MGP Ingredients(MGPI) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents MGP Ingredients, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter Item 1. Financial Statements Presents MGP Ingredients, Inc.'s unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Statements of Income (Unaudited) Summarizes MGP Ingredients, Inc.'s unaudited consolidated income statement for Q1 2023 and Q1 2022 | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $201,010 | $195,235 | 3.0% | | Gross profit | $69,824 | $71,821 | (2.8%) | | Operating income | $41,559 | $50,080 | (17.0%) | | Net income attributable to MGP Ingredients, Inc. | $31,071 | $37,437 | (17.0%) | | Diluted EPS | $1.39 | $1.69 | (17.7%) | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Presents MGP Ingredients, Inc.'s unaudited consolidated comprehensive income statement for Q1 2023 and Q1 2022 | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net income attributable to MGP Ingredients, Inc. | $31,071 | $37,437 | (17.0%) | | Other comprehensive income (loss) | $68 | $(232) | N/A | | Comprehensive income attributable to MGP Ingredients, Inc. | $31,139 | $37,205 | (16.3%) | Condensed Consolidated Balance Sheets (Unaudited) Details MGP Ingredients, Inc.'s unaudited consolidated balance sheet as of March 31, 2023, and December 31, 2022 | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total current assets | $475,439 | $454,162 | 4.7% | | Total assets | $1,184,186 | $1,158,211 | 2.2% | | Total current liabilities | $102,315 | $105,375 | (2.9%) | | Total liabilities | $408,239 | $412,567 | (1.0%) | | Total equity | $775,947 | $745,644 | 4.1% | Condensed Consolidated Statements of Cash Flows (Unaudited) Outlines MGP Ingredients, Inc.'s unaudited consolidated cash flow activities for Q1 2023 and Q1 2022 | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $5,021 | $22,230 | $(17,209) | | Net cash used in investing activities | $(16,945) | $(12,033) | $(4,912) | | Net cash used in financing activities | $(4,270) | $(4,182) | $(88) | | Cash and cash equivalents, end of period | $31,728 | $27,295 | $4,433 | Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Presents MGP Ingredients, Inc.'s unaudited consolidated changes in stockholders' equity for Q1 2023 | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total MGP Ingredients, Inc. stockholders' equity (end of period) | $775,947 | $745,644 | | Net income (loss) | $31,071 | N/A (from Dec 31, 2022 to Mar 31, 2023) | | Dividends and dividend equivalents | $(2,661) | N/A | | Share-based compensation | $2,665 | N/A | | Stock shares repurchased | $(801) | N/A | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed notes explaining MGP Ingredients, Inc.'s accounting policies and financial statement components Note 1. Accounting Policies and Basis of Presentation Outlines MGP's business, accounting policies, and basis of financial statement presentation - MGP operates in three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions, producing premium distilled spirits, branded spirits, and food ingredients[22][23] - Inventory includes finished goods, barreled distillate (bourbons and other whiskeys aged for years), raw materials, work in process, and maintenance materials, valued at the lower of cost or net realizable value using FIFO[28][29] - Revenue is recognized when control of goods or services is transferred to the customer, with specific criteria for "bill and hold" arrangements in the Distilling Solutions segment[29][30][31] | Inventory Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Finished goods | $50,730 | $47,073 | | Barreled distillate | $210,615 | $199,040 | | Raw materials | $33,524 | $29,931 | | Total Inventory | $308,558 | $289,722 | Note 2. Revenue Details MGP's revenue generation by segment and product/service categories - Revenue is generated from product sales (point in time) and services like warehouse and contract bottling (over time) across three segments[45] | Segment/Product | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Distilling Solutions | $113,223 | $111,509 | 1.5% | | Branded Spirits | $56,883 | $55,751 | 2.0% | | Ingredient Solutions | $30,904 | $27,975 | 10.5% | | Total Sales | $201,010 | $195,235 | 3.0% | Note 3. Goodwill and Intangible Assets Reports carrying values and amortization of MGP's goodwill and intangible assets - Goodwill and indefinite-lived intangible assets, primarily related to the Branded Spirits segment, remained stable at $226,294 thousand and $178,990 thousand, respectively, as of March 31, 2023[48] | Period | Amortization Expense (in thousands) | | :--- | :--- | | Remainder of 2023 | $1,553 | | 2024 | $2,070 | | 2025 | $2,070 | | 2026 | $2,070 | | 2027 | $2,070 | | Thereafter | $27,427 | | Total | $37,260 | Note 4. Corporate Borrowings Details MGP's outstanding debt, credit facilities, and compliance with debt covenants | Debt Instrument | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Convertible Senior Notes, 1.88% due 2041 | $201,250 | $201,250 | | Series A Senior Secured Notes, 3.53% due 2027 | $14,400 | $15,200 | | Senior Secured Notes, 3.80% due 2029 | $20,000 | $20,000 | | Total indebtedness outstanding, net | $229,619 | $230,335 | - The company had no outstanding borrowings under its $400,000 revolving credit facility as of March 31, 2023, with $400,000 available[51] - The company was in compliance with all requirements and covenants of its Credit Agreement and Note Purchase Agreement as of March 31, 2023[51][55] Note 5. Income Taxes Explains MGP's income tax accounting and effective tax rates for the quarter | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Income tax expense | $9,655 | $11,165 | | Effective tax rate | 23.7% | 23.0% | - The effective tax rate for Q1 2023 (23.7%) differed from the 21% federal statutory rate primarily due to state and foreign income taxes, partially offset by state and federal tax credits and export activity deductions[57] Note 6. Equity and EPS Provides computations for MGP's basic and diluted EPS and common stock activity | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income used in EPS calculation (in thousands) | $30,760 | $37,119 | | Basic weighted average common shares | 22,040,224 | 21,989,100 | | Diluted weighted average common shares | 22,072,271 | 21,989,100 | | Basic EPS | $1.40 | $1.69 | | Diluted EPS | $1.39 | $1.69 | - Dilutive impact from Convertible Senior Notes only occurs if the average market price exceeds the conversion price of $96.24 per share; there was no dilutive impact in Q1 2022[62] - Common stock repurchases were for tax withholding on equity-based compensation, totaling 8,437 shares ($801 thousand) in Q1 2023 and 9,021 shares ($711 thousand) in Q1 2022[63] Note 7. Commitments and Contingencies Outlines MGP's policy for accruing costs related to legal and regulatory contingencies - The company accrues estimated costs for contingencies when a loss is probable and can be reasonably estimated, related to various legal and regulatory proceedings[64] Note 8. Employee and Non-Employee Benefit Plans Describes MGP's share-based compensation and deferred compensation plans - As of March 31, 2023, 227,810 unvested RSUs were outstanding under the company's long-term incentive plans[66] | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | EDC Plan investments | $2,751 | $2,176 | | EDC Plan current liabilities | $470 | $510 | | EDC Plan non-current liabilities | $2,445 | $2,191 | Note 9. Operating Segments Defines MGP's operating segments and presents their summarized financial information - The company operates three segments: Distilling Solutions (food/fuel alcohol, co-products, warehouse services), Branded Spirits (portfolio of branded spirits), and Ingredient Solutions (specialty/commodity starches and proteins)[70] | Segment | Q1 2023 Sales (in thousands) | Q1 2022 Sales (in thousands) | Sales Change (%) | Q1 2023 Gross Profit (in thousands) | Q1 2022 Gross Profit (in thousands) | Gross Profit Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Distilling Solutions | $113,223 | $111,509 | 1.5% | $33,028 | $38,933 | (15.2%) | | Branded Spirits | $56,883 | $55,751 | 2.0% | $24,593 | $24,782 | (0.8%) | | Ingredient Solutions | $30,904 | $27,975 | 10.5% | $12,203 | $8,106 | 50.5% | | Total | $201,010 | $195,235 | 3.0% | $69,824 | $71,821 | (2.8%) | | Segment | Q1 2023 Income Before Taxes (in thousands) | Q1 2022 Income Before Taxes (in thousands) | Q1 2023 Identifiable Assets (in thousands) | Dec 31, 2022 Identifiable Assets (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Distilling Solutions | $32,301 | $37,992 | $369,447 | $350,068 | | Branded Spirits | $9,157 | $10,786 | $706,854 | $698,985 | | Ingredient Solutions | $10,846 | $7,471 | $72,827 | $63,943 | Note 10. Subsequent Events Reports a quarterly dividend declared by MGP's Board of Directors after the reporting period - On May 4, 2023, the Board declared a quarterly dividend of $0.12 per share and per unit, payable on June 2, 2023[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides a detailed discussion and analysis of MGP's financial condition and results of operations for Q1 2023 Overview Introduces MGP as a producer of distilled spirits, branded spirits, and food ingredients - MGP is a leading producer of premium distilled spirits (bourbon, rye, whiskey, GNS), branded spirits (value to ultra-premium American whiskey, tequila, gin), and protein/starch food ingredients[76] - Products are sold directly or indirectly to manufacturers, distributors, and consumer packaged goods industries[76] Consolidated Results Analyzes MGP's consolidated financial performance, including sales, gross profit, and net income | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $201,010 | $195,235 | 3% | | Gross profit | $69,824 | $71,821 | (3%) | | Gross margin % | 34.7% | 36.8% | (2.1) pp | | Advertising and promotion expenses | $7,733 | $5,504 | 41% | | SG&A expenses | $20,532 | $16,237 | 26% | | Operating income | $41,559 | $50,080 | (17%) | | Operating margin % | 20.7% | 25.7% | (5.0) pp | | Net income | $31,032 | $37,371 | (17%) | | Diluted EPS | $1.39 | $1.69 | (17.7%) | - The decrease in operating income was primarily driven by a $5,905 thousand (12 pp) decrease in gross profit from Distilling Solutions, a $189 thousand decrease from Branded Spirits, and increases in advertising ($2,229 thousand, 4 pp) and SG&A expenses ($4,295 thousand, 9 pp), partially offset by a $4,097 thousand (8 pp) increase in Ingredient Solutions gross profit[84][85] Segment Results Examines the financial performance of MGP's Distilling Solutions, Branded Spirits, and Ingredient Solutions segments Distilling Solutions Segment Analyzes sales and gross profit performance for MGP's Distilling Solutions segment | Product/Service | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Brown goods | $68,324 | $62,145 | 10% | | White goods | $15,954 | $20,086 | (21%) | | Industrial alcohol | $10,439 | $11,495 | (9%) | | Warehouse services | $6,858 | $5,584 | 23% | | Total Distilling Solutions Sales | $113,223 | $111,509 | 2% | | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Gross profit | $33,028 | $38,933 | (15%) | | Gross margin % | 29.2% | 34.9% | (5.7) pp | - The decrease in gross profit was primarily due to higher input costs and lower sales volume for brown goods, white goods, and industrial alcohol, which were not fully offset by increased average selling prices[93] Branded Spirits Segment Analyzes sales and gross profit performance for MGP's Branded Spirits segment | Price Tier | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Ultra premium | $9,115 | $12,597 | (28%) | | Premium plus | $18,746 | $21,683 | (14%) | | Mid | $20,835 | $19,273 | 8% | | Value | $13,421 | $11,299 | 19% | | Total Branded Spirits Sales | $56,883 | $55,751 | 2% | | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Gross profit | $24,593 | $24,782 | (1%) | | Gross margin % | 43.2% | 44.5% | (1.3) pp | - Sales increases in value and mid-price tiers were primarily due to a distributor realignment, while the decrease in ultra-premium was due to timing of American whiskey brand sales[98] Ingredient Solutions Segment Analyzes sales and gross profit performance for MGP's Ingredient Solutions segment | Product Category | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Specialty wheat starches | $14,686 | $15,203 | (3%) | | Specialty wheat proteins | $11,890 | $9,419 | 26% | | Commodity wheat starches | $3,807 | $3,353 | 14% | | Commodity wheat proteins | $521 | $0 | N/A | | Total Ingredient Solutions Sales | $30,904 | $27,975 | 10% | | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Gross profit | $12,203 | $8,106 | 51% | | Gross margin % | 39.5% | 29.0% | 10.5 pp | - The significant increase in gross profit was primarily due to higher average selling prices across all product categories, partially offset by higher input costs for specialty wheat starches and proteins[105] Cash Flow, Financial Condition and Liquidity Discusses MGP's cash flow, financial condition, and liquidity position Cash Flow Summary Summarizes MGP's cash flow activities from operations, investing, and financing | Activity | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Cash provided by operating activities | $5,021 | $22,230 | $(17,209) | | Cash used in investing activities | $(16,945) | $(12,033) | $(4,912) | | Cash used in financing activities | $(4,270) | $(4,182) | $(88) | | Increase (decrease) in cash and cash equivalents | $(16,161) | $5,727 | $(21,888) | - The decrease in operating cash flow was driven by increased receivables ($19,227 thousand use), inventory ($18,707 thousand use), and a decrease in accrued expenses ($10,208 thousand use), partially offset by cash provided by income taxes payable and accounts payable[110] Capital Spending Details MGP's capital expenditures and future spending expectations | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Capital expenditures paid | $16,237 | $10,642 | - The company expects approximately $58,000 thousand in capital expenditures in 2023 for facility improvement, expansion, sustaining projects, and environmental health and safety[113] Financing Activities Outlines MGP's cash usage for financing activities, including dividends and debt payments | Activity | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Payment of dividends and dividend equivalents | $2,669 | $2,661 | | Purchase of treasury stock | $801 | $714 | | Principal payments on long-term debt | $800 | $807 | | Net cash used in financing activities | $4,270 | $4,182 | Dividends and Dividend Equivalents Reports MGP's declared quarterly dividends and total payments | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Declared per share/unit | $0.12 | $0.12 | | Total payment (in thousands) | $2,669 | $2,661 | - A subsequent quarterly dividend of $0.12 per share and per unit was declared on May 4, 2023, payable on June 2, 2023[119] Long-Term and Short-Term Debt Details MGP's total outstanding debt and debt management strategy | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total debt (net of unamortized loan fees) | $229,619 | $230,335 | Financial Condition and Liquidity (Overall) Assesses MGP's overall financial health, liquidity, and capital access - Current assets exceeded current liabilities by $373,124 thousand at March 31, 2023, largely due to $308,558 thousand in inventories[123] - The company has $400,000 thousand available under its Credit Agreement and up to $120,000 thousand potentially available under the Note Purchase Agreement for additional borrowings[123] - Principal uses of cash include input costs, salaries, capital expenditures, and investments in strategic plans like aging barreled distillate and potential M&A[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses MGP's exposure to commodity price and interest rate market risks Commodity Costs Explains MGP's management of commodity price risk for key raw materials - The company manages commodity price risk for grain, wheat flour, and natural gas through supply contracts for delivery from one to 24 months, which meet the normal purchases and sales exception under ASC 815[125] Interest Rate Exposures Analyzes the potential impact of interest rate changes on MGP's debt and interest expense - A 100 basis point increase in market interest rates would have a minimal impact on interest expense for variable-rate debt[127] - A 100 basis point increase in market rates would decrease the fair value of outstanding fixed-rate debt by $29,461 thousand, while a 100 basis point decrease would increase it by $37,162 thousand[127] Item 4. Controls and Procedures Reports on the effectiveness of MGP's disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures Details the CEO and CFO's conclusion on the effectiveness of MGP's disclosure controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2023, for ensuring timely and accurate reporting[128] Changes in Internal Control Reports on any material changes to MGP's internal control over financial reporting - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2023[129] PART II. OTHER INFORMATION Presents additional information not covered in the financial statements, including legal, risk, and equity matters Item 1. Legal Proceedings References information on MGP's legal proceedings from previous reports - Information on legal proceedings is referenced in Part I, Item 3 of the Annual Report on Form 10-K for December 31, 2022, and Note 7 of this 10-Q[131] Item 1A. Risk Factors Confirms no material changes to MGP's previously disclosed risk factors - No material changes to risk factors were reported since the Annual Report on Form 10-K for December 31, 2022[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on MGP's unregistered equity sales and issuer purchases of equity securities Issuer Purchases of Equity Securities Details MGP's equity security repurchases for tax withholding on vested RSUs | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 1, 2023 through January 31, 2023 | 4 | $106.38 | | February 1, 2023 through February 28, 2023 | 4,079 | $96.29 | | March 1, 2023 through March 31, 2023 | 4,354 | $93.66 | | Total | 8,437 | N/A | - All shares purchased were for tax withholding on vested RSUs awarded under the 2014 Plan[135] Item 3. Defaults Upon Senior Securities Confirms no defaults on MGP's senior securities during the reporting period - No defaults upon senior securities were reported[136] Item 4. Mine Safety Disclosures States that this disclosure item is not applicable to MGP's operations - This item is not applicable[137] Item 5. Other Information Indicates no additional information to report under this section - No other information to report[138] Item 6. Exhibits Lists the exhibits filed with MGP's Form 10-Q, including certifications and iXBRL data - The report includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial information formatted in iXBRL (Exhibit 101, 104)[139]