What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 132 added, 125 removed, 299 unchanged (46% 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, 2021 and the additional risk factors included in this Form 10-Q in Part II, Item 1A.

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.

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Consolidated Results

The table below details the consolidated results for the quarters ended June 30, 2022 and 2021:

Quarter Ended June 30,

The table below details the consolidated results for the quarters ended September 30, 2022 and 2021:

Quarter Ended September 30,

2022 2021 2022 v.

5 unchanged sentences

Selling, general, and administrative (“SG&A”) expenses 17,904 18,527 (3)

Other operating (income) expense, net (6) — N/A

Other operating (income) expense, net 1 11 (91)

Operating income 33,864 32,884 3

8 unchanged sentences

(a) Percentage points (“pp”).

Sales - Sales for quarter ended June 30, 2022 were $194,982, an increase of 11 percent compared to the year-ago quarter, which was the result of increased sales in the Distilling Solutions and Ingredient Solutions segments, partially offset by decreased sales in the Branded Spirits segment.

Within the Distilling Solutions segment, sales were up 19 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Within the Ingredient Solutions segment, sales were up 21 percent, primarily due to increased sales of specialty wheat starches and proteins.

Within the Branded Spirits segment, sales were down 3 percent, due to decreased sales of mid and other price tiers (see Segment Results).

Gross profit - Gross profit for quarter ended June 30, 2022 was $59,224, an increase of 4 percent compared to the year-ago quarter.

Sales - Sales for quarter ended September 30, 2022 were $201,146, an increase of 14 percent compared to the year-ago quarter, which was the result of increased sales in the Distilling Solutions, Ingredient Solutions and Branded Spirits segments.

Within the Distilling Solutions segment, sales were up 19 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol and distillers feed and related co-products.

Within the Ingredient Solutions segment, sales were up 24 percent, primarily due to increased sales of specialty wheat starches and commodity wheat starches.

Within the Branded Spirits segment, sales were up 2 percent, primarily due to increased sales of brands in the ultra premium price tier (see Segment Results).

Gross profit - Gross profit for quarter ended September 30, 2022 was $59,048, an increase of 3 percent compared to the year-ago quarter.

The increase was driven by an increase in gross profit in the Branded Spirits and Ingredient Solutions segments, partially offset by a decrease in Distilling Solutions segment gross profit.

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In the Distilling Solutions segment, gross profit declined by $1,064, or 4 percent (see Segment Results).

Advertising and promotion expenses - Advertising and promotion expenses for quarter ended June 30, 2022 were $6,065, an increase of 80 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the ultra premium, super premium and premium price tiers.

SG&A expenses - SG&A expenses for quarter ended June 30, 2022 were $17,859, a decrease of 31 percent compared to the year-ago quarter, primarily due to the one-time acquisition costs in 2021 related to the Merger with Luxco that did not recur in 2022.

Operating income - Operating income for quarter ended June 30, 2022 increased to $35,306 from $27,663 for quarter ended June 30, 2021, primarily due to an increase in gross profit in the Branded Spirits and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses.

Advertising and promotion expenses - Advertising and promotion expenses for quarter ended September 30, 2022 were $7,279, an increase of 29 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the ultra premium, super premium and premium price tiers.

SG&A expenses - SG&A expenses for quarter ended September 30, 2022 were $17,904, a decrease of 3 percent compared to the year-ago quarter, primarily due to lower incentive compensation expense and one-time acquisition costs in 2021 related to the Merger with Luxco that did not recur in 2022.

Operating income - Operating income for quarter ended September 30, 2022 increased to $33,864 from $32,884 for quarter ended September 30, 2021, primarily due to an increase in gross profit in the Branded Spirits and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses.

These were partially offset by an increase in the previously described Advertising and promotion expenses and a decrease in gross profit in the Distilling Solutions segment.

Operating income, quarter versus quarter Operating Income Change

Operating income for quarter ended June 30, 2021

Operating income for quarter ended September 30, 2021

Increase in gross profit - Branded Spirits segment (a)

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Decrease in SG&A expenses

Increase in Other operating income (expense), net 6 — pp

Operating income for quarter ended June 30, 2022

$ 35,306 28 %

Change in Other operating income (expense), net 10 — pp

Operating income for quarter ended September 30, 2022

(a) See segment discussion.

(b) Percentage points (“pp”).

Income tax expense - Income tax expense for quarter ended June 30, 2022 was $7,339, for an effective tax rate of 22.4 percent.

Income tax expense for the quarter ended June 30, 2021, was $6,412, for an effective tax rate of 24.2 percent.

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

The decrease in effective tax rate, quarter versus quarter, was due to favorable tax benefits, related to certain tax credits concerning our capital spend, and related to our foreign operations.

Earnings per common share (“EPS”) - EPS was $1.15 for quarter ended June 30, 2022, compared to $0.91 for quarter ended June 30, 2021.

The change in EPS, quarter versus quarter, was primarily due to an increase in Operating income.

Income tax expense - Income tax expense for quarter ended September 30, 2022 was $7,533, for an effective tax rate of 24.2 percent.

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

The decrease in Income tax expense, quarter versus quarter, was due primarily to lower Income before income taxes.

The decrease in effective tax rate, quarter versus quarter, was due primarily to favorable tax benefits, related to certain tax credits concerning our capital spend.

Earnings per common share (“EPS”) - Basic EPS was $1.07 for quarter ended September 30, 2022, compared to $1.08 for quarter ended September 30, 2021.

The change in Basic EPS, quarter versus quarter, was primarily due to a change in Other income (expense), net and a change in interest expense, net, partially offset by an increase in Operating income.

Dilutive EPS was $1.06 for the quarter ended September 30, 2022, compared to $1.08 for the quarter ended September 30, 2021.

The change in Diluted EPS, quarter versus quarter, was primarily due to the same changes as Basic EPS as well as the impact of dilutive shares outstanding.

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

Basic and diluted EPS for quarter ended June 30, 2021

Basic and diluted EPS for quarter ended September 30, 2021

Increase in Operating income (a)

0.03 3 pp (b)

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

Change in Other income (expense), net (a)

(0.03) (3) pp

Change in effective tax rate 0.04 4 pp

Change in income allocated to participating securities (0.01) (1) pp

Change in Interest expense, net (a)

(0.01) (1) pp

Basic and diluted EPS for quarter ended June 30, 2022

Basic EPS for quarter ended September 30, 2022

Impact of dilutive shares outstanding (0.01) (1) pp

Diluted EPS for quarter ended September 30, 2022

(a) Item is net of tax based on the effective tax rate for the base year (2021).

(b) Percentage points (“pp”).

The table below details the consolidated results for year to date ended June 30, 2022 and 2021:

Year to Date Ended June 30,

The table below details the consolidated results for year to date ended September 30, 2022 and 2021:

Year to Date Ended September 30,

2022 2021 2022 v.

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SG&A expenses 52,029 55,266 (6)

Other operating income, net (35) — N/A

Other operating (income) expense, net (34) 11 (409)

Operating income 119,250 81,047 47

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(a) Percentage points (“pp”).

Sales - Sales for year to date ended June 30, 2022 were $390,217, an increase of 38 percent compared to the year-ago period, 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 87 percent, primarily due to the additional brands acquired as part of the April 1, 2021 Merger.

Sales - Sales for year to date ended September 30, 2022 were $591,363, an increase of 29 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Branded Spirits and Ingredient Solutions segments.

Within the Distilling Solutions segment, sales were up 21 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol and distillers feed and related co-products.

Within the Branded Spirits segment, sales were up 44 percent, primarily due to the additional brands acquired as part of the April 1, 2021 Merger.

Within the Ingredient Solutions segment, sales were up 29 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 June 30, 2022 was $131,045, an increase of 47 percent compared to the year-ago period.

Gross profit - Gross profit for year to date ended September 30, 2022 was $190,093, an increase of 30 percent compared to the year-ago period.

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

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In the Ingredient Solutions segment, gross profit increased by $7,390, or 43 percent (see Segment Results).

Advertising and promotion expenses - Advertising and promotion expenses for year to date ended June 30, 2022 were $11,569, an increase of 174 percent compared to the year-ago period, primarily driven by the assumption of Luxco’s Advertising and promotion expenses.

SG&A expenses - SG&A expenses for year to date ended June 30, 2022 were $34,125, a decrease of 7 percent compared to the year-ago period.

Advertising and promotion expenses - Advertising and promotion expenses for year to date ended September 30, 2022 were $18,848, an increase of 91 percent compared to the year-ago period, primarily driven by the assumption of Luxco’s Advertising and promotion expenses as well as increased advertising and promotion investment in the Branded Spirits segment, specifically in the ultra premium, super premium and premium price tiers.

SG&A expenses - SG&A expenses for year to date ended September 30, 2022 were $52,029, a decrease of 6 percent compared to the year-ago period.

The decrease in SG&A expenses was driven primarily by the one-time acquisition costs in 2021 related to the Merger with Luxco that did not recur in 2022, partially offset by the assumption of Luxco’s SG&A expenses.

Operating income - Operating income for year to date ended June 30, 2022 increased to $85,386 from $48,163 for year to date period ended June 30, 2021, primarily due to an increase in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses.

These were partially offset by an increase in the above-described Advertising and promotion expenses.

Operating income - Operating income for year to date ended September 30, 2022 increased to $119,250 from $81,047 for year to date period ended September 30, 2021, primarily due to an increase in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments as well as a decrease in the previously described SG&A expenses.

These were partially offset by an increase in the previously described Advertising and promotion expenses.

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

Operating income for year to date ended June 30, 2021

Operating income for year to date ended September 30, 2021

Increase in gross profit - Branded Spirits segment (a)

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Decrease in SG&A expenses

Increase in Other operating income (expense), net

Operating income for year to date ended June 30, 2022

Change in Other operating income (expense), net 45 — pp

Operating income for year to date ended September 30, 2022

$ 119,250 47 %

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(b) Percentage points (“pp”).

Income tax expense - Income tax expense for year to date ended June 30, 2022 was $18,504, for an effective tax rate of 22.8 percent.

Income tax expense for the year to date ended June 30, 2021, was $11,027, for an effective tax rate of 23.7 percent.

Income tax expense - Income tax expense for year to date ended September 30, 2022 was $26,037, for an effective tax rate of 23.2 percent.

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

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

The decrease in effective tax rate, year to date versus year to date, was due to favorable tax benefits, related to certain tax credits concerning our capital spend, and related to our foreign operations.

Earnings per common share - EPS was $2.84 for year to date ended June 30, 2022, compared to $1.81 for year to date ended June 30, 2021.

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

The decrease in effective tax rate, year to date versus year to date, was due to favorable tax benefits, related to certain tax credits concerning our capital spend.

Earnings per common share - EPS was $3.91 for year to date ended September 30, 2022, compared to $2.91 for year to date ended September 30, 2021.

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 June 30, 2021

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

Increase in operating income (a)

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(0.08) (3) pp

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

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

(0.06) (2) pp

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Change in weighted average shares outstanding (0.51) (18) pp

Basic and diluted EPS for year to date ended June 30, 2022

Basic and diluted EPS for year to date ended September 30, 2022

(a) Item is net of tax based on the effective tax rate for the base year (2021).

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Distilling Solutions

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended June 30, 2022 and 2021.

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended September 30, 2022 and 2021.

DISTILLING SOLUTIONS SALES

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

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

2022 2021 $ Change % Change

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Other Financial Information

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

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

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Distilling Solutions for quarter ended June 30, 2022 increased by $16,790, or 19 percent, compared to the prior year quarter.

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

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

Total sales of Distilling Solutions for quarter ended September 30, 2022 increased by $17,600, or 19 percent, compared to the prior year quarter.

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

The increase in sales of brown goods was driven by higher sales volume.

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 previously disclosed dryer fire at our Atchison facility which occurred in 2020.

These increases were partially offset by a decrease in sales of industrial alcohol, fuel grade alcohol and white goods which was driven primarily by lower sales volume.

These increases were partially offset by a decrease in sales of industrial alcohol and white goods which were driven primarily by lower sales volume, partially offset by higher average selling price.

Gross profit decreased quarter versus quarter by $1,064, or 4 percent.

Gross margin for the quarter ended June 30, 2022 decreased to 27.8 percent from 35.4 percent for the prior year quarter.

The decrease in gross profit was primarily due to higher input costs for industrial alcohol, white goods, and fuel grade alcohol.

Gross margin for the quarter ended September 30, 2022 decreased to 23.9 percent from 29.6 percent for the prior year quarter.

The decrease in gross profit was primarily due to higher input costs for white goods and industrial alcohol.

The average selling price for these products also increased, but not enough to offset the higher input costs.

This decrease in gross profit was partially offset by an increase in brown goods gross profit, as increased average selling price offset the higher input costs.

The following tables show selected financial information for the Distilling Solutions segment for the year to date ended June 30, 2022 and 2021.

This decrease in gross profit was partially offset by an increase in brown goods gross profit.

The following tables show selected financial information for the Distilling Solutions segment for the year to date ended September 30, 2022 and 2021.

DISTILLING SOLUTIONS SALES

Year to Date Ended June 30, Year to Date versus Year to Date

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

Sales Change Increase/(Decrease)

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Other Financial Information

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

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

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Distilling Solutions for year to date ended June 30, 2022 increased by $39,675, or 22 percent compared to the year-ago period.

Total sales of Distilling Solutions for year to date ended September 30, 2022 increased by $57,275, or 21 percent compared to the year-ago period.

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

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

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

The increase in sales of white goods was driven by higher average selling price, partially offset by lower sales volume.

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

Gross profit for year to date ended June 30, 2022 increased by $8,483, or 14 percent compared to the year-ago period.

Gross margin for year to date ended June 30, 2022 decreased to 31.4 percent from 33.7 percent for the prior year period.

These increases were partially offset by a decrease in sales of industrial alcohol which was driven by lower sales volume, partially offset by higher average selling price.

Gross profit for year to date ended September 30, 2022 increased by $7,419, or 9 percent compared to the year-ago period.

Gross margin for year to date ended September 30, 2022 decreased to 28.9 percent from 32.3 percent for the prior year period.

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

These increases were partially offset by higher input costs for industrial alcohol, white goods, and fuel grade alcohol.

The average selling price for these products also increased, but not enough to offset the higher input costs.

The average selling price for these products also increased, but not enough to offset the higher input costs which caused a decrease in the gross margin percentage.

Branded Spirits

The following tables show selected financial information for the Branded Spirits segment for the quarters ended June 30, 2022 and 2021.

The following tables show selected financial information for the Branded Spirits segment for the quarters ended September 30, 2022 and 2021.

BRANDED SPIRITS SALES

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

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

2022 2021 $ Change % Change

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Other Financial Information

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

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

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Branded Spirits for quarter ended June 30, 2022 decreased by $1,860, or 3 percent compared to the prior year quarter.

Sales decreased primarily due to a decrease in sales of brands within the mid price tier as a result of the re-opening of on-premise locations during the prior year period as well as a change in product mix.

Sales in the other price tier decreased due to the timing of certain contracted private label sales.

These decreases were partially offset by an increase in the ultra premium price tier due primarily to increased sales of American whiskey brands.

Total sales of Branded Spirits for quarter ended September 30, 2022 increased by $1,200, or 2 percent compared to the prior year quarter.

Sales increased primarily due to an increase in the ultra premium price tier due primarily to increased sales of American whiskey brands as well as an increase in the other tier due to timing of certain contracted private label sales.

These increases were partially offset by a decrease in sales of brands within the mid price tier as a result of a change in the product mix towards more premium brands as well as the re-opening of on-premise locations during the prior year period.

Gross profit increased quarter versus quarter by $1,850, or 8 percent.

Gross margin for the quarter ended June 30, 2022 increased to 35.8 percent from 30.5 percent for the prior year quarter.

The increase in gross profit was primarily driven by a required step up in value of certain assets due to purchase accounting related to the Merger in 2021 that did not recur in 2022.

Of the purchase accounting step ups, $2,529 was associated with marking the finished goods inventory to fair value and fully flowed through in the prior year period.

The following tables show selected financial information for the Branded Spirits segment for year to date ended June 30, 2022 and 2021.

Gross margin for the quarter ended September 30, 2022 increased to 39.9 percent from 37.7 percent for the prior year quarter.

The increase in gross profit was primarily driven by increased sales volume and higher average selling price of brands within the ultra premium price tier.

These increases were partially offset by increased inputs costs in the mid and value price tier categories.

The following tables show selected financial information for the Branded Spirits segment for year to date ended September 30, 2022 and 2021.

BRANDED SPIRITS SALES

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

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

2022 2021 $ Change % Change

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Other Financial Information

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

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

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of Branded Spirits for year to date ended June 30, 2022 increased by $53,321, or 87 percent compared to the year-ago period.

Total sales of Branded Spirits for year to date ended September 30, 2022 increased by $54,521, or 44 percent compared to the year-ago period.

Sales across all pricing tiers 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 June 30, 2022 increased by $27,222, or 147 percent.

Gross margin for year to date ended June 30, 2022 increased 9.6 percent to 40.0 percent from 30.4 percent for the prior year.

Gross profit for year to date ended September 30, 2022 increased by $29,072, or 70 percent.

Gross margin for year to date ended September 30, 2022 increased to 40.0 percent from 34.1 percent for the prior year.

The increase in gross profit was primarily driven by the additional brands acquired as part of the Merger as well as a required step up in value of certain assets due to purchase accounting related to the Merger in 2021 that did not recur in 2022.

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Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended June 30, 2022 and 2021.

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended September 30, 2022 and 2021.

INGREDIENT SOLUTIONS SALES

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

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

2022 2021 $ Change % Change

8 unchanged sentences

Other Financial Information

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

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

2022 2021 $ Change % Change

7 unchanged sentences

(d) Percentage points (“pp”).

Total Ingredient Solutions sales for quarter ended June 30, 2022 increased by $5,113, or 21 percent, compared to the prior year quarter.

The increase was primarily driven by higher sales of specialty wheat starches due to higher average selling prices and higher sales volume.

Specialty wheat proteins increased due to higher average selling price, partially offset by lower sales volume.

These increases were partially offset by a decrease in commodity wheat proteins due to lower sales volume.

Total Ingredient Solutions sales for quarter ended September 30, 2022 increased by $5,735, or 24 percent, compared to the prior year quarter.

The increase was primarily driven by higher sales of specialty wheat starches due to higher sales volume and higher average selling prices.

Commodity wheat starches and specialty wheat proteins increased due primarily to higher average selling price.

Gross profit increased quarter versus quarter by $1,176, or 17 percent.

Gross margin for the quarter ended June 30, 2022 increased to 29.0 percent from 26.5 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 starches and proteins, and commodity starches.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date June 30, 2022 and 2021.

Gross margin for the quarter ended September 30, 2022 decreased to 27.1 percent from 28.7 percent for the prior year quarter.

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

These increased input costs are the primary driver for the decrease in gross margin percentage.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date September 30, 2022 and 2021.

INGREDIENT SOLUTIONS SALES

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

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

2022 2021 $ Change % Change

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Other Financial Information

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

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

2022 2021 $ Change % Change

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(d) Percentage points (“pp”).

Total Ingredient Solutions sales for year to date ended June 30, 2022 increased by $13,959, or 32 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, primarily due to higher average selling price and higher sales volume.

Commodity wheat starches increased due to higher average selling price, partially offset by lower sales volume.

Total Ingredient Solutions sales for year to date ended September 30, 2022 increased by $19,694, or 29 percent, compared to the prior year period.

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

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

Sales of commodity wheat starches were also up due to higher average selling price.

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

Gross profit increased by $6,214, or 60 percent for year to date ended June 30, 2022 compared to the prior year period.

Gross margin for the year to date ended June 30, 2022 increased to 29.0 percent from 24.0 percent for the prior year period.

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

Gross profit increased by $7,390, or 43 percent for year to date ended September 30, 2022 compared to the prior year period.

Gross margin for the year to date ended September 30, 2022 increased to 28.3 percent from 25.7 percent for the prior year period.

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

These increases were partially offset by higher input costs for all product lines within the segment.

Gross profit in the prior year to date period 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.

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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 to be adequate to provide for budgeted capital expenditures, potential merger or acquisitions, and anticipated operating requirements for the foreseeable future.

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

Cash Flow Summary

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

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

Cash provided by operating activities $ 72,253 $ 70,785 $ 1,468

2 unchanged sentences

Effect of exchange rate changes on cash (82) (2) (80)

Increase in cash and cash equivalents $ 15,847 $ 15,581 $ 266

Cash increased $15,847 for year to date ended June 30, 2022, compared to an increase of $15,581 for year to date ended June 30, 2021, for a net increase in cash of $266, period versus period.

Increase (decrease) in cash and cash equivalents $ 29,106 $ (5,500) $ 34,606

Cash increased $29,106 for year to date ended September 30, 2022, compared to a decrease of $5,500 for year to date ended September 30, 2021, for a net increase in cash of $34,606, period versus period.

Operating Activities.

Cash provided by operating activities for year to date ended June 30, 2022 was $43,019.

Cash provided by operating activities for year to date ended September 30, 2022 was $72,253.

The cash provided by operating activities resulted primarily from net income of $86,361, adjustments for non-cash or non-operating charges of $20,503, including depreciation and amortization, and share-based compensation, partially offset by cash used in operating assets and liabilities of $34,611.

The primary drivers of the changes in operating assets and liabilities were $27,508 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate and finished goods inventory, $13,142 use of cash related to increased accounts receivables, net due to increased sales during the year to date period, as well as timing of customer payments, and $4,791 use of cash related to accrued expenses and other primarily related to increase in incentive compensation.

The primary drivers of the changes in operating assets and liabilities were $30,599 use of cash related to an increase in inventories, primarily due to an increase in finished goods inventory and barreled distillate, as well as $15,582 use of cash related to increased accounts receivables, net due to increased sales during the year to date period, as well as timing of customer payments.

These uses of cash were partially offset, primarily by $12,613 cash provided by an increase in accounts payable.

Cash provided by operating activities for year to date ended June 30, 2021 was $47,454.

The cash provided by operating activities resulted primarily from net income of $35,486, adjustments for non-cash or non-operating charges of $11,555, including depreciation and amortization, and share-based compensation, as well as cash provided by operating assets and liabilities of $413.

The primary drivers of the changes in operating assets and liabilities, excluding the asset and liability balances acquired as part of the Merger were $7,987 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, and $7,531 cash provided by accounts receivables, net due to increased sales during the quarter as well as an increase in insurance recoveries receivable.

These sources of cash were partially offset by $12,996 use of cash related to decrease in accounts payable.

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, excluding the asset and liability balances acquired as part of the Merger, were $7,588 use of cash related to an increase in inventories, primarily barreled distillate, $6,678 use of cash related to a 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.

Investing Activities.

Cash used in investing activities for year to date ended June 30, 2022 was $19,484, which primarily resulted from additions to property, plant and equipment of $18,087 (see Capital Spending).

Cash used in investing activities for year to date ended June 30, 2021 was $170,235, which primarily resulted from $149,599 related to the Merger with Luxco, and additions to property, plant and equipment of $18,336 (see Capital Spending).

Cash used in investing activities for year to date ended September 30, 2022 was $31,764, which primarily resulted from additions to property, plant and equipment of $29,217 (see Capital Spending).

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 with Luxco, and additions to property, plant and equipment of $37,257 (see Capital Spending).

Capital Spending.

We manage capital spending to support our business growth plans.

We have incurred $14,553 and $14,961 of capital expenditures and have paid $18,087 and $18,336 for capital expenditures for year to date ended June 30, 2022 and 2021, respectively.

We have incurred $28,524 and $33,882 of capital expenditures and have paid $29,217 and $37,257 for capital expenditures for year to date ended September 30, 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.

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Financing Activities.

Cash used in financing activities for year to date ended June 30, 2022 was $7,649, due to payments of dividends and dividend equivalents of $5,322 (see Dividends and Dividend Equivalents), net payments on debt of $1,614 (see Long-Term and Short-Term Debt) and purchases of treasury stock of $713 (see Treasury Purchases).

Cash provided by financing activities for year to date ended June 30, 2021 was $138,359, due to net proceeds from debt of $231,328 (see Long-term and Short-term Debt), partially offset by $87,497 payment on assumed debt as part of the Merger, payments of dividends and dividend equivalents of $4,707 (see Dividends and Dividend Equivalents) and purchases of treasury stock of $765 (see Treasury Purchases).

Cash used in financing activities for year to date ended September 30, 2022 was $11,301, due to payments of dividends and dividend equivalents of $7,984 (see Dividends and Dividend Equivalents), net payments on debt of $2,603 (see Long-Term and Short-Term Debt) and purchases of treasury stock of $714 (see Treasury Purchases).

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).

Treasury Purchases.

29,356 RSUs vested and converted to common shares for employees during year to date ended June 30, 2022, of which we withheld and purchased for treasury 9,025 shares valued at $713 to cover payment of associated withholding taxes.

38,009 RSUs vested and converted to common shares for employees during year to date ended June 30, 2021, of which we withheld and purchased for treasury 11,865 shares valued at $765 to cover payment of associated withholding taxes.

29,366 RSUs vested and converted to common shares for employees during year to date ended September 30, 2022, of which we withheld and purchased for treasury 9,027 shares valued at $714 to cover payment of associated withholding taxes.

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.

Share Repurchases.

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Dividend and Dividend Equivalent Information (per Share and Unit)

Declaration date Record date Payment date Declared Paid Dividend payment Dividend equivalent payment (a)(b)

Declaration date Record date Payment date Declared (c)

Dividend payment Dividend equivalent payment (a)(b)

Total payment (b)

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May 5, 2022 May 20, 2022 June 3, 2022 0.12 0.12 2,638 23 2,661

August 4, 2022 August 19, 2022 September 2, 2022 0.12 0.12 2,639 23 2,662

$ 0.36 $ 0.36 $ 7,915 $ 69 $ 7,984

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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

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(b) Includes estimated forfeitures.

On August 4, 2022, our Board of Directors declared a quarterly dividend payable to stockholders of record as of August 19, 2022, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of August 19, 2022, of $0.12 per share and per unit, payable on September 2, 2022.

On November 3, 2022, our Board of Directors declared a quarterly dividend payable to stockholders of record as of November 18, 2022, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of November 18, 2022, of $0.12 per share and per unit, payable on December 2, 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 $231,953 (net of unamortized loan fees of $6,286) at June 30, 2022, and $233,399 (net of unamortized loan fees of $6,454) at December 31, 2021.

Total debt was $231,051 (net of unamortized loan fees of $6,199) at September 30, 2022, and $233,399 (net of unamortized loan fees of $6,454) at December 31, 2021.

Financial Condition and Liquidity.

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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 June 30, 2022, we met those covenants and restrictions.

At June 30, 2022, our current assets exceeded our current liabilities by $329,268, largely due to our inventories, at cost, of $272,948.

At June 30, 2022, our cash balance was $37,415 and we have used our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement for liquidity purposes, with $400,000 under our Credit Agreement remaining for additional borrowings and up to $120,000 potentially available under the Note Purchase Agreement.

Under our debt agreements, we must meet certain financial covenants and restrictions, and at September 30, 2022, we met those covenants and restrictions.

At September 30, 2022, our current assets exceeded our current liabilities by $339,853, largely due to our inventories, at cost, of $275,478.

At September 30, 2022, our cash balance was $50,674 and we have used our various debt agreements for liquidity purposes, with $400,000 under our Credit Agreement remaining for additional borrowings and up to $120,000 potentially available under the Note Purchase Agreement.

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

We regularly assess our cash needs and the available sources to fund these needs.

We utilize short-term and long-term debt to fund discretionary items, such as capital investments and dividend payments.

We utilize short-term and long-term debt to fund discretionary items, such as capital investments, dividend payments as well as potential mergers and acquisitions.

Subject to market conditions, we could also fund future mergers and acquisitions through the issuance of additional shares of common stock.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis