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MGP Ingredients Reports Strong Third Quarter 2020 Results

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Consolidated sales increased 13.5% from prior year period; operating income increased 17.7%

ATCHISON, Kan., Oct. 29, 2020 (GLOBE NEWSWIRE) -- MGP Ingredients, Inc. (Nasdaq:MGPI), a leading supplier of premium distilled spirits and specialty wheat proteins and starches, today reported results for the third quarter ended September 30, 2020.

2020 third quarter results compared to 2019 third quarter results

  • Consolidated sales increased 13.5% to $103.0 million, reflecting an increase in both the Distillery Products and Ingredient Solutions segments.

  • Consolidated gross profit increased 23.3% to $23.2 million, due to increased gross profit in the Ingredient Solutions and Distillery Products segments.

  • Consolidated operating income increased 17.7% to $13.7 million.

  • Non-GAAP operating income increased 17.8% to $13.7 million, exclusive of CEO transition costs.

  • GAAP and non-GAAP earnings per share increased to $0.61 per share from $0.48 per share, primarily due to improved operating results.

“These quarterly results highlighted the diversity of growth across our product lines and segments,” said David Colo, president and CEO of MGP Ingredients. “Aged whiskey sales experienced a record quarter while new distillate and specialty ingredients also yielded strong double-digit sales growth during the quarter. While we anticipate continued uncertainty related to the pandemic through the end of this year and into 2021, we believe we remain well positioned to execute our long-term strategic plan.”

Distillery Products Segment - Brown Goods Sales Grew 29.2% Led by Strong Aged Whiskey Sales
In the third quarter of 2020, sales for the Distillery Products segment increased 11.4% to $81.6 million. Gross profit increased to $17.3 million or 21.2% of segment sales, compared to $15.9 million, or 21.7% of segment sales in the third quarter 2019.

“We are very pleased with the continued strength of our aged whiskey sales this quarter, which equated to strong double-digit revenue growth from the prior year period,” said Colo. “Our objective of maximizing brown goods profitability continued this quarter by delivering one of our best gross profit results. However, total segment gross margins were negatively impacted by approximately 350 basis points resulting from decreased barrel put-away, as we continue to align our MGP-owned aging whiskey inventory with projected demand. New customer acquisition growth for our new distillate and aged whiskey products also remains strong despite the uncertainty related to the pandemic. The long-term macro trends supporting the ongoing growth of the American Whiskey category remain encouraging.

“Demand for our industrial alcohol products as a result of the COVID-19 pandemic continues to remain elevated with pricing slightly increasing over the prior year quarter. However, volume sales for industrial alcohol were down slightly to support increased optimization and sales of white goods premium beverage alcohol– consistent with our long-term strategy. As a result, white goods sales increased 6.5% for the quarter.”

Ingredient Solutions Segment - Gross Profit Increased 102.9%
For the third quarter of 2020, sales in the Ingredient Solutions segment increased 22.7% to $21.3 million. Gross profit increased to $5.9 million, or 27.4% of segment sales, compared to $2.9 million, or 16.6% of segment sales in the third quarter 2019.

“The continued strength of our Ingredient Solutions segment and its diverse customer mix are reflected in the strong results this quarter,” continued Colo. “In addition to recognizing efficiencies to improve throughput and profitability, we were also successful in continuing to optimize our product mix this quarter. Consumer trends seeking to increase the amount of plant-based protein and dietary fiber in their diets as part of an overall healthier lifestyle continue to align well with our ingredient product portfolio and underscore our confidence in the sustainability of these improved results going forward.”

Other
Corporate selling, general and administrative expenses of $9.5 million for the third quarter 2020 increased 32.3%, compared to the third quarter 2019, primarily due to higher incentive compensation expenses and professional service fees, which were partially offset by decreased costs related to the prior year EPA settlement.

The corporate effective tax rate for the quarter was 21.6% compared with 26.9% in the year ago period. The decrease, as compared to the prior year period, was primarily due to the release of a portion of the Company's valuation allowance.

GAAP and non-GAAP earnings per share increased to $0.61 per share for the third quarter 2020, compared to $0.48 per share for the third quarter 2019.

Conclusion
“We remain confident in our long-term strategy and our ability to align with strong macro consumer trends across the organization,” stated Colo. “Our investment in aging whiskey inventory decreased this quarter to $108.4 million, at cost. This decline was primarily driven by increased sales of aged whiskey and decreased put-aways during the quarter. We are realizing the long-term value of this inventory, as reflected in our operating cash flows, and believe we are well positioned to meet projected demand while delivering sustainable growth and value creation for the Company.

“Our brands initiative continued its momentum this quarter as consumer acceptance of our core portfolio remains strong. The launch of our Remus Repeal Reserve Series IV, as well as our single barrel offerings of George Remus® bourbon and Rossville Union® rye whiskeys during the quarter have exceeded our expectations, while infusing additional consumer excitement for our brands. We remain focused on accelerating our brands through increased distribution and sales velocity in both existing and new markets,” Colo concluded.

Conference Call and Webcast Information
MGP Ingredients will host a conference call for analysts and institutional investors at 10 a.m. ET today to discuss these results and current business trends. The conference call and webcast will be available via:

Webcast:

ir.mgpingredients.com on the Events & Presentations page

Conference Call:

844-308-6398 (domestic) or 412-717-9605 (international)


About MGP Ingredients, Inc.

Founded in 1941, MGP is a leading supplier of premium distilled spirits and specialty wheat proteins and starches. Distilled spirits include bourbon and rye whiskeys, gins and vodkas, which are expertly crafted through a combination of art and science and backed by a long history of experience. The company’s proteins and starches are created in the same manner and provide a host of functional, nutritional and sensory benefits for a wide range of food products. MGP additionally is a top producer of high quality industrial alcohol for use in both food and non-food applications. The company is headquartered in Atchison, Kansas, where distilled alcohol products and food ingredients are produced. Premium spirits are also distilled and matured at the company’s facility in Lawrenceburg, Indiana. For more information, visit mgpingredients.com.

Cautionary Note Regarding Forward-Looking Statements
This news release contains forward-looking statements as well as historical information. All statements, other than statements of historical facts, included in this news release regarding the prospects of our industry and our prospects, plans, financial position, business strategy, guidance on changes in operating income, sales, gross margin, and future effective tax rate may constitute forward-looking statements. In addition, forward-looking statements are usually identified by or are associated with such words as “intend,” “plan,” “believe,” “estimate,” “expect,” “anticipate,” “hopeful,” “should,” “may,” “will,” “could,” “encouraged,” “opportunities,” “potential,” and/or the negatives or variations of these terms or similar terminology. They reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance, and Company financial results and are not guarantees of future performance. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: (i) disruptions in operations at our Atchison facility or our Indiana facility, (ii) the availability and cost of grain and flour, and fluctuations in energy costs, (iii) the effectiveness of our grain purchasing program to mitigate our exposure to commodity price fluctuations, (iv) the effectiveness or execution of our strategic plan, (v) potential adverse effects to operations and our system of internal controls related to the loss of key management personnel, (vi) the competitive environment and related market conditions, (vii) the ability to effectively pass raw material price increases on to customers, (viii) our ability to maintain compliance with all applicable loan agreement covenants, (ix) our ability to realize operating efficiencies, (x) actions of governments, and (xi) consumer tastes and preferences. For further information on these and other risks and uncertainties that may affect our business, including risks specific to our Distillery Products and Ingredient Solutions segments, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

Non-GAAP Financial Measures
In addition to reporting financial information in accordance with U.S. GAAP, the company provides certain non-GAAP financial measures that are not in accordance with, or alternatives for, GAAP. In addition to the comparable GAAP measures, MGP has disclosed adjusted operating income, adjusted income before taxes, adjusted net income, adjusted MGP earnings, and basic and diluted adjusted earnings per share. The presentation of non-GAAP financial measures should be reviewed in conjunction with operating income, income before taxes, net income, net income attributable to common shareholders and basic and diluted earnings per share computed in accordance with U.S. GAAP and should not be considered a substitute for these GAAP measures. The non-GAAP adjustments referenced in the section entitled "Reconciliation of Selected GAAP Measures to Non-GAAP Measures," take into account the impacts of items that are not necessarily ongoing in nature and/or predictive of the Company's operating trends. We believe that these non-GAAP measures provide useful information to investors regarding the company's performance and overall results of operations. In addition, management uses these non-GAAP measures in conjunction with GAAP measures when evaluating the Company’s operating results compared to prior periods on a consistent basis, assessing financial trends and for forecasting purposes. Non-GAAP financial measures may not provide information that is directly comparable to other companies, even if similar terms are used to identify such measures. The attached schedules provide a full reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure.

For More Information
Investors & Analysts:
Mike Houston
646-475-2998 or investor.relations@mgpingredients.com

Media:
Greg Manis
913-360-5440 or greg.manis@mgpingredients.com


MGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD
(Dollars in thousands)

Operating income, quarter versus quarter

Operating Income

Change

Operating income for quarter ended September 30, 2019

$

11,604

Increase in gross profit - Ingredient Solutions segment

2,970

25.6

pp(a)

Increase in gross profit - Distillery Products segment

1,402

12.1

pp

Increase in selling general and administrative expenses

(2,324

)

(20.0

)

pp

Operating income for quarter ended September 30, 2020

$

13,652

17.7

%



Operating income, year to date versus year to date

Operating Income

Change

Operating income for year to date ended September 30, 2019

$

30,991

Increase in gross profit - Ingredient Solutions segment

8,191

26.4

pp(a)

Increase in gross profit - Distillery Products segment

3,912

12.6

pp

Increase in selling general and administrative expenses

(4,396

)

(14.1

)

pp

Operating income for year to date ended September 30, 2020

$

38,698

24.9

%

(a) Percentage points (“pp”).


MGP INGREDIENTS, INC.
EARNINGS PER SHARE (“EPS”) ROLLFORWARD

Change in basic and diluted EPS, quarter versus quarter

Basic and Diluted EPS

Change

Basic and diluted EPS for quarter ended September 30, 2019

$

0.48

Increase in operations(b)

0.09

18.8

pp(a)

Tax: Change in income tax

0.03

6.3

pp

Decrease in weighted average shares outstanding

0.01

2.1

pp

Basic and diluted EPS for quarter ended September 30, 2020

$

0.61

27.2

%



Change in basic and diluted EPS, year to date versus year to date

Basic and Diluted EPS

Change

Basic and diluted EPS for year to date ended September 30, 2019

$

1.51

Increase in operations(b)

0.47

31.1

pp(a)

Decrease in weighted average shares outstanding

0.02

1.3

pp

Change in interest expense, net (b)

(0.03

)

(2.0

)

pp

Tax: Change in share-based compensation

(0.21

)

(13.9

)

pp

Tax: Change in effective tax rate (excluding above tax item)

(0.08

)

(5.3

)

pp

Basic and diluted EPS for year to date ended September 30, 2020

$

1.68

11.2

%

(a) Percentage points (“pp”).
(b) Items are net of tax based on the effective tax rate for the base year (2019).



MGP INGREDIENTS, INC.
SALES BY OPERATING SEGMENT
(Dollars in thousands)

DISTILLERY PRODUCTS SALES

Quarter Ended September 30,

Quarter versus Quarter
Sales Change Increase/(Decrease)

2020

2019

$ Change

% Change

Brown goods

$

34,365

$

26,606

$

7,759

29.2

%

White goods

16,362

15,359

1,003

6.5

Premium beverage alcohol

50,727

41,965

8,762

20.9

Industrial alcohol

19,461

19,525

(64

)

(0.3

)

Food grade alcohol

70,188

61,490

8,698

14.1

Fuel grade alcohol

1,274

1,438

(164

)

(11.4

)

Distillers feed and related co-products

6,119

6,630

(511

)

(7.7

)

Warehouse services

4,041

3,737

304

8.1

Total Distillery Products

$

81,622

$

73,295

$

8,327

11.4

%



INGREDIENT SOLUTIONS SALES

Quarter Ended September 30,

Quarter versus Quarter
Sales Change Increase/(Decrease)

2020

2019

$ Change

% Change

Specialty wheat starches

$

11,604

$

8,432

$

3,172

37.6

%

Specialty wheat proteins

7,994

6,166

1,828

29.6

Commodity wheat starches

1,596

2,300

(704

)

(30.6

)

Commodity wheat proteins

148

492

(344

)

(69.9

)

Total Ingredient Solutions

$

21,342

$

17,390

$

3,952

22.7

%



MGP INGREDIENTS, INC.
SALES BY OPERATING SEGMENTS (continued)
(Dollars in thousands)

DISTILLERY PRODUCTS SALES

Year to Date Ended September 30,

Year to Date versus Year to Date
Sales Change Increase/(Decrease)

2020

2019

$ Change

% Change

Brown Goods

$

88,975

$

79,054

$

9,921

12.5

%

White Goods

48,306

47,232

1,074

2.3

Premium beverage alcohol

137,281

126,286

10,995

8.7

Industrial alcohol

64,032

60,604

3,428

5.7

Food grade alcohol

201,313

186,890

14,423

7.7

Fuel grade alcohol

3,970

4,337

(367

)

(8.5

)

Distillers feed and related co-products

19,889

19,906

(17

)

(0.1

)

Warehouse services

11,641

10,762

879

8.2

Total Distillery Products

$

236,813

$

221,895

$

14,918

6.7

%



INGREDIENT SOLUTIONS SALES

Year to Date Ended September 30,

Year to Date versus Year to Date
Sales Change Increase/(Decrease)

2020

2019

$ Change

% Change

Specialty wheat starches

$

30,938

$

22,523

$

8,415

37.4

%

Specialty wheat proteins

20,372

15,884

4,488

28.3

Commodity wheat starches

5,247

7,575

(2,328

)

(30.7

)

Commodity wheat proteins

1,236

2,405

(1,169

)

(48.6

)

Total Ingredient Solutions

$

57,793

$

48,387

$

9,406

19.4

%



MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)

Quarter Ended
September 30,

Year to Date Ended
September 30,

2020

2019

2020

2019

Sales

$

102,964

$

90,685

$

294,606

$

270,282

Cost of sales

79,802

71,895

227,531

215,310

Gross profit

23,162

18,790

67,075

54,972

Selling, general and administrative expenses

9,510

7,186

28,377

23,981

Operating income

13,652

11,604

38,698

30,991

Interest expense, net and other

(409

)

(364

)

(1,349

)

(937

)

Income before income taxes

13,243

11,240

37,349

30,054

Income tax expense

2,862

3,025

8,636

4,208

Net income

10,381

8,215

28,713

25,846

Income attributable to participating securities

69

54

192

171

Net income attributable to common shareholders and used in EPS calculation

$

10,312

$

8,161

$

28,521

$

25,675

Basic and diluted weighted average common shares

16,916,675

17,027,068

16,943,130

17,006,226

Basic and diluted earnings per common share

$

0.61

$

0.48

$

1.68

$

1.51



MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)

September 30,
2020

December 31,
2019

September 30,
2020

December 31,
2019

ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Assets:

Current Liabilities:

Cash and cash equivalents

$

19,966

$

3,309

Current maturities of long-term debt

$

412

$

401

Receivables, net

52,673

40,931

Accounts payable

29,055

29,511

Inventory

142,798

136,931

Accrued expenses

14,938

9,383

Prepaid expenses

3,928

2,048

Total Current Liabilities

44,405

39,295

Refundable income taxes

1,719

987

Other Liabilities:

Total Current Assets

221,084

184,206

Long-term debt, less current maturities

40,363

40,658

Credit agreement - revolver

13,733

1

Long-term operating lease liabilities

3,226

4,267

Property, plant, and equipment

323,755

313,958

Deferred credits

1,035

1,233

Less accumulated depreciation and amortization

(194,112

)

(185,539

)

Other noncurrent liabilities

4,818

4,170

Property, Plant, and Equipment, net

129,643

128,419

Deferred income taxes

2,165

1,929

Operating lease right-of-use assets, net

5,362

6,490

Total Liabilities

109,745

91,553

Other assets

5,657

3,482

Stockholders’ equity

252,001

231,044

TOTAL ASSETS

$

361,746

$

322,597

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

361,746

$

322,597



MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

Year to Date Ended September 30,

2020

2019

Cash Flows from Operating Activities

Net income

$

28,713

$

25,846

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

9,618

8,537

Loss (gain) on sale of assets

337

(138

)

Share-based compensation

2,693

2,752

Deferred income taxes, including change in valuation allowance

460

952

Changes in operating assets and liabilities:

Receivables, net

(11,683

)

(1,757

)

Inventory

(5,673

)

(17,424

)

Prepaid expenses

(2,032

)

(326

)

Refundable income taxes

(673

)

(2,138

)

Accounts payable

2,196

(331

)

Accrued expenses

5,647

(3,236

)

Deferred credits

(198

)

(249

)

Other, net

52

(75

)

Net cash provided by operating activities

29,457

12,413

Cash Flows from Investing Activities

Additions to property, plant, and equipment

(13,507

)

(10,375

)

Deferred compensation plan investments

(1,189

)

Acquisition of business

(2,750

)

Proceeds from sale of property

688

Other, net

56

Net cash used in investing activities

(15,513

)

(11,564

)

Cash Flows from Financing Activities

Payment of dividends and dividend equivalents

(6,144

)

(5,141

)

Purchase of treasury stock

(4,395

)

(5,470

)

Loan fees paid related to borrowings

(1,148

)

Proceeds from long-term debt

20,000

Principal payments on long-term debt

(300

)

(288

)

Proceeds from credit agreement - revolver

54,700

14,140

Payments on credit agreement - revolver

(40,000

)

(24,640

)

Other, net

(78

)

Net cash provided by (used in) financing activities

2,713

(1,477

)

Increase (decrease) in cash and cash equivalents

16,657

(628

)

Cash and cash equivalents, beginning of period

3,309

5,025

Cash and cash equivalents, end of period

$

19,966

$

4,397



MGP INGREDIENTS, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (UNAUDITED)
(in thousands)

Quarter Ended September 30, 2020

Operating
Income

Income before
Income Taxes

Net Income

MGP
Earnings (a)

Basic and
Diluted EPS

Reported GAAP Results

$

13,652

$

13,243

$

10,381

$

10,312

$0.61

Adjusted to remove:

CEO transition costs (b)

22

22

21

21

Adjusted Non-GAAP results

$

13,674

$

13,265

$

10,402

$

10,333

$

0.61


Quarter Ended September 30, 2019

Operating
Income

Income before
Income Taxes

Net Income

MGP
Earnings (a)

Basic and
Diluted EPS

Reported GAAP Results

$

11,604

$

11,240

$

8,215

$

8,161

$0.48

Adjusted to remove:

Adjusted Non-GAAP results

$

11,604

$

11,240

$

8,215

$

8,161

$

0.48


Year to Date Ended September 30, 2020

Operating
Income

Income before
Income Taxes

Net Income

MGP
Earnings (a)

Basic and
Diluted EPS

Reported GAAP Results

$

38,698

$

37,349

$

28,713

$

28,521

$1.68

Adjusted to remove:

CEO transition costs (b)

1,390

1,390

1,279

1,279

0.08

Adjusted Non-GAAP results

$

40,088

$

38,739

$

29,992

$

29,800

$

1.76


Year to Date Ended September 30, 2019

Operating
Income

Income before
Income Taxes

Net Income

MGP
Earnings (a)

Basic and
Diluted EPS

Reported GAAP Results

$

30,991

$

30,054

$

25,846

$

25,675

$1.51

Adjusted to remove:

Adjusted Non-GAAP results

$

30,991

$

30,054

$

25,846

$

25,675

$

1.51


(a)

MGP Earnings has been defined as "Net income attributable to common shareholders and used in EPS calculation."

(b)

The CEO transition costs are included in the Condensed Consolidated Statement of Income within the Selling, general and administrative line item. The adjustment includes additional employee related costs in connection with the transition of CEOs.