MGP Ingredients(MGPI) - 2025 Q2 - Quarterly Results

Executive Summary & Business Update Second Quarter 2025 Highlights MGP Ingredients reported a challenging Q2 2025 with consolidated sales down 24% and net income down 55%, yet achieved sequential improvement across segments and reaffirmed its full-year outlook Q2 2025 Financial Highlights (YoY Change) | Metric | Q2 2025 Value | Q2 2024 Value | Change (%) | | :-------------------------------- | :------------ | :------------ | :--------- | | Consolidated Sales | $145.5 million | $190.8 million | -24% | | Consolidated Gross Profit | $58.4 million | $83.2 million | -30% | | Gross Margin | 40.1% | 43.6% | -350 bps | | Net Income | $14.4 million | $32.0 million | -55% | | Adjusted Net Income | $20.9 million | $38.0 million | -45% | | Basic EPS | $0.67 | $1.43 | -53.1% | | Adjusted Basic EPS | $0.97 | $1.71 | -43% | | Adjusted EBITDA | $35.9 million | $57.5 million | -38% | | Year-to-date Capital Expenditures | $18.7 million | $22.5 million | -17% | | Year-to-date Operating Cash Flows | $56.4 million | $29.6 million | +$26.8 million | | Net Debt Leverage Ratio (as of June 30, 2025) | 1.8x | N/A | N/A | - Consolidated sales decreased 24% to $145.5 million, primarily due to expected declines in brown goods sales within Distilling Solutions and value/mid-price tiered brands in Branded Spirits[4][5] - Net income decreased 55% to $14.4 million, and adjusted net income decreased 45% to $20.9 million[4] Management Commentary Management acknowledged Q2 results were largely as expected, with solid execution and sequential improvement across all segments, reaffirming the 2025 outlook and focusing on sustainable growth - CFO Brandon Gall stated that Q2 results were largely as expected, with solid execution and sequential improvement across all three business segments, and reaffirmed the 2025 outlook[2] - Julie Francis, the new President and CEO, expressed excitement to build on progress, focusing on sustainable growth, unlocking long-term value, and strengthening a customer-centric, brands-led approach[3] - Decisive actions to improve visibility with customers are working, with brown goods volume and price declines in line with expectations[2] 2025 Financial Outlook MGP Ingredients reaffirmed its fiscal year 2025 consolidated guidance for sales, adjusted EBITDA, and adjusted basic EPS, while revising full-year capital expenditures downward to approximately $32.5 million Fiscal Year 2025 Consolidated Guidance | Metric | Projected Range | | :-------------------- | :-------------- | | Sales | $520M - $540M | | Adjusted EBITDA | $105M - $115M | | Adjusted Basic EPS | $2.45 - $2.75 | | Weighted Average Basic Shares Outstanding | ~21.4 million | | Effective Tax Rate | ~25% | | Full-Year Capital Expenditures | ~$32.5 million (revised from ~$36M) | - Full-year capital expenditures are now expected to be approximately $32.5 million, a reduction from previous expectations of $36 million[10] Consolidated Financial Performance Condensed Consolidated Statements of Income The consolidated income statement for Q2 2025 shows significant declines in sales, gross profit, and net income, with operating income decreasing 53.2% due to lower gross profit and increased contingent consideration liability Condensed Consolidated Statements of Income (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (%) | | :----------------------------------- | :--------------------- | :--------------------- | :--------- | | Sales | $145,494 | $190,805 | -23.7% | | Cost of sales | $87,107 | $107,573 | -19.0% | | Gross profit | $58,387 | $83,232 | -29.9% | | Advertising and promotion expenses | $6,913 | $11,665 | -40.7% | | Selling, general, and administrative expenses | $23,156 | $22,759 | +1.7% | | Change in fair value of contingent consideration | $8,000 | $5,400 | +48.1% | | Operating income | $20,318 | $43,387 | -53.2% | | Income before income taxes | $18,735 | $42,125 | -55.5% | | Net income | $14,427 | $32,017 | -55.0% | | Basic Earnings per common share | $0.67 | $1.43 | -53.1% | - Operating income decreased to $20.3 million, primarily due to lower gross profit and an $8.0 million increase in the fair value of the contingent consideration liability related to the Penelope brand[5] - Advertising and promotion expenses decreased 41% to $6.9 million, reflecting a realignment of spend towards attractive growth opportunities[6] Condensed Consolidated Balance Sheets As of June 30, 2025, total assets slightly decreased, driven by lower current assets, while total liabilities increased significantly due to a rise in current contingent consideration, despite reduced long-term debt Condensed Consolidated Balance Sheets (as of June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :----------------------------------- | :--------------------------- | :----------------------------- | :----- | | ASSETS | | | | | Cash and cash equivalents | $17,320 | $25,273 | -$7,953 | | Receivables, net | $117,190 | $148,488 | -$31,298 | | Inventory | $379,702 | $364,944 | +$14,758 | | Total current assets | $520,243 | $546,136 | -$25,893 | | Property, plant, and equipment, net | $325,751 | $316,672 | +$9,079 | | Total Assets | $1,386,060 | $1,405,785 | -$19,725 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | Current maturities of long-term debt | $6,400 | $6,400 | $0 | | Accounts payable | $41,932 | $66,336 | -$24,404 | | Contingent consideration - current | $108,000 | $0 | +$108,000 | | Total current liabilities | $178,611 | $92,450 | +$86,161 | | Long-term debt, less current maturities | $94,663 | $121,277 | -$26,614 | | Contingent consideration | $0 | $85,300 | -$85,300 | | Total liabilities | $545,931 | $573,242 | -$27,311 | | Total equity | $840,129 | $832,543 | +$7,586 | | Total Liabilities and Total Equity | $1,386,060 | $1,405,785 | -$19,725 | - A significant shift occurred in contingent consideration, with $108 million classified as current as of June 30, 2025, compared to zero current and $85.3 million long-term at December 31, 2024[19] - Total current assets decreased by $25.9 million, mainly due to lower cash and receivables, partially offset by an increase in inventory[19] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities significantly increased, while financing activities reversed to a net outflow of $33.10 million due to increased debt payments Condensed Consolidated Statements of Cash Flows (YTD June 30, 2025 vs. 2024) | Cash Flow Activity | YTD June 30, 2025 (in thousands) | YTD June 30, 2024 (in thousands) | Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :----- | | Net income | $11,370 | $52,601 | -$41,231 | | Change in fair value of contingent consideration | $22,700 | $9,500 | +$13,200 | | Receivables, net | $31,103 | -$14,766 | +$45,869 | | Inventory | -$15,224 | -$11,754 | -$3,470 | | Net cash provided by operating activities | $56,357 | $29,582 | +$26,775 | | Net cash used in investing activities | -$32,167 | -$33,657 | +$1,490 | | Proceeds from long-term debt | $28,000 | $50,000 | -$22,000 | | Principal payments on long-term debt | -$52,200 | -$28,200 | -$24,000 | | Net cash provided by (used in) financing activities | -$33,103 | $6,721 | -$39,824 | | Increase (decrease) in cash and cash equivalents | -$7,953 | $2,623 | -$10,576 | | Cash and cash equivalents, end of period | $17,320 | $21,011 | -$3,691 | - Net cash provided by operating activities increased by $26.8 million year-to-date, primarily driven by a positive change in receivables and a higher change in the fair value of contingent consideration[4][20] - Net cash used in financing activities was $33.1 million, a significant change from the $6.7 million provided in the prior year, mainly due to increased principal payments on long-term debt[20] Segment Performance Analysis Branded Spirits Segment The Branded Spirits segment saw a 5% sales decrease to $60.5 million in Q2 2025, driven by declines in mid and value-priced portfolios, despite 1% growth in premium plus sales from the Penelope brand Branded Spirits Segment Performance (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Premium plus sales | $31,099 | $30,707 | $392 | 1% | | Mid sales | $15,493 | $17,061 | -$1,568 | -9% | | Value sales | $8,936 | $11,655 | -$2,719 | -23% | | Total Branded Spirits Sales | $60,520 | $64,041 | -$3,521 | -5% | | Gross profit | $31,984 | $33,633 | -$1,649 | -5% | | Gross margin % | 52.8% | 52.5% | N/A | +0.3 pp | | Operating income | $8,737 | $7,235 | $1,502 | 21% | - Increased focus on American whiskey and tequila categories led to 1% growth in premium plus sales, with the Penelope brand showing strong above-category sales growth[7] - Sales of mid and value-priced portfolios declined by nearly 15% due to lower volumes of certain tequila, liqueur, and cordial brands[7] Distilling Solutions Segment The Distilling Solutions segment saw a 46% sales decrease to $50.0 million in Q2 2025, primarily due to reduced brown goods demand and elevated industry barrel inventories, resulting in a 56% gross profit decline Distilling Solutions Segment Performance (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Brown goods sales | $35,057 | $75,443 | -$40,386 | -54% | | Warehouse services sales | $8,001 | $8,392 | -$391 | -5% | | White goods and other co-products sales | $6,942 | $9,553 | -$2,611 | -27% | | Total Distilling Solutions Sales | $50,000 | $93,388 | -$43,388 | -46% | | Gross profit | $18,812 | $42,473 | -$23,661 | -56% | | Gross margin % | 37.6% | 45.5% | N/A | -7.9 pp | | Operating income | $17,741 | $41,528 | -$23,787 | -57% | - Sales and profitability were pressured by reduced customer demand for brown goods due to elevated industry-wide barrel inventories[8] - Proactive engagement and visibility with customers helped keep brown goods sales volume and pricing largely in line with expectations[8] Ingredient Solutions Segment The Ingredient Solutions segment returned to positive growth in Q2 2025, with sales increasing 5% to $35.0 million, driven by new domestic customers and enhanced operational execution, leading to a 7% gross profit increase Ingredient Solutions Segment Performance (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Specialty wheat starches sales | $18,474 | $19,203 | -$729 | -4% | | Specialty wheat proteins sales | $12,612 | $11,200 | $1,412 | 13% | | Commodity wheat starches sales | $3,061 | $2,973 | $88 | 3% | | Commodity wheat proteins sales | $827 | $0 | $827 | n/a | | Total Ingredient Solutions Sales | $34,974 | $33,376 | $1,598 | 5% | | Gross profit | $7,591 | $7,126 | $465 | 7% | | Gross margin % | 21.7% | 21.4% | N/A | +0.3 pp | | Operating income | $6,290 | $5,784 | $506 | 9% | - Sales improved sequentially from Q1 2025 for each product line, reflecting commercialization of new domestic customers and improved operational execution[9] - Specialty wheat proteins sales increased by 13%, and commodity wheat proteins saw significant growth from a low base[29] Non-GAAP Financial Measures Explanation of Non-GAAP Items MGP Ingredients provides non-GAAP measures to offer a clearer view of core performance, excluding items like fair value changes of contingent consideration, executive transition costs, and other non-recurring expenses - Non-GAAP measures are used by management to evaluate operating results, assess financial trends, and for forecasting, providing useful information to investors[16] - Key adjustments include fair value of contingent consideration (related to Penelope Bourbon acquisition), executive transition costs, professional service fees (goodwill impairment valuation), restructuring costs (reduction in force), impairment of long-lived assets (Atchison distillery closure), business acquisition costs, and unusual items costs[23] - Reconciliation to GAAP measures is provided for historical data, but not for full-year 2025 guidance due to the inability to predict certain GAAP items with reasonable certainty[16] Reconciliation of GAAP to Adjusted Non-GAAP Measures The reconciliation details Q2 2025 adjustments, including $8.0 million for contingent consideration and $0.38 million for executive transition costs, increasing GAAP net income of $14.4 million to an adjusted non-GAAP net income of $20.9 million Reconciliation of GAAP to Adjusted Non-GAAP Measures (Q2 2025) | Metric | Reported GAAP Results (in thousands) | Fair value of contingent consideration (b) (in thousands) | Executive transition costs (c) (in thousands) | Adjusted Non-GAAP results (in thousands) | | :-------------------- | :----------------------------------- | :---------------------------------------- | :------------------------------------ | :--------------------------------------- | | Operating Income | $20,318 | $8,000 | $376 | $28,694 | | Income before Income Taxes | $18,735 | $8,000 | $376 | $27,111 | | Net Income | $14,427 | $6,160 | $290 | $20,877 | | MGP Earnings (a) | $14,267 | $6,097 | $287 | $20,651 | | Basic and Diluted EPS | $0.67 | $0.29 | $0.01 | $0.97 | - Adjustments for Q2 2025 primarily include $8.0 million for fair value of contingent consideration and $0.38 million for executive transition costs, significantly impacting adjusted operating income and net income[21] - For the year-to-date period ended June 30, 2025, total adjustments increased GAAP net income of $11.37 million to an adjusted non-GAAP net income of $28.31 million[21] Reconciliation of Net Income to Adjusted EBITDA Adjusted EBITDA for Q2 2025 was $35.89 million, a 38% decrease from Q2 2024, reflecting overall profitability decline and key adjustments from net income Reconciliation of Net Income to Adjusted EBITDA (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Net Income | $14,427 | $32,017 | -$17,590 | -55.0% | | Interest expense | $1,897 | $2,205 | -$308 | -14.0% | | Income tax expense | $4,308 | $10,108 | -$5,800 | -57.4% | | Depreciation and amortization | $5,830 | $5,329 | $501 | 9.4% | | Fair value of contingent consideration | $8,000 | $5,400 | $2,600 | 48.1% | | Adjusted EBITDA | $35,889 | $57,532 | -$21,643 | -37.6% | - Adjusted EBITDA for Q2 2025 was $35.89 million, down from $57.53 million in the prior year, reflecting the overall decline in profitability[4][24] - Year-to-date Adjusted EBITDA decreased from $97.76 million in 2024 to $57.65 million in 2025[24] Net Debt Leverage Ratio As of June 30, 2025, MGP Ingredients reported a net debt leverage ratio of approximately 1.8x, calculated using net debt of $279.77 million and TTM Adjusted EBITDA of $156.39 million Net Debt Leverage Ratio (as of June 30, 2025) | Metric | Value (in thousands) | | :-------------------- | :------------------- | | Total debt | $297,086 | | Cash and cash equivalents | $17,320 | | Net debt | $279,766 | | TTM Adjusted EBITDA | $156,386 | | Net debt leverage ratio | 1.8x | - The net debt leverage ratio stands at approximately 1.8x as of June 30, 2025[4][27] - TTM Adjusted EBITDA, used in the leverage ratio calculation, was $156.39 million[27] Dilutive Shares Outstanding Calculation For Q2 2025 and year-to-date, convertible senior notes had zero impact on dilutive shares outstanding, as the average share price was below the conversion price, making them anti-dilutive Dilutive Shares Outstanding Calculation (Q2 2025) | Metric | Q2 2025 | | :-------------------- | :------ | | Principal amount of the bonds | $201,250,000 | | Initial conversion rate | 10.3911 | | Conversion price | $96.23620 | | Average share price | $29.73403 | | Impact of conversion | $0 | - The average share price for Q2 2025 ($29.73) was below the conversion price ($96.24), rendering the convertible senior notes anti-dilutive and thus excluded from diluted EPS calculations[33] Corporate Information About MGP Ingredients, Inc. MGP Ingredients, Inc. (Nasdaq: MGPI) is a leading provider of branded and distilled spirits and food ingredient solutions, operating since 1941 across three segments with an award-winning portfolio - MGP Ingredients operates in three segments: Branded Spirits, Distilling Solutions, and Ingredient Solutions[12] - The company's premium spirits brands include Penelope, Rebel, Remus, Yellowstone bourbons, and El Mayor tequila under the Luxco umbrella[12] - MGP also provides high-quality specialty fiber, protein, and starch ingredients for a wide range of food products[12] Cautionary Note Regarding Forward-Looking Statements This section highlights that forward-looking statements are subject to various risks and uncertainties, including changes in consumer preferences, market competition, and regulatory changes, with no obligation to update them - Forward-looking statements are identified by words like 'intend,' 'plan,' 'believe,' 'expect,' and similar terminology, reflecting management's current beliefs and estimates[13] - Risks and uncertainties include changes in consumer preferences, competitive landscape, damage to reputation, failure to introduce successful new brands, reliance on distributors, operational interruptions, and regulatory changes[14] - The company undertakes no obligation to update any forward-looking statements, except as required by law[15] Conference Call and Investor Relations MGP Ingredients hosted a conference call on July 31, 2025, to discuss Q2 results and business trends, with access details for investors and contact information for inquiries - A conference call was held on July 31, 2025, at 10 a.m. ET to discuss results and current business trends[11] - Investors can access a live webcast and replay via the company's Investor Relations website[11] - Contact information for investor relations (Amit Sharma) and media (Patrick Barry) is provided[17]