you know, I'm sure some companies computer that actually as an opportunity to position themselves from an increased valuation perspective. So I think we need to Thursday.

Pandemic play out to really understand the impact on m&a activity and how it how it will or will not affect valuations of companies. And then this is Brandon just add to that for a second to be clear and clarify. We put a we put a pause or we curtailed the share repurchase program during a few on our comments are off on em, and they aren't that we are that silly pausing them at this point time, but we did say is that we acknowledge that this environment is not generally conducive disseminated save just mentioned but that we will continue to give us opportunity to strengthen our position in growing markets in concert with our financial position in the upcoming quarters.

Got it. Got it. Okay. Thanks. Brandon. Very good. Well, I think that does it for me. Thanks for taking my questions and I'll get back in queue here.

The next question comes from Bill Chappell a Sentra, please. Go ahead.

Thanks. Good morning. I am going to ask probably more than 2 less than 50 questions. Let's start with with the wage inventory. Just kind of comments.

Maybe it's more color around the sales this quarter. Was that a postponement from fourth quarter to this quarter you talked about lower pricing every year is that part of the plan to have older than three times pricing and then maybe you know, is this a start of things to come? Do you feel like we're we're now getting the process moving forward where you have more regular sales of aged.

Yeah, I think Bill was the date. I think, you know part of the sales we saw in q1, you know, we're some carryover but we expected in Q4, you know, the poem the pricing question is we had a you know, very strong pricing quarter that were cycling over a year ago, but our pricing this quarter was still in line with our expectations home for Aged as we as we go forward as I vomited in the prepared remarks are approached with aged with brown Goods in general is that we want to make sure that we're in a position to grow our volume share and do that the market-based pricing so that the end result is we we maximize or optimize, excuse me, our profit and wages are brown good sector.

so I think you know, you'll see us, you know continue to

To talk in those terms and make sure that we're in a position where we're we're optimizing the profitability of the inventory that we have.

So just to make sure I understand. I mean do you mean you can maximize the probability to selling it above cost? That's all I'm just trying to send you you think that age. There's there's steady demand as we go through this year at home, you know the prices you're talking about. Yeah, I think our pricing, you know in q1 was you know, certainly in line with the historical way. We've talked about it, you know 3x if you will walk and we do see continued demand for both new distillate and aged whiskey going forward. I think what we're saying is we just want to make sure as we go forward that we're optimizing the profitability the entire portfolio and not so focused on 3x per se but making sure we're in line with market-based pricing as we move forward.

Okay, and then just last one on the whiskey I know there have been some talk. And you people for some International sales. Particularly Asia. Have you seen any any changes there in terms of demand for the Aged?

Yeah, I think it's I think it's you know, if you look at Europe Asia et cetera. I think there's there's still demand. It's it's been put on pause particular with the with the account that we've been pursuing simply because of the pandemic as as this, you know passes and we understand more the macroeconomic impact of of the pandemic that'll help us in line of sight to see you know, if those if the potential still exists which we believe it will and how quickly we can restore, you know discussions with with International customers.

Okay and switching to Industrial alcohol. Can you just give us some more color on how that business Works how it worked in the quarter when I say that I mean that question I get is Burg you make ethyl alcohol, you know, we hear of of ethanol players or Exon or others kind of moving into this and and at the same point you're saying you're uniquely positioned within the market wage. You're obviously expanding operations in Indiana as well as Kansas to to meet the demand. I understand when God says, you know, we're not looking for near-term financial gain, you're not looking to price gouging what are the same point it would seem it's pretty pretty dramatic changes to that business over the next few months. So more color of both how you're uniquely positioned how it works in terms of wage pricing and demand and new customers and stuff like that. Tutorial would be helpful. Sure. Yeah. So I think you know, I think when Gus makes the comments we're uniquely positioned. I mean, yep.

And Industrial alcohol marketer and producer for a long long time. I mean, it was really kind of the foundation of the company in its beginning and we we know the market we know the industry are extremely well the way you know, traditionally it works we contract the majority of our volume in the fall for the coming calendar year our fiscal year if you will off and then there there is some volume that's left. It's sold on the on the spot Market, but the majority of it is contracted. So are you know any pricing Spike that you would have anticipated is a good result of this increased demand in q1 from the pandemic. We already had the majority of that that volume priced if you will I think going forward what we've historically said is, you know, the margins and Industrial alcohol are very slim and there's a structural issue.

in the category and what I mean by that is

There's a lot of ethanol there's oversupply of ethanol in the country right now that's been ongoing probably through the last two to three years. There's been a an oversupply of industrial alcohol as well and something structurally they're would have to change before margins can be restored and either industrial or ethanol for that matter what's going on right now in in the with oil prices so low and nobody's driving anywhere because of the handle the demand for ethanol is is really been impacted negatively. So there's a number of ethanol facilities that are closed from what what we always watch out for that environment is making sure or understanding if some of the ethanol capacity gets converted into industrial alcohol capacity.

It requires a capital investment to do that, but that there's certainly nothing stopping them from doing that other than the sheer economics of it. So, I guess what I'm trying to say is there's a short-term demand for industrial due to the pandemic. We're going to watch closely to see post-pandemic if the usage of industrial increase increases because of changes in Behavior, obviously people more sensitive to viruses et cetera that the drive consumer Behavior changes that could increase demand for industrial but at this point though, I think it's just it's too early to tell how this is going to play out long-term. And so just trying to understand, you know with the contract of an I understand long-term of the next few years, but I'm just trying to send with the way it's contracted out. Does that mean when would you start to see the benefits of you know, the near-term spiking demand was that this quarter? Is that next quarter wage?

Where is that at all are you kind of trying to to step away from this and not try to build up too much?

Yeah, I mean, we we run our industrial, you know complex if you will pretty much at capacity. So I think you know what we've what we've tried to do to support our customers there there needs to be increased during the first quarter here is we've tried to optimize that output as much as we can. So we started the quarter, you know, just call it the the first two thirds of the quarter and we really didn't see an impact from the pandemic. It was really the last third of the quarter where we started seeing increased demand for industrial to make hand sanitizer Thursday. We we did as much as we could to put as much volume through our industrial complex if you will meet customers needs but as far, you know, if if this is faith in you, we think that you know, will we're continuing to see strong demand as we sit here today. It's hard to predict how long that's going to continue from a you know, pricing perspective.

You know any any spot purposes that occur?

Or the next few months, you know there may there may be a benefit in pricing just because of the demand but in the near-term, I think we do anticipate seeing increased demand off. The the impact of that on pricing is I said earlier when the majority of our volumes contracted, so we're not going to see a real benefit from that and there is potential for dead spot market pricing to increase

Got it. And so last on this are you adding new customers or is it just you're just to understand are you just safely saying we're going to support our existing customers at home prices. And any excess capacity is just going to go to them. And so it's it's it's kind of a a level kind of increase or improvement over the next few months or are you looking at at outside new customers off? Yeah. We we have long-standing customer relationships. So obviously we're we're taking care of them first and including, you know, trying to support the additional needs in scenarios like this, obviously new customer opportunities exist, because you know people start calling you versus you having to call them. So we we all are evaluating new customers. Um, but we'll continue that process as we go forward.

Got it. So one last question reminded me just on uniquely positioned. You know, what do you right now? What you're doing differently versus just ethanol players.

Yeah bill, this is Brandon. So by uniquely positioned, you know going back to Dave's earlier comments that we've been doing this a long time and we already have a standing customer base wage that's designed to as efficiently and quickly as possible get this type of product out to the market where it's needed the most and that's where we've been and that's where we've been for more than $75 years and and having those relationships with those existing customers puts us in the unique position to really help respond to this pandemic internet in the most efficient way possible just need an example on that bill. Uh, so one of our industrial customers, for example, it's producing more than a million bottles of hand sanitizer proved a day before the response off LGT supplies the majority of the alcohol of that customer. So just by going through our existing networks, we're we're able to uniquely add value and to the you know to the overall effort and wage.

Okay.

Got it. Thanks so much. Thank you. Thank you.

The next question comes from Alex Berman of craig-hallum, please go ahead great. Thanks very much for taking my question. I thought it was interesting to eat the acquisition that you made during the quarter off. If you talk a little bit more about you know, the thought that went into that and you know, what kind of an opportunity that could be to to expand your gin business and then just thinking more broadly about your portfolio of Brands. Obviously a small part of your business right now. Can you talk about how the current environment has has impacted your expansion plan for your brand and that just this change took the fusion of your branded strategy at all and Alex. This is Brandon. I'll take to get started that so uh, yeah. We're very excited for for the acquisition of green hat Gin Gin. Um, it's currently as you know, uh located our Sullivan's Maryland and Virginia and uh, we see this as a as a great opportunity as the largest distill gin wage,

It's actually in the United States to add a a premium super premium very well positioned brand to our portfolio. It's an effort that um, I think you probably know we were talking about potentially adding a gin. Uh,

For some time now and and we're very happy to see it come to fruition and you know in terms of our overall, um our overall effort in in the brand space, um, you know, like everybody else we're not immune to a lot of the challenges that are out there. Uh, it's very difficult to launch new markets or to put a whole lot of new efforts in when you can't do live tastings and you come back and visit retailers and Distributors and so on so like a lot of our peers what what we are doing is we're doing a lot of things virtually. We're trying to really keep our life, you know, our our social media presence very prominent with our with our consumers and really trying to you know, focus it on Thursday until things normalize.

That's really helpful. Thank you, and you know wishing you all the best that mvp and Gus wishing you well in in in the next chapter of of your your life here. Thanks. I appreciate.

This concludes our Q&A session. I would like to turn the conference back over to David Colo for closing remarks.

Thank you for your interest in our company and for joining us today for our first quarter call. We are certainly pleased with the results this quarter and the continued progress. We made toward implementing our long-term strategic plan. I'm excited for the opportunity to leave this company forward and build on the momentum culture and solid operating results achieved. I 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.