Q2 2024 MGP Ingredients Inc Earnings Call

August 1, 2024

Operator: Good day and welcome to the MGP Ingredients second quarter, 2024 financial results conference call. All participants will be in list-nonely mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: Good day, and welcome to the MGP Ingredients 2nd Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. 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 Amit Sharma, VP of Investor Relations. Please go ahead.

Speaker Change: Good day and welcome to the MGP Ingredients Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded.

Amit Sharma: I would now like to turn the conference over to Amit Sharma, VP of Investor Relations. Please go ahead. Thank you.

Amit Sharma: Thank you. I'm Amit Sharma, Vice President of Investor Relations, and joining me are members of the management team, including David Bratcher, Chief Executive Officer and President, and Brandon Gall, Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call to questions. As a reminder, this call may include certain forward-looking statements. 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 SEC.

I would now like to turn the conference over to Amit Sharma, VP of Investor Relations. Please go ahead.

Amit Sharma: I'm Amit Sharma, Vice President of Investor Relations, and joining me are members of the management team, including David Bratcher, Chief Executive Officer and President, and Brandon Gall, Chief Financial Officer. He will begin the call with management's prepared remarks and then open the call to questions.

Thank you. I'm Amit Sharma, Vice President of Investor Relations, and joining me are members of the management team, including David Bratcher, Chief Executive Officer and President, and Brandon Gall, Chief Financial Officer.

Speaker Change: We will begin the call with management's prepared remarks and then open the call to questions.

Amit Sharma: As a reminder, this call may include certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements made today due to the number of factors, including the risk factor described in the company's most recent annual report filed with SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by the law.

Speaker Change: As a reminder, this call may include certain forward-looking statements. 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 SEC.

Amit Sharma: The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. Additionally, this call will contain references to certain non-GAAP measures, 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. The press release is available on MGPI's website at www.mgpingredients.com. This call is being webcast, and a replay will be available on our website. With that said, I would like to turn the call over to MGP's Chief Executive Officer and President, David Bratcher. David

Speaker Change: The company assumes no obligation to update any forward-looking statements made during the call, except as required by the law.

Amit Sharma: 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 gap measures is included in today's earnings release. The press release is available on MGPI's website at www.mgpingredients.com. This call is being webcast, and a replay will be available on our website.

Speaker Change: 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.

Speaker Change: The press release is available on MGPI's website at www.mgpingredients.com. This call is being webcast and a replay will be available on our website.

David Bratcher: With that, I would like to turn the call over to MGPI's Chief Executive Officer and President, David Bratcher. David. Thank you, Amit. We are excited to have you on board to lead our investor relations efforts as we continue to add strong talent throughout our organization, including two other recent hires: David Koya as EVP of Operations and Paul Lux as VP of Sales for the Silling Solutions. Good morning, everyone.

Speaker Change: With that, I would like to turn the call over to MGP's Chief Executive Officer and President, David Bratcher. David.

David Bratcher: Thank you, Amit. We are excited to have you on board to lead our investor relations efforts as we continue to add strong talent throughout our organization, including two other recent hires, David Collette as EVP of Operations and Paul Lux as VP of Sales for Distilling Solutions. Good morning, everyone.

David Bratcher: Thank you, Ahmed. We are excited to have you on board to lead our investor relations efforts as we continue to add strong talent throughout our organization.

David Bratcher: I will begin with an overview of our second quarter performance and provide updates on key performance metrics and initiatives. I will then turn it over to Brandon to discuss our quarterly results in greater detail. We will wrap up with the discussion of our outlook for the full year before we open it up for questions. We delivered another quarter of strong operating results as we continue to make consistent progress towards becoming a premier branded spirit's company. We successfully recommissioned our Lux Road distillery, giving us additional distilling capacity in Bardstown, Kentucky, to continue to support our branded whiskey growth.

David Bratcher: We delivered another quarter of strong operating results as we continue to make consistent progress towards becoming a premier branded spirits company. We successfully recommissioned our Lux Roe Distillery, giving us additional distilling capacity in Bardstown, Kentucky, to continue to support our branded whiskey growth. Our first half 2024 results were in line with our expectations, enabling us to reaffirm our full year sales EBITDA and EPS guidance. Specific to 2nd Quarter 2024, on a pro forma basis, when factoring in Atchison distillery closure, consolidated sales increased by 7%, driven by the ongoing momentum of our Branded Spirits business and solid brown goods sales within our distilling solution segment.

David Bratcher: Our first half, 2024 results were in line with our expectations and allow us to reaffirm our full year sales, EBITDA and EPS guidance. Specific to second quarter 2024, on a pro forma basis, when factoring in Atchison distillery closure, consolidated sales increased by 7 percent, driven by the ongoing momentum of our branded spirits business and solid brown goods sales within our distilling solution. As a reminder, prior year reported sales included actress and distillery-related sales. At the segment level, the study solutions performance sales grew by 9%. We posted our highest ever quarterly brown good sales driven by New Disselent.

Speaker Change: Our first half 2024 results were in line with our expectations in aiding us to reaffirm our full year sales EBITDA and EPS guidance.

Speaker Change: Specific to Second Quarter 2024, on a pro forma basis, when factoring in Atchison Distillery closure,

Speaker Change: Consolidated sales increased by 7% driven by the ongoing momentum of our Branded Spirits business and solid brown good sales within our distilling solution segment.

David Bratcher: As a reminder, prior year reported sales included Atchison Distillery-related sales. At the segment level, Distilling Solutions' performance sales grew by 9%. We posted our highest ever quarterly brown goods sales driven by new distillates. As expected, sales of brown goods during the first half of 2024 were more heavily weighted toward the second quarter, and we expect the same ordering pattern to play out in the second half of 2024.

Speaker Change: At the segment level, Distilling Solutions' performance sales grew by 9%.

Speaker Change: We posted our highest ever quarterly brown good sales driven by new distillate.

David Bratcher: As expected, sales of browns goods during the first half of 2024 are more heavily weighted toward the second quarter, and we expect the same order and pattern to play out in the second half of 2024. I am proud of our sales team for their nimbleness as they continue to work with our brown good customers to help them successfully adapt to the current consumption and inventory patterns at distributor and retailer levels. I believe we are uniquely positioned to thrive in the current environment given our competitive facility footprint, long track record of producing high quality age and New Disselent in our extensive roster of large multinational and craft customers.

Speaker Change: As expected, sales of Brown's goods during the first half of 2024 were more heavily weighted toward the second quarter, and we expect the same ordering pattern to play out in the second half of 2024.

David Bratcher: I am proud of our sales team for their nimbleness as they continue to work with our Brown Good customers to help them successfully adapt to the current consumption and inventory patterns at distributor and retailer levels. I believe we are uniquely positioned to thrive in the current environment given our competitive facility footprint, long track record of producing high quality aged and new distillate, and our extensive roster of large multinational and craft customers. Turning to the branded spirit segment, quarterly sales increased by 11%, driven by strong innovation.

Speaker Change: I am proud of our sales team for their nimbleness as they continue to work with our Brown Good customers to help them successfully adapt to the current consumption and inventory patterns at distributor and retailer levels.

David Bratcher: Turning to the branded spirit segment, quarterly sales increased by 11% driven by strong innovation, focus execution, higher investments behind our key brands, and contributions from M&A. Our strong branded trends reflect our continued shift to a premium portfolio, as our premium plus portfolio now accounts for 48% of branded spirit segment sales. Well above, it's 30% contribution for the full year 2021. It's a testament to our focus strategy of premiumizing our portfolio to align it with an evolving consumer taste across the alcoholic beverage industry and to leverage our improving capabilities and talent throughout our branded organization. As expected, quarterly sales for the rest of the branded spirit segment declined modestly.

Speaker Change: Turning to the branded spirit segment, quarterly sales increased by 11%, driven by strong innovation, focused execution, higher investments behind our key brands, and contributions from M&A.

David Bratcher: Focus Execution, Higher Investments Behind Our Key Brands, and Contributions from M&A. Our strong branded trends reflect our continued shift to a premium portfolio, as our premium plus portfolio now accounts for 48% of branded spirit segment sales, well above its 30% contribution for the full year 2021. It's a testament to our focused strategy of premiumizing our portfolio to align it with an evolving consumer taste across the alcoholic beverage industry and to leverage our improving capabilities and talent throughout our branded organization. As expected, quarterly sales for the rest of the Branded Spirits segment declined modestly.

Speaker Change: Our strong branded trends reflect our continued shift to a premium portfolio as our premium plus portfolio now accounts for 48% of branded spirit segment sales, well above its 30% contribution for the full year 2021.

Speaker Change: As expected, quarterly sales for the rest of the branded spirits segment declined modestly.

David Bratcher: Distributor inventories for our branded portfolio remain relatively stable, even below historical levels in some cases. We continue to work closely with our partners to invest behind our premium plus brands and innovation to drive impactful retail execution, increase brand awareness, and fill distribution white face and targeted markets. Our ingredient solution segment sales declined 3% as lower commodity starch and specialty protein sales were partially offset by a strong double-digit increase in our specialty starch sales. While our stronger US dollar impacted our quarterly sales, our Fiber Sim branded specialty starches, which provide FDA-approved dietary fiber, continue to benefit from long-term consumer-driven tailwinds across several large food categories.

Speaker Change: Our ingredient solution segment cells declined 3% as lower commodity starch and specialty protein cells were partially offset by a strong double-digit increase in our specialty starch cells.

David Bratcher: While a stronger U.S. dollar impacted our quarterly sales, our FibroSim-branded specialty starches, which provide FDA-approved dietary fiber, continue to benefit from long-term, consumer-driven tailwinds across several large food categories. Turning into gross margin, quarterly gross margin increased to 43.6%, which is an all-time high for MGP. Brandon's spirit segment gross margins exceeded 50% for the first time since the Luxco merger, while distilling solution gross margins increased to 45.5% as we continue to benefit from our decision to close the Atchison distillery.

David Bratcher: Turning to gross margin, quarterly gross margins increased to 43.6%, which is an all-time high for MGP. Right, and its spirit segment gross margins exceeded 50% for the first time since the benefit from our decision to close the actions in this story. I am very pleased with our gross margin trajectory as it validates strategic actions and reflects tangible progress and are objective to becoming a higher margin branded spirits company. Our continued focus on execution and cost discipline enabled quarterly adjusted EBITDA growth of 7%, even though A&P expenses increase by 35% as we continue to invest behind our premium plus price brands.

David Bratcher: I am very pleased with our gross margin trajectory as it validates our strategic actions and reflects tangible progress and our objective of becoming a higher-margin branded spirits company. Our continued focus on execution and cost discipline enabled quarterly adjusted EBITDA growth of 7% even though A&P expenses increased by 35% as we continue to invest behind our premium plus price brand. Second quarter adjusted earnings per share increased by nearly 15% to $1.71 per share.

David Bratcher: Our first half results were in line with our expectations, enabling us to reaffirm our full-year top line and profits guidance for the year, and I believe we remain well positioned to deliver even stronger profits and earnings growth for the second half of 2024. In summary, we are executing our strategic priorities to build a premier branded spirits company. I believe we are uniquely positioned with the right mix of distilling assets, growing brands, and a strong team to deliver long-term growth and shareholder value. With that, I will turn it over to Brandon for a review of our quarterly financial results and full year outlook in greater detail. Brandon

David Bratcher: I believe we remain well positioned to deliver even stronger profits and earnings growth for the second half of 2024.

David Bratcher: In summary, we are executing our strategic priorities to build a premier branded spirits company. I believe we are uniquely positioned with the right mix of distilling assets, growing brands, and a strong team to deliver long-term growth and shareholder value.

Brandon Gall: With that, let me turn it over to Brandon for a review of our quarterly financial results and full-year outlook in greater detail. Brandon? Thanks, David. For the second quarter of 2024, consolidated sales decreased 9% compared to the prior year period to $190.8 million, primarily due to the access and distillery closure. Excluding the impact of the access and distillery, consolidated sales increased by 7%, driven by higher distilling solution sales and the continued momentum in our premium plus branded portfolio. Within the distilling solution segment, sales decreased 20% to $93.4 million due to the access and distillery closure.

Brandon Gall: Brandon? Thanks, David. For the second quarter of 2024, consolidated sales decreased 9 percent compared to the prior year period to $190.8 million, primarily due to the Atchison Distillery closure. Excluding the impact of the Atchison distillery, consolidated sales increased by 7%, driven by higher distilling solution sales and the continued momentum in our Premium Plus branded portfolio. Sales decreased 20 percent to $93.4 million. Excluding the impact of the Atchison distillery in both periods, segment sales increased 9% from the prior year quarter.

Speaker Change: Brandon? Thanks, David. For the second quarter of 2024, consolidated sales decreased 9% compared to the prior year period to $190.8 million, primarily due to the Atchison Distillery closure.

Brandon Gall: Excluding the impact of the access and distillery in both periods, segment sales increased 9% from the prior year quarter. Brown good sales were up 3%, driven primarily by the planned, strong increase in our new distillate sales and the timing of customer purchases, as David mentioned in his comments. The warehouse-related sales increased by 24% to their highest-ever second quarter level, reflecting a higher proportion of new distillate sales volumes. Brandon's spirit segment sales increased by 11%, mainly due to our Premium Plus portfolio. Excluding the contribution from last year's Penelope acquisition, premium plus portfolio sales increased 29%, while lapping 29% growth in the year-go quarter, reflecting strong performance of our premium price brands.

Brandon Gall: Excluding the impact of the Atchison distillery in both periods, segment sales increased 9% from the prior year quarter. Brown goods sales were up 3%, driven primarily by the planned strong increase in our new distillate sales and the timing of customer purchases, as David mentioned in his comments.

Brandon Gall: Brown goods sales were up 3%, driven primarily by the planned, strong increase in our new distillate sales and the timing of customer purchases, as David mentioned in his comment. Warehouse related sales increased by 24% to their highest ever second quarter level, reflecting a higher proportion of new distillate sales volumes.

Brandon Gall: Branded Spirit segment sales increased by 11%, mainly due to our Premium Plus portfolio. Including the contribution from last year's Penelope acquisition, Premium Plus Portfolio sales increased 29% while lapping 29% growth in the year-ago quarter, reflecting strong performance of our premium price brand. Our mid and value branded sales were relatively flat due to easier year-ago comparisons.

Speaker Change: Branded Spirits segment sales increased by 11% mainly due to our Premium Plus portfolio.

Brandon Gall: Our made-and-value brand sales were relatively flat due to easier year-go comparisons. Consolidated gross profit increased 9% to $83.2 million, representing 43.6% of sales. Excluding the impact of the access and distillery, second quarter consolidated gross margin improved approximately 80 basis points from the prior year period as we delivered record gross margins of 52.5% in the branded spirit segment and continued to benefit from higher margins in the distilling solution segment. Excluding the impact of the access and distillery, ingredient solutions gross margin declined nearly 800 basis points from prior year, primarily due to incremental costs incurred to commercialize the way start stream.

Brandon Gall: Consolidated gross profit increased 9% to $83.2 million, representing 43.6% of sales. Excluding the impact of the Atchison Distillery, second quarter consolidated gross margin improved approximately 80 basis points from the prior year period, as we delivered record gross margins of 52.5% in the branded spirit segment and continued to benefit from higher margins in the distilling solutions. Excluding the impact of the Atchison Distillery, Ingredient Solutions gross margin declined nearly 800 basis points from the prior year, primarily due to incremental costs incurred to commercialize the waste starch. However, on a sequential basis, segment gross margin increased 400 basis points in the first quarter, primarily due to sequentially higher specialty protein size.

Speaker Change: Excluding the impact of the Atchison Distillery, second quarter consolidated gross margin improved approximately 80 basis points.

Brandon Gall: However, on a sequential basis... Basis, segment gross margin increased 400 basis points in the first quarter, primarily due to sequentially higher specialty protein sales. Advertising and promotion expenses increased $3 million to $11.7 million due to increased support of our Premium Plus portfolio. Branded spirits related AMP total $10.8 million in represented 17% of segment sales. We remain committed to investing behind our faster growing, higher margin, premium plus price tier brands in our effort to capture greater share of the American whiskey and tequila categories. Operating income for the second quarter decreased 2% to $43.4 million, while adjusted operating income increased 12% to $51.3 million, as higher gross profits and lower SG&A costs more than offset higher AMP investments.

Speaker Change: However, on a sequential basis, segment gross margin increased 400 basis points in the first quarter, primarily due to sequentially higher specialty protein sales.

Brandon Gall: Advertising and promotion expenses increased $3 million to $11.7 million due to increased support of our Premium Plus portfolio. Branded Spirits Related A&P totaled $10.8 million and represented 17% of segment sales. We remain committed to investing in our faster-growing, higher-margin, premium-plus price-tier brand in our effort to capture a greater share of the American whiskey and tequila category. Operating income for the second quarter decreased 2% to $43.4 million, while adjusted operating income increased 12% to $51.3 million.

Speaker Change: Advertising and promotion expenses increased $3 million to $11.7 million due to increased support of our Premium Plus portfolio.

Speaker Change: Branded Spirits related A&P totaled 10.8 million dollars and represented 17% of segment sales. We remain committed to investing behind our faster-growing, higher margin, premium plus price tier brands in our effort to capture a greater share of the American whiskey and tequila categories.

Brandon Gall: Higher gross profits and lower SG&A costs more than offset higher A&P investments. Net income for the second quarter remained flat at $32 million, while adjusted net income increased 15% to $38 million. Basic and diluted earnings per share decreased to $1.43 per share from $1.44 per share.

Brandon Gall: Net income for the second quarter remained flat at $32 million, while adjusted net income increased 15% to $38 million. Basic and diluted earnings per share decreased to $1.43 per share from $1.44 per share. Adjusted basic and diluted EPS increased to $1.71 per share from $1.49 per share. Adjusted EBITDA increased 7% compared to the year-ago period to $57.5 million. Moving to cash flow, year-to-date cash flow from operations was $29.6 million, up from $20.2 million in the prior year period, mainly due to favorable working capital, including lower barrel put away. Our balance sheet remains healthy, and we remain well capitalized, with debt totaling $309.4 million in a cash position of $21 million.

Speaker Change: Net income for the second quarter remained flat at $32 million while adjusted net income increased 15% to $38 million.

Brandon Gall: Basic and diluted earnings per share decreased to $1.43 per share from $1.44 per share.

Brandon Gall: Adjusted basic and diluted EPS increased to $1.71 per share from $1.49 per share. Adjusted EBITDA increased 7% compared to the year-ago period to $57.5 billion. Moving to cash flow, year-to-date cash flow from operations was $29.6 million, up from $20.2 million in the prior year period, mainly due to favorable working capital, including lower barrel put-away. Our balance sheet remains healthy, and we remain well capitalized with debt totaling $309.4 million and a cash position of $21 million. Our net debt leverage ratio remained largely stable at approximately 1.4 times at the end of the quarter.

Speaker Change: Adjusted basic and diluted EPS increased to $1.71 per share from $1.49 per share.

Brandon Gall: Moving to cash flow, year-to-date cash flow from operations was $29.6 million, up from $20.2 million in the prior year period, mainly due to favorable working capital including lower barrel put-away.

Brandon Gall: Our net debt leverage ratio remained largely stable at approximately 1.4 times at the end of the quarter. Capital expenditures were $9.4 million during the quarter, and $22.6 million during the first half. We continue to expect four-year capital expenditures of approximately $85 million for maintenance and initiatives to support our future growth. These initiatives include additional whiskey warehouses, drier investment at the luxury of distillery, a minifuel plant in Addeson to better monetize the waste start stream in our greeting solution segment. Recall that with the closure of the Addeson distillery, we expect to incur $4 to $6 million of additional costs in 2024 related to treatment and disposal of the waste start stream.

Brandon Gall: Capital expenditures were $9.4 million during the quarter and $22.6 million during the first half. We continue to expect full-year capital expenditures of approximately $85 million for maintenance and initiatives to support our future growth. These initiatives include additional whiskey warehouses, drier investment at the Luxor Distillery, and a mini-fuel plant in Atchison to better monetize the wastewater stream in our ingredient solution segment. We call it, with the closure of the Atchison Distillery, we expect to incur $4 to $6 million of additional costs in 2024 related to treatment and disposal of the wastewater stream. Many fuel plants could eliminate these costs by converting the waste starch stream into a commercial product.

Brandon Gall: These initiatives include additional whiskey warehouses, drier investment at the Luxor Distillery, a mini-fuel plant in Atchison, to better monetize the wastewater stream in our ingredients solution segment.

Speaker Change: Recall that with the closure of the Atchison Distillery, we expect to incur four to six million dollars of additional costs in 2024 related to treatment and disposal of the white starch stream.

Brandon Gall: The minifuel plant should eliminate these costs by converting the waste start stream into a partial product. As part of our overall capital allocation strategy, we remain focused on organic and inquisitive growth opportunities that align with our long-term strategy of becoming a premier branded spirits company. To that effect, we continue to evaluate MNA opportunities while investing whiskey put away to support our distilling solutions and branded spirits segment sales. During the second quarter, our net whiskey put away was $16.3 million at cost, and we continue to expect net put away to be between $25 million and $30 million for 2024, or roughly half of the 2023 ML.

Brandon Gall: As part of our overall capital allocation strategy, we remain focused on organic and inquisitive growth opportunities that align with our long-term strategy of becoming a premier Brain and Spirits company. To that effect, we continue to evaluate M&A opportunities while investing in whiskey put away to support our distilling solutions and brand spirit segment sales. During the second quarter, our net whiskey put away was $16.3 million at cost.

Speaker Change: To that effect, we continue to evaluate M&A opportunities while investing in whiskey put away to support our distilling solutions and branded spirit segment sales.

Speaker Change: During the second quarter, our net whiskey put away was $16.3 million at cost.

Brandon Gall: And we continue to expect net putaway to be between $25 million and $30 million for 2024, or roughly half of the 2023 average. During the second quarter, we repurchased approximately $2.5 million of our common stock, bringing the year-to-date share repurchase amount to $7.5 million. We currently have more than $90 million remaining under the $100 million share repurchase program authorized by the Board of Directors in the first quarter. The Board of Directors also authorized a quarterly dividend of $0.12 per share, which is payable on August 30th to stockholders of record as of August 16th. The board continues to view dividends as an important way to share the success of the company with stockholders.

Brandon Gall: During the second quarter, we re-purchased approximately $2.5 million of our comments. and Stock, bringing the year-to-date share repurchase amounts of $7.5 million. We currently have more than $90 million remaining under the $100 million share repurchase program authorized by the Board of Directors in the first quarter. The Board of Directors also authorized a quarterly dividend of $0.12 per share, which is payable on August 30th to stockholders of record as of August 16th. The Board continues to view dividends as an important way to share the success of the company with stockholders. Turning to our outlook for the full year, given our first half performance, we are reiterating our full year guidance, with sales in a range of $742 million to $756 million.

Brandon Gall: The Board of Directors also authorized a quarterly dividend of 12 cents per share, which is payable on August 30th to stockholders of record as of August 16th.

Brandon Gall: The board continues to view dividends as an important way to share the success of the company with stockholders.

Brandon Gall: Turning to our outlook for the full year, given our first half performance, we are reiterating our full year guidance with sales in the range of $742 million to $756 million and adjusted EBITDA in the range of $218 million to $222 million. Adjusted basic earnings per share is forecasted to be in the range of $6.12 to $6.23 per share, assuming basic shares outstanding of approximately $22.3 million at year end.

Brandon Gall: Turning to our outlook for the full year.

Brandon Gall: Given our first half performance, we are reiterating our full year guidance with sales in the range of $742 million to $756 million.

Brandon Gall: Adjusted EBIDA in the range of $218 million to $222 million. Adjusted basic earnings per share is forecasted to be in the range of $6.12 to $6.23 per share. Assuming basic shares outstanding of approximately 22.3 million at your end.

Brandon Gall: Adjusted EBITDA in the range of $218 million to $222 million.

Brandon Gall: Adjusted basic earnings per share is forecasted to be in the range of $6.12 to $6.23 per share.

Brandon Gall: Assuming basic shares are outstanding of approximately 22.3 million at year-end.

Brandon Gall: As David mentioned, we expect stronger profits and earnings growth in the second half of 2024, weighted more towards the fourth quarter. Underpinning our confidence in stronger second-half and fourth-quarter growth are a few key points. First, we expect our premium plus brands momentum to continue. Distributor inventory levels for our brands are in good shape, and the positive impact from mixed shift to premium brands should enable us to deliver branded gross margins at a higher end of our mid to upper 40s percent.

Brandon Gall: As David mentioned, we expect stronger profits and earnings growth in the second half of 2024, weighted more towards the fourth quarter. Underpinning our confidence in stronger second half and fourth quarter growth are a few key points. First, we expect our Premium Plus brands momentum to continue. Distributor inventory levels for our brands are in good shape, and the positive impact from mixed shift to premium brands should enable us to deliver branded gross margins at a higher end of our mid to upper 40s per cent range. Second, we continue to have good visibility for our second half-ground good sales, the committed contracts for a vast majority of expected volumes.

Brandon Gall: As David mentioned, we expect stronger profits and earnings growth in the second half of 2024, weighted more towards the fourth quarter.

David Bratcher: First, we expect our premium plus brands momentum to continue. Distributor inventory levels for our brands are in good shape, and positive impact from mixed shift to premium brands should enable us to deliver branded gross margins at a higher end of our mid to upper 40s percent range.

Brandon Gall: Second, we continue to have good visibility for our second half ground goods sales, and we've committed contracts for the vast majority of expected volume. As mentioned earlier, our customers are adjusting their purchasing and shipments in response to changing market trends in an effort to manage their working capital in the current higher interest rate environment. Given that, similar to the first half, we expect Distilling Solutions sales and profits to continue to be lumpy and disproportionately more weighted toward the fourth quarter.

Speaker Change: Second, we continue to have good visibility for our second half ground goods sales. We committed contracts for a vast majority of expected volumes.

Brandon Gall: As mentioned earlier, our customers are adjusting their purchasing and shipments in response to changing market trends in effort to manage their working capital in the current higher industry environment. Given that, similar to the first half, we expect a filling solution sales and profits to continue to be lumpy and disproportionately more weighted toward the fourth quarter. Third, ingredient solution segment gross margin improved by nearly 400 basis points sequentially from the first quarter. And we expect this trajectory to continue in the second half as our specialty protein business ramps up in additional specialty product opportunities take form in the second half.

Speaker Change: As mentioned earlier, our customers are adjusting their purchasing and shipments in response to changing market trends in effort to manage their working capital in the current higher interest rate environment.

Brandon Gall: Third, the ingredient solution segment gross margin improved by nearly 400 basis points sequentially from the first quarter, and we expect this trajectory to continue in the second half as our specialty protein business ramps up and additional specialty product opportunities take form in the second half. Now, I turn things back over to David for concluding remarks.

David Bratcher: And now, let me turn things back over to David for concluding remarks. Thanks, Brandon. I would like to close by thanking and congratulating the talented and resilient MGP team for another quarter of strong operating performance. As they continue to adapt and execute at a high level in a dynamic environment, notwithstanding near-term trends, we remain optimistic about the long-term health and growth potential of the alcoholic beverage industry. We are fully committed.

David Bratcher: I would like to close by thanking and congratulating the talented and resilient MGP team for another quarter of strong operating performance as they continue to adapt and execute at a high level in a dynamic environment. Notwithstanding near-term trends, we remain optimistic about the long-term health and growth potential of the alcoholic beverage industry. We are fully committed. And, even more importantly, we are making consistent progress on our long-term strategy of becoming a premier branded spirits company and delivering attractive shareholder returns. That concludes our prepared remarks. Operator, we are ready to begin the question and answer portion of the call.

Speaker Change: Thanks, Brandon. I would like to close by thanking and congratulating the talented and resilient MGP team for another quarter of strong operating performance as they continue to adapt and execute at a high level in a dynamic environment.

Speaker Change: Notwithstanding near-term trends, we remain optimistic about the long-term health and growth potential of the alcoholic beverage industry.

David Bratcher: And even more importantly, we are making consistent progress on our long-term strategy of becoming a premier brand of swears company in delivering attractive, sure-holder returns.

Speaker Change: We are fully committed, and even more importantly, we are making consistent progress on our long-term strategy of becoming a premier brand new spirits company and delivering attractive shareholder returns.

Operator: That concludes our prepared remarks, Operator. We are ready to begin the question-and-answer portion of the call. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. And the first question will be from Robert Moskow from TD Cowen. Please go ahead.

Robert Moskow: And the first question will be from Robert Moskow from TD Cowan. Please go ahead.

Sean Excassidy: Hi, this is Sean Excassidy on Fredron Moskow, and thanks for the question. I was hoping sort of just given the strong volume growth in brown goods. If you could help contextualize the minus 18% price mix result, maybe just directionally, how much of this reflects incremental, new distillate mix shift versus sort of like for like change in age versus new pricing. And then, on that note, the growth margins of the segment came in ahead of our expectations. So just curious how this trend had relative to your expectations given sort of this intentional mix shifts to Newfell.

Seamus Cassidy: Hi, this is Seamus Cassidy on behalf of Ron Moskow, and thanks for the question. I was hoping, sort of just given the strong volume growth in brown goods, if you could help contextualize the minus 18% price mix result, maybe just directionally, you know, how much of this reflects an incremental new distillate mix shift versus sort of like-for-like change in age versus new pricing. And then on that note, you know, the gross margins for the segment came in ahead of our expectations. So, you know, just curious how this trended relative to your expectations, given sort of this intentional mix shift to do so. Thank you.

Speaker Change: maybe just directionally, you know, how much of this reflects incremental new distillate mix shift versus sort of like-for-like change in age versus new pricing.

Speaker Change: And then on that note, you know, the gross margins for the segment came in ahead of our expectations. So, you know, just curious how this trended relative to your expectations, given sort of this intentional makeshift to do so. Thank you.

Brandon Gall: Thank you.

Brandon Gall: Yeah, this is Brandon. Thanks for the question, Seamus. Yeah, that's exactly right. Brown Goods sales were up 3% in the quarter, led by volume. And to your point, the volume increase was driven by new distillate. As we've shared over the last couple quarters, we have increased and heightened our focus on new distillate sales. And we shared that we expect them to, you know, be the majority proportionally of our Brown Goods sales this year, and that is, in fact, playing out.

Brandon Gall: Yeah, this is Brandon. Thanks for the question, Channis. Yeah, that's exactly right. Brown goods sales were up 3% in the quarter, led by volume. At your point, the volume increased, was driven by new distillate. As we shared over the last couple quarters, we have increased night and dark focus on new distillate sales. And we're sure that we expect them to get a majority proportionally of our brown goods sales this year, and that is in fact playing out. So although the volume's been much greater there, the price mix had the kindness of result. So that's what you see me out of the shift there.

Speaker Change: Yeah, this is Brandon. Thanks for the question, Seamus.

Speaker Change: We have increased and heightened our focus on new distillate sales and we expect them to be a majority.

Brandon Gall: So although the volumes are much greater there, the price mix has declined as a result. So that's where you see the shift there. I will also add that it is mix-driven, in that pricing within new distillate was up year over year. And age pricing, too, was in line with expectations, but it was slightly down for the reason being that the average age of the barrels we sold during the quarter was younger than the same period last year. So the pricing moved as we would have expected with that. So the underlying very strong play out the way we anticipated and the way we planned.

Speaker Change: [inaudible]

Brandon Gall: I will also add that it is mixed driven. In that pricing, within your distillate, was up year over year. In age pricing too, what's in line with expectations, but it was slightly down for the reason being that the average age of the barrels we sold during the quarter was younger than the same period last year. So the pricing moved as we would have expected with that. So the underlying very strong played out the way we anticipated and the way we planned. That's helpful. Thanks. Good night, Nicky. Thank you.

Speaker Change: So, that's where you see the shift there. I will also add...

Speaker Change: that it is mixed-driven, in that pricing within Ubistolite was up year over year.

Operator: That's all, folks. Thanks. Bye-bye. Thank you.

Operator: Thank you. And the next question will be from Bill Chappell from Truist Securities. Please go ahead.

Bill Chappell: And the next question will be from Bill Chappelle from Truist Securities.

Speaker Change: That's helpful, thanks.

Speaker Change: Thank you. And the next question will be from Bill Chappell from Truist Securities. Please go ahead.

Bill Chappell: Please go ahead. Thanks for joining me. Just sticking on the distilling solutions segment, what are you seeing or hearing from your customers about kind of 2025? I guess there's concern that we're seeing a pause in spirits consumption, and obviously some of the bigger global players have been more cautious. And so I didn't know if you're hearing that in terms of indications for 25, if you're concerned about that or if that even played into any of your kind of back half guidance.

William Chappell: Hey, just sticking on the distilling solutions segment, I mean, what are you seeing or hearing from your customers about 2025? I guess there's concern that we're seeing a pause in spirits consumption. And obviously, some of the bigger global players have been more cautious. And so I didn't know if that You know, if you're hearing that in terms of indications for 25, if you're concerned about that, or if that even played into any of your kind of back half guidance.

Speaker Change: [inaudible]

Speaker Change: Just sticking on the distilling solutions segment, I mean...

Speaker Change: You know, if you're hearing that in terms of indications for 25, if you're concerned about that, or if that even played into any of your kind of back half guidance.

David Bratcher: Hey, David. It's a great question. So, as we've talked about multiple times, the advantage of the new discipline is that there's a contract basis. You know, we're hearing the same things that you would hear as you hear on other investor calls, but as we've said multiple times, as we look at the larger multinational customers and stuff that are buying on the new dislike basis, they continue to be optimistic about the future. The great thing about that business, as we've always said, is that it's contracted. Now, having that as we move into 2025, we've also said that we have an ongoing contractor rule process in place.

David Bratcher: Thank you all, David. It's a great question.

David Bratcher: So, as we've talked about multiple times, the advantage of the new discipline is that it is on a contract basis. You know, we're hearing the same things that you would hear as you'd hear on other investor calls, but I can, as we've said multiple times, as we look at these larger multinational customers and stuff that are buying on a new discipline basis, they continue to be optimistic about the future. The great thing about that business, as we've always said, is that it's profitable.

Speaker Change: You know, we're hearing the same things that you would hear as you would hear on other investor calls, but I can, as we've said multiple times, as we look at these larger multinational customers and stuff that are buying on the new distillate basis, they continue to be optimistic about the future. The great thing about that business, as we've always said, is that it's contracted. Now, having that, as we move into 2025, we've also said that we have an ongoing contract renewal process in place. And as we play through that, we're constantly in contact with them working through that. But today, you know, I think we're very optimistic and we're very happy with our strategy on the distillate because of that.

David Bratcher: Now, having that, as we move into 2025, we've also said that we have an ongoing contract renewal process in place, and as we go through that, we're constantly in contact with them, working through that, but today, you know, I think we're very optimistic and we're very happy with our strategy on the discipline because of that.

David Bratcher: And as we play through that, we're constantly in contact with them, working through that.

David Bratcher: But today, you know, I think we're very optimistic, and we're very happy with our strategy on this one because of that.

William Chappell: Got it. Thank you.

David Bratcher: Thank you. And then maybe the second question on the branded side, are you still moving forward? I mean, you had original plans to rationalize some of the subprimeum brands and exit that. Is that still in place? Or trying to understand the strength of the business if it's coming primarily from Penelope, if it's from some, you know, maybe talk about Yellowstone or some of the other premium brands. And then also, is it being offset still being offset as planned for the rationalization? Well, our Premium Plus category continues to grow, as you saw in our gross margin percentage.

David Bratcher: And then maybe the second question on the branded side: are you still moving forward? I mean, you had original plans to rationalize some of the sub-premium brands and exit that. Is that still in place? Or, you know, trying to understand the strength of the business if it's coming primarily from Penelope, if it's from some, you know, can maybe talk about Yellowstone or some of the other premium brands? And then also, is it being offset, still being offset as planned for the rationalization?

David Bratcher: Our premium plus category continues to grow, as you saw in our gross margin percentage; that is, the contribution of it in Penelope and Rubble and Elmedore and Yellowstone is all contributing to that. That is our core focus as we look ahead and become a brand experience company. But what we do at the same time is, as I've said, we always are going to offer a portfolio of products across very different categories and different price points.

Brandon Gall: That is the contribution of it in Penelope and Rubble and Elme or and Yellowstone are all contributed. That is our core focus as we look at as we move forward and becoming a brand of Spirit's company. But what we do at the same time is we, as I've said, we always are going to offer a portfolio of products across very, you know, very different categories and different price points. When we talk about rationalizing, we tend to talk about rationalizing the value price point, not so much the mid. Although there are a lot of mids that we continue to rework and try to reprice into that premium, at least Premium category.

Speaker Change: and Yellowstone are all contributing to that. That is our core focus as we look at, as we move forward and becoming a brand experience company. But what we do at the same time is we, as I've said, we always are going to offer a portfolio of products across

David Bratcher: When we talk about rationalizing, we tend to talk about rationalizing the value price point, not so much the mid. Although there are a lot of mids that we continue to rework and try to reprice into that premium, at least the premium category. So it is a strategy, yes, to answer your question, we have rationalized some, and we continue to focus on the value side. But that has slowed quite a bit, and we're starting to see the results of that effort.

Speaker Change: We have a lot of different categories and price points. When we talk about rationalizing, we tend to talk about rationalizing the value price point, not so much the mid. Although there are a lot of mids that we continue to rework and try to reprice into that premium, at least premium category.

Brandon Gall: So it is a strategy. We get to answer your question. We have rationalized some, and we continue to focus on the value side, but that has slowed quite a bit, and we're starting to see the results of that effort. Yeah, just to add to that a little bit, Bill. So yeah, in the quarter, our mid and value were, you know, flatish, which is an improvement. We typically see it for those two points. And the reason for that is it was a very weak comp last year. And so, as you'll recall, in Q1 of 2023, we had our national distributor alignment.

Speaker Change: So it is a strategy, yes, to answer your question, we have rationalized some and we continue to focus on the value side.

Brandon Gall: Yeah, just to add to that a little bit, Bill. So, yeah, in the quarter, mid and value were flattish, which is an improvement relative to what we typically see for those two price points. And the reason for that is that it was a very weak cop last year.

Speaker Change: But that has slowed quite a bit, and we're starting to see the results of that effort. Yeah, just to add to that a little bit, Bill, so, yeah, in the quarter, mid and value were, you know, flattish, which is an improvement relative to what we typically see for those two price points.

Brandon Gall: And so, as you recall, in Q1 of 2023, we had our national distributor realignment. And in March, there was a pipeline filled for mid and value. And so, the result for Q2 of last year for mid was down 27% and for value was down 10%. So, that's what we were cycling through.

Brandon Gall: And in March, there was a pipeline fill for mid and value. And so the result was Q2 of last year for mid, with down 27% and values down 10%. So that's what we were cycling through. We do not expect. So once the sub-paid mid and value, you know, to show this type of growth or hoping serve from that perspective for us here. Yeah, and that could be able to just add one piece of that.

David Bratcher: We do not expect or anticipate mid and value, you know, to show this type of growth or hoarding serve from that perspective for the rest of the year. Yeah, and Bill, just to add one more piece to that, as we look forward in our evolution as a company, we will focus on developing innovation, M&A, all the things that are necessary at that premium plus price point category. But it doesn't necessarily mean we're going to shed every mid that we have and stuff. Because I think part of what makes us unique and part of what's real in our industry is that you have to service customers across multiple price points.

David Bratcher: As we look forward in our evolution as a company, we will focus on developing an innovation and M&A. All the things that are necessary at that premium plus price point category, but it isn't necessarily me. We're going to shed every mid that we have and stuff. Because I think part of what makes us unique and part of what's real in our industry is that you have to service customers across multiple price points.

William Chappell: Got it. Just a follow-up to the follow-up to the follow-up. It doesn't sound like you're seeing or hearing much inventory destock from distributors this quarter, as certainly compared to last year, but even from the first quarter.

David Bratcher: Got it. Just follow up to the follow up to the follow up. It doesn't sound like you're seeing or saw much inventory destock from distributors this quarter, as certainly compared to last year, but even from first quarter. Yeah, no, I mean, we, as we said the last time, our inventory levels, and we do monitor that, are at our distributors, are holding consistent. I think I find it also interesting that now you're starting to see other people talk about the consistent inventory. Now they're talking a little more on the retail level. I think, you know, I can tell for our company that our inventory is exactly where we need it has been exactly where we needed it.

Speaker Change: Got it. Just a follow-up to the follow-up to the follow-up. It doesn't sound like you're seeing or saw much inventory destock from distributors this quarter as certainly compared to last year but even from first quarter.

David Bratcher: Yeah, no, I mean, as we said the last time, our inventory levels, and we do monitor them at our distributors, are holding consistent. I think I find it also interesting that now you're starting to see other people talk about the consistency of the inventory, and now they're talking a little more on the retail level. I think, you know, I can tell for our company that our inventory is exactly where we need it, has been exactly where we need it, and we continue to monitor it on a daily basis. Great. Thank you.

Speaker Change: Yeah, no, I mean, as we've said the last time, our inventory levels, and we do monitor it at our distributors, are holding consistent. I think that I find it also interesting is now you're starting to see other people talk about the consistency of the inventory, and now they're talking a little more on the retail level.

Speaker Change: I think, you know, I can tell for our company that our inventory is exactly where we need it, has been exactly where we need it, and we continue to monitor it on a daily basis.

David Bratcher: We continue to monitor on a daily basis.

William Chappell: Great, thanks so much.

Bill Chappell: Great.

Bill Chappell: Thanks so much.

Bill Chappell: Thank you, Bill.

Marc Torrente: Hey, the next question will be from Marc Torrente from Wells Fargo. Please go ahead. Hey, good morning. Thank you for the questions. Just a couple of years. On back to the branded side, total sales were up strong double digits, premium plus, and you're weight 30%. You anniversary the penalty acquisition during the quarter, which provided some support sales, maybe like mid single digits contribution to the segment over the last few quarters.

Operator: And the next question will be from Marc Torrente from Wells Fargo. Please go ahead.

Speaker Change: Great. Thanks so much.

Bill Chappelle: Thank you, Bill.

Bill Chappelle: And the next question will be from Marc Torrente from Wells Fargo. Please go ahead.

Marc Torrente: Hey, good morning. Thank you for the questions. There are just a couple here.

Brandon Gall: Back to the branded side, total sales were up strong, double digits, premium plus nearly 30%. You anniversary the Penelope acquisition during the quarter, which provided some support sales, maybe like a mid single digit contribution to the segment over the last few quarters. What's your level of confidence that you can continue to grow this segment given the category and macro backdrop, maybe some of the near-term opportunities you're seeing in terms of brand distribution?

Speaker Change: Hey, good morning. Thank you for the questions. Just a couple here. Back to the branded side, total sales were up strong, double digits, premium plus, nearly 30%.

Marc Torrente: What's your level of confidence that you can continue to grow this segment, given the category and macro backdrop, maybe some of the near-term opportunities you're seeing in terms of brand distribution. Yeah, thanks for the question, Marc. Brandon, I'll start out with David, and I'll fill in my gaps, but it just continued execution. You know, in the quarter, you're exactly right. So just for everybody else, June 1st was the anniversary of LP acquisition in that close. So we did get a couple of months of benefit in the quarter, but the rest of the premium plus portfolio did show robust growth, even if you pick out an LP.

Mark Torrenti: What's your level of confidence that you can continue to grow this segment given the category and macro backdrop? Maybe some of the near-term opportunities you're seeing in terms of brand distribution?

Brandon Gall: But it's just continued execution. You know, in the quarter, you're exactly right. So, just for everybody else, June 1st was the anniversary of the Penelope acquisition when that closed. So, we did get a couple months of benefit in the quarter. But the rest of the Premium Plus portfolio did show robust growth, even if you pick out Penelope. So, we're very, very proud of that, and that's being led by the brand that David mentioned, and including our Tequila portfolio in Premium Plus did also very well.

Brandon Gall: Yeah, thanks for the question, Mark. This is Brandon. I'll start, I'll let David fill in my gaps. But it's just continued execution. You know, in the quarter, you're exactly right. So just for everybody else, June 1st was the anniversary of the Penelope acquisition, when that closed. So we did get a couple of months of benefit in the quarter. But the rest of the Premium Plus portfolio did show robust growth, even if you take out Penelope. So we're very, very proud of that. And that's being led by the brand that David mentioned. And including our Tequila portfolio in Premium Plus also did very well. We also had a nice uptick in our allocated items of Premium Plus offerings. And we expect that to sequentially improve as the year goes on as well.

David Bratcher: So we're very, very proud of that. And that's being led by the brand that David mentioned, and including our kilo portfolio and Premium Plus also did very well. We also had a nice uptick in our allocated items of Premium Plus offerings. And we expect that to sequentially improve that the years are on as well. So the way we see the rest of the year playing out and what gives us optimism. It's just what we talked about. It's continued focus on gaming penetration penetration and the points of distribution and growing that way, organically within the United States.

Brandon Gall: We also had a nice uptick in our allocated items for Premium Plus offerings, and we expect that to sequentially improve as the year goes on as well. So, the way we see the rest of the year playing out and what gives us optimism is just what we talked about. It's just continued focus on gaining penetration in the points of distribution and growing that way organically within the United States. And I think, you know, we've been—thanks.

David Bratcher: So, the way we see the rest of the year playing out and what gives us optimism is just what we talked about. It's just continued focus on gaining penetration in the points of distribution and growing that way organically within the United States. I think, you know, we've been, thanks, let me add to that a little bit. I think what's unique about us, and we've talked about this for the last couple of quarters, is compared to our peer set, especially in the branded sphere side, is the white space opportunity. Even if someone wanted to view consumption or whatever, if you look at where we're at and the opportunity that we have with the brands we have, it's wide open. And this is why you're continuing to see growth in that. Penelope is another, just a perfect example.

David Bratcher: Thanks. Let me add to that a little bit. I think what's unique about us, and we talked about this for the last couple of quarters, is compared to our peer side, especially in the branded sphere, there is a white space opportunity. Even if someone wanted to view consumption law or whatever, if you look at where we are at and the opportunity that we have with the brands we have, it's wide open, and this is why you're continuing to see growth in that.

Brandon Gall: And I think you know, we've been thanks. There's only added a little bit.

David Bratcher: I think what's unique about us, and we talked about this for the last couple of quarters, is compared to our peers, especially in the brand, it's weird. There's outside is the white space opportunity, even if someone wanted to view consumption or whatever. The if you look at where we're at and the opportunity that we have with the brands we have, it's wide open. And this is why you're continuing to see growth in that penalty; is another just a perfect example. It just this quarter alone, we expanded into seven more states. So as we move forward and we look at innovation, we look at those focus brands, we look at MNA opportunity, that is where we can be different than our other peers.

David Bratcher: Penelope is another perfect example. Just this quarter alone, we expanded into seven more states. So as we move forward and we look at innovation, we look at those focus brands, we look at M&A opportunities, that is where we can be different than our other peers.

Brandon Gall: Okay. Thank you for that. And then just building on the branded opportunity, you saw record gross margins during the quarter. How much of that was shipment timing versus just underlying. Next momentum, and how do you see that playing out through the rest of the year? Yeah, it was not a surprise to us when, you know, when in 2021, when the merger between MGT and Mexico took place, gross margins were in the mid 30s. And if you look at our quarterly results ever since then, it's been a steady step up to the record 52 and a half percent that we just posted this quarter.

Brandon Gall: Okay, thank you for that. And then, just building on the branded opportunity, you saw record gross margins during the quarter. How much of that was shipment timing versus just underlying mixed momentum, and how do you see that playing out through the rest of the year?

Speaker Change: All right, thank you for that. And then just building on the branded opportunity, you saw record gross margins during the quarter. How much of that was shipment timing versus just

Speaker Change: underlying mix momentum and how do you see that playing out through the rest of the year?

Brandon Gall: Yeah, it was not a surprise to us. You know, in 2021, when the merger between MGP and Mexico took place, gross margins were in the mid-30s. And if you look at our quarterly results ever since then, it's been a steady step up to the record 52.5% that we just posted this quarter. And it's just continued execution. It's focus, it's investment in A&P on this premium plus grants, which come, as you'd imagine, with a much higher margin. And it's just been just continued execution on that front. Yeah, Marc, I think you're the best.

Speaker Change: yeah

Speaker Change: It was not a surprise to us when, in 2021, when the merger between MGP and Mexico took place.

Speaker Change: Gross margins in the mid-30s, and if you look at our quarterly results ever since then, it's been a steady step up.

Brandon Gall: And it's just continued execution. It's it's focused. It's invested in M&P on this premium plus brands that's come as we'd imagine with much higher margin. And it's just then just continued execution of that. Maybe I'm already the best way to say it is, is if you look at what I just said earlier, our inventory remain level. If we were outweighing shipments, you'd see a climb in it, you know, versus the pleatians. We monitor our shipment, the pleatians very closely. I think I've indicated it in the past; even if we look at the internal compensation system for our own sales team and stuff, they're all of the pleatian based, not shipment based.

Speaker Change: to the record 52.5% that we just posted this quarter. And it's just continued execution. It's focus, it's investment in A&P on those premium plus brands which come, as you'd imagine, with a much higher margin. And it's just continued execution on that front.

David Bratcher: Yeah, Marc, I think the best way to say it is, if you look at what I just said earlier, our inventory remains level. If we were outweighing shipments, you'd see a climb in it, you know, versus depletions. We monitor our shipment depletions very closely. I think I've indicated it in the past. Even if we look at the internal compensation system for our own sales team and stuff, they're all depletion-based, not shipment-based. And again, I think that's what makes us unique, and it doesn't encourage channel stuffing or loading, and it allows us to better manage that inventory.

Speaker Change: Yeah, Marc, I think the best way to say it is, if you look at what I just said earlier, our inventory remains level. If we were outweighing shipments, you'd see a climb in it, you know, versus depletions. We monitor our shipment depletions very closely. I think I've indicated it in the past.

Speaker Change: Even if we look at the internal compensation system for our own sales team and stuff, they're all depletion-based, not shipment-based. And again, I think that's what makes us unique, and it doesn't encourage channel stuffing or loading, and it allows us to better manage that inventory.

Brandon Gall: And again, I think that what's what makes this unique, and it doesn't encourage channel stuff either loading and allows us to better manage that inventory.

Brandon Gall: Okay, and then if I could squeeze in more and more, you talked about the opportunity over time to improve free cash flow conversion as you shift more to a new distillate model and branded strategy. You're finishing up a few larger capital projects this year that require elevated Cap X. Maybe help contextualize the longer term opportunity here and maybe sort of progress we may see in the next year. Thanks. Yeah, great question. So there's really two catalysts that are going to change the free cash flow profile of our business. And the first one, as you mentioned, is Cap X.

Marc Torrente: Okay, and then if I could squeeze in one more, you've talked about the opportunity over time to improve free cash flow conversion as you ship more to the new distillate model and branded strategy. You're finishing up a few larger capital projects this year that require elevated cap back. Thank you. Yeah, great.

Speaker Change: Okay, and then if I could squeeze in one more. You talked about the opportunity over time to improve free cash flow conversion as you shift more to a new distillate.

Speaker Change: model and branded strategy. You're finishing up a few larger capital projects this year that require elevated CapEx. Maybe help contextualize the longer-term opportunity here and maybe sort of progress we may see in the next year. Thanks.

Brandon Gall: Yeah, great question. So, there are really two catalysts that are going to change the free cash flow profile of our business. And the first one, as you mentioned, is CapEx. We are at a high watermark for CapEx this year. As you recall, we expect to spend or invest approximately $85 million on CapEx projects. The majority of those are warehouse-related. And we've had great success through continuous improvement efforts and some capital, really increasing our throughput at our distilleries. So, the warehouses now have to play catch up to support that growth. And so, that's going to continue on a little bit into 2025 as well, although not at such a high level.

Speaker Change: Yeah

Speaker Change: Great question. So there's really two catalysts that are going to change the free cash flow profile of our business.

Brandon Gall: We are at a high water mark for Cap X this year. As we recall, we expect to spend our invest approximately 85 million in cap X projects. The majority of those are warehouse related. And you know, we've had great success through continuous improvement efforts in some capital, really increasing our throughput at our distilleries. So the warehouses now have to play catch up to support that growth. And so that's going to continue on a little bit in 2025 as well. Although not as high of a level, you know, it will give a full read on Cap X later on.

Speaker Change: And the first one, as you mentioned, is CAPEX. We are at a high water mark for CAPEX this year.

Speaker Change: As you recall, we expect to spend or invest approximately $85 million.

Speaker Change: Mike Houston, David Colo, Brandon Gall, David Colo, Brandon Gall, Mike Houston, David Colo,

Speaker Change: So the warehouses now have to play catch up to support that growth. And so that's going to continue on a little bit into 2025 as well, although not as high of a level. We'll give a full read on CapEx later on, but we expect it to take down maybe closer to $60 million next year.

Brandon Gall: But, you know, we expect it to take down maybe closer to $69 million next year and then even lower thereafter. So that's where we expect to see the free cash flow pickup from capital. But also on the inventory put away. That's another large item. So last year in 2023, on a net basis, are inventory increase more than $50 million. In this year, we expect that number to be roughly half of that. And that's, you know, because of what you just said, we're allocating a lot of our production throughput to new district customers. And we are still putting away.

Brandon Gall: We'll give a full read on CapEx later on, but we expect it to take down maybe closer to $60 million next year and then even lower thereafter. So, that's where we expect to see the free cash flow pick up from capital, but also on inventory put away. That's another large item. So, last year, in 2023, on a net basis, our inventory increased more than $50 million. And this year, we expect that number to be roughly half of that. And that's because of what you just said.

Speaker Change: [inaudible]

Speaker Change: And this year we expect that number to be roughly half of that.

Brandon Gall: We're allocating a lot of our production throughput to new distillate customers, and we are still putting it away. We are still investing there, but we feel very good about the level of our inventory. And we feel like we can continue investing but don't need to at such an accelerated clip. So, just through those two capital allocation shifts or adjustments, there's going to be much more free cash flow to fall to investors to invest in other areas of business.

Speaker Change: Because of what you just said, we're allocating a lot of our production throughput to new distillate customers. And we are still putting away, we are still investing there, but we feel very good about the level of our inventory, and we feel like we can continue investing but don't need to at such an accelerated clip.

Brandon Gall: We are still investing there, but we feel very good about the level of our inventory. And we feel like we're we continue investing, but don't need to at such an accelerated clip. So just do those two capital allocation shifts or adjustments. There's going to be much more free cash flow to fall to investors to invest in other areas of business. Thank you.

Speaker Change: So, just through those two capital allocation shifts or adjustments, there's going to be much more free cash flow to fall to investors to invest in other areas of business.

Operator: Thank you. And the next question will be from Ben Klieve from Lake Street. Please go ahead.

Ben Cleve: And the next question will be from Ben Cleve from Lake Street. Please go ahead. All right. Thanks for taking questions. Congratulations on the nice corner, guys. First, you got a question. They're following your comment on penalty and the distribution. You said that penalty moved into seven new states here in Q2. I'm wondering if you can remind us what the distribution was at this point last year and what the overall distribution levels are right now. Kind of trying to understand the level of year-over-year growth. We could still see from penalty. Now that it's left in the second half of the year.

Speaker Change: Thank you. And the next question will be from Ben Cleave from Lake Street. Please go ahead.

Benjamin Klieve: All right, thanks for taking the questions and congratulations on a nice quarter, guys. First, we've got a question, David, following your comment on Penelope and the distribution. You said that Penelope moved into seven new states here in Q2. I'm wondering if you can remind us what the distribution was at this point last year and what the overall distribution levels are right now. I'm kind of trying to understand the level of year-over-year growth. We can still see from Penelope now that it's lapsed in the second half of the year.

Ben Cleave: Alright, thanks for taking the questions and congratulations on a nice quarter, guys. First, we've got a question, David, following your comment on Penelope and the distribution. You said that Penelope moved into seven new states here in Q2.

Ben Cleave: I'm wondering if you can remind us what the distribution was at this point last year and what the overall distribution levels are right now, kind of trying to understand the level of year-over-year growth we can still see from Penelope now that it's lapsed in the second half of the year.

Brandon Gall: Yeah, this is Brandon. Thanks for the question, Ben. Yeah, so when we closed the Penelope acquisition in June, there were, you know, right around 30 states, maybe a couple more than that, and then we finished 2023 at 37 states in total. And so, by the end of this year, or sorry, we added two more states in Q1 and seven in Q2. Probably by this time next year, we expect to be in about all 50.

Brandon Gall: Yeah.

Brandon Gall: This is Brandon. Thanks for the question. Ben. Yeah, so we closed the penalty acquisition in June. They were, you know, right around 30 states. Maybe a couple more than that. And then we finished 2023 at 37 states in total. And so by the end of this year, sorry, we added two more states in Q1 and 7 in Q2. Probably by this time next year, we expect to be in about all 50. Not all states are in all markets are equal. I do want to remind you that some states are much larger and can have more of an impact than others.

Ben Cleave: Yeah, this is Brandon. Thanks for the question, Ben. Yeah, so when we closed the Penelope acquisition in June, there were, you know, right around...

Ben Cleave: 30 states, maybe a couple more than that, and then we finished 2023 at 37 states in total.

Ben Cleave: And so by the end of this year, sorry, we added two more states in Q1 and seven in Q2. Probably by this time next year, we expect to be in about all 50. Not all states and all the markets are equal. I do want to remind you that some states are much larger and can have more of an impact than others.

David Bratcher: Not all states are equal, and not all markets are equal. I do want to remind you that, you know, some states are much larger and can have more of an impact than others. But, yeah, we are, you know, trying to be very thoughtful and deliberate about how we roll this out. We don't want to move too fast. We want to make sure that market support is there. When we do, I'm not going to stay here.

David Bratcher: But yeah, we are, you know, we're trying to be very thoughtful and deliberate about how we roll this out. We don't want to move too fast. We're going to make sure that the market support is there when we do a market state. And Ben, I think the bad that moving into a state is just step one. That opens up a whole new area of light space as we expand, expand pod. So you might go into a state and align with someone and, you know, come out of the gate with pick a number of pods. But once you're in there, and you're able to benchmark other competitors, the real opportunity as we move forward is expansion in that state.

Ben Cleave: But yeah, we are, you know, we're trying to be very thoughtful and deliberate about how we roll this out. We don't want to move too fast. We want to make sure that the market support is there when we do a market exchange. And Ben, I think that, to add to that, moving into a state is just step one.

Ben Cleave: That opens up a whole new area of light space as we expand PODS. So you might go into a state and...

David Bratcher: But once you're in there and you're able to benchmark other competitors, the real opportunity as we move forward is expansion in that state. So, it's just one, but I look at it as the opportunity in those states to continue that expansion and momentum. And that's not only true of Penelope. It's true of any of our products that we make. As we enter into something, we try to find the right pods to expand at a competitive level.

Ben Cleave: and align with someone and, you know, come out of the gate with, pick a number of pods. But once you're in there and you're able to benchmark other competitors, the real opportunity as we move forward is expansion in that state. So it's just one, but I look at it as the opportunity within those, in those states to continue that expansion and momentum forward.

David Bratcher: So it's just one, but I look at it at the opportunity within those in those states to continue that expansion and momentum forward. And that's not only true, but now it's true on any of our products that we do. As we enter something, we try to find the right pods to expand at a competitive level. Got to appreciate that. That's helpful.

Ben Cleave: And that's not only true on Penelope, it's true on any of our products that we do. As we enter something, we try to find the right pods to expand at a competitive level.

Benjamin Klieve: Got it. Got it. I appreciate that. That's helpful. One other big picture question. I'll get back in queue.

David Bratcher: One of the big picture questions I'll get back in Q, you talked about selectively pursuing M&A. In this environment where the spirit segment is facing a share of dynamics, how is your view of M&A evolved here of later? Are you seeing more brands become available in your targeted categories, or those targets moving, or valuations coming down? Any insights on the M&A environment would be great. I would call the deal flow choppy, just a little, because we got to think about the whole environment, the dynamic environment, and where people are setting back and trying to really understand what's going on.

Speaker Change: Got it. Got it. I appreciate that. That's helpful. One other big-picture question. I'll get back in queue. You talked about selectively pursuing M&A. In this environment where the spirit segment is facing its share of dynamics,

David Bratcher: You talked about selectively pursuing M&A. In this environment where the spirit segment is facing its share of dynamics, how has your view of M&A evolved here of late? Are you seeing more brands become available in your targeted categories? Are those targets moving? Are valuations coming down? Any insights on the M&A environment would be great.

Speaker Change: How has your view of M&A evolved here of late? Are you seeing more brands become available in your targeted categories? Are those targets moving? Are valuations coming down? Any insights on the M&A environment would be great.

David Bratcher: I would call the deal flow choppy, just a little, because we've got to think about the whole environment, the dynamic environment, and where people are setting back and trying to really understand what's going on. Now, having said that, we are seeing opportunities, but we've reinforced this for a few quarters in a row that we want to make sure it's the right opportunity, that it's margin-creative, that it gets us closer to our peers on our gross margin percentage and all.

Speaker Change: I would call the deal flow choppy, just a little, because we got to think about the whole environment, the dynamic environment, and where people are setting back and trying to really understand what's going on. Now, having said that, we are seeing opportunities, but

David Bratcher: Now, having said that, we are seeing opportunities, but we've reinforced this for a few quarters in a row that we want to make sure it's the right opportunity, that it's margin and creative, that it gets us closer to our peers on our growth margin percentage and all. So we are seeing deal flow, being able, but that's different than actually being able to pick one that we want to do the right thing on. I expect that we'll continue to seek increased deal flow over the rest of this year and in the 25. Okay, very good. I appreciate you taking my questions.

Speaker Change: We've reinforced this for a few quarters in a row, that we want to make sure it's the right opportunity, that it's margin-creative, that it gets us closer to our peers on our gross margin percentage, and all.

David Bratcher: So, we are seeing deal flow, but that's different than actually being able to pick one that we want to do the right thing on. I expect that we'll continue to see increased deal flow over the rest of this year and into 2025.

Benjamin Klieve: Okay, very good. I appreciate you taking my questions. I'll get back in queue.

David Bratcher: I'll get back in Q. Thanks, Bill.

Operator: Thanks, Bill. Thanks, everyone.

David Bratcher: I'll thank them.

Mitchell Pinheiro: The next question is from Mitchell Pinheiro from Sturdivant and Company. Please go ahead.

Mitchell Panero: The next question is from Mitchell Panero from Sturdivan and Company. Please go ahead. Hey, good morning.

Bill Chappelle: Thanks, Bill. Thanks, everyone.

Operator: Hey, uh, good morning. Morning, Mitch.

Mitchell Panero: I'm just curious whether, from a revenue point of view, there was in the distilling solution segment, whether there was any differentiation between, you know, your multi-nationals, nationals and craft segments. Yeah, great question. So, if you get back to how we talked about that business, new distillate customers tend to be more multinational, and whereas our age customers tend to be more craft and regional. And so, as we focus more on the new distillate, those are going to be the types of customers we're going to be dealing with, more so on a relative basis. You know, on the eight side, that's where, you know, we have experienced some happiness.

Mitchell Pinheiro: I'm just curious whether... from a revenue point of view. There was in the distilling solution segment whether there was any differentiation between, you know, your multi-nationals, nationals, and crafts. [inaudible]

Speaker Change: I'm just curious whether...

Brandon Gall: Yeah, great question. So, if you go back to how we talked about that business, new distillate customers tend to be more multinational, whereas our aged customers tend to be more craft and regional. And so, as we focus more on the new distillate, those are going to be the types of customers we're going to be dealing with, more so on a relative basis. You know, on the aged side, that's where we have experienced some choppiness.

Speaker Change: Yeah, great question. So, if you go back to how we talked about that business...

Speaker Change: New Distillate customers tend to be more multinational and whereas our age customers tend to be more craft and regional. And so as we focus more on the New Distillate, those are going to be the types of customers we're going to be dealing with, more so on a relative basis.

Speaker Change: On the age side, that's where we have experienced some choppiness. However, we entered the year having lived through a cycle like this before, expecting that, which is why we positioned it as just the way we did.

David Bratcher: How have we ended, you know, the year, you know, having looked through the cycle like this before, expecting that, which is why we positioned the business the way we did it more toward new distillate. You know, the age customer, the more craft and regional customer, and we talked about this as well as shifted from buying just in case to more so buying just in time. And so, we expect that to continue, you know, throughout the rest of this year, at least. But we feel like we've done a good job in managing the business just to be predictable in the way we have.

Brandon Gall: However, we entered the year, you know, having lived through a cycle like this before, expecting that, which is why we positioned the business the way we did, more toward new distillate. You know, the aged customer, the more craft and regional customer, and we've talked about this as well, has shifted from buying just in case to more so buying just in time. And so, we expect that to continue, you know, throughout the rest of this year, at least. But we feel like we've done a good job in managing the business to still be predictable in the way we have. I'd add to that.

Speaker Change: More important news, let's go ahead.

Ben Cleave: The aged customer, the more crafty customer, and we talked about this as well, has shifted from buying just in case to more so buying just in time.

Ben Cleave: And so we expect that to continue, you know, throughout the rest of this year at least.

Ben Cleave: But we feel like we've done a good job in managing the business to still be predictable in the way we have.

David Bratcher: I'd add to that, if you think about the distilled solution segment of our business, what makes it unique, speaking as a long-term brands guy, is the offering that we offer. There are people who can sell other whiskeys, but to the level that MGP does it, the uniqueness of the mash bills, their ability to change very quickly in response to those customers at a super competitive price with them, I think it sets us apart, even in maybe a choppy period of time. They're going to continue to come back, and as you've heard from others, we still have confidence in the American whiskey category.

David Bratcher: I'd add to that, if you think about the distillation segment of our business, what makes it unique, speaking as a long-term brand-to-guy, is the offerings that we offer. There are people who can sell other whiskeys, but to the level that NGP does it. In uniqueness of the mash bills, there are ability to convert very quickly in response to those customers that have super competitive price of them. I think it sets us apart even in a, maybe, a choppy period of time. You know, they're going to continue to come back and, as you heard from others, we still have confidence in the American whiskey category.

Speaker Change: I'd add to that, if you think about the sales solution segment of our business, what makes it unique, speaking as a long-time brands guy, is the offerings that we offer. There are people who can sell other whiskeys, but to the level that MGP does it, the uniqueness of the mash bills.

Speaker Change: of Time. You know, they're going to continue to come back. And as you've heard from others, we still have confidence in the American whiskey category. Has it been choppy? Has it slowed some? Yes.

David Bratcher: Has it been choppy? Has it slowed some? Yes, but it's still there. It's still rising. The opportunity, we've said over and over, is not only in the U.S., it's in Europe. It's in a lot of other categories that we can do and offers us an expansion opportunity because we do have that business segment, whereas a lot of peers that we have don't necessarily compete in

David Bratcher: Has it been choppy? Has it slowed some? Yes. But it's still there. It's still rising. The opportunity we've said over and over is not only in the US; it's in Europe. It's in a lot of other categories that we do, that we can do, and offers us expansion opportunity because we do have that business segment, whereas a lot of peers that we have, don't necessarily compete in that area.

Speaker Change: but it's still there. It's still rising. The opportunity, we've said over and over, is not only in the U.S., it's in Europe. It's in a lot of other categories that we can do and offers us expansion opportunity because we do have that business segment, whereas a lot of peers that we have don't necessarily compete in that area.

Brandon Gall: And very helpful. Um, how does that When you look at the barrel distillate that you're putting away, is that, you know? I guess more and more of that distillate is going to be for your own brands. Are you putting away more now for third-party customers? Or is this going to be, is this most of the new distillate on the age side? Or the new barreled distillate, is that? Is that for your own brands now? I mean, is that where you're getting at it?

David Bratcher: I'm very helpful. How does that, when you look at the barrel distillate that you're putting away, is that, you know, I guess more and more of that distillate is going to be for your own brands. Are you putting away more now for third-party customers, or is this most of the new distillate in the age? Or the new barrel distillate, is that for your own brands now? I mean, is that where, is that where you're putting it? Yeah, so, so last year when we put away, you know, quite a bit of whiskey, much of that was the majority of that was definitely for distillation's customers.

Speaker Change: And very helpful. How does that...

Speaker Change: When you look at the barrel distillate that you're putting away...

Speaker Change: is

Speaker Change: Is that, you know...

Speaker Change: I guess more and more of that distillate is going to be for your own brands. Are you putting away more now for third-party customers, or is this going...

Speaker Change: Is this most of the new distillate in the age side, or the new barrel distillate?

Brandon Gall: Yeah, so last year when we put away quite a bit of whiskey, much of that was, you know, the majority of that was definitely for Distilling Solutions customers. This year, when that number has come down a bit, it's gotten a little bit more in parity in terms of whether it's for our own brands or for Distilling Solutions customers, but we're still investing in both, is the main takeaway here. So we have a lot of confidence in both.

Speaker Change: Is that for your own brands now?

Speaker Change: Yeah, so last year when we put away, you know, quite a bit of whiskey, much of that was, you know, the majority of that was definitely for Distilling Solutions customers.

David Bratcher: This year and I never has come down a bit. It's kind of a little bit more in parity in terms of whether it's for our own brands or for Distillation's customers, but we're still investing for both, is the main takeaway here. So, we have a lot of confidence in both. Like I said, we've seen these many cycles before, and we expect things as they settle out with the consumer and with interest rates, you know, it's returned to a more normalized level of growth. Now I would add to that too, if you think about it, and we've said this in prior course, what makes us, again, unique is our ability to take new interns into the category and bridge them from today to four years from today.

Speaker Change: This year, that number has come down a bit.

Speaker Change: It's gotten a little bit more in parity in terms of whether it's for our own brands or for Displaying Solutions customers, but we're still investing for both is the main takeaway here.

Brandon Gall: Like I said, we've seen these many cycles before, and we expect things, as they settle out with the consumer and with interest rates, to return to a more normalized level of growth.

Speaker Change: So we have a lot of confidence in those. Like I said, we've seen these many cycles before.

Speaker Change: And, you know, we expect things, as they said, a lot with the consumer and with interest rates.

David Bratcher: I would add to that, too, and we've said this in prior quarters, what makes us, again, unique is our ability to take new entrants into the category and bridge them from today to, you know, four years from today. So with that, we are always going to be putting up a layaway or a putaway for our future customers. I mean, that is what we offer that is unique.

David Bratcher: And I would add to that too, if you think about it, and we've said this in prior quarters, what makes us again unique is our ability to take new entrants into the category and bridge them from today to, you know, four years from today.

David Bratcher: So, with that, you know, we are always going to be putting up layaway or put away for future customers. I mean, that is what we offer that you meet. There may be other interns into the category and the distillation business, but when they have zero on it, it's very hard. The customer can come to us today, paint a vision for us, we help them develop their products, provide you new products to them. And so, now, like we do that, I can get you and get you in the market today and continue to push your brand and help you grow your brand to become a new larger new distillant customer.

Speaker Change: So with that, you know, we are always going to be putting up.

Speaker Change: Mike Houston, David Colo, Brandon Gall, David Colo, Brandon Gall, David Colo, David Colo, Mike Houston, David Colo, Brandon Gall, David Colo, Brandon Gall, David Colo, Brandon Gall,

David Bratcher: There may be other entrants into the category in the distillation business, but when they have zero on it, it's very hard. A customer can come to us today, paint a vision for us, we help them develop their products, provide unique products to them, and say, now that we have done that, I can get you in the market today and continue to push your brand and help you grow your brand to become a new, larger, new distillate customer.

David Bratcher: And just one follow-up is just, we'd love to hear your thoughts or any update on potential international sales. If it continues to be a focus area, I mean, I've said for a long time, even for a very long time, but that is the opportunity market. American whiskey in Europe is lagged, and typically on some of these categories, they can change your lag. I'll even call out to Keela; you're starting to see a little to Keela alive in the European market success. So, I do believe that the long-term opportunity is in Europe. We do have feet on the ground.

David Bratcher: And just one follow up: I would love to hear your thoughts or any update on potential international sales.

Speaker Change: and just one follow-up is just

Speaker Change: We'd love to hear your thoughts or any update on potential international sales.

David Bratcher: It continues to be a focus area. I mean, I've said for a long time, even for a very long time, that that is the opportunity market. American whiskey in Europe is lagged, and typically, in some of these categories, they continue to lag. I'll even call out tequila.

Speaker Change: It continues to be a focus area. I mean, I've said for a long time, even for a very long time, that that is the opportunity market. American whiskey in Europe is lagged, and typically on some of these categories, they continue to lag. I'll even call out tequila. You're starting to see a little tequila arrive in the European markets itself. So I do believe that the long-term opportunity is in Europe. We do have...

David Bratcher: You're starting to see a little tequila arrive on the European markets themselves. So I do believe that the long-term opportunity is in Europe. We do have feet on the ground. As a matter of fact, I've got a team over there today in Europe that left the U.S. yesterday to go in, explore opportunities, build those relationships, look at how the channels are different, what price points they're entering into, to totally understand the market. I feel like that is a real opportunity, a real white space for distilled solutions.

David Bratcher: As a matter of fact, I've got a team over there today in Europe that left the US yesterday to go in and explore opportunities, build those relationships, and look at how the channels are different. For what price points that they're entering on to totally understand the market? I feel like that it's a real opportunity, a real light space for the still solutions.

Speaker Change: feet on the ground. As a matter of fact, I've got a team over there today.

Speaker Change: in Europe that left the U.S. yesterday to go in, explore opportunities, build those relationships, look at how the channels are different, what price points that they're entering on to totally understand the market. I feel like that is a real opportunity, a real white space for distilled solutions.

Mitchell Pinheiro: Okay, thank you for the questions.

Operator: Okay, thank you for the questions. Thank you, Mitch. Again, if you'd like to ask a question, please press star.

Speaker Change: Okay, thank you for the questions.

Operator: Again, if you'd like to ask a question, please press star and then 1. The next question is from Sean McGowan from Roth Capital Partners. Please go ahead.

Mitch: Thank you, Mitch.

Sean McGowan: Then one, the next question is from Sean McGowan from Roth Capital Partners. Please go ahead. Thank you; appreciate it. Two quick things. Can you give us the sense of whether the advertising levels you're expecting in a second half, what should be, you know, in terms of percentage of revenue about the same as what you've seen so far in the first half, you know, we're moderating it all. And then you said you committed to continue to advertise. You're just trying to get a sense of what the level is going to be. Yeah, thanks for the question and the opportunity to find out some more insight there.

Speaker Change: Again, if you'd like to ask a question, please press star then 1. The next question is from Sean McGowan from Roth Capital Partners. Please go ahead.

Sean McGowan: Thank you. I appreciate it.

Sean McGowan: Thank you, appreciate it.

Sean McGowan: Two quick things. Can you give us a sense of whether the advertising levels you're expecting the second half Well should be should be you know in terms of percentage of

Sean McGowan: of revenue about the same as what you've seen so far in the first half, or will it moderate at all? I know you said you're committed to continuing to advertise. We're just trying to get a sense of what the level's going to be.

Sean McGowan: Two quick things. Can you give us a sense of whether the advertising levels you're expecting in the second half should be, in terms of percentage of revenue, about the same as what you've seen so far in the first half? Or will it moderate at all? I know you said you're committed to continuing to advertise. We're just trying to get a sense of what the level's going to be.

Brandon Gall: So, A&P spend was not the 10 million dollars in the quarter; actually, with the 11 million, excuse me.

Speaker Change: Yeah, thanks for the question and the opportunity to provide some more insight there. So, A&P spend was north of $10 million in the quarter. Actually, north of $11 million, excuse me. And we do expect Q2 to be the high watermark for the year from a quarterly basis for advertising and promotional spend.

Brandon Gall: And we do expect Q2 to be the high watermark for the year from a quarterly basis for advertising promotional spend. And a lot of that has to do with we're shipping a lot of our advertising around March; that this year was last year, it was more Q4 weighted. We do expect Q2 to be the higher quarter of spend for particularly for our brand spirits promotion. Additionally, while we're talking about how we see the quarter is playing out, and then I talked to this a little bit, my pair of remarks, Sean. But we do anticipate, you know, our grounded sales to be disproportionately weighted towards Q4.

Speaker Change: A lot of that has to do with shifting a lot of our advertising around March Madness this year. Whereas last year, it was more...

Speaker Change: We do expect Q2 to be the higher quarter of spend for the

Sean McGowan: [inaudible]

Speaker Change: Additionally, while we're talking about kind of how we see the quarter is playing out and then I talked to this a little bit my prepared remark Sean, but we do anticipate our brown good sales to be disproportionately weighted towards Q4 relative to Q3.

David Bratcher: We're out to Q3. And we saw this similar thing play out between Q1 and Q2. A lot of those contracts are written toward those customers; they have to purchase here in the first, you know, same amount of first half in a certain amount in the second half. And because of the higher interest rate environment, they are opting to wait in and transact later on in that period, which is why Q2 and Q4 will be more heavily weighted. Yeah, I'd add to that that is true with brands as well as you think about Q4. Tends to be, you know, obviously holidays.

Sean: And we saw a similar thing play out between Q1 and Q2. A lot of those contracts are written to where those customers have to...

Speaker Change: Purchase either in the first, you know, a certain amount in the first half and a certain amount in the second half. And because of the higher interest rate environment, they are often to wait and transact later on in that period, which is why Q2 and Q4 will be more heavily weighted.

David Bratcher: I'd add to that that it's true with brands as well, as you think about Q4 tends to be, you know, it's obviously the holidays, and so you're, you know, you're going to have a bigger demand for the product, and you'll see a little stronger pace. If I were, you know, if you think about where we are on our guidance and our performance in Q1 and Q2, I would expect Q3 and 4 to follow a very similar trend in profitability in Q1, 2, and comparing that to 3 and 4.

David Bratcher: I'd add to that that it's true with brands as well, as you think about

David Bratcher: And so you're, you know, you're going to have a bigger demand for the product, and you'll see a little stronger piece.

David Bratcher: Q4 tends to be, you know, it's obviously holidays and so you're, you know, you're going to have a bigger demand for the product and you'll see a little stronger piece. If I was...

Sean McGowan: If I was, you know, if you think about what we're at on our guidance and our and what we've done in Q1 and Q2, I would expect Q3 and 4 to follow a very similar trend in profitability and Q1 to and comparing that to 3 and 4. Thank you. That's helpful.

David Bratcher: If you think about what we're at on our guidance and what we've done in Q1 and Q2, I would expect Q3 and Q4 to follow a very similar trend in profitability in Q1 and Q2 and comparing that to Q3 and Q4.

Sean McGowan: And then one of the quicky, can you give us a little bit more color on just how much of the growth in branded spirits came from Penelope as you left it like the only European basis. Yeah. A good portion of it was the majority of the growth in premium plus ones from Penelope, but I don't want to pick anything away from the rest of the portfolio. Because, as I mentioned earlier, we did see what must grow. It's also in those other brands to key a lot of data mentioned Elmayor. We're seeing good results with Rebel and a lot of the market spent behind that brand.

Speaker Change: Thank you, that's helpful. And then one other quickie, can you give us a little bit more color on just how much of the growth in branded spirits came from Penelope as you lapped it on a year-over-year basis?

Speaker Change: Yeah, a good portion of it was. The majority of the growth in Premium Plus was from Penelope, but I don't want to take anything away from the rest of the portfolio because as I mentioned earlier, we did see robust growth also in those other brands. Tequila, David mentioned El Mayor, we're seeing good results with Rebel and a lot of the marketing step behind that brand. So it was pretty evenly weighted of growth outside of Penelope. And then the other thing, too, is that our allocated offerings picked up in the quarter and we expect it to continue picking up sequentially as the year goes on.

Sean McGowan: So it was pretty evenly weighted of growth outside of Penelope, and then the other thing too is that are allocated offerings picked up in the quarter, and we expected to continue picking up sequentially as the year goes on. Thank you very much. Appreciate that.

Operator: Ladies and gentlemen, this now concludes our question-and-answer session.

Operator: Ladies and gentlemen, this now concludes our question and answer session. I would like to turn the conference back over to David Batcher for any closing remarks.

David Batcher: Thank you very much. Appreciate that.

David Bratcher: I would like to turn the conference back over to David Batcher for any closing remarks. Thanks, everyone, for the confidence you've placed in our team as we continue to transition into a premium branded spirits company. I would also like to thank Mike Houston and the Lambert team for their support in helping drive our investor engagement over the last several years. We are pleased with our first half performance to look forward to meeting many of you at investor conferences over the next several months. And thank you, sir.

Operator: Ladies and gentlemen, this now concludes our question and answer session. I would like to turn the conference back over to David Batcher for any closing remarks.

David Bratcher: Thanks, everyone, for the confidence you've placed in our team as we continue to transition into a premier-branded spirits company. I would also like to thank Mike Houston and the Lambert team for their support and help in driving our investor engagements over the last several years.

David Bratcher: Thanks everyone for the confidence you've placed in our team as we continue to transition into a premier branded spirits company. I would also like to thank Mike Houston and the Lambert team for their support and help in driving our investor engagement over the last several years.

Speaker Change: We are pleased with our first half performance and look forward to meeting many of you at investor conferences over the next several months.

Operator: The conference has now concluded. Thank you for joining today's presentation.

Speaker Change: And thank you, sir. The conference has now concluded. Thank you for joining today's presentation. You may now disconnect your lines.

Operator: You may now disconnect your line.

Q2 2024 MGP Ingredients Inc Earnings Call

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