Q4 2023 MGP Ingredients Inc Earnings Call

Operator: Good morning, and welcome to the MGP Ingredients fourth quarter and year-end 2023 financial results conference call. All participants will be in listen-only mode.

Good morning, and welcome to the M. G P ingredients fourth quarter and year end 2023 financial results conference call.

All participants will be in listen only mode.

Operator: If you need assistance, please signal a 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 then 1 on your telephone keypad.

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.

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Operator: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mike Houston, Investor Relations. Please go ahead.

Please note this event is being recorded.

I would now like to turn the conference over to Mike Houston Investor Relations. Please go ahead.

Mike Houston: Thank you. I'm Mike Houston with Lambert Global, MGP's investor relations firm, and joining me today are members of their management team, including David Bratcher, Chief Executive Officer and President, and Brandon Gall, Vice President of Finance and Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of sales, adjusted EBITDA, adjusted basic earnings per share, gross profit, and effective tax rate, as well as statements on the plans and objectives of the company's business and overall consumer and industry trends. 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 end report filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call.

Thank you I'm, Mike Houston with Lambert Global M. G. P <unk> Investor Relations firm and joining me today are members of their management team, including David Bratcher, Chief Executive Officer, and President and Brandon Gall, Vice President of Finance and Chief Financial Officer.

We will begin the call with management's prepared remarks, and then open the call to questions. However, before we begin today's call. It is my responsibility to inform you that this call may involve certain forward looking statements such as projections of sales adjusted EBITDA adjusted basic earnings per share gross profit.

And effective tax rate.

Well as statements on the plans and objectives of the company's business and overall consumer and industry trends.

The company's actual results could differ materially from any forward looking statements made today due to a number of factors.

The risk factors described in the company's most recent annual report filed with the Securities and Exchange Commission.

The company assumes no obligation to update any forward looking statements made during the call. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the companys performance.

Mike Houston: Additionally, this call will contain reference to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures is included in today's earnings release and supplemental information filed with the SEC under Form 8K. If anyone does not already have a copy of the press release issued by MGP today, you can access it on the company's website, www.mgpingredients.com. At this time, I would like to turn the call over to MGP's Chief Executive Officer and President, David Bratcher. David?

A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release, and supplemental information furnished to the SEC under form 8-K.

If 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 dotcom.

At this time I would like to turn the call over to M. G. P <unk>, Chief Executive Officer, and President David Bratcher David.

David Bratcher: Thank you, Mike. And thanks, everyone, for joining the call today. I am honored and grateful to serve in the role of CEO and President and truly excited to build on the MGP legacy. On this call, we will begin with an overview of our performance for the quarter and school year ended December 31, 2023. We will provide updates on key financial performance metrics and discuss the progress we have made against our strategy. At the end of the call, we will open the line for Q&A.

Thank you, Mike and thanks, everyone for joining the call today, I am honored and grateful to serve in the role of CEO and president and truly excited to build on the EMG P legacy.

On this call we will begin with our overview of our performance for the quarter and full year ended December 31 2023.

We will provide updates on key financial performance metrics and discuss the progress we have made against our strategy.

The end of the call we will open the line for Q&A.

David Bratcher: Our strong financial results for the quarter and year were a direct result of the continued strength of each of our business segments and the dedication of our team who are focused on implementing our business strategy. Consolidated sales for the year increased 7% to $836.5 million, while gross profit increased 20% to $304.7 million, representing 36.4% of sales. Adjusted EBITDA increased 20% to $202.5 million. During the year, we continued to experience healthy demand for new distillate and aged whiskey in our distilling solution segment, which resulted in brown goods sales increasing 39% for the quarter and 26% for the year. These increases were driven by both price and volume. Our brown goods sales growth outpaced U.S. market trends for American whiskey in 2023, driven by both our craft and multinational customers. Our strong sales are a direct result of our exceptional American whiskey offerings and the relationships we have cultivated across our diverse customer base, which now stands at more than 840 Brown Good customers.

Our strong financial results for the quarter and year were a direct result of the continued strength of each of our business segments and the dedication of our team who are focused on implementing our business strategy.

Consolidated sales for the year increased 7% to $836 $5 million, while gross profit increased 20% to $304 $7 million, representing 36, 4% of sales.

Adjusted EBITDA increased 20% to $202 $5 million.

During the year, we continued to experience healthy demand for new distillate, and aged whiskey and our distilling solutions segment, which resulted in brown goods sales, increasing 39% for the quarter and 26% for the year. These.

These increases were driven by both price and volumes.

Our brown goods sales growth outpace U S market transfer American whiskey in 'twenty, two 'twenty three driven by both our crab and multinational customers are.

Our strong sales are a direct result of our exceptional American whiskey offerings and the relationships, we have cultivated across our diverse customer base, which now stands at more than 840 <unk> Brown good customers.

David Bratcher: Over the last two years, we have deliberately grown our new distillate whiskey commitments compared to aged whiskey sales to bring longer-term financial stability and visibility to our distilled solutions segment of our business. In 2023, new distillate cells exceeded aged whiskey cells for the first time since 2020, and we anticipate this will continue into 2024 and beyond as we accommodate our maturing and growing customer base and de-risk our commercial sales efforts. As a reminder, new distillate cells, while at a lower price point in age, still have a very attractive gross profit margin and are commonly contracted years in advance, providing greater feasibility and providing greater cash flow to be reinvested into our business. As a result of this effort, more than 90% of our new distillate whiskey sales volume is committed in 2024, compared to 50% of our aged whiskey sales volume committed. I believe customer willingness to contract for a longer term on new distillate whiskey is a positive sign for American whiskey category sales.

Over the last two years, we've deliberately grown our new distillate whiskey commitments compared to age whiskey cells to bring longer term financial stability and visibility to our distilled solutions segment of our business.

In 2023, new distillate sales exceeded aged whiskey itself for the first time since 2020, and we anticipate this will continue into 2024 and beyond as we accommodate are maturing and growing customer base and derisk, our commercial sales effort.

As a reminder, new distillate sales why at a lower price point than age still have a very attractive gross profit margin.

Our commonly contracted years in advance, providing greater visibility and provide greater cash flow to be reinvested into our business.

As a result of this effort more than 90% of our new distillate whiskey sales volume is committed in 2024 compared to 50% of our aged whiskey sales volume committed.

I believe customer willingness to contract longer term on new distillate whiskey is a positive sign for the American whiskey category yourselves.

David Bratcher: We expect total aged whiskey revenues in 2024 to be less than 2023 due to our strategy of developing longer-term stability with new distillate and because of our success in working with longer-term craft customers who started their brands with aged whiskey and are now moving into the new distillate market. While we do have the vast majority of our anticipated total brown goods volume committed for 2024, we expect the last three quarters of 2024 will result in stronger profits as compared to Q1 due to the variation in timing of customer demand, particularly for aged whiskey, and the timing of our Bardstown, Kentucky distillery expansion project coming online. Looking beyond 2024, we are continuing to work closely with our customers to lock in existing capacity for contract renewals and gain additional commitments for our newly created capacity. Turning to white goods and industrial alcohol, last July, we announced the planned closure of the white goods and industrial alcohol distillery in Atchison, Kansas. We're pleased to share that the closure has been completed on schedule.

We expect total aged whiskey revenues in 'twenty 'twenty four to be less than 2023, new nor our strategy of developing longer term stability with new distillate and because of our success in working with longer term craft customers, who started their brands with aged whiskey and are now moving into the new distillate market.

While we do have the vast majority of our anticipated total brown goods volume committed for 2024, we expect the last three quarters of 'twenty 'twenty four will result in stronger profits as compared to Q1 due to the variation in the timing of customer demand, particularly of aged whiskey and timing of our Bardstown, Kentucky.

Still our expansion projects coming online.

Looking beyond 2024, we are continuing to work closely with our customers to lock in existing capacity to contract renewals and gain additional commitments for our newly created capacity.

Turning to white goods and industrial alcohol last July we announced the planned closure of the white goods and industrial alcohol distillery in Atchison, Kansas.

We're pleased to share that the closure has been completed on schedule Brandon will speak in more detail about the financial impact of the closure.

David Bratcher: Brandon will speak in more detail about the financial impact of the closure. While it was not a decision that we took lightly, given the long history of the distillery in Atchison, we firmly believe these actions will enable us to further align our product categories and their supporting operations toward achieving our long-term strategic objectives. Our strategy to reduce the volumes of our industrial alcohol and white goods products produced and sold continued during Q4. As a result, white goods sales for the year decreased by 21%, and the sales of our industrial alcohol products decreased 19% year over year.

While it was not a decision that we took lightly given the long history of the distillery in Atchison, We firmly believe these actions will enable us to further align our product categories and their supporting operations toward achieving our long term strategic objectives.

Our strategy to reduce the volumes of our industrial alcohol and white goods product produced and sold continued during Q4.

As a result white goods sales for the year decreased by 21% and the sales of our industrial alcohol products decreased 19% year over year.

David Bratcher: As expected, on a combined basis, these product lines continue to have negative gross margin for the year. Moving to branded spirits, our premium plus spirit brands grew 50% in the quarter and 24% for the full year, which in turn drove further gross margin expansion across the portfolio. Our focus on investing behind our higher margin brands throughout the year resulted in an increase in full-year gross profit to $112.8 million, or 44.4% of segment sales. We plan to continue to focus on margin expansion through our strategy of increasing our points of distribution and shelf presence with our current portfolio of margin-accretive brands, as well as through continued evaluation of branded spirits acquisition opportunities that we anticipate will further enhance our gross profit as a percentage of sales for the Speaking of Branded Spirits acquisitions, we're proud of the progress we've made integrating Penelope Byrd into our sales and marketing platform. We are also pleased to announce that we achieved our goal of having Penelope in 37 states by the end of the year.

As expected on a combined basis. These product lines continue to have negative gross margin for the year.

Moving to branded spirits, our premium plus spirit brands grew 50% in the quarter and 24% for the full year, which in turn drove further gross margin expansion across the portfolio.

Our focus on investing behind our higher margin brands throughout the year resulted in an increase in full year gross profit to $112 8 million or 44, 4% of segment sales.

We plan to continue to focus on margin expansion through our strategy of increasing our points of distribution and shelf presence with our current portfolio of margin accretive brands as well as through continued evaluation of branded spirits acquisition opportunities that we anticipate will further enhance our gross profit as a percentage.

Sales for the branded spirits segment.

Speaking of branded spirits acquisitions, we're proud of the progress we've made integrating Penelope bird into our sales and marketing platform.

We are also pleased to announce that we achieved our goal of having been that'll be in 37 states by the end of the year.

David Bratcher: This illustrates a key component of our Branded Spirit Strategy, as we remain focused on growing points of distribution by leveraging the expansion of our Margin Accretive Brands portfolio. M&A is a high priority, and we hope to be able to execute more Margin Accretive branded spirits acquisitions in 2024. Turning to ingredient solutions, we experienced another strong year. Our ingredient solution segment delivered record results both on a fourth quarter and full year basis, with sales growth of 14% and gross profit growth of 49% for the year. The record sales and gross profit results were driven primarily by higher sales of specialty wheat proteins and specialty wheat starches as strong demand for our plant-based high-protein and lower-net carbohydrate foods continued. Before I turn the call over to Brandon, I want to thank our team for their tremendous effort and continued execution, their ability to build on the momentum we have generated throughout the year, and the continued alignment of our product offerings to meet consumer trends that enabled us to deliver strong results This concludes my initial remarks. Now, I will turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon

This illustrates a key component to our branded spirits strategy as we remained focused on growing points of distribution by leveraging the expansion of our margin accretive brands portfolio Emma.

M&A is a high priority and we hope to be able to execute more margin accretive branded spirits acquisitions in 2024.

Turning to ingredient solutions, we experienced another strong year, our ingredient solutions segment delivered record results both on a fourth quarter and full year basis with sales growth of 14% and gross profit growth of 49% for the year.

The record sales and gross profit results are were driven primarily by higher sales of specialty wheat proteins and specialty wheat starches as strong demand for our plant based high protein and lower net carbohydrate foods continue.

Before I turn the call over to Brandon I want to thank our team for their tremendous effort and continued execution their ability to build on the momentum we have generated throughout the year and the continued alignment of our product offerings to meet consumer trends enabled us to deliver strong results for the year.

This concludes my initial remarks, let me turn things over to Brandon Gall for a review of the key metrics and numbers Brandon.

Brandon Gall: Thanks, David. For the fourth quarter of 2023, consolidated sales increased 13% to $214.9 million as a result of increased sales in each of our three business segments. Gross profit increased 35% to $85.1 million, representing 39.6% of sales, due to improved segment gross profit performance, again, by all three business segments. For the year, consolidated sales increased 7% to $836.5 million.

Thanks, David from for the fourth quarter 2023, consolidated sales increased 13% to $214 9 million as a result of increased sales in each of our three business segments.

Gross profit increased 35% to $85 1 million representing.

Representing 39, 6% of sales due to improved segment gross profit performance again by all three business segments.

For the year consolidated sales increased 7% to $836 5 million gross profit increased 20% to $304 $7 million driven by a double digit percentage improvement across all three segments. Despite the.

Brandon Gall: Gross profit increased 20% to $304.7 million, driven by a double-digit percentage improvement across all three sectors. Despite the headwinds we faced in white goods and industrial alcohol, which were largely addressed by the recent closure of the Atchison Distillery, total company gross margin increased 400 basis points to 36.4% in 2023. Sales in our distilling solution segment increased 8% in the fourth quarter to $108.9 million, reflecting a 22% increase in sales of premium beverage alcohol. Gross profit increased to $40 million, or 36.7% of segment sales, compared to $31.7 million, or 31.3% of segment sales, in the fourth quarter of 2022. For the full year 2023, distilling solution segment sales increased 5% to $450.9 million, reflecting a 14% increase in sales of premium beverage alcohol due to continued strong new distillate and aged American whiskey sales. Gross profit increased to $145 million, or 32.2% of segment sales, compared to $126.3 million, or 29.5% of segment sales in 2022. Sales for the Branded Spirits segment in the fourth quarter increased 19% to $72.6 million. Sales of our Premium Plus price tier brands grew 50%.

Headwinds, we faced in white goods and industrial alcohol, which are largely addressed by the recent closure of the Atlas and distillery.

Total company gross margin increased 400 basis points to 36, 4% in 2023.

Sales in our distilling solutions segment increased 8% in the fourth quarter to $108 $9 million, reflecting a 22% increase in sales of premium beverage alcohol gross profit increased to $40 million or <unk> 36, 7% of segment sales compared to 31 seven.

Or 31, 3% of segment sales in the fourth quarter and 2022.

For the full year 2023, distilling solutions segment sales increased 5% to $459 million, reflecting a 14% increase in sales of premium beverage alcohol due to continued strong new distillate and aged American whiskey sales gross profit increased to 145.

Or 32, 2% of segment sales compared to $126 3 million or 29, 5% of segment sales in 2022.

Sales for the branded spirits segment in the fourth quarter increased 19% to $72 $6 million.

Sales of our premium class price tier brands grew 50%.

Brandon Gall: Driven by both the Penelope acquisition and our Organic Premium Plus SPIRS portfolio, gross profit for the quarter increased to $33.1 million, or 45.6% of segment sales, compared to $24.7 million, or 40.6% of segment sales, in the fourth quarter of 2022. For the full year, Brandon's spirit sales increased 7% to $253.9 million, reflecting continued strength in our portfolio of brands. Sales of our Premium Plus price tier brands grew 24%. Gross profit for the year increased to $112.8 million, or 44.4% of segment sales, compared to $95.5 billion, or 40.1% of segment sales in 2022. Turning to ingredient solutions, in the fourth quarter, sales for the segment increased 15% to $33.4 million. Gross profit for the quarter increased to $12 million, or 36% of segment sales, compared to $6.9 million, or 23.8% of segment sales in the fourth quarter of 2022.

Driven by both the Penelope acquisition, and our organic premium plus spirits portfolio gross profit for the quarter increased to $33 1 million or <unk> 45, 6% of segment sales compared to $24 7 million or 46% of segment sales.

In the fourth quarter 2022.

For the full year, Brendan spirit sales increased 7% to $253 $9 million.

Reflecting continued strength in our portfolio of brands.

Sales of our premium plus price tier brands grew 24%.

Gross profit for the year increased to $112 8 million or <unk> 44, 4% of segment sales compared to $95 5 billion or 41% of segment sales in 2022.

Turning to ingredient solutions in the fourth quarter sales for this segment increased 15% to $33 4 billion.

Gross profit for the quarter increased to $12 million or 36% of segment sales compared to $6 9 million or 23, 8% of segment sales in the fourth quarter of 2022.

Brandon Gall: For the full year, ingredient solution segment sales increased 14% to $131.7 million, driven primarily by higher sales of specialty wheat proteins and specialty wheat starches. Gross profit for the year increased to $47 million, or 35.7% of segment sales, compared to $31.5 million, or 27.2% of segment sales in 2022. We expect 2024 to be another strong year for ingredient solutions, although we expect to see some margin dilution for this segment as we absorb the previous starch stream credit from the Atchison distillery and finalize our plans to convert this stream into a profit center in 2025 with the construction and implementation of a mini fuel plant. More on this in a moment.

For the full year ingredient solutions segment sales increased 14% to 131 $7 million driven primarily by higher sales of specialty wheat proteins and specialty wheat starches.

Gross profit for the year increased to $47 million or 35, 7% of segment sales compared to $31 $5 million or 27, 2% of segment sales in 2022.

We expect 2024 to be another strong year for ingredient solutions, although we expect to see some margin dilution for this segment as we absorbed the previous start stream credit from the ads sinister Hillary and finalize our plans to convert the stream into a profit center in 2025 with the construction and implementation of the many fuel.

Plan more on this in a moment.

Brandon Gall: Advertising and promotion expenses for the fourth quarter increased $1.5 million, or 14%, to $12.3 million as compared to the fourth quarter of 2022. This increase reflects our continued effort to prioritize marketing spend on our premium plus price tier brands as part of our premiumization strategy. As such, Branded Spirits A&P as a percent of Branded Spirits sales was 15.5% in the quarter.

Advertising and promotion expenses for the fourth quarter increased $1 $5 million or 14% to $12 3 million as compared to the fourth quarter of 2022.

This increase reflects our continued effort to prioritize marketing spend on our premium plus price tier brands as part of our premium <unk> strategy as such branded spirits A&P as a percent of branded spirits sales was 15, 5% in the quarter.

Brandon Gall: For the full year, advertising and promotion expenses increased $8.5 million, or 29%, to $38.2 million as compared to the full year of 2022. In 2024, we will continue to invest in marketing for our brand and spirit segment to promote our premium plus price tier and higher margin brands that we feel have the best opportunity to grow international brands. Corporate selling, general, and administrative expenses for the fourth quarter increased $3.2 million to $25.8 million as compared to the fourth quarter of 2022. For the full year, corporate SG&A expenses increased $16.8 million, as compared to 2022, to $91.4 million, driven primarily by higher personnel expenses and incentive compensation, inclusive of certain incremental share-based compensation costs incurred relating to our CEO transition and business acquisition expenses related to the LP acquisition

For the full year advertising and promotional expenses increased $8 5 million or 29% to $38 $2 million as compared to the full year 2022 and.

In 2024, we will continue to invest in marketing for our branded spirits segment promote our premium plus price tier and higher margin brands that we feel have the best opportunity to grow international brands.

Corporate selling general and administrative expenses for the fourth quarter increased $3 2 million to $25 8 million as compared to the fourth quarter 2022.

For the full year corporate SG&A expenses increased $16 8 million as compared to 2022 to <unk> 91, $4 million, driven primarily by higher personnel expenses and incentive compensation inclusive certain incremental share based compensation costs incurred relating to our CEO transition.

And business acquisition expenses related slipped at L. P acquisition.

Brandon Gall: During the fourth quarter, the impairment of assets and other one-time expenses relating to the closure of the Atchison Distillery totaled $1.1 million. The change in fair value of the contingent consideration relating to the Penelope acquisition for the quarter totaled $2.9 million. This change in fair value differed from the prior quarter due to, among other things, updates to the discount and volatility rates assumed. For the full year, impairment of assets and other one-time expenses relating to the closure of the Atchison Estuary totaled $19.4 million. The change in fair value of the contingent consideration relating to the Penelope acquisition totaled $7.1 million.

During the fourth quarter, the impairment of assets and other onetime expenses relating to the closure of the axis and distillery totaled $1 1 million.

The change in fair value of the contingent consideration relating to the <unk> acquisition for the quarter totaled $2 $9 million. This change in fair value deferred from the prior quarter due to among other items updates to the discount and volatility rates assumed.

For the full year, the impairment of assets and other one time expenses relating to the closure of the ads sinister Hillary totaled $19 4 million.

The change in fair value of the contingent consideration relating to the <unk> acquisition totaled $7 1 million.

Brandon Gall: We'll continue to evaluate this contingent consideration liability in subsequent quarters and adjust as necessary on a quarterly basis throughout the term of the ARNL period, which ends in December 2025. Additionally, we believe the vast majority of one-time charges related to the accident and distillery closure were reflected in our 2023 financial results. However, additional one-time expenses may occur, including those related to equipment sales in subsequent quarters. Operating income for the fourth quarter increased 45% to $43.1 million. Adjusted operating income increased 70% to $50.4 million. For the full year, operating income decreased slightly to $148.6 million, while adjusted operating income increased 21% to $180.3 million. Our corporate effective tax rate for the fourth quarter was 24%, compared to 19% from the year-ago period. The corporate ETR for the full year was 24.4%, compared to 22.3% in 2022. The increase in the quarterly and full-year corporate effective tax rates was primarily driven by an increase in valuation allowances and lower tax credits.

We will continue to evaluate this contingent consideration liability in subsequent quarters and adjust as necessary on a quarterly basis throughout the term of the earn out period, which ends in December 2025. Additionally, we believe the vast majority of onetime charges related to the accident distillery closure was reflected in our 2023 financial result.

<unk>, however, additional onetime expenses may occur, including those related to the equipment sales in subsequent quarters.

Operating income for the fourth quarter increased 45% to $43 $1 million adjusted operating income increased 70% to $54 million for the full year operating income decreased slightly to $148 6 million.

While adjusted operating income increased 21% to $183 million.

Our corporate effective tax rate for the fourth quarter was 24% compared to 19% from the year ago period.

Corporate ETR for the full year was 24, 4% compared to 22, 3% in 2022, the increase for the quarter and full year corporate effective tax rates was primarily driven by an increase in valuation allowances and lower tax credits, we anticipate our effective tax rate to be in the range of 24, 5% to <unk>.

Brandon Gall: We anticipate our effective tax rate to be in the range of 24.5% to 25.5% for 2024. Net income for the fourth quarter increased 38% to $31 million. Adjusted net income for the quarter increased 63% to $36.6 million. Basic earnings per common share for the fourth quarter increased $1.39 per share from $1.02 per share.

25, 5% for 2024.

Net income for the fourth quarter increased 38% $31 million adjusted net income for the quarter increased 63% to $36 $6 million.

Basic earnings per common share for the fourth quarter increased $1 39 per share from $1 <unk> per share.

Brandon Gall: Adjusted basic EPS increased to $1.64 per share from $1.02 per share. Factoring in the additional shares associated with the convertible notes issued in November 2021, fully diluted EPS increased to $1.39 per share from $1.01 per share. Adjusted diluted EPS increased to $1.64 per share from $1.01 per share. Net income for the full year decreased 2% to $107.1 million.

Adjusted basic EPS increased to $1 64 per share from $1 <unk> per share.

Factoring in the additional shares associated with the convertible notes issued in November 2021, fully diluted EPS increased to $1 39 per share from $1 <unk> per share.

Adjusted diluted EPS increased to $1 64 per share from $1 <unk> per share.

Net income for the full year decreased 2% to $107 1 million adjusted.

Brandon Gall: Adjusted net income increased 20% to $131.1 million. Basic EPS decreased to $4.82 per share from $4.94 per share. Adjusted basic EPS increased to $5.90 per share from $4.94 per share. On a fully diluted basis, EPS decreased to $4.80 per share from $4.92 per share.

Net income increased 20% to $131 $1 million.

Basic EPS decreased to $4 82 per share.

$4 94 per share.

Adjusted basic EPS increased to $5 90 per share from $4 94 per share on a fully diluted basis EPS decreased to $4 80 per share from $4 92 per share.

Brandon Gall: Adjusted diluted EPS increased to $5.88 per share from $4.92 per share in the year-ago period. Adjusted EBITDA for the quarter increased 60% to $56.2 million. Adjusted EBITDA for the full year was $202.5 million, an increase of 20% from the prior year. The increase was primarily driven, again, by the strong performances of all three business segments. Moving to Commodities. Corn, wheat flour, rye, and natural gas represent our largest commodity expenses.

Adjusted diluted EPS increased to $5 88 per share from $4 92 per share in the year ago period.

Adjusted EBITDA for the quarter increased 60% to $56 $2 million adjust.

Adjusted EBITDA for the full year was $202 $5 million, an increase of 20% from the prior year.

The increase was primarily driven again by the strong performances of all three business segments.

Moving to commodities.

Corn wheat flour and Ryan natural gas represent our largest commodity expenses each continued to experience elevated prices throughout the year.

Brandon Gall: Each continue to experience elevated prices throughout the year. Compared to the prior year's fourth quarter, our input cost for corn increased 6%, wheat flour increased 15%, rye increased 25%, and natural gas increased 36%. Despite these elevated input costs, our risk management process and our focus on products that are premium and more specialty in nature have enabled us to mitigate the impacts of inflation this year in the majority of our product lines. Cash flow from operations was $83.8 million in 2023 and a record $35.2 million in the fourth quarter, reflecting the consistent cash generating capability of our business. Inclusive in this is our investment in inventory of aging whiskey, which stood at $250.2 million at cost at year-end, a net increase of $51.1 million at cost during the year.

Impaired to the prior year fourth quarter, our input costs for corn increased 6% wheat flour increased 15% Rai increased 25% and natural gas increased 36%. Despite these elevated input costs, our risk management process and our focus on products that are premium and more specialty in nature have enabled.

US to mitigate the impacts of inflation this year and the majority of our product lines.

Cash flow from operations was $83 8 million in 2023, and a record $35 2 million in the fourth quarter, reflecting the consistent cash generating capability of our business <unk>.

Inclusive in this is our investment in inventory of aging whiskey, which stood at $252 million at cost at year end our net.

Net increase of $51 1 million at cost during the year.

Brandon Gall: Matching whiskey put away with growing future distilling solutions and branded spirits demand is one of our priorities and long-term strategies. Strong cash flows for the quarter and year further emphasize the strength of our portfolio and the value of our long-term strategy, even as we pursue eminent opportunities and expansionary projects that support the long-term growth of our company. Our balance sheet remains strong and continues to be available to support investment opportunities that we believe will drive growth and return cash to shareholders. We remain well capitalized with debt totaling $287.2 million and a cash position of $18.4 million as of December 31, 2023.

Matching whiskey put away with growing future distilling solutions and branded spirits demand is one of our priorities and long term strategies.

Strong cash flows for the quarter and year further emphasize the strength of our portfolio and the value of our long term strategy, even as we pursue M&A opportunities and expansionary projects that support the long term growth of our company.

Our balance sheet remains strong and continues to be available to support investment opportunities that we believe will drive growth and return cash to shareholders.

We remain well capitalized with debt totaling $287 $2 million and a cash position of $18 4 million as of December 31, 2023.

Brandon Gall: Turning to capital expenditures, our previously announced expansionary projects remain on track from a timing and cost perspective. Our continued focus on strategically deploying capital to enhance our operational capability has resulted in capex of $61.1 million in 2023. The vast majority of this investment in the year was for growth projects, such as the Proterra facility in Atchison, which is coming online in the first quarter of 2024, the LuxRoad distillation expansion in Bardstown, Kentucky, which is expected to come online in the second quarter of 2024, and numerous warehouse investments We anticipate approximately $85.8 million in CapEx for 2024, which will be used for accessibility improvement and expansion, such as additional warehouses to support our recent capacity increases.

Turning to capital expenditures.

Our previously announced expansionary projects remain on track from a timing and cost perspective.

Our continued focus on strategically deploying capital to enhance our operational capabilities resulted in capex of $61 1 million in 2023.

The vast majority of its investment in the year was for growth projects, such as the pro Terror facility in Atchison, Kansas.

Which is coming online in the first quarter of 2024, the Luxe road distillation expansion in parts that Kentucky, which is expected to come online in the second quarter of 2024, and numerous warehouse investments needed to support our customers and our aging whiskey.

We anticipate approximately $85 $8 million in Capex for 2024, which will be used for facility improvement and expansion.

Such as additional warehouses to support our recent capacity increases.

Brandon Gall: Dryer investment to support our LuxRoyal expansion, the acquisition of our previously leased bottling facility in St. Louis, Missouri, and a mini-fuel plant in Kansas to better monetize the waste-starch stream in our ingredients solution segment. Our warehouse investment represents approximately half of our anticipated $85.8 million CapEx for 2024. In recent months, we've experienced some unanticipated land use setbacks in our pursuit of building new warehouses in Kentucky.

Prior investment to support <unk> expansion the acquisition of our previously leased bottling facility in St. Louis, Missouri, and the many fuel plant that's in Kansas to better monetize the weight start stream in our ingredient solutions segment.

Our warehouse investment represents approximately half of our anticipated $85 $8 million Capex for 2024.

In recent months, we've experienced some unanticipated land new setbacks in our pursuit of building new warehouses in Kentucky.

Brandon Gall: We continue to work to find a solution, and we will provide additional details regarding our warehouse investment and future earnings calls. In addition to these growth investments, we also continue to invest in facility sustenance projects, as well as environmental, health, and safety projects. Now, an updated look at the financial impact of the Ashton Stoies performance on a preliminary pro forma and unaudited basis for the year ending December 31st, 2023. Excluding the financial impacts of the Atchison Distillery, results were as follows.

We continue to work to find a solution and we will provide additional details regarding our warehouse investment in future earnings calls.

In addition to these growth investments. We also continue to invest in facilities sustenance projects as well as environmental health and safety projects.

Now an updated look at the financial impact of the accident still its performance on a preliminary pro forma unaudited basis for the year ending December 31 2023.

Excluding the financial impacts of the apps and distillery results were as follows.

Brandon Gall: Consolidated sales and distilling solution sales were reduced by $108.5 million. Consolidated gross profit was increased by $4.7 million, and consolidated gross margin was increased by 610 basis points. Last quarter, we shared that we are confident that we'd identify the path to dispose of the Waste Start stream via third party at no cost to the company in fiscal 2024. This is consistent with the detail provided in the updated pro forma financials found in our earnings release. More recently, we've learned that additional operating costs, potentially totaling $4 million to $6 million, will need to be incurred in 2024 to ready the waste starch for commercial sale. These costs involve further drying of the waste starch and expenses associated with depreciation, insurance, energy, and utilities, to name a few.

Consolidated sales and is stealing solution sales are reduced by $108 $5 million.

Consolidated gross profit has increased by $4 7 million in consolidated gross margin has increased by 610 basis points.

Last quarter, we shared that we are confident that we would identify the path to disposal, but we start stream via a third party at no cost to the company in fiscal 2024. This is consistent with the detail provided in the updated pro forma financials found in our earnings release.

More recently, we've learned that additional operating costs potentially totaling $4 million or $6 million will need to be incurred in 2024 to ready the weight starch for commercial sale. These costs involve further drawing of the waste starch and expenses associated with depreciation insurance energy and utilities to name a few.

Brandon Gall: We anticipate a portion of this cost will be recouped via revenue received from our third-party partner as a result of the increased commercial viability of the starch. However, trials are still underway, and we cannot guarantee at this point that we will be successful in recouping the incremental costs through offsetting revenue. As such, we are factoring in the incremental costs to our 2024 guidance, but not the offsetting revenue. We continue to pursue other, more economically beneficial options for disposing of the waste starch, such as investing in a mini-fuel plant, as previously described.

We anticipate a portion of this cost will be recouped via sales of revenue received from our third party partner as a result of the increased commercial viability of the starch. However trials are still underway and we cannot guarantee at this point that we will be successful in recouping, the incremental costs through offsetting revenue as such.

We're factoring in the incremental cost of our 2024 guidance, but not the offsetting revenue.

We continue to pursue other more economically beneficial options of disposing of the waste starts such as investing in the many fuel plan as previously described.

Brandon Gall: We believe these actions will enable us to further align our product categories and their supporting operations toward achieving our long-term strategic objectives. As we continue to assess current and more creative options to dispose of the wave search stream and their impact on our financial results, we will provide additional details in future earnings calls. Despite these incremental costs, we continue to believe the closure of the Atchison distillery will be a positive consolidated gross margin percentage beginning in 2024. It's important to note that in some circumstances, white goods, industrial alcohol, fuel, and at certain times certain co-products are produced at our Lawrenceburg, Indiana distillery.

We believe these actions will enable us to further align our product categories and they are supporting operations toward achieving our long term strategic objectives.

As we continue to assess current and more accretive options disclose of the wave search stream and their impact on our financial results. We will provide additional details in future earnings calls. Despite these incremental costs. We continue to believe the closure of the <unk> will be accretive to consolidated gross margin percent beginning in 2024.

It is important to note that in some circumstances white goods industrial alcohol fuel and at certain times certain co products are produced at our Lawrenceburg, Indiana distillery.

Brandon Gall: Please refer to the pro forma schedules included in this morning's earnings release for more information. In accordance with accounting guidance, we expect to present the ashes and distillery operations as discontinued operations later in the year. Due to the impact that the Agilent Distillery Closure has on the distilling solutions segment product offerings, as well as the impact that ongoing changes in the Nielsen priced tiers have on our Branded Spirits segment pricing tiers, we're in the process of reviewing our presentation of our product category line items across our business segment. The board authorized a quarterly dividend in the amount of 12 cents per share, which will be payable on March 29th, 2024 to stockholders of record as of March 15th.

Please refer to the pro forma schedules included in this morning's earnings release for more information.

In accordance with accounting guidance, we expect to present the absence in distillery operations as discontinued operations later in the year.

Due to the impact that the <unk> is still a closure has on distilling solutions segment product offerings as well as the impact that ongoing changes in the Nielsen priced here's has on our branded spirits segment pricing tiers. We are in the process of reviewing our presentation of our product category line items across our business segments.

The board authorized a quarterly dividend in the amount of <unk> 12 per share, which is payable on March 29, 2024 to stockholders of record as of March 15th The board continues to be dividends as an important way to share the success of the company with our stockholders.

Brandon Gall: The board continues to view dividends as an important way to share the success of the company with our stockholders. We continue to believe that our focus on organic and inquisitive growth aligns well with our long-term strategy. As well as the underlying consumer trends, we believe our business is well-positioned to leverage. We remain deliberate and disciplined as we continue to evaluate M&A opportunities, invest in and put away American whiskey, and conduct expansionary projects that are designed to accelerate growth and increase our capabilities and product offerings. As we enter 2024, we will continue to focus efforts on optimizing product mix across all three of our business segments and invest in areas that we expect to generate the greatest long-term value for our shareholders.

We continue to believe that our focus on organic and acquisitive growth aligns well with our long term strategy as well as the underlying consumer trends. We believe our business is well positioned to leverage we remain deliberate and disciplined as we continue to evaluate M&A opportunities investment put away of American whiskey and conduct expansionary projects that are designed to accelerate growth and increase.

Our capabilities and product offerings.

As we enter 2024, we will continue to focus efforts on optimizing product mix across all three of our business segments and invest in areas that we expect to generate the greatest long term value for our shareholders. We expect the consumer fundamentals that are supporting the historical growth in our business to remain intact in 2024.

Brandon Gall: We expect the consumer fundamentals that have supported historical growth in our business to remain intact in 2024, while we continue to monitor the potential impact of inventory levels of distributors, overall American whiskey supply and consumption patterns, and inflation on consumers. Despite these industry headwinds, we feel uniquely positioned to grow as a company in this dynamic operating environment. These factors, in combination with the strength of our underlying business, support the following financial outlook for the fiscal year ending December 31, 2024. Sales are projected to be in the range of $742 million to $756 million following the closure of the Atchison Distillery. Adjusted EBITDA is expected to be in the range of $213 million to $217 million, reflecting a mid- to high single-digit growth rate for adjusted EBITDA, on top of a record 2023 result. Please note that this range excludes the add-back of share-based compensation expense. Including the add-back of share-based compensation expense, adjusted EBITDA is expected to be in the range of $218 million to $222 million.

While we continue to monitor the potential impact of inventory levels of distributors overall American whiskey supply and consumption patterns and inflation on consumers. Despite these industry headwinds, we feel uniquely positioned to grow as a company and this dynamic operating environment.

These factors in combination with the strength of our underlying business support the following financial outlook for the fiscal year ending December 31 2024.

Sales are projected to be in the range of $742 million to $756 million.

Following the closure of the axis and the story adjust.

Adjusted EBITDA to be in the range of $213 million or $217 million, reflecting a mid to high single digit growth rate for adjusted EBITDA on top of a record 2023 result. Please note. This range excludes the add back of share based compensation expense, including the add back of share based compensation expense.

Adjusted EBIT EBITDA is expected to be in the range of $218 million to $222 million.

Brandon Gall: This range contemplates approximately $5.4 million in share-based compensation expense for 2024. Please refer to this morning's earnings release for last year's share-based compensation expense. We intend to begin adding back share-based compensation expense when reporting adjusted EBITDA in the first quarter of 2024. And lastly, adjusted basic earnings per common share are projected to be in the range of $6.12 to $6.23 per share, with basic weighted average shares outstanding expected to be approximately $22.3 million at year-end.

This range contemplates approximately $5 4 million in share based compensation expense for 2024. Please.

Please refer to this morning's earnings release for previous year share based compensation expense.

We intend to begin adding back share based compensation expense when reporting adjusted EBITDA in the first quarter of 2024.

And lastly, adjusted basic earnings per common share are projected to be in the range of $6 12.

To $6 23 per share with basic weighted average shares outstanding are expected to be approximately $22 3 million at year end.

Brandon Gall: With that in mind, let me discuss expectations for the first quarter, which have already been factored into the full year 2024 guidance. We expect quarterly sales and gross profit results for the first quarter of this year to come in below the subsequent three quarters for the balance of 2024. This expectation can be attributed, in part, to lower relative sales of allocated and single-barrel Premium Plus brand spirits offerings in Q1, timing of customer commitments for brown goods, opening of the LuxRoad distillation expansion in Q2, and time needed to commercialize our new Proterra facility. And I'll set some recent international challenges in ingredient solutions. And now, I will turn things back over to David for his concluding remarks. Thanks, Brandon.

With that backdrop, let me discuss expectations for the first quarter, which have already been factored into the full year of 2020 for guidance.

We expect quarterly sales and gross profit results for the first quarter of this year to come in below the subsequent three quarters for the balance of 2024 <unk>.

This expansion can be attributed in part to lower relative sales of allocated in single barrel premium plus brand spirits offerings Q1 timing of customer commitments for brown goods.

Opening of the Luxe distillation expansion in Q2 and time needed to commercialize our new <unk> facility and offset some recent international challenges in ingredient solutions.

And now let me turn things back over to David for concluding remarks.

Thanks, Brandon we are very pleased with the strong results delivered in 2023 healthy demand for our products continue and we believe our business remains well positioned.

David Bratcher: We are very pleased with the strong results delivered in 2023. Healthy demand for our products continues, and we believe our business remains well positioned. We are also happy to report that we completed the construction of our extrusion manufacturing facility within our ingredients solution segment by the end of 2023, as planned. This facility will allow us to support our Proterra brand and offer us additional capabilities that we did not have prior to completion. I would like to thank and congratulate our engineering and operations team for delivering this project on time and on budget.

We are also happy to report that we completed the construction of our extrusion manufacturing facility within our ingredient solutions segment by the end of 2023 as planned this facility will allow us to support our pro Terra brand and offer us additional capabilities that we did not have prior to completion.

I would like to thank and congratulate our engineering and operations team for delivering this project on time and on budget as we move into 2020 for our sales team is focused on taking advantage of this added capacity and capability.

David Bratcher: As we move into 2024, our sales team is focused on taking advantage of this added capacity and capability. In closing, I would like to add that, despite some reported softening within the branded spirits industry when compared to the COVID super cycle, we are very optimistic about the long-term health of this industry. In 2023, spirits growth continued within the total U.S. beverage alcohol market relative to other alcohol categories. And while U.S. premiumization trends slowed broadly in 2023, we are encouraged by the continued growth in the American whiskey category, as well as growth in other segments, such as tequila. Additionally, recent industry reports indicated inventory destocking at a wholesale level will remain an issue for the branded spirits industry in 2024.

In closing I would like to add that despite some reported softening within the branded spirits industry when compared to the Covid Super cycle. We are very optimistic about the long term health of this industry.

In 2023 spirits growth continued within the total U S beverage alcohol market relative to other alcohol categories.

And while U S premium innovation trends slowed broadly in 2023, we are encouraged by the continued growth in the American whiskey category as well as growth in other segments such as tequila.

Additionally, recent industry reports indicated inventory destocking at a wholesale level will remain an issue for the branded spirits industry in 2024.

David Bratcher: Working closely with our distributors throughout 2023, we feel we have made significant progress in managing wholesaler inventory for our portfolio and remain focused on driving points of distribution and velocity across our brands with emphasis on our higher margin offerings. Our strategy is to build a portfolio of branded spirits by increasing our points of distribution, accelerating our sales velocity within those points of distribution through effective marketing, expanding our product offerings through innovation, and closing on meaningful margin-accretive M&A transactions. We believe the interconnectedness of our distilled solutions and Branded Spirits segments support continued growth and plan to use both segments to transform our company into a dedicated branded spirits company. As we begin the new year, we remain committed to leveraging the strong foundation we have established over the years with the objective of delivering sustainable, long-term value for our shareholders.

Working closely with our distributors throughout 2023, we feel we have made significant progress in managing wholesaler inventory for our portfolio and we remain focused on driving points of distribution and velocity across our brands with emphasis on our higher margin offerings.

Our strategy is to build a portfolio of branded spirits through increasing our points of distribution accelerating our sales velocity within those points of distribution through effective marketing expanding.

Expanding our product offerings through innovation and closing on many full margin accretive M&A transactions.

We believe the interconnectedness of our distilled solutions and branded spirits segments support continue growth and plan to use both segments to transform our company into a dedicated brand spirits company.

As we begin the new year, we remain committed to leveraging the strong foundation, we have established over the years with the objective of delivering sustainable long term value for our shareholders.

David Bratcher: In closing, let me add that I am extremely honored to have been offered the opportunity to serve as CEO, President, and Board Member of MGP starting January 1. I take the obligations that I have to our shareholders, employees, and other stakeholders very seriously. The team and I are committed to the continued long-term growth of our business. That concludes our prepared remarks.

In closing, let me add I am extremely honored to have been offered the opportunity to serve as CEO President and board member of <unk> starting January one.

I take the obligations that I have to our shareholders employees and other stakeholders very seriously.

The team and I are committed to the continued long term growth of our business.

That concludes our prepared remarks, operator, we are ready to begin with the question and answer portion of the call.

Operator: Operator, we are ready to begin with 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 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

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.

Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Bill Chappell with Truett Securities. Please go ahead. Thanks. Good morning.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Bill Chappell, which was securities. Please go ahead.

Thanks, Good morning.

When Bill just wanted to.

David Bratcher: Just wanted to go back on the kind of new distillate sales, and I think one of the things you said was distillate total sales would be down in 24 versus 23, so if you maybe can get some more color on what was some customer changes and stuff like that, but try to understand that, and then also you had mentioned that you're monitoring the overall American whiskey supply levels and that might be a headwind, so kind of maybe help us understand that, is this Yeah, Bill. I'll start on that. Yeah, thanks for giving us the opportunity to clarify.

Go back on the kind of the new distillate sales and I think one of the things you said was total sales would be down in 2008 for versus 'twenty three.

Maybe you could give some more color.

Thank you Eric kind of explained what was.

Some customer changes and stuff like that but I'm trying to understand that and then also.

You had mentioned that Youre monitoring the <unk>.

We're all American whiskey supply levels and that might be a headwind so kind of maybe help us understand that youre talking about at retail or are you talking about supply of other players coming for new distillate.

Yes, Bill I'll start on that and thanks for giving us the opportunity to clarify so we do not expect new distillate sales to decline year over year and factory, we expect brown goods sales in total to continue to grow in line with or better than the broader category of American whiskey.

David Bratcher: So, we do not expect new disparate sales to decline year over year. In fact, we expect brown goods sales in total to continue to grow in line with or better than the broader category of American whiskey in 2024. What we're trying to get across in our prepared remarks is that the proportion of new distillate sales versus age sales has been growing. And that has been deliberate, as David mentioned on the call.

In 2024.

What we're trying to get across in our prepared remarks is that the proportion of new distillate sales versus eight sales has been growing and that has been deliberate as David mentioned on the call and the reason for that is as our customers.

Brandon Gall: And the reason for that is, as our customers that traditionally are about age, as they continue to mature and grow, they're now better able to finance new distillate. And so, we're leaning into that because there are a lot of attributes of new distillate customers that we find attractive, such as the greater visibility they provide and the greater cash flow characteristics of applying new distillate versus age brings. As far as moderating the overall supply to the industry goes, that's not our plan.

Traditionally about aged as they continue to mature and grow they are now better able to finance, new distillate and so we're leaning into that because theres a lot of attributes of new distillate customers that we find attractive.

Such as the greater visibility, they provide and a greater cash flow characteristics.

Upside new purchase age brings as far as moderating the overall supply to the industry.

That's not our plan.

Brandon Gall: You know, we're continuing to grow, you know, with our portfolio and with our customers. And as such, the mix may change more towards new versus age, but we continue to grow at the same pace or better than the American whiskey category has done in recent years. Yeah, I'll add to that too, just for clarification.

Continuing to grow with our portfolio and with our customers and as such.

The mix may change more towards new versus H, although we continue to grow.

At the same pace or better than the American whiskey category as we've done in recent years.

I'll add to that too just clarification.

David Bratcher: The new discipline focus is really critical for our business. It gives us longer-term arrangements, financial stability, and visibility for multi-years. On average, it's a better business for us in terms of understanding the impact financially on the overall business. It's also somewhat a normal cycle as the category continues to grow, and some of our previous craft customers become bigger; they're naturally going to switch over to new discipline supply. That's just normal. There is no, we have no plans to moderate our supply to it, but as a matter of fact, we've taken just the opposite approach, as you heard in our cost script, that we're expanding one of our major distilleries in Kentucky, So, we're very optimistic about Bramgood itself and, you know, a plan to expand and continue to grow with the segment. Got it. That helps.

The new <unk> focus is really critical for our business. It gives us longer term arrangements financial stability and visibility for multi years on average with a better business for us in terms of understanding the impact financially over on the overall business. It also somewhat a normal cycle as is the cat.

<unk> continues to grow in some of.

Our previous craft customers become bigger they are naturally going to switch over to new debts month's supply. That's just normal there is no. We have no plans to moderate our supply chain as a matter of fact, we've taken just the opposite approach as you heard in our cost script that we're expanding one of our major distilleries in Kentucky, basically doubling its capacity and we.

It to come online mid year, So we're very optimistic about <unk> and.

<unk> plan to expand and continue to grow with the segment.

Got it that helps and then if I'm looking at the <unk>.

Brandon Gall: And then, if I'm looking at just the age demand, I understand that you're naturally kind of leaning into the new, but are you hearing from your customers? I mean, now you have 800 customers, you know. Any worries that there's going to be a slowdown in brown goods demand three, four years out from now? Or is it, is it kind of overall interest?

Just.

The AG demand.

I understand.

Actually kind of leading into the new but.

Are you hearing from your customers I mean, now you have 800 customers.

Any worries that theres going to be a slowdown in brown. Good demand three four years out from now or is it is kind of the overall interest.

David Bratcher: Pretty much the same as it has been the past few years? You know, I think what we can say on that is that if we look at our aged discipline, and we referenced about 50% of it being obligated, that's actually a pretty high number on age because most of these tend to be craft customers or new entrants into the category. So, actually, we feel pretty good about the amount that we have contracted and how that relates to, you know, any potential unknown is that those craft, the craft distilleries, or craft brand companies are subject to the same inventory, retail, wholesale level type of inventory situations as anybody. And so, with higher interest rates and everything else, they're being a little more cautious with their investment.

Much the same as it has been the past few years.

Sure.

I think what we can say on that is is that if we look at our aged and we referenced about 50% of it being obligated.

Actually pretty high number on aged because most of these tend to be craft customers are new entrants into the category.

So actually we feel pretty good about the amount that we have contracted and how that relates to <unk>.

Any potential unknown is that fair.

Craft with craft distilleries of craft brand companies are subject to the same inventory retail wholesale level type of inventory situations as anybody and so with higher interest rates and everything else, they're being a little more cautious with their investment.

David Bratcher: We, they really, in the past, we saw them buy just so they could corner their piece of the business. Now, you're starting to see them switch to more just-in-time type of demand. They want to transact, know they can feel the product, and get it right to the shelf, given the high interest rates that they operate in. Got it.

They've really in the past week saw by just so they can get corner their piece of the business now youre starting to see them switch to more just in time type of demand they want to transact no. They can fill the product and get it rights through the shelf given the high interest rates that they operate in.

David Bratcher: And last question, just on the aged, I mean, sorry, on the branded portfolio, your comments about there being still some de-stocking at distributors and stuff like that. Does that mean, I mean, I thought most of the impact you kind of saw in the first half of last year, do you expect a quarter where we could be flat to down for that overall business, excluding Penelope? Or is most of the heavy de-stocking done?

Got it and last question just on the aged let me tell you on the branded portfolio. Your comments about there is still some destocking at distributors and stuff like that.

Does that mean I thought most of the impact you kind of saw in the first half of last year do you expect.

Quarter, where we can be flat to down for that overall business, excluding fidelity or is most of the heavy.

The Destocking done.

David Bratcher: Well, the comment in general was about the industry overall. There is still a push on inventory to stock for the industry overall. As it relates specifically to our business, we've worked really hard in the past year to manage that, and actively manage that with our wholesalers. We believe we have it in a controllable area of data on hand. You know, at the end of the day, the wholesalers do control the inventory. They place the order, and they decide what the number is.

The comment was in general was about the industry. Overall, there is still a push on inventory destocking for the industry overall as it relates specifically to our business. We've worked really hard in the past year to manage that actively manage that with our wholesalers. We believe we have it in our controllable area of data on hand.

At the end of the day, the wholesalers do controlled inventory they place the order and May decide what the number is.

I think our exposure on it for us is smaller than let's say our peer set because I think we've done a really good job of managing it in 2023.

David Bratcher: I think our exposure to it, for us, is smaller than, let's say, our peer set because I think we've done a really good job of managing it in 2023. Great, thanks so much. The next question is from Marc Torrente with Wells Fargo. Please go ahead. Hey, good morning.

Great. Thanks, so much.

The next question is from Marci <unk> with Wells Fargo. Please go ahead.

Brandon Gall: Thanks for the question. Just building on Bill's question, with new distillate outpacing age going forward, or that's the expectation, we know new distillate carries a strong margin, but age is likely even greater. So, maybe anything to read into the implications here. And then, on the new distillate contract renewals, you mentioned before that the strong pricing there has been giving you cover to be more strategic on the age side, so maybe any more color on pricing trends there, and how long does this, I guess, contract cycle continue? Yeah. And, yeah, Marc, you're exactly right.

Hey, good morning, Thanks for the question.

Just building on Bill's question.

With new distillate outpacing age going forward.

That's the expectation we know new distillate carries a strong margin, but age is likely even greater so maybe anything to read into implications here and then on.

The new distillate contracted renewables.

You mentioned before that the strong pricing there has been giving you cover to be more strategic on the <unk> side. So maybe any more color on pricing trends, there and how long.

Yes.

I guess contract cycle.

Continue.

Yes.

Yes, Mark you're exactly right, we have been successful on the new distillate side, and getting more and more price as contracts renew on.

Brandon Gall: We have been successful on the new disload side in getting more and more prices and contracts renewed. On the aid side, though, as David said, it's still a very important and valuable part of our business, but we are using, you know, this opportunity as our customers are demanding to lean more into the new disload side of things because, as we mentioned, we feel like it sets us up better longer term from that perspective. Yeah,

On the AG side, though as David said.

It's still a very important and valuable part of our business, but we are using this opportunity as our customers are demanding to lean more into that new distillate side of things because as we mentioned we feel like it sets us up better longer term from that perspective, yes, I would add to that too and I think we call. It out in our script I think this shift.

David Bratcher: I would add to that, too, and I think we call it out in our script. I think this shift to new disload is a good sign for the industry overall. If people are willing to contract multiple years out, I think that's a signal of their commitment to the category. Yes, new disload margins for us are a little softer than age. That's a given, and Brandon has talked about that in the past.

This new insulin is a good sign for the industry overall, if people are willing to contract multiple years out and I think thats a signal of their commitment to the category.

Yes, new distillate margins for us are a little softer than age that to given in Brandon It's talked about that in the past, but the benefit that we gain from a new discipline is that financial stability that long term visibility and it still has very very attractive margin portfolios I look at it as a possible.

David Bratcher: But the benefit that we gain from a new disload is that financial stability, that long-term visibility, and it still has very, very attractive margin portfolios. I look at it as a possible, I look at it as a possible way, our effort to de-risk the exposure on age by increasing, as we said in our script, the new dislet category. It brings that stability that we need. Okay, great.

Yes.

I look at it as a possible way.

Our effort to de risk the exposure on age by increasing as we said in our script the new distillate category. It brings that stability that we need.

Okay, Great and then just a little.

Brandon Gall: And then just a little more color on guidance. Calls for top line growth of about two to four percent on a proforma basis and EBITDA growth of around six percent. I guess maybe you could provide some underlying color on segment buildup and phasing through the year. There's clearly strong growth in your core categories in Q4, but the GAD would imply a fair amount of deceleration. Was there any pull forward there? Yeah, no pull forward.

Color on guidance.

Calls for topline growth of about 2% to 4% on a pro forma basis and EBITDA growth around 6%.

I guess, maybe if you could provide some underlying color on segment buildup in phasing through the year, there's clearly strong growth in your core categories in Q4.

But the guide would imply a fair amount of deceleration was there any pull forward there.

Yes, no pull forward.

Brandon Gall: To your point, what we're seeing on a pro forma basis is growth in the two to four percent range, which, as you recall, is in line with our long-term aspirations and algorithm. By segment, if we were to take it apart, we expect sales and distilling solutions to grow in the mid single digits. As I said, as brown goods continue to grow with or better than the category, brands, we expect to be flattish to low single digits, which is probably a little counter to what maybe a lot of expectations would have been because while we do, while we do have incorporated into our guide strong sales or premium plus again at or better than the overall category for these price tiers, there is going to be a larger offset to mid and value in 20 And there's 2 reasons for this mark.

To your point of what we're seeing on a pro forma basis. This growth in the 2% to 4%, which as you'll recall is in line with kind of our long term aspirations that algorithm by segment appear to take it apart, we expect sales and distilling solutions to grow in the mid single digits.

Brown goods continue to grow with or better than the category brands, we expect to be flattish to low single digits, which is probably a little counter to what maybe a lot of expectations would have been.

While we do while we do have incorporated into our guide our strong sales of premium plus again at or better than.

The overall category for those price tiers, there is going to be a larger offset to mid and value in 2024, and there's two reasons for this mark.

David Bratcher: The 1st, 1 being mid, and value has been on a steady decline. As we all know, as consumers drink less, but better. But the 2nd point is we've actually identified 2 to 4 very large volume mid and value brands in our portfolio. And we've made the decision to either take more price or rationalize, in some cases, the brands all together because, as a result, it will be more creative, but from a gross profit dollar and gross margin percent, although it will, it will create an added headwind to revenue for this segment of the year. And then finally, for ingredient So that's where we get to our revenue guide, and and and I know there is a lot of a little bit more confusion around that with the absence bill reclosure, which is why I'm happy to share a little bit more detail than we have in previous years.

The first one being mid and value has been on a steady decline as we all know as consumers drink less but better with the second one is we've actually identified two to look for very large volume mid and value brands in our portfolio and we made the decision to either take more price or rash.

<unk> lives in some cases the brands altogether.

Because as a result, it will be more accretive both from a gross profit dollars and gross margin percent. Although it will that will create an added headwind to revenue for the segment in the year and then finally for ingredient solutions.

Sales growth for the year, we expect that to be in the mid single digits as well, so that's where we get to our revenue guide and.

And I know there is a lot of.

Little bit more confusion around that with the apps and store closure.

Is why I'm happy to share a little bit more detail than we have in past years and I want to emphasize what.

David Bratcher: Yeah, and I want to emphasize what Brandon said about the mid and value. We have a substantial portfolio in that area. And 1 of the, for quite some time, to be honest with you, our focus of the company has always been on the margin. Freedom having spent many, many years with the company before, you know, it really was a drive that we were pushing on to focus on premium plus categories. And to do that, you have to build that basis of premium plus and then strategically relook at mid and value. And Brandon said it exactly right.

Brian had said about the mid and value we have a substantial portfolio in that area and one of the.

For quite some time to be honest with you our focus of the company.

It's been always on being margin accretive.

Having spent many many years with the company before it in GP.

He was a drive that we were pushing on to focus on premium plus categories and to do that you have to build that basis of premium plus and then strategically re look at mid and value and Brandon said is exactly right. We have some great products in that that are margin dilutive and when youre doing that and we're thrilled.

David Bratcher: We have some great products in that that are margin deletives. And, you know, when you're doing that, and we're growing our overall business and trying to generate cash flow, we have to pick and choose which ones we're going to focus on to drive the business. And what do you do?

Our overall business and try to generate cash flow, we have to pick and choose which ones, we're going to focus on to drive the business.

Brandon Gall: Most of the time, the 1st thing you do is impacted by price, and that is no different than what we experienced. And that is why you've seen, and it's in our guidance number, that it's probably impacted. It is impacted more than the other price points. The last piece on that Mark, we talked about it from a top line perspective, but yeah, as David said, our midpoint on growth is 6%, which again is in line with our long-term aspirations of mid to high single-digit growth on an adjusted basis. What we also shared in our prepared remarks was that the ingredient solution segment is going to incur 4 to 6 million dollars in incremental operating costs to get ready to start stream for sale.

And what do you do most of the time. The first thing you do is impacted on price.

And.

That is no different than what we experienced and that is why you have seen is in our guidance number that it's probably impact it is impacted more than the other price points. The last piece on that Mark.

EBITDA, we've talked about it from a top line perspective, but yes.

David said.

Our midpoint on EBITDA growth, 6%, which again is in line with our long term aspirations of mid to high single digit EBITDA growth on an adjusted basis.

We also shared in our prepared remarks was that the ingredient solutions segment is going to incur $46 million incremental operating costs to ready to start stream for sale.

Brandon Gall: That is a change from what we knew in Q3 and so if you were to add that back or take that away, because that is only in our minds, a temporary cost that we're going to have to incur until we get a longer-term solution in place, that growth is closer to 8 and a half percent on an adjusted basis. I'm happy to provide that additional color to you.

That is a change from what we what we knew in Q3 and so if you were to add that back or take that away because that is only in our mind a temporary costs that we're going to have to incur until we get a longer term solution in place that growth is closer to 88, 5% on an adjusted basis for EBITDA. So.

We're happy to provide that additional color to you.

Brandon Gall: All right, thanks, guys. The next question is from Gerald Pascarelli with Wedbush Securities. Please go ahead. Great, thanks very much for the question.

Okay. Thanks, guys.

The next question is from Gerald Pascarelli with Wedbush Securities. Please go ahead.

Great. Thanks, very much for the question.

David Bratcher: Just going back to the guidance, I don't want to belabor the point here, but, you know, you have historically started out conservatively, you have consistent beats and raises, and I guess, like, I say that against the backdrop that, you know, there is increasing concern around inventory building, et cetera. So, can you maybe just talk about the degree of conservatism that may be embedded in your guidance just to start the initial year? You know, maybe and maybe how that compares to two years ago. I think that'd be helpful. Thank you. Yeah, sure. I'll start and then let Brandon chime in at the end. You know, as we look at our guidance, you know, we want to make sure we're providing accurate, as accurate numbers as we know at any given time, all right? So in preparing for those numbers, Brandon and I and our team spent a whole lot of time, long hours, going through various scenarios, looking at the impact on the revenue stream that Brandon just talked about, looking at shifts in inventory levels, looking at shifts in price points.

Just going back to the guidance I don't want to belabor the point here, but.

You have historically started out conservatively.

<unk> consistent beat and raises and I guess I would say that in the backdrop that.

There is increasing concerned around inventory building et cetera. So can you maybe just talk.

Talk about the degree of conservatism that may be embedded in your guidance just to start the initial year.

Maybe and maybe how that compares to years passed I think that'd be helpful. Thank you.

Yes, sure I'll start and then let Brandon chime in.

We look at our guidance, we want to make sure we're providing accurate as accurate numbers as we know in any given time, alright, so in PREPA and preparing for those numbers, Brian and I and our team spent.

Other times long hours going through various scenarios looking at the impact on the stock stream that Brandon just talked about looking at shifts and inventory levels looking at shifts in price points looking at consumer demand.

And Trust me when I think brings and that's been a lot of our personnel and legal and back through our scenarios. What we provided we feel is a realistic number for us for the year. That's why we provided that guidance.

If we can always grow our business and do better we're going to grow our business and be better, but what we've provided is what we really feel strongly that we should be able to deliver.

Yes.

To add to that.

We shared the exact percentages of new distillate and aged commitments for the year.

To help kind of addressed this question, while we're still very confident in the American whiskey category.

50% of our age and start to go find Salesforce and so as the year goes on we get more confident in that number.

We will factor that in.

But on top of that drilling and as I already mentioned, we are still guiding to.

Mid to high single digit adjusted EBITDA growth after coming off multiple years of more than 20% growth.

So.

While we have historically.

In retrospect been conservative.

David said, we feel like this is the right approach to the Crs, we keep trying to grow from a bigger and bigger base, yes, I didn't add one last thing and closing off of that question I mean, it's a given across Youre hearing now all of our peers talk about there is a reset going on in the industry, we get compared to the Covid Super cycle of those were great years for the industry, but if you start looking at what the industry.

Doing after 20 plus years of solid growth and yes, it might have slowed a little bit in 'twenty two versus 23, it's still a very very healthy industry and.

It's my belief that it will while we are normalizing it may be hard as you start to as an overall industry as you start to compare year on year, but I'm confident that it will reset to what we saw pre COVID-19, but thats the industry in general I think there is opportunity for us because of our size and our <unk>.

Opportunities as we mentioned in pods and velocity compared to our peer set.

We're excited for it we also factored that optimism into into our guidance.

Perfect. Thanks for the color.

Just one more for me, it's kind of a housekeeping item, but some color on your accounts receivable days and it looks like they.

<unk> continued to increase.

Be stretched among among all time highs and so can you can you provide any color.

On your on your accounts receivable or if theres anything to glean from that thank you.

Yes.

Good point, our accounts receivable days stood at between 61 62 days.

At the end of the year, which was up about nine days from Q4 of last year.

We look at that kind of in combination.

With.

Our other cash conversion metrics, one of those being PPO, which also increased.

From the beginning of the year to help offset some of that impact.

But in this hiring environment in which we share that's what I want and on prior calls.

<unk> are looking to extend terms, where they can and especially our smaller craft ones that do have terms now not a lot of them do a lot of them are prepay.

But they do try to.

Victor commitments as late as they can if they don't need it right away and then they are paying more slowly so.

It is up to your point, but if you look at our history of bad debt and an ability to collect its actually pretty good. So we generally speaking feel pretty good about it.

Alright. Thanks.

Thanks, guys I appreciate it.

Thank you.

The next question is from Ben Clean with Lake Street Capital markets. Please go ahead.

Alright, Thanks for taking my questions. A couple quick ones from me first of all on the guidance for 2024.

And the relationship with Penelope can you comment on the contribution that you have baked into the guidance relative to the metrics that are laid out in your earn out with them are you guiding to kind of a meeting that earn out.

Arnold scheduled throughout the year or are you guiding below or above that.

Yes.

Very pleased with the performance of banality and relative to our underwriting assumptions that continues to perform in line or better than those expectations and so as we look at the guide for this year at two <unk> Court.

So those expectations that the brand continues to perform as we hoped for better.

Okay, great. Thanks, Brandon and then one more from me Brandon in your prepared remarks, you noted while within the ingredient segment.

Challenges internationally I'm wondering if you can comment on that quantitatively or quantitatively and all that kind of help us understand how significant is it.

Yes.

It's near term something that we're looking at but mid to long term full confidence in.

Mike much on that team to find the solution, but local highlighting in my prepared remarks were really two things. So firstly, we begun seeing increases in imports of commodities commodity starches for Canada, Australia, and the EU, which is for now resulting in some pricing pressure for our own clean label commodity we.

Starches, which represented about 12% of segment sales in 2023. So that's one of the that's one of the headwinds the second international headwind as we're also seeing some export headwinds of our specialty protein products in Japan.

Most of the unfavorable currency exchange rates. So what we're doing to counter these challenges is really focusing.

On our domestic commercial efforts to maximize our specialty wheat.

Starch and protein sales here in the U S. So we are seeing some early signs of success here and we're confident.

It's going to work out over the course of the year, but it will take a little bit of time and allied to that we continue to focus on what we do well in our ingredient business and that is our premium type of products with the specialty products. Those are the things that we focus on commodity start is obviously a piece of our business, but it's really more of a sub.

Set of what we do and really what we want to sell as our specialty type of products. The model. We run three ingredient is very similar to the model we run for brand experience.

We want to focus on those upside upper higher end margin type of brand and commodities charge, our clean label commodity starches are exactly that a commodity driven works by supply and demand and yes. This year as we look at imports and stuff coming in it has created pricing pressure.

Got it got it that makes sense very good I appreciate you both answering my questions.

I'll jump back in queue.

Thanks, Alright excuse me. The next question is from Rob Moskow with TD Cowen. Please go ahead.

Hi, This is sheamus capacity on for Rob Moskow and thanks for the question I, just wanted to drill a little bit deeper on brown goods volumes.

So you mentioned that they were after the full year, but for the first three quarters, you've called out negative Brown volumes, which as you mentioned was driven by sort of being more selective around selling of age barrels given better contract visibility on the new side.

So there wasn't pull forward, but maybe higher than expected spot sales in <unk>.

We drove the sales beat if you could just offer any commentary on sort of your outlook for that in 2024.

And how we should think about embedding that in just selling solutions you have mid single digit growth as you called out. Thank you.

Yes, and thanks.

Thanks for the question Seamus and yes. So in 2023 Q4 volumes were a big part of it.

Our sales in Q4, especially the growth.

And volume did play a role throughout the course of the earlier quarters, although less so than price and so that was the point we were making.

A lot of the quarters as we look to 'twenty four though we do expect volume to play a larger role in a lot of that is because we're moving more towards new distillate and that type of model.

So while we expect to see.

Good pricing at the new distillate and aged level continue into this year 24 that is we do expect volume to be the main driver of this of the <unk>.

<unk> seen this year.

I'd add to that too.

The other piece of that is the other distillery coming online with the expansion on capacity and as we look at our guidance in the numbers. We provided the Q2 three four focused because of that additional capacity that we'll have available. The other thing I would add in general is our new distillate business, especially as we go into 2020 for us.

Really our model of the brand deteriorate category. The people we're selling to are the people that are putting in our brands and put it on the shelves and traditionally in the <unk> Q1 on average tends to be a slower quarter than the other quarters and as we look at everything that we've talked about there.

If you work with subtract our capacity expansions and stuff on the back side it might look a little more normalized but when we start to factor in everything going on with a lot of the craft customer the Asia, Brandon mentioned and we look at the back half of this with our margin expansion.

Our numbers, we anticipate should be better as Brendan indicated in 234.

That's helpful. Thank you and then just one more for me given that you're moving more towards sort of this new distillate model.

You called out that inflation costs for a lot of your core commodities remained elevated could you just offer us a little bit more detail on how.

That's sort of like flows through given that a lot more of these volumes will be contracted.

How are you.

Okay.

Connect with your with your customers on that side. Thank you.

Yes, that's another advantage of having the longer term agreements in place because they are the pricing is input based and so.

In addition to having a typical inflation factor.

Year over year on what we also incorporate into our contracts for new distillate.

As pricing based off of raw material inputs, whether its corn, whether it's ray mall natural gas the apparel et cetera. So there are those mechanisms within our contract to help insulate us and our margins as we go forward and that type of environment.

Yes, especially true on the new desk, one begins as Brendan alluded. It's all the contracts when we go out multi years, they're all based on that people want to.

Ill reflect whatever that current grain commodity may be including the price of barrel.

As we look at our age in our Pettaway, obviously that that that those are impacting our future inventory costs and stuff, but in the big picture of things an age when the commodity very like to add it's not super significant on the overall margin capability because at those point of age as you guys alluded to we can reflect that in.

The pricing as well in the future.

The next question is from Mitch Pinheiro with Sturtevant. Please go ahead.

Yes, good morning.

Just a couple of follow up questions one is.

If the customers.

Our kind of leaning into the new distillate what does that.

How should we interpret.

That related to their own inventory levels of age do they have ample aged and.

At this point.

Well I would say that yes, I mean, we think that theyre managing their aged and balance our strategy MTP strategy for a long time has always been taking a new customer that wants to be an entrant into the branded spirits category in American whiskey and bridge them to new disciplined this isn't really a brand new strategy. It then.

Evolution over time, and so as those customers build those aged they will naturally go to new discipline, but theyre going to be in a better financial shape to carry the inventory costs and as well so but it doesn't preclude that those same customers get additional sales in their products and meet more aged to be able to make that.

Transition to new discipline, which is what happens on a lot of the customers on the age market. It's also a reflection of why it's easier to contract on the new disciplined side, because we're doing it with larger customers that have larger brands and on the <unk> side. They are able to come in because of our <unk> plan and pick and choose what they need when they need it.

Okay and then.

Win.

When you look at your barreled distillate increase.

Increasing it gets us up 26% year over year on some of that obviously.

Penelope and.

But I would imagine that as that barrel distillate growth that growth is really earmarked for for your own brands flux ROE remiss Penelope et cetera is that correct.

Yes.

Both.

So to date, it's been more out weighted.

Our distilling solutions and not our own brands.

But as we go forward Mitch.

That is going to evolve and.

Part of the benefit of selling more new distillate with our capacity is the cash flow impact and so as we move forward. This year is a good example that net put away at cost will be less than the $51 million.

Experienced last year.

We're going to continue to invest in or put away to lineup with future demand for for both of our segments, but that is one of the benefits we'll see this year.

Okay, and then just final question.

You talk about wholesaler inventory destocking.

What have you seen have you seen any studies your own surveys on consumer pantry Destocking.

That seems to me to be a.

Significant.

Event.

Yes, no no specific surveys to speak of on that a lot of that Mitch as we know is probably pretty anecdotal.

And but what we have seen is resilient growth in American whiskey, despite the broader industry being flattish in 2023 and.

We expect that.

Check that to continue yes, I would agree I think again.

Again, I haven't seen any set data on pantry destocking to be honest with you I think.

That's a speculation of what we can what we can understand as retail.

With us on that and they've had the same pressure that you're seeing at the wholesale level, they're carrying even higher costs in our wholesalers and when youre dealing with big retailers, they're watching their dollars as well so I do think that as <unk>.

Industry that is something that's still we're going to continue to see in 2024, but as you look at our own business and it's what I said earlier is that compared to our peers the opportunity to increase our.

Points of distributions.

Is reflective in our guidance.

Okay. All right very helpful. Thank you. Thank you very much.

The next question is from Sean Mcgowan with Roth M. Cam. Please go ahead.

Thank you.

Couple of questions. So in terms of margin you've talked about some.

Some potential shifts to lower margin segments et cetera, but at the same time, you're stripping out not just in the fourth quarter margins were extremely high levels. So can you give us some overall color on how you expect gross margins to trend in 2024.

Yes.

Thanks for the question Sean.

We got to this I thought we'd get to it earlier actually but yes. So wound closure of yes in distillery, we anticipate is going to be very accretive for our overall consolidated gross margin structure. So in the pro forma that we provided this morning for last year as an example consolidated margins.

Would be 42, 5% in 2023.

Going forward. This year, we expect margins to be right in there in that low to mid 40 percents on a consolidated basis by five segment distilling solutions on a pro forma basis, it's a little bit north of 45%, we expect it to be in that low to mid forties.

No.

<unk> expansion is not going to be as strong as you might expect but thats, partly due to the brown goods sales mix that we've described within branded spirits. We do we do anticipate more expansion. This year. So we finished the year in the mid <unk> and we expect to be in the mid to upper forty's potentially in 2024.

Ingredients is going to be a little bit more challenged near term and Theres really two main reasons for that number one is the additional $4 million to $6 million and cost of trying that let's start slurry.

Temporarily weigh on the segment this year until we get a longer term solution in place to figure that out but.

But also we're ramping up our new tariff.

Tariff facility commercially and we're not going to have it sold out in 2024, so theres going to be more overhead to absorb as part of that so for those two reasons, we actually expect ingredient solutions margins to be in the mid twenties.

For the year, so hopefully Mitch or I'm, sorry, Sean.

Answers your question.

Yes.

Helpful.

One other clarification.

Housekeeping thing when you talked about the first quarter.

Lower than the subsequent three quarters I think that's typically the case, but are you trying to imply that the first quarter could actually be below last year on a pro forma basis.

Yes that is what we're implying and there's four main reasons to that spans all four segments. Some of them. We've touched on one of the bigger ones in fact, the biggest driver.

Look forward it's Brendan.

Branded spirits segment, excuse me and Thats really the result of the timing and seasonality of our allocated in single barrel Pik.

Items within our premium plus brands that usually is is more weighted towards the back half of the last three quarters, but.

But this year, it's going to be even more so.

And those items as you can imagine come with a lot of gross profit attached to them. So.

So even on a year over year basis, we're going to do less in Q1 of this year than we did last year in Q1 and really the reason for that is the ideal time to get those products out in the market as in Q3 and Q4.

And then last year when they're getting those.

Those products outs, we experienced some delays operationally and so some of them.

Smelling trickled out into Q1 of this year so.

Gonna be lapping that.

Brown goods commitments with the second one while we feel really good about having the vast majority of those committed it's not going to be equal across the year as David alluded to and so that's going to be more weighted towards Q2 through Q4. We also mentioned the <unk> expansion, which is going to take off in Q2 of this year.

Whiskey American whiskey to starting in Kentucky, and some of the new distillate sales will get out of that facility will not will not have a chance in Q1 take place, but we will for the remainder of the year and then again for ingredients.

I mentioned the commercialization of <unk>, that's going to ramp up as the year goes on and then as we.

As we handle these international headwinds, we're seeing as we already discussed we expect those to.

To be offset but not all at once in the first quarter, but as the year plays out as well.

Okay. Thank you and then a quick housekeeping what do you expect your effective tax rate to be for the year.

Yes between 24, 5% and 25, 5% this year.

And another node A&P advertisement promotion for branded spirits lower.

Through here.

Sean.

Was about 15 15, 5% in Q4, we expect that to be around the same in 2024 and.

And the reason for that is again.

Flattish to low single digit sales for branded spirits for the reasons I already described but really ramping up our advertising and promotion investment into Penelope.

As the year goes on this year.

Okay. Thank you very much.

This concludes.

A question and answer session I would like to turn the conference back over to David Bradshaw for any closing remarks.

Thank you for your interest in our company and for joining US today for our fourth quarter and full year 2023 earnings call. We look forward to talking with you again after the first quarter.

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

Okay.

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Okay.