Q1 2024 MGP Ingredients Inc Earnings Call

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Operator: Good day, and welcome to the MGP Ingredients First Quarter 2020 Financial Results Conference Calls. All participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key and zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and 1 on your telephone keypad. To withdraw your question, please press star and 2. Please note, this event is being recorded. I would now like to turn the conference over to Mike Hobson. Please go ahead, sir.

Good day and welcome to the N G. P ingredients at first quarter 2022 before financial results Conference call.

Operator: All participants are in listen only mode should you need assistance. Please signal a conference specialist by pressing star key NGO.

Operator: After todays presentation, there will be an opportunity to ask questions to ask a question you May press star and one on your telephone keypad to withdraw your question. Please press star two.

Operator: Please note this event is being recorded.

Operator: I would now like to turn the conference over to Mike Hopkins. Please go ahead Sir.

Mike Houston: Thank you. I'm Mike Houston with Lambert Global, MGP's investor relations firm. And joining me on the call 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.

Mike Houston: Thank you I'm, Mike Houston with Lambert Global N V. P of Investor Relations firm and joining me are members of their management team, including David Bradshaw, Chief Executive Officer, and President and Brandon Gall, Vice President of Finance and Chief Financial Officer.

Mike Houston: 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. The first call may involve certain forward looking statements.

Mike Houston: The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual report filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. Additionally, this call will refer to certain non-GAAP measures, which we believe are useful in evaluating the company's performance.

Mike Houston: Actual results could differ materially from any forward looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual report filed with the Securities and Exchange Commission.

Mike Houston: The company assumes no obligation to update any forward looking statements made during the call except as required by law.

Mike Houston: Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance.

Mike Houston: A reconciliation of these measures to the most directly comparable gap measures is included in today's earnings release. If anyone does not already have a copy of the earnings release issued by MGP today, you can access it at the company's website, www.mgpingredients.com. Now, I would like to turn the call over to MGP's Chief Executive Officer and President, David

Mike Houston: A reconciliation of these measures to the most directly comparable GAAP measures is included in today's earnings release.

David: If anyone does not already have a copy of the earnings release issued by <unk>. Today, you can access it at the Companys Web site Www Dot N G P ingredients dot com.

Mike Houston: At this time I would like to turn the call over to N V P Chief Executive Officer, and President David <unk> David.

David S. Bratcher: Thank you, Mike, and thanks, everyone, for joining the call today. On this call, we will begin with an overview of our performance for the quarter ended March 31, 2024, provide updates on key financial performance metrics, and discuss the progress we have made towards our strategic plan. At the end of the call, we will open the line for Q&A.

David: Thank you, Mike and thanks to everyone for joining the call today on this call. We will begin with an overview of our performance for the quarter ended March 31, 2024, and provide updates on key financial performance metrics and discuss the progress we have made towards our strategic plan.

David S. Bratcher: And recall, we will open the line for Q&A.

David S. Bratcher: I am pleased with the results we posted this quarter and the progress we have made towards our long-term strategic plan. On a pro forma basis, when factoring in the Agilent distillery closure, our distilling solution segment achieves sales growth when looking at our business today compared to a prior year period without the Agilent distillery results. We also had solid sales growth in ingredient solutions in our Premium Plus brands within Branded Spirits. All in all, this quarter was in line with our financial expectations as described during our previous earnings call.

David S. Bratcher: I am pleased with the results we posted this quarter and the progress we have made towards our long term strategic plan.

David S. Bratcher: On a pro forma basis, when factoring in the edge and distillery.

David S. Bratcher: Distillery closure are disappearing solutions segment achieved sales growth when looking at our business today compared to a prior year period with Oh, Yeah, just said the stellar results.

David S. Bratcher: We also had solid sales growth in ingredient solutions, and our premium plus brands within branded spirits.

David S. Bratcher: All in all this quarter and was in line with our financial expectations as described during our previous earnings call.

David S. Bratcher: Other highlights for the quarter include the promotion of Amel Paget to the Chief Commercial Officer role, the commissioning of our newly built textured wheat protein facility, and several incredible brand initiatives, each of which we will talk about on the call today. Starting with the promotion of Romel to his newly created role, he will continue to leverage the business intelligence and predictive data insights he developed as CIO and apply them across all three business sectors.

David S. Bratcher: Other highlights for the quarter include the promotion of our metal pays its yet to be cheap.

David S. Bratcher: Commercial officer role.

David S. Bratcher: <unk> of our newly built textured wheat protein facility.

David S. Bratcher: Several incredible brand initiatives each of which we will talk about on the call today.

David S. Bratcher: Starting with the promotion of a mile to this newly created role he will continue to leverage the business intelligence and predictive data inside cheap develop the CIL and apply them across all three business segments.

David S. Bratcher: Amel's wealth of experience and his unique strategic view of our business will be critical in driving the next phase of growth for MGP. We are excited about the insight he will bring to our business and as our commercial leader. Turning to our distilling solutions segment, we are pleased to have completed the Atchison Distillery closure in December of 2023, which led to a record quarterly segment gross margin in Q1 of 2024, as well as accomplished our strategic intent of being brown disc focused in our distilling solutions business.

David S. Bratcher: <unk> wealth of experience and his unique strategic view of our business will be critical in driving the next phase of growth for N. P. P.

David S. Bratcher: We are excited about the insider he will bring to our business and as our commercial leader.

David S. Bratcher: Turning to our distilling solutions segment. We are pleased to have completed the atrazine distillery closure in December of 2023, which led to a record quarterly segment gross margin in Q1 of 'twenty 'twenty four as well as accomplishing our strategic intent of being brown goods focused in our distilling.

David S. Bratcher: Solutions business.

David S. Bratcher: As we reported last quarter, we have the vast majority of our anticipated total brown goods volume committed for 2024. Also, as we previously indicated, we expect the last three quarters of 2024 will result in stronger profits as compared to Q1, due to the variation in the timing of customer demand and the timing of our Bardstown, Kentucky Distillery Expansion Project coming online in April. Turning to branded spirits, we are very pleased with the continued growth of our Premium Plus sales, as they represent 42% of segment sales this quarter. This represents a stark improvement from the 33% figure we experienced in the first quarter of 2023.

David S. Bratcher: As we reported last quarter, we had the vast majority of our anticipated total brown goods volume committed for 2024.

David S. Bratcher: Also as we previously indicated 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 and the timing of our Bardstown, Kentucky distillery expansion project coming online in April.

David S. Bratcher: Turning to branded spirits. We are very pleased with the continued growth of our premium plus cells because they represent 42% of segment sales this quarter Chris.

David S. Bratcher: This represents a stark improvement from the 33% figure we experienced in the first quarter of 2023.

David S. Bratcher: This meaningful improvement was partially offset by lower volumes of our allocated sealed barrel premium plus brands as compared to 2023 due to the seasonal nature of these specialty programs. However, while the seasonal nature of these special programs put pressure on our gross profits this quarter, we were still able to expand gross margin to 44.9%, which is a testament to our continued investment in premiumization. Our branded spirit strategy remains focused on growing points of distribution by leveraging the expansion of our Premium Plus brand portfolio, with particular focus on our Tequila and American Whiskey brands.

David S. Bratcher: This meaningful improvement was partially offset by lower volumes over allocated senior barrel premium plus brands as compared to 2023 due to the seasonal nature of the specialty programs.

David S. Bratcher: While the seasonal nature of the special programs put pressure on our gross profits this quarter.

David S. Bratcher: Still able to expand gross margin to 44, 9%, which is a testament to our continued investment in premium amortization.

David S. Bratcher: Our branded spirits strategy remains focused on growing points of distribution by leveraging the expansion of our premium plus brand portfolio with particular focus on our tequila and American whiskey brands.

David S. Bratcher: As an example, we shipped formaldehyde into two new states during the quarter. Additionally, our brand marketing initiatives during the first quarter included entering into a sponsorship of Kyle Busch's number 8 car under Richard Sugar's Racing, which boldly showcases our Rebel Bourbon brand and will continue throughout the racing season. In addition, we at Schick's Brands won double gold at the San Francisco World Spirits Competition and successfully launched new innovative items such as Penelope Rio and Yellowstone Rum Cast Finish.

David S. Bratcher: An example, we shifts from now it'll be into two new states during the quarter.

David S. Bratcher: Our brand marketing initiatives during the first quarter included entering into a sponsorship of power Bush number a car under Richard Childress racing, which boldly showcases our rebel Bourbon brand and are working to see without the racing season.

David S. Bratcher: In addition, we had six brands with double go to San Francisco World Spirits competition, and successfully launched new innovative items such as milk, we took all of it but that would be REO and Yellowstone Cas finished.

David S. Bratcher: These are just a few examples of our integration and marketing efforts to increase the sales velocity of our Premium Plus Brands portfolio. Turning to ingredient solutions, sales for the quarter were a record and primarily reflect continued rising consumer preference for high-protein, low-net-carb diets, which drove higher sales of our specialty products. We expect to see this trend continue in upcoming quarters, as can be seen by anyone visiting their local grocery store and seeing the proliferation of keto and low-net-carb alternatives, which ties well to our ingredient solutions growth strategy.

David S. Bratcher: Just a few examples of our innovation and marketing efforts to increase the sales velocity of our premium plus brands portfolio.

David S. Bratcher: Turning to ingredient solutions sales for the quarter were a record and primarily reflect continued rise in consumer preference towards high protein low net carb diets, which drove higher sales of our specialty products.

David S. Bratcher: To see this trend continue in upcoming quarters as can be seen by anyone visiting their local grocery store and seeing the proliferation of Quito and low net car alternatives, which ties as well to our ingredient solutions growth strategy.

David S. Bratcher: In addition, we are extremely proud of the grand opening of our textured protein facility, which was dedicated to Lad Seabird, the late husband of our chairman, Karen Seabird. It was absolutely fabulous to see Karen and her family celebrate his memory and the indelible mark he left on the company with such a beautiful facility dedication. This concludes my initial remarks. Now, I will turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?

David S. Bratcher: In addition, we are extremely proud of the Grand opening of our textured protein facility that she was dedicated to large sea bird the late husband, our chairman Karen Seaberg.

Brandon M. Gall: It is absolutely fat as a chairman of her family celebrate his memory and the indelible Mark He left the company with such a beautiful snowy dedication.

David S. Bratcher: This concludes my initial remarks, let me turn things over to Brandon Gall for review of the key metrics and numbers Brandon. Thanks.

Brandon M. Gall: Thanks, David. In the first quarter of 2024, consolidated sales decreased 15% compared to the prior year period to $170.6 million due to the Atchison Distillery closure. Including the impact of the Atkinson distillery in both periods, consolidated sales were in line with the prior year period. Also impacting consolidated sales during the quarter, Brown Goods sales were down 3%, driven primarily by the temporary shutdown of the Luxor Distillery in Bardstown, Kentucky to complete the distillation expansion, as well as expected declines in our mid and value-branded spirits price tiers.

Brandon M. Gall: Thanks, David.

Brandon M. Gall: For the first quarter of 'twenty 'twenty, four consolidated sales decreased 15% compared to the prior year period to $176 million due to the absolute distillery closure.

Brandon M. Gall: Excluding the impact of the Atkinson distillery in both periods consolidated sales were in line with the prior year period.

Brandon M. Gall: Also impacting the consolidated sales during the quarter Brown goods sales were down 3% driven primarily by the temporary shutdown of our Lux ROE distillery Bardstown, Kentucky to complete the distillation expansion as well as expected declines are mid and value branded spirits price tiers.

Brandon M. Gall: As expected, gross profit decreased 10%, $62.8 billion, representing 36.8% of sales. This decrease was primarily due to lower sales of mid and value price tier brands as a result of the distributor realignment in 2023, lower sales of allocated single barrel premium plus branded spirits offerings in Q1 as planned, and the Temporary Shutdown of our Luxor Distillery in Bardstown, Kentucky.

Brandon M. Gall: As expected gross profit decreased 10% to $62 $8 billion representing.

Brandon M. Gall: Representing 36, 8% of sales.

Brandon M. Gall: This decrease was primarily due to lower sales of mid and value priced your brands as a result of the distributor realignment in 2023.

Brandon M. Gall: Your sales are allocated single barrel premium plus branded spirits offerings, if you want it.

Brandon M. Gall: Planned the.

Brandon M. Gall: The temporary shutdown of our luxury or the story of Bardstown, Kentucky.

Brandon M. Gall: And the incremental costs incurred in ingredient solutions related to the drying of the waste starch streams ready for commercial sale, as well as our new extrusion manufacturing. Excluding the impact of the Atchison distillery in the current period, gross margin was 37.3%. Advertising and promotion expenses for the first quarter increased $1 million to $8.7 million, primarily driven by increased advertising and promotion investment in support of our Premium Plus portfolio brand. Brain and Spirits related A&P totaled $7.8 million per quarter, which represented 15.5% of segment sales.

Brandon M. Gall: And the incremental costs for ingredient solutions related to the drawing of the waste streams radio for commercial sale as well as our new extrusion manufacturing facility.

Brandon M. Gall: Excluding the impact of the asset and distillery in the current period gross margin was 37, 3%.

Brandon M. Gall: Advertising and promotion expenses for the first quarter increased $1 million to $8 $7 million, primarily driven by increased advertising and promotion investment in support of our premium plus portfolio of brands branded spirits related A&P totaled $7 $8 million for the quarter represented 15, 5% segment sales.

Brandon M. Gall: This remains consistent with our premiumization strategy. We will continue to invest in marketing spend against our higher margin premium plus price tier grant. Operating income from the first quarter decreased 30% to $28.9 billion. Adjusted operating income decreased 19% to $33.6 billion. Net income for the first quarter decreased 34% to $20.6 billion, while adjusted net income decreased 22% to $24.2 million. Basic earnings per common share decreased to $0.92 per share from $1.40 per share.

Brandon M. Gall: This remains consistent with our premiums Asian strategy, we will continue to invest in marketing spend against our higher margin premium plus price tier brands.

Brandon M. Gall: Operating income for the first quarter decreased 30% to $28 $9 billion adjusted operating income decreased 19% to $33 $6 billion.

Brandon M. Gall: Net income for the first quarter decreased 34% to $26 million, while adjusted net income decreased 22% to $24 $2 million.

Brandon M. Gall: Basic earnings per common share decreased to 92 cents per share from $1 40 per share and.

Brandon M. Gall: And diluted earnings per share decreased to $0.92 per share from $1.39 per share. Adjusted basic and diluted earnings per common share decreased to $1.07 per share from $1.40 and $1.39 per share, respectively. Adjusted EBITDA for the quarter was in line with our expectations and totaled $40.2 million, a decrease of 17% compared to the year-ago period, driven by the factors highlighted on our previous earnings call.

Brandon M. Gall: Diluted earnings per share decreased to 92 per share from $1.39 per share.

Brandon M. Gall: Adjusted basic and diluted earnings per common share decreased to $1 seven per share from $1 40.

Brandon M. Gall: And $1 39 per share respectively.

Brandon M. Gall: Adjusted EBITDA for the quarter was in line with our expectations and totaled $40 $2 million, a decrease of 17% compared to the year ago period, driven by the factors highlighted on our previous earnings call.

Brandon M. Gall: In accordance with the applicable accounting guidance, we no longer expect to present the results of the Atchison distillery as discontinued operations in our financial statement. However, for reference, we have quantified the impact of the Agilison distillery results in the proforma schedules included in this morning's earnings release. Moving to cash flow. Cash flow from operations was $24.6 million in the quarter, a record for any first quarter and up from $5 million in the first quarter of 2023.

Brandon M. Gall: In accordance with the applicable accounting guidance, we no longer expect to present the results of the absolute distillery as discontinued operations in our financial statements.

Brandon M. Gall: However for reference we have quantified the impact of the absence of celerity results in a pro forma schedules included in this morning's earnings release.

Brandon M. Gall: Moving to cash flow cash flow from operations was $24 $6 million in the quarter a record for any first quarter.

Brandon M. Gall: Up from $5 million in the first quarter of 2023.

Brandon M. Gall: Our balance sheet remains healthy, and we remain well-capitalized, with debt totaling $300.8 million and a cash position of $19.5 million. Turning to capital allocation, We remain focused on organic and inquisitive growth opportunities that align with our long-term strategy, as well as underlying consumer trends, which we believe our business is well-positioned to leverage. We will continue to evaluate M&A opportunistically with the goal of accelerating growth and increasing our capabilities and product offering.

Brandon M. Gall: She remains healthy and we remain well capitalized with debt totaling $328 million and a cash position of $95 million.

Brandon M. Gall: Turning to capital allocation.

Brandon M. Gall: We remain focused on organic and acquisitive growth opportunities that align with our long term strategy as well as the underlying consumer trends, which we believe our business is well positioned to leverage we will continue to evaluate M&A opportunistically with the goal of accelerating growth and increasing our capabilities and product offerings.

Brandon M. Gall: Effectively matching whiskey put away with growing creature distilling solutions and brand spirit segment sales remains a key priority and is critical to our long-term strategy. Our investment in inventory of aging whiskey increased slightly this quarter to $254.5 million at cost, an increase of $4.3 million from the end of the year.

Brandon M. Gall: Actively matching was he put away growing creature to steering solutions and branded spirits segment sales remains a key priority and it's critical to our long term strategy alright.

Brandon M. Gall: Alright investment inventory of aging whiskey increased slightly this quarter to $254 $5 million at cost an increase of $4 $3 million from the end of the year.

Brandon M. Gall: Investing in capital expenditures to enhance our operational capabilities is another important capital allocation priority, and it resulted in capital expenditures of $13.1 million for the first quarter. We continue to expect approximately $85.8 million in capital expenditures for the year, which will be used for facility improvement and expansion, such as additional warehouses to support our recent capacity increases and dryer investment to support our LuxRoad distillery expansion. The purchase of our previously leased bottling facility in St. Louis, Missouri, and a mini fuel plant in Appleton, Kansas, to better monetize the waste starch stream in our ingredients solution segment.

Brandon M. Gall: Investing in capital expenditures to enhance our operational capabilities is another important capital allocation priority.

Brandon M. Gall: And it resulted in capital expenditures of $13 $1 million for the first quarter.

Brandon M. Gall: Continue to expect approximately $85 $8 billion in capital expenditures for the year, which will be used for facility improvement and expansion such as additional warehouses to support our recent capacity increases dryer investment to support our <unk> distillery expansion the purchase of previously leased bottling facility.

Brandon M. Gall: St. Louis, Missouri, and the many fuel plant in Kansas to better monetize the way it starts trading in our ingredient solutions segment.

Brandon M. Gall: During the quarter, the board approved a $100 million share repurchase program, and we repurchased 59,084 shares of our common stock for approximately $5 billion. The Board of Directors also authorized a quarterly dividend of 12 cents per share.

Brandon M. Gall: During the quarter the board approved a $100 million share repurchase program can be repurchased 59000.

Brandon M. Gall: For shares of our common stock for approximately $5 million.

Brandon M. Gall: The board of Directors also authorized a quarterly dividend of <unk> 12 per share, which is payable on may 31 to stockholders of record as of May 17.

Brandon M. Gall: Purchase payable on May 31st to stockholders of record as of May 17th. The Board continues to view dividends as an important way to show the success of the company to its shareholders. We will continue to focus efforts on optimizing product mix across all three of our business segments in the best scenarios that we expect to generate the greatest long-term value for our shareholders. We expect the consumer fundamentals that have supported the historical growth in our business to remain intact throughout 2024, while we continue to monitor the potential impact of the inventory levels of distributors, overall American whiskey supply, and consumption patterns and inflation on consumers.

Brandon M. Gall: The board continues to be a dividend is an important way to shared successes the company with shareholders.

Brandon M. Gall: 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.

Brandon M. Gall: The consumer fundamentals have supported the historical growth in our business remain intact throughout 2024.

Brandon M. Gall: While we continue to monitor the potential impact of inventory levels at distributors overall American whiskey supply and consumption patterns and inflation of consumers.

Brandon M. Gall: Despite these industry headwinds, we feel uniquely positioned to grow as a company in this dynamic operating environment. These factors, in combination with the strength of our underlying business, support the confirmation of our 2024 financial outlook. Sales are projected to be in the range of $742,756,000,000 following the closure of the Acheson Distillery, and Adjusted EBITDA is projected to be in the range of $218 million to $222 million, inclusive of the ADVAC of shared base compensation. Adjusted basic earnings per common share are forecasted to be $6.12 to $6.23. The basic weighted average number of shares outstanding is expected to be approximately $22.3 million at year-end.

Brandon M. Gall: Despite these industry headwinds, we feel uniquely positioned to grow as a company in this dynamic operating environment. These factors in combination with the strength of our underlying business support the confirmation of our 2020 financial outlook sales.

Brandon M. Gall: Sales are projected to be in the range of 742 million $756 million following the closure of the axis in the story.

Brandon M. Gall: And EBITDA to be in the range of 218 million to $222 million exclusive of the add back of share based compensation expense.

Brandon M. Gall: Adjusted basic earnings per common share are forecasted to be $6 12 to $6 23 set range with basic weighted average shares outstanding are expected to be approximately $22 3 million at year end and now let me turn things back over to David for concluding remarks.

David S. Bratcher: And now, I will turn things back over to David for his concluding remarks. Thanks, Brandon. We are pleased with our position to achieve our 2024 objectives. Demand for our products in each of the three segments remains strong, and we believe our plans will continue to position the business for long-term success. Despite some reported softening within the brand experience industry, we feel very optimistic about the long-term health of this industry and are encouraged by the continued growth of the premium plus category across the industry.

David: Thanks Brandon.

David S. Bratcher: With our positioning to achieve our 2024 objectives demand for our products in each of the three segments remains strong and we believe our plans will continue to position the business for long term success.

David S. Bratcher: Despite some reported softening within the branded spirits industry, we feel very optimistic about the long term health of this industry and are encouraged by the continued growth of the premium plus category across the industry.

David S. Bratcher: Our strategy is to build a portfolio of branded spirits to increase the points of distribution, accelerate our sales velocity within those points of distribution through effective marketing, expand our product offerings through innovation, and close on meaningful margin accretive M&A transactions. In closing, I would like to restate what I said last quarter in that we are committed to evolving our company into a dedicated branded spirits company with desirable brands across the price point universe with a special focus on premium plus and higher margin offerings, as well as continuing to supply our market-leading premium American whiskey in bulk to both craft and multinational entities. We believe this is the optimal way to provide desired returns to our shareholders. That concludes our prepared remarks. Operator, we are ready to begin the question and answer portion of the call.

Speaker Change: Our strategy is to build a portfolio of branded spirits to increase for our points of distribution.

David S. Bratcher: Elevating our sales velocity within those points of distribution through effective marketing.

David S. Bratcher: And our product offerings through innovation and closing a meaningful margin accretive M&A transactions and.

David S. Bratcher: In closing I would like to restate, what I said last quarter and that we are committed to evolving our company into a dedicated branded spirits captive with desirable brands across the price point universe with a special focus on premium plus and higher margin offerings as well as continuing to supply our market leading premium American.

David S. Bratcher: Whiskey in bulk to both craft and multinational entities.

David S. Bratcher: We believe this is the optimal way to provide the desired returns to our shareholders.

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

Operator: We will now begin the question and answer session. To ask a question, you may press star and one on your telephone keypad. If you are using a speakerphone, please pick up your headset before making your selection. If, at any time, your question has been addressed and you would like 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 Gerald Pascarelli from Weltbosch Securities. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question you May press star and one on your telephone keypad.

Gerald John Pascarelli: Speakerphone, please pick up your handset before making your collections.

Gerald John Pascarelli: You said that at any time. The question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: At this time, a little pause momentarily to assemble our roster.

Gerald John Pascarelli: Thanks very much. Good morning guys.

Operator: Our first question comes from Susquehanna Elite from Wedbush Securities. Please go ahead.

Brandon M. Gall: On your brown goods business within distilling solutions, I guess this is a housekeeping question, but the down three, I know you said on a consolidated basis, the quarter kind of came in line with your expectations, was the low single-digit decline in brown goods in line with your expectation? And then, as we look forward, do you continue to expect brown goods to outpace category growth? And then maybe just some commentary on if there's been any change of tone from your customers regarding the demand for new fill this year, any color that would be helpful. Thanks.

Gerald John Pascarelli: Thanks, very much good morning, guys.

Speaker Change: Good morning chip.

Speaker Change: Good morning.

Brandon M. Gall: On your ground goods business within the Sterling solutions, just I guess this is a housekeeping question, but the down three I know you said on a consolidated basis the quarter kind of came in.

Brandon M. Gall: In line with your expectations, what was the low single digit decline in Brown goods in line with your expectation and then as we look forward do you continue to expect brown goods to outpaced category growth and then maybe just some commentary on if theres been any change of tone.

Brandon M. Gall: As you know from your customers regarding the demand for Newfield. This year any color there would be helpful. Thanks.

Brandon M. Gall: Yeah, Gerald, this is Brandon. The quarter was in line with our expectations. In our prepared remarks, we mentioned or reminded everyone of the closure of the Lux Row Distillery as we prepared it for its expansion and coming online in April, and so we were unable to sell new distillate out of that facility in the quarter. But if you take that out of Q1 last year and look at the brown goods growth year-over-year, it's actually up with that in mind, so it was in line with our expectations.

Brandon M. Gall: Yeah. Joe This is Brandon third quarter was in line with our expectations in our prepared remarks, we mentioned are reminding everyone of the closure, but luck swirled the story as we prepare to towards expansion.

Brandon M. Gall: Coming online in April and so we were unable to sell new distillate out of that facility in the quarter. If you take.

Brandon M. Gall: We do continue to expect brown goods to grow over the course of the year, and as far as tone from our customers is concerned, as we reiterated, we still have the vast majority of our sales committed. We're working very closely with our customers to make sure that we can execute and produce as they need it, and so we reiterated our outlook this morning with that in mind. Yeah, I would add that as you think about what Brandon and I said last quarter, we have really good visibility into the rest of the year because of the strategy that we put in place at Distilled Solutions, so as you continue, I mean, we haven't heard or seen or felt anything that's any different than what we had previously.

Brandon M. Gall: Take that out of Q1 last year and they look at the brown goods growth.

Brandon M. Gall: Year over year, it's actually up with that in mind. So it was in line with our expectations. While we do continue to expect brown goods to grow over the course of the year and.

Brandon M. Gall: As far as your tone underlying from from our customers.

Brandon M. Gall: As we reiterated if you saw the vast majority of ourselves committed are working very closely with our customers to make that to make sure that we can execute and and produce as they need it and so we reiterated reiterated our outlook. This morning, all of that line, Yeah, I would add that as you think about what Brendan and I said.

Brandon M. Gall: Last quarter, we have really good visibility into the rest of the year because of the strategy that we put in place at this field solutions.

Brandon M. Gall: So as you continue on I mean, we haven't heard or seen or felt anything that's any different than what we had previously stated.

Gerald John Pascarelli: Perfect. Thanks very much for the color.

Speaker Change: Perfect. Thanks.

Speaker Change: Very much for the color.

Speaker Change: Next question is just on branded spirits when when we look at your gross margin in that segment, which continues to expand nicely and.

Marc J. Torrente: Next question is just on branded spirits. When we look at your gross margin in that segment, which continues to expand nicely, and we compare that to your profit before tax margin, there's a fairly meaningful delta there, not just this quarter, but even historically speaking. So I guess I should understand right now that you're in the process of building out your portfolio and the need to invest.

Marc J. Torrente: And we compare that to your profit before tax margin Theres, a fairly meaningful delta there not just this quarter, but even historically speaking so I guess like understanding right now that you're in the process of building out your portfolio and the need to invest I guess longer term can you talk about if there are opportunities or measures you could take to.

Brandon M. Gall: I guess longer term, can you talk about if there are opportunities or measures you could take to improve that profit before tax margin to maybe better align with finished goods peers? It does seem like that would offer a pretty big, noticeable upside to earnings over time. So any color there would be great.

Brandon M. Gall: To improve that profit before tax margin, maybe better align with finished goods peers. It does seem like that would offer a pretty big notable upside to earnings over time, so any color there would be great. Thanks.

Brandon M. Gall: Thanks. Yeah, and great question. So the profit before tax for Branded Spirits was low in the quarter. I'll remind you that, you know, a big reason for that is going to be the contingent liability that hits the SG&A on the Branded Spirits side related to the Penelope acquisition. So that was $4.1 million in the period.

Speaker Change: Yeah, and a great question, so it's been a problem.

Brandon M. Gall: For tax for brain and spirits was low in the quarter I'll remind you that a big reason for that is.

Brandon M. Gall: This is gonna be the contingent liability that hits the SG&A on the branded spirits side related to the fidelity acquisition. So that was $4 1 million in the period. So that is gonna be dragging it down, but but youre exactly right over time as we continue to execute on our strategy, specifically, our higher margin premium plus brands we.

Brandon M. Gall: So that is going to be dragging down sales, but you're exactly right. Over time, as we continue to execute on our strategy, specifically the higher-margin premium plus brands, we expect to gain leverage from that on both the SG&A infrastructure we have in place, as well as our A&P investments. So again, just as a reminder, a lot of our brands in premium plus are younger in their life cycle, more emerging, and regional in nature.

Brandon M. Gall: To gain leverage from that on both the SG&A.

Brandon M. Gall: Infrastructure, we have in place as well as our A&P investment. So again, just as a reminder, a lot of our brands.

Brandon M. Gall: Premium plus our younger in their lifecycle more emergent and regional in nature as we continue to invest in raising that awareness with the consumer we expect that to pay off over time and Gerald I'd add you know we said.

Brandon M. Gall: And as we continue to invest in raising that awareness with the consumer, we expect that to pay off over time. Gerald, I'd add, you know, we said last quarter and will say it again this quarter, we aspire to evolve to be a branded spirits company. And as such, you know, we fully expect that compared to our peer group, we need to have a margin set that's comparable. And this is why we employ the strategy that we employ. So we, you know, as we continue to evolve and focus on what's meaningful, that's the plan. We should have that accretion ongoing. Perfect. Thanks very much, guys. I'll pass it on.

Brandon M. Gall: Last quarter I said again this quarter, you know, we aspire to evolve to be a branded spirits company and as such we do.

Brandon M. Gall: Absolutely.

Brandon M. Gall: That Oh, just compared to our peer group, we need to have a margin set that's comparable and this is why we work the strategy that we worked so we you know as we continue to evolve and focus on what's meaningful that's the plant we should have that accretion on board.

Speaker Change: Perfect. Thanks, very much guys I'll pass it on.

Marc J. Torrente: The next question comes from Marc Torrente from Wells Fargo. Please go ahead.

Brandon M. Gall: The next question comes from Mark Jordan from Wells Fargo. Please go ahead.

Marc J. Torrente: Hey, good morning. Thanks for taking my questions. There are just a couple here.

Marc J. Torrente: Hey, good morning, Thanks for taking my questions just a couple here on.

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

Marc J. Torrente: On the guidance from here Q1, obviously had some headwinds to work through which you called out at the start of the year. There was some modest upside in the quarter versus expectations. Our guidance was maintained maybe just some comments on your increased level of comfort on the guide now and how you see the quarterly progression.

Brandon M. Gall: Through the rest of the year.

Brandon M. Gall: Yeah, Marc, thanks for the question. Yeah, we shared a lot on the last quarterly call in anticipation of this, just because there were some things to navigate, and we wanted to communicate that as clearly as possible to you and to the rest of the investor community. But yeah, as you mentioned, Q1 played out exactly how we thought it might, maybe even slightly better in some ways. And our view for Q2 through Q4 is entirely consistent with what we shared on the Q4 call.

Speaker Change: Yes, Mark Thanks for the question Yeah, we shared a lot on the last quarterly call and anticipation of that's just because there there were some things to navigate and we went to the bathroom stat as clearly as possible to you in the investor community, but.

Brandon M. Gall: Yeah. As you mentioned Q1 played out exactly how we thought it might maybe even slightly better in some ways and our view for Q2 through Q4 are entirely consistent with what we shared on the Q4 call. We expect branded spirits sales to pick up as the year goes on primarily in premium plus which is typical for our industry.

Brandon M. Gall: And as the selling solutions side as David mentioned Luxe rooms come online in April. So we can utilize that facility and expansion we've gotten there on our new distillate sales. We also have our customer commitments ramping up for Brown goods and then finally I even within ingredient solutions. We've got you know a prepare facility that just opened and we're really.

Brandon M. Gall: And then finally, even within ingredient solutions, we've got a Proterra facility that just opened, and we're really excited about it, but we don't necessarily have the sales immediately now to offset and absorb a lot of those costs. As the year goes on, and as we further commercialize that facility and that asset, those costs will be absorbed. And over time, probably as we get into next year, that facility and that product line will become more and more creative for that segment.

Brandon M. Gall: Cited for us, but we don't necessarily have the sales immediately now to offset and absorb a lot of those costs as the year goes on and as we further commercialize that facility and that asset those costs will be absorbed and over time, probably in the next year that facility in our product line will become more and more accretive to that segment.

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

Brandon M. Gall: As we look at our guidance numbers and think about our business moving forward.

Brandon M. Gall: Now from 90 days ago, Brendan and I still feel very comfortable with the guidance and the expectations that we established our total team is focused on that and we are moving in that direction.

Marc J. Torrente: Okay, great. And then just a few on brown goods demand. Volume has held up pretty well in the quarter, but we saw pricing go down 11%. How did the mix of new versus age trend throughout the quarter? How much of that pricing is due to that underlying mix shift that you conveyed? How much of that is due to actual pricing? And then margins for the total segment also held in quite well, even with the assumed lower mix. It may be just how you see volumes versus pricing and margins evolving through the rest of the year.

Brandon M. Gall: Okay, Great and then just a few on brown goods demand our volumes held up pretty well in the quarter, we saw pricing went down 11%.

Marc J. Torrente: Did the mix of new versus age trend throughout the quarter, how much of that pricing is due to that underlying mix shift that you conveyed them how much of that is due to actual pricing and then margins for the total segment are also held in quite well.

Marc J. Torrente: Even with the same lower mix, maybe just how you see volumes versus pricing and margins are evolving through the rest of the year.

Brandon M. Gall: Yeah, a good question. So, we can start off with volumes. You know, we expect volumes to increase, as we did in Q1, but throughout the rest of the year. And the reason, the main reason for that, is because of the success we've had in attaining e-distillate commitments. As far as price, yeah, price mix was down, but that was driven by mix. And that's why we, you know, shared about, you know, kind of our mix evolution within distilling solutions on our last quarterly call.

Speaker Change: Yeah. Good question so.

Brandon M. Gall: You can start off with with volumes, we expect volumes to increase as we did in Q1, but throughout the rest of the year and the reason the main reason for that is because of the success. We've had in obtaining you dislike commitments.

Brandon M. Gall: As far as price yeah price mix was down but that was driven by mix and that's why we shared them about you know kind of our mix evolution within the sealing solutions.

Brandon M. Gall: I'm on our last quarterly call. So nudists, what's elsewhere are very strong in the quarter as anticipated and then our aged sales also came in as anticipated, but the reason why the margin set held steady in that low forty's as we as we shared at Mike is because of the pricing you've been able to get in your distillate even though.

Brandon M. Gall: So, new distillate sales were very strong in the quarter, as anticipated, and then our age sales also came in as anticipated. But the reason why the margin set held steady in that low 40s as we, as we shared at night, is because of the pricing we've been able to get for new distillate. Even though it's, you know, a larger proportion of our total sales, the price contribution to gross margin is greater this year and in future years, we anticipate, than it has been in the past.

Brandon M. Gall: A larger proportion of our total sales, but the pricing and the gross margin contribution is greater this year and in future years, We anticipate then aspen in the past.

Marc J. Torrente: Okay, thanks guys. I'll pass it along.

Speaker Change: Okay. Thanks, guys I'll pass along.

Operator: Next slide, next slide.

Speaker Change: Thanks, Mark Thanks, Mark.

Sean Patrick McGowan: The next question comes from Sean McGowan from Roth MKM. Please go ahead.

Operator: The next question comes from John <unk> from Rock N km. Please go ahead.

Sean Patrick McGowan: Thank you, good morning guys. Another question on margins, but this time on ingredient solutions. Can you talk about what some of the, you know, puts and takes are going on there and, you know, how should we look at what we saw in the quarter as indicative of what the rest of the year might bring?

Sean Patrick McGowan: Yeah. Thank you good morning, guys.

Sean Patrick McGowan: A question on margins, but this time on ingredient solutions can you talk about what some of the.

Sean Patrick McGowan: Puts and takes are going on there and you know how should we look at what we saw on the corner is indicative of what the rest of the year might be.

Brandon M. Gall: Yeah, so as you noted, Sean, gross margins for ingredients were in the teens, mid-upper teens, in the quarter, and really, three main drivers. The first one is the deep starch intercompany credit the segment used to receive when the Agilent distillery was operational, is no longer there.

Speaker Change: Yeah, so yeah.

Brandon M. Gall: As you as you noted Sean gross margins for ingredients were in the teens mid to upper teens in the quarter and there's really three main drivers of the first one is the.

Brandon M. Gall: The deep starched intercompany credit this segment used to receive on the apps and distillery once operational is no longer there and so that's going to be an ongoing item that's going to be a natural headwind to the margin side.

Brandon M. Gall: And so that's going to be an ongoing item. That's going to be an actual headwind to the margin set of the segment. But the other two items we view as more transitory, the first one being the incremental costs that were occurring to dry and ready that starch stream for commercial sale. We expect that to continue being a headwind for the course of this year.

Brandon M. Gall: Of the segment, but.

Brandon M. Gall: But the other two items, we view as more transitory in the first one being the incremental costs that we're incurring to dry and ready that start stream for commercial sale, we expect that to continue being a headwind for the course of this year, but once we get the many fuel plant distillery up and running then we expect that to be largely offset.

Brandon M. Gall: But once we get the mini-fuel plant distillery up and running, then we expect that to be largely offset by the cost of the equipment and, in fact, maybe have some positive gross profit to come with it at that point in time. And then, the third and final thing, which we also believe is more transitory, are the incremental startup costs associated with the Proterra facility.

Brandon M. Gall: And then in fact, maybe have some positive gross profit to come with it at that point in time and in the third and final thing, which we also believe there is more transitory is are the incremental startup costs associated with the <unk> facility as already noted we expect as time goes on and we commercialize that Ive said to have the revenue and the gross prop.

Brandon M. Gall: As I already noted, we expect, as time goes on, and we commercialize that asset, to have the revenue and the gross profit to absorb those costs. So, again, as we get more into 2025, we expect the margins to be reflective of that. So, that being said, we view Q1 as a low watermark for gross margins for the segment. We expect the segment to finish the year probably, as we said last call, in the mid-20s on gross margin. But then, as we get into next year, a lot of those things I mentioned will start benefiting the segment once again.

Brandon M. Gall: But to absorb those costs. So again as we get more in the 2025, we expect the.

Brandon M. Gall: The margins to be reflective of that so that being said, we do view Q1 is a low watermark for.

Brandon M. Gall: Gross margins for the segment, we expect the segment to finish the year, probably as we said last call in the mid Twenty's gross margin wise.

Brandon M. Gall: But then as we get into next year for a lot of those things I mentioned to start benefiting the second I once again.

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

Speaker Change: Okay. Thank you.

Speaker Change: I don't think I heard you talk as you usually do about some of the input cost headwinds is that because there's been some stabilization there or you're just.

Speaker Change: Kind of called it out for brevity.

Brandon M. Gall: Yeah, so some stabilization. Another main reason is the closure of the Ashton Distillery. As you recall, the product lines that we sold primarily out of there, industrial-grade alcohol, white goods, and fuel, are much, much more susceptible to even modest swings in underlying input commodity costs. So with the closure of that facility, corn and the related basis went from being our number one raw material that we purchased to, you know, fourth or fifth. So, and with that, a lot of risk went with it.

Speaker Change: Yeah, So some stabilization another.

Brandon M. Gall: Another main reason is the closer of the apps and distillery as you'll recall the.

Brandon M. Gall: The product lines that we've sold primarily out of their industrial grade alcohol white goods and fuel are much much more susceptible to even modest swings in underlying input commodity costs. So.

Brandon M. Gall: With the closure of that facility corn and the related basis went from being our number one raw material that we purchase.

Brandon M. Gall: Two.

Brandon M. Gall: However, you know, wheat flour for our green solution segment, which is now our largest input that we buy commodity-wise, was up about 2% in the quarter, whereas rye and natural gas were both down year over year. I will remind you that a lot of our pricing on our brown goods, especially for new distillate, is model priced for what's committed and contracted. So pricing for that will move up and down with those underlying commodities so that we're able to lock in our margin. Okay, thank you very much. Yep.

Brandon M. Gall: Fourth or fifth so and with that a lot of that risk with it. However, wheat flour for agreed solution segment, which is now our largest input that we that we buy commodity wise.

Brandon M. Gall: It's up about 2% in the quarter, whereas Ryan natural gas were both down year over year, I will remind that remind you that a lot of our pricing on our brown goods, especially for new distillate is model priced.

Brandon M. Gall: For what's committed and contracted so pricing for that will move up and down with its underlying commodities. So that we're able to lock in our margin.

Speaker Change: Okay. Thank you very much.

Brandon M. Gall: Yep.

William Bates Chappell: The next question comes from Bill Chappell from Twist Securities. Please go ahead.

Brandon M. Gall: The next question comes from Bill Chappell from tourists, particularly Keith. Please go ahead.

William Bates Chappell: Thanks, Good morning.

David S. Bratcher: Hey, just first question. On the branded spirit side, you'll face an easier comparison certainly in the second quarter with the kind of destocked distributors last year. Kind of maybe any update on where the distributor inventory levels sit? Are you continuing to see pressure there?

William Bates Chappell: Hi, Good morning, Hey, just.

David S. Bratcher: First question.

William Bates Chappell: On the branded spirits side.

William Bates Chappell: We'll face an easier comparison, certainly in the second quarter with the kind of the Destocking distributors last year.

David S. Bratcher: Any update on where the distributor inventory levels are you continuing to see pressure there or is that or at least M. G. P and maybe for the industry is that largely kind of path.

David S. Bratcher: At this stage.

David S. Bratcher: Or is that, for at least MGP and maybe for the industry, is that largely kind of passed at this stage? I'm not going to speculate about the industry because you do get kind of mixed views on that from other reports. But I can tell you in our business, yes, it's stabilized.

David S. Bratcher: Probably I'm not going to speculate on for the industry because you do get kind of mixed views on that from what other report I can tell you in our business, yes. It stabilized we've worked really hard.

David S. Bratcher: With our distributors and I understand that the inventory levels and managing those levels with the end to meet customer demand. So destocking for us at the distributor level is not a core issue now.

William Bates Chappell: We've worked really hard with our distributors and understand inventory levels and managing those levels within customer demand. So, you know, the stocking for us at a distributor level is not a core issue. So you see that as a favorable comp for us because the majority of the de-stocking was this time last year, is that correct? As a favorable comp, yes. Sorry, yes.

David S. Bratcher: So you you see that as a favorable comp as we get the majority of the Destocking was this time last year is that correct.

William Bates Chappell: As a favorable comp, yes, sorry, yes.

Brandon M. Gall: Perfect. And then, maybe, a little clarification on, you know, the branded growth this year. I know you talked about rationalizing a few brands, but I didn't know if you quantified what that impacted the quarter or, you know, what that would impact for the full year. Just, you know, just kind of an idea of how the brands are growing, excluding net rationalization. Yeah, so the mid-end value decline in the quarter was primarily driven by the RNDC distributor change and subsequent load-in of the mid-end value grants in Q1 of last year. So that's really what drove the majority of the declines in mid-end values in the quarter.

Speaker Change: Perfect and then just also maybe a little clarification on the.

Brandon M. Gall: The branded growth. This year I know you had talked about rationalizing a few brands I didn't know if you quantified what that are impacted in the quarter or that you.

Brandon M. Gall: You know what that would impact for the full year are just you know just kind of an idea of how the.

Brandon M. Gall: The brands are growing excluding that rationalization.

Brandon M. Gall: Yeah, so the mid and value decline in the quarter was.

Brandon M. Gall: It was primarily driven by the R&D see distributor change and subsequent load in the mid and value brands in Q1 of last year. So that's really what drove the majority of the declines in mid and value in the quarter.

David S. Bratcher: We expect, you know, to have easier comps for those two product lines as the year plays out. And, as we shared on our last call, because of the rationalization, the rationalization, the price cuts we were taking on some of our mid-end value brands as well as the load-in, we expect a lot of that to largely offset the gains we expect to continue to make in premium plus. So we still expect our brand experience growth for the year to be flattish to low single digits, but we do expect to continue to see gross margin expansion as the year goes on. Yeah, Bill, this ties perfectly with your other question.

Brandon M. Gall: We expect.

Brandon M. Gall: They have easier comps.

David S. Bratcher: For those two product lines as the year plays out and as we shared on our last call because of the rationalization.

David S. Bratcher: The rationalization of the prices, we're taking on and some of our mid and value brands as well as the load and we expect a lot of that does largely offset the gains we expect to continue to make growth wise and premium plus so we still expect our branded spirits growth for the year to be flattish to up low single digits, but we do expect it to.

David S. Bratcher: Continue to get gross margin expansion as the year goes on building ties perfectly with your other question I mean at this point last year, we were making a large wholesaler change.

David S. Bratcher: I mean, at this point last year, we were making a large wholesaler change, and you prepared them for inventory. So on a comparative basis, you know, over time, we've been able to not only successfully make that change but get that inventory managed to the right level as well. Speaking one more time, David, why do you think you haven't made another acquisition since Penelope and now, almost, a year later? Maybe you could quantify just the number of opportunities you're seeing? Is it price, or is it just really looking for the right fit? I'm really looking for the right kid, Bill.

Speaker Change: Your problem in inventory so as a on a comparative basis, you know over time, we've been able to not only successfully make that change, but getting that inventory manage to the right level as well.

David S. Bratcher: Trading I'm sneaking one more David why do you think you haven't made another acquisition since been elevated now almost a year.

David S. Bratcher: <unk> quantified just the number of opportunities Youre seeing is is it price or is it just wasn't really looking for the right fit.

David: We're really looking for the right fit will Oh, there are things you know obviously with some of those headwinds you've seen in the overall industry. I think there are some people that would normally be on the larger scale multinational sellers sitting tight for the moment for all the reasons that the.

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

David S. Bratcher: But you know of.

David S. Bratcher: But we're starting to see some movement, but the real reason is because we wanted to do it the right way, we want to make sure that we're finding something that goes into our portfolio that's margin accretive and that helps us evolve to that branded spirits company. So they do that we have been disciplined very disciplined in our approach, but I have very very high confidence that.

David S. Bratcher: We're gonna be able to to do some things in the in the near future.

Speaker Change: Great. Thanks for the color.

Benjamin David Klieve: The next question comes from Ben Klieve from Lake Street Capital Markets. Please go ahead.

David S. Bratcher: The next question comes from Ben <unk> from Lake Street Capital markets. Please go ahead.

Benjamin David Klieve: I think I should ask my questions. Just one quick one for me on the Brown Goods side.

Benjamin David Klieve: Thanks for taking my questions. Just one quick one for me on the Brown goods side, you talked about the vast majority of volume is committed for the balance of this year in prior earnings calls we talked about how your sales force as you know looking into not bookings you know into 2025 wondering if you can provide any updates on kind of the long.

Brandon M. Gall: You talked about the vast majority of volume being committed for the balance of this year. In the Priority Scope, you talked about how your sales force is looking into not booking into 2025. I'm wondering if you can provide any updates on the longer-term sales funnel coming out of Brown Goods, looking into 2025.

Brandon M. Gall: Our term.

Brandon M. Gall: Sales on all coming out of Brown goods.

Brandon M. Gall: You know looking into 'twenty five.

Benjamin David Klieve: Yeah, Ben, this is Brandon. I'll start.

Brandon M. Gall: Yeah, Ben this is Brian and I'll start so that's.

Brandon: That's something.

Brandon: Something we've highlighted about what we like about the new distillate business as that.

Brandon: Is that those sales and those contracts are multiyear in nature. So we do already have some visibility into 2025.

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

Brandon M. Gall: Quantify that better for you as the year goes on just as we did last year, but what I will say is oh, the metals leadership and <unk> and some other efforts we've been making.

Brandon M. Gall: Looking to the U S. As we always do but we're also getting more and more optimistic about opportunity for our brown goods outside the U S. So as the year goes on we expect to provide updates along the way.

Brandon M. Gall: So, as the year goes on, we expect to provide updates along the way. Yeah, I would add that Brandon mentioned Amel, but that really is the key focus of what Amel is really thriving on right now, this distilled solutions business, doing everything that we've already said to you that we're going to do, and then all the opportunities and brands. His role here, taking on just the commercial aspect of that, has really given us the platform to properly execute and do the things that we've been talking about, and that is, continue to do what we do in the U.S., look at things internationally, and how do we continue to maximize the business.

Speaker Change: Yeah, I would add that.

Brandon M. Gall: You had mentioned a metal but that really is the key focus of water milk is.

Brandon M. Gall: It's really driving on right now is that this distilled solutions business doing everything that we've already said to you that one would want to do and then all the opportunities and brands. His world here, taking on just the commercial aspect of that is really giving us the.

Brandon M. Gall: The platform to properly execute and do the things that we've been talking about and that is continuing to do what we do in the U S look at things internationally and how do we continue to to maximize the business.

Brandon M. Gall: Got it. Appreciate that from both of you. Congratulations. A good start to the year here. I'll get back in key.

Speaker Change: Got it appreciate that from both of you congrats good start to the year here I'll get back in queue.

Speaker Change: Thank you.

Benjamin David Klieve: The next question comes from Mitch Pinheiro from Sturmond and Co. Please, go ahead.

Brandon M. Gall: The next question comes from Mitch Pinheiro from Sterling to Nicole. Please go ahead.

Mitchell Brad Pinheiro: Hey, good morning. Just a couple questions. In the branded spirits business, are you seeing, um, um, I guess consumer behavior, are you seeing trade down? I know you talk about premiumization, but are we seeing, in other categories, the consumer get a little tighter in the, you know, in spending, and I'm just curious what you're seeing or what you anticipate for the remainder of the year.

Mitchell Brad Pinheiro: Okay. Good.

Speaker Change: Good morning.

Speaker Change: Couple of questions.

Mitchell Brad Pinheiro: In the branded spirits business.

Mitchell Brad Pinheiro: Are you seeing them.

Mitchell Brad Pinheiro:

Mitchell Brad Pinheiro: I guess.

Mitchell Brad Pinheiro: Consumer behavior.

Mitchell Brad Pinheiro: Are you seeing trade down I know you talked we talked premium position, but you know are we seeing you know another categories, you're seeing the consumer get a little tighter in the in the you know in spending and I'm, just curious what you're seeing or what you anticipate.

Mitchell Brad Pinheiro: For the remainder of the year.

David S. Bratcher: Yeah, I'll take that. Obviously, we continue to stay focused on the premium plus. Within the premium plus category, and you look at the price tiers within that, yeah, by category, by product, you do see some shifting, and maybe from ultra to premium or vice versa. But we still see and believe, and it shows in the data, that the premium plus category is still the focus area across the industry. It's where the opportunity lies to grow our business.

Speaker Change: Yeah, I'll take that obviously, we continue to stay focused on the premium plus within the premium plus when you look at the price tiers within that.

David S. Bratcher: Category byproduct, you do see some shifting and maybe from ultra two tuned our premium or vice versa, we still see and believe and it shows them the data that that premium plus category. It's still a focus area across the industry, it's where the opportunity lies to grow our business I do believe as you said that is concerned.

David S. Bratcher: I do believe, as you said, that as consumer inflation and economic conditions change, people do respond, okay, and they may make that a little different decision, but here's what's great about our branded businesses is that we have total representation across those price points in all the main categories. So, in summary, yes, I think it's fair to say consumer pricing may shift a little, but still, and the data supports this, it's still a premium plus market.

David S. Bratcher: And inflation and economic conditions change.

David S. Bratcher: People do respond okay, and they may make that a little different decision, but here's what's great about our branded businesses that we have total representation across those those price points and in all the main categories. So.

David S. Bratcher: In summary, yes, I think it's fair to say consumer pricing may shift, a little but I still and the data supports it is still a premium plus market.

Mitchell Brad Pinheiro: Do you still have levers, you know, like, that you can pull, you know, you know, should things get maybe a little tighter or is sort of what? Your plans are in place, and they're kind of firm, and not much variability there.

Speaker Change: Do you still have do you have levers you know like that you can pull.

Mitchell Brad Pinheiro: You know.

Mitchell Brad Pinheiro: You know should should things get maybe a little tighter or is sort of what we are.

Mitchell Brad Pinheiro: Your plans are in place and they're kind of firm and and not much variability there.

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

Speaker Change: Yeah one.

Brandon M. Gall: The best levers, we have as a company and we feel it's a little bit unique to us as points of distribution and we feel like in the in the states where and in the United States. There Theres a lot of runway there for us to continue to expand our brands on the shelf.

Brandon M. Gall: Not only on the shelves.

Brandon M. Gall: And in the change in retailers that we're in but also.

Brandon M. Gall: Everyone's altogether. So that's what our focus is and we talked about it on previous calls and we're going to continue to spend a lot of time executing there.

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

Brandon M. Gall: What Brandon said is right on because at the end of the day.

David S. Bratcher: Our growth in that section is about pod expansion first and foremost as we expand our pods, you'll see the increase you'll see the margin accretion happy and you'll see the sales happen.

David S. Bratcher: As you expand those pods, though we do through our marketing efforts and what I've said in the script, we really do focus on velocity, which is a marketing piece of it. So you have to go hand in hand.

David S. Bratcher: Or at this moment and continuing to expand our business on a pod driven basis, and then backed it up with the market and you begin to pull through.

Mitchell Brad Pinheiro: Okay, and then, I guess, the last question on Brandon is... You know, in your view, David, uh, you know. From your long history in the business, it seems, at least from my view, and I'm curious about your view, there is a... Huge influx of just new brands, New Age Classifications, Toasted, and all sorts of stuff, almost to the point where the proliferation seems overkill and is also maybe hurting the category. Do you think we're over-branded in the branded spirits business, up and down the category? Or, you know, do you expect any kind of pullback in brands? I think this set is going to stay kind of firm.

Speaker Change: Okay, and then I guess last question on on branded is.

Mitchell Brad Pinheiro: You know in your view David.

Mitchell Brad Pinheiro: Hum.

Mitchell Brad Pinheiro: From your you know just your long history in the business. It seems at least from my view.

David: Curious your view.

Mitchell Brad Pinheiro: We see there is a.

Mitchell Brad Pinheiro: Huge influx of just new grants, new new New you know age classification, New you know coast did and all sorts of stuff it almost to the point, where the proliferation scene.

Mitchell Brad Pinheiro: Overkill and also maybe hurting the category.

Speaker Change: Or do you.

Mitchell Brad Pinheiro: Do you think we're over branded in in the branded spirits business up and down the category.

Mitchell Brad Pinheiro: Or.

Mitchell Brad Pinheiro: Just do you expect any any kind of pullback in brands or.

Mitchell Brad Pinheiro: Do you think this is going to stay kind of firm.

David S. Bratcher: Well, in 30 years of doing this, I can tell you what you're seeing in the Cadillac American Whiskey, for example; that's where you're focused. There are a lot of SKUs.

David: Well in 30 years of doing this what I can tell you what you're seeing in the catalyst use American with your example, that's where your focus there are a lot of excuse me I could go all the way back to the market as well go to yourself now there's still a lot of vodka.

David S. Bratcher: I could go all the way back to the vodka days. Go to your shelf now. There's still a lot of vodka on the shelves. You see that now on American whiskey. You're going to see that on tequila.

David S. Bratcher: Michelle you see that now on American whiskey, Youre going to see that and I'm Tequila, that's kind of the history of the industry, which if you think about it and business fundamentals at a bad thing. It means that suppliers like ourselves are shifting to where that consumer demand is but the challenge is keeping up with that consumer that is the challenge at the end of the day, that's why when we talk about our <unk>.

David S. Bratcher: That's kind of the history of the industry, which is, if you think about it in terms of business fundamentals, not a bad thing. It means that suppliers like ourselves are shifting to where that consumer demand is. But the challenge is keeping up with that consumer. That is the challenge, at the end of the day.

David S. Bratcher: That's why when we talk about our business and our Brandon Spears business, yes, we're a leader in American whiskey, but we can't sit on that all the time. You have to have offerings, and you have to be able to go across not only the price point and the portfolios, because, like you said, there are a lot of fast followers out there. When people see categories growing, it's a natural tendency for people to go in and bring more SKUs in.

David S. Bratcher: And our branded spirits business, yes, we're a leader in American whiskey, but we can't we can't sit on you know set on that all the time you have to have offerings and you have to be able to although of course, not only the price point and the portfolios because like you said there are a lot of fast followers out there when people see categories of growth it's a natural.

David S. Bratcher: The tendency for people to go in and bring more skus at what we do is what you try to do is we go in and we establish dominance on that particular try to be the brand of choice, but don't take our eye off the ball in the other categories either.

David S. Bratcher: What we do is what you try to do, we go in, and we establish dominance in that particular category, try to be the brand of choice, but don't take our eye off the ball in the other categories either.

Mitchell Brad Pinheiro: Okay, thank you for taking the question.

Speaker Change: Okay. Thank you for taking the questions.

Mitchell Brad Pinheiro: Okay.

Robert Moskow: The next question comes from Robert Moskow from TV Cohen. Please go ahead.

Mitchell Brad Pinheiro: The next question comes from Robert Moskow from TD Cowen. Please go ahead.

Robert Moskow: Hey, thanks for the question. I wanted to ask about the gross margin dilution in distilling solutions, I guess down 100 basis points on a pro forma basis. Is that because of the mix shift? Is that the main driver of that?

Robert Bain Moskow: Hey, Thanks for the question.

Robert Moskow: I wanted to ask about the gross margin dilution and distilling solutions, I guess down 100 basis points on a pro forma basis.

Robert Moskow: Is that because of the mix shift.

Robert Moskow: Is that the main driver of that.

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

Robert Bain Moskow: It is and so if you look at the pro forma for last for 2023 pursuing solutions. The gross margins for last year would have been right around 45%.

Brandon M. Gall: We shared this on our last call, but happy to happy to share it again.

Brandon M. Gall: Mix shift.

Brandon M. Gall: He is going to result in slightly lower margins, we expected to be in the low forties for this segment going forward.

Brandon M. Gall: Which is higher than I think.

Brandon M. Gall: A lot of people may have anticipated just because of the pricing we've been able to get on new distillate. So there there is a little bit of a headwind.

Brandon M. Gall: There, Rob, but you know.

Brandon M. Gall: It's still a very very.

Brandon M. Gall: Nice margin for the segment and it's one that we feel is sustainable once we go forward.

Brandon M. Gall: Okay, got it. And then I guess the follow-up to that is, in that you have price mixed down 11%, and it really is that mixed impact, but I don't remember you quantifying how much of that 11% was mixed, like can you quantify how much price was up excluding that factor?

Speaker Change: Okay got it and then I guess the follow up to that is.

Brandon M. Gall: In that.

Brandon M. Gall: You have price mix down.

Brandon M. Gall: 11% and it really is that mix impact, but I don't remember you quantifying how much of that 11% was mix, but can you quantify how much price was up excluding that factor.

Brandon M. Gall: Without giving specific numbers, age pricing was up. In new distillate pricing, if you look at it on a customer-by-customer basis, it was also up. We did have one of our larger, relatively lower-priced multinational customers in the quarter buy a lot, so they brought the average price down for new distillate. But, like I said, on a customer-by-customer basis, we're very pleased with the pricing, and we expect the same to continue as we go forward.

Brandon M. Gall: Without giving specific numbers each pricing was up.

Brandon M. Gall: And new distillate pricing, if you look at that on a customer by customer basis was also up.

Brandon M. Gall: I did have one of our larger relatively lower priced multinational customers in the quarter by a lot. So they brought the average price.

Brandon M. Gall: Down for new distillate, but like I said on a customer by customer basis, we were very pleased with the pricing and we expect the same to continue as we go forward.

Robert Moskow: Very helpful. Thank you.

Speaker Change: Very helpful. Thank you.

Speaker Change: You bet.

Operator: As a reminder, if you wish to register for a question, please press star followed by 1. We have a follow-up question from Sean McGowan from Road MKM, please go ahead.

Speaker Change: As a reminder, if you wish to register for a question. Please press star followed by one.

Sean Patrick McGowan: I know this gets added back for the adjusted EBITDA and adjusted net income, but is there a way to know what that contingent liability is going to be and how long it will be hanging out on the income?

Operator: We have a follow up question from John Mcmullen from erotic K N. Kim. Please go ahead.

Sean Patrick McGowan: Hi, Thanks.

Sean Patrick McGowan: Gets added back for adjusted EBITDA and adjusted net income, but how do we is there a way to know what that contingent liability is going to be and how long will that be hanging out on the income statement.

Brandon M. Gall: Yeah, that's going to be out there, you know, through 2025. So, December 2025 is when the earn-out is officially concluded with the Penelope transaction. So, you know, we expected it. It's a goofy one, I'll admit, from an accounting standpoint. A lot of Monte Carlo simulation.

Sean Patrick McGowan: Yeah, that's going to be out there.

Brandon M. Gall: Through 2025.

Brandon M. Gall: So in December 2025 is when the earn out is officially concluded with the Penelope transaction.

Brandon M. Gall: We.

Brandon M. Gall: It's a group you want it all and then from an accounting standpoint a.

Brandon M. Gall: A lot of Monte Carlo simulation, it's read.

Brandon M. Gall: It's revisited, as you know, every quarter. It's been, you know, plus or minus $4 million, seemingly, in the last couple quarters. And we expect it just to continue to ramp up, you know, as the brand continues to perform in line with our expectations. Similarly, each quarter until we get to the end of 2025. Now, that number changes because of volatility in the market, because of interest rates or forecasts or actual

Brandon M. Gall: Visit events, you know every quarter, it's been you know plus or minus 4 million seemingly in the last couple of quarters and we expect it just to continue to ramp up.

Brandon M. Gall: The brand continues to perform in line with our expectations similar similarly, each quarter until we get to the end of 2025 now that number it changes because of volatility in the market because of interest rates or forecasts or actuals. So theres something some inputs that we provide.

Brandon M. Gall: So, there's some inputs that we provide, you know, that help conclude what that number is in a given quarter. But there's also some external volatility measures, as an example, that also impact that. So, I wish I could give you a more clear answer, Sean, but hopefully, that color helps a little bit in your model.

Brandon M. Gall: No that helps conclude what that number isn't in a given quarter, but theres also some external.

Brandon M. Gall: Utility measures as an example that also impact that so I wish I could give you a more clear answer Sean, but hopefully that color helps a little bit in your model.

Brandon M. Gall: It does, but I just want to be clear on two things. One, is it eventually going to be cash? And second, is it the kind of thing where the better it is, the more we should feel about it, because that means that they're outperforming?

Sean: It does but I just want to be clear on two things. One is it eventually going to be cash and second is it the kind of thing like the better. It is the more the better we should feel about it because that means that they're outperforming.

Brandon M. Gall: That's exactly right. It will be a cash outflow by the end of 2025 or sooner if they hit their metric sooner, the way it's drawn up. It can be as much as approximately $110 million, and you're exactly right. It's definitely something, and as that number gets bigger, it's a positive for the brand. That means it's performing in line with or better than our expectations. Okay, that's what I thought. Thank you.

Sean: That's exactly right it will be a cash outflow.

Brandon M. Gall: By the end of 2025 or sooner if they hit their metrics sooner is the way it's drawn up.

Brandon M. Gall: Can be as much as approximately $110 million and you're exactly right. It's definitely something as that number gets bigger it's a positive for the brand that means it's that means it's performing in line or better than our expectations.

Brandon M. Gall: Okay, that's what I thought thank you.

Brandon M. Gall: Yep.

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

Brandon M. Gall: This concludes the question and answer session I would now like to turn the conference back over to David <unk> for any closing remarks.

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

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

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

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

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