MGP Ingredients(MGPI) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) The unaudited statements show significant profitability growth driven by higher sales and detail the definitive agreement to acquire Luxco, Inc Condensed Consolidated Statements of Income (Q1 2021 vs Q1 2020) (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Sales | $108,323 | $99,082 | | Gross Profit | $32,299 | $23,211 | | Operating Income | $20,500 | $13,708 | | Net Income | $15,427 | $9,842 | | Basic and Diluted EPS | $0.90 | $0.57 | Condensed Consolidated Balance Sheets (As of March 31, 2021) (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $229,548 | $222,283 | | Total Assets | $381,102 | $366,575 | | Total Current Liabilities | $55,003 | $53,329 | | Total Liabilities | $102,591 | $104,049 | | Total Stockholders' Equity | $278,511 | $262,526 | Condensed Consolidated Statements of Cash Flows (Q1 2021 vs Q1 2020) (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,990 | $542 | | Net cash used in investing activities | ($13,340) | ($8,189) | | Net cash (used in) provided by financing activities | ($2,726) | $46,997 | | Increase in cash and cash equivalents | $924 | $39,350 | - On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, Inc for $237.5 million in cash and 5,007,833 shares of common stock, with the merger completed on April 1, 2021[44][45] Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated sales rose 9.3% and operating income grew 49.6%, driven by strong performance in the Distillery Products segment - The acquisition of Luxco, Inc was completed on April 1, 2021, for aggregate consideration of $237.5 million in cash and approximately 5 million shares of common stock, expected to significantly increase MGP's scale in the branded-spirits sector[84] Consolidated Results Summary (Q1 2021 vs Q1 2020) (in thousands) | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Sales | $108,323 | $99,082 | 9.3% | | Gross Profit | $32,299 | $23,211 | 39.2% | | Operating Income | $20,500 | $13,708 | 49.6% | | Net Income | $15,427 | $9,842 | 56.7% | - Distillery Products segment sales increased 11.5% YoY, driven by a 49.3% increase in brown goods sales, with segment gross profit growing 55.2% to $28.3 million[101][103][104] - Ingredient Solutions segment sales were flat, but gross profit decreased by 20.0% to $4.0 million due to a temporary production shutdown caused by extreme weather[106][109] - Cash provided by operating activities increased significantly to $17.0 million in Q1 2021 from $0.5 million in Q1 2020, primarily due to higher net income and favorable changes in working capital[112][113] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to commodity price and interest rate risks, managed through supply contracts and fixed-rate debt - The company is exposed to market price volatility for key input costs, including grain, wheat flour, and natural gas, and uses supply contracts for future delivery to manage this risk[131] - A hypothetical 100 basis point increase in market interest rates would have no impact on the company's variable-rate interest expense but would decrease the fair value of its outstanding fixed-rate debt by $1,543 thousand[133] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[135] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[136] PART II. OTHER INFORMATION Legal Proceedings The company faces lawsuits related to aged whiskey sales forecasts and is managing the aftermath of a facility fire and a ransomware attack - The company is defending against consolidated putative class action and derivative lawsuits alleging false and misleading statements regarding forecasts for aged whiskey sales[66][67] - The company is managing the aftermath of a November 2020 feed dryer fire and a May 2020 ransomware cyber-attack, with insurance expected to cover a portion of the losses[64][65] Risk Factors Key risks include operational interruptions, acquisition integration, commodity price volatility, the COVID-19 pandemic, and cybersecurity threats - Operational risks include interruptions at facilities, such as the November 2020 dryer fire, and catastrophic events that could damage significant inventory of aged whiskeys[140][141][143] - The company faces risks from the successful integration of acquisitions, such as the recent Luxco acquisition, including achieving synergies, retaining key personnel, and managing increased debt[169][171] - Profitability is significantly affected by volatile input costs like grain, wheat flour, agave, and natural gas, which may not be fully recoverable through price increases[145][146] - The ongoing COVID-19 pandemic poses risks of operational disruption, supply chain interruptions, and reduced consumer demand[174] - Cybersecurity threats, such as the ransomware attack experienced in May 2020, pose a significant risk to IT systems, data confidentiality, and business operations[162][164] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, and share repurchases were limited to covering taxes on vested RSUs - There were no unregistered sales of equity securities in Q1 2021[206] Issuer Purchases of Equity Securities (Q1 2021) (dollar values in thousands) | Period | Total Shares Purchased | Average Price Paid per Share | Publicly Announced Program Purchases | Remaining Authorization Value | | :--- | :--- | :--- | :--- | :--- | | Jan 2021 | 12 | $49.07 | $0 | $20,947,113 | | Feb 2021 | 1,635 | $67.16 | $0 | $20,947,113 | | Mar 2021 | 8,729 | $64.58 | $0 | $20,947,113 | | Total | 10,376 | | $0 | | - All shares purchased were vested RSUs withheld to cover employee withholding taxes, not open market repurchases under the publicly announced plan[208] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[210] Mine Safety Disclosures This item is not applicable to the company - Not applicable[211] Other Information The company reported no other information for this item - None[212] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements related to the Luxco acquisition and credit facilities - Key exhibits filed include the merger agreement for the Luxco acquisition, related shareholder and registration rights agreements, and amendments to credit facilities[214]