Operator: Good morning, and welcome to the MGP Ingredients Q3 2026 Earnings Conference Call with Julie Francis, President and CEO, and Brandon Gall, CFO. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note this event is being recorded today. In addition, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's annual and quarterly reports filed with the SEC.
Operator: The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. This call will contain references to certain non-GAAP measures, which the company believes are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release which was issued this morning before the markets opened and is available at www.mgpingredients.com. At this time, I would like to turn the call over to Julie Francis, President and CEO of MGP Ingredients. Please go ahead.
Julie Francis: Good morning. I would like to thank you all for joining us today on our Q3 2026 earnings call. For the Q3, sales came in at $117.9 million, down versus the prior year and in line with our expectations. Adjusted EBITDA of $21.5 million and adjusted basic EPS of $0.39 also declined versus the Q3 of last year. However, both of these key metrics were ahead of our expectations.
Julie Francis: This quarter reinforces three things about our company. First, we have a right to win in each of our three businesses, and in a challenging industry, this means taking the actions necessary today to emerge stronger, better aligned, and more resilient. Our Q3 performance shows the success of our strategic clarity and roadmap as our efforts are having positive impacts and are delivering results. Second, we are doing what we said we would do.
Julie Francis: As we previously shared, our ownership cost management mindset has helped offset the pressures in our businesses and those savings, together with more efficient and effective A&P spending, are the key reasons adjusted EBITDA came in ahead of our plan. Today, we are reaffirming our full year guidance. Third, our financial strength, cash generation, and cost discipline give us the staying power to win. We saw that this quarter as we reduced total debt by $28 million and ended the quarter with a leverage ratio of 3.6 times.
Julie Francis: This was ahead of expectations due to better than anticipated adjusted EBITDA and strong operating cash flows. Before turning to our segments, I want to touch on three important updates. As we announced on 15 October, we will become Sempreon this Monday, 2 November, and our shares will begin trading on Nasdaq under our new ticker symbol, CASK.
Julie Francis: This is an important milestone for our company. Since 1941, we have grown from a single distillery into a business spanning three separate segments: Branded Spirits, Distilling Solutions, and Ingredient Solutions. Sempreon brings these three business segments together under one corporate identity and represents the next chapter in our company's evolution, building on the legacies of MGP Ingredients, Luxco, and the many businesses, brands, and teams that have joined the organization over time. Our commitment to tradition looking forward captures that well.
Julie Francis: We are building on the expertise, relationships, and capabilities that have brought us to where we are today while continuing to evolve, innovate, and create long-term growth and value. Importantly, our rebrand does not change the three reportable segments, how we report our results, our 2026 guidance, or our leadership team. Our next earnings call will be our first at Sempreon.
Julie Francis: Second, we are also introducing EPIC MASH, our internal leadership and shared values framework for how we work together and lead across the company. It represents four leadership attributes, EPIC, which stands for Execution, Performance, Impact, and Care, and four shared values, MASH, Mindset, Accountability, Shift paradigm, and High standards. At Sempreon, we will continue building on the strengths of our three businesses, investing in our capabilities, and pursuing opportunities to deliver for our customers and shareholders. That commitment reflects our new mission: creating moments that matter, building a legacy that lasts. Finally, I want to highlight the significant progress we have made on strengthening our distribution network and route to market. During the Q3, an additional six markets transitioned to new distributors. As you may recall, we transitioned 10 markets to a large new distributor in June.
Julie Francis: As is typical, these distributor transitions included system cutovers, with many of these occurring during Q3. As anticipated, this negatively impacted our Branded Spirits sales volumes in these territories, but we are pleased that our Q3 Branded Spirits sales, excluding our other category, which is primarily composed of international sales of private label bottled products, were consistent with prior year and ahead of our expectations. Now turning to our business segments.
Julie Francis: I will begin with Branded Spirits, our primary long-term growth platform. Q3 segment sales were $58.2 million, down 4% versus the prior year. Excluding our other category, sales were in line with the prior year despite the distributor systems cutover pressures. This performance is consistent with Nielsen industry trends, which were flat for the 13 weeks ending 3 October 2026, and exceeds NABCA trends, which were down 2% for the 3 months ending 31 August.
Julie Francis: Gross profit was $29.2 million and gross margin was 50.2%, down 280 basis points year over year, primarily due to higher costs, partially offset by favorable price and mix. The higher costs largely reflect bottling facility maintenance and outside contractors supporting efficiency improvements. We expect these costs to continue in Q4, but at a lower rate. Premium Plus sales were down 1% for the quarter, influenced by a planned shift on the positioning of Ezra Brooks Bourbon, which has moved into the mid-price tier with the reintroduction of a consumer favorite, Ezra 90 Proof. Excluding Ezra Brooks, Premium Plus would have grown by 1.5%. Penelope sales increased 12%, which is particularly impressive because this growth is building on Penelope's 166% sales growth in Q3 of last year.
Julie Francis: In the quarter, Penelope's core expressions, which are composed of the recently introduced Kentucky Straight Bourbon and Rye, as well as Four Grain and Wheated, grew by 35%. Other launches in the quarter included seasonal limited time offerings, Architects of Golf, Cigar Sessions, Chapter 2, and the Estate Collection. Yellowstone declined 23% in the quarter, influenced by the shift of the single barrel program from Q3 to Q2 of 2026 and cycling against last year's ready-to-pour launches.
Julie Francis: However, Yellowstone's core expressions continue to show positive momentum, with Select growing 11% and Toasted growing 38% as we continue to expand digital paid media investments along with revenue growth management initiatives into more markets. Everclear grew 4%, building on the momentum shown in Q2 and reflecting the continued strength in the brand's core positioning, as well as increased consumer engagement in key consumption occasions.
Julie Francis: Our mid and value price brands collectively grew 1% for the second consecutive quarter, comparing favorably to Nielsen-reported declines of 5% and 6% declines reported by NABCA for these categories. Our mid-price brands grew by 6%, led by the successful rollout of Ezra Brooks 90 Proof, the continued expansion of Exotico and Juarez Tequilas, and growth in St. Brendan's and Arrow. These results show that our stabilization efforts and select investments continue to gain traction as our mid-value portfolio growth was driven by improved execution, targeted price actions, and focused brand support. The results also reflect that value-seeking consumers are turning to established brands they can trust, further demonstrating the importance of this price tier to our portfolio. Innovation remains an important growth lever.
Julie Francis: This quarter, we also released MGP Chapter One: Out of the Shadows, a 10-year-old, 111 Proof straight bourbon that brings our whiskey-making expertise directly to consumers under the MGP brand name for the first time. In addition, expanding distribution remains a key strategic priority and an important source of future growth, particularly within national chains. For the Q3, our Premium Plus portfolio added over 3,500 off-premise points of distribution, led by growing distribution of our Penelope core expressions and ready-to-pour offerings.
Julie Francis: We also expanded our on-premise chain presence during the Q3 with new programming and distribution in certain national accounts, including menu and cocktail features of our Premium Plus whiskeys and tequilas. Overall, these results reinforce our confidence that our brand and spirits portfolio is becoming increasingly stronger, more focused, more balanced and diversified, and equally importantly, able to cater to consumers across the broad economic spectrum.
Julie Francis: Turning to Distilling Solutions, Q3 sales were $29 million, down 29% year-over-year, and gross profit was $9.4 million, was down 34%. Gross margin was 32.4%, down 230 basis points. We continue to make gradual progress on the actions within our control and continue to believe we are well-positioned to compete in a very challenging market where the industry remains oversupplied and elevated barrel inventories continue to weigh on both demand and pricing. These dynamics contributed to our own brown goods sales decline of 47% for the quarter. Despite the difficult backdrop and increased reliance on spot sales, our brown goods sales were ahead of expectations for the quarter. Our large national and multinational customers remain focused on reducing inventory and preserving working capital rather than making new long-term commitments.
Julie Francis: As a result, we continue to expand our offerings to all customers with opportunistic aged whiskey sales, white goods offerings such as premium GNS and gin, and other value-added services. Premium white goods sales to large national and multinational customers increased during the quarter, driving our 32% year-over-year increase in sales of white goods and other co-products. As industry dynamics are shifting, our strategy has evolved to focus on expanding into ready-to-drink and private label customers using the breadth of our product offerings and our differentiated value proposition. On a year-to-date basis, total product sales to this customer set have grown 90% versus prior year, representing more than 25% of total brown and white goods product sales, demonstrating the success we are having with this important and emerging customer segment.
Julie Francis: In addition, our warehouse services grew 3% compared to the prior year quarter and represented 29% of segment sales. Operationally, for the quarter, the business achieved lower distillation costs, driven by higher white goods production volumes and our cost savings initiatives. We continue to believe our long-term customer relationships, reputation for quality, and our diverse and expanding product offerings uniquely position us to win as the industry normalizes.
Julie Francis: Turning now to Ingredient Solutions. Q3 sales grew 5% to $30.8 million. Specialty wheat protein sales, which include texture protein sales, grew by 15%, and sales of biofuel and other by-products also increased. Specialty wheat starch sales declined 12%, primarily due to longer than expected downtime following our scheduled plant shutdown. Gross profit was $1.8 million, and gross margin was 6% due to continued losses in biofuel and other by-products where our waste starch stream costs sit.
Julie Francis: These costs were in line with our expectations for the quarter and were partially offset by an initial insurance recovery payment received during the quarter related to a 2025 equipment outage. Operational reliability continues to improve in 2026. Our Q3 production volumes were 10% higher year over year, despite the longer than expected downtime during the quarter. Demand remains strong for our specialty fiber and protein products, driven by consumer preferences for high protein, high fiber, and nutrient-dense food products. We also remain confident in our ability to lower waste disposal costs, although it is taking longer than we expected. Across all three businesses, our ownership cost management mindset continues to deliver savings that help fund our priorities.
Julie Francis: One example is marketing agency spend, where by the end of the year, we expect to consolidate the number of our primary agency partners, leading to an annual savings of more than $3 million versus prior year. A portion of these savings are being reinvested into working advertising, such as digital media campaigns, with the remaining savings being one of the many initiatives that is contributing to our bottom line. With that, I will turn the call over to Brandon.
Brandon Gall: Thank you, Julie. Turning now to our financial results. For the Q3 2026, we reported consolidated sales of $117.9 million, which were down 10% versus the prior year period. Gross profit of $40.5 million was down 18%. Consolidated gross margin of 34.3% declined by approximately 350 basis points, primarily due to higher waste starch stream costs in Ingredient Solutions, higher costs in Branded Spirits, and lower brown goods sales volumes. Advertising and promotion expenses decreased 4% to $6.4 million. Branded Spirits A&P spend represented 10.9% of segment sales, a 60 basis point increase from the prior year quarter. For the full year, we now expect Branded Spirits A&P to be approximately 12% to 13% of Branded Spirits sales as we realize non-working advertising savings from outside agency consolidation.
Brandon Gall: Our total SG&A increased 14% in the Q3, while adjusted SG&A increased 13%, primarily due to a higher incentive compensation accrual tied in part to the savings delivered by our ownership cost management mindset. When removing the impacts from the incentive compensation accrual, adjusted SG&A was down mid to high single digits. For the full year, we now expect adjusted SG&A to be approximately 16% of sales, a significant improvement from our initial outlook, driven by the ownership cost mindset initiative. Net income of $6.9 million was down 55% versus the prior year, while adjusted net income was $8.6 million. Earnings per share for the Q3 were $0.32 versus $0.71 in the prior year. On an adjusted basis, earnings per share of $0.39 decreased 54% year over year. Adjusted EBITDA of $21.5 million decreased 33% over the same period.
Brandon Gall: Our effective tax rate was 22.9% in the quarter, and we continue to expect approximately 23% for the full year. Turning to cash flow and the balance sheet. Year-to-date operating cash flows, excluding the Penelope earn-out payment, were $39.8 million. Q3 operating cash flows were $31.9 million, our highest since Q3 of 2025. Our year-to-date net whiskey put away was $18.9 million, down from $23.9 million as of 30 June.
Brandon Gall: Year-to-date capital expenditures were $11 million. We continue to estimate full year net whiskey put away in the range of $13 million to $18 million, and CapEx of approximately $20 million. We reduced total debt by $28.4 million during the quarter. As Julie described, we ended the quarter with a net debt leverage ratio of 3.6x, which was ahead of our expectations and in line to where we expect to be at year-end.
Brandon Gall: In August, we amended our debt agreements as a precautionary step to allow us to add back up to $20 million of losses on receivables from specified customers in our covenant calculations through the end of 2027. We also have elected to take advantage of the elevated leverage ratio period that runs through Q1 of 2027. Both were fully supported by our lending group, and we remain in compliance with our covenants. Holders of our $201 million convertible senior notes have the right to require us to repurchase their notes on 16 November.
Brandon Gall: We expect most, if not all, holders to exercise this right. We have ample capacity to fund these repurchases through our credit agreement, our note purchase agreement, or a combination of both. Similar to what we did in Q2, we may deploy interest rate swaps to manage our exposure to rate fluctuations.
Brandon Gall: Because current interest rates are well above the note's 1.875% coupon, we continue to expect Q4 interest expense to be sequentially higher than Q3 and full year interest expenses of approximately $12 million. Turning to annual guidance for the full year 2026. We are reaffirming our expectations for net sales to be between $480 million and $500 million. Adjusted EBITDA is still projected to range from $90 million to $98 million. Adjusted basic earnings per share for 2026 is still expected to be between $1.50 and $1.80, with weighted average basic shares outstanding of approximately 21.4 million. We are maintaining our expectations for full year 2026 operating cash flow of $50 million to $55 million, and free cash flow of $30 million to $35 million, both excluding the impact of the Penelope earn-out payment.
Brandon Gall: From a business segment perspective, our full year outlook for all three segments is consistent with previously shared estimates. We continue to expect Distilling Solutions sales to be down approximately 35% year over year and gross profit to be down approximately 40%. Branded Spirits sales to decline mid-single digits with Premium Plus up low single digits. Ingredient Solution sales to be in the $140 million to $150 million range, with gross margins in the high single to low double-digit range for the full year. As we said last quarter, we expect Q4 to be stronger than Q3. As in prior years, we will provide our 2027 outlook when we report Q4 and full year results in February.
Brandon Gall: To close, cash generation, balance sheet de-levering, cost management, capital stewardship, and maintaining great support from our lending group are our financial priorities, and we are pleased with the progress we are making against each. With that, I would like to turn the call back over to Julie.
Julie Francis: Thank you, Brandon. Before we wrap up, I want to thank the entire MGP team for another quarter of execution, performance, impact, and care. Our strategic roadmap is designed to drive growth across all three businesses, and we are making progress in each. For Branded Spirits, we will continue to focus on winning in the Premium Plus category and across the mid and value spectrum, prioritizing our best performing brands, including Penelope Bourbon, increasing our penetration in national accounts, and strengthening our digital marketing capabilities.
Julie Francis: This quarter, Penelope grew 12% and our mid-tier portfolio grew 6%. For Distilling Solutions, we will remain focused on partnering with our customers across our diverse range of product offerings, growing our private label and ready drink programs, rebuilding our aged whiskey pipeline, and expanding our value-added services. This quarter, white goods and co-product sales grew 32%.
Julie Francis: For Ingredient Solutions, our efforts remain focused on growing sales of our high-demand specialty fiber and protein products, sustaining operational reliability, and reducing waste starch stream costs. This quarter, specialty protein sales grew 15%. We have the right to win in each of our businesses. We are doing what we said we would do, and we have the financial discipline and support, which gives us the staying power to win. On 2 November, we are excited to begin our next chapter of Sempreon. With that, I would like to turn the call over to the operator for any questions.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Marc Torrente with Wells Fargo. Please go ahead.
Marc Torrente: Hey, good morning, and thank you for the questions. Can we start with the reaffirmed guide? Where did Q3 land versus your expectations for each of the segments? Q4 is implied to be stronger with sales and EBITDA potentially up year-over-year. Any color on the building blocks and confidence there, and how should we think about exit rate into 2027?
Brandon Gall: Yeah. Thanks for the question, Marc. I will start with how the quarter came from a business standpoint versus our expectations. Branded Spirits sales did come in ahead of where we thought for the quarter. There is a lot of transition going on with our distributor route to market. There were puts and takes within, but largely speaking, total sales did come in above. Within Distilling Solutions, brown goods sales also came in above our expectations. A lot of that business is spot market-driven, which we feel is just an added proof point of the importance we play in the industry with our customers. Ingredient Solutions, due to the prolonged shutdown that we discussed, top line sales came in below our expectations for the quarter. However, gross margins were still in line for 2 reasons.
Brandon Gall: Number 1, our starch waste stream costs were in line to slightly better than we anticipated, which is the first quarter in a little while where we can say that. Secondly, we did benefit a little bit from an insurance recovery in the quarter. All in all, top line sales came in a bit below. But due to the cost savings initiatives and the hard work the team is doing, we were able to come in ahead of expectations on both adjusted EPS and adjusted EBITDA. Our net leverage ratio also came in ahead of expectations, Marc.
Marc Torrente: Okay. Just the implied sequential progress in Q4. Any more color there? Again, building blocks to get to the full year guide, and then any early thoughts on exit rates into 2027? Thank you.
Brandon Gall: Yeah. As far as building blocks go, we gave a lot of full year guidelines by business and for OpEx. Q4 is a big quarter for us, which is traditionally typical. I will say, there is a lot of variables we are managing, just as we have managed all year, the distributor transition being one within Branded Spirits. All that being said, we are very focused on execution and delivering the quarter needed to hit our goals. Within Ingredient Solutions, we do expect there to be sequential improvement, both from a waste starch cost perspective, but also from a production reliability and throughput and sales perspective. The prolonged shutdown set us back for Q3. But in August, September, and month to date in October, the throughput and reliability has been top percentile of where we want to be.
Brandon Gall: We believe that we have the right momentum going forward to deliver the quarter needed there. Within Distilling Solutions, like I already shared, a lot of this business is spot. But we are an important supplier to an expanding customer set. We shared on the call that 25% of our white goods and brown goods sales year to date have now gone to ready to drink and private label customers.
Brandon Gall: These are areas that have customer sets that are either historically underserved, which creates a good void for us to fill, or they are growing. Ready-to-drink spirits is the fastest growing category in spirits, and in positioning us with them, we feel is a very strategic move.
Marc Torrente: Okay, thank you. I will pass along.
Operator: Our next question comes from Sean McGowan with Roth Capital Partners. Please go ahead.
Sean McGowan: Thank you. Following up a little bit on the previous question. You talked about Branded Spirits being affected by the cutovers in distribution. When do you think that impact is over, and would you expect Branded Spirits to pick up when those cutovers are complete?
Julie Francis: Yeah. Hey, Sean, it's Julie. Thanks for the question. Yes, we have six more markets that transitioned in Q3. That was following the 10 that did in June. So we do have a larger portion of our control states will transition in Q4. As you probably know, those transitions are very different than system cutovers as they are NABCA, they are control states. So those are state-run systems, so the impact will be far less.
Julie Francis: As we are exiting the year, we would expect the transition cutover and then system cutover headwinds that we are having to be disappeared. Our largest distributor that did do the system cutovers, it was a pretty meaningful headwind in Q3. We are on the phone calls with those folks all the time. We do have plans for Q4. We are seeing sequential improvement, but there are some headwinds. Our guidance fully reflects that.
Julie Francis: I would say broadly speaking, that is one large distributor. We are very pleased with our branded performance for the quarter. Premium Plus, up 1.5% when you take into consideration we did reposition Ezra. Ezra was positioned as a $24.99 brand at Ezra 99. We saw an opportunity to position it lower. We had a lot of American whiskey brands at the same price point, so we went to Ezra 90, which was a fan favorite. It is at $14.99. We think in this economy and with the headwinds that our consumers are experiencing, it is a well-known brand at a really nice price. I do want to say, as we switch to the core 10, so we have focused on core 10 across Premium Plus, mid, and maybe there is a value brand in there.
Julie Francis: A year to date, September of 2025, so one year ago, before we had this new strategic roadmap with clarity and investments, only one of those 10 core brands, one, which would have been Penelope, would have been growing. Now, year to date, 6 out of the 10 of those core 10 brands are growing, and the other 4 have shown meaningful sequential improvement. We are very pleased. Yes, there certainly were significant headwinds in the quarter from our larger distributor. Great partnership there. They are great operators, and we certainly expect that headwind to dissipate as the year goes on.
Sean McGowan: Thanks. That is helpful color. Another question I had was, in locations where intoxicating hemp might be expiring in terms of legality or it is up in limbo, would you expect to see a benefit if that legalization expires?
Julie Francis: Yeah, listen, we definitely think there is, I would say there is other categories that are probably have higher headwinds than we do in the spirits category. But certainly, the ready-to-drink category, the ready-to-pour category, we do see that this is a switchable category for them. As you know, we vended into ready-to-pour and ready-to-drink our products, our Penelope products, our Rebel 100% year to date. I would also just say from a spirits perspective, we have expanded our distribution network for Best Athlete. So we are on, several of our new regional distributors are also beer, and as you know, most of that system, or most of those products, goes into those convenience retail, those type of outlets. So we will now be on those trucks.
Julie Francis: As you expect, we do have innovation coming up in 2027, which you would expect us to target at that same core consumer that we will start testing in Q1. That certainly will be on a different route to market that we have never been on. So we are certainly prepared. We have got a test market going on the first quarter in a couple markets on a different route to market truck that will go head to head and should compete for that consumer.
Sean McGowan: Okay. Thank you very much.
Operator: The next question comes from Seamus Cassidy with TD Cowen. Please go ahead.
Seamus Cassidy: Hi. Good morning, everyone. I wanted to ask on Branded Spirits profitability. Gross margin was down 280 basis points despite the continued mix shift between Premium Plus and some of the RGM and SKU rationalization initiatives you discussed. I was just hoping you could provide a bit more detail on what specifically drove that cost pressure. Is it higher barreled inventory costs flowing through the P&L, in which case it is somewhat unavoidable, or is it more near-term inflationary pressures like freight and fuel costs? I guess how much of that should we expect to persist into 2027? Thanks.
Julie Francis: No, no problem. Hey, very good question. These costs are actually associated to our continuous improvement efforts. I think you heard, we have launched a new shared value framework, and one of our attributes is highest standard. As we have got a year into a new operations leader, we obviously rolled out a ramped up maintenance and reliability plan in Atchison.
Julie Francis: As we looked at our largest bottling facility, that maintenance and reliability and our downtime and attainment was nowhere near where we would expect. So what we did is we took the same external resources that we use from Atchison. We put them in our largest bottling facility. We also have added headcount there, and so we are rebuilding a world-class maintenance and reliability program that, down the road, will certainly help us. We expect these costs to continue into Q4, but at a much lower rate.
Julie Francis: Year to date, the segment gross margin is still at 50.6%, and our full outlook still has us having slight gross margin improvement and is unchanged. As you saw, we did have favorable price mix. It is a maintenance and reliability headwind. It will dissipate towards year-end and into Q1, and we are reaffirming the margins that we shared in our guidance.
Seamus Cassidy: Okay, understood. I guess, maybe all else equal, we would expect those improvement plans to sort of be a margin tailwind, I guess, towards the back half of 2027 once the efforts are complete?
Julie Francis: Very well said.
Seamus Cassidy: Great, thanks.
Operator: The next question comes from Ben Klieve with StoneX. Please go ahead.
Ben Klieve: All right, thanks for taking my questions. First question on the price mix dynamic within brown goods. There are a lot of variables here, and I am wondering if you can help us understand the degree to which the price mix dynamic was driven by your comment on elevated spot sales or maybe a switch between aged and new distillate versus true price dynamics. Any comments within that would be helpful.
Brandon Gall: Yeah. Thanks, Ben. Pricing in aged and new is under pressure, and that has been the case for going on 2 years now. The first 2 quarters of this year, while brown good volumes were down, we actually had a price mix benefit, if you recall. This quarter, to your point, both volume and price was down, but we did have some mix benefit, but that gets lumped in. The reason there is we are continuing to have more proportionate sales toward aged rather than new distillate, which you would expect. We are seeing that mix benefit. However, we have gotten more pointed on our pricing on aged. There have been a lot of sales, spot sales, at certain points where we are partially below where we have historically gone.
Brandon Gall: We have decided to, in certain cases, price match with the right customers to better align with them and form more of a direct relationship that is still profitable sales. That is probably what you are seeing in the price differential between Q3 and the first 2 quarters. It has also led to not only higher than expected brown good sales in the quarter, but tremendous free cash flow generation, as you witnessed.
Ben Klieve: Okay. Very helpful. Thanks, Brandon. One more from me on the Ingredient Solutions segment and the Q4 outlook here. I heard your comments earlier about all the various dynamics around efficiency improvements here and how encouraged you are by the outlook from August, September, and quarter to date. I want to double-click on this. The implied outlook here of $140 million to $150 million on a full year basis suggests 30% plus sequential growth out of that segment and record revenue in the Q4 here. I want to really understand the drivers here, and especially the degree to which you have a customer base lined up to take this volume off of the facility here now that it is up and running to the degree to which you are hoping for.
Julie Francis: Okay. Yeah, thanks, Ben. I will take that. I will be really clear. It is not a demand issue. We are fully booked. Every bit of pound, including if we were able to get more pounds, a customer will take. So there is not a demand, there are no customers. We have every bit of demand for every pound that we have. What gives us reasons to believe, again, as you know, it was a year ago that I got on this call, and I was very transparent.
Julie Francis: That plant was not operating anywhere near that we would expect for almost 2 years. Brought in a new operations leader, brought in boots on the ground, and we had a turnaround program that started in November, and we had a very large equipment outage over multiple months that we decided to shut down and to repair.
Julie Francis: We have done what we said we are going to do. We came back up on time from there. The pounds and the attainment that we are now getting, again, to put it in kind of context, our peak performance is at 90% capacity utilization. That is a pretty high one. In 2024, Ben, we did that one time. In 2025, we did that one time. Since our plant shut down that we came up out of July, we have done this, including October, 3 straight months, and before that, we did it another 3 months.
Julie Francis: So we have a high degree, a high certainty of our reliability measures, in particular after the planned shutdown, the extended period, that we are able to deliver the pounds and attainment that we want. Using those measurements, and we are on track, that is what gives us the confidence to reconfirm that range.
Ben Klieve: Great. Very helpful. Thank you, Julie. I appreciate you taking my questions. Congratulations here on a nice quarter. Best of luck in the near future.
Julie Francis: Thanks, Ben.
Operator: The next question comes from Mitch Pinheiro with Sturdivant. Please go ahead.
Mitch Pinheiro: Yeah. Hey, good morning. Most of my questions have been asked and answered. I just want to follow up on the Ingredient Solutions segment. You do not have a demand problem. You are selling everything you have. But during your inefficiencies, your customers went elsewhere. How does the competitive outlook look like in Ingredient Solutions? Are you getting all the customers that you had or had to sort of give up a little bit? Are you getting them back? Is pricing as firm as it should be? Or is there any competitive pressures in that?
Julie Francis: Thanks, Mitch. I appreciate it. We did not lose one customer during the span of the last few years. We have been transparent, we have been upfront, and we have worked with all of them to make sure with our, obviously, our inefficiencies and some of our downtime, that we have been working with them, to ensure that they know about it and they can prepare for it, and they have been able to get through it.
Julie Francis: So we have not lost a customer. Now that we do have customer service and reliable customer service, and they can depend and count on when we are getting out the pounds, certainly there is ability to capture some of the market value that we have not been capturing because we have not had good service. And then I would just say third, our customer funnel. We have a very robust customer funnel.
Julie Francis: Our R&D and sales teams, and the co-creation events that we are having with blue chip companies, especially ones that, and a lot of them are repeat customers, meaning they have co-created an event, it is in the market, and now they are coming back and we have multiple other projects in the pipeline. We feel very strong with our partnerships, our differentiated value proposition, and obviously no one is thrilled with the reliability we had in 2024 and 2025, but I certainly can say that we have done what we said we are going to do. We did our planned shutdown. When we extended it, we talked to our customers, and everyone is aligned with our path forward. It goes back to our differentiated platforms that we have. They are in demand, they taste better, they have better texture.
Julie Francis: We continue to be the partner that they would expect, and can count on.
Mitch Pinheiro: Okay. In the white goods, that was post-COVID, and all of the industrial alcohol and obviously and white good production capacity that was out there. What is changed? Why is your white goods growing again and growing profitably versus that prior period?
Julie Francis: Well, listen, when you do not have an oversupply of whiskey, you focus on whiskey, and our sales teams were maniacally focused on delivering on American whiskey. The differentiated value proposition and the Swiss army knife of MGP Distillery was focused on brown goods. Now that obviously ready-to-drink and that portfolio is out there and growing, and obviously now we do have the production time to focus on providing quality premium white goods, and I want to say premium white goods.
Julie Francis: We are going back and talking to large and small multinational customers, and I would say the majority of our customers that we are getting that are delivering the 32% increase are all large customers we had on the brown side that now that they know that that opportunity is there for MGP, they are absolutely taking us up on it. We are certainly pleased. It goes back to our partnership approach, working, and being very agile and very transparent on what we can bring, and they have been pretty happy with us.
Brandon Gall: Yeah, if I could add to that, Mitch, we have talked a lot about how aged brown is an on-ramp into new distillate with customers. We view premium white goods the same way. We do not just view it that way, we have seen it play out. For example, one of our private label relationships in American Whiskey, launched in the last 12 months, this American Whiskey brand with us.
Brandon Gall: They had been a premium white goods gin customer for years before that. Seeing this transition, it is not anything new or novel. In fact, once they get used to our high level of quality, our customer service, it becomes quite easy for them to consolidate even more and more of their business with us, which is why having success with private label and with ready to drink is becoming more and more important for us. It really best demonstrates and utilizes all of our capabilities.
Julie Francis: Yeah. Mitch, since you brought up MGP, I do want to take a chance to share. We are very pleased with our new innovation that came out of MGP Distillery. It is called MGP Chapter One: Out of the Shadows, a 10-year, 111 proof straight bourbon that brings our whiskey-making experience out of that distillery directly to consumers under the MGP brand name for the first time. I can tell you consumer industry on-premise reaction. I was out in the market last week, and admittedly, it was within 60 miles of the MGP distillery, but an on-premise and a liquor store customer owner certainly shared that it will not hit the shelf. We are pleased to, again, take that differentiated MGP distillery and use it in multiple ways. Certainly, that is one example that we are very pleased with.
Mitch Pinheiro: Okay. How are the margins, white goods versus brown goods?
Brandon Gall: Yeah. White goods margins are accretive to overall segment margins. When we say premium, that is what is different. What we are producing out of Lawrenceburg for these customers on the whole is differentiated from typical white goods or industrial-grade alcohol like we were producing out of Atchison.
Mitch Pinheiro: Okay. Just final question. On the brown goods and new distillate, I know your customers have paused, they have inventory issue, that they want to maintain a tight control over. But at some point, formulas and the products that they are taking the new distillate for, ultimately, they do need to buy new distillate, I would think. This has been going on for what seems like 2 years, where we have had major customers pausing. When do they have to start to buy new distillate just for their own product consistency?
Brandon Gall: Yeah. We reaffirmed all that on the Q2 call, Mitch, which is, our large multinational new distillate customers are in a holding pattern. It is not anything MGP or even American Whiskey specific as much as it is broader enterprise mandated from their corporate office. We are still in that holding pattern. When are they going to come back? We are having those conversations as often as we can, and the more business we do with these customers, in premium white goods and other, the more opportunities we have to have those conversations.
Brandon Gall: But absent of that is a lot of new distillate brown goods visibility that we do not have going into next year that we have had historically. However, we still have increasing confidence in 2027 and beyond, and here is why. Firstly, a third of our revenue in distilling today is warehouse services revenue. That is all contracted.
Brandon Gall: If anything that is up for renewal, we fully expect to recontract again with those customers. That is a third of our top line. It is gross margin accretive to the segment, but it is also very free cash flow generative. That is a third of the business. When we look at the rest of it, Q3 is a really good proof point for white goods and brown goods. As we have talked about, the emergence of private label in RTD customers has the potential to serve as an important source of growth and shock absorber, excuse me, for those large multinationals.
Brandon Gall: We shared that they are now 25% of those white and brown goods sales and growing. It is typical for these customers to purchase across the portfolio, as we have shared. Private label customers are having brand success to the point where we do have orders for age through Q3 of next year.
Brandon Gall: The ready-to-drink customers, they have only more recently become a focus, but what we are seeing is that their volumes and frequency of purchase are increasing. Then there is our craft customer base, which traditionally does not contract, and they are not today either. However, they continue to purchase on a spot basis and remain a very important part. Going back to the multinationals and the pausing, we are working with them on these other projects, such as premium white goods, gin, and so on. We are keeping them close while expanding the relationship. This is important because our unique ability to produce white goods means that we do not have to be at 70% whiskey capacity to be cost competitive. We can cut over as demand dictates.
Brandon Gall: We feel this positions us well to repartner on new distillate with these larger customers when they are ready, as well as attract new customers in the future.
Mitch Pinheiro: Well, thank you. Thanks for the insight.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Julie Francis for any closing remarks.
Julie Francis: Thank you, everyone. We appreciate your engagement, and we look forward to talking with you again next quarter at Sempreon. Take care.
Operator: Thank you. The conference has now concluded. You may now disconnect.
