MGP Ingredients(MGPI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2025, detailing a net loss of $3.0 million driven by a 29% sales decrease and a $14.7 million contingent consideration charge Condensed Consolidated Financial Statements For Q1 2025, MGP Ingredients reported a net loss of $3.0 million and diluted EPS of -$0.14, a significant decline from prior year's net income due to a 29% sales drop Condensed Consolidated Statements of Income (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Sales | $121,653 | $170,563 | | Gross Profit | $43,330 | $62,795 | | Operating Income (Loss) | $(747) | $28,917 | | Net Income (Loss) | $(3,057) | $20,584 | | Diluted EPS | $(0.14) | $0.92 | Condensed Consolidated Balance Sheets (As of March 31, 2025) | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $516,726 | $546,136 | | Total Assets | $1,378,202 | $1,405,785 | | Total Current Liabilities | $182,342 | $92,450 | | Total Liabilities | $551,509 | $573,242 | | Total Equity | $826,693 | $832,543 | Condensed Consolidated Statements of Cash Flows (Q1 2025 vs Q1 2024) | Cash Flow Activity | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,684 | $24,623 | | Net cash used in investing activities | $(19,926) | $(27,266) | | Net cash provided by (used in) financing activities | $(30,213) | $3,767 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's accounting policies and financial activities, including significant sales declines, an increased contingent consideration liability, and a subsequent amendment to the credit facility - The company operates and reports across three segments: Branded Spirits, Distilling Solutions, and Ingredient Solutions[25] Sales by Segment (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Sales (in thousands) | Q1 2024 Sales (in thousands) | | :--- | :--- | :--- | | Branded Spirits | $48,227 | $50,146 | | Distilling Solutions | $46,943 | $84,852 | | Ingredient Solutions | $26,483 | $35,565 | | Total Sales | $121,653 | $170,563 | - The fair value of the contingent consideration liability for the Penelope acquisition increased by $14.7 million during the quarter, reaching a total of $100 million as of March 31, 2025, with a potential payout ranging from zero to a maximum of $110.8 million[46] - Subsequent to the quarter end, on April 24, 2025, the company amended its credit agreement, increasing the revolving credit facility from $400 million to $500 million and extending the maturity to 2030[82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2025 results, highlighting a 29% sales decrease, a shift to operating loss, and segment-specific declines, while affirming strong liquidity despite the downturn Results of Operations Consolidated sales for Q1 2025 decreased by 29% to $121.7 million, leading to a $0.7 million operating loss, primarily due to lower gross profit and increased contingent consideration charges Consolidated Results Summary (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Sales | $121,653 | $170,563 | (29)% | | Gross Profit | $43,330 | $62,795 | (31)% | | Operating Income (Loss) | $(747) | $28,917 | (103)% | | Net Income (Loss) | $(3,057) | $20,584 | (115)% | - The operating loss was primarily driven by a $15.4 million decrease in gross profit from the Distilling Solutions segment and a $10.6 million increase in the charge for the change in fair value of contingent consideration[94] Segment Results Q1 2025 segment performance varied, with Branded Spirits sales down 4%, Distilling Solutions plummeting 45% due to reduced brown goods demand, and Ingredient Solutions falling 26% from supply challenges - Branded Spirits sales decreased 4% to $48.2 million, with premium plus category growth offset by declines in mid and value tiers[99][101] - Distilling Solutions sales fell 45% to $46.9 million, primarily due to a 49% decrease in brown goods sales resulting from reduced customer demand and elevated industry-wide barrel inventory levels[104][106] - Ingredient Solutions sales dropped 26% to $26.5 million, driven by lower sales volume of specialty wheat starches and proteins, which were affected by supply challenges[109][111] Cash Flow, Financial Condition, and Liquidity Despite a $5.2 million cash decrease, net cash from operating activities increased to $44.7 million due to reduced receivables, with the company maintaining strong liquidity supported by available credit facilities Cash Flow Summary (Q1 2025 vs Q1 2024) | Activity | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,684 | $24,623 | | Net cash used in investing activities | $(19,926) | $(27,266) | | Net cash provided by (used in) financing activities | $(30,213) | $3,767 | - Total debt was reduced to $297.1 million at March 31, 2025, from $323.5 million at December 31, 2024[127] - The company expects to incur approximately $36,000 in capital expenditures in 2025[120] Quantitative and Qualitative Disclosures About Market Risk The company identifies commodity price volatility and interest rate changes as primary market risks, estimating an $800,000 increase in annual interest expense for a 100 basis point rate hike - The company is exposed to market price risk for commodities used in production, including grain, wheat flour, and natural gas[132] - Based on outstanding variable-rate debt at March 31, 2025, a 100 basis point increase in interest rates would increase annual interest expense by approximately $800,000[134] Controls and Procedures The Interim CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The Interim CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[135] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[136] PART II. OTHER INFORMATION Legal Proceedings The company faces consolidated securities class action and derivative lawsuits alleging securities fraud and breaches of fiduciary duty, which it intends to vigorously defend - The company is a defendant in a consolidated securities class action lawsuit alleging securities fraud under the Securities Exchange Act of 1934 for statements made between May 4, 2023, and October 30, 2024[72] - The company is also named as a nominal defendant in consolidated derivative lawsuits alleging breaches of fiduciary duties, waste of corporate assets, and other claims against certain officers and directors[73][74] Risk Factors This section refers readers to the detailed discussion of risk factors in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - For a description of risk factors, the report refers to "Item 1A. Risk Factors" in the company's Annual Report on Form 10-K for the year ended December 31, 2024[139] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company did not repurchase any equity securities, with approximately $53.4 million remaining available under its $100 million share repurchase program Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid | Maximum Value Remaining for Purchase (in thousands) | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2025 | — | $— | $53,412 | | Feb 1 - Feb 28, 2025 | — | $— | $53,412 | | Mar 1 - Mar 31, 2025 | — | $— | $53,412 | - The $100 million share repurchase program was approved on February 29, 2024, and has no expiration date[140] Other Information Items (Items 3, 4, 5, 6) The company reported no defaults on senior securities, no Rule 10b5-1 trading arrangement changes by directors or officers, and filed exhibits including an amended credit agreement - Item 3: No defaults upon senior securities were reported[141] - Item 5: No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement in Q1 2025[143] - Item 6: Filed exhibits include an Amended and Restated Credit Agreement and a Sixth Amendment to the Note Purchase and Private Shelf Agreement, both dated April 24, 2025[144]