# MGP Ingredients Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [MGP Ingredients Inc](/companies/mgpi.md) (CIK 835011)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 07:36 ET
- Period: 2023-06-30
- Accession: 0001628280-23-027007
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/835011/000162828023027007/mgpi-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/835011/000162828023027007/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $209.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $410.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $132.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $263.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $76.3m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $146.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $23.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $44.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $44.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $85.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $10.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $20.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $32.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $63.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $1.44 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $2.83 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $1.44 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $2.84 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 22,139,663 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 22,106,113 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $20.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $30.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $5.3m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $801.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $22.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $520.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.40bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $118.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $588.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $808.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,084 characters.

### (Dollar amounts in thousands, unless otherwise noted)

### CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

This Report may contain forward looking statements as well as historical information. All statements, other than statements of historical facts, regarding the prospects of our industry and our prospects, plans, financial position, and strategic plan may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the timing of and charges associated with the Atchison, Kansas distillery closure; our sources of cash being adequate; our capital expenditures; our ability to support our liquidity and operating needs through cash generated from operations; and our ability to obtain credit funding. Forward looking statements are usually identified by or are associated with such words as “intend,” “plan,” “believe,” “estimate,” “expect,” “anticipate,” “project,” “forecast,” “hopeful,” “should,” “may,” “will,” “could,” “encouraged,” “opportunities,” “potential,” and similar terminology. These forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, our performance, our financial results, and our financial condition and are not guarantees of future performance.

All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. For information on these risks and uncertainties and other factors that could affect the Company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, this Report, and our other filings with the Securities and Exchange Commission (the “SEC”). Forward looking statements in this Report are made as of the date of this Report, and we undertake no obligation to update any forward-looking statements or information made in this Report, except as required by law.

### RECENT DEVELOPMENTS

**Acquisition of Penelope.** On May 8, 2023, we entered into a definitive agreement to acquire 100 percent of the equity of Penelope Bourbon LLC (“Penelope”), and subsequently completed the acquisition on June 1, 2023. Penelope, prior to our acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers. As a result of the acquisition, we enhance our presence in the growing American whiskey category and expand our portfolio of premium plus price tier brands. Following the acquisition, Penelope became a wholly owned subsidiary of the Company and its financial results are included in the Branded Spirits segment (see Note 3, Business Combination for additional information).

**Planned Closure of the Atchison Distillery.** On July 13, 2023, we announced the decision by our Board of Directors to approve the closure of our distillery located in Atchison, Kansas (the “Atchison Distillery”). The anticipated closure date is January 2024. The decision to close the Atchison Distillery is consistent with our plan to address profitability headwinds associated with our grain neutral spirits and industrial alcohol products within the Distilling Solutions segment. We currently expect to incur aggregate pre-tax charges of $23,000 to $31,000 for the year ending December 31, 2023 in connection with the closure of the Atchison Distillery.

### OVERVIEW

MGP is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients. Distilled spirits include premium bourbon, rye, and other whiskeys (“brown goods”) and grain neutral spirits (“GNS”), including vodka and gin. Our distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP is also a producer of high quality industrial alcohol for use in both food and non-food applications. We have a portfolio of our own high quality branded spirits, which we produce through our distilleries and bottling facilities and sell to distributors. Our branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end

American whiskey, tequila, and gin. Our protein and starch food ingredients serve a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry. Our ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Report, as well as our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations - General, set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

### RESULTS OF OPERATIONS

### Consolidated Results

The table below details the consolidated results for the quarters ended June 30, 2023 and 2022:

|  | Quarter Ended June 30, 2023 | 2022 | 2023 v. 2022 |  |
| --- | ---: | ---: | ---: | --- |
| Sales | **$209,001** | $194,982 | 7% |  |
| Cost of sales | **132,706** | 135,758 | (2) |  |
| Gross profit | **76,295** | 59,224 | 29 |  |
| Gross margin % | **36.5%** | 30.4% | 6.1 | pp(a) |
| Advertising and promotion expenses | **8,639** | 6,065 | 42 |  |
| Selling, general, and administrative (“SG&A”) expenses | **23,513** | 17,853 | 32 |  |
| Operating income | **44,143** | 35,306 | 25 |  |
| Operating margin % | **21.1%** | 18.1% | 3.0 | pp |
| Interest expense, net | **(1,282)** | (1,543) | 17 |  |
| Other expense, net | **(93)** | (1,062) | 91 |  |
| Income before income taxes | **42,768** | 32,701 | 31 |  |
| Income tax expense | **10,804** | 7,339 | 47 |  |
| Effective tax expense rate % | **25.3%** | 22.4% | 2.9 | pp |
| Net income | **$31,964** | $25,362 | 26% |  |
| Net income margin % | **15.3%** | 13.0% | 2.3 | pp |

(a) Percentage points (“pp”).

*Sales* - Sales for the quarter ended June 30, 2023 were $209,001, an increase of 7 percent compared to the year-ago quarter, which was the result of increased sales in the Distilling Solutions and Ingredient Solutions segments, partially offset by decreased sales in the Branded Spirits segment. Within the Distilling Solutions segment, sales were up 9 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol. Within the Ingredient Solutions segment, sales were up 18 percent, primarily due to increased sales of specialty wheat proteins. Within the Branded Spirits segment, sales were down 2 percent, primarily due to decreased sales of brands in the mid and value price tiers (see “Segment Results”).

*Gross profit -* Gross profit for the quarter ended June 30, 2023 was $76,295, an increase of 29 percent compared to the year-ago quarter. The increase was driven by an increase in gross profit in the Distilling Solutions, Branded Spirits and Ingredient Solutions segments. Within the Distilling Solutions segment, gross profit increased by $8,898, or 30 percent. Within the Branded Spirits segment, gross profit increased $5,043, or 24 percent. Within the Ingredient Solutions segment, gross profit increased by $3,130, or 37 percent (see “Segment Results”).

*Advertising and promotion expenses -* Advertising and promotion expenses for the quarter ended June 30, 2023 were $8,639, an increase of 42 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

*SG&A expenses -* SG&A expenses for the quarter ended June 30, 2023 were $23,513, an increase of 32 percent compared to the year-ago quarter, primarily due to higher personnel expenses and business acquisition costs related to the acquisition of Penelope.

*Operating income -* Operating income for the quarter ended June 30, 2023 increased to $44,143 from $35,306 for the quarter ended June 30, 2022, primarily due to a increase in gross profit in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments. These increases were partially offset by increases in the previously described SG&A and advertising and promotion expenses.

| Operating income, quarter versus quarter | Operating Income | Change |  |
| --- | ---: | ---: | --- |
| Operating income for the quarter ended June 30, 2022 | $35,306 |  |  |
| Increase in gross profit - Distilling Solutions segment(a) | 8,898 | 25% |  |
| Increase in gross profit - Branded Spirits segment(a) | 5,043 | 14 | pp(b) |
| Increase in gross profit - Ingredient Solutions segment(a) | 3,130 | 9 | pp |
| Increase in advertising and promotion expenses | (2,574) | (7) | pp |
| Increase in SG&A expenses | (5,660) | (16) | pp |
| **Operating income for the quarter ended June 30, 2023** | **$44,143** | **25%** |  |

(a) See “Segment Results.”

(b) Percentage points (“pp”).

*Income tax expense -* Income tax expense for the quarter ended June 30, 2023 was $10,804, for an effective tax rate of 25.3 percent. Income tax expense for the quarter ended June 30, 2022 was $7,339, for an effective tax rate of 22.4 percent. The increase in income tax expense, quarter versus quarter, was due primarily to higher income before income taxes and lower tax credits.

*Earnings per common share (“EPS”) -* Basic and diluted EPS was $1.44 for the quarter ended June 30, 2023, compared to $1.15 for the quarter ended June 30, 2022. The change in basic and diluted EPS, quarter versus quarter, was primarily due to an increase in operating income.

| Change in basic and diluted EPS, quarter versus quarter | Basic and Diluted EPS | Change |  |
| --- | ---: | ---: | --- |
| Basic and diluted EPS for the quarter ended June 30, 2022 | $1.15 |  |  |
| Change in operating income(a) | 0.31 | 26% |  |
| Change in other income (expense), net(a) | 0.03 | 3 | pp(b) |
| Change in interest expense, net(a) | 0.01 | 1 | pp |
| Change in effective tax rate | (0.06) | (5) | pp |
| **Basic and diluted EPS for the quarter ended June 30, 2023** | **$1.44** | **25%** |  |

(a) Net of tax based on the effective tax rate for the base year (2022).

(b) Percentage points (“pp”).

The table below details the consolidated results for the year to date ended June 30, 2023 and 2022:

|  | Year to Date Ended June 30, 2023 | 2022 | 2023 v. 2022 |  |
| --- | ---: | ---: | ---: | --- |
| Sales | **$410,011** | $390,217 | 5% |  |
| Cost of sales | **263,892** | 259,172 | 2 |  |
| Gross profit | **146,119** | 131,045 | 12 |  |
| Gross margin % | **35.6%** | 33.6% | 2.0 | pp(a) |
| Advertising and promotion expenses | **16,372** | 11,569 | 42 |  |
| SG&A expenses | **44,045** | 34,090 | 29 |  |
| Operating income | **85,702** | 85,386 | — |  |
| Operating margin % | **20.9%** | 21.9% | (1.0) | pp |
| Interest expense, net | **(2,277)** | (3,141) | 28 |  |
| Other income (expense), net | **30** | (1,008) | 103 |  |
| Income before income taxes | **83,455** | 81,237 | 3 |  |
| Income tax expense | **20,459** | 18,504 | 11 |  |
| Effective tax expense rate % | **24.5%** | 22.8% | 1.7 | pp |
| Net income | **$62,996** | $62,733 | —% |  |
| Net income margin % | **15.4%** | 16.1% | (0.7) | pp |

(a) Percentage points (“pp”).

*Sales* - Sales for the year to date ended June 30, 2023 were $410,011, an increase of 5 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Ingredient Solutions, and Branded Spirits segments. Within the Distilling Solutions segment, sales were up 5 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol. Within the Ingredient Solutions segment, sales were up 14 percent, primarily due to increased sales of specialty wheat proteins and commodity wheat starches. Within the Branded Spirits segment, sales were in line with the year-ago period (see “Segment Results”).

*Gross profit -* Gross profit for the year to date ended June 30, 2023 was $146,119, an increase of 12 percent compared to the year-ago period. The increase was driven by an increase in gross profit in the Ingredient Solutions, Branded Spirits, and Distilling Solutions segments. In the Ingredient Solutions segment, gross profit increased by $7,227, or 44 percent. In the Branded Spirits segment, gross profit increased by $4,854, or 11 percent. In the Distilling Solutions segment, gross profit increased by $2,993, or 4 percent (see “Segment Results”).

*Advertising and promotion expenses -* Advertising and promotion expenses for the year to date ended June 30, 2023 were $16,372, an increase of 42 percent compared to the year-ago period, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

*SG&A expenses -* SG&A expenses for the year to date ended June 30, 2023 were $44,045, an increase of 29 percent compared to the year-ago period. The increase in SG&A expenses was primarily due to higher personnel expenses and business acquisition expenses related to the acquisition of Penelope.

*Operating income -* Operating income for the year to date ended June 30, 2023 increased to $85,702 from $85,386 for the year to date period ended June 30, 2022, primarily due to increased gross profit in the Ingredient Solutions, Branded Spirits, and Distilling Solutions segments. These were partially offset by an increase in the previously described SG&A and advertising and promotion expenses.

| Operating income, year to date versus year to date | Operating Income | Change |  |
| --- | ---: | ---: | --- |
| Operating income for the year to date ended June 30, 2022 | $85,386 |  |  |
| Increase in gross profit - Ingredient Solutions segment(a) | 7,227 | 8% |  |
| Increase in gross profit - Branded Spirits segment(a) | 4,854 | 6 | pp(b) |
| Increase in gross profit - Distilling Solutions segment(a) | 2,993 | 4 | pp |
| Increase in advertising and promotion expenses | (4,803) | (6) | pp |
| Increase in SG&A expenses | (9,955) | (12) | pp |
| **Operating income for the year to date ended June 30, 2023** | **$85,702** | **—%** |  |

(a) See “Segment Results.”

(b) Percentage points (“pp”).

*Income tax expense -* Income tax expense for the year to date ended June 30, 2023 was $20,459, for an effective tax rate of 24.5 percent. Income tax expense for the year to date ended June 30, 2022, was $18,504, for an effective tax rate of 22.8 percent. The increase in income tax expense, year to date versus year to date, was primarily due to higher income before income taxes and lower tax credits.

*Earnings per common share -* Basic EPS for the year to date ended June 30, 2023 was consistent with the prior year period of $2.84. Diluted EPS was $2.83 for the year to date ended June 30, 2023, compared to $2.84 for the year to date ended June 30, 2022. The change in diluted EPS, year to date versus year to date, was primarily due to the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

| Change in basic and diluted EPS, year to date versus year to date | Basic and Diluted EPS | Change |  |
| --- | ---: | ---: | --- |
| Basic and diluted EPS for the year to date ended June 30, 2022 | $2.84 |  |  |
| Change in interest expense, net(a) | 0.03 | 1% |  |
| Change in other income (expense), net(a) | 0.03 | 1 | pp(b) |
| Change in operating income(a) | 0.01 | — | pp |
| Change in effective tax rate | (0.06) | (2) | pp |
| Change in weighted average shares outstanding | (0.01) | — | pp |
| **Basic EPS for the year to date ended June 30, 2023** | **$2.84** | **—%** |  |
| Impact of dilutive shares outstanding | (0.01) | **—** | pp |
| **Diluted EPS for the year to date ended June 30, 2023** | **$2.83** | **—%** |  |

(a) Net of tax based on the effective tax rate for the base year (2022).

(b) Percentage points (“pp”)

### SEGMENT RESULTS

### Distilling Solutions

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended June 30, 2023 and 2022.

|  | DISTILLING SOLUTIONS SALES Quarter Ended June 30, 2023 2022 | Quarter versus Quarter Sales Change Increase/(Decrease) $ Change % Change |  |
| --- | ---: | ---: | --- |
| Brown goods | **$73,124** $56,331 | $16,793 30% |  |
| White goods | **16,816** 17,441 | (625) (4) |  |
| **Premium beverage alcohol** | **89,940** 73,772 | 16,168 22 |  |
| Industrial alcohol | **10,065** 12,885 | (2,820) (22) |  |
| **Food grade alcohol** | **100,005** 86,657 | 13,348 15 |  |
| Fuel grade alcohol | **1,898** 3,312 | (1,414) (43) |  |
| Distillers feed and related co-products | **8,215** 11,267 | (3,052) (27) |  |
| Warehouse services | **6,747** 5,902 | 845 14 |  |
| **Total Distilling Solutions** | **$116,865** $107,138 | $9,727 9% |  |
|  | **Change in Quarter versus Quarter Sales Attributed to:** |  |  |
|  | Total (a) Volume(b) | Net Price/Mix(c) |  |
| Premium beverage alcohol | **22%** **(6)%** | **28%** |  |
|  | **Other Financial Information** |  |  |
|  | **Quarter Ended June 30,** | **Quarter versus Quarter Increase / (Decrease)** |  |
|  | **2023** **2022** | **$ Change** **% Change** |  |
| Gross profit | **$38,678** $29,780 | $8,898 30% |  |
| Gross margin % | **33.1%** 27.8% | 5.3 | pp(d) |

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

Total sales of the Distilling Solutions segment for the quarter ended June 30, 2023 increased by $9,727, or 9 percent, compared to the prior year quarter. Sales of brown goods within premium beverage alcohol and warehouse services increased while distillers feed and related co-products, industrial alcohol, fuel grade alcohol, and white goods within premium beverage alcohol decreased. The increase in sales of brown goods was primarily driven by higher average selling price. This increase was partially offset by a decrease in sales of distillers feed and related co-products, industrial alcohol, fuel grade alcohol, and white goods, which was driven primarily by lower sales volume. The decrease in white goods and industrial alcohol were partially offset by higher average selling price.

Gross profit increased quarter versus quarter by $8,898, or 30 percent. Gross margin for the quarter ended June 30, 2023 increased to 33.1 percent from 27.8 percent for the prior year quarter. The increase in gross profit was primarily due to higher average selling price for brown goods and white goods. These increases in gross profit were partially offset by higher input costs across all product categories.

The following tables show selected financial information for the Distilling Solutions segment for the year to date ended June 30, 2023 and 2022.

|  | DISTILLING SOLUTIONS SALES Year to Date Ended June 30, 2023 2022 | Year to Date versus Year to Date Sales Change Increase/(Decrease) $ Change % Change |  |
| --- | ---: | ---: | --- |
| Brown Goods | **$141,448** $118,476 | $22,972 19% |  |
| White Goods | **32,770** 37,527 | (4,757) (13) |  |
| **Premium beverage alcohol** | **174,218** 156,003 | 18,215 12 |  |
| Industrial alcohol | **20,504** 24,380 | (3,876) (16) |  |
| **Food grade alcohol** | **194,722** 180,383 | 14,339 8 |  |
| Fuel grade alcohol | **4,454** 6,594 | (2,140) (32) |  |
| Distillers feed and related co-products | **17,307** 20,184 | (2,877) (14) |  |
| Warehouse services | **13,605** 11,486 | 2,119 18 |  |
| **Total Distilling Solutions** | **$230,088** $218,647 | $11,441 5% |  |
|  | **Change in Year to Date versus Year to Date Sales Attributed to:** |  |  |
|  | Total(a) Volume(b) | Net Price/Mix(c) |  |
| Premium beverage alcohol | **12%** **(12)%** | **24%** |  |
|  | **Other Financial Information** |  |  |
|  | **Year to Date Ended June 30,** | **Year to Date versus Year to Date Increase / (Decrease)** |  |
|  | **2023** **2022** | **$ Change** **% Change** |  |
| Gross profit | **$71,706** $68,713 | $2,993 4% |  |
| Gross margin % | **31.2%** 31.4% | (0.2) | pp(d) |

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

Total sales of the Distilling Solutions segment for the year to date ended June 30, 2023 increased by $11,441, or 5 percent compared to the year-ago period. Sales of brown goods within premium beverage alcohol and warehouse services increased while white goods within premium beverage alcohol, industrial alcohol, distillers feed and related co-products, and fuel grade alcohol decreased compared to the prior year to date period. The increase in sales of brown goods was driven by higher average selling price, partially offset by lower sales volume. This increase was partially offset by a decrease in sales of white goods and industrial alcohol, which was driven primarily by lower sales volume, partially offset by higher average selling price. Additionally, sales of distilleries feed and related co-products and fuel grade alcohol decreased primarily due to a decrease in sales volume.

Gross profit for the year to date ended June 30, 2023 increased by $2,993, or 4 percent compared to the year-ago period. Gross margin for the year to date ended June 30, 2023 decreased slightly to 31.2 percent from 31.4 percent for the prior year period. The increase in gross profit was due primarily to higher average selling price on brown goods. This increase was partially offset by higher input costs across all product categories. The average selling price for white goods, industrial alcohol, and distillers feed and related co-products increased, but not enough to offset the higher input costs which caused a slight decrease in the gross margin percentage.

### Branded Spirits

The following tables show selected financial information for the Branded Spirits segment for the quarters ended June 30, 2023 and 2022.

|  | BRANDED SPIRITS SALES Quarter Ended June 30, 2023 2022 | Quarter versus Quarter Sales Change Increase/(Decrease) $ Change % Change |  |
| --- | ---: | ---: | --- |
| Ultra premium | **$14,372** $9,435 | $4,937 52% |  |
| Super premium | **3,130** 3,226 | (96) (3) |  |
| Premium | **6,261** 5,775 | 486 8 |  |
| **Premium plus** | **23,763** 18,436 | 5,327 29 |  |
| Mid | **17,090** 23,301 | (6,211) (27) |  |
| Value | **11,578** 12,908 | (1,330) (10) |  |
| Other | **5,185** 3,921 | 1,264 32 |  |
| **Total Branded Spirits** | **$57,616** $58,566 | $(950) (2)% |  |
|  | **Change in Quarter versus Quarter Sales Attributed to:** |  |  |
|  | Total (a) Volume(b) | Net Price/Mix(c) |  |
| Total Branded Spirits | **(2)%** **(24)%** | **22%** |  |
|  | **Other Financial Information** |  |  |
|  | **Quarter Ended June 30,** | **Quarter versus Quarter Increase / (Decrease)** |  |
|  | **2023** **2022** | **$ Change** **% Change** |  |
| Gross profit | **$26,003** $20,960 | $5,043 24% |  |
| Gross margin % | **45.1%** 35.8% | 9.3 | pp(d) |

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

Total sales of the Branded Spirits segment for the quarter ended June 30, 2023 decreased by $950, or 2 percent compared to the prior year quarter. The decrease was primarily driven by decreased sales of brands within the mid and value price tiers primarily due to timing of sales associated with a distributor realignment made by the Company during the first quarter of 2023. These decreases were partially offset by an increase in the ultra premium price tier primarily due to an increase in sales of our American whiskey brands, including the additional brands acquired as part of the acquisition of Penelope.

Gross profit increased quarter versus quarter by $5,043, or 24 percent. Gross margin for the quarter ended June 30, 2023 increased to 45.1 percent from 35.8 percent for the prior year quarter. The increase in gross profit was primarily driven by an increase in sales volume and average selling price in the ultra premium price tier, partially offset by a decrease in sales volume of brands within the mid and value price tiers.

The following tables show selected financial information for the Branded Spirits segment for the year to date ended June 30, 2023 and 2022.

|  | BRANDED SPIRITS SALES Year to Date Ended June 30, 2023 2022 | Year to Date versus Year to Date Sales Change Increase/(Decrease) $ Change % Change |  |
| --- | ---: | ---: | --- |
| Ultra premium | **$23,487** $22,032 | $1,455 7% |  |
| Super premium | **5,977** 6,172 | (195) (3) |  |
| Premium | **13,045** 11,915 | 1,130 9 |  |
| **Premium plus** | **42,509** 40,119 | 2,390 6 |  |
| Mid | **37,925** 42,574 | (4,649) (11) |  |
| Value | **24,999** 24,207 | 792 3 |  |
| Other | **9,066** 7,417 | 1,649 22 |  |
| **Total Branded Spirits** | **$114,499** $114,317 | $182 —% |  |
|  | **Change in Year to Date versus Year to Date Sales Attributed to:** |  |  |
|  | Total (a) Volume(b) | Net Price/Mix(c) |  |
| Total Branded Spirits | **—%** **(9)%** | **9%** |  |
|  | **Other Financial Information** |  |  |
|  | **Year to Date Ended June 30,** | **Year to Date versus Year to Date Increase / (Decrease)** |  |
|  | **2023** **2022** | **$ Change** **% Change** |  |
| Gross profit | **$50,596** $45,742 | $4,854 11% |  |
| Gross margin % | **44.2%** 40.0% | 4.2 | pp(d) |

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

Total sales of Branded Spirits for the year to date ended June 30, 2023 were in line with sales from the year ago period. Sales within the other category increased primarily due to increased sales volume of private label brands. Sales of brands within the ultra premium and premium price tiers increased due to an increase in average selling price as well the additional brands acquired as part of the acquisition of Penelope. These increases were primarily offset by decreased sales of brands within the mid price tier, primarily due to decreased sales volume.

Gross profit for the year to date ended June 30, 2023 increased by $4,854, or 11 percent. Gross margin for the year to date ended June 30, 2023 increased to 44.2 percent from 40.0 percent for the prior year. The increase in gross profit was primarily driven by an increase in average selling price in the ultra premium and premium price tier.

### Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended June 30, 2023 and 2022.

|  | INGREDIENT SOLUTIONS SALES Quarter Ended June 30, 2023 2022 | Quarter versus Quarter Sales Change Increase / (Decrease) $ Change % Change |  |
| --- | ---: | ---: | --- |
| Specialty wheat starches | **$17,095** $16,001 | $1,094 7% |  |
| Specialty wheat proteins | **12,588** 10,109 | 2,479 25 |  |
| Commodity wheat starches | **4,837** 3,130 | 1,707 55 |  |
| Commodity wheat proteins | **—** 38 | (38) N/A |  |
| **Total Ingredient Solutions** | **$34,520** $29,278 | $5,242 18% |  |
|  | **Change in Quarter versus Quarter Sales Attributed to:** |  |  |
|  | Total(a) Volume(b) | Net Price/Mix(c) |  |
| Total Ingredient Solutions | **18%** **(1)%** | **19%** |  |
|  | **Other Financial Information** |  |  |
|  | **Quarter Ended June 30,** | **Quarter versus Quarter Increase / (Decrease)** |  |
|  | **2023** **2022** | **$ Change** **% Change** |  |
| Gross profit | **$11,614** $8,484 | $3,130 37% |  |
| Gross margin % | **33.6%** 29.0% | 4.6 | pp(d) |

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

Total sales of the Ingredient Solutions segment for the quarter ended June 30, 2023 increased by $5,242, or 18 percent, compared to the prior year quarter. The increase was primarily driven by higher sales of specialty wheat proteins and commodity wheat starches primarily due to higher average selling prices and higher sales volume. Additionally, sales for specialty wheat starches increased primarily due to higher average selling prices, partially offset by lower sales volume.

Gross profit increased quarter versus quarter by $3,130, or 37 percent. Gross margin for the quarter ended June 30, 2023 increased to 33.6 percent from 29.0 percent for the prior year quarter. The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input costs across all product categories.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date June 30, 2023 and 2022.

|  | INGREDIENT SOLUTIONS SALES Year to Date Ended June 30, 2023 2022 | Year to Date versus Year to Date Sales Change Increase/(Decrease) $ Change % Change |  |
| --- | ---: | ---: | --- |
| Specialty wheat starches | **$31,781** $31,204 | $577 2% |  |
| Specialty wheat proteins | **24,478** 19,528 | 4,950 25 |  |
| Commodity wheat starches | **8,644** 6,483 | 2,161 33 |  |
| Commodity wheat proteins | **521** 38 | 483 1,271 |  |
| Total Ingredient Solutions | **$65,424** $57,253 | $8,171 14% |  |
|  | **Change in Year to Date versus Year to Date Sales Attributed to:** |  |  |
|  | Total(a) Volume(b) | Net Price/Mix(c) |  |
| Total Ingredient Solutions | **14%** **(6)%** | **20%** |  |
|  | **Other Financial Information** |  |  |
|  | **Year to Date Ended June 30,** | **Year to Date versus Year to Date Increase / (Decrease)** |  |
|  | **2023** **2022** | **$ Change** **% Change** |  |
| Gross profit | **$23,817** $16,590 | $7,227 44% |  |
| Gross margin % | **36.4%** 29.0% | 7.4 | pp(d) |

(a) Total sale changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. The product is then divided by prior period sales dollars.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume. The product is then divided by prior period sales dollars.

Total sales of the Ingredient Solutions segment for the year to date ended June 30, 2023 increased by $8,171, or 14 percent, compared to the prior year period. The increase in Ingredient Solutions sales was primarily driven by higher sales of specialty wheat proteins due to higher average selling price and higher sales volume. Additionally, sales of commodity wheat starches, specialty wheat starches, and commodity wheat proteins increased primarily due to higher average selling price.

Gross profit increased by $7,227, or 44 percent for the year to date ended June 30, 2023 compared to the prior year period. Gross margin for the year to date ended June 30, 2023 increased to 36.4 percent from 29.0 percent for the prior year period. The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input across all product categories.

### CASH FLOW, FINANCIAL CONDITION, AND LIQUIDITY

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.

Operating cash flow and borrowings through our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement (see Note 5) provide the primary sources of cash to fund operating needs and capital expenditures. These same sources of cash are used to fund stockholder dividends and other discretionary uses. Our overall liquidity reflects our strong business results and an effective cash management strategy that takes into account liquidity management, economic factors, and tax considerations. We expect our sources of cash to be adequate to provide for budgeted capital expenditures, potential mergers or acquisitions, and anticipated operating requirements for the next 12 months and beyond.

### Cash Flow Summary

|  | Year to Date Ended June 30, 2023 | 2022 | Changes, year versus year Increase / (Decrease) |
| --- | ---: | ---: | ---: |
| Cash provided by operating activities | **$20,156** | $43,019 | $(22,863) |
| Cash used in investing activities | **(135,589)** | (19,484) | (116,105) |
| Cash provided by (used in) financing activities | **89,462** | (7,649) | 97,111 |
| Effect of exchange rate changes on cash | **41** | (39) | 80 |
| **Increase (decrease) in cash and cash equivalents** | **$(25,930)** | **$15,847** | $(41,777) |

Cash decreased $25,930 for the year to date ended June 30, 2023, compared to an increase of $15,847 for the year to date ended June 30, 2022, for a net decrease in cash of $41,777, period versus period.

**Operating Activities.** Cash provided by operating activities for the year to date ended June 30, 2023 was $20,156. The cash provided by operating activities resulted primarily from net income of $62,996, adjustments for non-cash or non-operating charges of $17,041, including depreciation and amortization and share-based compensation, partially offset by cash used in operating assets and liabilities, net of the effects of acquisition, of $59,881. The primary drivers of the changes in operating assets and liabilities were $41,020 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate and finished goods inventory, $35,833 use of cash related to increased accounts receivable, net due to timing of sales and customer payments during the quarter, and $7,048 use of cash related to a decrease in accrued expenses and other, primarily due to incentive compensation expense. These uses of cash were partially offset, primarily by $22,328 cash provided by an increase in accounts payable due to timing of payments.

Cash provided by operating activities for the year to date ended June 30, 2022 was $43,019. The cash provided by operating activities resulted primarily from net income of $62,733, adjustments for non-cash or non-operating charges of $13,262, including depreciation and amortization, and share-based compensation, partially offset by cash used in operating assets and liabilities of $32,976. The primary drivers of the changes in operating assets and liabilities were $27,508 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate and finished goods inventory, $13,142 use of cash related to increased accounts receivables, net, due to increased sales during the year to date period as well as timing of customer payments, and $4,791 use of cash related to accrued expenses and other primarily related to an increase in incentive compensation. These uses of cash were partially offset, primarily by $11,438 cash provided by an increase in accounts payable.

**Investing Activities.** Cash used in investing activities for the year to date ended June 30, 2023 was $135,589, which primarily resulted from $104,398 related to the acquisition of Penelope, net of cash acquired, and additions to property, plant, and equipment of $30,055 (see “Capital Spending”). Cash used in investing activities for the year to date ended June 30, 2022 was $19,484, which primarily resulted from additions to property, plant, and equipment of $18,087 (see “Capital Spending”).

**Capital Spending.** We manage capital spending to support our business growth plans. We have incurred $23,863 and $14,553 of capital expenditures and have paid $30,055 and $18,087 for capital expenditures for the year to date ended June 30, 2023 and 2022, respectively. The difference between the amount of capital expenditures incurred and amount paid is due to the change in capital expenditures in accounts payable. We expect approximately $63,000 in capital expenditures in 2023, which includes capital expenditures for facility improvement and expansion, facility sustaining projects, environmental health and safety projects, as well as the planned closure of the Atchison Distillery.

**Financing Activities.** Cash provided by financing activities for the year to date ended June 30, 2023 was $89,462, due to net proceeds on debt of $95,600 (see “Long-Term and Short-Term Debt”), partially offset by payments of dividends and dividend equivalents of $5,337 (see “Dividends and Dividend Equivalents”), and purchases of treasury stock of $801 (see “Treasury Purchases”).

Cash used in financing activities for the year to date ended June 30, 2022 was $7,649, due to payments of dividends and dividend equivalents of $5,322 (see “Dividends and Dividend Equivalents”), net payments on debt of $1,614 (see “Long-Term and Short-Term Debt”), and purchases of treasury stock of $713 (see “Treasury Purchases”).

**Treasury Purchases.** 22,592 RSUs vested and converted to shares of common stock for employees during the year to date ended June 30, 2023, of which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.

29,356 RSUs vested and converted to shares of common stock for employees during the year to date ended June 30, 2022, of which we withheld and purchased for treasury 9,025 shares valued at $713 to cover payment of associated withholding taxes.

### Dividends and Dividend Equivalents

*Dividend and Dividend Equivalent Information (per Share and Unit)*

| Declaration date 2023 | Record date | Payment date | Declared(c) | Paid(c) | Dividend payment | Dividend equivalent payment(a)(b) | Total payment(b) |
| --- | --- | --- | ---: | ---: | ---: | ---: | ---: |
| February 23, 2023 | March 10, 2023 | March 24, 2023 | **$0.12** | **$0.12** | **$2,640** | **$29** | **$2,669** |
| May 4, 2023 | May 19, 2023 | June 2, 2023 | **0.12** | **0.12** | **2,641** | **27** | **2,668** |
|  |  |  | **$0.24** | **$0.24** | **$5,281** | **$56** | **$5,337** |
| 2022 |  |  |  |  |  |  |  |
| February 22, 2022 | March 11, 2022 | March 25, 2022 | $0.12 | $0.12 | $2,638 | $23 | $2,661 |
| May 5, 2022 | May 20, 2022 | June 3, 2022 | 0.12 | 0.12 | 2,638 | 23 | 2,661 |
|  |  |  | $0.24 | $0.24 | $5,276 | $46 | $5,322 |

(a) Dividend equivalent payments on unvested participating securities.

(b) Includes estimated forfeitures.

(c) Per share amount.

On August 3, 2023, we announced a dividend payable to stockholders of record of our common stock, resulting in dividend equivalents payable to certain RSU holders, of $0.12 per share and per RSU. The dividend and dividend equivalent are payable on September 1, 2023 to stockholders of record and certain RSU holders on August 18, 2023.

**Long-Term and Short-Term Debt.** We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including brand development, merger and acquisition, and share repurchase activities), and the overall cost of capital. Total debt was $325,104 (net of unamortized loan fees of $6,946) at June 30, 2023, and $230,335 (net of unamortized loan fees of $6,115) at December 31, 2022.

**Financial Condition and Liquidity.** Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and investments supporting our strategic plan, such as the aging of barreled distillate and potential mergers and acquisitions. Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels.

Our principal sources of cash are product sales and borrowing on our various debt agreements. Under our debt agreements, we must meet certain financial covenants and restrictions, and at June 30, 2023, we met those covenants and restrictions.

At June 30, 2023, our current assets exceeded our current liabilities by $402,198, largely due to our inventories, at cost, of $343,826. At June 30, 2023, our cash balance was $21,959 and we have used our various debt agreements for liquidity purposes, with $302,000 available under our Credit Agreement for additional borrowings and up to $120,000 potentially available through August 23, 2023 under the Note Purchase Agreement (see Note 5). We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We regularly assess our cash needs and the available sources to fund these needs. We utilize short-term and long-term debt to fund discretionary items, such as capital investments, dividend payments, and potential mergers and acquisitions. Subject to market conditions, we could also fund future mergers and acquisitions through the issuance of additional shares of our common stock or preferred stock. In addition, we have strong operating results such that we believe financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.

## Market risk

As filed, 2,486 characters.

We are exposed to commodity price and interest rate market risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets with the goal to reduce the potentially adverse effects that the volatility of these markets may have on our operating results and financial condition.

**Commodity Costs.** Certain commodities we use in our production process, or input costs, expose us to market price risk due to volatility in the prices for those commodities. Through our grain supply contracts for our Atchison and Lawrenceburg facilities, our wheat flour supply contract for our Atchison facility, and our natural gas contracts for both facilities, we purchase grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated prices. We have determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of our supply contracts meet the normal purchases and sales exception as defined under Accounting Standards Codification (“ASC”) 815, *Derivatives and Hedging*, because the quantities involved are for amounts to be consumed within the normal expected production process.

**Interest Rate Exposures.** Our various debt agreements (see Note 5) expose us to market risks arising from adverse changes in interest rates. Established procedures and internal processes govern the management of this market risk.

Increases in market interest rates would cause interest expense under our variable interest rate debt to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings under variable interest rate debt during the reporting period following an increase in market interest rates. Based on weighted average outstanding variable-rate borrowings at June 30, 2023, a 100 basis point increase over the current rates actually in effect at such date would increase our interest expense on an annual basis by $361. Based on weighted average outstanding fixed-rate borrowings at June 30, 2023, a 100 basis point increase in market rates would result in a decrease in the fair value of our outstanding fixed-rate debt of $28,795, and a 100 basis point decrease in market rates would result in an increase in the fair value of our outstanding fixed-rate debt of $36,219.

## Controls and procedures

As filed, 1,322 characters.

**Evaluation of Disclosure Controls and Procedures.** As of June 30, 2023, our Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

**Changes in Internal Control.** There were no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,638 characters.

Risk factors are described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. The following update, listed below, should be read in conjunction with the risk factors disclosed in our Form 10-K for the year ended December 31, 2022.

**We may not realize the anticipated benefits from the announced planned closure of our Atchison, Kansas distillery.**

On July 13, 2023, we announced the planned closure of our distillery located in Atchison, Kansas, with an anticipated closure date of January 2024, as part of our plan to address profitability headwinds associated with our white goods and industrial products within our Distilling Solutions segment. This closure and any other actions to address profitability headwinds could fail to achieve the anticipated results, could disrupt our business, and could have an adverse effect on our business, financial condition or results of operations. We cannot be sure that we will realize profitability improvements, gross margin improvements, or any other anticipated benefits from the closure of our Atchison, Kansas distillery or any other actions taken to address profitability headwinds. The Atchison, Kansas distillery closure, and its timing and effectiveness, is subject to assumptions, estimates, and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays or unanticipated costs, or if other unanticipated events or unintended consequences occur, our business and financial results could be adversely affected and could differ materially from our expectations.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-027007. Last ingested by Listed: Oct 28, 2026, 07:37 ET. No prices; not investment advice.