What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 155 added, 132 removed, 299 unchanged (49% of the section changed)

3 unchanged sentences

This Report may contain forward looking statements as well as historical information.

All statements, other than statements of historical facts, regarding the prospects of our industry and our prospects, plans, financial position, and strategic plan may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the timing of and charges associated with the Atchison, Kansas distillery closure;

our sources of cash being adequate;

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All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially.

For information on these risks and uncertainties and other factors that could affect the Company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, this Report, and our other filings with the Securities and Exchange Commission (the “SEC”).

For information on these risks and uncertainties and other factors that could affect the Company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2023, this Report, and our other filings with the Securities and Exchange Commission (the “SEC”).

Forward looking statements in this Report are made as of the date of this Report, and we undertake no obligation to update any forward-looking statements or information made in this Report, except as required by law.

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The anticipated closure date is January 2024.

The decision to close the Atchison Distillery is consistent with our plan to address profitability headwinds associated with our grain neutral spirits and industrial alcohol products within the Distilling Solutions segment.

We currently expect to incur aggregate pre-tax charges of $23,000 to $31,000 for the year ending December 31, 2023 in connection with the closure of the Atchison Distillery.

The decision to close the Atchison Distillery is consistent with our plan to address profitability headwinds associated with our grain neutral spirits (“GNS”) and industrial alcohol products within the Distilling Solutions segment.

During the quarter and year to date ended September 30, 2023, we recorded a $17,112 impairment of assets, which was recorded in impairment of long-lived assets and other line on the Condensed Consolidated Statement of Income.

The impaired assets were recorded within the Distilling Solution segment.

Additionally, we recorded $1,222 of expenses related to severance costs, contract termination fees, and consulting fees, which were recorded in impairment of long-lived assets and other line on the Condensed Consolidated Statement of Income for the quarter and year to date ended September 30, 2023 (see Note 5, Planned Closure of the Atchison Distillery for additional information).

MGP is a leading producer and supplier of premium distilled spirits, branded spirits, and food ingredients.

Distilled spirits include premium bourbon, rye, and other whiskeys (“brown goods”) and grain neutral spirits (“GNS”), including vodka and gin.

Distilled spirits include premium bourbon, rye, and other whiskeys (“brown goods”) and GNS, including vodka and gin.

Our distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits.

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We have a portfolio of our own high quality branded spirits, which we produce through our distilleries and bottling facilities and sell to distributors.

Our branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end

American whiskey, tequila, and gin.

Our branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila, and gin.

Our protein and starch food ingredients serve a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the consumer packaged goods industry.

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Consolidated Results

The table below details the consolidated results for the quarters ended June 30, 2023 and 2022:

Quarter Ended June 30,

The table below details the consolidated results for the quarters ended September 30, 2023 and 2022:

Quarter Ended September 30,

2023 2022 2023 v.

5 unchanged sentences

Selling, general, and administrative (“SG&A”) expenses 21,570 17,905 20

Impairment of long-lived assets and other 18,334 — N/A

Change in fair value of contingent consideration 4,200 — N/A

Operating income 19,839 33,864 (41)

8 unchanged sentences

(a) Percentage points (“pp”).

Sales - Sales for the quarter ended June 30, 2023 were $209,001, an increase of 7 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 9 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Within the Ingredient Solutions segment, sales were up 18 percent, primarily due to increased sales of specialty wheat proteins.

Within the Branded Spirits segment, sales were down 2 percent, primarily due to decreased sales of brands in the mid and value price tiers (see “Segment Results”).

Gross profit - Gross profit for the quarter ended June 30, 2023 was $76,295, an increase of 29 percent compared to the year-ago quarter.

Sales - Sales for the quarter ended September 30, 2023 were $211,624, an increase of 5 percent compared to the year-ago quarter, which was the result of increased sales in the Branded Spirits, Ingredient Solutions, and Distilling Solutions segments.

Within the Branded Spirits segment, sales were up 6 percent, primarily due to increased sales of brands in the ultra premium price tier.

Within the Ingredient Solutions segment, sales were up 11 percent, primarily due to increased sales of specialty wheat proteins and starches.

Within the Distilling Solutions segment, sales were up 3 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol (see “Segment Results”).

Gross profit - Gross profit for the quarter ended September 30, 2023 was $73,448, an increase of 24 percent compared to the year-ago quarter.

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

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Within the Ingredient Solutions segment, gross profit increased by $3,064, or 38 percent (see “Segment Results”).

Advertising and promotion expenses - Advertising and promotion expenses for the quarter ended June 30, 2023 were $8,639, an increase of 42 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

SG&A expenses - SG&A expenses for the quarter ended June 30, 2023 were $23,513, an increase of 32 percent compared to the year-ago quarter, primarily due to higher personnel expenses and business acquisition costs related to the acquisition of Penelope.

Operating income - Operating income for the quarter ended June 30, 2023 increased to $44,143 from $35,306 for the quarter ended June 30, 2022, primarily due to a increase in gross profit in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments.

These increases were partially offset by increases in the previously described SG&A and advertising and promotion expenses.

Advertising and promotion expenses - Advertising and promotion expenses for the quarter ended September 30, 2023 were $9,505, an increase of 31 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

SG&A expenses - SG&A expenses for the quarter ended September 30, 2023 were $21,570, an increase of 20 percent compared to the year-ago quarter, primarily due to higher personnel expenses.

Operating income - Operating income for the quarter ended September 30, 2023 decreased to $19,839 from $33,864 for the quarter ended September 30, 2022, primarily due to the impairment of assets and other expenses of $18,334 related to the planned closure of the Atchison Distillery and the change in fair value of the contingent consideration of $4,200 related to the Penelope acquisition.

These decreases were partially offset by increases in gross profit in all three segments.

Operating income, quarter versus quarter Operating Income Change

Operating income for the quarter ended June 30, 2022

Operating income for the quarter ended September 30, 2022

Increase in gross profit - Distilling Solutions segment (a)

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(3,665) (11) pp

Operating income for the quarter ended June 30, 2023

Impairment of long-lived assets and other (18,334) (54) pp

Change in fair value of contingent consideration (4,200) (12) pp

Operating income for the quarter ended September 30, 2023

$ 19,839 (41) %

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(b) Percentage points (“pp”).

Income tax expense - Income tax expense for the quarter ended June 30, 2023 was $10,804, for an effective tax rate of 25.3 percent.

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

The increase in income tax expense, quarter versus quarter, was due primarily to higher income before income taxes and lower tax credits.

Earnings per common share (“EPS”) - Basic and diluted EPS was $1.44 for the quarter ended June 30, 2023, compared to $1.15 for the quarter ended June 30, 2022.

The change in basic and diluted EPS, quarter versus quarter, was primarily due to an increase in operating income.

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

Basic and diluted EPS for the quarter ended June 30, 2022

Income tax expense - Income tax expense for the quarter ended September 30, 2023 was $4,373, for an effective tax rate of 25.0 percent.

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

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

Earnings per common share (“EPS”) - Basic EPS was $0.59 for the quarter ended September 30, 2023, compared to $1.07 for the quarter ended September 30, 2022.

The change in basic EPS quarter versus quarter, was primarily due to a decrease in operating income.

Diluted EPS was $0.58 for the quarter ended September 30, 2023, compared to $1.06 for the quarter ended September 30, 2022.

The change in diluted EPS, quarter versus quarter, was primarily due to the same change as basic EPS as well as the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

Change in EPS , quarter versus quarter EPS Change

Basic EPS for the quarter ended September 30, 2022

Change in operating income (a)

(0.48) (45) %

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

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Change in interest expense, net (a)

(0.03) (3) pp

Change in effective tax rate (0.02) (2) pp

Basic and diluted EPS for the quarter ended June 30, 2023

Basic EPS for the quarter ended September 30, 2023

$ 0.59 (45) %

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

Diluted EPS for the quarter ended September 30, 2023

$ 0.58 (46) %

(a) Net of tax based on the effective tax rate for the base year (2022).

(b) Percentage points (“pp”).

The table below details the consolidated results for the year to date ended June 30, 2023 and 2022:

Year to Date Ended June 30,

The table below details the consolidated results for the year to date ended September 30, 2023 and 2022:

Year to Date Ended September 30,

2023 2022 2023 v.

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SG&A expenses 65,615 51,995 26

Impairment of long-lived assets and other 18,334 — N/A

Change in fair value of contingent consideration 4,200 — N/A

Operating income 105,541 119,250 (11)

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(a) Percentage points (“pp”).

Sales - Sales for the year to date ended June 30, 2023 were $410,011, an increase of 5 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Ingredient Solutions, and Branded Spirits segments.

Sales - Sales for the year to date ended September 30, 2023 were $621,635, an increase of 5 percent compared to the year-ago period, 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 4 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Within the Ingredient Solutions segment, sales were up 14 percent, primarily due to increased sales of specialty wheat proteins and commodity wheat starches.

Within the Branded Spirits segment, sales were in line with the year-ago period (see “Segment Results”).

Gross profit - Gross profit for the year to date ended June 30, 2023 was $146,119, an increase of 12 percent compared to the year-ago period.

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

Within the Ingredient Solutions segment, sales were up 13 percent, primarily due to increased sales across all Ingredient Solutions product lines.

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

Gross profit - Gross profit for the year to date ended September 30, 2023 was $219,567, an increase of 16 percent compared to the year-ago period.

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

In the Distilling Solutions segment, gross profit increased by $10,356, or 11 percent.

In the Ingredient Solutions segment, gross profit increased by $10,291, or 42 percent.

In the Branded Spirits segment, gross profit increased by $4,854, or 11 percent.

In the Distilling Solutions segment, gross profit increased by $2,993, or 4 percent (see “Segment Results”).

Advertising and promotion expenses - Advertising and promotion expenses for the year to date ended June 30, 2023 were $16,372, an increase of 42 percent compared to the year-ago period, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

SG&A expenses - SG&A expenses for the year to date ended June 30, 2023 were $44,045, an increase of 29 percent compared to the year-ago period.

In the Branded Spirits segment, gross profit increased by $8,827, or 12 percent (see “Segment Results”).

Advertising and promotion expenses - Advertising and promotion expenses for the year to date ended September 30, 2023 were $25,877, an increase of 37 percent compared to the year-ago period, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

SG&A expenses - SG&A expenses for the year to date ended September 30, 2023 were $65,615, an increase of 26 percent compared to the year-ago period.

The increase in SG&A expenses was primarily due to higher personnel expenses and business acquisition expenses related to the acquisition of Penelope.

Operating income - Operating income for the year to date ended June 30, 2023 increased to $85,702 from $85,386 for the year to date period ended June 30, 2022, primarily due to increased gross profit in the Ingredient Solutions, Branded Spirits, and Distilling Solutions segments.

These were partially offset by an increase in the previously described SG&A and advertising and promotion expenses.

Operating income - Operating income for the year to date ended September 30, 2023 decreased to $105,541 from $119,250 for the year to date period ended September 30, 2022, primarily due to the impairment of assets and other expenses of $18,334 related to the planned closure of the Atchison Distillery and the change in fair value of the contingent consideration of $4,200 related to the Penelope acquisition, as well as increased SG&A and advertising and promotion expenses as discussed above.

These decreases were partially offset by increased gross profit in all three segments.

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

Operating income for the year to date ended June 30, 2022

Operating income for the year to date ended September 30, 2022

Increase in gross profit - Distilling Solutions segment (a)

Increase in gross profit - Ingredient Solutions segment (a)

Increase in gross profit - Branded Spirits segment (a)

10,291 9 pp(b)

Increase in gross profit - Distilling Solutions segment (a)

Increase in gross profit - Branded Spirits segment (a)

Increase in advertising and promotion expenses

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(13,620) (11) pp

Operating income for the year to date ended June 30, 2023

Impairment of long-lived assets and other (18,334) (15) pp

Change in fair value of contingent consideration (4,200) (4) pp

Operating income for the year to date ended September 30, 2023

$ 105,541 (11) %

(a) See “Segment Results.”

(b) Percentage points (“pp”).

Income tax expense - Income tax expense for the year to date ended June 30, 2023 was $20,459, for an effective tax rate of 24.5 percent.

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

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

Earnings per common share - Basic EPS for the year to date ended June 30, 2023 was consistent with the prior year period of $2.84.

Diluted EPS was $2.83 for the year to date ended June 30, 2023, compared to $2.84 for the year to date ended June 30, 2022.

The change in diluted EPS, year to date versus year to date, was primarily due to the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

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

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

Change in interest expense, net (a)

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

Income tax expense - Income tax expense for the year to date ended September 30, 2023 was $24,832, for an effective tax rate of 24.6 percent.

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

The decrease in income tax expense, year to date versus year to date, was due to lower income before income taxes.

Earnings per common share - Basic EPS was $3.43 for the year to date ended September 30, 2023, compared to $3.91 for the year to date ended September 30, 2022.

The change in basic EPS, year to date versus year to date, was primarily due to a decrease in operating income.

Diluted EPS was $3.41 for the year to date ended September 30, 2023, compared to $3.91 for the year to date ended September 30, 2022.

The change in diluted EPS, year to date versus year to date, was primarily due to the same change as basic EPS as well as the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

Change in EPS, year to date versus year to date EPS Change

Basic EPS for the year to date ended September 30, 2022

Change in operating income (a)

(0.47) (12) %

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

Change in effective tax rate (0.08) (2) pp

Change in weighted average shares outstanding (0.01) — pp

Basic EPS for the year to date ended June 30, 2023

Basic EPS for the year to date ended September 30, 2023

$ 3.43 (12) %

Impact of dilutive shares outstanding (0.02) (1) pp

Diluted EPS for the year to date ended June 30, 2023

Diluted EPS for the year to date ended September 30, 2023

$ 3.41 (13) %

(a) Net of tax based on the effective tax rate for the base year (2022).

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Distilling Solutions

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended June 30, 2023 and 2022.

The following tables show selected financial information for the Distilling Solutions segment for the quarters ended September 30, 2023 and 2022.

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)

2023 2022 $ 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)

2023 2022 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of the Distilling Solutions segment for the quarter ended June 30, 2023 increased by $9,727, or 9 percent, compared to the prior year quarter.

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

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

This increase was partially offset by a decrease in sales of distillers feed and related co-products, industrial alcohol, fuel grade alcohol, and white goods, which was driven primarily by lower sales volume.

The decrease in white goods and industrial alcohol were partially offset by higher average selling price.

Total sales of the Distilling Solutions segment for the quarter ended September 30, 2023 increased by $3,209, or 3 percent, compared to the prior year quarter.

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

The increase in sales of brown goods was primarily driven by higher average selling price, partially offset by decreased sales volume.

This increase was partially offset by a decrease in sales of white goods, distillers feed and related co-products, fuel grade alcohol, and industrial alcohol, which was driven primarily by lower sales volume.

Gross profit increased quarter versus quarter by $7,363, or 28 percent.

Gross margin for the quarter ended June 30, 2023 increased to 33.1 percent from 27.8 percent for the prior year quarter.

The increase in gross profit was primarily due to higher average selling price for brown goods and white goods.

Gross margin for the quarter ended September 30, 2023 increased to 29.8 percent from 23.9 percent for the prior year quarter.

The increase in gross profit was primarily due to higher average selling price for brown goods.

These increases in gross profit were partially offset by higher input costs across all product categories.

The following tables show selected financial information for the Distilling Solutions segment for the year to date ended June 30, 2023 and 2022.

The following tables show selected financial information for the Distilling Solutions segment for the year to date ended September 30, 2023 and 2022.

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)

2023 2022 $ Change % Change

7 unchanged sentences

(d) Percentage points (“pp”).

Total sales of the Distilling Solutions segment for the year to date ended June 30, 2023 increased by $11,441, or 5 percent compared to the year-ago period.

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

Total sales of the Distilling Solutions segment for the year to date ended September 30, 2023 increased by $14,650, or 4 percent compared to the year-ago period.

Sales of brown goods within premium beverage alcohol and warehouse services increased while white goods within premium beverage alcohol, distillers feed and related co-products, 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, partially offset by lower sales volume.

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

Additionally, sales of distilleries feed and related co-products and fuel grade alcohol decreased primarily due to a decrease in sales volume.

Gross profit for the year to date ended June 30, 2023 increased by $2,993, or 4 percent compared to the year-ago period.

Gross margin for the year to date ended June 30, 2023 decreased slightly to 31.2 percent from 31.4 percent for the prior year period.

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

This increase was partially offset by a decrease in sales of white goods, distillers feed and related co-products, industrial alcohol and fuel grade alcohol, which was driven primarily by lower sales volume.

The decreases in white goods, distillers feed and related co-products, and industrial alcohol were partially offset by higher average selling price.

Gross profit for the year to date ended September 30, 2023 increased by $10,356, or 11 percent compared to the year-ago period.

Gross margin for the year to date ended September 30, 2023 increased to 30.7 percent from 28.9 percent for the prior year period.

The increase in gross profit was due primarily to higher average selling price for brown goods and white goods.

This increase was partially offset by higher input costs across all product categories.

The average selling price for white goods, industrial alcohol, and distillers feed and related co-products increased, but not enough to offset the higher input costs which caused a slight 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, 2023 and 2022.

The following tables show selected financial information for the Branded Spirits segment for the quarters ended September 30, 2023 and 2022.

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)

2023 2022 $ 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)

2023 2022 $ Change % Change

7 unchanged sentences

(d) Percentage points (“pp”).

Total sales of the Branded Spirits segment for the quarter ended June 30, 2023 decreased by $950, or 2 percent compared to the prior year quarter.

The decrease was primarily driven by decreased sales of brands within the mid and value price tiers primarily due to timing of sales associated with a distributor realignment made by the Company during the first quarter of 2023.

These decreases were partially offset by an increase in the ultra premium price tier primarily due to an increase in sales of our American whiskey brands, including the additional brands acquired as part of the acquisition of Penelope.

Total sales of the Branded Spirits segment for the quarter ended September 30, 2023 increased by $4,058, or 6 percent compared to the prior year quarter.

The increase was driven by sales of brands within the premium plus price tiers, partially offset by a decrease in sales of brands within the mid and value price tiers.

The increase in sales of brands within the ultra premium price tier was primarily due to an increase in sales of our American whiskey brands, including the additional brands acquired as part of the acquisition of Penelope.

The increase in sales of brands within the premium price tier was primarily due to an increase in sales of our tequila brands.

These increases were partially offset by decreased sales of brands within the mid and value price tiers due to a decrease in sales volume.

Gross profit increased quarter versus quarter by $3,973, or 16 percent.

Gross margin for the quarter ended June 30, 2023 increased to 45.1 percent from 35.8 percent for the prior year quarter.

The increase in gross profit was primarily driven by an increase in sales volume and average selling price in the ultra premium price tier, partially offset by a decrease in sales volume of brands within the mid and value price tiers.

The following tables show selected financial information for the Branded Spirits segment for the year to date ended June 30, 2023 and 2022.

Gross margin for the quarter ended September 30, 2023 increased to 43.5 percent from 39.9 percent for the prior year quarter.

The increase in gross profit was primarily driven by an increase in sales volume and average selling price in the ultra premium price tier.

The following tables show selected financial information for the Branded Spirits segment for the year to date ended September 30, 2023 and 2022.

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)

2023 2022 $ Change % Change

11 unchanged sentences

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)

2023 2022 $ Change % Change

7 unchanged sentences

(d) Percentage points (“pp”).

Total sales of Branded Spirits for the year to date ended June 30, 2023 were in line with sales from the year ago period.

Total sales of Branded Spirits for the year to date ended September 30, 2023 increased by $4,240, or 2 percent compared to the year-ago period.

Sales of brands within the premium plus price tiers as well as sales within the other category increased while sales of brands within the mid and value price tiers decreased.

The increase in sales of brands within the ultra premium and premium price tiers was primarily due to an increase in average selling price as well as the additional brands acquired as part of the acquisition of Penelope.

Sales within the other category increased primarily due to increased sales volume of private label brands.

Sales of brands within the ultra premium and premium price tiers increased due to an increase in average selling price as well the additional brands acquired as part of the acquisition of Penelope.

These increases were primarily offset by decreased sales of brands within the mid price tier, primarily due to decreased sales volume.

Gross profit for the year to date ended June 30, 2023 increased by $4,854, or 11 percent.

Gross margin for the year to date ended June 30, 2023 increased to 44.2 percent from 40.0 percent for the prior year.

The increase in gross profit was primarily driven by an increase in average selling price in the ultra premium and premium price tier.

These increases were partially offset by decreased sales of brands within the mid price tier, primarily due to decreased sales volume as a result of shifting to higher margin accretive brands within the premium plus price tiers, partially offset by an increase in average selling price.

Gross profit for the year to date ended September 30, 2023 increased by $8,827, or 12 percent compared to the year-ago period.

Gross margin for the year to date ended September 30, 2023 increased to 43.9 percent from 40.0 percent for the prior year.

The increase in gross profit was primarily driven by an increase in average selling price in the premium plus, mid, value, and other price tiers.

These increases were partially offset by increased costs in the ultra premium price tier, the other category, and mid price tiers.

Ingredient Solutions

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended June 30, 2023 and 2022.

The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended September 30, 2023 and 2022.

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)

2023 2022 $ 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)

2023 2022 $ Change % Change

7 unchanged sentences

(d) Percentage points (“pp”).

Total sales of the Ingredient Solutions segment for the quarter ended June 30, 2023 increased by $5,242, or 18 percent, compared to the prior year quarter.

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

Additionally, sales for specialty wheat starches increased primarily due to higher average selling prices, partially offset by lower sales volume.

Total sales of the Ingredient Solutions segment for the quarter ended September 30, 2023 increased by $3,211, or 11 percent, compared to the prior year quarter, reflecting an increase across all product categories.

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

Gross profit increased quarter versus quarter by $3,064, or 38 percent.

Gross margin for the quarter ended June 30, 2023 increased to 33.6 percent from 29.0 percent for the prior year quarter.

The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input costs across all product categories.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date June 30, 2023 and 2022.

Gross margin for the quarter ended September 30, 2023 increased to 33.8 percent from 27.1 percent for the prior year quarter.

The increase in gross profit was primarily driven by higher average selling price of specialty wheat starch and proteins, partially offset by higher input costs across all product categories.

The following tables show selected financial information for the Ingredient Solutions segment for the year to date September 30, 2023 and 2022.

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)

2023 2022 $ 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)

2023 2022 $ Change % Change

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(d) Percentage points (“pp”).

Total sales of the Ingredient Solutions segment for the year to date ended June 30, 2023 increased by $8,171, or 14 percent, compared to the prior year period.

Total sales of the Ingredient Solutions segment for the year to date ended September 30, 2023 increased by $11,382, or 13 percent, compared to the prior year period, reflecting an increase across all product categories.

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

Additionally, sales of commodity wheat starches, specialty wheat starches, and commodity wheat proteins increased primarily due to higher average selling price.

Gross profit increased by $7,227, or 44 percent for the year to date ended June 30, 2023 compared to the prior year period.

Gross margin for the year to date ended June 30, 2023 increased to 36.4 percent from 29.0 percent for the prior year period.

The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input across all product categories.

Additionally, sales of commodity wheat starches and specialty wheat starches increased primarily due to higher average selling price, partially offset by lower sales volume.

Gross profit increased by $10,291, or 42 percent for the year to date ended September 30, 2023 compared to the prior year period.

Gross margin for the year to date ended September 30, 2023 increased to 35.5 percent from 28.3 percent for the prior year period.

The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input across those same product categories.

CASH FLOW, FINANCIAL CONDITION, AND LIQUIDITY

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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 $ 48,605 $ 72,253 $ (23,648)

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Increase (decrease) in cash and cash equivalents $ (19,859) $ 29,106 $ (48,965)

Cash decreased $25,930 for the year to date ended June 30, 2023, compared to an increase of $15,847 for the year to date ended June 30, 2022, for a net decrease in cash of $41,777, period versus period.

Cash decreased $19,859 for the year to date ended September 30, 2023, compared to an increase of $29,106 for the year to date ended September 30, 2022, for a net decrease in cash of $48,965, period versus period.

Operating Activities.

Cash provided by operating activities for the year to date ended June 30, 2023 was $20,156.

The cash provided by operating activities resulted primarily from net income of $62,996, adjustments for non-cash or non-operating charges of $17,041, including depreciation and amortization and share-based compensation, partially offset by cash used in operating assets and liabilities, net of the effects of acquisition, of $59,881.

The primary drivers of the changes in operating assets and liabilities were $41,020 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate and finished goods inventory, $35,833 use of cash related to increased accounts receivable, net due to timing of sales and customer payments during the quarter, and $7,048 use of cash related to a decrease in accrued expenses and other, primarily due to incentive compensation expense.

These uses of cash were partially offset, primarily by $22,328 cash provided by an increase in accounts payable due to timing of payments.

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

Cash provided by operating activities for the year to date ended September 30, 2023 was $48,605.

The cash provided by operating activities resulted primarily from net income of $76,084, adjustments for non-cash or non-operating charges of $42,912, including impairment of long-lived assets and other, depreciation and amortization, share-based compensation, and the change in fair value of contingent consideration, partially offset by cash used in operating assets and liabilities, net of the effects of acquisition, of $70,391.

The primary drivers of the changes in operating assets and liabilities were $42,015 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate, $14,980 use of cash related to increased accounts receivable, net due to timing of sales and customer payments during the quarter, and $10,069 use of cash related to a decrease in accounts payable due to timing of payments.

Cash provided by operating activities for the 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 an 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.

Investing Activities.

Cash used in investing activities for the year to date ended June 30, 2023 was $135,589, which primarily resulted from $104,398 related to the acquisition of Penelope, net of cash acquired, and additions to property, plant, and equipment of $30,055 (see “Capital Spending”).

Cash used in investing activities for the 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 the year to date ended September 30, 2023 was $146,690, which primarily resulted from $103,712 related to the acquisition of Penelope, net of cash acquired, and additions to property, plant, and equipment of $42,062 (see “Capital Spending”).

Cash used in investing activities for the 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”).

Capital Spending.

We manage capital spending to support our business growth plans.

We have incurred $23,863 and $14,553 of capital expenditures and have paid $30,055 and $18,087 for capital expenditures for the year to date ended June 30, 2023 and 2022, respectively.

We have incurred $36,879 and $28,524 of capital expenditures and have paid $42,062 and $29,217 for capital expenditures for the year to date ended September 30, 2023 and 2022, 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 provided by financing activities for the year to date ended June 30, 2023 was $89,462, due to net proceeds on debt of $95,600 (see “Long-Term and Short-Term Debt”), partially offset by payments of dividends and dividend equivalents of $5,337 (see “Dividends and Dividend Equivalents”), and purchases of treasury stock of $801 (see “Treasury Purchases”).

Cash used in financing activities for the 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 the year to date ended September 30, 2023 was $78,193, due to net proceeds on debt of $87,000 (see “Long-Term and Short-Term Debt”), partially offset by payments of dividends and dividend equivalents of $8,006 (see “Dividends and Dividend Equivalents”), and purchases of treasury stock of $801 (see “Treasury Purchases”).

Cash used in financing activities for the 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”).

Treasury Purchases.

22,592 RSUs vested and converted to shares of common stock for employees during the year to date ended June 30, 2023, of which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.

29,356 RSUs vested and converted to shares of common stock for employees during the 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.

22,592 RSUs vested and converted to shares of common stock for employees during the year to date ended September 30, 2023, of which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.

29,366 RSUs vested and converted to shares of common stock for employees during the 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.

Dividends and Dividend Equivalents

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May 4, 2023 May 19, 2023 June 2, 2023 0.12 0.12 2,641 27 2,668

August 3, 2023 August 18, 2023 September 1, 2023 0.12 0.12 2,642 27 2,669

$ 0.36 $ 0.36 $ 7,923 $ 83 $ 8,006

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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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On August 3, 2023, we announced a dividend payable to stockholders of record of our common stock, resulting in dividend equivalents payable to certain RSU holders, of $0.12 per share and per RSU.

The dividend and dividend equivalent are payable on September 1, 2023 to stockholders of record and certain RSU holders on August 18, 2023.

On November 2, 2023, we announced a dividend payable to stockholders of record of our common stock, resulting in dividend equivalents payable to certain RSU holders, of $0.12 per share and per RSU.

The dividend and dividend equivalent are payable on December 1, 2023 to stockholders of record and certain RSU holders on November 17, 2023.

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, merger and acquisition, and share repurchase activities), and the overall cost of capital.

Total debt was $325,104 (net of unamortized loan fees of $6,946) at June 30, 2023, and $230,335 (net of unamortized loan fees of $6,115) at December 31, 2022.

Total debt was $316,677 (net of unamortized loan fees of $6,773) at September 30, 2023, and $230,335 (net of unamortized loan fees of $6,115) at December 31, 2022.

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, 2023, we met those covenants and restrictions.

At June 30, 2023, our current assets exceeded our current liabilities by $402,198, largely due to our inventories, at cost, of $343,826.

At June 30, 2023, our cash balance was $21,959 and we have used our various debt agreements for liquidity purposes, with $302,000 available under our Credit Agreement for additional borrowings and up to $120,000 potentially available through August 23, 2023 under the Note Purchase Agreement (see Note 5).

Under our debt agreements, we must meet certain financial covenants and restrictions, and at September 30, 2023, we met those covenants and restrictions.

At September 30, 2023, our current assets exceeded our current liabilities by $413,808, largely due to our inventories, at cost, of $342,401.

At September 30, 2023, our cash balance was $28,030 and we have used our various debt agreements for liquidity purposes, with $309,000 available under our Credit Agreement for additional borrowings and $218,800 available under the Note Purchase Agreement (see Note 6).

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

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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