MGP Ingredients(MGPI) - 2024 Q2 - Quarterly Results

Q2 2024 Performance Overview MGP Ingredients' Q2 2024 performance highlights strong adjusted metrics and reiterated full-year guidance Financial Highlights MGP Ingredients reported strong Q2 2024 results, characterized by significant growth in adjusted metrics despite a reported sales decline Q2 2024 vs Q2 2023 Key Financial Metrics | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $190.8 Million | $209.0 Million | -9% | | Net Income | $32.0 Million | $32.0 Million | Flat | | Adjusted Net Income | $38.0 Million | $33.1 Million | +15% | | Adjusted EBITDA | $57.5 Million | $53.6 Million | +7% | | Adjusted EBITDA Margin | 30.2% | 25.7% | +450 bps | | Basic EPS | $1.43 | $1.44 | -0.7% | | Adjusted Basic EPS | $1.71 | $1.49 | +15% | - The closure of the Atchison distillery was the primary driver of the 9% decrease in reported sales. Excluding this impact, consolidated sales increased by 7% during the quarter[1] - The company's net debt leverage ratio was approximately 1.4x as of June 30, 2024[2] Segment Performance Segment performance details MGP Ingredients' key business units and the Atchison distillery closure's impact Consolidated Results Excluding the Atchison distillery impact, consolidated sales grew 7% in Q2 2024, with gross profit rising 9% to $83.2 million and adjusted operating income increasing by 12% to $51.3 million Q2 2024 Consolidated Performance | Metric | Q2 2024 ($ Million) | Change (YoY) (%) | | :--- | :--- | :--- | | Sales (ex-Atchison) | N/A | +7% | | Gross Profit | $83.2 Million | +9% | | Gross Margin | 43.6% | +730 bps | | Operating Income | $43.4 Million | -2% | | Adjusted Operating Income | $51.3 Million | +12% | | Diluted EPS | $1.43 | -$0.01 | | Adjusted Diluted EPS | $1.71 | +15% | - Excluding the impact of the Atchison distillery, the consolidated gross margin improved by approximately 80 basis points compared to the prior year, driven by strong margin expansion in the Branded Spirits segment[4] Distilling Solutions The Distilling Solutions segment reported a 20% sales decrease due to the Atchison distillery closure, though sales excluding this impact increased by 9%, with gross margin significantly improving to 45.5% Q2 2024 Distilling Solutions Performance | Metric | Q2 2024 ($ Million) | Q2 2023 ($ Million) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $93.4 Million | $116.9 Million | -20% | | Sales (ex-Atchison) | $93.3 Million | $86.0 Million | +9% | | Gross Profit | $42.5 Million | $38.7 Million | +9.8% | | Gross Margin | 45.5% | 33.1% | +1240 bps | Branded Spirits The Branded Spirits segment achieved strong growth with sales increasing 11% to $64.0 million, driven by a 29% surge in the premium plus portfolio, and gross profit growing 29% to a record $33.6 million Q2 2024 Branded Spirits Performance | Metric | Q2 2024 ($ Million) | Q2 2023 ($ Million) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $64.0 Million | $57.6 Million | +11% | | Gross Profit | $33.6 Million | $26.0 Million | +29% | | Gross Margin | 52.5% | 45.1% | +740 bps | - Sales of premium plus price tier spirits brands grew 29% during the quarter, reflecting focused initiatives in American whiskey and tequila categories[6] Ingredient Solutions The Ingredient Solutions segment experienced a 3% sales decrease to $33.4 million and a significant 38.8% decline in gross profit to $7.1 million, resulting in a gross margin contraction to 21.4% Q2 2024 Ingredient Solutions Performance | Metric | Q2 2024 ($ Million) | Q2 2023 ($ Million) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $33.4 Million | $34.5 Million | -3% | | Gross Profit | $7.1 Million | $11.6 Million | -38.8% | | Gross Margin | 21.4% | 33.6% | -1220 bps | - Excluding the impact of the Atchison distillery and the associated intercompany credit, gross profit decreased to $7.1 Million compared to $10.0 Million in Q2 2023[7] Other Operating Items In Q2 2024, advertising and promotion expenses rose by 35% to $11.7 million, while corporate SG&A expenses fell by 3% to $22.8 million, alongside a $5.4 million charge for contingent consideration - Advertising and promotion expenses increased by $3.0 Million (35%) to $11.7 Million[8] - Corporate SG&A expenses decreased by $0.8 Million (3%) to $22.8 Million[8] - A charge of $5.4 Million was recorded for the change in fair value of contingent consideration related to the Penelope acquisition[8] Financial Outlook MGP Ingredients confirms fiscal year 2024 financial guidance for sales, adjusted EBITDA, and adjusted EPS Full Year 2024 Guidance MGP Ingredients confirmed its full-year fiscal 2024 guidance, projecting sales between $742 million and $756 million, adjusted EBITDA from $218 million to $222 million, and adjusted basic EPS from $6.12 to $6.23 Fiscal Year 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Sales | $742 Million - $756 Million | | Adjusted EBITDA | $218 Million - $222 Million | | Adjusted Basic EPS | $6.12 - $6.23 | | Basic Weighted Avg. Shares | ~22.3 Million | Financial Statements and Reconciliations This section presents detailed financial statements and reconciliations of GAAP to non-GAAP measures Sales by Operating Segment This section provides a detailed breakdown of sales by segment for Q2 and YTD 2024, highlighting growth in Branded Spirits and declines in Distilling Solutions and Ingredient Solutions due to specific category performance and the Atchison closure Q2 2024 vs Q2 2023 Sales by Segment ($ in thousands) | Segment / Category | Q2 2024 Sales | Q2 2023 Sales | % Change | | :--- | :--- | :--- | :--- | | Distilling Solutions | $93,388 | $116,865 | (20)% | |    Brown goods | $75,443 | $73,124 | 3% | |    White goods & other | $9,553 | $36,994 | (74)% | | Branded Spirits | $64,041 | $57,616 | 11% | |    Premium plus | $30,707 | $23,763 | 29% | | Ingredient Solutions | $33,376 | $34,520 | (3)% | |    Specialty wheat starches | $19,203 | $17,095 | 12% | YTD 2024 vs YTD 2023 Sales by Segment ($ in thousands) | Segment / Category | YTD 2024 Sales | YTD 2023 Sales | % Change | | :--- | :--- | :--- | :--- | | Distilling Solutions | $178,240 | $230,088 | (23)% | | Branded Spirits | $114,187 | $114,499 | 0% | |    Premium plus | $51,613 | $42,509 | 21% | | Ingredient Solutions | $68,941 | $65,424 | 5% | Condensed Consolidated Financial Statements The financial statements show a decrease in YTD 2024 net income to $52.6 million, total assets of $1.43 billion as of June 30, 2024, and an increase in net cash provided by operating activities to $29.6 million YTD YTD 2024 vs YTD 2023 Statement of Income Highlights ($ in thousands) | Line Item | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Sales | $361,368 | $410,011 | | Gross Profit | $146,027 | $146,119 | | Operating Income | $72,304 | $85,702 | | Net Income | $52,601 | $62,996 | Balance Sheet Highlights ($ in thousands) | Line Item | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $546,400 | $514,297 | | Total Assets | $1,434,097 | $1,392,348 | | Total Liabilities | $541,184 | $543,281 | | Total Equity | $892,913 | $849,067 | Cash Flow Highlights YTD ($ in thousands) | Line Item | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,582 | $20,156 | | Net cash used in investing activities | ($33,657) | ($135,589) | | Net cash provided by financing activities | $6,721 | $89,462 | Reconciliation of GAAP to Non-GAAP Measures This section reconciles GAAP results to non-GAAP measures, clarifying the impact of special items, with Q2 2024 adjusted basic EPS at $1.71 and adjusted EBITDA at $57.5 million Q2 2024 GAAP to Non-GAAP EPS Reconciliation | Item | Per Share Amount ($) | | :--- | :--- | | Reported GAAP Basic EPS | $1.43 | | Fair value of contingent consideration | $0.19 | | Executive transition costs | $0.03 | | Unusual items costs | $0.06 | | Adjusted Non-GAAP Basic EPS | $1.71 | Q2 2024 Net Income to Adjusted EBITDA Reconciliation ($ in thousands) | Item | Q2 2024 Amount | | :--- | :--- | | Net Income | $32,017 | | Interest expense | $2,205 | | Income tax expense | $10,108 | | Depreciation and amortization | $5,329 | | Share based compensation | $865 | | Fair value of contingent consideration | $5,400 | | Unusual items costs | $1,639 | | Adjusted EBITDA | $57,532 | Net Debt Leverage Ratio as of June 30, 2024 ($ in thousands) | Item | Amount | | :--- | :--- | | Total debt | $309,396 | | Less: Cash and cash equivalents | ($21,011) | | Net debt | $288,385 | | TTM Adjusted EBITDA | $205,851 | | Net debt leverage ratio | 1.4x | Impact of Atchison Distillery Closure (Pro-Forma) This section provides pro-forma results illustrating the financial impact of the Atchison distillery closure, which contributed $30.9 million in low-margin sales and, when removed, significantly improved segment and consolidated gross margins - The pro-forma results for Q2 2023 show that the Atchison distillery contributed $30.9 Million in sales, primarily from 'White goods and other co-products'[58] Q2 2023 Pro-Forma Impact on Distilling Solutions Segment | Metric | As Reported ($ Million) | Pro-Forma (ex-Atchison) ($ Million) | Impact of Closure ($ Million) | | :--- | :--- | :--- | :--- | | Sales | $116.9 Million | $86.0 Million | ($30.9 Million) | | Gross Profit | $38.7 Million | $40.4 Million | +$1.7 Million | | Gross Margin (%) | 33.1% | 47.0% | +13.9 pp | - The closure also impacted the Ingredient Solutions segment in Q2 2023 by eliminating a $1.6 Million intercompany credit for waste starch slurry, which would have reduced its gross profit[59][60]