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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-22 · 177 added, 172 removed, 338 unchanged (51% of the section changed)

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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 Conditions and Results of Operations” of 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.

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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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MGP’s MD&A is presented in the following sections:

• Recent Developments

• Results of Operations

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• New Accounting Pronouncements

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

MGP is a leading producer of branded and distilled spirits as well as food ingredient solutions.

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

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

MGP was also a producer of high quality industrial alcohol for use in both food and non-food applications, which was primarily produced at our distillery located in Atchison, Kansas, prior to its closure during December 2023.

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.

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

Our branded spirits products account for a range of price points from value products through premium plus brands.

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.

Our ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

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Our Distilling Solutions segment mission is to cultivate lasting partnerships with customers across all product categories by leveraging our technical distilling expertise, strong sales and operating platform, aging whiskey inventory, and unique project development skills.

The favorable macro industry trends we anticipate will benefit our business include the expansion in the U.S.

of the distilled spirits’ share within beverage alcohol, particularly growth of the American whiskey category that has continued to expand over the past several years.

These macro industry trends also include shifting sales mix to higher margin products, such as premium brown goods.

Our Distilling Solutions segment is also subject to unfavorable macro industry trends, which include increased competition as industry participants seek to capitalize on consumer trends, inflation impacts on customers, overall American whiskey supply and consumer consumption patterns, as well as increased commodity prices.

Our strategy for the Distilling Solutions segment is to further develop our existing customer relationships, expand our Kentucky whiskey sales platform, cultivate additional multi-national and craft customers for brown goods sales, and increase our global presence in the American whiskey market.

During 2023, we continued to focus on attracting customers and developing customer relationships for our premium beverage alcohol products as well as shifting our focus away from industrial alcohol, fuel grade alcohol, and white beverage alcohol.

Distilling Solutions segment sales for 2023 increased 5 percent over the prior year.

Our Distilling Solutions segment is subject to unfavorable macro industry trends, which include increased competition as industry participants seek to capitalize on consumer trends, inflation and interest rate impacts on customers, overall American whiskey supply and consumer consumption patterns, as well as increased commodity prices.

Our strategy for the Distilling Solutions segment is to further develop our existing customer relationships, expand our core strengths through

innovation, services and stability, cultivate additional domestic customers for brown goods sales, and increase our global presence in the American whiskey market.

We continue to focus on attracting customers and developing customer relationships for our brown goods as well as shifting our focus away from industrial alcohol, fuel grade alcohol, and white beverage alcohol.

During 2024, the industry experienced a softening of American whiskey category trends as well as elevated industry-wide barrel whiskey inventories, which led to instances of customer contract non-performance that put pressure on our brown goods business.

We expect these trends to continue.

Distilling Solutions segment sales for 2024 decreased 26 percent over the prior year.

Branded Spirits Segment

Our Branded Spirits segment mission is to align our product offering and enhance focus on growing spirits categories and price tiers.

The favorable macro industry trends we anticipate will benefit our business include growth in high-end whiskey and tequila brands as well as growth in the U.S.

across all spirit categories in the premium plus price tiers.

Our Branded Spirits segment is also subject to unfavorable macro industry trends, which include inflation impacts on consumers, and increased

competition as industry participants seek to capitalize on consumer trends.

The favorable macro industry trends we anticipate will benefit our business in the long-term include growth in high-end whiskey and tequila brands as well as long-term growth in the U.S.

across all spirit categories in the premium plus price tier.

Our Branded Spirits segment is also subject to unfavorable macro industry trends, which include inflation and interest rate impacts on consumers, increased competition as industry participants seek to capitalize on consumer trends, as well as changes in consumer consumption patterns.

Our strategy for the Branded Spirits segment is to focus on the right brands at the right price points in the right spirits categories to maximize profit for the Company.

Additionally, our strategy is to grow our overall points of distribution, increase innovation, build brand awareness, and continue to invest in our people.

Branded Spirits segment sales for 2023 increased 7 percent over the prior year.

Branded Spirits segment sales for 2024 decreased 5 percent over the prior year.

Ingredient Solutions Segment

Our Ingredient Solutions segment mission is to remain a strategic business partner of choice earning meaningful relationships through collaboration, innovation, and dedication to best-in-class customer service.

The favorable macro industry trends we anticipate will benefit our business include growth and focus on high fiber, high protein, meat alternatives, plant-based protein, and non-GMO products.

The favorable macro industry trends we anticipate will benefit our business include more consumer focus on high fiber and lower net carbs, high protein, plant-based protein, and non-GMO products.

We continue to provide customer solutions, taking advantage of our position within growing consumer trends.

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and continue to innovate and expand opportunities through research and development.

Ingredient Solutions segment sales for 2023 increased 14 percent over the prior year.

RECENT DEVELOPMENTS

Acquisition of Penelope

On May 8, 2023, we entered into a definitive agreement to acquire 100 percent of the equity of Penelope, and subsequently completed the acquisition on June 1, 2023 (the “Acquisition”).

Penelope, prior to our acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers.

As a result of the acquisition, we enhanced our presence in the growing American whiskey category and expanded our portfolio of premium plus price tier brands.

Following the acquisition, Penelope became a wholly owned subsidiary of the Company and its financial results are included in the Branded Spirits segment (see Note 4, Business Combination for additional information).

Closure of the Atchison Distillery

On July 13, 2023, we announced the decision by our Board of Directors to approve the closure of our distillery located in Atchison, Kansas (the “Atchison Distillery”).

The Atchison Distillery ceased operations in December 2023.

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

During the year ended December 31, 2023, we recorded a $17,112 impairment of assets related to the Atchison Distillery closure, which was recorded in the impairment of long-lived assets and other line on the Consolidated Statement of Income.

The impaired assets were recorded within the Distilling Solution segment.

Additionally, we recorded $2,279 of expenses related to severance costs, inventory write offs, contract termination fees, consulting fees, and other miscellaneous expenses related to the Atchison Distillery closure, which were recorded in the impairment of long-lived assets and other line on the Consolidated Statement of Income for the year ended December 31, 2023 (see Note 6, Closure of the Atchison Distillery for additional information).

Ingredient Solutions segment sales for 2024 decreased 1 percent over the prior year.

RESULTS OF OPERATIONS

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SG&A expenses 81,391 91,395 74,627 (11) 22

Impairment of long-lived assets and other 19,391 — — N/A N/A

Change in fair value of contingent consideration 7,100 — — N/A N/A

Insurance recoveries — — (16,325) N/A N/A

Impairment of long-lived assets and other 137 19,391 — (99) N/A

Goodwill impairment

73,755 — — N/A N/A

Change in fair value of contingent consideration 16,100 7,100 — 127 N/A

Operating income 74,426 148,613 148,965 (50) —

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Interest expense, net (8,439) (6,647) (5,451) 27 22

Other expense, net (220) (3,342) (1,230) (93) 172

Other income (expense), net

2,455 (220) (3,342) (1,216) (93)

Income before income taxes 68,442 141,746 140,172 (52) 1

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(a) Percentage points (“pp”).

2024 to 2023 - Sales for 2024 were $703,625, a decrease of 16 percent compared to 2023, which was the result of decreased sales in each segment.

Distilling Solutions segment sales decreased 26 percent, primarily due to decreased sales of white goods and other co-products in connection with the December 2023 closure of the Atchison Distillery and decreased brown goods sales.

Branded Spirits segment sales decreased 5 percent, primarily due to decreased sales of brands within the mid and value price tiers.

Ingredient Solutions segment sales decreased 1 percent, primarily due to decreased sales of specialty wheat proteins and commodity wheat starches, partially offset by increased sales of specialty wheat starches.

2023 to 2022 - Sales for 2023 were $836,523, an increase of 7 percent compared to 2022, which was the result of increased sales in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments.

Distilling Solutions segment sales increased 5 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol.

Branded Spirits segment sales increased 7 percent, primarily due to increased sales of brands in the premium plus price tiers.

Distilling Solutions segment sales were up 5 percent, primarily due to an increase in sales of brown goods.

Branded Spirits segment sales increased 7 percent, primarily due to increased sales of brands in the premium plus price tier.

Ingredient Solutions segment sales increased 14 percent due to increased sales across all Ingredient Solutions product lines.

2022 to 2021 - Sales for 2022 were $782,358, an increase of 25 percent compared to 2021, 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 22 percent, primarily due to an increase in sales of brown goods within premium beverage alcohol.

Total Branded Spirits segment sales increased 30 percent, due to an increase in sales across all price tier categories.

Total Ingredient Solutions segment sales increased 28 percent, primarily due to increased sales of specialty wheat starches and proteins.

2024 to 2023 - Gross profit for 2024 was $286,317, a decrease of 6 percent compared to 2023.

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

The Ingredient Solutions segment gross profit decreased by $20,773, or 44 percent.

The Distilling Solutions segment gross profit decreased by $3,037, or 2 percent.

The Branded Spirits segment gross profit increased by $5,415, or 5 percent.

2023 to 2022 - Gross profit for 2023 was $304,712, an increase of 20 percent compared to 2022.

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The Ingredient Solutions segment gross profit increased by $15,464, or 49 percent.

2022 to 2021 - Gross profit for 2022 was $253,306, an increase of 27 percent compared to 2021.

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

The Branded Spirits segment gross profit increased by $32,877, or 52 percent.

The Distilling Solutions segment gross profit increased by $12,176, or 11 percent, and the Ingredient Solutions segment gross profit increased by $9,288, or 42 percent.

Advertising and promotion expenses

2024 to 2023 - Advertising and promotion expenses for 2024 were $40,508, an increase of 6 percent compared to 2023.

This increase was primarily driven by increased advertising and promotion investment in the Branded Spirits segment, primarily in the premium plus price tiers.

This increase was primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

2023 to 2022 - Advertising and promotion expenses for 2023 were $38,213, an increase of 29 percent compared to 2022.

This was primarily driven by an increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.

The increase was also driven by the assumption of Luxco’s advertising and promotion expenses for the full year of 2022.

This increase was primarily driven by increased advertising and promotion investment in the Branded Spirits segment, primarily in the premium plus price tiers.

SG&A expenses

2024 to 2023 - SG&A expenses for 2024 were $81,391, a decrease of 11 percent compared to 2023.

The decrease in SG&A expenses was primarily due to reduced incentive compensation expenses.

2023 to 2022 - SG&A expenses for 2023 were $91,395, an increase of 22 percent compared to 2022.

The increase in SG&A expenses was primarily due to higher personnel expenses and incentive compensation, inclusive of certain incremental costs incurred relating to our CEO transition, and business acquisition expenses related to the acquisition of Penelope.

2022 to 2021 - SG&A expenses for 2022 were $74,627, an increase of 2 percent compared to 2021.

The increase in SG&A was driven by the assumption of Luxco’s SG&A expenses for the full year of 2022, as well as higher personnel and incentive compensation expense, partially offset by a decrease in advisory and other transaction costs in 2021 related to the merger with Luxco that did not recur in 2022.

Operating income

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Operating income for 2022

Increase in gross profit - Branded Spirits segment (a)

32,877 26 pp (b)

Increase in gross profit - Distilling Solutions segment (a)

18,682 13 pp (b)

Increase in gross profit - Branded Spirits segment (a)

Increase in gross profit - Ingredient Solutions segment (a)

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Increase in SG&A expenses (16,768) (11) pp

Decrease in insurance recoveries (16,325) (13) pp

Impairment of long-lived assets and other (19,391) (13) pp

Change in fair value of contingent consideration (7,100) (5) pp

Operating income for 2023

Increase in gross profit - Distilling Solutions segment (a)

Decrease in gross profit - Ingredient Solutions segment (a)

(20,773) (14) pp (b)

Decrease in gross profit - Distilling Solutions segment (a)

(3,037) (2) pp

Increase in gross profit - Branded Spirits segment (a)

Increase in gross profit - Ingredient Solutions segment (a)

Increase in advertising and promotion expenses (2,295) (2) pp

Increase in SG&A expenses (16,768) (11) pp

Impairment of long-lived assets and other (19,391) (13) pp

Decrease in SG&A expenses

Decrease in impairment of long-lived assets and other

Goodwill impairment

(73,755) (50) pp

Change in fair value of contingent consideration (9,000) (6) pp

Operating income for 2024

$ 74,426 (50) %

(a) See segment discussion.

(b) Percentage points (“pp”).

2023 to 2022 - Operating income for 2023 decreased to $148,613 from $148,965 for 2022, primarily due to the impairment of assets and other expenses of $19,391 related to the closure of the Atchison Distillery, increased SG&A expenses and advertising and promotion expenses as discussed above, and the change in fair value of the contingent consideration of $7,100 related to the Penelope acquisition.

2024 to 2023 - Operating income for 2024 decreased to $74,426 from $148,613 for 2023, primarily due to the $73,755 goodwill impairment related to the Branded Spirits segment recorded during the fourth quarter 2024, the decrease in gross profit in the Ingredient Solutions segment, the change in fair value of the contingent consideration liability related to the Penelope acquisition, the decrease in gross profit in the Distilling Solutions segment, and the increase in advertising and promotion expenses, as discussed above.

These decreases were partially offset by the impact of the impairment of assets and other expenses in the prior year related to the closure of the Atchison Distillery which closed in December 2023, the decrease in SG&A expenses as discussed above, and the increase in gross profit in the Branded Spirits segment.

2023 to 2022 - Operating income for 2023 decreased to $148,613 from $148,965 for 2022, primarily due to the impairment of assets and other expenses of $19,391 related to the closure of the Atchison Distillery, increased SG&A expenses and advertising and promotion expenses as discussed above, and the change in fair value of contingent consideration of $7,100 related to the Penelope acquisition.

These impacts were mostly offset by increased gross profit in all three segments.

2022 to 2021 - Operating income for 2022 increased to $148,965 from $126,363 for 2021, due to increases in gross profit in the Branded Spirits, Distilling Solutions, and Ingredient Solutions segments.

These increases were partially offset by a decrease in insurance recoveries as well as increases in advertising and promotion expenses and SG&A expenses.

Income tax expense

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Income tax expense for 2023 was $34,616, for an effective tax rate for the year of 24.4 percent.

The 2.1 percentage point increase was primarily due to an increase in valuation allowances and lower tax credits.

The 25.2 percentage point increase was primarily due to the nondeductible impairment of goodwill, partially offset by a decrease in valuation allowance.

2023 to 2022 - Income tax expense for 2023 was $34,616, for an effective tax rate for the year of 24.4 percent.

Income tax expense for 2022 was $31,300, for an effective tax rate for the year of 22.3 percent.

The 2.7 percentage point decrease was primarily due to an increase in state tax credits due to capital expenditures investments.

The 2.1 percentage point increase was primarily due to an increase in valuation allowances and lower tax credits.

Basic and diluted EPS

EPS % Increase (Decrease)

Basic and Diluted EPS for 2021 $ 4.37

Basic EPS for 2022 $ 4.94

Change in operating income (a)

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(0.04) (1) pp

Change in other expense, net (a)

(0.08) (2) pp

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

Change in weighted average shares outstanding (c)

(0.51) (12) pp

Change in effective tax rate (0.15) (3) pp

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(0.06) (2) pp

Change in other expense, net (a)

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

Change in weighted average shares outstanding (c)

Change in effective tax rate (0.77) (16) pp

Basic EPS for 2023

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

Diluted EPS for 2023

Basic and diluted EPS for 2024

$ 1.56 (68) %

(a) Items are net of tax based on the effective tax rate for each base year.

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(c) Weighted average shares outstanding change primarily related to the vesting of employee restricted stock units (“RSUs”), our withholding and purchase of vested RSUs from employees to pay withholding taxes, and the granting of Common Stock to directors.

Additionally, during 2021, the weighted average shares outstanding were impacted by the issuance of shares as part of the Merger consideration.

2023 to 2022 - Basic EPS decreased to $4.82 in 2023 from $4.94 in 2022, primarily due to the increase in effective tax rate, partially offset by a decrease in other expenses, net.

Diluted EPS decreased to $4.80 in 2023 from $4.92 in 2022, primarily due to the above described changes in basic EPS as well as the impact of the dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

2022 to 2021 - Basic EPS increased to $4.94 in 2022 from $4.37 in 2021, primarily due to the 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.

Diluted EPS increased to $4.92 in 2022 from $4.37 in 2021, primarily due to the above described changes in basic EPS, partially offset by the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

Additionally, during 2024, the weighted average shares outstanding were impacted by shares repurchased, pursuant to the Company’s share repurchase program.

2024 to 2023 - Basic and diluted EPS was $1.56 in 2024, compared to $4.82 and $4.80, respectively in 2023.

The change in basic and diluted EPS was primarily due to a decrease in operating income and increase in the effective tax rate, both driven primarily by the nondeductible goodwill impairment.

Additionally, the decrease was related to an increase in interest expense.

These decreases were partially offset by the change other income (expense), net related to equity method investment income.

2023 to 2022 - Basic EPS decreased to $4.82 in 2023 from $4.94 in 2022, primarily due to the increase in effective tax rate, partially offset by a decrease in other income (expense), net.

Diluted EPS decreased to $4.80 in 2023 from $4.92 in 2022, primarily due to the above described changes in basic EPS as well as the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.

DISTILLING SOLUTIONS SEGMENT

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Brown goods $ 265,873 $ 289,191 $ (23,318) (8) %

White Goods 58,645 74,510 (15,865) (21)

Premium beverage alcohol 347,836 304,033 43,803 14

Industrial alcohol 38,010 46,812 (8,802) (19)

Food grade alcohol 385,846 350,845 35,001 10

Fuel grade alcohol 7,798 13,681 (5,883) (43)

Distillers feed and related co-products 28,578 40,354 (11,776) (29)

Warehouse services 33,430 28,632 4,798 17

White goods and other co-products 32,901 133,031 (100,130) (75)

Total Distilling Solutions $ 332,204 $ 450,854 $ (118,650) (26) %

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Net Price/Mix (c)

Premium beverage alcohol 14% (8)% 22%

Brown goods (8)% 5% (13)%

Other Financial Information

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The product is then divided by prior period sales dollars.

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

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

The product is then divided by prior period sales dollars.

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2024 compared to 2023

Total Distilling Solutions sales for 2023 increased by $22,376, or 5 percent, compared to 2022.

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 2022.

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

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 in connection with the Atchison Distillery closure.

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

Gross profit increased year versus year by $18,682, or 15 percent.

Total Distilling Solutions sales for 2024 decreased by $118,650, or 26 percent, compared to 2023.

The decrease in sales of the Distilling Solution segment is primarily related to the decrease in sales volume of white goods and other co-products, which was due to the closure of the Atchison Distillery during December 2023.

The decrease in brown goods was primarily related to a decrease in net price/mix (as defined above), partially offset by increased sales volume.

The brown goods decline was primarily the result of softening American whiskey category trends and elevated industry-wide barrel inventories, leading to softer than expected spot sales, and instances of customer contract non-performance.

These dynamics put pressure on our brown goods business.

These decreases were partially offset by increased sales of warehouse services.

Gross profit decreased year versus year by $3,037, or 2 percent.

Gross margin for 2024 increased to 42.7 percent from 32.2 percent for 2023.

The increase in gross profit was due primarily to increased average selling price and volume of higher margin brown goods.

This increase was partially offset by larger gross profit losses in the Atchison Distillery.

The decrease in gross profit was due primarily to a decrease in brown goods sales due to net price/mix as we sold younger barrels on average in 2024 compared to 2023.

This decline was partially offset by the positive impact the closure of the Atchison Distillery had on white goods and other co-products’ gross profit and gross margin.

DISTILLING SOLUTIONS SALES

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Brown goods $ 289,191 $ 229,523 $ 59,668 26 %

White Goods 74,510 75,818 (1,308) (2)

Premium beverage alcohol 304,033 237,892 66,141 28

Industrial alcohol 46,812 62,628 (15,816) (25)

Food grade alcohol 350,845 300,520 50,325 17

Fuel grade alcohol 13,681 14,916 (1,235) (8)

Distillers feed and related co-products 40,354 19,545 20,809 106

Warehouse services 28,632 23,598 5,034 21

White goods and other co-products 133,031 175,357 (42,326) (24)

Total Distilling Solutions $ 450,854 $ 428,478 $ 22,376 5 %

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Net Price/Mix (c)

Premium beverage alcohol 28% 12% 16%

Brown goods 26% 3% 23%

Other Financial Information

6 unchanged sentences

The product is then divided by prior period sales dollars.

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

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

The product is then divided by prior period sales dollars.

2 unchanged sentences

Total Distilling Solutions sales for 2023 increased by $22,376, or 5 percent, compared to 2022.

Sales of brown goods within premium beverage alcohol, distillers feed and related co-products, and warehouse services increased while industrial alcohol, white goods within premium beverage alcohol, and fuel grade alcohol decreased compared to 2021.

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

The increase in sales of distillers feed and related co-products was due to higher average selling price, partially offset by lower sales volumes, both of which primarily resulted from the previously disclosed dryer fire at our Atchison facility which occurred in 2020.

Our warehouse services sales increased due to the increase in storage of our customer owned barreled whiskey and related warehouse services that we provide.

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

Sales of brown goods and warehouse services increased while white goods and other co-products decreased compared to 2022.

The increase in sales of brown goods was driven by an increase in net price/mix and higher sales volume.

This increase was partially offset by a decrease in sales of white goods and other co-products which was driven primarily by lower sales volume in connection with the Atchison Distillery closure, partially offset by higher net price/mix.

Gross profit increased year versus year by $18,682, or 15 percent.

Gross margin for 2022 decreased to 29.5 percent from 32.4 percent for 2021.

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 lower gross profit in industrial alcohol, white goods, and fuel grade alcohol, all of which were driven by 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.

Gross margin for 2023 increased to 32.2 percent from 29.5 percent for 2022.

The increase in gross profit was due primarily to increased net/price mix and increased volume of higher margin brown goods.

This increase was partially offset by larger gross profit losses in the Atchison Distillery.

BRANDED SPIRITS SEGMENT

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2024 2023 $ Change % Change

Ultra Premium $ 63,748 $ 48,245 $ 15,503 32 %

Super Premium 13,424 12,274 1,150 9

Premium 28,293 24,211 4,082 17

Premium Plus 105,465 84,730 20,735 24

$ 110,991 $ 105,465 $ 5,526 5 %

Mid 63,454 75,676 (12,222) (16)

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The product is then divided by prior period sales dollars.

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

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

The product is then divided by prior period sales dollars.

1 unchanged sentence

2024 compared to 2023

Total Branded Spirits sales for 2023 increased by $15,994, or 7 percent, compared to 2022.

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

The increase in sales of brands within the premium plus price tiers was primarily due to the acquisition of Penelope, an increase in average selling price, and an increase in sales volume.

Sales within the value and other categories increased primarily due to an increase in average selling price.

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 sales shifting to higher margin accretive brands within the premium plus price tiers, partially offset by an increase in average selling price within the mid price tier.

Total Branded Spirits sales for 2024 decreased by $13,117, or 5 percent, compared to 2023, due primarily to our optimization efforts, including increased pricing on certain lower margin mid and value brands, which resulted in decreased sales volume of select brands within those price tiers.

This decrease was partially offset by an increase in sales of brands within the premium plus price tier, which was primarily due to the acquisition and growth of Penelope.

Gross profit increased year versus year by $5,415, or 5 percent.

Gross margin for 2024 increased to 49.1 percent compared to 44.4 percent for 2023.

The increase in gross profit was primarily driven by contributions from the acquisition of Penelope as well as by higher average selling price in the premium plus price tiers, value, mid, and other price tiers.

These increases were partially offset by increased input costs across all categories.

The increase in gross profit was primarily driven by increased net price/mix driven primarily by the acquisition of Penelope, and increased pricing on certain mid and value brands.

The increase was also driven by lower average unit cost within the segment.

BRANDED SPIRITS SALES

Year Ended December 31, Year-versus-Year Sales Change Increase/ (Decrease)

2022 2021 $ Change % Change

Ultra Premium $ 48,245 $ 27,722 $ 20,523 74 %

Super Premium 12,274 8,937 3,337 37

Premium 24,211 17,626 6,585 37

Premium Plus 84,730 54,285 30,445 56

2023 2022 $ Change

$ 105,465 $ 84,730 $ 20,735 24 %

Mid 75,676 82,530 (6,854) (8)

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The product is then divided by prior period sales dollars.

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

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

The product is then divided by prior period sales dollars.

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Total Branded Spirits sales for 2023 increased by $15,994, or 7 percent compared to 2022.

Sales across all pricing tiers increased compared to 2021, primarily due to the additional brands acquired as part of the Merger that occurred on April 1, 2021.

Additionally, sales increased in the premium plus price tiers due primarily to increased sales of American whiskey brands.

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

The increase in sales of brands within the premium plus price tier was primarily due to the acquisition of Penelope, an increase in net price/mix, and an increase in sales volume.

Sales within the value and other categories increased primarily due to an increase in net price/mix.

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 sales shifting to higher margin accretive brands within the premium plus price tier, partially offset by an increase in net price/mix within the mid price tier.

Gross profit increased year versus year by $17,260, or 18 percent.

Gross margin for 2023 increased to 44.4 percent compared to 40.1 percent for 2022.

The increase in gross profit was primarily driven by volume associated with the additional brands acquired as part of the Merger, increased average net price and mix 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.

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.

Additionally, gross profit increased due to increased sales of American whiskey brands within our premium plus price tiers.

The increase in gross profit was primarily driven by contributions from the acquisition and growth of Penelope as well as by higher net price/mix in the premium plus, value, mid, and other price tiers.

These increases were partially offset by increased input costs across all categories.

INGREDIENT SOLUTIONS SEGMENT

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The product is then divided by prior period sales dollars.

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

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

The product is then divided by prior period sales dollars.

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2024 compared to 2023

Total Ingredient Solutions sales for 2023 increased by $15,795, or 14 percent, compared to 2022.

The increase in Ingredient Solutions sales was driven by increases in sales in all product lines.

The higher sales of specialty wheat proteins was driven by higher average selling price and higher sales volume.

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

Gross profit increased year versus year by $15,464, or 49 percent.

Gross margin for 2023 increased to 35.7 percent from 27.2 percent for 2022.

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

Total Ingredient Solutions sales for 2024 decreased by $1,131, or 1 percent, compared to 2023.

The decrease was primarily driven by decreased net price/mix across all product categories, as well as a decrease in sales volume of specialty wheat proteins primarily due to continued export market headwinds.

Additionally, the decrease was attributable to a decrease in sales volume of commodity wheat starches.

These decreases were partially offset by an increase in sales volume of specialty wheat starches.

Gross profit decreased year versus year by $20,773, or 44 percent.

Gross margin for 2024 decreased to 20.1 percent from 35.7 percent for 2023.

The decrease in gross profit was primarily driven by higher input costs associated with the removal of the intercompany credit for the waste starch slurry by-product since the closure of the Atchison Distillery, as well as other costs incurred to ready the waste starch for commercial sale.

Additionally, we incurred incremental costs for the new extrusion manufacturing facility as well as other unexpected plant related costs during the year.

The decrease in gross profit was also attributable to decreased net price/mix and sales volume of specialty wheat proteins.

INGREDIENT SOLUTIONS SALES

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The product is then divided by prior period sales dollars.

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

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

The product is then divided by prior period sales dollars.

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Total Ingredient Solutions sales for 2023 increased by $15,795, or 14 percent, compared to 2022.

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

Additionally, the increase in Ingredient Solutions sales was driven by higher sales of commodity wheat starches primarily 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.

The increase in Ingredient Solutions sales was driven by increases in sales in all product lines.

The higher sales of specialty wheat proteins was driven by higher net price/mix and higher sales volume.

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

Gross profit increased year versus year by $15,464, or 49 percent.

Gross margin for 2023 increased to 35.7 percent from 27.2 percent for 2022.

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

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

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

CASH FLOW, FINANCIAL CONDITION, AND LIQUIDITY

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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 mergers and acquisitions, and anticipated operating requirements for the next 12 months and beyond.

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 next 12 months and beyond.

Cash Flow Summary Year Ended December 31, Changes, Year versus Year-Increase / (Decrease)

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Cash provided by operating activities was $102,278 during the year ended December 31, 2024.

The cash provided by operating activities during 2024 resulted primarily from net income of $34,465 and adjustments for non-cash or non-operating charges of $114,994, including goodwill impairment, depreciation and amortization, the change in fair value of contingent consideration, and share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of $47,181.

The primary drivers of the changes in operating assets and liabilities were $18,155 use of cash related to an increase in inventories, primarily barreled distillate, and $15,111 use of cash related to accrued expenses and other related to reduced incentive compensation expenses.

Cash provided by operating activities was $83,783 during the year ended December 31, 2023.

The cash provided by operating activities during 2023 resulted primarily from net income of $107,130, and adjustments for non-cash or non-operating charges of $56,263, including depreciation and amortization, impairment of long-lived assets and other, share-based compensation, partially offset by uses of cash due to changes in operating assets and liabilities of $79,610.

The primary drivers of the changes in operating assets and liabilities were $46,921 use of cash related to an increase in inventories, primarily barreled distillate, and $32,397 use of cash related to an increase in receivables.

Cash provided by operating activities was $88,936 during the year ended December 31, 2022.

The cash provided by operating activities during 2022 resulted primarily from net income of $108,872, adjustments for non-cash or non-operating charges of $30,382, including depreciation and amortization, share-based compensation, equity method investment loss, and by uses of cash due to changes in operating assets and liabilities of $50,318.

The primary drivers of the changes in operating assets and liabilities were $44,350 use of cash related to an increase in inventories, primarily barreled distillate, and $16,786 use of cash related to an increase in receivables, partially offset by $10,626 of cash provided by an increase in accounts payable related to the timing of cash disbursements.

Investing Activities.

Cash used in investing activities for the year ended December 31, 2023 was $159,242, which primarily resulted from $103,712 related to the acquisition of Penelope and additions to property, plant and equipment of $55,267 (see “Capital Spending”).

Cash used in investing activities for the year ended December 31, 2024 was $71,558, which primarily resulted from additions to property, plant and equipment of $71,181 (see “Capital Spending”).

Capital Spending.

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Financing Activities .

Cash used in financing activities for the year ended December 31, 2024 was $23,803, due to repurchases of Common Stock of $48,773 (see “Treasury Purchases” and “Share Repurchases”), and payments of dividends and dividend

equivalents of $10,630 (see Note 9, Equity and EPS for additional information), partially offset by net proceeds on long-term debt of $35,600 (see Long-Term and Short-Term Debt).

Cash provided by financing activities for the year ended December 31, 2023 was $45,924, primarily due to net proceeds on long-term debt of $57,400 (see Long-Term and Short-Term Debt), partially offset by payments of dividends and dividend equivalents of $10,675 (see Note 9, Equity and EPS for additional information).

Cash used in financing activities for the year ended December 31, 2022 was $14,764, primarily due to payments of dividends and dividend equivalents of $10,646 (see Note 9, Equity and EPS for additional information), and principal payments on long-term debt of $3,403 (see Long-Term and Short-Term Debt).

Treasury Purchases.

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22,592 RSUs vested and converted to common shares during the year ended December 31, 2023, of which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.

Share Repurchases.

On February 29, 2024, we announced that our Board of Directors approved a $100,000 share repurchase program.

Under the share repurchase program, we can repurchase Common Stock from time to time for cash in open market purchases, privately negotiated transactions, or by other means, in accordance with applicable securities laws and other legal requirements.

The repurchase program has no expiration date and may be modified, suspended, or discontinued at any time by the Company without prior notice.

During the year ended December 31, 2024, we repurchased 886,936 shares of Common Stock for approximately $46,588, resulting in approximately $53,412 remaining under the share repurchase program.

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 Board-approved dividends) and the overall cost of capital.

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, Board-approved dividends and share repurchases) and the overall cost of capital.

Total debt was $323,541 (net of unamortized loan fees of $5,909) at December 31, 2024 and $287,249 (net of unamortized loan fees of $6,601) at December 31, 2023.

Net borrowings / (payments) on all debt for 2023 and 2022 were $57,400, and $(3,403), respectively (see Note 7, Corporate Borrowings for additional information).

Net borrowing on all debt for 2024 and 2023 were $35,600, and $57,400, respectively (see Note 7, Corporate Borrowings for additional information).

Dividends and Dividend Equivalents.

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On February 26, 2025, we announced a dividend payable to stockholders of record of our Common Stock, resulting in dividend equivalents payable to RSU holders, of $0.12 per share and per RSU.

The dividend and dividend equivalent are payable on March 29, 2024 to stockholders of record and RSU holders on March 15, 2024.

The dividend and dividend equivalent are payable on March 28, 2025 to stockholders of record and RSU holders as of March 14, 2025.

Financial Condition and Liquidity

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

Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, and investments supporting our strategic plan, such as capital expenditures, the aging of barreled distillate primarily to support our branded spirits segment, and potential mergers or acquisitions.

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

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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, dividend payments as well as potential mergers and acquisitions.

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

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

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CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain.

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These should be read in conjunction with the significant accounting policies discussed in Note 1, Nature of Operations and Summary of Significant Accounting Policies.

Business Combinations.

The acquisition of Penelope was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, we allocated the consideration paid for the business to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market.

Critical estimates used in determining the fair value include, but are not limited to discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates, and market comparables, among others.

The fair value of work-in process and finished goods inventory was determined using the comparative sales method and raw materials was determined using the replacement cost method.

The trade names and

distributor relationships acquired were recorded at fair value using the relief from royalty method and multi-period excess earnings method, respectively.

Management engaged a third-party valuation specialist to assist in the valuation analysis of certain acquired assets including trade name and distributor relationship.

Contingent Consideration .

The estimated fair value of the contingent consideration obligation at the Acquisition date was determined using a Monte Carlo simulation approach.

The estimated fair value of the contingent consideration obligation associated with the acquisition of Penelope Bourbon LLC (“Penelope”) was determined using a Monte Carlo simulation approach at the acquisition date.

This approach requires significant assumptions, including projected net sales, discount rates, and volatility rates.

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The adjustment to fair value is recorded in the change in fair value of contingent consideration line on the Consolidated Statements of Income.

Goodwill and Other Intangible Assets.

The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value.

Goodwill and Indefinite-Lived Intangible Assets.

We test goodwill and indefinite-lived intangible assets for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value.

We have the option to evaluate qualitative factors to assess if goodwill and indefinite-lived intangible assets are impaired before quantifying the fair value of the reporting unit.

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To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units.

Based on the impairment tests performed by the Company during the fourth quarter 2023, we believe none of our goodwill or indefinite-lived intangible assets are impaired and are not currently at risk of impairment.

During the fourth quarter, we experienced a decrease in stock price and market capitalization as well as experienced the effects of the softening alcohol industry which contributed to declines in current year consolidated results and our forecasted outlook.

Based on these factors, we performed a quantitative assessment of goodwill and our indefinite-lived intangible assets.

Goodwill - We engaged a third party valuation specialist to assist in comparing the fair value of the Branded Spirits reporting unit to the respective carrying value.

The estimate of fair value of our reporting unit was calculated using equal weighting of the income approach that utilized the discounted cash flow method and the market approach that utilized the guideline public company method.

Estimates in the determination of fair value of the reporting unit through the income approach were based on (i) discount rates based on the reporting unit’s weighed average cost of capital, (ii) future expected cash flows including revenue and operating margin projections, and (iii) long-term growth rates based on inflation forecasts, industry growth, and long-term economic growth potential.

The market approach compares enterprise value and historical and projected results of public companies that reflect economic conditions and risks that are similar to the reporting unit to calculate an estimated enterprise value.

These assumptions are based on historical trends as well as the projections and assumptions used in our budget and long-range plans.

These assumptions reflect our estimates of future economic and competitive conditions which can be affected by several factors such as inflation, business valuations in the market, the economy, and market competition.

Any changes in these assumptions may affect our fair value estimate and the results of an impairment test.

As a result of the quantitative goodwill impairment test, we recorded an impairment charge of $73,755 to adjust the carrying amount of the Branded Spirits reporting unit to fair value.

This goodwill impairment is included as a component of operating income in the Consolidated Statement of Income for the year ended December 31, 2024 and as a reduction of goodwill in the Consolidated Balance Sheet as of December 31, 2024.

Assumptions used in impairment testing are made at a point in time and require significant judgment;

therefore, they are subject to change based upon the facts and circumstances present at each impairment test date.

Additionally, these assumptions are generally interdependent and do not change in isolation.

However, as it is reasonably possible that changes in assumptions could occur, as a sensitivity measure, we have presented the estimated effects of isolated changes in discount rates and long-term growth rates on the fair value of our reporting unit.

These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.

The most sensitive assumption used in the analysis was a 10 percent discount rate.

A 50 basis point increase to the discount rate would result in an approximate $17,000 increase in the impairment expense recorded, while a 50 basis point decrease in the rate would result in an approximate $20,000 decrease in the impairment expense recorded.

The revenue projections and long-term growth rate assumptions are less sensitive.

All else equal, a 50 basis point change in the average revenue projection or long-term growth rate would result in a change in impairment expense between $5,000 and $15,000.

Indefinite-lived intangibles - Additionally, in connection with the assessment of the same events and circumstances as discussed above, we performed a quantitative impairment test of our indefinite-lived intangible assets.

The estimated fair value of our indefinite-lived intangible assets was calculated based on the income approach that utilized the relief from royalty method.

When estimating the fair value, we made certain assumptions for our future revenue projections, market royalty rates, and discount rates.

These assumptions reflect our estimates of future economic and competitive conditions which consider many factors including macroeconomic conditions, industry growth rates and competition.

These factors are subject to change as a result of changing market conditions.

Any changes in these assumptions may affect our fair value estimate and the results of an impairment test.

The results of the quantitative assessment indicated that the estimated fair values for the indefinite-lived intangible assets exceed their carrying value and no impairment loss was recognized for the year ended December 31, 2024.

Assumptions used in impairment testing are made at a point in time and require significant judgment;

therefore, they are subject to change based upon the facts and circumstances present at each impairment test date.

Additionally, these assumptions are generally interdependent and do not change in isolation.

However, as it is reasonably possible that changes in assumptions could occur, as a sensitivity measure, we have presented the estimated effects of isolated changes in discount rates and royalty rates on fair value of indefinite-lived intangible assets.

These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.

The most sensitive assumption used in the analysis was a 10 percent discount rate.

A 50 basis point increase in the discount rate, or a 50 basis point decrease in royalty rates, would not change our conclusion that the indefinite-lived intangible assets were not impaired.

As discussed above, any significant decline in our market capitalization or changes in discount rates, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill.

In addition, if future revenues and contributions to our operating results for any of indefinite-lived intangible assets or Branded Spirits reporting unit deteriorate at rates in excess of our current projections, we may be required to record additional impairment charges to certain intangible assets.

A determination that a portion or all of our goodwill or indefinite-lived intangible assets are impaired could have a material adverse effect on our business, consolidated financial condition and results of operations.

For a further discussion of our annual impairment testing of goodwill and indefinite-lived intangible assets and the impairment charge to goodwill that we recorded in 2024, see Note 5, Goodwill and Other Intangible Assets.

NEW ACCOUNTING PRONOUNCEMENTS

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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-K

Item 7. Management’s Discussion and Analysis