MGP Ingredients, Inc. (NASDAQ:MGPI) Q2 2020 Earnings Conference Call July 30, 2020 10:00 AM ET Company Participants Mike Houston - Lambert & Co. Dave Colo - President & Chief Executive Officer Brandon Gall - Vice President-Finance & Chief Financial Officer Conference Call Participants Donald McLee - Berenberg Bill Chappell - SunTrust Alex Fuhrman - Craig-Hallum Capital Group Ben Klieve - National Securities Corp Operator Good day, and welcome to the Second Quarter 2020 Results Conference Call. All participa ...

PART I. FINANCIAL INFORMATION Presents the company's unaudited financial statements and management's discussion for the quarter and year-to-date periods [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Presents unaudited condensed consolidated financial statements, highlighting growth in sales, profit, and net income, with increased assets and strong cash flows [Condensed Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) Details the company's financial performance, showing sales, cost of sales, gross profit, and net income for the quarter and year-to-date Consolidated Statements of Income (Unaudited) | Metric | Quarter Ended June 30, 2020 ($ in thousands) | Quarter Ended June 30, 2019 ($ in thousands) | Year to Date Ended June 30, 2020 ($ in thousands) | Year to Date Ended June 30, 2019 ($ in thousands) | | :------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Sales | $92,560 | $90,501 | $191,642 | $179,597 | | Cost of sales | $71,858 | $70,979 | $147,729 | $143,415 | | Gross profit | $20,702 | $19,522 | $43,913 | $36,182 | | Selling, general and administrative expenses | $9,364 | $8,648 | $18,867 | $16,795 | | Operating income | $11,338 | $10,874 | $25,046 | $19,387 | | Income before income taxes | $11,040 | $10,553 | $24,106 | $18,814 | | Income tax expense | $2,550 | $2,642 | $5,774 | $1,183 | | Net income | $8,490 | $7,911 | $18,332 | $17,631 | | Net income attributable to common shareholders | $8,433 | $7,860 | $18,209 | $17,514 | | Basic and diluted earnings per common share | $0.50 | $0.46 | $1.07 | $1.03 | [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Presents net income and other comprehensive income components, such as changes in post-employment benefit plans, for the reported periods Consolidated Statements of Comprehensive Income (Unaudited) | Metric | Quarter Ended June 30, 2020 ($ in thousands) | Quarter Ended June 30, 2019 ($ in thousands) | Year to Date Ended June 30, 2020 ($ in thousands) | Year to Date Ended June 30, 2019 ($ in thousands) | | :------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Net income | $8,490 | $7,911 | $18,332 | $17,631 | | Change in Company-sponsored post-employment benefit plan | $21 | $(16) | $15 | $(2) | | Comprehensive income | $8,511 | $7,895 | $18,347 | $17,629 | [Condensed Consolidated Balance Sheets (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $11,745 | $3,309 | | Receivables, net | $54,164 | $40,931 | | Inventory | $147,108 | $136,931 | | Total current assets | $217,038 | $184,206 | | Property, plant, and equipment, net | $128,603 | $128,419 | | Total assets | $357,013 | $322,597 | | Total current liabilities | $39,195 | $39,295 | | Long-term debt, less current maturities | $40,463 | $40,658 | | Credit agreement - revolver | $23,662 | $1 | | Total liabilities | $114,316 | $91,553 | | Total stockholders' equity | $242,697 | $231,044 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Outlines cash inflows and outflows from operating, investing, and financing activities for the year-to-date periods Consolidated Statements of Cash Flows (Unaudited) | Metric | Year to Date Ended June 30, 2020 ($ in thousands) | Year to Date Ended June 30, 2019 ($ in thousands) | | :------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | | Net cash provided by operating activities | $5,986 | $3,070 | | Net cash used in investing activities | $(12,407) | $(7,369) | | Net cash provided by financing activities | $14,857 | $1,436 | | Increase (decrease) in cash and cash equivalents | $8,436 | $(2,863) | | Cash and cash equivalents, beginning of period | $3,309 | $5,025 | | Cash and cash equivalents, end of period | $11,745 | $2,162 | [Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Unaudited)) Details changes in stockholders' equity, including net income, dividends, share-based compensation, and stock repurchases Changes in Stockholders' Equity (YTD June 30, 2020) | Metric | Balance, Dec 31, 2019 ($ in thousands) | Net Income ($ in thousands) | Dividends ($ in thousands) | Share-based Compensation ($ in thousands) | Stock Shares Repurchased ($ in thousands) | Balance, June 30, 2020 ($ in thousands) | | :-------------------------- | :----------------------------------- | :------------------------ | :----------------------- | :---------------------------------------- | :---------------------------------------- | :------------------------------------ | | Total Stockholders' Equity | $231,044 | $18,332 | $(4,100) | $1,564 | $(4,395) | $242,697 | | Retained Earnings | $230,784 | $18,332 | $(4,100) | — | — | $245,016 | | Treasury Stock, at cost | $(20,242) | — | — | $804 | $(4,395) | $(23,833) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, revenue recognition, debt, equity, and other significant financial information - **Note 1. Accounting Policies and Basis of Presentation:** * MGP Ingredients, Inc. is a leading producer and supplier of premium distilled spirits (bourbon, rye, grain neutral spirits, industrial alcohol) and specialty wheat protein and starch food ingredients[25](index=25&type=chunk) * Inventory is stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method, with barreled bourbon and whiskeys classified as current assets[30](index=30&type=chunk) * Revenue is recognized when control of promised goods or services is transferred to the customer, including specific criteria for bill-and-hold arrangements in the Distillery Products segment[30](index=30&type=chunk)[32](index=32&type=chunk) * The Company adopted several Accounting Standard Updates (ASU 2016-13, 2017-04, 2018-13, 2019-12) on January 1, 2020, with no material impact on its consolidated financial statements[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) Note 2. Revenue - Sales by Segment and Major Products | Segment/Product | Q2 2020 Sales ($ in thousands) | Q2 2019 Sales ($ in thousands) | YTD 2020 Sales ($ in thousands) | YTD 2019 Sales ($ in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------------ | :------------------------------ | | **Distillery Products Total** | **$75,189** | **$74,023** | **$155,191** | **$148,600** | | Brown goods | $25,540 | $27,621 | $54,610 | $52,448 | | Industrial alcohol | $22,953 | $20,636 | $44,571 | $41,079 | | Warehouse services | $3,699 | $3,496 | $7,600 | $7,025 | | **Ingredient Solutions Total** | **$17,371** | **$16,478** | **$36,451** | **$30,997** | | Specialty wheat starches | $9,122 | $7,210 | $19,334 | $14,090 | | Specialty wheat proteins | $6,013 | $5,276 | $12,378 | $9,718 | | **Total Sales** | **$92,560** | **$90,501** | **$191,642** | **$179,597** | Note 3. Goodwill and Other Intangible Assets | Metric | Balance at December 31, 2019 ($ in thousands) | Acquisitions ($ in thousands) | Balance at June 30, 2020 ($ in thousands) | | :-------------------------------- | :------------------------------------------ | :-------------------------- | :---------------------------------------- | | Goodwill (Distillery Products) | $1,850 | $1,739 | $3,589 | | Trade names (indefinite-lived) | $350 | N/A | $890 | - **Note 4. Corporate Borrowings:** * Total indebtedness outstanding (net of unamortized loan fees) increased to **$64,533 thousand** at June 30, 2020, from **$41,060 thousand** at December 31, 2019[46](index=46&type=chunk) * The Company entered into a new **$300,000 thousand** revolving credit facility on February 14, 2020, maturing in 2025, replacing a previous agreement. As of June 30, 2020, **$25,000 thousand** was outstanding, leaving **$275,000 thousand** available[47](index=47&type=chunk) * The Company was in compliance with all credit agreement and note purchase agreement covenants at June 30, 2020[47](index=47&type=chunk)[48](index=48&type=chunk) Note 5. Income Taxes - Expense and Effective Rate | Metric | Quarter Ended June 30, 2020 | Quarter Ended June 30, 2019 | Year to Date Ended June 30, 2020 | Year to Date Ended June 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Income tax expense | $2,550 | $2,642 | $5,774 | $1,183 | | Effective tax rate | 23.1% | 25.0% | 24.0% | 6.3% | - **Note 5. Income Taxes (continued):** * The effective tax rate for YTD June 30, 2020, was **24.0%**, primarily due to state taxes and an estimated increase in valuation allowance, partially offset by federal and state credits[50](index=50&type=chunk) * The Company is monetizing parts of the CARES Act, including deferring Social Security taxes and estimated income tax payments, which impacted the income taxes payable balance[53](index=53&type=chunk) Note 6. Equity and EPS - Basic and Diluted EPS | Metric | Quarter Ended June 30, 2020 | Quarter Ended June 30, 2019 | Year to Date Ended June 30, 2020 | Year to Date Ended June 30, 2019 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Net income attributable to common shareholders | $8,433 | $7,860 | $18,209 | $17,514 | | Basic and diluted weighted average common shares | 16,899,079 | 17,021,599 | 16,956,502 | 16,994,864 | | Basic and diluted EPS | $0.50 | $0.46 | $1.07 | $1.03 | - **Note 6. Equity and EPS (continued):** * The Board approved a **$25,000 thousand** share repurchase authorization on February 25, 2019, valid through February 27, 2022. During YTD June 30, 2020, **159,104 shares** were repurchased for **$4,053 thousand**, with **$20,947 thousand** remaining under the plan[56](index=56&type=chunk) - **Note 7. Commitments and Contingencies:** * In May 2020, the Company was affected by a ransomware cyber-attack that temporarily disrupted production at its Atchison facilities, adversely impacting gross profit by an estimated **$1,728 thousand**. Financial information and sensitive data were not affected, and the Company is seeking insurance recovery[58](index=58&type=chunk)[59](index=59&type=chunk) * A consolidated class action lawsuit was filed alleging false/misleading statements regarding aged whiskey sales forecasts, seeking compensatory damages. The Company intends to vigorously defend itself[60](index=60&type=chunk) * Multiple shareholder derivative actions were filed against current/former officers and directors, alleging damages related to the securities litigation, stock repurchases, and executive compensation[61](index=61&type=chunk) * A Clean Air Act violation case related to a 2016 chemical release was terminated on May 27, 2020, with the Company paying a **$1,000 thousand** fine. Private lawsuits for damages are possible, with insurance expected to provide coverage[63](index=63&type=chunk)[64](index=64&type=chunk) - **Note 8. Employee and Non-Employee Benefit Plans:** * As of June 30, 2020, **421,220 Restricted Stock Units (RSUs)** were granted under the 2014 Plan and **89,840 shares** under the Directors' Plan[66](index=66&type=chunk) * The Executive Deferred Compensation Plan (EDC Plan) had investments of **$1,516 thousand** at June 30, 2020 (vs. **$1,185 thousand** at December 31, 2019), classified as Level 1 in the fair value hierarchy[68](index=68&type=chunk) Note 9. Operating Segments - Sales and Gross Profit | Metric | Q2 2020 Distillery Products ($ in thousands) | Q2 2019 Distillery Products ($ in thousands) | Q2 2020 Ingredient Solutions ($ in thousands) | Q2 2019 Ingredient Solutions ($ in thousands) | | :-------------------- | :------------------------------------------- | :------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Sales to Customers | $75,189 | $74,023 | $17,371 | $16,478 | | Gross Profit | $16,002 | $16,503 | $4,700 | $3,019 | | Income (loss) before Income Taxes | $14,434 | $14,866 | $4,099 | $2,325 | | Metric | YTD 2020 Distillery Products ($ in thousands) | YTD 2019 Distillery Products ($ in thousands) | YTD 2020 Ingredient Solutions ($ in thousands) | YTD 2019 Ingredient Solutions ($ in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Sales to Customers | $155,191 | $148,600 | $36,451 | $30,997 | | Gross Profit | $34,251 | $31,742 | $9,662 | $4,440 | | Income (loss) before Income Taxes | $30,667 | $28,301 | $8,313 | $3,100 | - **Note 10. Subsequent Events:** * On July 28, 2020, the Board of Directors declared a quarterly dividend of **$0.12 per share** and per unit, payable on September 4, 2020, to stockholders of record as of August 21, 2020[73](index=73&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=23&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management's discussion and analysis of financial condition, results of operations, liquidity, and the impact of COVID-19 and a cyber-attack [CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS](index=23&type=section&id=CAUTIONARY%20NOTE%20CONCERNING%20FACTORS%20THAT%20MAY%20AFFECT%20FUTURE%20RESULTS) Highlights that forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially - Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied. The Company undertakes no obligation to update or revise any forward-looking statements[74](index=74&type=chunk) [OVERVIEW](index=23&type=section&id=OVERVIEW) Introduces MGP as a leading producer of distilled spirits and food ingredients, noting the impact of COVID-19 and a cyber-attack - MGP is a leading producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients, operating through two reportable segments: Distillery Products and Ingredient Solutions[78](index=78&type=chunk) - The Company's operations, supply chain, and customer demand have not been significantly affected by COVID-19 as of the report date, but the situation is being closely monitored. Incremental costs incurred for safety measures were immaterial[75](index=75&type=chunk)[76](index=76&type=chunk) - A ransomware cyber-attack in May 2020 temporarily disrupted production at Atchison facilities, adversely impacting gross profit by an estimated **$1,728 thousand**, though financial information and sensitive data were not affected[77](index=77&type=chunk) [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes consolidated financial performance for the quarter and year-to-date, detailing sales, gross profit, and net income changes Consolidated Results (Quarter Ended June 30, 2020 vs. 2019) | Metric | Q2 2020 | Q2 2019 | % Change | Change (pp) | | :-------------------------------- | :------ | :------ | :------- | :---------- | | Sales | $92,560 | $90,501 | 2.3% | | | Gross profit | $20,702 | $19,522 | 6.0% | | | Gross margin % | 22.4% | 21.6% | | 0.8 | | SG&A expenses | $9,364 | $8,648 | 8.3% | | | Operating income | $11,338 | $10,874 | 4.3% | | | Operating margin % | 12.2% | 12.0% | | 0.2 | | Net income | $8,490 | $7,911 | 7.3% | | | Net income margin % | 9.2% | 8.7% | | 0.5 | | Basic and diluted EPS | $0.50 | $0.46 | 8.7% | | - For Q2 2020, the increase in gross profit was driven by the Ingredient Solutions segment (up **$1,681 thousand** or **55.7%**), partially offset by a decrease in the Distillery Products segment (down **$501 thousand** or **3.0%**). Both segments' gross profits were negatively impacted by increased production costs due to the cyber-attack[83](index=83&type=chunk) Consolidated Results (Year to Date Ended June 30, 2020 vs. 2019) | Metric | YTD 2020 | YTD 2019 | % Change | Change (pp) | | :-------------------------------- | :------- | :------- | :------- | :---------- | | Sales | $191,642 | $179,597 | 6.7% | | | Gross profit | $43,913 | $36,182 | 21.4% | | | Gross margin % | 22.9% | 20.1% | | 2.8 | | SG&A expenses | $18,867 | $16,795 | 12.3% | | | Operating income | $25,046 | $19,387 | 29.2% | | | Operating margin % | 13.1% | 10.8% | | 2.3 | | Net income | $18,332 | $17,631 | 4.0% | | | Net income margin % | 9.6% | 9.8% | | (0.2) | | Basic and diluted EPS | $1.07 | $1.03 | 3.9% | | - For YTD June 30, 2020, gross profit increased in both Ingredient Solutions (up **$5,222 thousand** or **117.6%**) and Distillery Products (up **$2,509 thousand** or **7.9%**), despite negative impacts from cyber-attack related production costs[93](index=93&type=chunk) - SG&A expenses increased for both periods primarily due to higher personnel and incentive compensation costs, including those related to the CEO transition[84](index=84&type=chunk)[94](index=94&type=chunk) [SEGMENT RESULTS](index=28&type=section&id=SEGMENT%20RESULTS) Provides a detailed breakdown of sales and gross profit performance for the Distillery Products and Ingredient Solutions segments Distillery Products Segment Results (Quarter Ended June 30, 2020 vs. 2019) | Product Category | Q2 2020 Sales ($ in thousands) | Q2 2019 Sales ($ in thousands) | % Change | Gross Profit Q2 2020 ($ in thousands) | Gross Profit Q2 2019 ($ in thousands) | Gross Profit % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Total Distillery Products Sales | $75,189 | $74,023 | 1.6% | $16,002 | $16,503 | (3.0)% | | Industrial alcohol | $22,953 | $20,636 | 11.2% | | | | | Distillers feed and related co-products | $6,781 | $6,181 | 9.7% | | | | | Brown goods | $25,540 | $27,621 | (7.5)% | | | | - Q2 2020 Distillery Products sales increase was driven by higher volume and favorable pricing in industrial alcohol and white goods, and favorable pricing in distillers feed. Brown goods sales decreased due to lower volume. Gross profit declined due to higher input costs and cyber-attack related production costs[103](index=103&type=chunk)[104](index=104&type=chunk) Distillery Products Segment Results (Year to Date Ended June 30, 2020 vs. 2019) | Product Category | YTD 2020 Sales ($ in thousands) | YTD 2019 Sales ($ in thousands) | % Change | Gross Profit YTD 2020 ($ in thousands) | Gross Profit YTD 2019 ($ in thousands) | Gross Profit % Change | | :-------------------------------- | :------------------------------ | :------------------------------ | :------- | :------------------------------------- | :------------------------------------- | :-------------------- | | Total Distillery Products Sales | $155,191 | $148,600 | 4.4% | $34,251 | $31,742 | 7.9% | | Industrial alcohol | $44,571 | $41,079 | 8.5% | | | | | Brown Goods | $54,610 | $52,448 | 4.1% | | | | | Warehouse services | $7,600 | $7,025 | 8.2% | | | | - YTD 2020 Distillery Products sales growth was led by industrial alcohol (volume and pricing), brown goods (volume), and warehouse services (customer demand). Gross profit increased due to higher brown goods volumes and favorable industrial alcohol pricing, partially offset by higher input costs and cyber-attack related production costs[107](index=107&type=chunk)[108](index=108&type=chunk) Ingredient Solutions Segment Results (Quarter Ended June 30, 2020 vs. 2019) | Product Category | Q2 2020 Sales ($ in thousands) | Q2 2019 Sales ($ in thousands) | % Change | Gross Profit Q2 2020 ($ in thousands) | Gross Profit Q2 2019 ($ in thousands) | Gross Profit % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Total Ingredient Solutions Sales | $17,371 | $16,478 | 5.4% | $4,700 | $3,019 | 55.7% | | Specialty wheat starches | $9,122 | $7,210 | 26.5% | | | | | Specialty wheat proteins | $6,013 | $5,276 | 14.0% | | | | | Commodity wheat starches | $1,774 | $3,013 | (41.1)% | | | | - Q2 2020 Ingredient Solutions sales increased due to higher sales volume of specialty wheat starches and proteins, partially offset by decreased commodity wheat product sales. Gross profit surged due to increased specialty product sales volume and favorable mix, despite cyber-attack related production costs[113](index=113&type=chunk)[114](index=114&type=chunk) Ingredient Solutions Segment Results (Year to Date Ended June 30, 2020 vs. 2019) | Product Category | YTD 2020 Sales ($ in thousands) | YTD 2019 Sales ($ in thousands) | % Change | Gross Profit YTD 2020 ($ in thousands) | Gross Profit YTD 2019 ($ in thousands) | Gross Profit % Change | | :-------------------------------- | :------------------------------ | :------------------------------ | :------- | :------------------------------------- | :------------------------------------- | :-------------------- | | Total Ingredient Solutions Sales | $36,451 | $30,997 | 17.6% | $9,662 | $4,440 | 117.6% | | Specialty wheat starches | $19,334 | $14,090 | 37.2% | | | | | Specialty wheat proteins | $12,378 | $9,718 | 27.4% | | | | | Commodity wheat starches | $3,651 | $5,275 | (30.8)% | | | | - YTD 2020 Ingredient Solutions sales increased significantly due to higher sales volume and favorable pricing of specialty wheat starches and proteins, partially offset by decreased commodity wheat product sales. Gross profit more than doubled due to these factors, despite cyber-attack related production costs[119](index=119&type=chunk)[120](index=120&type=chunk) [CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY](index=32&type=section&id=CASH%20FLOW,%20FINANCIAL%20CONDITION%20AND%20LIQUIDITY) Assesses the company's cash flow from operations, investing, and financing activities, along with its overall financial condition and liquidity position - The Company's financial condition is strong, with adequate cash generation from operations and ready access to capital. Primary cash sources include operating cash flow, the Credit Agreement, and Note Purchase Agreement[121](index=121&type=chunk)[122](index=122&type=chunk) Cash Flow Summary (Year to Date Ended June 30, 2020 vs. 2019) | Metric | YTD 2020 ($ in thousands) | YTD 2019 ($ in thousands) | Change ($ in thousands) | | :------------------------------------ | :------------------------ | :------------------------ | :---------------------- | | Cash provided by operating activities | $5,986 | $3,070 | $2,916 | | Cash used in investing activities | $(12,407) | $(7,369) | $(5,038) | | Cash provided by financing activities | $14,857 | $1,436 | $13,421 | | Increase (decrease) in cash and cash equivalents | $8,436 | $(2,863) | $11,299 | - **Operating Activities:** Net cash provided by operating activities increased to **$5,986 thousand** in YTD 2020, driven by net income and non-cash adjustments, partially offset by increased receivables and inventory. Deferral of income tax payments under the CARES Act provided **$5,778 thousand**[124](index=124&type=chunk) - **Investing Activities:** Cash used in investing activities increased to **$12,407 thousand** in YTD 2020, primarily due to **$10,177 thousand** in property, plant, and equipment additions and a **$2,750 thousand** business acquisition[126](index=126&type=chunk) - **Capital Spending:** Investments in property, plant, and equipment were **$10,177 thousand** in YTD 2020. The warehouse expansion project is substantially completed, with approximately **$49,800 thousand** incurred to date. The Company expects approximately **$19,600 thousand** in capital expenditures for 2020[127](index=127&type=chunk)[128](index=128&type=chunk) - **Financing Activities:** Cash provided by financing activities significantly increased to **$14,857 thousand** in YTD 2020, primarily due to **$24,501 thousand** in net proceeds from debt, partially offset by **$4,395 thousand** in treasury stock purchases and **$4,101 thousand** in dividends[129](index=129&type=chunk) - **Treasury Purchases & Share Repurchases:** During YTD 2020, **10,044 shares** valued at **$342 thousand** were purchased for treasury to cover withholding taxes on vested RSUs. Additionally, **159,104 shares** were repurchased for **$4,053 thousand** under the **$25,000 thousand** share repurchase program[131](index=131&type=chunk)[132](index=132&type=chunk) Dividends and Dividend Equivalents (YTD) | Period | Declared per Share and Unit | Total Payment ($ in thousands) | | :----- | :-------------------------- | :----------------------------- | | 2020 | $0.24 | $4,101 | | 2019 | $0.20 | $3,427 | - **Long-Term and Short-Term Debt:** Total debt (net) was **$64,533 thousand** at June 30, 2020, up from **$41,060 thousand** at December 31, 2019[135](index=135&type=chunk) - **Financial Condition and Liquidity:** Current assets exceeded current liabilities by **$177,843 thousand** at June 30, 2020, largely due to **$147,108 thousand** in inventories. The Company had a cash balance of **$11,745 thousand** and **$275,000 thousand** remaining available under its Credit Agreement, indicating strong liquidity to support operations and strategic investments[138](index=138&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=34&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Company is exposed to market risks related to commodity prices and interest rates, which it actively monitors and manages - **Commodity Costs:** The Company is exposed to market price risk for commodities like grain, wheat flour, and natural gas. It manages this through supply contracts for 1 to 24 months, which qualify for the normal purchases and sales exception under ASC 815[140](index=140&type=chunk) - **Interest Rate Exposures:** The Credit Agreement and Note Purchase Agreement expose the Company to market risks from adverse changes in interest rates. A **100 basis point** increase in variable-rate borrowings would increase annualized interest expense by **$316 thousand**[141](index=141&type=chunk)[142](index=142&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=35&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - **Evaluation of Disclosure Controls and Procedures:** The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[143](index=143&type=chunk) - **Changes in Internal Controls:** There were no material changes in the Company's internal controls over financial reporting during the fiscal quarter ended June 30, 2020[144](index=144&type=chunk) PART II. OTHER INFORMATION Presents additional information including legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=35&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The Company's legal proceedings include a resolved Clean Air Act case and ongoing class action and derivative lawsuits - The federal charges for alleged Clean Air Act violations related to a 2016 chemical release were resolved, with the Company pleading guilty to a misdemeanor and paying a **$1,000 thousand** fine, terminating the matter[147](index=147&type=chunk) - Various other legal proceedings in the ordinary course of business are not expected to have a material adverse effect on the Company[147](index=147&type=chunk) [ITEM 1A. RISK FACTORS](index=35&type=section&id=ITEM%201A.%20RISK%20FACTORS) Updates risk factors, emphasizing IT system failures, cybersecurity threats, and the ongoing COVID-19 pandemic's potential negative impacts - A failure of IT systems, networks, or services, including those of third-party vendors, or increased cybersecurity threats (e.g., ransomware attacks) could disrupt operations, lead to data loss, reputational harm, and financial losses[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - In May 2020, the Company experienced a ransomware attack that temporarily disrupted production and adversely impacted gross profit by **$1,728 thousand**. While financial data was unaffected and cybersecurity measures were enhanced, future cyber events cannot be guaranteed against[152](index=152&type=chunk)[153](index=153&type=chunk) - The COVID-19 pandemic could continue to negatively impact the global economy and the Company's operations, including potential facility closures, supply chain interruptions, reduced customer demand, labor shortages, and increased compliance costs. The full extent of its impact remains highly uncertain[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=37&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) No unregistered sales of equity securities were reported, and details on the share repurchase program are provided - There were no unregistered sales of equity securities during the quarter ended June 30, 2020[160](index=160&type=chunk) - Under the **$25,000 thousand** share repurchase authorization (approved Feb 25, 2019, through Feb 27, 2022), no shares were purchased during the quarter ended June 30, 2020[162](index=162&type=chunk)[163](index=163&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=37&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The Company reported no defaults upon senior securities during the period - None[164](index=164&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=37&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Not applicable[165](index=165&type=chunk) [ITEM 5. OTHER INFORMATION](index=37&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The Company reported no other information for this period - None[166](index=166&type=chunk) [ITEM 6. EXHIBITS](index=38&type=section&id=ITEM%206.%20EXHIBITS) Lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial information presented in iXBRL format - Exhibits include CEO and CFO Certifications (31.1, 31.2, 32.1, 32.2) and financial information formatted in iXBRL (101, 104)[168](index=168&type=chunk)

Financial Data and Key Metrics Changes - Consolidated sales increased by 11.2% to $99.1 million, with gross profit rising by 39.3% to $23.2 million, reflecting strong performance across both business segments [10][24][25] - Consolidated gross margin improved by 470 basis points to 23.4% from 18.7% in the prior year quarter [25] - Consolidated operating income rose by 61% to $13.7 million, while non-GAAP operating income increased by 67.9% to $14.3 million, excluding CEO transition costs [26][27] - Consolidated net income slightly increased to $9.8 million, with earnings per share remaining flat at $0.57 [28] Business Segment Data and Key Metrics Changes - In the Distillery Products segment, sales increased by 7.3% to $80 million, with gross profit rising to $18.2 million, representing 22.8% of segment sales [11] - Sales of premium beverage alcohol grew by 9.4%, driven by double-digit growth in new distillate and aged whisky, leading to a 17.1% increase in sales of brown goods [12][14] - Ingredient Solutions segment sales grew by 31.4% to $19.1 million, with gross profit increasing to $5 million, reflecting a significant increase in gross profit margin [20] Market Data and Key Metrics Changes - Sales of industrial alcohol increased by 5.7%, while sales of dried distillers grains (DDG) declined by 1.5% due to a slight decrease in sales volume [17][19] - Revenue from warehouse services increased by 10.5%, reflecting growth in the number of customer barrels aging in whiskey warehouses [19] Company Strategy and Development Direction - The company is focused on supporting industrial alcohol customers during the COVID-19 pandemic and has increased production of alcohol for hand sanitizer and disinfectants [15][16] - The management plans to optimize cash management during the pandemic while maintaining a conservative cash position and continuing to invest in the American whiskey category [40][42] - The company aims to grow volume share in the global American whiskey category while refining its approach to pricing and product offerings [44][45] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty caused by the COVID-19 pandemic and withdrew previous 2020 guidance, indicating a reassessment based on macroeconomic recovery visibility [41] - The company is monitoring potential headwinds, including changes in consumer purchasing behavior and impacts on craft customer sales due to stay-at-home orders [46][48] - Management expressed confidence in the long-term growth of the American whiskey category despite short-term challenges [44][46] Other Important Information - The company ended the quarter with a debt balance of $96.1 million and a cash balance of $42.7 million, with approximately $245 million available under the revolving credit line [30] - The company repurchased 159,104 shares for approximately $4.1 million as part of a stock repurchase program [37] - A second-quarter dividend of $0.12 per share was authorized by the Board [38] Q&A Session Summary Question: Can you break down the growth numbers in the Ingredients segment? - Management indicated that the growth was driven by strong consumer demand and a well-positioned portfolio, with no significant anomalies in Q1 [60][61] Question: How are consumer goods companies adjusting their R&D processes? - Most processes remain uninterrupted, although some slowdown was noted in the Foodservice channel [62] Question: What is the outlook for the export market? - Initial traction was seen in the export market, but engagement has been impacted by travel restrictions due to COVID-19 [64] Question: What is the current state of M&A activity? - There has been a significant slowdown in M&A activity globally, and the company is assessing opportunities as circumstances evolve [66][67] Question: Can you provide more details on the aged whiskey inventory? - Some sales in Q1 were carry-over from Q4, and pricing is aligned with historical expectations [72][74] Question: How is the industrial alcohol business performing? - The company is uniquely positioned due to long-standing customer relationships and has been optimizing output to meet increased demand during the pandemic [77][85]

Financial Performance - Sales for the quarter ended March 31, 2020, were $99,082, an increase of 11.2% compared to $89,096 in the same quarter of 2019[78] - Gross profit for the quarter ended March 31, 2020, was $23,211, reflecting a 39.3% increase from $16,660 in the prior year[80] - Operating income increased to $13,708 for the quarter ended March 31, 2020, up 61.0% from $8,513 in the same quarter of 2019[82] - Net income for the quarter ended March 31, 2020, was $9,842, a slight increase of 1.3% compared to $9,720 in the prior year[78] - Earnings per share (EPS) remained unchanged at $0.57 for both quarters ended March 31, 2020, and 2019[86] Tax and Expenses - The effective tax rate for the quarter ended March 31, 2020, was 24.7%, compared to a tax benefit of (17.7)% in the same quarter of 2019[85] - SG&A expenses for the quarter ended March 31, 2020, were $9,503, an increase of 16.6% compared to $8,147 in the same quarter of 2019[81] Segment Performance - Sales in the Distillery Products segment increased by $5,425, or 7.3%, to $80,002 for the quarter ended March 31, 2020[92] - Sales in the Ingredient Solutions segment rose by $4,561, or 31.4%, to $19,080 for the quarter ended March 31, 2020[95] - Total Ingredient Solutions sales for the quarter ended March 31, 2020, increased by $4,561, or 31.4% compared to the prior year quarter[98] - Gross margin for the Distillery Products segment improved to 22.8% from 20.4% in the prior year quarter[93] - Gross profit increased by $3,541, or 249.2%, with gross margin rising to 26.0% from 9.8% in the prior year quarter[99] Cash Flow and Investments - Cash provided by operating activities for the quarter ended March 31, 2020, was $542, compared to cash used of $3,789 in the same quarter of 2019, resulting in a quarter-over-quarter increase of $4,331[102] - Cash used in investing activities for the quarter ended March 31, 2020, was $8,189, primarily due to property, plant, and equipment additions of $5,645 and business acquisition costs of $2,750[105] - Cash provided by financing activities for the quarter ended March 31, 2020, was $46,997, mainly from net proceeds of debt totaling $54,600[108] Debt and Capital Expenditures - Total debt as of March 31, 2020, was $94,555, significantly up from $41,060 at December 31, 2019[114] - Capital expenditures for the quarter ended March 31, 2020, were $5,645, with expectations of approximately $19,600 in capital expenditures for the full year 2020[106] - The company incurred approximately $49,700 of the total investment for a warehouse expansion project, with an expected total investment of $49,800[107] Financial Position - The cash balance as of March 31, 2020, was $42,659, with current assets exceeding current liabilities by $200,951[117] - A 100 basis point increase in market interest rates would increase annual interest expense by $142 based on variable-rate borrowings[121]

Financial Data and Key Metrics Changes - Consolidated sales for the year decreased 3.5% to $362.7 million, with gross profit down 8.5% to $76.5 million and operating income declining 5.8% to $47.2 million [7][25][27] - For the fourth quarter, consolidated sales decreased 11.8% to $92.5 million, gross profit decreased 15.8% to $21.6 million, and gross margin decreased by 110 basis points to 23.3% [24][25] - Net income for the quarter increased 9.5% to $12.9 million, while for the full year, net income increased 4% to $38.8 million [29] Business Segment Data and Key Metrics Changes - In the Distillery Products segment, fourth quarter sales decreased 15.1%, primarily due to a 20.9% decrease in premium beverage alcohol sales [10] - Ingredient Solutions segment sales grew 5.6% for the year, with strong double-digit volume growth in the fourth quarter [20][22] - Sales of dried distillers grains increased 4.1%, while revenue from warehouse services increased 13.4% [19] Market Data and Key Metrics Changes - The growth rate for the target market of American whiskey is believed to be gradually slowing, aligning more with the long-term trend of the overall category [11] - Sales of premium beverage white goods increased 0.5%, while industrial alcohol sales decreased by 1% [18] Company Strategy and Development Direction - The company plans to refine its approach to selling and increase focus on export markets due to their long-term growth potential [15] - A strategic shift towards growing the branded initiative is anticipated, with new brands added to the portfolio and geographic expansion [46][47] - The company is committed to investing in operational capabilities and has a robust capital allocation strategy to maximize returns to shareholders [35][38] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment in the 2019 results but remains confident in the long-term potential of the business [8][49] - The company expects sales growth in 2020 to be in the low to mid-single-digit percentage range, with modest increases in gross margins [39][40] - The effective tax rate for 2020 is forecasted to be approximately 25%, with earnings per share expected to be in the range of $2.03 to $2.13 [40] Other Important Information - The company announced a new 5-year $300 million revolving credit facility, enhancing financial flexibility for strategic growth [33][34] - A warehouse expansion program is on track, with total investment expected to be below previous forecasts due to efficiencies gained [36] Q&A Session Summary Question: About aged whiskey transactions that failed to materialize - Management clarified that 2019 was the first year of selling four-year-old products, and several expected transactions did not occur due to funding delays and customer decisions [53][56] Question: New distillate sales down in Q4 - Management explained that customers were working through excess inventory, impacting new distillate sales, but they expect a rebound in 2020 [58][59] Question: Confidence in new distillate growth - Management indicated that conversations with customers suggest a ramp-up in orders, providing confidence for growth in 2020 [64][66] Question: Competitive position and new customer acquisition - Management acknowledged a need to focus more on gaining volume share and leveraging competitive advantages to win new customers [71][72] Question: Expectations for fully aged sales in 2020 - Management confirmed that there will be sales of fully aged products, with modest increases expected primarily from export markets [73][75]

Part I [Business](index=4&type=section&id=Item%201.%20Business) MGP Ingredients produces distilled spirits and specialty food ingredients through its Distillery Products and Ingredient Solutions segments, relying on key grain suppliers and employing 341 staff as of December 31, 2019 - MGP operates through two reportable segments: **Distillery Products** and **Ingredient Solutions**[16](index=16&type=chunk) - The **Distillery Products** segment processes grains into alcohol and co-products, offering warehousing and blending services, and selling branded spirits[17](index=17&type=chunk) - The **Ingredient Solutions** segment produces specialty and commodity wheat starches and proteins for diverse food applications[24](index=24&type=chunk)[27](index=27&type=chunk)[29](index=29&type=chunk) - Principal raw materials include corn, other grains, and wheat flour, sourced through major supply contracts with **Bunge**, **CGB**, and **Ardent Mills**[38](index=38&type=chunk)[39](index=39&type=chunk) - As of December 31, 2019, MGP employed **341 individuals**, with a significant portion covered by collective bargaining agreements at its Atchison and Lawrenceburg facilities[44](index=44&type=chunk) [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces operational, commodity cost, supply chain, competitive, labor, regulatory, and cybersecurity risks, alongside segment-specific challenges like co-product price volatility and shifting consumer preferences - Operational risks include potential interruptions at production facilities and transportation disruptions impacting output and delivery[51](index=51&type=chunk)[54](index=54&type=chunk) - Profitability is highly sensitive to volatile costs of grain, wheat flour, and natural gas, which may not be fully passed on to customers[55](index=55&type=chunk)[56](index=56&type=chunk) - Reliance on a limited number of key raw material suppliers like **Bunge**, **CGB**, and **Ardent Mills** poses significant supply chain concentration risk[57](index=57&type=chunk) - The **Distillery Products** segment faces risks from volatile grain and co-product prices, alongside inherent challenges in forecasting demand for aging whiskey inventory[79](index=79&type=chunk)[80](index=80&type=chunk) - The **Ingredient Solutions** segment's focus on specialty ingredients increases reliance on fewer customer relationships and vulnerability to shifts in consumer preferences, such as gluten-related trends[85](index=85&type=chunk)[86](index=86&type=chunk) - Common stockholders have limited voting rights, as Preferred Stockholders elect **five of the nine directors**[87](index=87&type=chunk) [Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[91](index=91&type=chunk) [Properties](index=17&type=section&id=Item%202.%20Properties) MGP owns four primary facilities in Kansas, Indiana, and Kentucky, housing distillery, warehousing, research, and administrative operations, all subject to mortgages - The company operates four primary facilities in Atchison, KS; Lawrenceburg/Greendale, IN; Williamstown, KY; and Sunman, IN, covering grain processing, distilling, warehousing, R&D, and offices[92](index=92&type=chunk) - All owned production facilities, the executive office, and the technical innovation center are subject to mortgages[93](index=93&type=chunk) [Legal Proceedings](index=17&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, accruing for probable and estimable losses, with further details in Note 9 of the financial statements - The company is involved in ordinary course legal and regulatory proceedings, with further details in Note 9 of the Consolidated Financial Statements[94](index=94&type=chunk) [Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[96](index=96&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholders%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) MGP's common stock trades on NASDAQ under MGPI, with 356 record holders as of February 21, 2020; a $25 million share repurchase plan was approved in 2019, though no shares were repurchased under it that year - The company's Common Stock trades on the **NASDAQ Global Select Market** under the ticker symbol **MGPI**[98](index=98&type=chunk) - A **$25 million** share repurchase plan was approved on February 25, 2019, but no shares were repurchased under this program in 2019[103](index=103&type=chunk) Issuer Purchases of Equity Securities (Q4 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Dollar Value that May Yet Be Purchased Under the Plans ($) | | :--- | :--- | :--- | :--- | :--- | | October 2019 | — | $ — | — | $25,000,000 | | November 2019 | 456 | $44.89 (a) | — | $25,000,000 | | December 2019 | 11 | $46.09 | — | $25,000,000 | | **Total** | **467** | | **—** | | [Selected Financial Data](index=20&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year financial summary, highlighting 2019 sales of **$362.7 million**, net income of **$38.8 million**, diluted EPS of **$2.27**, and total assets of **$322.6 million** Selected Financial Data (2015-2019) | (In thousands of dollars, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Income Statement Data:** | | | | | | | Sales (thousands of dollars) | $362,745 | $376,089 | $347,448 | $318,263 | $327,604 | | Income before income taxes (thousands of dollars) | $45,937 | $48,980 | $52,758 | $44,717 | $38,418 | | Net income (thousands of dollars) | $38,793 | $37,284 | $41,823 | $31,184 | $26,191 | | Basic and Diluted EPS ($) | $2.27 | $2.17 | $2.44 | $1.82 | $1.48 | | **Balance Sheet Data:** | | | | | | | Total assets (thousands of dollars) | $322,597 | $277,892 | $240,328 | $225,336 | $194,310 | | Long-term debt, less current maturities (thousands of dollars) | $40,659 | $31,628 | $24,182 | $31,642 | $30,115 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2019, consolidated sales decreased **3.5%** to **$362.7 million**, gross profit fell **8.5%** to **$76.5 million**, yet net income rose **4.0%** to **$38.8 million** and EPS increased to **$2.27**, primarily due to a lower effective tax rate of **15.6%** [Results of Operations](index=27&type=section&id=7.1%20Results%20of%20Operations) Consolidated sales decreased **3.5%** to **$362.7 million** in 2019, with gross profit down **8.5%** to **$76.5 million**, but net income increased **4.0%** to **$38.8 million** and EPS rose **4.6%** to **$2.27** due to a lower effective tax rate of **15.6%** Consolidated Results of Operations (2019 vs. 2018) | Metric | 2019 (thousands of dollars) | 2018 (thousands of dollars) | % Change | | :--- | :--- | :--- | :--- | | Sales | $362,745 | $376,089 | (3.5)% | | Gross Profit | $76,532 | $83,599 | (8.5)% | | Gross Margin % | 21.1% | 22.2% | (1.1) pp | | Operating Income | $47,242 | $50,148 | (5.8)% | | Net Income | $38,793 | $37,284 | 4.0% | | Basic and Diluted EPS | $2.27 | $2.17 | 4.6% | | Effective Tax Rate % | 15.6% | 23.9% | (8.3) pp | - The sales decrease was primarily driven by the **Distillery Products** segment, partially offset by growth in the **Ingredient Solutions** segment[131](index=131&type=chunk) - SG&A expenses decreased **12.4%** primarily due to lower incentive compensation expense[135](index=135&type=chunk) - The effective tax rate significantly decreased from **23.9%** in 2018 to **15.6%** in 2019, driven by larger tax benefits from share-based awards and higher tax credits[141](index=141&type=chunk) [Distillery Products Segment](index=31&type=section&id=7.2%20Distillery%20Products%20Segment) The **Distillery Products** segment sales decreased **5.4%** to **$297.2 million** in 2019, primarily due to a **14.8%** decline in brown goods sales, leading to an **8.1%** fall in gross profit to **$66.0 million** Distillery Products Sales Breakdown (2019 vs. 2018) | Product Line | 2019 Sales (thousands of dollars) | 2018 Sales (thousands of dollars) | % Change | | :--- | :--- | :--- | :--- | | Brown Goods | $107,190 | $125,857 | (14.8)% | | White Goods | $62,862 | $62,574 | 0.5% | | **Premium beverage alcohol** | **$170,052** | **$188,431** | **(9.8)%** | | Industrial alcohol | $79,833 | $80,650 | (1.0)% | | Warehouse services | $14,656 | $12,929 | 13.4% | | **Total Distillery Products** | **$297,233** | **$314,055** | **(5.4)%** | - The decline in gross profit was primarily due to lower brown goods sales volume, with industrial alcohol and white goods also impacted by market oversupply[150](index=150&type=chunk) [Ingredient Solutions Segment](index=33&type=section&id=7.3%20Ingredient%20Solutions%20Segment) The **Ingredient Solutions** segment sales increased **5.6%** to **$65.5 million** in 2019, driven by specialty wheat products, but gross profit decreased **10.4%** to **$10.6 million** due to customer loss and higher costs Ingredient Solutions Sales Breakdown (2019 vs. 2018) | Product Line | 2019 Sales (thousands of dollars) | 2018 Sales (thousands of dollars) | % Change | | :--- | :--- | :--- | :--- | | Specialty wheat starches | $30,816 | $28,594 | 7.8% | | Specialty wheat proteins | $22,359 | $21,098 | 6.0% | | Commodity wheat starches | $9,628 | $9,223 | 4.4% | | Commodity wheat proteins | $2,709 | $3,119 | (13.1)% | | **Total Ingredient Solutions** | **$65,512** | **$62,034** | **5.6%** | - Gross profit decreased by **10.4%** and gross margin fell by **2.8 percentage points**, primarily due to the loss of a large specialty wheat protein customer and higher input costs[161](index=161&type=chunk) [Cash Flow, Financial Condition and Liquidity](index=35&type=section&id=7.4%20Cash%20Flow%2C%20Financial%20Condition%20and%20Liquidity) In 2019, operating cash flow decreased to **$19.7 million** due to increased inventory, investing cash flow was **$17.9 million** for capital expenditures, total debt rose to **$41.1 million**, and liquidity remained strong with **$149.7 million** available Cash Flow Summary (2019 vs. 2018) | (In thousands of dollars) | 2019 (thousands of dollars) | 2018 (thousands of dollars) | | :--- | :--- | :--- | | Cash provided by operating activities | $19,722 | $33,481 | | Cash used in investing activities | ($17,931) | ($31,046) | | Cash used in financing activities | ($3,507) | ($494) | - The decrease in operating cash flow was primarily driven by a **$28.2 million** use of cash for increased inventory, mainly barreled distillate[171](index=171&type=chunk) - Capital expenditures totaled **$16.7 million** in 2019, with a significant portion allocated to the warehouse expansion project, anticipated for completion by the end of 2020[174](index=174&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) - Total debt increased to **$41.1 million** at year-end 2019, up from **$32.0 million** at year-end 2018[184](index=184&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to commodity price risk (grain, natural gas) managed via fixed-price contracts, and interest rate risk from variable-rate debt, with a **100 basis point** rate increase having minimal impact on annual interest expense - The company faces market risk from commodity prices, including corn, wheat flour, and natural gas, as well as interest rates[193](index=193&type=chunk) - Commodity price risk is managed through firm commitment supply contracts for future delivery at negotiated prices, accounted for under the normal purchases and sales exception[194](index=194&type=chunk) - A **100 basis point** increase in interest rates would increase annualized interest expense by only **$3 thousand** based on outstanding variable-rate debt at December 31, 2019[196](index=196&type=chunk) [Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents management's assertion of effective internal control over financial reporting and KPMG LLP's unqualified opinion, along with full consolidated financial statements for the three years ended December 31, 2019 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the **COSO framework**[199](index=199&type=chunk) - **KPMG LLP**, the independent auditor, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[204](index=204&type=chunk) Consolidated Statement of Income Highlights (in thousands of dollars) | | 2019 (thousands of dollars) | 2018 (thousands of dollars) | 2017 (thousands of dollars) | | :--- | :--- | :--- | :--- | | Sales (thousands of dollars) | $362,745 | $376,089 | $347,448 | | Gross profit (thousands of dollars) | $76,532 | $83,599 | $76,016 | | Operating income (thousands of dollars) | $47,242 | $50,148 | $42,909 | | Net income (thousands of dollars) | $38,793 | $37,284 | $41,823 | | Basic and diluted EPS ($) | $2.27 | $2.17 | $2.44 | Consolidated Balance Sheet Highlights (in thousands of dollars) | | Dec 31, 2019 (thousands of dollars) | Dec 31, 2018 (thousands of dollars) | | :--- | :--- | :--- | | Total current assets (thousands of dollars) | $184,206 | $154,623 | | Total assets (thousands of dollars) | $322,597 | $277,892 | | Total current liabilities (thousands of dollars) | $39,295 | $37,463 | | Total liabilities (thousands of dollars) | $91,553 | $76,451 | | Total stockholders' equity (thousands of dollars) | $231,044 | $201,441 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=70&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[337](index=337&type=chunk) [Controls and Procedures](index=70&type=section&id=Item%209A.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective for timely and accurate SEC reporting[338](index=338&type=chunk) - No material changes occurred in internal control over financial reporting during 2019[340](index=340&type=chunk) [Other Information](index=70&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[341](index=341&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=70&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement; the company maintains a code of conduct available on its website - Information for this item is incorporated by reference from the company's Proxy Statement[343](index=343&type=chunk) - The company has adopted a code of conduct available on its website, with required disclosures for changes or waivers[344](index=344&type=chunk) [Executive Compensation](index=71&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the company's 2020 Proxy Statement - Information for this item is incorporated by reference from the company's Proxy Statement[345](index=345&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=71&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the Proxy Statement; as of December 31, 2019, **1,372,127** securities remained available for issuance under approved equity compensation plans - Information on security ownership is incorporated by reference from the company's Proxy Statement[346](index=346&type=chunk) Equity Compensation Plan Information as of December 31, 2019 | Plan Category | Number of shares to be issued upon exercise of outstanding options, warrants, and rights | Weighted average exercise price of outstanding options, warrants, and rights ($) | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 116,855 | $65.73 | 1,372,127 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **116,855** | **$65.73** | **1,372,127** | [Certain Relationships and Related Transactions, and Director Independence](index=71&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's 2020 Proxy Statement - Information for this item is incorporated by reference from the company's Proxy Statement[348](index=348&type=chunk) [Principal Accountant Fees and Services](index=71&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2020 Proxy Statement - Information for this item is incorporated by reference from the company's Proxy Statement[349](index=349&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=72&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated statements of income, balance sheets, cash flows, and various governance and material contracts - This section lists all financial statements and exhibits filed with the Form 10-K[352](index=352&type=chunk)[353](index=353&type=chunk) [Form 10-K Summary](index=74&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided - None[357](index=357&type=chunk)

MGP Ingredients, Inc. (NASDAQ:MGPI) Q3 2019 Earnings Conference Call October 31, 2019 10:00 AM ET Company Participants Mike Houston - Managing Director, Lambert and Company Gus Griffin - President and Chief Executive Officer Brandon Gall - Vice President of Finance and Chief Financial Officer Conference Call Participants Alex Fuhrman - Craig-Hallum Capital Group Operator Good day, and welcome to the MGP Ingredients Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instru ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________________ to _________________________________ Commission File Number: 0-17196 MGP INGREDIENTS, INC. (Exact name of registrant as specifie ...

MGP Ingredients, Inc. (NASDAQ:MGPI) Q2 2019 Results Earnings Conference Call July 31, 2019 10:00 AM ET Company Participants Mike Houston - IR Gus Griffin - President and CEO Brandon Gall - VP of Finance and CFO Conference Call Participants Bill Chappell - SunTrust Alex Fuhrman - Craig-Hallum Capital Group Operator Good day. And welcome to the MGP Ingredients Incorporated Second Quarter 2019 Results Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now lik ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________________ to _________________________________ Commission File Number: 0-17196 MGP INGREDIENTS, INC. (Exact name of registrant as specified in ...