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Earnings call: MGP Ingredients reports strong financial growth in 2023

EditorNatashya Angelica
Published 02/23/2024, 01:08 PM
Updated 02/23/2024, 01:08 PM
© Reuters.

MGP Ingredients (NASDAQ: NASDAQ:MGPI), a leading provider of distilled spirits and specialty wheat proteins and starches, reported solid financial results in its Fourth Quarter and Year End 2023 Financial Results Conference Call. CEO David Bratcher and CFO Brandon Gall announced a 7% increase in consolidated sales, reaching $836.5 million for the year, with gross profit climbing 20% to $304.7 million. Adjusted EBITDA followed suit with a 20% increase to $202.5 million.

The company's Ingredient Solutions segment delivered record results, and the Branded Spirits segment continued to show growth. Despite challenges in the international market and increased competition, MGP Ingredients remains optimistic about its potential for growth in 2024.

Key Takeaways

  • Consolidated sales rose by 7% to $836.5 million, with a 20% increase in gross profit to $304.7 million.
  • Adjusted EBITDA also saw a 20% increase, reaching $202.5 million.
  • The Distilling Solutions segment reported a shift in sales, favoring new distillate over aged whiskey for the first time in three years.
  • Branded Spirits segment sales grew by 7% to $253.9 million.
  • Ingredient Solutions achieved a 14% sales increase, reaching $131.7 million for the year.
  • The Atchison Distillery closure was completed, with expectations of improved gross margin percentage from 2024.
  • Operating income for the fourth quarter surged by 45% to $43.1 million, with adjusted operating income up 70% to $50.4 million.
  • Earnings per share increased to $1.39 from $1.02 in the fourth quarter.
  • The company plans to invest $85.8 million in capital expenditures for 2024, focusing on facility improvement and expansion.
  • A quarterly dividend of $0.12 per share was announced, payable on March 29, 2024.
  • The financial outlook for 2024 includes projected sales between $742 million and $756 million, with adjusted EBITDA between $213 million and $217 million.

Company Outlook

  • MGP Ingredients expects strong performance from Ingredient Solutions in 2024, with plans to convert a starch stream into a profit center and construct a mini fuel plant.
  • The company projects sales to be in the range of $742 million to $756 million for 2024, with adjusted EBITDA forecasted between $213 million and $217 million.
  • Adjusted basic earnings per common share are anticipated to be between $6.12 and $6.23.
  • Focus will be on organic and acquisitive growth, investment in American whiskey, and expansion projects to accelerate growth.

Bearish Highlights

  • The company faced challenges in the international market for ingredients, particularly export headwinds into Japan.
  • Increased imports present a challenge, especially in the ingredients business.
  • The first quarter of 2024 is projected to be lower than last year, influenced by various factors including timing and seasonality of product allocations.

Bullish Highlights

  • Barrel distillate sales grew by 26% year-over-year, largely due to Distilling Solutions and the company's own brands.
  • Gross margins are expected to be in the low-to-mid 40% range in 2024.
  • The company is optimistic about the long-term health of the Branded Spirits industry and its transformation into a dedicated Branded Spirits company.

Misses

  • Operating income for the full year slightly decreased to $148.6 million, despite increases in other financial metrics.

Q&A Highlights

  • The company is addressing challenges by focusing on premium specialty products, domestic commercial efforts, and cost control.
  • They anticipate increased distribution opportunities, particularly in the traditional spirits business.
  • Management is confident in overcoming challenges posed by an increase in imports and destocking at the wholesale level.
  • Investment in advertising and promotion for Branded Spirits, especially Penelope, is expected to remain around 15% in 2024.

MGP Ingredients' solid financial performance in 2023, coupled with strategic investments and a focus on core segments, positions the company for continued growth amidst a competitive and challenging market environment. The management team's confidence in navigating headwinds and leveraging opportunities, especially in the Branded Spirits and Ingredient Solutions segments, underscores a positive outlook for the coming year.

InvestingPro Insights

MGP Ingredients (NASDAQ: MGPI) has recently made headlines with its impressive financial performance, but a deeper dive into the company's metrics provides a more nuanced picture. According to InvestingPro data, MGP Ingredients has a market capitalization of $1.74 billion and trades at a P/E ratio of 17.8, with an adjusted P/E ratio for the last twelve months as of Q4 2023 standing at 16.34. This indicates a reasonable valuation relative to earnings. The company's revenue growth for the last twelve months was 6.92%, showing a steady increase, which aligns well with the growth figures reported in the company's financial results.

InvestingPro Tips highlight some key aspects that investors should consider. Notably, analysts are predicting a sales decline in the current year, which could be a point of concern for future revenue streams. However, the company is said to be profitable over the last twelve months and analysts expect it to remain profitable this year. This is a positive sign for investors looking for stable earnings. Additionally, the company's liquid assets exceed its short-term obligations, suggesting a strong liquidity position that could help it navigate any potential short-term market volatility.

Investors interested in a more comprehensive analysis can find additional insights on InvestingPro, with a total of 11 tips available for MGP Ingredients. These tips could provide a more detailed understanding of the company's financial health and market position. For those considering a deeper investment analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

The InvestingPro Fair Value estimate for MGP Ingredients stands at $79.51, which is close to its previous closing price of $78.18. This suggests that the stock is trading at a fair value, which may be of interest to value-oriented investors. Moreover, the fact that the stock is trading near its 52-week low could indicate a potential buying opportunity for those who believe in the company's fundamentals and long-term strategy.

Overall, while the company faces challenges, its solid financial performance and strategic investments suggest that it has the potential to continue growing in a competitive market. Investors should weigh these InvestingPro insights alongside the company's reported financials and market conditions to make informed decisions.

Full transcript - MGP Ingredients (MGPI) Q4 2023:

Operator: Good morning, and welcome to the MGP Ingredients Fourth Quarter and Year End 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Houston, Investor Relations. Please go ahead.

Mike Houston: Thank you. I' Mike Houston with Lambert Global, MGP's Investor Relations firm. And joining me today are members of their management team, including David Bratcher, Chief Executive Officer and President; and Brandon Gall, Vice President of Finance and Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of sales, adjusted EBITDA, adjusted basics earnings per share, gross profit, and effective tax rate, as well as statements on the plans and objectives of the company's business and overall consumer and industry trends. The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent Annual Report filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call. Additionally, this call will contain reference to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If anyone does not already have a copy of the press release issued by MGP today, you can access it at the Company's website, www.mgpingredients.com. At this time, I would like to turn the call over to MGP's Chief Executive Officer and President, David Bratcher. David?

David Bratcher: Thank you, Mike, and thanks, everyone for joining the call today. I am honored and grateful to serve in the role of CEO and President, and truly excited to build on the MGP legacy. On this call, we will begin with our overview of our performance for the quarter and full year ended December 31, 2023. We will provide updates on key financial performance metrics and discuss the progress we have made against our strategy. At the end of the call, we will open the line for Q&A. Our strong financial results for the quarter and year were a direct result of the continued strength of each of our business segments and the dedication of our team who are focused on implementing our business strategy. Consolidated sales for the year increased 7% to $836.5 million, while gross profit increased 20% to $304.7 million, representing 36.4% of sales. Adjusted EBITDA increased 20% to $202.5 million. During the year, we continued to experience healthy demand for new distillate and age whiskey in our Distilling Solution segment, which resulted in brown goods sales increasing 39% for the quarter and 26% for the year. These increases were driven by both price and volume. Our brown goods sales growth outpaced U.S. market trends for American whiskey in 2023, driven by both our craft and multinational customers. Our strong sales are a direct result of our exceptional American whiskey offerings and the relationships we have cultivated across our diverse customer base, which now stands at more than 840 brown good customers. Over the last two years, we have deliberately grown our new distillate whiskey commitments compared to aged whiskey sales to bring longer-term financial stability and visibility to our Distilling Solutions segment of our business. In 2023, new distillate sales exceeded aged whiskey sales for the first time since 2020, and we anticipate this will continue into 2024 and beyond, as we accommodate our maturing and growing customer base and derisk our commercial sales effort. As a reminder, new distillate sales, while at a lower price point in aged still have a very attractive gross profit margin, are commonly contracted years in advance, providing greater visibility and provide greater cash flow to be reinvested into our business. As a result of this effort, more than 90% of our new distillate whiskey sales volume is committed in 2024, compared to 50% of our aged whiskey sales volume committed. I believe customer willingness to contract longer-term on new distillate whiskey is a positive sign for the American whiskey category sales. We expect total aged whiskey revenues in 2024 to be less than 2023, due to our strategy of developing longer-term stability with new distillate and because of our success in working with longer-term craft customers, who started their brands with aged whiskey and are now moving into the new distillate market. While we do have the vast majority of our anticipated total brown goods volume committed for 2024, we expect the last three quarters of 2024 will result in stronger profits as compared to Q1 due to the variation in timing of customer demand, particularly of aged whiskey, and timing of our Bardstown, Kentucky Distillery expansion project coming online. Looking beyond 2024, we are continuing to work closely with our customers to lock in existing capacity through contract renewals and gain additional commitments for a newly created capacity. Turning to white goods and industrial alcohol, last July, we announced the planned closure of the white goods and industrial alcohol distillery in Atchison, Kansas. We're pleased to share that the closure has been completed on schedule. Brandon will speak in more detail about the financial impact of the closure. While it was not a decision that we took lightly, given the long history of the distillery in Atchison, we firmly believe these actions will enable us to further align our product categories and their supporting operations toward achieving our long-term strategic objectives. Our strategy to reduce the volumes of our industrial alcohol and white goods product produced and sold continued during Q4. As a result, white goods sales for the year decreased by 21% and the sales of our industrial alcohol products decreased 19% year-over-year. As expected, on a combined basis, these product lines continue to have negative gross margin for the year. Moving to Branded Spirits, our Premium Plus Spirit brands grew 50% in the quarter and 24% for the full year, which in turn drove further gross margin expansion across the portfolio. Our focus on investing behind our higher margin brands throughout the year resulted in an increase in full-year gross profit to $112.8 million, or 44.4% of segment sales. We plan to continue to focus on margin expansion through our strategy of increasing our points of distribution and shelf presence with our current portfolio of margin accretive brands, as well as through continued evaluation of Branded Spirits acquisition opportunities that we anticipate will further enhance our gross profit as a percentage of sales for the Branded Spirits segment. Speaking of Branded Spirits acquisitions, we're proud of the progress we've made integrating Penelope Bourbon into our sales and marketing platform. We are also pleased to announce that we achieved our goal of having Penelope in 37 states by the end of the year. This illustrates a key component to our Branded Spirit strategy, as we remain focused on growing points of distribution by leveraging the expansion of our margin accretive brands portfolio. M&A is a high priority and we hope to be able to execute more margin accretive Branded Spirits acquisitions in 2024. Turning to Ingredient Solutions, we experienced another strong year. Our Ingredient Solutions segment delivered record results both on a fourth-quarter and full-year basis, with sales growth of 14% and gross profit growth of 49% for the year. The record sales and gross profit results were driven primarily by higher sales, especially wheat proteins and specialty wheat starches, as strong demand for our plant-based, high-protein and lower net carbohydrate foods continued. Before I turn the call over to Brandon, I want to thank our team for their tremendous effort and continued execution. Their ability to build on the momentum we have generated throughout the year and the continued alignment of our product offerings to meet consumer trends enabled us to deliver strong results for the year. This concludes my initial remarks. Let me turn things over to Brandon Gall, for a review of the key metrics and numbers. Brandon?

Brandon Gall: Thanks, David. For the fourth quarter 2023 consolidated sales increased 13% to $214.9 million, as a result of increased sales in each of our three business segments. Gross profit increased 35% to $85.1 million, representing 39.6% of sales. Due to improved segment gross profit performance again, by all three business segments. For the year, consolidated sales increased 7% to $836.5 million. Gross profit increased 20% to $304.7 million, driven by a double-digit percentage improvement across all three segments. Despite the headwinds we faced in white goods and industrial alcohol, which were largely addressed by the recent closure of the Atchison Distillery, total company gross margin increased 400 basis points to 36.4% in 2023. Sales in our Distilling Solutions segment increased 8% in the fourth quarter to $108.9 million, reflecting a 22% increase in sales of Premium beverage alcohol. Gross profit increased to $40 million, or 36.7% of segment sales, compared to $31.7 million or 31.3% of segment sales in the fourth quarter in 2022. For the full year 2023, Distilling Solutions segment sales increased 5% to $450.9 million, reflecting a 14% increase in sales of Premium beverage alcohol due to continued strong new distillate and aged American whiskey sales. Gross profit increased to $145 million or 32.2% of segment sales, compared to $126.3 million, or 29.5% of segment sales in 2022. Sales for the Branded Spirits segment in the fourth quarter increased 19% to $72.6 million. Sales of our Premium Plus price tier brands grew 50%, driven by both the Penelope acquisition and our organic Premium Plus Spirits portfolio. Gross profit for the quarter increased to $33.1 million or 45.6% of segment sales, compared to $24.7 million or 40.6% of segment sales in the fourth quarter of 2022. For the full year, Brandon Spirit sales increased 7% to $253.9 million, reflecting continued strength in our portfolio of brands. Sales of our Premium Plus price tier brands grew 24%. Gross profit for the year increased to $112.8 million or 44.4% of segment sales, compared to $95.5 million or 40.1% of segment sales in 2022. Turning to Ingredient Solutions, in the fourth quarter sales for this segment increased 15% to $33.4 million. Gross profit for the quarter increased to $12 million or 36% of segment sales compared to $6.9 million, or 23.8% of segment sales in the fourth quarter of 2022. For the full year, Ingredient Solution segment sales increased 14% to $131.7 million, driven primarily by higher sales of specialty wheat proteins and specialty wheat starches. Gross profit for the year increased to $47 million or 35.7% of segment sales, compared to $31.5 million or 27.2% of segment sales in 2022. We expect 2024 to be another strong year for Ingredient Solutions, although we expect to see some margin dilution for this segment as we absorb the previous starch stream credit from the Atchison Distillery and finalize our plans to convert this stream into a profit center in 2025, with the construction and implementation of a mini fuel plan. More on this in a moment. Advertising and promotion expenses for the fourth quarter increased $1.5 million or 14%, to $12.3 million as compared to the fourth quarter of 2022. This increase reflects our continued effort to prioritize marketing spend on our Premium Plus price tier brands as part of our premiumization strategy. As such, Branded Spirits A&P as a percent of Branded Spirits sales was 15.5% in the quarter. For the full year, advertising and promotion expenses increased $8.5 million or 29%, to $38.2 million as compared to the full year 2022. In 2024, we will continue to invest in marketing for our Branded Spirits segment to promote our Premium Plus price tier in higher margin brands that we feel have the best opportunity to grow international brands. Corporate selling, general and administrative expenses for the fourth quarter increased $3.2 million to $25.8 million as compared to the fourth quarter of 2022. For the full year, corporate SG&A expenses increased $16.8 million as compared to 2022 to $91.4 million, driven primarily by higher personnel expenses and incentive compensation, inclusive of certain incremental share-based compensation costs incurred relating to our CEO transition and business acquisition expenses related to the Penelope acquisition. During the fourth quarter, the impairment of assets and other one-time expenses relating to the closure of the Atchison Distillery totaled $1.1 million. The change in fair value of the contingent consideration relating to the Penelope acquisition for the quarter totaled $2.9 million. This change in fair value differed from the prior quarter due to among other items, updates to the discount and volatility rates assumed. For the full year, the impairment of assets and other one-time expenses relating to the closure of the Atchison Distillery totaled $19.4 million. The change in fair value of the contingent consideration relating to the Penelope acquisition totaled $7.1 million. We'll continue to evaluate this contingent consideration liability in subsequent quarters and adjust as necessary on a quarterly basis throughout the term of the earnout period, which ends in December 2025. Additionally, we believe the vast majority of one-time charges related to the Atchison Distillery closure was reflected in our 2023 financial results. However, additional one-time expenses may occur, including those related to the equipment sales in subsequent quarters. Operating income for the fourth quarter increased 45% to $43.1 million. Adjusted operating income increased 70% to $50.4 million. For the full year, operating income decreased slightly to $148.6 million, while adjusted operating income increased 21% to $180.3 million. Our corporate effective tax rate for the fourth quarter was 24% compared to 19% from the year-ago period. The corporate ETR for the full year was 24.4% compared to 22.3% in 2022. The increase for the quarter and full-year corporate effective tax rates was primarily driven by an increase in valuation allowances and lower tax credits. We anticipate our effective tax rate to be in the range of 24.5% to 25.5% for 2024. Net income for the fourth quarter increased 38% to $31 million. Adjusted net income for the quarter increased 63% to $36.6 million. Basic earnings per common share for the fourth quarter increased $1.39 per share from $1.02 per share. Adjusted basic EPS increased to $1.64 per share from $1.02 per share. Factoring in the additional shares associated with the convertible notes issued in November 2021, fully diluted EPS increased to $1.39 per share from $1.01 per share. Adjusted diluted EPS increased to $1.64 per share from $1.01 per share. Net income for the full year decreased 2% to $107.1 million. Adjusted net income increased 20% to $131.1 million. Basic EPS decreased to $4.82 per share from $4.94 per share. Adjusted basic EPS increased to $5.90 per share from $4.94 per share. On a fully diluted basis, EPS decreased to $4.80 per share from $4.92 per share. Adjusted diluted EPS increased to $5.88 per share from $4.92 per share in the year-ago period. Adjusted EBITDA for the quarter increased 60% to $56.2 million. Adjusted EBITDA for the full year was $202.5 million, an increase of 20% from the prior year. The increase was primarily driven again by the strong performances of all three business segments. Moving to commodities, corn, wheat flour, rye, and natural gas represent our largest commodity expenses, each continued to experience elevated prices throughout the year. Compared to the prior year, fourth quarter, our input cost for corn increased 6%, wheat flour increased 15%, rye increased 25%, and natural gas increased 36%. Despite these elevated input costs, our risk management process and our focus on products that are premium and more specialty in nature have enabled us to mitigate the impacts of inflation in this year, in the majority of our product lines. Cash flow from operations was $83.8 million in 2023 and a record $35.2 million in the fourth quarter, reflecting the consistent cash-generating capability of our business. Inclusive in this is our investment in inventory of aging whiskey, which stood at $250.2 million at cost at year-end, a net increase of $51.1 million at cost during the year. Matching whiskey put away with growing future Distilling Solutions and Branded Spirits demand is one of our priorities and long-term strategies. Strong cash flows for the quarter and year further emphasize the strength of our portfolio and the value of our long-term strategy, even as we pursue M&A opportunities and expansionary projects that support the long-term growth of our company. Our balance sheet remains strong and continues to be available to support investment opportunities that we believe will drive growth and return cash to shareholders. We remain well capitalized, with debt totaling $287.2 million and a cash position of $18.4 million as of December 31, 2023. Turning to capital expenditures, our previously announced expansionary projects remain on track from a timing and cost perspective. Our continued focus on strategically deploying capital to enhance our operational capabilities resulted in CapEx of $61.1 million in 2023. The vast majority of this investment in the year was for growth projects such as the Proterra facility in Atchison, Kansas, which is coming online in the first quarter of 2024, the Lux Row Distillation expansion in Bardstown, Kentucky, which is expected to come online in the second quarter of 2024, and numerous warehouse investments needed to support our customers and our aging whiskey. We anticipate approximately $85.8 million in CapEx for 2024, which will be used for facility improvement and expansion, such as additional warehouses to support our recent capacity increases, dryer investment to support our Lux Row expansion, the acquisition of our previously leased bottling facility in St. Louis, Missouri and a mini fuel plant in Atchison, Kansas to better monetize the waste start stream in our Ingredient Solutions segment. Our warehouse investment represents approximately half of our anticipated $85.8 million CapEx for 2024. In recent months, we've experienced some unanticipated land use setbacks in our pursuit of building new warehouses in Kentucky. We continue to work to find a solution and we will provide additional details regarding our warehouse investment in future earnings calls. In addition to these growth investments, we will also continue to invest in facility sustenance projects as well as environmental, health, and safety projects. Now an updated look at the financial impact of the Atchison Distillery performance on a preliminary pro forma and unaudited basis for the year ending December 31, 2023. Excluding the financial impacts of the Atchison Distillery, results were as follows: Consolidated sales and Distilling Solution sales are reduced by $108.5 million. Consolidated gross profit is increased by $4.7 million and consolidated gross margin is increased by 610 basis points. Last quarter, we shared that we are confident that we'd identified a path to dispose of the waste start stream via third-party at no cost to the company in fiscal 2024. This is consistent with the detail provided in the updated pro forma financials found in our earnings release. More recently, we've earned that additional operating costs, potentially totaling $4 million to $6 million, will need to be incurred in 2024 to ready the waste starch for commercial sale. These costs involve further drying of the waste starch and expenses associated with depreciation, insurance, energy, and utilities to name a few. We anticipate a portion of this cost will be recouped via sales of revenue received from our third-party partner as a result of the increased commercial viability of the starch. However, trials are still underway and we cannot guarantee at this point that we will be successful in recouping the incremental costs through offsetting revenue. As such, we are factoring in the incremental cost toward 2024 guidance, but not the offsetting revenue. We continue to pursue other, more economically beneficial options of disposing the waste starch, such as investing in a mini fuel plant as previously described. We believe these actions will enable us to further align our product categories and their supporting operations toward achieving our long-term strategic objectives. As we continue to assess current and more accretive options to dispose of the waste starch stream and their impact on our financial results, we will provide additional details in future earnings calls. Despite these incremental costs, we continue to believe the closure of the Atchison Distillery will be accretive to consolidated gross margin percentage beginning in 2024. It's important to note that in some circumstances, white goods, industrial alcohol, fuel and at certain times certain co-products are produced at our Lawrenceburg, Indiana Distillery. Please refer to the pro forma schedules included in this morning's earnings release for more information. In accordance with accounting guidance, we expect to present the Atchison Distillery operations as discontinued operations later in the year. Due to the impact that the Atchison Distillery closure has on our Distilling Solutions segment product offerings, as well as the impact that ongoing changes in the Nielsen pricing tiers has on our Branded Spirits segment pricing tiers. We are in the process of reviewing our presentation of our product category line items across our business segments. The board authorized a quarterly dividend in the amount $0.12 per share, which is payable on March 29, 2024, to stockholders of record as of March 15. The Board continues to view dividends as an important way to share the success of the company with our stockholders. We continue to believe that our focus on organic and acquisitive growth aligns well with our long-term strategy as well as the underlying consumer trends we believe our business is well positioned to leverage. We remain deliberate and disciplined as we continue to evaluate M&A opportunities, invest in put away of American whiskey, and conduct expansionary projects that are designed to accelerate growth and increase our capabilities and product offerings. As we enter 2024, we will continue to focus efforts on optimizing product mix across all three of our business segments and invest in areas that we expect to generate the greatest long-term value for our shareholders. We expect the consumer fundamentals that have supported historical growth in our business to remain intact in 2024, while we continue to monitor the potential impact of inventory levels of distributors, overall American whiskey supply and consumption patterns, and inflation on consumers. Despite these industry headwinds, we feel uniquely positioned to grow as a company in this dynamic operating environment. These factors, in combination with the strength of our underlying business, support the following financial outlook for the fiscal year ending December 31, 2024. Sales are projected to be in the range of $742 million to $756 million, following the closure of the Atchison Distillery. Adjusted EBITDA to be in the range of $213 million to $217 million, reflecting a mid to high single-digit growth rate for adjusted EBITDA on top of a record 2023 result. Please note, this range excludes the add-back of share-based compensation expense. Including the add-back of share-based compensation expense, adjusted EBITDA is expected to be in the range of $218 million to $222 million. This range contemplates approximately $5.4 million in share-based compensation expense for 2024. Please refer to this morning's earnings release for previous year's share-based compensation expense. We intend to begin adding back share-based compensation expense, when reporting adjusted EBITDA in the first quarter of 2024. And lastly, adjusted basic earnings per common share are projected to be in the range of $6.12 per share to $6.23 per share, with basic weighted average shares outstanding expected to be approximately $22.3 million at year-end. With that backdrop, let me discuss expectations for the first quarter, which have already been factored into the full year of 2024 guidance. We expect quarterly sales and gross profit results for the first quarter of this year to come in below the subsequent three quarters for the balance of 2024. This expansion can be attributed in part to lower relative sales of allocated and single-barrel Premium Plus Branded Spirits offerings in Q1. Timing of customer commitments for brown goods, opening of the Lux Row distillation expansion in Q2, and time needed to commercialize our new Proterra facility and offset some recent international challenges in Ingredient Solutions. And now let me turn things back over to David for concluding remarks.

David Bratcher: Thanks, Brandon. We are very pleased with the strong results delivered in 2023. Healthy demand for our products continue and we believe our business remains well-positioned. We are also happy to report that we completed the construction of our extrusion manufacturing facility within our Ingredient Solution segment by the end of 2023 as planned. This facility will allow us to support our Proterra brand and offer us additional capabilities that we did not have prior to completion. I would like to thank and congratulate our engineering and operations team for delivering this project on time and on budget. As we move into 2024, our sales team is focused on taking advantage of this added capacity and capability. In closing, I would like to add that despite some reported softening within the Branded Spirits industry when compared to the COVID super cycle, we are very optimistic the long-term health of this industry. In 2023, Spirits growth continued within the total U.S. beverage alcohol market, relative to other alcohol categories. And while U.S. premiumization trends slowed broadly in 2023, we are encouraged by the continued growth in the American whiskey category as well as growth in other segments such as tequila. Additionally, recent industry reports indicated inventory destocking at a wholesale level, remain an issue for the Branded Spirits industry in 2024. Working closely with our distributors throughout 2023, we feel we have made significant progress in managing wholesaler inventory for our portfolio and remain focused on driving points of distribution and velocity across our brands with emphasis on our higher margin offerings. Our strategy is to build a portfolio of Branded Spirits through increasing our points of distribution, accelerating our sales velocity within those points of distribution through effective marketing, expanding our product offerings through innovation, and closing on meaningful margin accretive M&A transactions. We believe the interconnectedness of our Distilled Solutions and Branded Spirits segments support continued growth and plan to use both segments to transform our company into a dedicated Brand Spirits company. As we begin the new year, we remain committed to leveraging the strong foundation we have established over the years with the objective of delivering sustainable long-term value for our shareholders. In closing, let me add, I am extremely honored to have been offered the opportunity to serve as CEO, President, and Board member of MGP starting January 1. I take the obligations that I have to our shareholders, employees, and other stakeholders very seriously. The team and I are committed to the continued long-term growth of our business. That concludes our prepared marks. Operator, we are ready to begin with the question and answer portion of the call.

Operator: We will now begin the question and answer session. [Operator Instructions] The first question comes from Bill Chappell with Truist Securities. Please go ahead.

Bill Chappell: Thanks. Good morning.

David Bratcher: Good morning, Bill.

Brandon Gall: Good morning.

Bill Chappell: Just wanted to go back on the kind of the new distillate sales, and I think one of the things you said was total sales would be down in '24 versus '23. So if you maybe could give some more color, I think you kind of explained what was some customer changes and stuff like that, but try to understand that? And then also, you had mentioned that you're monitoring the overall American whiskey supply levels, and that might be a headwind. So kind of maybe help us understand that? Are you talking about at retail or are you talking about supply of other players coming for new distillate?

Brandon Gall: Yeah, Bill. I'll start on that. Yeah, thanks for giving us the opportunity to clarify. So we do not expect new distillate sales to decline year-over-year. In fact, we expect brown goods sales in total to continue to grow in line with or better than the broader category of American whiskey in 2024. What we're trying to get across in our prepared remarks is that the proportion of new distillate sales versus aged sales has been growing. And that has been deliberate as David mentioned on the call. And the reason for that is as our customers that traditionally bought aged, as they continue to mature and grow, they're now better able to finance new distillate. And so we're leaning into that because there's a lot of attributes of new distillate customers that we find attractive, such as the greater visibility they provide and the greater cash flow characteristics of sliding (ph) distillate versus aged brings. As far as moderating the overall supply to the industry, that's not our plan. We're continuing to grow with our portfolio and with our customers. And as such, the mix may change more towards new versus aged, but we continue to grow at the same pace or better than the American whiskey category as we've done in recent years.

David Bratcher: Yeah. I'll add to that too, just in clarification. The new distillate focus is really critical for our business. It gives us longer-term arrangements, financial stability, and visibility for multi-years on average. It's a better business for us in terms of understanding the impact financially on the overall business. It also is somewhat a normal cycle, as the category continues to grow and some of our previous craft customers become bigger, they're naturally going to switch over to new distillate supply, that's just normal. There is no -- we have no plans to moderate our supply to it. As a matter of fact, we've taken just the opposite approach, as you heard in our call (ph) script, that we're expanding one of our major distilleries in Kentucky, basically doubling its capacity and we expect it to come online mid-year. So we're very optimistic about Branded sales and a plan to expand and continue to grow with the segment.

Bill Chappell: Got it. Now that helps. And then if I'm looking at the, just the aged demand, I understand that you're naturally kind of leaning into the new, but are you hearing from your customers, now you have 800 customers, any worries that there's going to be a slowdown in brown good demand three, four years out from now, or is kind of the overall interest pretty much the same as it has been the past few years?

David Bratcher: I think what we could say on that is that if we look at our aged distillate and when you referenced about 50% of it being obligated, that's actually pretty high number on aged because most of these tend to be craft customers or new entrants into the category. So actually we feel pretty good about the amount that we have contracted and how that relates to any potential unknown is, is that, those the craft -- the craft distilleries or craft brand companies are subject to the same inventory, retail, wholesale level type of inventory situations as anybody. And so with higher interest rates and everything else, they're being a little more cautious with their investment. In the past, we've saw them buy just so they could corner their piece of the business. Now you're starting to see them switch to more just-in-time type of demand. They want to transact, know they can fill the product and get it right through the shelf, given the high interest rates that they operate in.

Bill Chappell: Got it. And last question, just on the aged, sorry, on the Branded portfolio, your comments about there's still some destocking at distributors and stuff like that, does that mean, I thought most of the impact you kind of saw in the first half of last year, do you expect a quarter where we could be flat to down for that overall business, excluding Penelope or is most of the heavy destocking done?

David Bratcher: The comment in general was about the industry overall. There is still a push on inventory destocking for the industry overall. As it relates specifically to our business, we've worked really hard in the past year to manage that -- actively manage that with our wholesalers. We believe we have it in a controllable area of data on hand. At the end of the day, the wholesalers do control the inventory and they place the order and they decide what the number is. I think our exposure on it for us is smaller than, let's say, our peer set because I think we've done a really good job of managing it in 2023.

Bill Chappell: Great. Thanks so much.

Operator: The next question is from Marc Torrente with Wells Fargo. Please go ahead.

Marc Torrente: Hi. Good morning. Thanks for the question. Just building on Bill's question. With new distillate outpacing aged going forward, or that's the expectation. We know new distillate carries a strong margin, but aged is likely even greater. So maybe anything to read into implications here? And then on the new distillate contract renewals, you mentioned before that the strong pricing there has been giving you cover to be more strategic on the aged side. So maybe any more color on pricing trends there and how long does this, I guess, contract cycle continue?

Brandon Gall: Yeah, Marc. You're exactly right. We have been successful on the new distillate side in getting more and more price, as contracts renew. On the aged side though, as David said, it's still a very important and valuable part of our business. But we are using this opportunity as our customers are demanding to lean more into the new distillate side of things, because as we mentioned, we feel like it sets us up better to longer term from that perspective.

David Bratcher: Yeah. I would add to that too. And I think we call it out in our script. I think this shift to this new distillate is a good sign for the industry overall. If people are willing to contract multiple years out, I think that's a signal of their commitment to the category. Yes, new distillate margins for us are a little softer than aged, that's a given, and Brandon has talked about that in the past. But the benefit that we gain from a new distillate is that financial stability, that long-term visibility, and it still has very attractive margin portfolios. I look at it as a possible -- I look at it as a possible way, it's our effort to derisk the exposure on aged by increasing, as we said in our script, the new distillate category, it brings that stability that we need.

Marc Torrente: Okay. Great. And then just a little more color on guidance. Calls for top-line growth of about 2% to 4% on a pro forma basis and EBITDA growth around 6%. I guess, maybe if you could provide some underlying color on segment build-up and phasing through the year. There's clearly strong growth in your core categories in Q4, but the guide would imply fair amount of deceleration, was there any pull forward there?

Brandon Gall: Yeah. No pull forward. To your point, what we're seeing on a pro forma basis is growth in the 2% to 4%, which as you recall, is in line with kind of our long-term aspirations and algorithm. By segment, if we were to take it apart, we expect sales and Distilling Solutions to grow in the mid-single digits. And as I said, as brown goods continue to grow with or better than the category. Brands, we expect to be flattish to low single digits, which is probably a little counter to what maybe a lot of expectations would have been. Because while we do have incorporated into our guide, strong sales of Premium Plus again at/or better than the overall category for this price tiers, there is going to be a larger offset to mid in value in 2024 and there's two reasons to this Marc. The first one being mid and value has been on a steady decline, as we all know, as consumers drink less, but better. But the second one is, we've actually identified two to four very large volume -- mid and value brands in our portfolio. And we admit the decision to either take more price or rationalize in some cases the brands altogether, because as a result, it will be more accretive, both from a gross profit dollar and gross margin percent, although it will create an added headwind to revenue for the segment in the year. And then finally for Ingredients Solutions, sales growth for the year, we expect that to be in the mid-single digits as well. So that's where we get to our revenue guide and I know there is a lot of little bit more confusion around that with the Atchison Distillery closure, which is why I'm happy to share a little bit more detail than we have in past years.

David Bratcher: Yeah. And I want to emphasize what Brandon said about the mid and value. We have a substantial portfolio in that area and one of the -- for quite some time, to be honest with you, our focus as a company has been always on being margin accretive. Having spent many, many years with the company before MGP, it really was a drive that we were pushing on to focus on Premium Plus categories. And to do that, you have to build that basis of Premium Plus and then strategically, relook at mid and value. And Brandon said it exactly right. We have some great products in that, that are margin dilutive. And when you're doing that and we're growing our overall business and try to generate cash flow, we have to pick and choose, which ones we're going to focus on to drive the business. And what do you do? Most of the time, the first thing you do is impact it on price. And that is no different than what we experienced. And that is why you've seen, and it's in our guidance number, that it's probably impacted -- it is impacted more than the other price points.

Brandon Gall: Last piece on that Marc, on EBITDA, we talked about it from a topline perspective, but yeah, and as David said, our midpoint on EBITDA growth is 6%, which again is in line with our long-term aspirations of mid-to-high-single-digit EBITDA growth on an adjusted basis. What we also shared in our prepared remarks was that the Ingredient Solution segment is going to incur $4 million to $6 million in incremental operating costs to ready the starch stream for sale. That is a change from what we knew in Q3. And so if you were to add that back or take that away, because that is only in our mind a temporary cost that we're going to have to incur until we get a longer-term solution in place. That growth is closer to 88.5% on an adjusted basis for EBITDA. So happy to provide that additional color to you.

Marc Torrente: Okay. Thanks, guys.

Operator: The next question is from Gerald Pascarelli with Wedbush Securities. Please go ahead.

Gerald Pascarelli: Great. Thanks very much for the question. So, just going back to the guidance, I don't want to belabor the point here, but you have historically started out conservatively. You have consistent, beaten raises. And I guess, like I say that in the backdrop that, there is increasing concern around inventory building, etc. So can you maybe just talk about the degree of conservatism that may be embedded in your guidance just to start the initial year and maybe how that compares to years past? I think that'd be helpful. Thank you.

David Bratcher: Yeah. Sure. I'll start. And then let Brandon chime in at the end. As we look at our guidance, we want to make sure we're providing as accurate -- as accurate numbers as we know at any given time, all right. So in preparing for those numbers, Brandon and I and our team spent a lot of time, long hours, going through various scenarios, looking at the impact on the start stream that Brandon just talked about, looking at shifts in inventory levels, looking at shifts in price points, looking at consumer demand. And trust me when I say, Brandon and I spent a lot of hours personally going back through our scenarios. What we provided, we feel is a realistic number for us for the year, that's why we provided that guidance. If we can always grow our business and do better, we're going to grow our business and do better. But what we provided is what we really feel strongly that we should be able to deliver.

Brandon Gall: Yeah. And to add to that, we shared the exact percentages of new distillate and aged commitments for the year to help kind of address this question. While we're still very confident in the American whiskey category, 50% of our aged, we still have to go find sales for. And so as the year goes on, we get more confident in that number, we'll factor that in. But on top of that Gerald, and as I already mentioned, we are still guiding to mid-to-high single-digit adjusted EBITDA growth after coming off multiple years of more than 20% growth. So while we've historically, in retrospect been conservative, as David said, we feel like this is the right approach to this year as we keep trying to grow from a bigger and bigger base.

David Bratcher: Yeah. I adding that one last thing in closing off on that question. I mean, it's a given across -- you're hearing all of our peers talk about it. There is a reset going on in the industry. We get compared to the COVID super cycle, and those were great years for the industry. But if you start looking at what the industry is doing after 20-plus years of solid growth, that, yes, it might have slowed a little bit in '22 versus '23, it's still a very, very healthy industry. And it's my belief that, it will -- while we are normalizing, it may be hard as we start -- as an overall industry as you start to compare year-on-year, but I'm confident that it will reset to what we had saw pre-COVID, that's the industry in general. I think there's opportunity for us, because of our size and our opportunities as we mentioned in pods and velocity compared to our peer set that we're excited for and we also factored that optimism into our guidance.

Gerald Pascarelli: Perfect. Thanks for the color. Just one more for me, it's kind of a housekeeping item, but some color on your accounts receivable days. It looks like they continue to increase and be stretched among all-time highs. And so, can you provide any color on your accounts receivable or if there's anything to glean from that? Thank you.

Brandon Gall: Yeah. Good point. Accounts receivable days stood at between 61 and 62 days at the end of the year, which was up about 9 days from Q4 of last year. We look at that kind of in combination, Gerald, with our other cash conversion metrics, one of those being DPO, which also increased from the beginning of the year to help offset some of that impact. But in this high-rate environment, and we shared this one-on-one on prior calls. Customers are looking to extend terms where they can, and especially our smaller craft ones that do have terms, not a lot of them do, a lot of them are prepay, but they do try to take their commitments as late as they can if they don't need it right away, and then they're paying more slowly. So it is up to your point, but if you look at our history of bad debt and inability to collect, it's actually pretty good. So we generally speaking feel pretty good about it.

Gerald Pascarelli: Perfect. Thanks, guys. Appreciate it.

Brandon Gall: Thank you.

Operator: The next question is from Ben Klieve with Lake Street Capital Markets. Please go ahead.

Ben Klieve: All right. Thanks for taking my questions. A couple of quick ones for me. First of all on the guidance for 2024, and the relationship with Penelope. Can you comment on the contributions that you have baked into the guidance relative to the metrics that are laid out in your earnout with them? Are you guiding to kind of meeting that earnout schedule throughout the year or are you guiding below or above that?

Brandon Gall: Yeah. We're very pleased with the performance of Penelope, and relative to our underwriting assumptions, it continues to perform in line or better than those next expectations. And so, as we look at the guide for this year, it too incorporates those expectations that the brand continues to perform as we, in fact, hope for better.

Ben Klieve: Okay. Great. Thanks, Brandon. And then one more from me, Brandon. In your prepared remarks, you noted within the ingredients segment some challenges internationally. I'm wondering if you can comment on that qualitatively or quantitatively at all to kind of help us understand how significant this is?

Brandon Gall: Yeah. It's near-term something that we're looking at, but mid-to-long term, full confidence in Mike Buttshaw and that team to find a solution. But what I was highlighting in my prepared remarks were really two things. So, firstly, we've begun seeing increases in imports of commodity starches from Canada, Australia, and the EU, which is, for now resulting in some pricing pressure for our own clean-label commodity wheat starches, which represented at about 12% of segment sales in 2023. So that's one of the headwinds. The second international headwind is, we're also seeing some export headwinds of our specialty protein products into Japan, due mostly to unfavorable currency exchange rates. So what we're doing to counter these challenges is really focusing on our domestic commercial efforts to maximize our specialty wheat starch and protein sales here in the U.S. So we are seeing some early signs of success here and we're confident it's going to work out over the course of the year, but it will take a little bit of time.

David Bratcher: Yeah. And I'll add to that, we continue to focus on what we do well in our Ingredient business, and that is our Premium type of products with the specialty products. Those are the things that we focus on. Commodity starch is obviously a piece of our business, but it's really more of a subset of what we do and really what we want to sell is our specialty type of products. The model we run for Ingredients is very similar to the model we run for Branded Spirits. We want to focus on those upside, upper and higher-end margin-type of brands. And commodity starch or clean-label commodity starches are exactly that. They're commodity-driven. It works by supply and demand. And yes, this year, as we look at imports and stuff coming in, it's created pricing pressure.

Ben Klieve: Got it. No, that makes sense. Very good, I appreciate you both answering my questions. I'll jump back in queue.

Brandon Gall: Thanks, Klieve.

Operator: The next question is from Robert Moskow with TD Cowen. Please go ahead.

Seamus Cassidy: Hi. This is Seamus Cassidy on for Rob Moskow, and thanks for the question. I just wanted to drill a little bit deeper on brown goods volumes. So you mentioned that they were up for the full year, but for the first three quarters you called out negative brown volumes, which, as you mentioned, was driven by sort of being more selective around the selling of aged barrels, given better contract visibility on the new side. So there wasn't pull-forward, but maybe higher than expected spot sales in 4Q, that maybe drove the sales beat. And if you could just offer any commentary on sort of your outlook for that in 2024 and how we should think about embedding that in Distilling Solutions' mid-single-digit growth as you called out? Thank you.

Brandon Gall: Yeah. And thanks for the question, Seamus. And, yeah, so in 2023, Q4 volumes were a big part of it of our sales in Q4, especially the growth. And volume did play a role throughout the course of the earlier quarters, although less so than price and so that was the point we were making in a lot of the quarters. As we look to '24, though, we do expect volume to play a larger role. And a lot of that is because we're moving more towards new distillate in that type of model. So while we expect to see good pricing at the new distillate and aged level continue into this year, 2024, that is, we do expect volume to be the main driver of the sales growth we see in this year.

David Bratcher: Yeah. I'd add to that, too, that the other piece of that is the, other distillery coming online, the expansion on capacity. And as we look at our guidance and the numbers we provided, they're Q2 through Q4 focused because of that additional capacity that we'll have available. The other thing I would add in general is, our new distillate business, especially as we go into 2024 is really a model of the brand experience category. The people we're selling to are the people that are putting it in brands and putting it on the shelves. And traditionally in the industry, Q1 on average tends to be a slower quarter than the other quarters. And as we look at everything that we've talked about there, if you were to subtract our capacity, expansions, and stuff on the backside, it might look a little more normalized. But when we start to factor in everything going on with a lot of the craft customers, the aged that Brandon mentioned, and we look at the back half of this with our margin expansion, our numbers we anticipate should be better as Brandon indicated in two, three quarters.

Seamus Cassidy: That's helpful. Thank you. And then just one more for me. Given that you're moving more towards sort of this new distillate model, and you called out that inflation costs for a lot of your core commodities remain elevated, could you just offer us a little bit more detail on how that sort of flows through, given that a lot more of these volumes will be contracted and sort of how you connect with your customers on that side? Thank you.

Brandon Gall: Yeah. And that's another advantage of having the longer-term agreements in place because they are -- the pricing is input-based. And so, in addition to having a typical inflation factor year-over-year, what we also incorporate into our contracts and do distillate is pricing based off of raw material inputs, whether it's corn whether it's rye, malt, natural gas, the barrel, etc. So there are those mechanisms within our contract to help insulate us in our margins as we go forward in that type of environment.

David Bratcher: Yeah. Especially true on the new distillate, because as Brandon alluded, the contracts when we go out multi-years, they're all based on that. People want to reflect whatever that current grain commodity may be, including the price of a barrel. As we look at our aged and our putaway, obviously those are impacting our future inventory costs and stuff, but in the big picture of things on aged, when the commodities vary like they have, it's not super significant on the overall margin capability, because at those point of age, as you guys alluded to, we can reflect that in the pricing as well in the future.

Operator: The next question is from Mitch Pinheiro with Sturdivant. Please go ahead.

Mitchell Pinheiro: Yeah. Good morning. Just a couple of follow-up questions. One is, if the customers are kind of leaning into the new distillate, what does that -- how should we interpret that related to their own inventory levels of age? Do they have ample aged, at this point?

Brandon Gall: Well, I would say that, yes, I would think that they're managing their aged imbalance. Our strategy, MGP strategy for a long time has always been taking a new customer that wants to be an entrant into the Branded Spirits category in American whiskey and bridging them to new distillate. This isn't really a brand new strategy, it's an evolution over time. And so as those customers build those age, they will naturally go to new discipline and they're going to be in a better financial shape to carry the own inventory costs as well. But it doesn't preclude that those same customers get additional sales in their products and need more aged to be able to make that transition to new discipline, which is what happens on a lot of the customers on the aged market. It's also a reflection of why it's easier to contract on the new distillate side because you're going to be doing it with larger customers that have larger brands. And on the aged side, they're able to come in because of our putaway plan and pick and choose what they need when they need it.

Mitchell Pinheiro: Okay. And then, when I look at your barrel distillate increasing, it gets us up 26% year-over-year. Some of that's obviously is Penelope. But I would imagine that as that barrel distillate grows, that growth is really earmarked for your own brands, Lux Row, Remus, Penelope, etc., is that correct?

Brandon Gall: Yeah. It's both. So, to date, it's been more outweighed for Distilling Solutions and our own brands. But as we go forward, Mitch, that is going to evolve and part of the benefit of selling more new distillate with our capacity is the cash flow impact. And so as we move forward, and this year is a good example, that net putaway at cost will be less than the $51 million we experienced last year. We're going to continue to invest in our putaway to line up with future demand for both of our segments, but that is one of the benefits we'll see this year.

Mitchell Pinheiro: Okay. And then just final question, you talked about wholesaler inventory destocking. Where have you seen -- have you seen any studies, your own surveys on cut consumer pantry destocking, that seems to me to be a significant event?

Brandon Gall: Yeah. No specific surveys to speak of on that. A lot of that, Mitch, as you know, is probably pretty anecdotal. And -- but what we have seen is resilient growth in American whiskey, despite the broader industry being flattish in 2023 and we expect that to continue.

David Bratcher: Yeah. I would agree. Again, I haven't seen any set data on pantry destocking to be honest with you. I think that's a speculation of what can -- what we can understand is retail emphasis on that. And they've had the same pressure that you've seen at the wholesale level. I mean, they're carrying it at even higher costs than our wholesalers and when you're dealing with big retailers, they're watching their dollars as well. So I do think that as an industry, that is something that still we're going to continue to see in 2024. But as you look at our own business, it's what I said earlier, it's that compared to our peers, the opportunity to increase our points of distribution is reflective and is our guidance.

Mitchell Pinheiro: Okay. All right, well, very helpful. Thank you very much.

Operator: The next question is from Sean McGowan with ROTH MKM. Please go ahead.

Sean McGowan: Thank you. A couple of questions. So, in terms of margin, you've talked about some potential shifts to lower margin segments, etc., but at the same time, stripping out Atchison, the fourth quarter margins were at extremely high level. So can you give us some overall color on how you expect gross margins to trend in 2024?

Brandon Gall: Yeah. Thanks for the question, Sean. I'm glad we got to this. I thought we'd get to it earlier, actually, but, yeah, so, we got the closure of the Atchison Distillery. We anticipate it's going to be very creative for our overall consolidated gross margin structure. So in the performance that we provided this morning for last year, as an example, consolidated margins would be 42.5% in 2023. Going forward this year, we expect margins to be right in there in that low-to-mid 40% on a consolidated basis. By segment Distilling Solutions on a pro forma basis, it's a little bit north of 45%. We expect it to be in that low-to-mid 40s. The expansion is not going to be as strong as you might expect, but that's partly due to the brown goods sales mix that we've described. Within Branded Spirits, we do anticipate more expansion this year. So we finished the year in the mid-40s and we expect to be in the mid-to-upper 40s, potentially in 2024. Ingredients is going to be a little bit more challenged near-term, and there's really two main reasons for that. Number one is, the additional $4 million to $6 million in cost of drying, the start slurry. That's going to temporarily weigh on the segment this year until we get a longer-term solution in place to figure that out. But also, we're ramping up our new Proterra facility commercially. And we're not going to have it sold out in 2024. So, there's going to be more overhead to absorb as part of that. So for those two reasons, we actually expect Ingredient solutions margins to be in the mid-20s for the year. So hopefully, Mitch or I'm sorry, Sean, that answers your question.

Sean McGowan: Yeah. Very helpful. One other clarification and then a quick housekeeping one. When you talked about the first quarter being lower than the subsequent three quarters, I think that's typically the case. But are you trying to imply that the first quarter could actually be below last year on a pro forma basis?

Brandon Gall: Yes. That is, what we're implying. And there's four main reasons to that, and it spans in all four segments, some of them we touched on. One of the bigger ones, in fact, the biggest driver in our look forward is in our Branded Spirit segment, excuse me. And that's really the result of the timing and seasonality of our allocated and single barrel pick items within our Premium Plus brands. That usually is more weighted toward the back half over the last three quarters but this year it's going to be even more so. And those items, as you can imagine come with a lot of gross profit attached to them. So even on a year-over-year basis, we're going to do less in Q1 of this year than we did last year in Q1. And really the reason for that is, the ideal time to get those products out in the market is in Q3 and Q4. And then last year, when we're getting those products out, we experienced some delays operationally, and so some of them accidentally trickled out into Q1 of this year. So we're going to be lapping that. Brown goods commitments were the second one, while we feel really good about having the vast majority of those committed. It's not going to be equal across the year, as David alluded to and so that's going to be more weighted towards Q2 through Q4. We also mentioned the Lux Row expansion, which is going to take off in Q2 of this year. That's our American whiskey distillery in Kentucky. And so the new distillate sales we'll get out of that facility, will not have a chance in Q1 to take place, but will for the remainder of the year. And then again for Ingredients, I mentioned the commercialization of Proterra, that's going to ramp up as the year goes on. And then as we handle these international headwinds we're seeing, as we already discussed, we expect those to be offset, but not all at once in the first quarter, but as the year plays out as well.

Sean McGowan: Okay. Thank you. And then a quick housekeeping. What do you expect the effective tax rate to be for the year?

Brandon Gall: Yeah, between 24.5% and 25.5% this year. In another note, our A&P advertising promotion for Branded Spirits, while we're clicking through here, Sean was about 15% -- 15.5% in Q4. We expect that to be around the same in 2024. And the reason for that is again, flattish to low single-digit sales for Branded Spirits for the reasons I already described, but really ramping up our advertising and promotion investment into Penelope as the year goes on this year.

Sean McGowan: Okay. Thank you very much.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Bratcher for any closing remarks.

David Bratcher: Thank you for your interest in our company and for joining us today for our fourth quarter and full-year 2023 earnings call. We look forward to talking with you again after the first quarter.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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