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(Exact name of registrant as specified in its charter)
iKansas
i45-4082531
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i100 Commercial Street
iAtchison,
iKansas
i66002
(Address
of principal executive offices)
(Zip Code)
(i913) i367-1480
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol
Name of each exchange on which registered
iCommon Stock, no par value
iMGPI
iNASDAQ
Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xiYes☐
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). xiYes☐ No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
xiLarge accelerated filer☐ Accelerated filer
☐ Non-accelerated
filer i☐ Smaller reporting company
i☐Emerging growth company
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ix No
Indicate the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date:
i22,016,113 shares of Common Stock, no par value, as of October 27, 2023
Throughout this Quarterly Report on Form 10-Q (this “Report”), when we refer to the “Company,”“MGP,”“we,”“us,”“our,” and words of similar import, we are referring to the combined business of MGP Ingredients, Inc. and its consolidated subsidiaries, except to the extent that the context otherwise indicates. In this Report, for any references to Note 1 through Note 12, refer to the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1.
All amounts in this Report, except for share, par values, bushels, gallons, pounds, mmbtu, proof gallons, 9-liter cases, per share, per bushel, per gallon, per proof gallon, per 9-liter case, and percentage amounts, are shown in
thousands unless otherwise noted.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
(Unaudited)
(Dollars in thousands, except share and per share amounts)
See
accompanying notes to unaudited condensed consolidated financial statements
8
MGP INGREDIENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise noted)
Note 1. iAccounting
Policies and Basis of Presentation
iThe Company. MGP Ingredients, Inc. (the “Company” or “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits, and food ingredients. Distilled spirits include premium bourbon, rye, and other whiskeys and grain neutral spirits (“GNS”), including vodka and gin. The
Company’s distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP is also a producer of high quality industrial alcohol for use in both food and non-food applications. The Company has a portfolio of its own high quality branded spirits which are produced through its distilleries and bottling facilities and sold to distributors. The Company’s branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila, and gin. The Company’s 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. The ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.
On June 1, 2023, the Company acquired Penelope Bourbon LLC (“Penelope”), which, prior to the Company’s 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. See Note 3, Business Combination, for further details.
The Company reports ithree
operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. Certain amounts in the 2022 consolidated financial statements have been reclassified to conform to the 2023 presentation.
i
Basis of Presentation and Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements as of and for the quarter and year to date ended September 30, 2023, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”). The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal and recurring adjustments) necessary
to fairly present the results for interim periods in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to the rules and regulations of the SEC, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted.
The Company holds a i60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The
Company consolidated Dos Primos’ activity on the financial statements and presented the i40 percent non-controlling interest portion on a separate line.
iUse of Estimates. The financial reporting policies of the
Company conform to GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP 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 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. For all of these policies, management cautions that future events may not develop as forecast, and estimates routinely require adjustment and may require material adjustment.
iInventory. Inventory
includes finished goods, raw materials in the form of agricultural commodities used in the production process as well as bottles, caps, and labels used in the bottling process, and certain maintenance and repair items. Bourbons, ryes, and other whiskeys included in inventory are normally aged in barrels for several years, following industry practice. All barreled bourbon, rye, and other whiskeys are classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs.
9
Inventories are stated at the lower of cost or net realizable value on the first-in, first-out, or FIFO, method. Inventory
valuations are impacted by constantly changing prices paid for key materials, primarily corn. iInventory consists of the following:
Revenue
Recognition. Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is generally one year or less.
Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction
of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has a present obligation to pay.
The Distilling Solutions segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. Even though the aged and unaged distillate remains in the Company’s possession,
a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when the customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all of the following bill and hold criteria have to be met in order for control to be transferred to the customer: the reason for the bill and hold arrangement is substantive, the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer.
Warehouse
services revenue is recognized over the time that warehouse services are rendered and as they are rendered. This is a faithful depiction of the satisfaction of the performance obligation because control of the aging products has already passed to the customer and there are no additional performance activities required by the Company, except as requested by the customer. The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized. Contract bottling is recognized over the time contract bottling services are rendered and as they are rendered.
Sales in the Branded Spirits segment
reflect reductions attributable to consideration given to customers in incentive programs, including discounts and allowances for certain volume targets. These allowances and discounts are not for distinct goods and are paid only when the depletion volume targets are achieved by the customer. The amounts reimbursed to customers are determined based on agreed-upon amounts and are recorded as a reduction of revenue.
iExcise Taxes.The
Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Treasury Department (the “TTB”) regulations, which include making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual U.S. states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its U.S. federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws. Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue and expense.
iIncome
Taxes.The Company accounts for income taxes using an asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is more likely than not that at least some portion of the deferred tax asset will not be realized.
10
iEarnings
Per Common Share (“EPS”). Basic and diluted EPS is computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings. Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period. Diluted EPS is computed using the if-converted method by dividing the net income attributable to common shareholders by the weighted average shares outstanding, inclusive of the impact of the Convertible Senior Notes, except for where the result would be anti-dilutive as of the balance sheet date.
iTranslation
of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of accumulated other comprehensive income.The Company maintains a U.S. bank account denominated in British pound sterling, which is adjusted for the market exchange rate at the reporting period-end. Any impact of the adjustment for the exchange rate applied to the financial asset
is reported in other income (expense), net on the Condensed Consolidated Statements of Income.
iBusiness Combinations. Assets acquired and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date. Goodwill is recognized to the extent that the purchase consideration, including contingent consideration, exceeds the value of the assets acquired and liabilities assumed. The Company uses its internal estimates and third party valuation specialists to assist in determining
the fair value of the assets acquired and liabilities assumed. During the measurement periods, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill.
iGoodwill and Other Intangible Assets.The Company records goodwill and other
indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company evaluates goodwill 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. To the extent that the carrying value exceeds fair value, an impairment of goodwill is recognized. Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units. The Company separately evaluates indefinite-lived
intangible assets for impairment. As of September 30, 2023, the Company determined that goodwill and indefinite-lived intangible assets were not impaired.
i
Fair Value of Financial Instruments.The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in
its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.
The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, and accounts payable. The carrying value of the short-term financial instruments approximates the fair value due to their short-term nature. These financial instruments have no stated maturities or the financial instruments have short-term maturities that approximate market.
The
fair value of the Company’s debt is estimated based on current market interest rates for debt with similar maturities and credit quality. Excluding the impact of the conversion feature of the Convertible Senior Notes, the fair value of the Company’s debt was $i223,030 and $i150,249
at September 30, 2023 and December 31, 2022, respectively. The financial statement carrying value of total debt (net of unamortized loan fees) was $i316,677 and $i230,335
at September 30, 2023 and December 31, 2022, respectively. These fair values are considered Level 2 under the fair value hierarchy.
11
The fair value calculation of contingent consideration associated with the acquisition of Penelope uses unobservable inputs, such as estimated net sales over the term of the earn-out period, discount rates, and volatility rates. The contingent consideration is measured using the Monte Carlo simulation approach. The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity. See Note 3, Business Combinations, for more
information.
Fair value disclosure for deferred compensation plan investments is included in Note 10, Employee and Non-Employee Benefit Plans.
Equity Method Investments. The Company holds i50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola” and together with DGL, “LMX”),
which are accounted for as equity method investments and are considered affiliates of the Company. The investment in LMX, which is recorded in investment in joint ventures on the Condensed Consolidated Balance Sheets, was $i5,343 and $i5,534
at September 30, 2023 and December 31, 2022, respectively. During the quarters ended September 30, 2023 and 2022, the Company recorded a gain of $i388 and a loss of $i856,
respectively, from its equity method investments, and during the year to date ended September 30, 2023 and 2022, the Company recorded a loss of $i191 and $i1,036,
respectively, which is recorded in other income (expense), net on the Condensed Consolidated Statements of Income. During the quarter and year to date ended September 30, 2023, the Company purchased $i10,223 and $i30,178,
respectively, of finished goods from LMX and bulk beverage alcohol from the other i50 percent owner of DGL. During the quarter and year to date ended September 30, 2022, the Company purchased $i8,265
and $i28,194, respectively, of finished goods from LMX and bulk beverage alcohol from the other i50 percent owner of DGL.
iRecently
Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended September 30, 2023.
Note 2. iRevenue
The
Company generates revenue from the Distilling Solutions segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates revenue from the Branded Spirits segment by the sale of products and by providing contract bottling services. The Company generates revenue from the Ingredient Solutions segment by the sale of products. Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services and contract bottling services is recognized over time. Contracts
with customers include a single performance obligation (either the sale of products, the provision of warehouse services, or contract bottling services).
12
Disaggregation of Sales.iThe following table presents the Company’s sales by segment
and major products and services:
Description of the Transaction. On May 8, 2023, the Company entered into a definitive agreement to acquire i100
percent of the equity of Penelope, and subsequently completed the acquisition on June 1, 2023 (the “Acquisition”). Penelope, prior to the 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, the Company enhances its presence in the growing American whiskey category and expands its 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 within the Branded Spirits segment. The aggregate consideration paid by the
Company in connection with the Acquisition was $i105,000 in cash paid at closing, with further additional potential earn-out consideration of up to a maximum cash payout of $i110,800 if certain
performance conditions, measured through December 31, 2025, are met. The consideration is subject to customary purchase price adjustments related to, among other things, net working capital and acquired cash. The consideration paid at closing included a preliminary estimated purchase price adjustment. During the quarter ended September 30, 2023, the Company finalized the net working capital adjustments, which decreased the cash consideration from $i105,000
at closing to $i104,638 at September 30, 2023. The cash portion of the consideration and transaction-related expenses were paid using both cash on hand and borrowings under the Company’s existing credit agreement. See Note 6, Corporate Borrowings, for further details.
13
For
tax purposes, the Acquisition was structured as an asset purchase which created additional tax basis in the assets acquired as a result of valuing the assets at fair market value and the purchase price will be accounted for in accordance with U.S. federal tax law. Indefinite-lived intangible assets and goodwill is expected to be deductible for U.S. income tax purposes.
The Acquisition was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”). The fair value of the assets acquired and liabilities assumed are based upon a preliminary assessment of fair value and may change as valuations for certain tangible assets, intangible assets, and contingent liabilities are finalized and the associated income tax impacts are determined. The
Company expects to finalize the purchase price allocation as soon as practicable, but no longer than one year from the acquisition date.
Purchase Price Allocation. iThe following table summarizes the preliminary allocation of the consideration paid for Penelope to the preliminary estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.
Consideration:
Cash
$
i104,638
Contingent
consideration
i62,100
Fair value of total consideration transferred
$
i166,738
Recognized
amounts of identifiable assets acquired and liabilities assumed:
Cash
$
i926
Receivables
i2,323
Inventory
i12,454
Prepaid
expenses and other assets
i77
Property, plant and equipment, net
i253
Intangible
assets (a)
i57,700
Operating lease right-of-use assets, net
i426
Other
assets
i44
Total assets
i74,203
Accounts
payable
i2,242
Accrued expenses and other
i205
Long-term
operating lease liabilities
i268
Total liabilities
i2,715
Goodwill
i95,250
Total
$
i166,738
(a) Intangible assets acquired included trade names with an estimated fair value of $i34,000
and distributor relationships with an estimated fair value of $i23,700.
In accordance with ASC 805, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the Acquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market
and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include 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.
Goodwill of $i95,250, all of which is expected to be deductible for tax purposes, represents the excess
of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. The intangible assets acquired included indefinite-lived intangible assets, trade names, which have an estimated fair value of $i34,000, and definite-lived intangible assets, distributor relationships, which have an estimated fair value of $i23,700
and a useful life of i20 years. The trade names and distributor relationships acquired by the Company have been recorded at estimated fair values 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 names and distributor relationships.
14
The
operating results of Penelope have been included in the Company’s condensed consolidated financial statements since the June 1, 2023 acquisition date. The operating results and pro forma results are not disclosed due to the immaterial impact to the Company’s Condensed Consolidated Statements of Income.
During the quarter and year to date ended September 30, 2023, the Company incurred $i314
and $i1,814 of costs related to the Acquisition, which are included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Income.
Contingent Consideration. The estimated fair value of the contingent consideration obligation at the Acquisition date was $i62,100,
which was determined using a Monte Carlo simulation approach. This approach requires significant assumptions, including projected net sales, discount rates, and volatility rates. The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity. The contingent consideration liability is measured on a quarterly basis and recorded at fair value. The changes in fair value of the obligation resulted from changes in the key assumptions between measurement dates, such as projected net sales, discount rates, and volatility rates. During the quarter ended September 30, 2023 there was a $i4,200
adjustment to the fair value measurement of the contingent consideration obligation. The amount payable is based upon achievement of certain net sales targets between the Acquisition date and December 31, 2025. The possible payments range from izero to a maximum payout of $i110,800.
Note 4. iGoodwill and Intangible Assets
Definite-Lived Intangible Assets. The Company acquired definite-lived intangible assets in connection with various acquisitions of businesses. The distributor relationships have a carrying value of $i59,530,
net of accumulated amortization of $i5,570. The distributor relationships have a useful life of i20 years. The amortization expense for the quarter and year to date ended September
30, 2023 was $i820 and $i1,948, respectively. The amortization expense for the quarter and year to date ended September 30, 2022 was $i518
and $i1,553, respectively.
i
As of September 30, 2023, the expected future amortization expense related to definite-lived
intangible assets is as follows:
Remainder of 2023
$
i813
2024
i3,255
2025
i3,255
2026
i3,255
2027
i3,255
Thereafter
i45,697
Total
$
i59,530
/
Goodwill
and Indefinite-Lived Intangible Assets. The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units.
i
Changes in carrying amount of goodwill by business segment were as follows:
Note
5. iPlanned Closure of the Atchison Distillery
On July 13, 2023, the Company announced the decision by its Board of Directors to approve the closure of the Company’s distillery located in Atchison, Kansas (the “Atchison Distillery”). The anticipated closure date is January 2024. The decision to
15
close
the Atchison Distillery is consistent with the Company’s plan to address profitability headwinds associated with its GNS and industrial alcohol products within the Distilling Solutions segment. As a result of the decision to close the Atchison Distillery, the Company, with the assistance of a third-party valuation specialist, completed a fair value analysis of the assets associated with the Atchison Distillery during the quarter ended September 30, 2023. The fair value of the assets associated with the Atchison Distillery were determined using a combination of the cost and market approach. During the quarter and year to date ended September 30, 2023, the
Company recorded a $ii17,112/ impairment of assets, which was recorded in impairment of long-lived assets and other on the Condensed Consolidated Statement
of Income. The impaired assets were recorded within the Distilling Solution segment.
Additionally, the Company recorded $ii1,222/
of expenses related to severance costs, contract termination fees, and consulting fees, which were recorded in impairment of long-lived assets and other on the Condensed Consolidated Statement of Income for the quarter and year to date ended September 30, 2023.
Note 6. iCorporate Borrowings
i
The
following table presents the Company’s outstanding indebtedness:
(b) Loan fees are being amortized over the life of the debt instruments.
/
Credit Agreement. On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”) that matures on March 14, 2026. The Credit Agreement provided for a $i300,000
revolving credit facility. On May 14, 2021, the Credit Agreement was amended to increase the principal amount available to $i400,000 and to permit the Company, subject to obtaining lender approval, to increase the amount of the revolving credit facility by up to an additional $i100,000. On
August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR. The Credit Agreement includes certain requirements and covenants with which the Company was in compliance at September 30, 2023. Part of the cash portion of the consideration paid to acquire Penelope and transaction-related expenses were financed with $i105,000 borrowings under the Credit Agreement. As of September
30, 2023, the Company had $i91,000 outstanding borrowings under the Credit Agreement, leaving $i309,000 available.
Convertible
Senior Notes. On November 16, 2021, the Company issued $i201,250 in aggregate principal amount of i1.88%
convertible senior notes due in 2041 (the “2041 Notes”). The 2041 Notes were issued pursuant to an indenture, dated as of November 16, 2021 (the “Indenture”), by and among the Company, as issuer, Luxco, Inc., MGPI Processing, Inc., and MGPI of Indiana, LLC, as subsidiary guarantors, and U.S. Bank National Association, as trustee. The 2041 Notes are senior, unsecured obligations of the Company and interest is payable semi-annually in arrears at a fixed interest rate of i1.88%
on May 15 and November 15 of each year. The 2041 Notes mature on November 15, 2041 unless earlier repurchased, redeemed, or converted, per the terms of the Indenture. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2041 Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate
principal amount of the 2041 Notes being converted.
Note Purchase Agreements. TheCompany’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc. (“Prudential”), an affiliate of Prudential Financial, Inc., and certain affiliates of Prudential, provides for the issuance of $i20,000 of Series A Senior Secured Notes and the issuance of up to $i105,000
of additional Senior Secured Notes (or any higher amount solely to the extent Prudential has provided written notice to the Company of its authorization of such a
16
higher amount). Effective August 23, 2023, the Note Purchase Agreement was amended to increase the total amount of Senior Secured Notes that may be issued under the facility of the Note Purchase Agreement to $i250,000. Additionally,
the period for issuing senior secured promissory notes under the Note Purchase Agreement was extended from August 23, 2023 to August 31, 2026.
During 2017, the Company issued $i20,000 of Series A Senior Secured Notes with a maturity date of August 23, 2027. During 2019, the
Company issued $i20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Note Purchase Agreement includes certain requirements and covenants with which the Company was in compliance at September 30, 2023. As of September 30, 2023, the
Company had $i12,800 of Series A Senior Secured Notes and $i18,400 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $i218,800
available under the Note Purchase Agreement.
Note 7. iIncome Taxes
The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The
Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Beginning in the second quarter of 2023, the estimated annual tax rate includes the U.S. entity acquired in the Penelope Acquisition.
Income tax expense for the quarter and year to date ended September 30, 2023 was $i4,373 and $i24,832,
respectively, for an effective tax rate of i25.0 percent and i24.6 percent, respectively. The effective tax rate for the quarter and year to date ended September
30, 2023 differed from the ii21/
percent U.S. federal statutory rate on pretax income primarily due to state income taxes and income taxes on foreign subsidiaries, partially offset by U.S. state and federal tax credits and the deduction applicable to export activity. As a result of the planned closure of the Atchison Distillery, the Company incurred impairment expenses (see Note 5 for more details on the planned closure). For the quarter ended September 30, 2023, the impairment had an immaterial impact on the effective tax rate; however, it did result in a reduced income tax expense due to the decrease in income before income taxes when using the estimated annual effective rate calculation.
Income tax
expense for the quarter and year to date ended September 30, 2022 was $i7,533 and $i26,037, respectively, for an effective tax rate of i24.2
percent and i23.2 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2022 differed from the ii21/
percent U.S. federal statutory rate on pretax income primarily due to state and foreign income taxes, partially offset by state and federal tax credits, and the deduction applicable to export activity. The increase in income tax expense for the year to date ended September 30, 2022 was primarily due to higher income before income taxes as compared to the prior year periods.
Note 8. iEquity and EPS
i
The
following table presents computations of basic and diluted EPS:
Income
attributable to participating securities (unvested shares and units)(b)
(ii129/)
(ii188/)
(ii760/)
(ii688/)
Net
income used in EPS calculation
$
ii13,082/
$
ii23,620/
$
ii75,648/
$
iiii86,117///
Share
information:
Basic weighted average common shares(c)
i22,066,159
i22,008,381
i22,056,270
i22,000,026
Diluted
weighted average common shares(d)
i22,381,516
i22,228,814
i22,207,031
i22,000,026
Basic
EPS
$
i0.59
$
i1.07
$
i3.43
$
i3.91
Diluted
EPS
$
i0.58
$
i1.06
$
i3.41
$
i3.91
(a)Net
income attributable to all stockholders.
(b)Participating securities included i226,410 and i176,398
unvested restricted stock units (“RSUs”) at September 30, 2023 and 2022, respectively.
/
17
(c)Under the two-class method, basic weighted average common shares exclude unvested participating securities.
(d)The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares if the inclusion was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market
price per share during the quarter and year to date period exceeds the conversion price of $i96.24 per share.
i
Common Stock Share Activity. The following table
presents the Company’s share activity:
(a)The
Common Stock repurchases were for tax withholding on equity-based compensation.
Note 9. iCommitments and Contingencies
The Company and its subsidiaries are, from time to time, a party to legal and regulatory proceedings
arising in the ordinary course of its business. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated.
Note 10. iEmployee and Non-Employee Benefit Plans
Share-Based Compensation Plans. The
Company’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock, and RSUs for senior executives and other employees, as well as non-employee directors. The Company currently has itwo active equity-based compensation plans: the 2014 Equity Incentive Plan (as amended, the “2014 Plan”) and the 2014 Non-Employee Director Equity Incentive Plan (the “Directors’
Plan”).
As of September 30, 2023, i658,081 RSUs had been granted from the i1,500,000
shares approved under the 2014 Plan, and i138,662 shares had been granted from the i300,000
shares approved under the Directors’ Plan. As of September 30, 2023, there were i226,410 unvested RSUs under the Company’s long-term incentive plans, all of which were participating securities (see Note 8).
18
Deferred
Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (the “EDC Plan”) effective June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under the EDC Plan change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the EDC Plan. Realized and unrealized gains (losses) on deferred compensation plan investments were included as a component of other income (expense), net on the
Company’s Condensed Consolidated Statements of Income. For the quarter and year to date ended September 30, 2023, the Company had a loss on deferred compensation plan investments of $i118 and a gain on deferred compensation plan investments of $i272,
respectively. For the quarter and year to date ended September 30, 2022, the Company had a loss on deferred compensation plan investments of $i103 and $i931,
respectively.
EDC Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Participants were able to direct the deferral of a portion of their base salary and a portion of their estimated accrued short-term incentive plan (“STI Plan”) amounts that were paid during the first quarter of the following year. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI Plan deferral amounts are deposited, at the time of payment, into the EDC Plan by the
Company and allocated by participants among Company-determined investment options.
At September 30, 2023 and December 31, 2022, the EDC Plan investments were $i2,878 and $i2,176,
respectively, which were recorded in other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $i650 and $i510 at September
30, 2023 and December 31, 2022, respectively, which were included in accrued expenses and other on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were $i2,615 and $i2,191
at September 30, 2023 and December 31, 2022, respectively, and were included in other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets.
Note 11. iOperating Segments
At September
30, 2023, the Company had ithree segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Distilling Solutions segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol. The Distilling Solutions segment also includes warehouse services, such as barrel put away, barrel storage, and barrel retrieval services. The Branded Spirits segment consists of a portfolio of high quality branded spirits
which are produced through the distilleries and bottling facilities. The Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins.
Operating profit for each segment is based on sales less identifiable operating expenses. Non-direct selling, general, and administrative expenses, interest expense, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, property, plant and equipment, leases, goodwill, and intangible assets have been identified with the segments to which they relate. All other assets are considered as Corporate.
19
i
The
following table presents summarized financial information for each segment:
Dividend. On November 2, 2023, the Company announced a quarterly dividend payable to stockholders of record of the Company’s common stock, resulting in dividend equivalents payable to certain RSU holders, of $i0.12
per share and per RSU. The dividend and dividend equivalents are payable on December 1, 2023 to stockholders of record and certain RSU holders on November 17, 2023.
Related Party Transaction.The Company leases bottling and warehousing facilities in St. Louis, Missouri from Kemper-Themis, L.L.C. (“Kemper”), which is owned by Donn Lux, a member of the Company’s Board of Directors. On October 31, 2023, the Company’s Audit Committee and Board of Directors approved the purchase
of the Kemper bottling and warehousing facilities from Kemper for $i9,000. The purchase and sales agreement was entered into by both parties subsequent to approval and the transaction is expected to close during the first quarter of 2024. The transaction was entered into at fair value based on two independent appraisers’ valuation; therefore, the transaction is deemed to have been conducted at an arm’s length.
21
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, unless otherwise noted)
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report may contain forward looking statements as well as historical information. All statements, other than statements of historical facts, regarding the prospects of our industry and our prospects, plans, financial position, and strategic plan may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements about the timing of the Atchison, Kansas distillery closure; our sources of
cash being adequate; our capital expenditures; our ability to support our liquidity and operating needs through cash generated from operations; and our ability to obtain credit funding. Forward looking statements are usually identified by or are associated with such words as “intend,”“plan,”“believe,”“estimate,”“expect,”“anticipate,”“project,”“forecast,”“hopeful,”“should,”“may,”“will,”“could,”“encouraged,”“opportunities,”“potential,” and similar terminology. These forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, our performance, our financial results, and our financial condition and are not guarantees of future performance.
All forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially. For information on these risks and uncertainties and other factors that could affect the Company’s business, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2023, this Report, and our other filings with the Securities and Exchange Commission (the “SEC”). Forward looking statements in this Report are made as of the date of this Report, and we undertake no obligation to update any forward-looking statements or information made in this Report, except as required by law.
RECENT
DEVELOPMENTS
Acquisition of Penelope. On May 8, 2023, we entered into a definitive agreement to acquire 100 percent of the equity of Penelope Bourbon LLC (“Penelope”), and subsequently completed the acquisition on June 1, 2023. 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 enhance our presence in the growing American whiskey category and expand 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 3, Business Combination for additional information).
Planned 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 anticipated closure date is January 2024. The decision to close the Atchison Distillery is consistent with our plan to address profitability headwinds associated with our grain neutral spirits (“GNS”) and industrial alcohol products within the Distilling Solutions segment. During the quarter and year to date ended September 30, 2023, we recorded a $17,112 impairment of assets, which was recorded in impairment of long-lived assets and other line on the Condensed Consolidated
Statement of Income. The impaired assets were recorded within the Distilling Solution segment. Additionally, we recorded $1,222 of expenses related to severance costs, contract termination fees, and consulting fees, which were recorded in impairment of long-lived assets and other line on the Condensed Consolidated Statement of Income for the quarter and year to date ended September 30, 2023 (see Note 5, Planned Closure of the Atchison Distillery for additional information).
OVERVIEW
MGP is a leading producer and supplier of premium distilled spirits, branded spirits,
and food ingredients. Distilled spirits include premium bourbon, rye, and other whiskeys (“brown goods”) and GNS, including vodka and gin. Our distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP is also a producer of high quality industrial alcohol for use in both food and non-food applications. We have a portfolio of our own high quality branded spirits, which we produce through our distilleries and bottling facilities and sell to distributors. Our branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila, and gin. Our 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.
22
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Report, as well as our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations - General, set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
RESULTS
OF OPERATIONS
Consolidated Results
The table below details the consolidated results for the quarters ended September 30, 2023 and 2022:
Selling, general, and administrative (“SG&A”) expenses
21,570
17,905
20
Impairment
of long-lived assets and other
18,334
—
N/A
Change in fair value of contingent consideration
4,200
—
N/A
Operating income
19,839
33,864
(41)
Operating
margin %
9.4
%
16.8
%
(7.4)
pp
Interest expense, net
(2,353)
(1,350)
(74)
Other
expense, net
(25)
(1,353)
98
Income before income taxes
17,461
31,161
(44)
Income tax expense
4,373
7,533
(42)
Effective
tax expense rate %
25.0
%
24.2
%
0.8
pp
Net income
$
13,088
$
23,628
(45)
%
Net
income margin %
6.2
%
11.7
%
(5.5)
pp
(a) Percentage points (“pp”).
Sales - Sales for the quarter ended September 30, 2023 were $211,624, an increase of 5 percent compared to the year-ago quarter, which was the result of increased sales in the Branded Spirits, Ingredient Solutions, and Distilling Solutions
segments. Within the Branded Spirits segment, sales were up 6 percent, primarily due to increased sales of brands in the ultra premium price tier. Within the Ingredient Solutions segment, sales were up 11 percent, primarily due to increased sales of specialty wheat proteins and starches. Within the Distilling Solutions segment, sales were up 3 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol (see “Segment Results”).
Gross profit - Gross profit for the quarter ended September 30, 2023 was $73,448, an increase of 24 percent compared to the year-ago quarter. The increase was driven by an increase in gross profit in the Distilling Solutions, Branded Spirits, and Ingredient Solutions segments. Within the Distilling Solutions segment, gross profit increased by $7,363, or 28 percent. Within
the Branded Spirits segment, gross profit increased $3,973, or 16 percent. Within the Ingredient Solutions segment, gross profit increased by $3,064, or 38 percent (see “Segment Results”).
Advertising and promotion expenses - Advertising and promotion expenses for the quarter ended September 30, 2023 were $9,505, an increase of 31 percent compared to the year-ago quarter, primarily driven by increased advertising and promotion investment in the Branded Spirits segment, specifically in the premium plus price tiers.
SG&A expenses - SG&A expenses for the quarter ended September 30, 2023 were $21,570, an increase of 20 percent compared to the year-ago quarter, primarily due to higher personnel
expenses.
23
Operating income - Operating income for the quarter ended September 30, 2023 decreased to $19,839 from $33,864 for the quarter ended September 30, 2022, primarily due to the impairment of assets and other expenses of $18,334 related to the planned closure of the Atchison Distillery and the change in fair value of the contingent consideration of $4,200 related to the Penelope acquisition. These decreases were partially offset by increases in gross profit in all three segments.
Income tax expense - Income tax expense for the quarter ended September 30, 2023 was $4,373, for an effective tax rate of 25.0 percent. Income tax expense for the quarter ended September
30, 2022 was $7,533, for an effective tax rate of 24.2 percent. The decrease in income tax expense, quarter versus quarter, was due to lower income before income taxes.
Earnings per common share (“EPS”) - Basic EPS was $0.59 for the quarter ended September 30, 2023, compared to $1.07 for the quarter ended September 30, 2022. The change in basic EPS quarter versus quarter, was primarily due to a decrease in operating income. Diluted EPS was $0.58 for the quarter ended September 30, 2023, compared to $1.06 for the quarter ended September 30, 2022. The change in diluted EPS, quarter versus quarter, was primarily due to the same change as basic EPS as well as the impact of dilutive
shares outstanding related to the conversion feature of the Convertible Senior Notes.
Sales - Sales for the year to date ended September 30, 2023 were $621,635, an increase of 5 percent compared to the year-ago period, which was the result of increased sales in the Distilling Solutions, Ingredient Solutions, and Branded Spirits segments. Within the Distilling Solutions segment, sales were up 4 percent, primarily due to an increase in the sales of brown goods within premium beverage alcohol. Within the Ingredient Solutions segment, sales were up 13 percent, primarily due to increased sales across all Ingredient Solutions product lines. Within the Branded Spirits segment, sales were up 2 percent, primarily due to increased sales of brands in the ultra premium price tiers (see “Segment Results”).
Gross profit - Gross
profit for the year to date ended September 30, 2023 was $219,567, an increase of 16 percent compared to the year-ago period. The increase was driven by an increase in gross profit in the Distilling Solutions, Ingredient Solutions, and Branded Spirits segments. In the Distilling Solutions segment, gross profit increased by $10,356, or 11 percent. In the Ingredient Solutions segment, gross profit increased by $10,291, or 42 percent. In the Branded Spirits segment, gross profit increased by $8,827, or 12 percent (see “Segment Results”).
Advertising and promotion expenses - Advertising and promotion expenses for the year to date ended September 30, 2023 were $25,877, an increase of 37 percent compared to the year-ago period, primarily driven by increased advertising and promotion
investment in the Branded Spirits segment, specifically in the premium plus price tiers.
SG&A expenses - SG&A expenses for the year to date ended September 30, 2023 were $65,615, an increase of 26 percent compared to the year-ago period. The increase in SG&A expenses was primarily due to higher personnel expenses and business acquisition expenses related to the acquisition of Penelope.
Operating income - Operating income for the year to date ended September 30, 2023 decreased to $105,541 from $119,250 for the year to date period ended September 30, 2022, primarily due to the impairment of assets and other expenses of $18,334 related to the
planned closure of the Atchison Distillery and the change in fair value of the contingent consideration of $4,200 related to the Penelope acquisition, as well as increased SG&A and advertising and promotion expenses as discussed above. These decreases were partially offset by increased gross profit in all three segments.
25
Operating income, year to date versus year to date
Income tax expense - Income tax expense for the year to date ended September 30, 2023 was $24,832, for an effective tax rate of 24.6 percent. Income tax expense for the year to date ended September 30,
2022, was $26,037, for an effective tax rate of 23.2 percent. The decrease in income tax expense, year to date versus year to date, was due to lower income before income taxes.
Earnings per common share - BasicEPS was $3.43 for the year to date ended September 30, 2023, compared to $3.91 for the year to date ended September 30, 2022. The change in basic EPS, year to date versus year to date, was primarily due to a decrease in operating income. Diluted EPS was $3.41 for the year to date ended September 30, 2023, compared to $3.91 for the year to date ended September 30, 2022. The change in diluted EPS, year to date versus year
to date, was primarily due to the same change as basic EPS as well as the impact of dilutive shares outstanding related to the conversion feature of the Convertible Senior Notes.
(a) Net
of tax based on the effective tax rate for the base year (2022).
(b) Percentage points (“pp”)
26
SEGMENT RESULTS
Distilling Solutions
The following tables show selected financial information for the Distilling Solutions segment for the quarters ended September 30, 2023 and 2022.
DISTILLING
SOLUTIONS SALES
Quarter Ended September 30,
Quarter versus Quarter Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Brown goods
$
73,409
$
57,423
$
15,986
28
%
White
goods
14,429
20,469
(6,040)
(30)
Premium beverage alcohol
87,838
77,892
9,946
13
Industrial
alcohol
9,407
10,761
(1,354)
(13)
Food grade alcohol
97,245
88,653
8,592
10
Fuel
grade alcohol
1,509
3,713
(2,204)
(59)
Distillers feed and related co-products
5,746
9,943
(4,197)
(42)
Warehouse
services
7,353
6,335
1,018
16
Total Distilling Solutions
$
111,853
$
108,644
$
3,209
3
%
Change
in Quarter versus Quarter Sales Attributed to:
Total (a)
Volume(b)
Net Price/Mix(c)
Premium beverage alcohol
13%
(15)%
28%
Other
Financial Information
Quarter Ended September 30,
Quarter versus Quarter Increase / (Decrease)
2023
2022
$ Change
% Change
Gross profit
$
33,280
$
25,917
$
7,363
28
%
Gross
margin %
29.8
%
23.9
%
5.9
pp(d)
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. 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. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Distilling Solutions segment for the quarter ended September 30, 2023 increased by $3,209, or 3 percent, compared to the prior year quarter. Sales of brown goods within premium beverage alcohol and warehouse services increased while white goods within premium beverage alcohol, distillers feed and related co-products, fuel grade alcohol, and industrial alcohol decreased. The increase in sales of brown goods was primarily driven by higher average selling price, partially offset by decreased
sales volume. This increase was partially offset by a decrease in sales of white goods, distillers feed and related co-products, fuel grade alcohol, and industrial alcohol, which was driven primarily by lower sales volume.
Gross profit increased quarter versus quarter by $7,363, or 28 percent. Gross margin for the quarter ended September 30, 2023 increased to 29.8 percent from 23.9 percent for the prior year quarter. The increase in gross profit was primarily due to higher average selling price for brown goods. These increases in gross profit were partially offset by higher input costs across all product categories.
27
The
following tables show selected financial information for the Distilling Solutions segment for the year to date ended September 30, 2023 and 2022.
DISTILLING SOLUTIONS SALES
Year
to Date Ended September 30,
Year to Date versus Year to Date Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Brown Goods
$
214,857
$
175,899
$
38,958
22
%
White
Goods
47,199
57,996
(10,797)
(19)
Premium beverage alcohol
262,056
233,895
28,161
12
Industrial
alcohol
29,911
35,141
(5,230)
(15)
Food grade alcohol
291,967
269,036
22,931
9
Fuel
grade alcohol
5,963
10,307
(4,344)
(42)
Distillers feed and related co-products
23,053
30,127
(7,074)
(23)
Warehouse
services
20,958
17,821
3,137
18
Total Distilling Solutions
$
341,941
$
327,291
$
14,650
4
%
Change
in Year to Date versus Year to Date Sales Attributed to:
Total(a)
Volume(b)
Net Price/Mix(c)
Premium beverage alcohol
12%
(13)%
25%
Other
Financial Information
Year to Date Ended September 30,
Year to Date versus Year to Date Increase / (Decrease)
2023
2022
$ Change
% Change
Gross profit
$
104,986
$
94,630
$
10,356
11
%
Gross
margin %
30.7
%
28.9
%
1.8
pp(d)
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. 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. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Distilling Solutions segment for the year to date ended September 30, 2023 increased by $14,650, or 4 percent compared to the year-ago period. Sales of brown goods within premium beverage alcohol and warehouse services increased while white goods within premium beverage alcohol, distillers feed and related co-products, industrial alcohol, and fuel grade alcohol decreased compared to the prior year to date period. The increase in sales of brown goods was driven
by higher average selling price, partially offset by lower sales volume. This increase was partially offset by a decrease in sales of white goods, distillers feed and related co-products, industrial alcohol and fuel grade alcohol, which was driven primarily by lower sales volume. The decreases in white goods, distillers feed and related co-products, and industrial alcohol were partially offset by higher average selling price.
Gross profit for the year to date ended September 30, 2023 increased by $10,356, or 11 percent compared to the year-ago period. Gross margin for the year to date ended September 30, 2023 increased to 30.7 percent from 28.9 percent for the prior year period. The increase in gross profit was due primarily to higher average selling price for brown goods and white goods. This increase
was partially offset by higher input costs across all product categories.
28
Branded Spirits
The following tables show selected financial information for the Branded Spirits segment for the quarters ended September 30, 2023 and 2022.
BRANDED
SPIRITS SALES
Quarter Ended September 30,
Quarter versus Quarter Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Ultra premium
$
20,107
$
13,804
$
6,303
46
%
Super
premium
3,637
3,350
287
9
Premium
7,099
6,013
1,086
18
Premium
plus
30,843
23,167
7,676
33
Mid
17,650
20,834
(3,184)
(15)
Value
11,049
12,097
(1,048)
(9)
Other
7,277
6,663
614
9
Total
Branded Spirits
$
66,819
$
62,761
$
4,058
6
%
Change in
Quarter versus Quarter Sales Attributed to:
Total (a)
Volume(b)
Net Price/Mix(c)
Total Branded Spirits
6%
(16)%
22%
Other
Financial Information
Quarter Ended September 30,
Quarter versus Quarter Increase / (Decrease)
2023
2022
$ Change
% Change
Gross profit
$
29,040
$
25,067
$
3,973
16
%
Gross
margin %
43.5
%
39.9
%
3.6
pp(d)
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. 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. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Branded Spirits segment for the quarter ended September 30, 2023 increased by $4,058, or 6 percent compared to the prior year quarter. The increase was driven by sales of brands within the premium plus price tiers, partially offset by a decrease in sales of brands within the mid and value price tiers. The increase in sales of brands within the ultra premium price tier was primarily due to an increase in sales of our American whiskey brands, including the additional brands acquired
as part of the acquisition of Penelope. The increase in sales of brands within the premium price tier was primarily due to an increase in sales of our tequila brands. These increases were partially offset by decreased sales of brands within the mid and value price tiers due to a decrease in sales volume.
Gross profit increased quarter versus quarter by $3,973, or 16 percent. Gross margin for the quarter ended September 30, 2023 increased to 43.5 percent from 39.9 percent for the prior year quarter. The increase in gross profit was primarily driven by an increase in sales volume and average selling price in the ultra premium price tier.
29
The
following tables show selected financial information for the Branded Spirits segment for the year to date ended September 30, 2023 and 2022.
BRANDED SPIRITS SALES
Year
to Date Ended September 30,
Year to Date versus Year to Date Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Ultra premium
$
43,594
$
35,836
$
7,758
22
%
Super
premium
9,614
9,522
92
1
Premium
20,144
17,928
2,216
12
Premium
plus
73,352
63,286
10,066
16
Mid
55,575
63,408
(7,833)
(12)
Value
36,048
36,304
(256)
(1)
Other
16,343
14,080
2,263
16
Total
Branded Spirits
$
181,318
$
177,078
$
4,240
2
%
Change
in Year to Date versus Year to Date Sales Attributed to:
Total (a)
Volume(b)
Net Price/Mix(c)
Total Branded Spirits
2%
(8)%
10%
Other
Financial Information
Year to Date Ended September 30,
Year to Date versus Year to Date Increase / (Decrease)
2023
2022
$ Change
% Change
Gross profit
$
79,636
$
70,809
$
8,827
12
%
Gross
margin %
43.9
%
40.0
%
3.9
pp(d)
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. 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. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of Branded Spirits for the year to date ended September 30, 2023 increased by $4,240, or 2 percent compared to the year-ago period. Sales of brands within the premium plus price tiers as well as sales within the other category increased while sales of brands within the mid and value price tiers decreased. The increase in sales of brands within the ultra premium and premium price tiers was primarily due to an increase in average selling price as well as the additional brands acquired as part
of the acquisition of Penelope. Sales within the other category increased primarily due to increased sales volume of private label brands. These increases were partially offset by decreased sales of brands within the mid price tier, primarily due to decreased sales volume as a result of shifting to higher margin accretive brands within the premium plus price tiers, partially offset by an increase in average selling price.
Gross profit for the year to date ended September 30, 2023 increased by $8,827, or 12 percent compared to the year-ago period. Gross margin for the year to date ended September 30, 2023 increased to 43.9 percent from 40.0 percent for the prior year. The increase in gross profit was primarily driven by an increase in average selling price in the premium plus, mid, value, and other price
tiers. These increases were partially offset by increased costs in the ultra premium price tier, the other category, and mid price tiers.
30
Ingredient Solutions
The following tables show selected financial information for the Ingredient Solutions segment for the quarters ended September 30, 2023 and 2022.
INGREDIENT
SOLUTIONS SALES
Quarter Ended September 30,
Quarter versus Quarter Sales Change Increase / (Decrease)
2023
2022
$ Change
% Change
Specialty wheat starches
$
17,196
$
16,241
$
955
6
%
Specialty
wheat proteins
11,440
9,697
1,743
18
Commodity wheat starches
4,226
3,803
423
11
Commodity
wheat proteins
90
—
90
N/A
Total Ingredient Solutions
$
32,952
$
29,741
$
3,211
11
%
Change
in Quarter versus Quarter Sales Attributed to:
Total(a)
Volume(b)
Net Price/Mix(c)
Total Ingredient Solutions
11%
(8)%
19%
Other
Financial Information
Quarter Ended September 30,
Quarter versus Quarter Increase / (Decrease)
2023
2022
$ Change
% Change
Gross profit
$
11,128
$
8,064
$
3,064
38
%
Gross
margin %
33.8
%
27.1
%
6.7
pp(d)
(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. 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. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Ingredient Solutions segment for the quarter ended September 30, 2023 increased by $3,211, or 11 percent, compared to the prior year quarter, reflecting an increase across all product categories. The increase was primarily driven by higher sales of specialty wheat proteins, specialty wheat starches, and commodity wheat starches primarily due to higher average selling prices, partially offset by lower sales volume.
Gross
profit increased quarter versus quarter by $3,064, or 38 percent. Gross margin for the quarter ended September 30, 2023 increased to 33.8 percent from 27.1 percent for the prior year quarter. The increase in gross profit was primarily driven by higher average selling price of specialty wheat starch and proteins, partially offset by higher input costs across all product categories.
31
The following tables show selected financial information for the Ingredient Solutions segment for the year to date September 30, 2023 and 2022.
INGREDIENT
SOLUTIONS SALES
Year to Date Ended September 30,
Year to Date versus Year to Date Sales Change Increase/(Decrease)
2023
2022
$ Change
% Change
Specialty wheat starches
$
48,977
$
47,445
$
1,532
3
%
Specialty
wheat proteins
35,918
29,225
6,693
23
Commodity wheat starches
12,870
10,286
2,584
25
Commodity
wheat proteins
611
38
573
1,508
Total Ingredient Solutions
$
98,376
$
86,994
$
11,382
13
%
Change
in Year to Date versus Year to Date Sales Attributed to:
Total(a)
Volume(b)
Net Price/Mix(c)
Total Ingredient Solutions
13%
(7)%
20%
Other
Financial Information
Year to Date Ended September 30,
Year to Date versus Year to Date Increase / (Decrease)
2023
2022
$ Change
% Change
Gross profit
$
34,945
$
24,654
$
10,291
42
%
Gross
margin %
35.5
%
28.3
%
7.2
pp(d)
(a) Total sale changes is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.
(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit. 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. The product is then divided by prior period sales dollars.
(d) Percentage points (“pp”).
Total sales of the Ingredient Solutions segment for the year to date ended September 30, 2023 increased by $11,382, or 13 percent, compared to the prior year period, reflecting an increase across all product categories. The increase in Ingredient Solutions sales was primarily driven by higher sales of specialty wheat proteins due to higher average selling price and higher sales volume. Additionally, sales of commodity wheat starches and specialty wheat starches increased
primarily due to higher average selling price, partially offset by lower sales volume.
Gross profit increased by $10,291, or 42 percent for the year to date ended September 30, 2023 compared to the prior year period. Gross margin for the year to date ended September 30, 2023 increased to 35.5 percent from 28.3 percent for the prior year period. The increase in gross profit was primarily driven by higher average selling price across all product categories, partially offset by higher input across those same product categories.
32
CASH
FLOW, FINANCIAL CONDITION, AND LIQUIDITY
We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.
Operating cash flow and borrowings through our Credit Agreement, Convertible Senior Notes, and Note Purchase Agreement (see Note 6) provide the primary sources of cash to fund operating needs and capital expenditures. These same sources of cash are used to fund stockholder dividends and other discretionary uses. Our overall liquidity reflects our strong business results and an effective cash management strategy that takes into account liquidity management, economic factors, and tax considerations. We expect our sources of cash 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 to Date Ended September 30,
Changes, year versus year Increase / (Decrease)
2023
2022
Cash
provided by operating activities
$
48,605
$
72,253
$
(23,648)
Cash
used in investing activities
(146,690)
(31,764)
(114,926)
Cash
provided by (used in) financing activities
78,193
(11,301)
89,494
Effect of exchange rate changes on cash
33
(82)
115
Increase
(decrease) in cash and cash equivalents
$
(19,859)
$
29,106
$
(48,965)
Cash decreased $19,859 for the year to date ended September 30, 2023, compared to an increase of $29,106 for the year to date ended September 30, 2022, for a net decrease in cash of $48,965, period versus period.
Operating Activities. Cash
provided by operating activities for the year to date ended September 30, 2023 was $48,605. The cash provided by operating activities resulted primarily from net income of $76,084, adjustments for non-cash or non-operating charges of $42,912, including impairment of long-lived assets and other, depreciation and amortization, share-based compensation, and the change in fair value of contingent consideration, partially offset by cash used in operating assets and liabilities, net of the effects of acquisition, of $70,391. The primary drivers of the changes in operating assets and liabilities were $42,015 use of cash related to an increase in inventories, primarily due to an increase in barreled distillate, $14,980 use of cash related to increased accounts receivable, net due to timing of sales and customer payments during the quarter, and $10,069 use of cash related to a decrease in accounts payable due to timing of payments.
Cash
provided by operating activities for the year to date ended September 30, 2022 was $72,253. The cash provided by operating activities resulted primarily from net income of $86,361, adjustments for non-cash or non-operating charges of $20,503, including depreciation and amortization, and share-based compensation, partially offset by cash used in operating assets and liabilities of $34,611. The primary drivers of the changes in operating assets and liabilities were $30,599 use of cash related to an increase in inventories, primarily due to an increase in finished goods inventory and barreled distillate, as well as $15,582 use of cash related to increased accounts receivables, net, due to increased sales during the year to date period as well as timing of customer payments. These uses of cash were partially offset, primarily by $12,613 cash provided by an increase in accounts payable.
Investing
Activities. Cash used in investing activities for the year to date ended September 30, 2023 was $146,690, which primarily resulted from $103,712 related to the acquisition of Penelope, net of cash acquired, and additions to property, plant, and equipment of $42,062 (see “Capital Spending”). Cash used in investing activities for the year to date ended September 30, 2022 was $31,764, which primarily resulted from additions to property, plant, and equipment of $29,217 (see “Capital Spending”).
Capital Spending. We manage capital spending to support our business growth plans. We have incurred $36,879 and $28,524 of capital expenditures and have paid $42,062 and $29,217 for capital expenditures for the year to date ended September
30, 2023 and 2022, respectively. The difference between the amount of capital expenditures incurred and amount paid is due to the change in capital expenditures in accounts payable. We expect approximately $63,000 in capital expenditures in 2023, which includes capital expenditures for facility improvement and expansion, facility sustaining projects, environmental health and safety projects, as well as the planned closure of the Atchison Distillery.
33
Financing Activities. Cash provided by financing activities for the year to date ended September 30, 2023 was $78,193, due to net proceeds on debt of $87,000 (see “Long-Term and
Short-Term Debt”), partially offset by payments of dividends and dividend equivalents of $8,006 (see “Dividends and Dividend Equivalents”), and purchases of treasury stock of $801 (see “Treasury Purchases”).
Cash used in financing activities for the year to date ended September 30, 2022 was $11,301, due to payments of dividends and dividend equivalents of $7,984 (see “Dividends and Dividend Equivalents”), net payments on debt of $2,603 (see “Long-Term and Short-Term Debt”), and purchases of treasury stock of $714 (see “Treasury Purchases”).
Treasury Purchases. 22,592 RSUs vested and converted to shares of common stock for employees during the year to date ended September 30, 2023, of
which we withheld and purchased for treasury 8,437 shares valued at $801 to cover payment of associated withholding taxes.
29,366 RSUs vested and converted to shares of common stock for employees during the year to date ended September 30, 2022, of which we withheld and purchased for treasury 9,027 shares valued at $714 to cover payment of associated withholding taxes.
Dividends and Dividend Equivalents
Dividend
and Dividend Equivalent Information (per Share and Unit)
(a)
Dividend equivalent payments on unvested participating securities.
(b) Includes estimated forfeitures.
(c) Per share amount.
On November 2, 2023, we announced a dividend payable to stockholders of record of our common stock, resulting in dividend equivalents payable to certain RSU holders, of $0.12 per share and per RSU. The dividend and dividend equivalent are payable on December 1, 2023 to stockholders of record and certain RSU holders on November 17, 2023.
Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations,
cash requirements for ongoing operations, investment and financing plans (including brand development, merger and acquisition, and share repurchase activities), and the overall cost of capital. Total debt was $316,677 (net of unamortized loan fees of $6,773) at September 30, 2023, and $230,335 (net of unamortized loan fees of $6,115) at December 31, 2022.
Financial Condition and Liquidity. 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. Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory
levels.
Our principal sources of cash are product sales and borrowing on our various debt agreements. Under our debt agreements, we must meet certain financial covenants and restrictions, and at September 30, 2023, we met those covenants and restrictions.
34
At September 30, 2023, our current assets exceeded our current liabilities by $413,808, largely due to our inventories, at cost, of $342,401. At September 30, 2023, our cash balance was $28,030 and we have used our various debt agreements for liquidity purposes, with $309,000 available under
our Credit Agreement for additional borrowings and $218,800 available under the Note Purchase Agreement (see Note 6). We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. 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, and potential mergers and acquisitions. Subject to market conditions, we could also fund future mergers and acquisitions through the issuance of additional shares of our common stock or preferred stock. In addition, we have strong operating results such that we believe financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to commodity price and interest rate market risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets with the goal to reduce the potentially adverse effects that the volatility of these markets may have on our operating results and financial condition.
Commodity Costs. Certain commodities we use in our production process, or input costs, expose us to market price risk due to volatility in the prices for those commodities. Through our grain supply contracts for our Atchison and Lawrenceburg facilities, our wheat flour supply contract
for our Atchison facility, and our natural gas contracts for both facilities, we purchase grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated prices. We have determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of our supply contracts meet the normal purchases and sales exception as defined under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, because the quantities involved are for amounts to be consumed within the normal expected production process.
Interest Rate Exposures.Our various debt
agreements (see Note 6) expose us to market risks arising from adverse changes in interest rates. Established procedures and internal processes govern the management of this market risk.
Increases in market interest rates would cause interest expense under our variable interest rate debt to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings under variable interest rate debt during the reporting period following an increase in market interest rates. Based on weighted average outstanding variable-rate borrowings at September 30, 2023, a 100 basis point increase over the current rates actually in effect at such date would increase our interest expense on an annual basis by $980. Based on weighted average outstanding fixed-rate
borrowings at September 30, 2023, a 100 basis point increase in market rates would result in a decrease in the fair value of our outstanding fixed-rate debt of $28,723, and a 100 basis point decrease in market rates would result in an increase in the fair value of our outstanding fixed-rate debt of $36,143.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. As of September 30, 2023, our Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control. There were no changes in our internal control over financial reporting
during the fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part I, Item 3, Legal Proceedings of our Annual Report on Form 10-K for the year ended December
31, 2022, and Note 9 in this Report for information on certain proceedings to which we are subject.
ITEM 1A. RISK FACTORS
Risk factors are described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There
was no unregistered sale of equity securities during the quarter ended September 30, 2023.
ISSUER PURCHASES OF EQUITY SECURITIES
(1) Total Number
of Shares (or Units) Purchased
(2) Average Price Paid per Share (or Unit)
(3) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
(4) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
During the quarter ended September 30, 2023, none of our directors or officers iiadopted,/
modified, or iiterminated/ a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) of Regulation S-K).
The following financial information from MGP Ingredients, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of September 30, 2023, and December 31, 2022, (ii) Condensed Consolidated Statements of Income
for the quarter and year to date ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the quarter and year to date ended September 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Cash Flows for the year to date ended September 30, 2023 and 2022, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the year to date ended September 30, 2023 and 2022, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
*104
Cover
Page Interactive Data Filed - formatted in iXBRL (Inline Extensible Business Reporting Language) and contained in Exhibit 101
Pursuant to the requirements on the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.