What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-03 · 96 added, 271 removed, 154 unchanged (70% of the section changed)

6 unchanged sentences

Forward looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in the forward looking statements.

A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward looking statements is included in the section titled “Risk Factors” (Item 1A) of our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A of the Form 10-Q for the quarter ended March 31, 2021.

Forward looking statements are made as of the date of this report, and we undertake no obligation to update or revise publicly any forward looking statements, whether because of new information, future events or otherwise.

RECENT DEVELOPMENTS

Merger with Luxco.

On January 22, 2021, we entered into a definitive agreement to acquire Luxco, Inc.

and its affiliated companies (“Luxco”, or “Luxco Companies”), and subsequently completed the merger on April 1, 2021.

Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage.

Following the merger, the Luxco Companies became wholly-owned subsidiaries of MGP and are included in the Branded Spirits segment.(Note 3, Business Combination for additional information).

Dryer Fire Incident.

During November 2020, we experienced a fire at the Atchison facility.

The fire damaged certain equipment in the facility’s feed drying operations and caused temporary loss of production time.

During the quarter and year to date ended September 30, 2021, we recorded a $6,404 and $16,244, respectively, partial settlement from our insurance carrier as a reduction of Cost of sales.

We are working to construct a replacement drying system.

Our insurance is expected to provide coverage for business interruption and other losses from damage to property, plant and equipment, less deductibles, but there can be no assurance to the amount or timing of possible insurance recoveries.

As the COVID-19 pandemic continues, we are monitoring the guidance from federal, state and local public health authorities and will take the necessary actions to comply with the updated guidelines.

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Consolidated Results

The table below details the consolidated results for the quarters ended September 30, 2021 and 2020:

Quarter Ended September 30,

The table below details the consolidated results for the quarters ended March 31, 2022 and 2021:

Quarter Ended March 31,

2022 2021 2022 v.

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Gross margin % 36.8 % 29.8 % 7.0 pp (a)

Advertising and promotion expenses 5,504 853 545.3

Selling, general, and administrative (“SG&A”) expenses 16,266 10,946 48.6

Other operating income, net (29) — N/A

Operating income 50,080 20,500 144.3

Operating margin % 25.7 % 18.9 % 6.8 pp

Interest expense, net (1,116) (594) (87.9)

Other income (loss), net (421) 185 (327.6)

Interest expense (1,598) (488) (227.5)

Other income, net 54 30 80.0

Income before income taxes 48,536 20,042 142.2

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(a) Percentage points (“pp”).

Sales - Sales for quarter ended September 30, 2021 were $176,611, an increase of 71.5 percent compared to the year-ago quarter, which was the result of increased sales in the Branded Spirits, Distillery Products, and Ingredient Solutions segments.

Within the Branded Spirits segment, sales were up 2,413.7 percent, due to the additional brands acquired as part of the Merger.

Within the Distillery Products segment, sales were up 15.0 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Within the Ingredient Solutions segment, sales were up 12.5 percent, primarily due to increased sales of commodity wheat starches and specialty wheat proteins (see Segment Results).

Gross profit - Gross profit for quarter ended September 30, 2021 was $57,086, an increase of 146.5 percent compared to the year-ago quarter.

The increase was driven by an increase in gross profit in Branded Spirits, Distillery Products and Ingredient Solutions segments.

Sales - Sales for quarter ended March 31, 2022 were $195,235, an increase of 80.2 percent compared to the year-ago quarter, which was the result of increased sales in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments.

Within the Branded Spirits segment, sales were up 9,680.9 percent, due to the additional brands acquired as part of the April 1, 2021 merger with Luxco, Inc.

Within the Distilling Solutions segment, sales were up 25.8 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Within the Ingredient Solutions segment, sales were up 46.2 percent, primarily due to increased sales of specialty wheat starches and proteins (see Segment Results).

Gross profit - Gross profit for quarter ended March 31, 2022 was $71,821, an increase of 122.4 percent compared to the year-ago quarter.

The increase was driven by an increase in gross profit in Branded Spirits, Distilling Solutions, and Ingredient Solutions segments.

In the Branded Spirits segment, gross profit increased by $24,696 or 28,716.3 percent.

In the Distillery Products segment, gross profit increased by $11,063, or 69.5 percent.

In the Distilling Solutions segment, gross profit increased by $10,688, or 37.8 percent.

In the Ingredient Solutions segment, gross profit increased by $4,138, or 104.3 percent (see Segment Results).

SG&A expenses - SG&A expenses for quarter ended September 30, 2021 were $24,202, an increase of 154.5 percent compared to the year-ago quarter.

Advertising and promotion expenses - Advertising and promotion expenses for quarter ended March 31, 2022 were $5,504, an increase of 545.3 percent compared to the year-ago quarter.

The increase in Advertising and promotion expenses was primarily driven by the assumption of Luxco’s Advertising and promotion expenses.

SG&A expenses - SG&A expenses for quarter ended March 31, 2022 were $16,266, an increase of 48.6 percent compared to the year-ago quarter.

The increase in SG&A expenses was primarily driven by the assumption of Luxco’s SG&A expenses.

Operating income - Operating income for quarter ended September 30, 2021 increased to $32,884 from $13,652 for quarter ended September 30, 2020, primarily due to an increase in gross profit in the Branded Spirits, Distillery Products and Ingredient Solutions segments, partially offset by the increase in the previously described SG&A expenses.

Operating income - Operating income for quarter ended March 31, 2022 increased to $50,080 from $20,500 for quarter ended March 31, 2021, primarily due to an increase in gross profit in the Branded Spirits, Distilling Solutions and Ingredient Solutions segments, partially offset by the increase in the previously described Advertising and promotion expenses and SG&A expenses.

Operating income, quarter versus quarter Operating Income Change

Operating income for quarter ended September 30, 2020

Operating income for quarter ended March 31, 2021

Increase in gross profit - Branded Spirits segment (a)

24,696 120.5 pp (b)

Increase in gross profit - Distillery Products segment (a)

Increase in gross profit - Distilling Solutions segment (a)

10,688 52.1 pp

Increase in gross profit - Ingredient Solutions segment (a)

Increase in SG&A expenses

4,138 20.2 pp

Operating income for quarter ended September 30, 2021

$ 32,884 140.9 %

(a) See segment discussion.

(b) Percentage points (“pp”).

Income tax expense - Income tax expense for quarter ended September 30, 2021 was $7,674, for an effective tax rate of 24.5 percent.

Income tax expense for the quarter ended September 30, 2020, was $2,862, for an effective tax rate of 21.6 percent.

The increase in Income tax expense, quarter versus quarter, was primarily due to higher Income before income taxes, which lessened the effects of tax credits received.

Earnings per share (“EPS”) - EPS was $1.08 for quarter ended September 30, 2021, compared to $0.61 for quarter ended September 30, 2020.

The change in EPS, quarter versus quarter, was primarily due to an increase in Operating income, partially offset by an increase in shares outstanding.

Change in basic and diluted EPS, quarter versus quarter Basic and Diluted EPS Change

Basic and diluted EPS for quarter ended September 30, 2020

Increase in operations (a)

0.88 144.3 pp (b)

Increase in other income (expense), net (a)

(0.03) (4.9) pp

Change in interest expense, net (a)

(0.02) (3.3) pp

Change in effective tax rate (0.06) (9.8) pp

Increase in shares outstanding resulting from the Merger (0.30) (49.2) pp

Basic and diluted EPS for quarter ended September 30, 2021

$ 1.08 77.1 %

(a) Item is net of tax based on the effective tax rate for the base year (2020).

(b) Percentage points (“pp”).

The table below details the consolidated results for year to date ended September 30, 2021 and 2020:

Year to Date Ended September 30,

2021 2020 2021 v.

Sales $ 459,873 $ 294,606 56.1 %

Cost of sales 313,661 227,531 37.9

Gross profit 146,212 67,075 118.0

Gross margin % 31.8 % 22.8 % 9.0 pp (a)

SG&A expenses 65,165 28,377 129.6

Operating income 81,047 38,698 109.4

Operating margin % 17.6 % 13.1 % 4.5 pp

Interest expense, net (2,708) (1,701) (59.2)

Other income (loss), net (479) 352 (236.1)

Income before income taxes 77,860 37,349 108.5

Income tax expense 18,701 8,636 116.5

Effective tax expense rate % 24.0 % 23.1 % 0.9 pp

Net income $ 59,159 $ 28,713 106.0 %

Net income margin % 12.9 % 9.7 % 3.2 pp

(a) Percentage points (“pp”).

Sales - Sales for year to date ended September 30, 2021 were $459,873, an increase of 56.1 percent compared to the year-ago period, which was the result of increased sales in the Branded Spirits, Distillery Products, and Ingredient Solutions segments.

Within the Branded Spirits segment, sales were up 3,590.4 percent, due to the additional brands acquired as part of the Merger.

Within the Distillery Products segment, sales were up 15.6 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Within the Ingredient Solutions segment, sales were up 16.5 percent, primarily due to increased sales of specialty wheat starches and proteins, and commodity wheat starches (see Segment Results).

Gross profit - Gross profit for year to date ended September 30, 2021 was $146,212, an increase of 118.0 percent compared to the year-ago period.

The increase was driven by an increase in gross profit in the Branded Spirits, Distillery Products, and Ingredient Solutions segments.

In the Branded Spirits segment, gross profit increased by $40,010 or 2,316.7 percent.

In the Distillery Products segment, gross profit increased by $37,379, or 75.0 percent.

In the Ingredient Solutions segment, gross profit increased by $1,748, or 11.3 percent (see Segment Results).

SG&A expenses - SG&A expenses for year to date ended September 30, 2021 were $65,165, an increase of 129.6 percent

compared to the year-ago period.

The increase in SG&A expenses was driven by the assumption of Luxco’s SG&A, one-time acquisition related costs, and higher incentive compensation expense.

Operating income - Operating income for year to date ended September 30, 2021 increased to $81,047 from $38,698 for year to date period ended September 30, 2020, primarily due to an increase in gross profit in the Branded Spirits, Distillery Products, and Ingredient Solutions segments.

These increases were partially offset by an increase in the above-described SG&A expenses.

Operating income, year to date versus year to date Operating Income Change

Operating income for year to date ended September 30, 2020

Increase in gross profit - Branded Spirits segment (a)

40,010 103.4 pp(b)

Increase in gross profit - Distillery Products segment (a)

Increase in Advertising and promotion expenses

(4,651) (22.7) pp

Increase in gross profit - Ingredient Solutions segment (a)

Increase in SG&A expenses

(5,320) (26.0) pp

Operating income for year to date ended September 30, 2021

Increase in Other operating income, net 29 0.1 pp

Operating income for quarter ended March 31, 2022

$ 50,080 144.3 %

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(b) Percentage points (“pp”).

Income tax expense - Income tax expense for year to date ended September 30, 2021 was $18,701, for an effective tax rate of 24.0 percent.

Income tax expense for the year to date ended September 30, 2020, was $8,636, for an effective tax rate of 23.1 percent.

The increase in Income tax expense, year to date versus year to date, was primarily due to higher Income before income taxes, which lessened the effects of tax credits received.

Earnings per share - EPS was $2.91 for year to date ended September 30, 2021, compared to $1.68 for year to date ended September 30, 2020.

EPS increased, year to date versus year to date, primarily due to an increase in operations, partially offset by an increase in shares outstanding as a result of shares issued as part of the consideration paid for the Merger.

Change in basic and diluted EPS, year to date versus year to date Basic and Diluted EPS Change

Basic and diluted EPS for year to date ended September 30, 2020

Increase in operations (a)

Income tax expense - Income tax expense for quarter ended March 31, 2022 was $11,165, for an effective tax rate of 23.0 percent.

Income tax expense for the quarter ended March 31, 2021, was $4,615, for an effective tax rate of 23.0 percent.

The increase in Income tax expense, quarter versus quarter, was due to higher Income before income taxes.

Earnings per share (“EPS”) - EPS was $1.69 for quarter ended March 31, 2022, compared to $0.90 for quarter ended March 31, 2021.

The change in EPS, quarter versus quarter, was primarily due to an increase in Operating income, partially offset by an increase in shares outstanding.

Change in basic and diluted EPS, quarter versus quarter Basic and Diluted EPS Change

Basic and diluted EPS for quarter ended March 31, 2021

Increase in Operating income (a)

1.34 148.9 pp (b)

Decrease in weighted average shares outstanding, excluding the Merger impacts

Change in income allocated to participating securities 0.01 1.1 pp

Change in interest expense, net (a)

(0.05) (5.6) pp

Increase in other income (expense), net (a)

(0.03) (1.8) pp

Change in effective tax rate (0.04) (2.4) pp

Increase in shares outstanding resulting from the Merger (0.59) (35.1) pp

Basic and diluted EPS for year to date ended September 30, 2021

Change in weighted average shares outstanding (0.51) (56.7) pp

Basic and diluted EPS for quarter ended March 31, 2022

$ 1.69 87.7 %

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SEGMENT RESULTS

Distillery Products

The following tables show selected financial information for the Distillery Products segment for the quarters ended September 30, 2021 and 2020.

DISTILLERY PRODUCTS SALES

Quarter Ended September 30, Quarter versus Quarter Sales Change Increase/(Decrease)

Distilling Solutions

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended March 31, 2022 and 2021.

DISTILLING SOLUTIONS SALES

Quarter Ended March 31, Quarter versus Quarter Sales Change Increase/(Decrease)

2022 2021 $ Change % Change

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Warehouse services 5,584 4,101 1,483 36.2

Total Distillery Products $ 91,044 $ 79,173 $ 11,871 15.0 %

Total Distilling Solutions $ 111,509 $ 88,624 $ 22,885 25.8 %

Change in Quarter versus Quarter Sales Attributed to:

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Other Financial Information

Quarter Ended September 30, Quarter versus Quarter Increase / (Decrease)

Quarter Ended March 31, Quarter versus Quarter Increase / (Decrease)

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Distillery Products for the quarter ended September 30, 2021 increased by $11,871, or 15.0 percent, compared to the prior year quarter.

Sales of brown goods and white goods within premium beverage alcohol, fuel grade alcohol, and warehouse services increased while industrial alcohol, and distillers feed and related co-products decreased compared to the prior year quarter.

The increase in sales of brown goods, white goods and fuel grade alcohol was driven by higher sales volume and higher average selling price.

These increases were offset by a decrease in sales of industrial alcohol which was driven by lower sales volume due to the discontinuing of the ICP third party sales and marketing services.

The decrease in sales of distillers feed and related co-products was due to lower average selling price, partially offset by higher sales volume, both of which are results of the Dryer Fire Incident (see Note 8, Commitments and Contingencies for further details).

Total sales of Distilling Solutions for quarter ended March 31, 2022 increased by $22,885, or 25.8 percent, compared to the prior year quarter.

Sales of brown goods within premium beverage alcohol, distillers feed and related co-products, white goods within premium beverage alcohol, warehouse services, and fuel grade alcohol increased while industrial alcohol decreased compared to the prior year quarter.

The increase in sales of brown goods was driven by higher sales volume and higher average selling price.

The increase in sales of distillers feed and related co-products was due to higher average selling price, partially offset by lower sales volumes, both of which primarily resulted from the 2020 Dryer Fire Incident.

The increase in sales of white goods and fuel grade alcohol was driven by higher average selling price and higher sales volume.

These increases were partially offset by a decrease in sales of industrial alcohol which was driven by lower sales volume due to the discontinuing of ICP third party sales and marketing services, partially offset by higher average selling price.

Gross profit increased quarter versus quarter by $10,688, or 37.8 percent.

Gross margin for the quarter ended September 30, 2021 increased to 29.6 percent from 20.1 percent for the prior year quarter.

The increase in gross profit was primarily due to higher sales volume and higher average selling price on brown goods.

Additionally, the increase in gross profit was also due to higher average selling price on industrial alcohol, white goods and fuel grade alcohol, partially offset by higher input costs of industrial alcohol and white goods.

The following tables show selected financial information for the Distillery Products segment for the year to date ended September 30, 2021 and 2020.

DISTILLERY PRODUCTS SALES

Year to Date Ended September 30, Year to Date versus Year to Date

Sales Change Increase/(Decrease)

2021 2020 $ Change % Change

Brown Goods $ 129,600 $ 86,038 $ 43,562 50.6 %

White Goods 56,049 47,922 8,127 17.0

Premium beverage alcohol 185,649 133,960 51,689 38.6

Industrial alcohol 46,896 64,032 (17,136) (26.8)

Food grade alcohol 232,545 197,992 34,553 17.5

Fuel grade alcohol 10,862 3,970 6,892 173.6

Distillers feed and related co-products 13,660 19,889 (6,229) (31.3)

Warehouse services 12,949 11,641 1,308 11.2

Total Distillery Products $ 270,016 $ 233,492 $ 36,524 15.6 %

Change in Year to Date versus Year to Date Sales Attributed to:

Net Price/Mix (c)

Premium beverage alcohol 38.6% 31.1% 7.5%

Other Financial Information

Year to Date Ended September 30, Year to Date versus Year to Date Increase / (Decrease)

2021 2020 $ Change % Change

Gross profit $ 87,211 $ 49,832 $ 37,379 75.0 %

Gross margin % 32.3 % 21.3 % 11.0 pp (d)

(a) Total sales changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

Total sales of Distillery Products for year to date ended September 30, 2021 increased by $36,524, or 15.6 percent compared to the year-ago period.

The increase in sales of brown goods, white goods and fuel grade alcohol was driven by higher sales volume and higher average selling price.

These increases were partially offset by a decrease in sales of industrial alcohol which was driven by lower sales volume due to the discontinuing of the ICP third party sales and marketing services, partially offset by higher average selling price.

Gross profit for year to date ended September 30, 2021 increased by $37,379, or 75.0 percent compared to the year-ago period.

Gross margin for year to date ended September 30, 2021 increased to 32.3 percent from 21.3 percent for the prior year period.

The increase in gross profit was primarily due to higher sales volume on brown goods as well as higher average selling price on industrial alcohol, white goods and fuel grade alcohol.

The increase in gross profit was partially offset by higher input costs of industrial alcohol, white goods and brown goods as well as lower average selling price on distillers feed and related co-products.

Gross margin for the quarter ended March 31, 2022 increased to 34.9 percent from 31.9 percent for the prior year quarter.

The increase in gross profit was primarily due to higher average selling price and higher sales volume on brown goods as well higher average selling price of distillers feed and related co-products and white goods.

These increases were partially offset by higher input costs of distillers feed and related co-products, industrial alcohol and white goods.

Branded Spirits

The following tables show selected financial information for the Branded Spirits segment for the quarters ended September 30, 2021 and 2020.

The following tables show selected financial information for the Branded Spirits segment for the quarters ended March 31, 2022 and 2021.

BRANDED SPIRITS SALES

Quarter Ended September 30, Quarter versus Quarter Sales Change Increase/(Decrease)

Quarter Ended March 31, Quarter versus Quarter Sales Change Increase/(Decrease)

2022 2021 $ Change % Change

Ultra premium $ 12,597 $ 126 $ 12,471 9,897.6 %

Super premium 2,946 411 2,535 616.8

Premium 6,140 26 6,114 23,515.4

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Other Financial Information

Quarter Ended September 30, Quarter versus Quarter Increase / (Decrease)

Quarter Ended March 31, Quarter versus Quarter Increase / (Decrease)

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Branded Spirits for the quarter ended September 30, 2021 increased by $59,112, or 2,413.7 percent compared to the prior year quarter.

Sales of value, mid, ultra premium, premium, and other increased compared to the prior year quarter, primarily due to the additional brands acquired as part of the Merger.

Total sales of Branded Spirits for quarter ended March 31, 2022 increased by $55,181, or 9,680.9 percent compared to the prior year quarter.

Sales across all pricing tiers increased compared to the prior year quarter, primarily due to the additional brands acquired as part of the April 1, 2021 Merger.

Gross profit increased quarter versus quarter by $24,696, or 28,716.3 percent.

Gross margin for the quarter ended September 30, 2021 decreased 19.0 percent to 37.7 percent from 56.7 percent for the prior year quarter.

The increase in gross profit was primarily due to the additional brands acquired as part of the Merger.

The decrease in gross margin was due to sales price mix, as the vast majority of the Company’s branded spirits sales pre-merger were in the ultra premium category.

The following tables show selected financial information for the Branded Spirits segment for year to date ended September 30, 2021 and 2020.

BRANDED SPIRITS SALES

Year to Date Ended September 30, Year to Date versus Year to Date Sales Change Increase/(Decrease)

2021 2020 $ Change % Change

Ultra Premium $ 23,692 $ 3,049 $ 20,643 677.0 %

Premium 12,692 243 12,449 5,123.1 %

Mid 34,894 — 34,894 n/a

Value 40,001 — 40,001 n/a

Other 11,278 29 11,249 38,789.7 %

Total Branded Spirits $ 122,557 $ 3,321 $ 119,236 3,590.4 %

Change in Year to Date versus Year to Date Sales Attributed to:

Net Price/Mix (c)

Total Branded Spirits 3,590.4% 22,743.4% (19,153.0)%

Other Financial Information

Year to Date Ended June 30, Year to Date versus Year to Date Increase / (Decrease)

2021 2020 $ Change % Change

Gross profit $ 41,737 $ 1,727 $ 40,010 2,316.7 %

Gross margin % 34.1 % 52.0 % (17.9) pp (d)

(a) Total sales changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

Total sales of Branded Spirits for year to date ended September 30, 2021 increased by $119,236, or 3,590.4 percent compared to the year-ago period.

Sales of value, mid, ultra premium, premium, and other increased compared to the year-ago period, primarily due to the additional brands acquired as part of the Merger.

Gross profit for year to date ended September 30, 2021 increased by $40,010, or 2,316.7 percent.

Gross margin for year to date ended September 30, 2021 decreased 17.9 percent to 34.1 percent from 52.0 percent for the prior year.

Gross margin for the quarter ended March 31, 2022 increased to 44.5 percent from 15.1 percent for the prior year quarter.

The increase in gross profit was primarily due to the additional brands acquired as part of the Merger.

The decrease in gross margin was due to sales price mix, as the vast majority of the Company’s branded spirits sales pre-merger were in the ultra premium category.

Gross profit was reduced during year to date ended September 30, 2021, due to a required step up in value due to purchase accounting related to the Merger.

Of the purchase accounting step up, $2,529 was associated with marking the finished goods inventory to fair value, which fully flowed through in the second quarter and is not expected to recur in future periods.

Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the quarter ended September 30, 2021 and 2020.

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended March 31, 2022 and 2021.

INGREDIENT SOLUTIONS SALES

Quarter Ended September 30, Quarter versus Quarter Sales Change Increase / (Decrease)

Quarter Ended March 31, Quarter versus Quarter Sales Change Increase / (Decrease)

2022 2021 $ Change % Change

2 unchanged sentences

Commodity wheat starches 3,353 2,283 1,070 46.9

Commodity wheat proteins 248 148 100 67.6

Commodity wheat proteins — 578 (578) N/A

Total Ingredient Solutions $ 27,975 $ 19,129 $ 8,846 46.2 %

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Other Financial Information

Quarter Ended September 30, Quarter versus Quarter Increase / (Decrease)

Quarter Ended March 31, Quarter versus Quarter Increase / (Decrease)

2022 2021 $ Change % Change

5 unchanged sentences

(d) Percentage points (“pp”).

Total Ingredient Solutions sales for quarter ended September 30, 2021 increased by $2,664, or 12.5 percent, compared to the prior year quarter.

Quarter versus quarter, this increase was primarily driven by higher sales of commodity wheat starches, specialty wheat proteins and starches due to higher sales volume and higher average selling price.

Total Ingredient Solutions sales for quarter ended March 31, 2022 increased by $8,846, or 46.2 percent, compared to the prior year quarter.

The increase was primarily driven by higher sales of specialty wheat starches and proteins, and commodity wheat starches due to higher sales volume and higher average selling price.

These increases were partially offset by a decrease in sales volume of commodity wheat proteins.

Gross profit increased quarter versus quarter by $4,138, or 104.3 percent.

Gross margin for the quarter ended September 30, 2021 increased to 28.7 percent from 27.4 percent for the prior year quarter.

The increase in gross profit was primarily driven by higher average selling price of specialty wheat proteins and starches, and commodity wheat starches, partially offset by higher input costs for specialty wheat proteins and starches.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date September 30, 2021 and 2020.

INGREDIENT SOLUTIONS SALES

Year to Date Ended September 30, Year to Date versus Year to Date Sales Change Increase/(Decrease)

2021 2020 $ Change % Change

Specialty wheat starches $ 35,051 $ 30,938 $ 4,113 13.3 %

Specialty wheat proteins 23,299 20,372 2,927 14.4

Commodity wheat starches 7,572 5,247 2,325 44.3

Commodity wheat proteins 1,378 1,236 142 11.5

Total Ingredient Solutions $ 67,300 $ 57,793 $ 9,507 16.5 %

Change in Year to Date versus Year to Date Sales Attributed to:

Net Price/Mix (c)

Total Ingredient Solutions 16.5% 13.0% 3.5%

Other Financial Information

Year to Date Ended September 30, Year to Date versus Year to Date Increase / (Decrease)

2021 2020 $ Change % Change

Gross profit $ 17,264 $ 15,516 $ 1,748 11.3 %

Gross margin % 25.7 % 26.8 % (1.1) pp (d)

(a) Total sales changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

Total Ingredient Solutions sales for year to date ended September 30, 2021 increased by $9,507, or 16.5 percent, compared to the prior year period.

The increase in Ingredient Solutions sales was primarily driven by higher sales of specialty wheat starches and proteins and commodity wheat starches, primarily due to higher sales volume and higher average selling price.

Gross profit increased by $1,748, or 11.3 percent for year to date ended September 30, 2021 compared to the prior year period.

Gross margin for the year to date ended September 30, 2021 decreased to 25.7 percent from 26.8 percent for the prior year period.

The increase in gross profit was primarily driven by higher sales volumes and average selling price of specialty wheat starches and proteins partially offset by higher input costs.

Gross margin for the quarter ended March 31, 2022 increased to 29.0 percent from 20.7 percent for the prior year quarter.

The increase in gross profit was primarily driven by higher average selling price and higher sales volume of specialty wheat proteins and starches and commodity wheat starches, partially offset by higher input costs for specialty wheat starches and commodity starches.

Gross profit in the prior year quarter was impacted by a temporary curtailment of natural gas usage due to extreme weather conditions which caused the Company to shut down the Atchison facilities for several days.

CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.

Operating cash flow and debt through our Credit Agreement and Note Purchase Agreement (Note 5) provide the primary sources of cash to fund operating needs and capital expenditures.

Operating cash flow and borrowings through our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement (Note 5) provide the primary sources of cash to fund operating needs and capital expenditures.

These same sources of cash are used to fund shareholder dividends and other discretionary uses.

Our overall liquidity reflects our strong business results and an effective cash management strategy that takes into account liquidity management, economic factors, and tax considerations.

We expect our sources of cash, including our Credit Agreement and Note Purchase Agreement, to be adequate to provide for budgeted capital expenditures and anticipated operating requirements for the foreseeable future.

We expect our sources of cash to be adequate to provide for budgeted capital expenditures, potential merger or acquisitions, and anticipated operating requirements for the foreseeable future.

Cash Flow Summary

Year to Date Ended September 30, Changes, year versus year Increase / (Decrease)

Quarter Ended March 31, Changes, year versus year Increase / (Decrease)

Cash provided by operating activities $ 22,230 $ 16,990 $ 5,240

Cash used in investing activities (12,033) (13,340) 1,307

Cash provided by financing activities 112,883 2,713 110,170

Cash used in financing activities (4,182) (2,726) (1,456)

Effect of exchange rate changes on cash (288) — (288)

Increase (decrease) in cash and cash equivalents $ (5,500) $ 16,657 $ (22,157)

Cash decreased $5,500 for year to date ended September 30, 2021, compared to an increase of $16,657 for year to date ended September 30, 2020, for a net decrease in cash of $22,157, period versus period.

Increase in cash and cash equivalents $ 5,727 $ 924 $ 4,803

Cash increased $5,727 for quarter ended March 31, 2022, compared to an increase of $924 for quarter ended March 31, 2021, for a net increase in cash of $4,803, period versus period.

Operating Activities.

Cash provided by operating activities for year to date ended September 30, 2021 was $70,785.

The cash provided by operating activities resulted primarily from net income of $59,159, adjustments for non-cash or non-operating charges of $19,149 including, depreciation and amortization, and share-based compensation as well as cash used in operating assets and liabilities of $7,523.

The primary drivers of the changes in operating assets and liabilities were $7,588 use of cash related to an increase in inventories, primarily barreled distillate, $6,678 use of cash related to decrease in accounts payable, and $5,593 use of cash related to accounts receivables, net due to increased sales during the quarter as well as an increase in insurance recoveries receivable.

These uses of cash were partially offset by $15,859 cash provided by accrued expenses and other primarily related to legally committed insurance recovery amounts obtained prior to contingencies related to the insurance claim being resolved.

Cash provided by operating activities for year to date ended September 30, 2020 was $29,457.

Cash provided by operating activities for quarter ended March 31, 2022 was $22,230.

The cash provided by operating activities resulted primarily from net income of $37,371, adjustments for non-cash or non-operating charges of $6,971, including depreciation and amortization, and share-based compensation, partially offset by cash used in operating assets and liabilities of $22,112.

The primary drivers of the changes in operating assets and liabilities were $13,696 use of cash related to an increase in inventories, primarily barreled distillate, $9,601 use of cash related to increased accounts receivables, net due to increased sales during the quarter, and $8,896 use of cash related accrued expenses and other primarily related to an incentive compensation payout.

These uses of cash were partially offset by $5,437 cash provided by an increase in income taxes payable and $4,638 cash provided by accounts payable.

Cash provided by operating activities for quarter ended March 31, 2021 was $16,990.

The cash provided by operating activities resulted primarily from net income of $15,427, adjustments for non-cash or non-operating charges of $5,892, including depreciation and amortization, and share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of $4,329.

The primary drivers of the changes in operating assets and liabilities were $11,683 use of cash related to an increase in accounts receivables, net due to timing of customer payments as well as increased sales during the year, $5,673 use of cash related to an increase in inventories, primarily barreled distillate, and $2,032 use of cash related to an increase in prepaid expenses due to an increase in prepaid insurance and vendor deposits.

These uses of cash were partially offset by $5,647 cash provided by accrued expenses primarily related to incentive compensation expenses and $2,057 cash provided by accounts payable related to the timing cash disbursements.

The primary drivers of the changes in operating assets and liabilities were $8,278 use of cash related to a decrease in accrued expenses primarily related to incentive compensation expenses, $4,348 use of cash related to an increase in accounts receivables, net due to increased sales during the quarter as well as an increase in insurance recoveries, and $1,084 use of cash related to an increase in prepaid expenses due to an increase in prepaid insurance.

These uses of cash were partially offset by $5,237 cash provided by an increase in income taxes payable and $4,924 use of cash related to an increase in inventories, primarily barreled distillate.

Investing Activities.

Cash used in investing activities for year to date ended September 30, 2021 was $189,166, which primarily resulted from $149,613 related to the Merger of Luxco and additions to property, plant and equipment of $37,257 (see Capital Spending).

Cash used in investing activities for year to date ended September 30, 2020 was $15,513, which resulted from additions to property, plant and equipment of $13,507 (see Capital Spending) and an increase related to the acquisition of a business of $2,750, partially offset by proceeds from sale of property of $688.

Cash used in investing activities for quarter ended March 31, 2022 was $12,033, which primarily resulted from additions to property, plant and equipment of $10,642 (see Capital Spending).

Cash used in investing activities for quarter ended March 31, 2021 was $13,340, which primarily resulted from additions to property, plant and equipment of $12,059 (see Capital Spending).

Capital Spending.

We manage capital spending to support our business growth plans.

Investments in property, plant and equipment were $37,257 and $13,507 for year to date ended September 30, 2021 and 2020, respectively.

Adjusted for the change in capital expenditures in accounts payable for year to date ended September 30, 2021 and 2020, of $(3,375) and $(2,654), respectively, total capital expenditures were $33,882 and $10,853, respectively.

We expect approximately $51,500 in capital expenditures in 2021, excluding any insurance recoveries.

Of the $51,500 expected capital expenditures $31,400 is allocated for the replacement of the feed dryer system.

The remainder is for facility improvement and expansion, facility sustenance projects, and environmental health and safety projects.

We have incurred $5,074 and $9,821 of capital expenditures and have paid $10,642 and $12,059 for capital expenditures for quarter ended March 31, 2022 and 2021, respectively.

The difference between the amount of capital expenditures incurred and amount paid is due to the change in capital expenditures in accounts payable.

We expect approximately $47,200 in capital expenditures in 2022 which will be used for facility improvement and expansion, facility sustenance projects, and environmental health and safety projects.

Financing Activities.

Cash provided by financing activities for year to date ended September 30, 2021 was $112,883, due to net proceeds from debt of $208,521 (see Long-Term and Short-Term Debt), partially offset by $87,509 payment on assumed debt as part of the Merger, payments of dividends and dividend equivalents of $7,362 (see Dividends and Dividend Equivalents) and purchases of treasury stock of $767 (see Treasury Purchases and Share Repurchases).

Cash provided by financing activities for year to date ended September 30, 2020 was $2,713, primarily due to net proceeds from debt of $13,252 (See Long-Term and Short-Term Debt), payments of dividends and dividend equivalents of $6,144 (see Dividends and Dividend Equivalents) and purchases of treasury stock of $4,395 (see Treasury Purchases and Share Repurchases).

Cash used in financing activities for quarter ended March 31, 2022 was $4,182, due to payments of dividends and dividend equivalents of $2,661 (see Dividends and Dividend Equivalents), net payments on debt of $807 (see Long-Term and Short-Term Debt) and purchases of treasury stock of $714 (see Treasury Purchases and Share Repurchases).

Cash provided by financing activities for quarter ended March 31, 2021 was $2,726, primarily due to payments of dividends and dividend equivalents of $2,052 (see Dividends and Dividend Equivalents) and purchases of treasury stock of $674 (see Treasury Purchases and Share Repurchases).

Treasury Purchases.

38,059 RSUs vested and converted to common shares for employees during year to date ended September 30, 2021, of which we withheld and purchased for treasury 11,885 shares valued at $767 to cover payment of associated withholding taxes.

30,404 RSUs vested and converted to common shares for employees during year to date ended September 30, 2020, of which we withheld and purchased for treasury 10,051 shares valued at $342 to cover payment of associated withholding taxes.

29,346 RSUs vested and converted to common shares for employees during quarter ended March 31, 2022, of which we withheld and purchased for treasury 9,021 shares valued at $711 to cover payment of associated withholding taxes.

33,829 RSUs vested and converted to common shares for employees during quarter ended March 31, 2021, of which we withheld and purchased for treasury 10,376 shares valued at $674 to cover payment of associated withholding taxes.

Share Repurchases.

On February 25, 2019, our Board of Directors approved a $25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022.

Under the share repurchase program, we can repurchase stock from time to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws.

This share repurchase program may be modified, suspended, or terminated by us at any time without prior notice.

The Company did not repurchase any shares during the year to date ended September 30, 2021 and has $20,947 remaining under the share repurchase plan.

During year to date ended September 30, 2020, we repurchased approximately 159,104 shares of MGP Common Stock for $4,053.

The Company did not repurchase any shares during the quarter ended March 31, 2022 and the program expired on February 27, 2022.

Dividends and Dividend Equivalents

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February 22, 2022 March 11, 2022 March 25, 2022 $ 0.12 $ 0.12 $ 2,638 $ 23 $ 2,661

May 3, 2021 May 21, 2021 June 4, 2021 0.12 0.12 2,635 20 2,655

August 2, 2021 August 20, 2021 September 3, 2021 0.12 0.12 2,635 20 2,655

$ 0.36 $ 0.36 $ 7,303 $ 59 $ 7,362

February 23, 2021 March 12, 2021 March 26, 2021 $ 0.12 $ 0.12 $ 2,033 $ 19 $ 2,052

April 28, 2020 May 22, 2020 June 5, 2020 0.12 0.12 2,027 14 2,041

July 28, 2020 August 21, 2020 September 4, 2020 0.12 0.12 2,029 14 2,043

$ 0.36 $ 0.36 $ 6,103 $ 41 $ 6,144

(a) Dividend equivalent payments on unvested participating securities.

(b) Includes estimated forfeitures.

On November 1, 2021, our Board of Directors declared a quarterly dividend payable to stockholders of record as of November 19, 2021, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of November 19, 2021, of $0.12 per share and per unit, payable on December 3, 2021.

On May 5, 2022, our Board of Directors declared a quarterly dividend payable to stockholders of record as of May 20, 2022, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of May 20, 2022, of $0.12 per share and per unit, payable on June 3, 2022.

Long-Term and Short-Term Debt.

We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including brand development and share repurchase activities) and the overall cost of capital.

Total debt was $247,677 (net of unamortized loan fees of $1,733) at September 30, 2021, and $39,871 (net of unamortized loan fees of $129) at December 31, 2020.

Total debt was $232,677 (net of unamortized loan fees of $6,369) at March 31, 2022, and $233,399 (net of unamortized loan fees of $6,454) at December 31, 2021.

Financial Condition and Liquidity.

Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and investments supporting our strategic plan, such as the aging of barreled distillate.

Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels.

Our principal sources of cash are product sales and borrowing on our Credit Agreement and Note Purchase Agreement.

Under our Credit Agreement and Note Purchase Agreement, we must meet certain financial covenants and restrictions, and at September 30, 2021, we met those covenants and restrictions.

At September 30, 2021, our current assets exceeded our current liabilities by $265,430, largely due to our inventories, at cost, of $239,312.

At September 30, 2021, our cash balance was $16,162 and we have used our Credit Agreement and Note Purchase Agreement for liquidity purposes, with $190,000 remaining for additional borrowings.

Our principal sources of cash are product sales and borrowing on our various debt agreements.

Under our debt agreements, we must meet certain financial covenants and restrictions, and at March 31, 2022, we met those covenants and restrictions.

At March 31, 2022, our current assets exceeded our current liabilities by $310,802, largely due to our inventories, at cost, of $259,517.

At March 31, 2022, our cash balance was $27,295 and we have used our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement for liquidity purposes, with $400,000 remaining for additional borrowings.

We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations.

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In addition, we have strong operating results such that financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.

On April 1, 2021, the Company completed the merger with Luxco.

The aggregate consideration paid by the Company in connection with the merger was $237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”).

The Merger Consideration is subject to customary purchase price adjustments, including working capital, a portion of which may be paid in common stock.

The cash portion of the Merger Consideration, the repayment of assumed debt and transaction-related expenses were financed with a $242,300 borrowing under the Credit Agreement.

We anticipate having sufficient cash flows to support our short-term liquidity and operating needs.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis