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Edited Transcript of MGPI earnings conference call or presentation 31-Jul-19 2:00pm GMT

Q2 2019 MGP Ingredients Inc Earnings Call

Atchison Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of MGP Ingredients Inc earnings conference call or presentation Wednesday, July 31, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Augustus C. Griffin

MGP Ingredients, Inc. - CEO, President & Director

* Brandon Gall

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Conference Call Participants

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* Alex Joseph Fuhrman

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* William Bates Chappell

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Mike Houston

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Presentation

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Operator [1]

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Good day, and welcome to MGP Ingredients Inc. Second Quarter 2019 Results Conference Call and Webcast. (Operator Instructions) Please note that this event is being recorded.

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

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Mike Houston, [2]

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Thank you, Nancy. Good morning, everyone, and thank you for joining the MGP Ingredients conference call and webcast to discuss the company's financial results for the second quarter 2019.

I'm Mike Houston with Lambert and Company, MGP's Investor Relations firm, and joining me are members of their management team, including Gus Griffin, President and Chief Executive Officer; and Brandon Gall, Vice President of Finance and Chief Financial Officer.

We'll begin the call with management's prepared remarks and then open the call up to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. Company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission.

Company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the press release issued by MGP today, you can access it at the company's website, www.mgpingredients.com

At this time, I would like to turn the call over to MGP's President and Chief Executive Officer, Gus Griffin. Gus?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [3]

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Thank you, Mike, and thank you all for joining us. On this call, we will provide an overview of our results for the quarter, updates on key financial performance metrics and discussion of progress against our strategy. Then we'll take your questions.

Now I would turn to the results for the second quarter. We saw improved results across most parts of our business this quarter, including the expected solid rebound in sales of new distillate, stronger sales and margins for our white beverage and industrial alcohol products and gains in both revenue and gross profit for Ingredients Solutions segment. Both of our business segments showed top line growth over the prior year and as a result, our consolidated sales for the quarter increased more than 2%.

Even with these improvements, our operating income declined over 2% as sales of aged whiskey lagged our expectations. Despite the slow start to the year for sales of aged whiskey, we remain confident in both the long-term demand for and the value of this inventory and expect to see a significant increase in sales of aged whiskey over the remainder of the year. However, we believe there is some possibility we might have difficulty completing transactions for all of our projected sales of aged whiskey by the close of the year. As a result, we are revising our guidance for the full year to include that possibility.

Looking at each segment individually. Our Distillery Products segment, sales finished the quarter up 1.9% to $74 million while gross profit declined slightly to $16.5 million or 22.3% of segment sales. As expected, we saw strong double-digit growth in sales of new distillate this quarter and as a result, year-to-date sales of new distillate are up low single digits. This quarter was our third largest quarter ever for new distillate sales and reflects both the continued robust health of the American whiskey category and our strong position supporting that growth. This growth was broad-based and reflects a rebound in sales to our multinational and national customers as pricing and demand for our new distillate remain strong. Our investment in expanding our sales force also continues to pay off as once again we added more incremental new customers during this quarter than the prior year period.

Sales of aged whiskey were down for the quarter and continue to trail last year. Despite soft aged sales during the first half of the year, our trailing 12-month revenue for total brown goods is up 8.2% over the prior year period, reflecting sustained growth rates above those of the American whiskey category. While sales of aged whiskey are below our expectations year-to-date, we expect to see a significant increase in these sales over the remainder of the year. Several orders failed to transact at the end of the quarter, highlighting both the longer-term demand and the inherent challenges in implementing this strategy. As we progress through the implementation of this strategy, we are beginning to better understand the timing of demand and obstacles to transacting customers' orders.

Although the demand is solid and we have consistently achieved pricing at or above our target, some of our customers struggle with access to credit or financing, which poses a challenge to transacting the sale on a timely basis. Others have had to prioritize the use of available funds, putting off purchases of aged whiskey until the need is absolutely critical. Finally, we believe that some customers may be beginning to try to use the public reporting of our quarterly results and progress against this specific strategy as a bargaining tool. As I've indicated in prior calls, we will not force sales of our aged whiskey into certain quarters. While we will continue to aggressively sell aged whiskey, our strategy to deploy this inventory will be executed in a way that maximizes its long-term economic value. As a reminder, we believe the price of our remaining whiskey inventory will continue to increase as it ages in subsequent years, increasing its value and expanding the range of solutions we will be able to offer customers.

We continue to see a diverse group of customers for our aged whiskey, and our visibility to when those sales will be finalized improves throughout the year. We are off to a good start to the back half of the year, having already recorded actual sales or received purchase orders for about 12% of our projected sales of aged whiskey for the remainder of the year. Additionally, we are in active, ongoing discussions with specific customers for another approximately 60% of those projected sales. This visibility, coupled with the continued solid trends of the category, gives us confidence for strong aged sales growth in the back half of the year.

As we provide structure to this unstructured market, it is becoming increasingly clear that MGP has a unique competitive advantage. Our extensive library of aged whiskey, along with an expanded sales team and our ability to support our brands' growth regardless of its size, offers a position of strength as we sell more aged whiskey in the future.

Sales of premium beverage white goods increased 1.6% for the quarter, with slightly improved pricing and margins. Similar to premium beverage white goods, sales of industrial alcohol also increased for the quarter, up 6.9%, with slightly improved margins. While the margin compression moderated this quarter, both of these markets continue to be hypercompetitive and the chronic oversupply dynamic in the industrial market still exists. We expect this situation to continue for the foreseeable future.

Sales of dried distillery grains or DDG declined over 7%, reflecting short-term micro factors. Our outlook for DDG pricing continues to be based on the unchanged macro environment that led to lower pricing in the first quarter of 2017. Revenue from warehouse services increased over 19%, reflecting in part, growth in the number of customer barrels aging in our whiskey warehouses and other services we provide. Looking forward, we expect our brown goods business to deliver improved performance over the remainder of the year as a result of capturing delayed sales of aged whiskey from the second quarter as well as continued strong demand and pricing.

Turning to Ingredient Solutions, sales grew 5.6% to $16.5 million, while gross profit increased to $3 million or 18.3% of segment sales. We were pleased with the improved pricing and mix across the segment, particularly as we continue to cycle the loss of a large customer for our TruTex texture wheat protein product at the end of last year. We feel very good about the robust project pipeline for this product and remain confident that it will be a driver of long-term growth.

We are also continuing to see increased customer interest in our Fibersym and FiberRite products, following their approval as sources of dietary fiber by the FDA. These products are ideally suited to help companies develop healthier food offerings, delivering high fiber content while lowering carbs. We are seeing a similar trend in Asia, with consumers increasing interest in a healthy diet with lower carbs. Fibersym is benefiting from this trend and is well positioned for long-term growth.

Sales of our commodity wheat proteins and starches increased from the prior year period as more customers seek to expand their clean label initiatives, which have enhanced our margins in those areas of the business. Overall, both of our business segments continue to benefit from favorable consumer trends, and we remain confident in our long-term strategy.

We continue to see strong demand and pricing for our products, while we have adjusted our outlook to reflect the possibility that we might have difficulty completing transactions for all of our projected sales of aged whiskey by the close of the year. We remain very confident and encouraged about the long-term outlook.

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

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Brandon Gall, [4]

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Thanks, Gus. For the quarter, consolidated sales increased 2.5% to $90.5 million, reflecting growth in both the Distillery Products and Ingredient Solutions segments. Consolidated gross profit increased 0.4% to $19.5 million as a result of gross profit growth in the Ingredient Solutions segment, partially offset by decline in the Distillery Products segment. Consolidated gross margin decreased approximately 40 basis points to 21.6% of sales, down from 22% in the prior year quarter.

Corporate selling, general and administrative expenses for the quarter were $8.6 million, up 4.1% versus prior year due to higher professional fees and personnel investment to support our brands' platform. We are focused on effectively managing these costs while still investing to grow.

Consolidated operating income decreased 2.3% to $10.9 million compared to $11.1 million during the prior year quarter, reflecting the increased SG&A expenses and a year-over-year decline in Distillery Products segment gross profit.

Our corporate effective tax rate was 25% in the current quarter compared to an effective tax rate of 30.6% in the prior year quarter. This decrease was primarily due to 2018 change in estimate related to the sale of the company's equity method investment and did not recur in 2019. With an updated view on the 2019 state and federal tax legislation, we are reducing our projected effective tax rate for 2019 to approximately 19%.

Net income for the second quarter increased 5.1% to $7.9 million, and earnings per share increased $0.02 per share to $0.46. These increases from prior year results were primarily due to lower income tax expense resulting from a decrease in the effective tax rate, partially offset by lower operating income. We've discussed the strong fundamental cash and earning capability of our business, which allows us to provide positive operating cash flows even as we invest in our inventory of aging whiskey.

In the second quarter, cash provided by operations was $6.9 million. One driver of cash provided by operations was the reduction in accounts receivable of $2.3 million during the quarter, reducing our ratio of day sales outstanding. While we expect continued normalization of day sales outstanding, these metrics remain slightly above historical levels due to higher sales, timing of sales as well as product and customer mix. During the period, we also invested a net $6 million for growing our barrel distillate inventory for aging as we continue to see long-term value in building this inventory.

MGP's balance sheet remains strong, allowing us to continue investing in our growth and drive long-term shareholder value. We continue to have very good access to capital. As of June 30, 2019, $148 million remained available out of the $150 million revolving credit line.

Our capital allocation strategy remains consistent with prior quarters and years as we continue to build our aged whiskey inventory, expand our warehouse capabilities and contemplate possible M&A opportunities that are consistent with our long-term strategy. Recently, the board authorized a second quarter dividend in the amount of $0.10 per share. The board continues to view dividends as an important way to share the success of the company with shareholders.

MGP is providing the following revised guidance for fiscal 2019. 2019 sales growth is projected in the mid-single-digit percentage range versus 2018. 2019 gross margins are expected to increase modestly as compared to 2018. The company's estimated growth in operating income in 2019 is 10% to 20%. 2019 effective tax rate is forecasted to be approximately 19% and shares outstanding are expected to be approximately 17 million at year-end. Earnings per share are forecasted to be in $2.55 to $2.75 range, inclusive of our new lower projected effective tax rate.

Let me now turn things back over to Gus for concluding remarks.

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [5]

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Thanks, Brandon. Now I'd like to touch on some additional initiatives that support our long-term strategic plan.

The American whiskey category continues to be strong, and we are very pleased with our unique position supporting that growth. Our warehouse expansion plan remained on track during the quarter, allowing us to increase our storage capacity and complete the project by the end of 2020.

As Brandon mentioned, we also invested an additional $6 million in our aging whiskey inventory. This brings our inventory of aging whiskey to $85.5 million at cost. While we will be selling aged whiskey from this extensive library of inventory, we plan to grow the value of this inventory at cost through 2019. We remain confident in both the demand and pricing for our aged whiskey and our plan for deploying this inventory and maximizing its economic value over the long term.

We continued to progress our brands' initiative, focusing on increasing distribution and sales velocity in our existing markets. In November 2019, we will release Remus Volstead Reserve Straight Bourbon Whiskey, a onetime, extremely limited, 14-year-old bottled-in-bond offering. The new release, which has a suggested retail price of $199.99 per 750-ml bottle coincides with the 100th anniversary of the start of National Prohibition. This one-of-a-kind whiskey highlights all of our exceptional whiskey-making capabilities.

We are also proud to continue our efforts to help local farmers affected by the devastating Midwest flooding. Working with the nonprofit Farm Rescue, we shipped over 400 tons of dried distillers grains from our Atchison facility to local farmers to help feed their cattle. Helping those in need in our local and regional communities is an important part of the MGP culture. The DDG shipments honored this commitment, while helping the farming communities to make our business possible.

While we are still not where we would like to be in terms of year-to-date operating income growth, I would like to reiterate our continued confidence that focusing on our key strategies will drive superior long-term shareholder value. Both of our business segments continue to be well positioned against strong macro consumer trends, and we continue to believe that despite quarterly volatility, an aggressive implementation of our strategic plan will drive strong growth in 2019 and beyond.

Operator, we are now ready to begin the question-and-answer portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Bill Chappell from SunTrust.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Let's dive straight to aged. Something clearly has happened from last quarter to this quarter in terms of you were very confident that the aged sales would enable you to get to the guidance to now you're adding a lower end to the guidance. And clearly, the stock today tells you people don't believe that you can actually sell the product. So I'm just trying to understand, best case scenario, you've -- the company has been surprised by how complex this process is in terms of placing the barrels and it eventually will happen. Worst-case scenario, customers are now pushing back and saying, "No, we're not going to pay 3x." So is there any way to give us comfort in the near term that you're selling anything at 3x? Or that it's more to the former versus the latter?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [3]

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Yes. Great question and it's obviously, the crux of the matter. So first of all, we're selling less aged this year so far. We plan to sell more aged than last year. We're selling less volumetric but we're selling older whiskey and we are consistently hitting our target, which is 3x. We're consistently achieving to that or above that. So we -- while people may be pushing back as a negotiating ploy, we're not selling it to them at lower than 3x. So we think any pricing pressure is temporary as a negotiating ploy. And as I said in my comments, I think people are -- we have said we have an extensive library of inventory, which may have actually worked against us because people now know that we're trying -- what we're trying to do, so they're using -- some of our -- we believe some of our customers will try to use that as a negotiating ploy.

As we've clearly said, our goal and our plan is to maximizing the economic value of that whiskey, of that asset. And so we're not going to either try to force it into any quarter. And consistent with that approach, we realize that there's a possibility that we might not execute all the planned sales. Again, our planned sales would put us right in guidance, but there's a possibility that we might not execute all those planned sales by the end of the year, and that's why we've highlighted the possibility and extended the bottom end of that guidance.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [4]

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And so going back to kind of comfort, I mean, as you move into 3Q, are -- did some of those sales show up? Are they -- what can give us comfort that they will happen even at that level?

And also, you said your planned sales would get you right in the middle of guidance. By my math, if you would -- if you had sold a fair amount of the class of 2015 inventory, you could exceed guidance. So just trying to understand that?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [5]

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Let me clarify. Thanks for digging into it a little more. It would put us at the top of our guidance. If we -- our projected sales would put us at the top our guidance. Again, we -- we're -- where we're really the -- as I've highlighted over the last couple of calls, there is -- we have other headwinds, Industrial Ingredients. And where we're highlighting the possibility of not being able to transact all those sales this year is the incremental sales required to overcome the shortfall in Industrial and Ingredients this year.

So we were more confident in our ability to lean in and execute the required incremental sales to overcome those shortfalls by the end of the year. And now we're highlighting that there's a possibility we might not be able to lean in and get those incremental sales, certainly, without -- so the possibility is, we're not going to diminish the economic value of it. So we wanted to highlight that. But if we sell all of our projected sales, we'll be at the high end of the guidance.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [6]

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And digging a little bit into the unaged side, as I look at the growth, is there a way to parse out how much of this was just pushed from last quarter to this quarter versus how much is kind of real growth? And when I say that, just trying to understand what pricing trends for unaged will look like, if they've -- if there's been any pressure there?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [7]

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No. Our pricing on both -- where we believe in the overall demand in the market and the strength of our position in the market, so our pricing for new distillate and our pricing for aged have -- and our view of that have remained unchanged. So we are getting the pricing we want for both products. And obviously, on the aged, it's lagging or the volumetric is lagging our expectations.

But on the new distillate, we highlighted in the first quarter call that we had some timing issues. And first, the new distillate sales in the first quarter were soft and we highlighted the timing issues with the multinational, national customers. That came back as expected, there was a timing issue. And we continue to recruit new customers across all of the segments, and so our recruitment of new customers is also driving that business. So we view all aspects of our new distillate business as being healthy.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [8]

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And just on that, the DSO number remained elevated. I would have expected that to come down as the orders came in. Can you give me some clarity there?

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Brandon Gall, [9]

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Yes. Thanks, Bill. Mentioned this a little bit in the opening remarks, but I'm happy to discuss it further. So we did acknowledge a temporary spike in AR on the call in the first quarter. Since the end of the first quarter, our accounts receivable balance has declined more than 6% in total, while sales rose more than 1% versus the first quarter. So resulting in a more normalized ratio, of day sales outstanding at the end of Q2 from 45 days to approximately 41 days. As we've said in the past and will continue to state going forward, this metric, Bill, will continue to be driven by sales, timing of sales as well as product and customer mix.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [10]

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Got it. And then on white goods, is it right to say, like, white goods may end up better than your expectations for this year? It seems like you kind of expected much worse at the start of the year, wasn't as bad after first quarter, it looks almost normal as we move into second quarter. So kind of what's the outlook on pricing margins there?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [11]

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We're keeping our outlook as it was when we started the year. I mean, I think, as we saw the compression in the first quarter, we saw moderation in that compression in margins in the second quarter. What the dynamics that are driving that, the oversupply in the industrial market, the extreme competition in both of them, we see that continuing. So we're not forecasting any improvement in that. We think this is -- what happened in the second quarter, while we're pleased with it, we don't think it changes the overall outlook for those 2 products.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [12]

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Got it. And then last one. Just going back to the aged, I think I understand your commentary on the smaller players, on financing and what have you. But I think of the past, you had thought it would look -- roughly go, kind of 1/3, 1/3, 1/3 to the aged to the big, mid and small size. And at the same point we've had a -- obviously there's a shortage out in the market. And I would think there's some pent up demand for the aged that you have available for sales. So I mean, can customers wait this thing out for 6 months? And that's what I'm trying -- have a tough time understanding how it gets pushed to next year, don't they need or can't they monetize the inventory that's of aged in the near term?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [13]

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Yes. I think there's some confusion. We talked about our sales in general being 1/3, 1/3, 1/3. We haven't given out a forecast on how the aged would break out across those customers.

But to your point, I think we're seeing 3 reasons here, they're making this -- they're challenging to execute this on a timely basis. One is funding, and I think it's important for people to understand, it's not so much the size of the brand, it's the strength of the balance sheet of that brand owner. Now certainly, the multinationals and nationals have -- don't have that issue. Also, we've had -- in the -- at the end of the second quarter, we had some sales that did not transact. Some because people -- the customers didn't have their funding in place. Some because customers decided to use their funds for other pressing usages and sort of gamble that they would have the -- that the inventory would still be there, the aged inventory from us would still be there when they needed it. And then as I said, I think some customers are, we believe, might be starting to try to game the system and we're seeing it will get -- feel the pressure.

So I think we can sit -- can you sit the -- this is -- there's certainly a learning curve here. We're implementing an approach that's new to the industry. And there's certainly a little bit of trial and error. We are seeing a general reluctancy from most customers to contract far out into the future. So we -- the people are reluctant, say, last year to go ahead and contract for aged for this year, some of them, they want to make sure they need it and they want to make sure when will they need it. So they don't have to carry it.

The size of our inventory and our publicness in communicating the size of that inventory might be giving customers confidence that they're able to wait on it and still get it. Now certainly, there will be a point that they actually need it. They need it -- or more, will need to put it in the bottle. So for that reason, we think the pace of sales will pick up as we get closer to their eventual need.

We've talked about the evolution of scarcity. I think maybe our public pronouncements about the size of the inventory and the excessiveness of the inventory and maybe the slowness of our sales in the first half have drawn that and make our customers question that. But I think as we move into the second half of the year and we begin to transact these sales as our customers get closer to their absolute critical need for this inventory, that will firm up.

And we will continue to explore ways to make contracting more attractive to our customers, without diminishing the value of this inventory. But it's very -- this is -- we're -- even though we're 6 months into this, it's still a very new approach to the industry. We're certainly learning a lot about it and continuing to adjust our approach to both sell the inventory but also continue to maximize the economic value.

And again, we have seen -- we have not reduced our pricing. We are selling less volumetric but older whiskey. We continue to be very confident in the value of the inventory, and I think proof of that is that we have said we are going to continue to build the inventory through 2019, whereas we had questions about the value of the inventory, we wouldn't be continuing to build that asset.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [14]

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Got it. And then sorry, one last one. And not to put words in your mouth, but is thinking that you're putting a lower end to the range of the guidance a way of signaling to customers that you're willing to wait it out and not going to be held up in terms of making near-term sales?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [15]

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Yes. The fact that we don't give quarterly guidance from the fact that we have indicated that there is a possibility we might not execute all of the sales, yes, I think will be a clear signal of that.

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Operator [16]

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Our next question comes from Alex Fuhrman from Craig-Hallum Capital Group.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [17]

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Wanted to ask about what you were just talking about with some of your customers having difficult access to capital and having to prioritize some of their own capital outlays. And I guess I'm just trying to understand, why would this be unique to the aged whiskey, particularly just given that I would imagine aged whiskey is purchased by your customers more close to when they are going to actually sell it as opposed to new fill? Is this an issue? Customers may be having more sporadic purchases based on the timing of when they have cash coming into doors? Is this an issue that's been impacting your new fill business as well? And is there any concern if there hasn't that, that it could in the future?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [18]

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Yes. So the aged is a little bit different from the new fill is: a, the -- they're going -- most customers are going to pay up front for it and the sheer size of the transaction, so they're going to -- if they're going -- it may be -- they could parse their purchases of new distillate out over time. That's sort of a planned supply chain, whereas if they need the aged, they're going -- they tend to buy it in a lump because they're addressing a specific need.

And so that makes the financing a little bit more important. And as you said other uses. And I think that's -- they used to buy it and now they're waiting. I think we're seeing a little bit more people waiting till they're absolutely sure they need it and getting closer to that critical moment when they need to put it in the bottle. I talked a minute ago about the illusion of scarcity. So I think people are saying, well, maybe I can put it off, maybe I can use my funds to build up my sales force, maybe I can use my funds to build out my visitor center and so forth. And I can gamble a little bit on the availability because I don't need it for another 6 months or I don't need it for another 3 months. But there's the looming need, the critical need for it is still out there. And as time goes by, we get closer to that, which makes the demand for it, a little more time sensitive.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19]

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Okay. That make sense. And then if I could switch gears and ask about the food ingredient segment, looks like it had a pretty strong quarter despite the loss of that key customer at the beginning of the year. Have there been other customers that you've been able to add in the meat substitute categories? Obviously, there's been a lot of attention on that space and a lot of growth, and just curious. And it seems like your ingredient isn't in the big one that went public recently. But curious if there have been other quickly growing brands that have replaced some of that business that you lost at the beginning of the year? Or what products and functions have really been driving that business for you lately?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [20]

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Yes. We have added other customers. They seem to be growing quickly. The -- obviously, the customer we lost had been ramping up for a while, so we lost -- if somebody was a little further along in their evolution, and the customers were gaining a little bit earlier in their evolution. But we are continuing to see -- we're gaining actual customers who are ordering from us for their brands, their products that are growing, and we're continuing to see really strong interest across a range of applications.

So the burgers get all the attention. But there's tremendous growth in applications similar to chicken or pork or crab. Particularly, there's a lot of attention now on chicken nuggets and things like that. And so I think you're -- so we are well positioned. We're working with a wide range of customers. We're seeing strong interest in the applications, have acquired actual customers and that's why we feel so strongly about the long-term potential there.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [21]

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That make sense. And then looks like now a couple of quarters in a row, your classic or commodity formulations have been showing some growth year-over-year. Just curious, what's been driving that? I mean, it looks like in the past that was a much more sporadic kind of business when you would have revenue, are you starting to get more stable customers who are using those more traditional formulations in their products on a regular ongoing basis? Just would love to hear about perhaps how those segments have evolved as well?

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [22]

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Yes. I think there's 2 pieces that are important there. One, the growth in our commodity wheat proteins. Some of that is a result of -- because of our TruTex textured, especially wheat protein, since we lost the customer for that product, those sales -- the use in that particular product has -- is softer. So we still make the proteins and we sell it as a commodity wheat protein. So some of the volumetric bump is due to that.

But we are seeing stronger interest from our customers in their clean label initiatives and our commodity wheat proteins and commodity wheat starches, some people also use the term native, wheat starches and wheat proteins are clean label. And so that demand is helping us achieve a little higher margins on those products than historically, we've earned in the past.

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Operator [23]

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This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Gus Griffin, Chief Executive Officer, for any closing remarks.

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Augustus C. Griffin, MGP Ingredients, Inc. - CEO, President & Director [24]

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Thank you all for your interest in our company and for joining us today for our second quarter call. We continue to make progress towards implementing our long-term strategic plan and remain confident that it will provide us the resources we need to deliver growth in 2019 and beyond. We look forward to talking with you again after the third quarter.

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Operator [25]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Enjoy the rest of your day.