Q4 2020 MGP Ingredients Inc Earnings Call
Good morning, and welcome to the M. G P ingredients fourth quarter and full year 2020 financial results conference call all participants.
<unk> will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two per.
Please note this event is being recorded.
I would now like to turn the conference over to Mike Houston Investor Relations. Please go ahead.
Thanks, Gary Good morning, everyone I'm, Mike Houston, with lapping company <unk> Investor Relations firm and joining me today are members of their management team, including Dave Colo, President and Chief Executive Officer, and Brandon Gall, Vice President of Finance and Chief Financial Officer.
We'll begin the call with management's prepared remarks, and then open the call up to questions. However, before we begin it is my responsibility to inform you that this call may involve certain forward looking statements such as projections of sales operating income gross margin and effective tax rate as well as statements on the plans and objectives of the <unk>.
These 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.
Anyone does not already have a copy of the press release issued by M. G. P. Today, you can access it at the Companys website Www Dot M. G P ingredients dot com.
At this time I'd like to turn the call over to <unk>, President and Chief Executive Officer, Dave Colo Dave.
Thank you Mike and thank you all for joining us on this call. We will provide an overview of our results for the quarter and year.
Based on key financial performance metrics and a discussion of progress against our strategy. Then we will take your questions.
2020 represented a solid year of improved effectiveness in our tactical execution, while accelerating the pace of our strategic implementation.
Objective to optimize brown goods profit by increasing volume share with market based pricing pay dividends. This gross profit for the distillery products segment and company finished the quarter and year at record levels.
Additionally, our ability to improve throughput and profitability in our ingredients solutions segment resulted in an increase of 97% and gross profit per the year.
Consolidated sales for the year increased 9%, while gross profit increased 29.1% to a record $98 $8 million, representing 25% of consolidated itself.
Reported operating income increased 14, 8%, while adjusted operating income increased 29%.
We are very pleased with the continued momentum by each of our segments this quarter, reflecting strong growth for the year.
Each quarter this year posted a record gross profit result versus the respective prior year's quarters in the fourth quarter was no exception.
Aged whiskey sales experienced another record quarter, which drove an 11, 4% increase in premium beverage alcohol sales for the year also a record.
Specialty ingredients sales posted strong double digit growth for the quarter and grew 19, 2% for the year.
Looking at each segment individually.
Our distillery products segment fourth quarter sales increased 7% and was primarily driven by a 28, 2% increase in brown goods sales.
Well yourselves, if premium beverage alcohol were up 11, 4% with record sales of aged whiskey being the primary catalyst for growth.
Aged whiskey sales also served as the primary driver to the increase in gross margins in the period.
The average age of barrel sold was the highest it has been since we began making these aged whiskey barrels available for sale to our customers in meaningful quantities.
Our growth in sales of Brown goods. This year has outpaced the longer term market trends.
This was primarily due to increased demand from national and multinational customers as they filled gaps in their age brown goods inventory levels.
Sales of new distillate for the year declined slightly from last year as we experienced more demand for aged whiskey as compared to new distillate, which we also believe was driven by some of our customers leveraging our aging whiskey inventory as a solution to fill gaps in their inventory.
During the first half of the year craft customers represented a smaller proportion of total sales volume of aged whiskey.
That trend reversed in the back half of the year as their purchases increase to be more in line with historical averages.
While consumer demand for American whiskey remains robust and our diverse customer mix has positioned us well, we remain uncertain as to when the growth rates will begin to normalize and come more in line with the long term trend for the overall category.
We believe our significant share and scale advantage will position us well if this increased period of demand continues.
During 2020, we plan to increase our focus toward growing volume share in the global American whiskey category and refined how we approach the selling process with potential new or infrequent customers.
Anticipated. This action did not result in significant changes to our overall pricing, but supported additional margin expansion and record gross profit results for the quarter and year.
Our record gross profit results confirmed the long term value of our aging whiskey inventory supported by our ability to cultivate a solid partnerships with existing customers as well as attract additional aged whiskey and new distillate customers.
Continuing on to other areas of the segment sales of premium beverage white goods increased two 4% per year, while sales of industrial alcohol increased 1.1% per year with improved margins.
Historically <unk> has provided third party sales and marketing services to sell industrial alcohol produced by ICP, our former joint venture partner.
Going forward ICP will market and sell these products and we anticipate discontinuing. These services during the first half of 2021.
Net sales for the year totaling approximately 20% of historical levels.
For reference in 2020, we sold approximately $24 million of product or ICP reflected as industrial alcohol revenue within our distillery products segment at low single digit gross margins to be clear. This has no impact on M <unk> internal production volumes or direct.
Customer relationships.
Sales of our distillers grains byproduct decreased two 4% per the year, primarily due to the need to convert from selling dry distillers grains to wet distillers grains due to a fire in our byproduct drying system that occurred during the fourth quarter at our Atchison distillery.
Byproduct prior is no longer in service and will need to be replaced due to the fire.
No employees were injured during the of that.
As a result of this we made operational changes to restart production of the assets and facility within a week in order to continue to supply our customers' needs the.
The operational changes include the ability to process and sell our spent distillers grains as wet byproduct feed versus drive bye bye.
Byproduct feed as well as supplementing our distillation capacity with purchase product that we further rectify to produce beverage grade alcohol. We will continue to operate in this matter until we complete installation of a new byproduct drawing and handling system that we expect will be operational in the back half of the year.
Brandon will cover this in greater detail during his prepared remarks.
Revenue from warehouse services increased $6 seven per cent for the year, reflecting in part growth in the number of customers barrels aging in our whiskey warehouses and other services we provide.
Turning to ingredients solution sales for the year grew 19, 2%, while gross profit increased to $28 million or 26, 7% of segment sales.
We finished 2020 with continued momentum with the fourth quarter being one of our strongest ever.
The solid revenue and profit growth this quarter and year reflect our diverse customer base and our ability to further optimize the product mix.
Our product offerings remain aligned with strong consumer trends as evidenced by our ability to effectively recruit new business and grow with existing customers.
We are very pleased with our revenue and profit results for each of our segments. This year overall, both of our business segments continue to benefit from favorable consumer trends and our strategic plan has us well positioned to fully capture the potential these trends offer.
This concludes my initial remarks, let me now turn things over to Brandon Gall for a review of the key metrics and numbers Brandon.
Thanks, Dave for the quarter consolidated sales increased nine 1% to $109 million as a result of double digit growth in both premium beverage alcohol, Andy ingredient solutions segment gross profit increased 47, 2% share a record $31 $7 million due to improved.
Gross profit in both the distillery products and ingredient solutions segments gross margin increased by 810 basis points to 31 four percentage for.
For the year consolidated sales increased 9% to $395 $5 million due to distillery products and ingredient solutions segment sales growth.
Profit increased 29, 1% to a record $98 $8 million as a result of higher distillery products and ingredient solutions segment gross profit gross margin increased by 390 basis points to 25% for 2020.
Also impacting gross margin results for the year was the ransomware cyber attack that temporarily disrupted production at our Atchison facilities during the second quarter, while no financial information was affected and there's no evidence that any sensitive or confidential data was improperly accessed or extracted from the network.
It is estimated that this attack adversely impacted gross profit by $1 $7 million during the second quarter of which $633000 was recovered through a business interruption insurance claim in December 2020.
We are currently evaluating our ability to seek further recovery related to this event.
Additionally, we experienced a fire at the Atchison facility during the fourth quarter.
<unk> feed drawing equipment and concept temporary loss of production time.
Estimated that did adversely impacted gross profit for the quarter or $4 $5 million, our property and casualty stocked throughput and business interruption insurance protects against this type of other than <unk>.
And as such during the quarter, we did record a $3 8 million dollar partial settlement from our insurance carrier, partially offsetting the loss.
Until the replacement system is operational we anticipate this will affect gross profit results. However, we expect a portion if not all of these losses will be offset by our business interruption insurance coverage similar to the fourth quarter.
Please note however, the timing of any insurance recovery. Despite best efforts is outside of our control and may not occur in the same period as the recognized loss.
Corporate selling general and administrative expenses for the quarter increased $10 $9 million to $16 $2 million as compared to the fourth quarter of 2019, primarily driven by higher personnel and incentive compensation expense inclusive of CEO transition costs as well as business.
Acquisition costs related to the watsco transaction for.
For the full year corporate SG&A expenses of $44 $6 million increased by $15 $3 million or 52, 2% from 2019 due to higher personnel and incentive compensation expense inclusive of certain incremental costs incurred relating to the transition of the CEO position.
And business acquisition costs related to the <unk> transaction.
Incur additional transaction related costs, including costs associated with synergy attainment in the first half of 2021 thereafter, we expect our SG&A to return to more normal levels.
Operating income for the fourth quarter decreased four 4% to $15 $5 million, primarily due to the higher SG&A expenses as previously described and discussed.
Non-GAAP operating income increased four 6% to $17 million exclusive of certain business acquisition costs related to the long ago transaction and CEO transition costs.
For the full year operating income increased 14, 8% to $54 $2 million due to higher sales and gross profit, partially offset by higher SG&A expenses as discussed non-GAAP operating income increased 29% to $57 $1 billion exclusive of <unk>.
Transition costs and business acquisition costs related to the loss per transaction.
Our corporate effective tax rate for the quarter.
It was 23, 7% compared with 18, 5% a year ago for the full year. The corporate effective tax rate was 23, 3% compared with 15, 6% in 2019 to.
Seven seven percentage point increase was primarily due to the favorable tax impact of vested share based awards that occurred during the prior year.
Net income for the fourth quarter decreased 10, 2% to $11 $6 million and earnings per share were <unk> 69.
Due to lower operating income and higher state income taxes.
Non-GAAP EPS for the quarter decreased to 75 per share from 76 cents.
Business acquisition costs related to the <unk> transaction and CEO transition costs.
For the full year net income increased 4% to $43 million and earnings per share increased to $2 37 from $2 27 per share in the prior year, primarily due to higher operating income partially offset by the increase in tax rate previously described.
Full year non-GAAP EPS increased to $2 51 per share from $2 27 per share exclusive of CEO transition costs and business acquisition costs related to the watsco transaction.
Cash flow from operations was $53 $3 million in 2020.
Which was up from $19 $7 million in 2019, reflecting the strong cash generating capability of our business.
In addition to improved operating results more than doubling our operational cash flows was also driven by the combination of record sales and reduce put away for age aging whiskey inventory.
Strong free cash flows for the quarter and year further highlight the value of our aging whiskey inventories.
<unk> balance sheet remains strong, allowing us to continue to invest to grow as well as return funds to shareholders, we remain well capitalized with debt totaling $40 million and a strong cash position of $21 $7 million.
Our strong cash generating capabilities, coupled with enhanced access to capital enabled by the new revolving credit facility provide <unk> with ample financial flexibility as we execute our strategic growth plan, including evaluating acquisition opportunities that strengthen our position in growing markets.
Our investment in aging inventory decreased by $3 million at cost in the fourth quarter. This net decrease was driven by increased sales of aged whiskey and decrease put away during the quarter.
As a reminder, from our last quarter's call. The decrease put away does have a dilutive impact on segment gross margins rather than fixed overhead getting capitalized on the balance sheet as aging inventory. It gets expense through the P&L as cost of goods sold and other products. This dynamic impacted distillery products segment gross margins by 170.
<unk> points from the fourth quarter, and 90 basis points for the year as compared to the prior year periods.
Although we are currently putting away less inventory per ageing than in previous quarters. It is important to note that fluctuations in our quarterly investment can also be impacted by a number of factors, including customer demand for new distillate production efficiencies mixing capacity and sales of aged whiskey.
We also remain committed to continuing our investment in our operational capabilities and finished the year with $18 6 million in capital expenditures. This figure came in approximately $1 million lower than our original estimate due to equipment delivery delays related to the Covid pandemic we.
We expect approximately $43 3 million in capital expenditures during 2021, which includes approximately $30 million for the previously mentioned dry replacement.
Of the approximately $30 million in total cost, we anticipate between $15 million and $20 million of that total will be funded through insurance proceeds the balance of the spending reflects an acceleration of our planned future capital expenditures to provide greater commercial capabilities enhanced flexibility.
And improve efficiency relative to the previous dryer, which was fully depreciated from accounting perspective.
Our new dryer is projected to be operational in the back half of 2021, we expect incremental driver depreciation expense of approximately $1 billion is an increase in insurance premium payments of approximately $4 million in 2021.
In light of our strategy to pursue growth through investing in our business in the recent months true acquisition announcement, the board authorized a quarterly dividend in the amount of <unk> 12 per share which is payable on March 26.
Stockholders of record as of March 12.
<unk> continues to view dividends as an important way to share the success of the company with shareholders.
We believe our capital allocation strategy focused on organic and acquisitive.
Acquisitive growth aligns well with our long term growth strategy as well as the underlying consumer trends our business is uniquely positioned to leverage let me now I'll turn things back over to day paid for concluding remarks.
Thanks Brandon.
This year marked an inflection point of implementing our long term strategic plan, which has delivered substantial improvements to our financial results and build a strong foundation for future growth.
A critical part of that foundation was positioning <unk> to benefit from the robust growth of the American whiskey category.
Two key components of this effort have been our inventory of aging whiskey and accelerating our branded initiative.
As Brandon mentioned, our inventory of aging whiskey declined $3 million from the third quarter to $105 $4 million at cost at the end of 2020, reflecting strong sales of aged whiskey and reduced put away of whiskey.
We believe our library of various mash bills and vintages will continue to contribute significant levels of profit and cash flow for the company.
We also took a material step towards accelerating our branded initiative through the recent Lux co definitive merger agreement announcement.
This acquisition, which is expected to close in the first half of this year significantly expands our product line into higher value branded spirits sector and increases our sales and distribution capabilities across all 50 states.
Importantly, the transaction is expected to improve <unk> gross margin and cash flow generation profile, and we expect EPS to be low to middle single digit percentage accretive in the first full year following its close excluding onetime transaction expenses.
This combination is consistent with our ongoing strategy to shift the company's focus into higher value added products.
We'll provide an immediate material increase <unk> scale and the branded spirits sector.
Tablet <unk>.
An additional platform for future growth and significantly Diversifies our business.
There are many reasons to be excited by this acquisition all of which are expected to provide sustainable growth opportunities, which benefit our various stakeholders.
During this past year, we were fortunate to strength in both business segments with key hires.
The ingredient solutions R&D team was strengthened by the additions of our vice president of R&D.
Ordinary share and a principal food scientist each.
Each have experience in specific disciplines that will enhance <unk> role in helping customers succeed with fast pace, new product development in areas of high demand from consumers such as plant based proteins and dietary fiber.
In our distillery products organization, we recently created a lead master distiller role, which will support our strategy of developing bench strength and collaboration among <unk> team of Master Distillers, and master blenders, allowing us to efficiently serve customers of any size.
And lastly, we have expanded our export sales team to include an individual based in London with more than three decades of experience in European markets.
Each of these key additions to the <unk> team have collectively strengthened our ability to execute on our long term strategic plan.
Although we believe the strength and team and our proven ability to execute our long term strategy. This past year will lead to sustainable growth opportunities. We have identified three potential headwinds for 2021, we wanted to proactively share.
The first potential headwind relates to increased commodity costs as.
As you may be aware during the past several months there have been significant increases in corn exports from the U S as well as downward revisions to the 2020 crop corn crop yields and stocks, resulting in higher corn costs.
As a reminder, we employ an extensive risk management program that includes purchasing the corresponding grain at the same time, we contract volume and pricing for our products.
However for various reasons, we do not contract 100% of ourselves and as a result, we cannot provide assurance that we will always be able to price through increases in commodity costs to our customers in the open market.
Second is our historic severe cold weather conditions that have occurred in the Midwestern corridor of the United States in recent weeks.
As a result of these weather conditions, we were required by our energy suppliers to reduce natural gas usage at our assets and operations for approximately two weeks.
This impacted our distillery that produces grain neutral spirits and industrial alcohol as well as our ingredients facility, which produces wheat based proteins and starches. This day.
As for option and production will likely result in a reduction to revenue and earnings for the first quarter.
We are in the process of restoring service levels to our customers as a result of this historic event.
Finally, like many other businesses that sell goods internationally hours too is experiencing issues with backlogs at various shipping ports as well as shortages for shipping containers needed to deliver our products abroad.
While these logistical issues are likely the result of the global supply chain disruption caused by the COVID-19 pandemic. It is unclear how long these delays and issues will persist.
Similar to 2020 this year as presenting numerous challenges to our business. However demand for our products remains robust and we believe our business continues to be well positioned to mitigate these challenges through the balance of the year.
While the Covid pandemic brought with it accelerated growth for certain parts of our business. It also continues to bring increased uncertainty during these unprecedented times volume.
We remain very confident about the long term potential of our business. We anticipate continued uncertainty related to the pandemic throughout the year.
As a result, it continues to be difficult to predict with any level of precision the pandemic cumulative impact on our future financial results for.
For these reasons, we are not providing 2021 annual guidance at this time and we will reassess this position based on the visibility of the macroeconomic recovery.
Despite these changing dynamics, we believe the underlying macro consumer trend supporting the ongoing growth of the American whiskey category remains strong, notably we rolled out our remus repeal reserve series four straight Bourbon whiskey during the fourth quarter, while also day viewing single barrel program.
For our George Remus, and Rossville Union brands earlier in the year.
While still small total annual sales for our brands grew as expected by solid double digit growth rates in 2020.
We believe our brands are well positioned for additional growth in 2021, as we integrate with <unk> marketing and sales teams and gain access to their national distribution capabilities. Following the close of the transaction.
Our focus on continually refining the effectiveness of our tactical execution.
Accelerating the pace of our strategic implementation.
Leveraging the strong foundation, we have built has positioned <unk> for sustainable long term growth.
Finally, I would like to thank all of our employees for their dedication and actions that delivered outstanding results in a year full of challenges and opportunities.
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.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Bill Chapell with true of Securities. Please go ahead.
Thanks, Good morning.
Good morning Bill.
I just want to start with kind of pushback on the day no guidance I mean, we've seen pretty much every consumer facing company give some level of guidance for 2021, and I understand we're still in a pandemic, but I've got to think visibility.
Improved at least over the past six months to do some kind of guide and you were also a business that.
And that has an order pattern from customers that you can see.
Give me some more color why this business is so different and why the visibility is so poor that you can't give some initial guidance.
You can't give guidance can you at least tell US do you expect the business to grow in 2021 versus 2020.
We're looking at accretion number out of <unk>, it's kind of trying to figure out what the base we're talking about.
Yes, Bill this is Brandon I'll start off on that and a couple of things.
In the spirits industry.
Not all of our peers are giving guidance impact some are still refraining for the exact reasons that are that we shared.
Donnelley.
Some of our big profit drivers are primarily in our brown goods side of our business. The order patterns are not always highly visible and we've been very clear on that with investors over the course of the last couple of years. So although.
2020 was a record year for that part of our business.
Due to the inherent order patterns of our customers. It does not give us any added visibility as we go into this year.
Well I think the other thing is as we get into this year you know we've got a the.
The Luxe go acquisition to close here in the first half of the year I think we need to get through that process as well take a look at what's going on in the environment.
Post close and then reassess our view on guidance for the balance of the year at that point in time.
So is there a chance that your ex looks coke earnings to be down this year I mean, there's always a chance, but I mean is that what youre seeing that there's some risk to the numbers or just directionally trying to understand you know you seem very bullish on a lot of opportunities but.
It's true.
Again.
To get our arms around where where things are going.
Yeah, No I think that's fair pushback, but I think for all the reasons branded stated.
We're just not going to give guidance at this point in time Bill we do.
Still continue to believe we've got tailwind in both our ingredients business as well as our distillery products segment you know in the past. We've said, we expect to grow in line with category growth rates.
You know in those in those particular segments.
We still feel good about that.
And like I said, I think we'll be in a better position post close on the electrical Transat transaction.
Assess it if we think thats the appropriate time to provide guidance or not.
Okay, well turning to one area, where I'm pretty sure you have very good certainty on the industrial alcohol side.
I think you said that's pre sold.
A year in advance and it runs the capacity.
I also believe that you you went through the kind of pricing negotiations and contracts.
Quarters. So can you give us an update where that stands because I think there was an expectation that there would be higher margins and higher overall profitability.
Just the increased demand for hand, Sanitizers wipes and from your customers.
Sure Yeah, we have pretty much completed the.
The pricing cycle in Q4 of last year on industrial alcohol keep in mind, Bill, we do not price per contract, 100% of our volume we leave a certain percentage open for the spot market.
For various reasons, we did see improved pricing during that contract cycle like we thought we would.
What we anticipate playing out this year and I think we've talked about this on the last couple of calls if there is new capacity thats come onto the market in industrial as well as DNS.
<unk> it started coming on the market in the second half of last year. There is new capacity, that's going to come on this year. So we do think that's going to suppress pricing as the new capacity comes into the market.
We are seeing a little bit of reduction in demand as COVID-19 goes on longer and longer I think people bought a lot of inventory that.
That rolled out in the form of hand, sanitizer and other cleaning.
<unk>, if you will and if you noticed in the stores now there is an abundance of hand, sanitizer and alcohol products et cetera. So.
Long story short, we were able to get better pricing, we think the spot markets are probably going to start to decline through the balance of the year due to the increased capacity.
But we should see some improvement in our industrial margins for the year.
Okay, and then just to the brown spirits in the aged inventory.
With the Luxe go deal expected.
How does that change your view on the ease of use of the aged inventory I mean at one point you had a plan to kind of work the inventory down which I think is still.
Moving forward, but to.
So the level at which you want to move it down does that change and then when I say that I know, you're not making or I don't believe youre, making any of the looks go brown spirits for them.
But you certainly have an opportunity to either expand.
Through the Luxe glued distribution your existing brown spirits products or potentially add more.
Do you want to hold back some of that inventory to.
To make some of these brands bigger faster.
Yes, it's a great question I think the way we look at is the highest and best use of the inventory. So obviously the best use of it is in our own brand.
But as we've talked about historically, we have put away.
Whiskey to support the growth of our own brands and we'll continue to do that.
We remain obviously very committed to having enough put away to support our existing customers needs as well and with Lux go post close we definitely won't be looking at opportunities.
There could be opportunities to come out with new brands that we develop that can use our liquid.
<unk> as you know bill there are whiskey brands are all primarily Kentucky based.
Whiskey, so we have they have adequate.
Distillation capacity at this point to support their own brands needs. However, if we want to launch new brands you know post close with Watsco, we certainly have the capability to do that with our current inventory levels.
Okay, and then last one for for me just.
Any more color on that just the timing of the looks go you said first half I mean should we assume that safely sometime in the second quarter. It didn't know if there was anything that.
It would take six months to close it seems fairly straightforward transaction.
I mean, it's the typical things you have to go through it still is going through the HSR process.
As we speak and we have to go through a number of regulatory matters with the TTP and the states on licenses and permits. So we're deep into that process. We certainly don't see anything at this point in time that would prevent this deal from closing.
Moving as quickly as we can and our goal is to close as quickly as we can.
So there's nothing at this point bill that we see the to prevent that.
It blocks, okay, great. Thank you.
Thank you the next question.
<unk> is from Alex Fuhrman with Craig Hallum. Please go ahead.
Great. Thanks, very much for taking my question. David You mentioned in the prepared remarks that that your sales team had really changed strategy. It sounds like a whole different approach to selling whiskey that had been successful can you talk a little bit more about that and in particular I mean, it seems like for years to come.
He has had a really good stockpile of aged whiskey and and you know the issue has been less about the value of the inventory and more about the business of actually selling it now it looks like you have two quarters in a row.
<unk> been able to get.
A good number of transactions executed for aged whiskey.
He's back in to be the norm now going forward can you talk a little bit more about the changes in your sales process and what we should see going forward.
Sure Yeah, Alex I think we talked about the change if you will.
In our selling process for I think last three four quarters now.
Yeah, it's definitely gaining traction.
<unk> and we've had a number of new customers come into the fold a couple of pretty significant multinationals have come into the fold in the last couple of quarters here and bought aged.
And we think what's really driving that is the combination of the.
Kind of a subtle changes we've made in our go to market with our brown goods, but also just the increased demand that we've seen over the past 12 months in whiskey and.
Part of that obviously, its driven by the great marketing that all of our customers do with our whiskey brands.
<unk> continued to increase in interest from consumers, but I think we'd be naive. If we didnt think part of it was also due to the changes.
Changes that we saw with Covid and the move to much more off premise sales and a reduction in on premise and that I think has benefited some of the larger.
American Whiskey brands.
We benefited from that as they needed to fill some gaps in their aged inventory.
As they saw probably demand higher than I expected, primarily probably over the last six months to nine months.
Yes, I think overall, we still feel we have plenty of aged inventory will continue to manage that and put away.
What we think is the appropriate amount on a quarterly basis to support our customers' needs and any future demand that we think is going to be out there.
That's helpful. Thanks, and then if you think about what you just mentioned with a lot of your bigger customers and are making some of these catch up purchases to fill holes in their inventory you guys deal with so many different customers.
Customers I imagine you have a pretty good view into sort of the overall landscape do you feel that.
Top whiskey brands.
Recently caught up or is there still.
You know room in there in their inventories that theyre going to need to fill in 2021.
Yeah, I mean, as you know, let's say our customers don't tell us that so that's part of what creates the uncertainty that Brandon was speaking to.
Earlier about visibility of customer order patterns, but you know I can tell you what we've seen play out this past year is yes, you'll recall when the when the pandemic first hit.
And on premise locations were shut down it really impacted the craft distillers.
We saw a significant drop off in the amount of activity, it's a selling activity with aircraft customers.
As the year progressed, and we started to see this in Q3 and then it continued in Q4, we've seen a resurgence in.
Craft distillers needs for aged inventory.
I think that's a good sign.
I think that will probably continue on premise continues to reopen.
And if the vaccines continue to be successful in.
The cases of Covid continues.
Decline there is no reason not to expect that so that's a good trend I think that we're starting to see emerge, but as far as knowing if our kind of the multinational and national customers as per.
Just enough inventory at this point to fill their gas it's hard to predict that.
Okay Fair enough. Thanks, and then my last question is I guess in the in the release you guys break out specifically.
Specifically some of the onetime costs around the management transition and the M&A.
Diligence can you can you give.
It was a little bit more color on the financial impact.
Fear in your Atkinson.
<unk>.
The net impact of results you mentioned getting out where we're having record for an insurance settlement in the numbers. So we'd been net impact to the resolved the $4 5 million you called out mine, yet the insurance settlement and just where might we see that show up in our in the numbers.
Yeah. Good question Alex.
So sales for the last one first on the dryer you got it exactly right. So.
The four.
The $4 million in change gross profit impact we saw from the dryer was offset by the receipt of all.
Roughly $3 5 million and you will see that.
Play out at the gross profit level.
So that's where you'll see that again.
We were able to receive the insurance recovery in the period, which.
Which is great from a timing perspective, and a reporting perspective, we're going to strive to do the same in future quarters until we get our new dryer operational but a lot as I already mentioned some of that's not going to be.
Totally within our control some.
Some of the other items you mentioned so in the quarter SG&A I'm moving away from the dryer, Alex SG&A in the quarter increased about $10 9 million about this was broken out towards the back of our press release, but about a million and a half.
Of that increase.
As to the CEO transition and Lux co deal related costs.
The vast majority of the remainder is incentive comp related so and that's driven by two things firstly not reversing out the incentive accrual.
Accrual as we did in the prior year and secondly, increasingly be accrual in response to the Companys performance in 2020.
So as we also mentioned once we get.
Perhaps the first half of this year.
With the.
Additional transaction expenses, we expect to incur.
We do expect SG&A to normalize in the back half.
Okay. That's helpful. Thank you.
You bet.
This concludes our question and answer session I would like to turn the conference back over to David Colo for any closing remarks.
Hey, Thank you for your interest in our company and for joining US today for our fourth quarter and full year call. We.
We look forward to talking with you again after the first quarter.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yes.
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Yeah.
Yeah.
Thank you.
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