MGP Ingredients, Inc. Aktie

Good morning, and welcome to the MGP Ingredients First Quarter 2026 Earnings Conference Call with Julie Francis, President and CEO; and Brandon Gall, CFO. [Operator Instructions] Please also note that this event is being recorded today.

In addition, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's annual and quarterly reports filed with the SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law.

This call will contain references to certain non-GAAP measures, which the company believes are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release, which was issued this morning before the markets opened and is available at www.mgpingredients.com.

At this time, I would like to turn the call over to Julie Francis, President and CEO of MGP Ingredients.

Good morning. I'd like to thank you all for joining us today on our first quarter 2026 earnings call. Let's kick it off with a review of some of our quarterly results and progress made against our key initiatives, and then Brandon can go into the financial metrics during his comments.

Sales in the first quarter of 2026 came in at $106.4 million, down versus the prior year, but in line with our expectations. Adjusted EBITDA of $15 million and adjusted basic EPS of $0.15 also declined versus the first quarter of last year. However, both of these key metrics were ahead of expectations. We are pleased with this performance as it helps to validate the work we've been doing to drive progress in our business while simultaneously navigating a challenging industry backdrop.

In the first quarter, we continue to focus our energy on the areas we can control and to sharpen our strategic focus and strengthen execution across the organization. For Branded Spirits, we maintained momentum in our Premium Plus portfolio in the first quarter, which was led by Penalty Bourbon and benefited from improved demand for select mid-price offerings. We also delivered solid growth in Ingredient Solutions as the improvement the team has made in operational reliability are taking hold and delivering results.

While I plan to talk more about our segment performance later, I'd like to share a few recent actions we have taken. As you know, we've been strengthening and revamping our strategy, marketing and supply chain functions in order to add specific capabilities to address new and existing opportunities and to build out best-in-class processes designed to balance improved commercial planning while driving disciplined execution and long-term success. As part of these efforts, we recently announced there will be a temporary idling of our distilling operations in Kentucky at Limestone Branch and Lux Row starting in May.

Like many companies across the industry, we are navigating this challenging environment and taking the steps we believe are necessary to better align our operations and inventory. While this temporary idling will unfortunately affect 33 employees, it is not expected to impact the availability of our products or our services to our customers, and it is necessary to adjust our production to align with current inventory levels. We'd like to remind everyone that our largest facility in Lawrenceburg, Indiana remains fully operational and will continue to operate to serve our brands, clients and customers.

Shifting to our business segments. I'll begin with Branded Spirits, which remains a focus as our primary long-term growth driver. As expected, first quarter sales were down year-over-year. However, we continue to see constructive progress, particularly within the Premium Plus and mid-priced tiers. We view these price tiers as critical to the long-term health of our portfolio, and we are pleased to see they both saw growth in the quarter. Importantly, gross margin expanded 180 basis points to 47.8%, reflecting improved mix and early benefits from our revenue growth management initiatives.

Gross profit of $21.1 million was down versus the prior year and primarily driven by an expected decline in sales of private label products within our other category. Premium Plus sales increased 1.5%, supported by continued consumer demand for our differentiated high-quality offerings and the increasing effectiveness of our focused growth strategies. Penelope Bourbon once again delivered strong performance with sales up 10% year-over-year.

As you recall, this brand is cycling the highly successful launch of Penelope weeded in the first quarter of last year. Even against this comparison, we saw growth driven by sustained and growing momentum in our core SKU Penelope Four Grain, along with strong consumer response to limited time releases such as Havana, Rio and American Light whiskey. We are also encouraged by the early traction from our new ready-to-pour offerings, including our black walnut and apple cinnamon old-fashioned products, which continue to expand Penelope's consumption occasions.

Turning to Yellowstone. Despite a year-over-year decline for the first quarter, we are seeing early signs of stabilization and recovery, supported by deliberate investments in innovation and digital capabilities. Our ultra-premium limited release Yellowstone recollection has been exceptionally well received, earning strong critical acclaim and press coverage with consumer demand exceeding our initial expectations.

As discussed in our last earnings call, we continue to increase our investment in digital marketing and media capabilities. Yellowstone is the first brand we've deployed a fully integrated digital activation strategy, combining best-in-class social media execution with targeted paid media in focus states, including select control states. In Pennsylvania and California, for example, this approach, combined with revenue growth management initiatives drove robust double-digit growth for Yellowstone in the first quarter versus the prior year.

Turning to tequila, where our El Mayor brand delivered year-over-year growth, driven by continued progress in price pack architecture efforts. This included expanded 1.75-liter offerings and the introduction of 375-milliliter sizes as consumers increasingly adopt premium tequila across a broader range of occasions and price points. Similarly, Exotico tequila was up strong double digits, fueled by the addition of a 1-liter offering, which is enabling continued gains in on-premise distribution alongside price optimization. Additionally, the 375-milliliter size is allowing consumers to trade up from mixed tequila to high-quality 100% agave tequila at an attractive price point in off-premise channels.

For mid- and value priced portfolios, combined sales declined 3% in the first quarter. These are improving trends as we continue to prioritize our strongest performing SKUs and channels. Revenue growth management and price pack channel optimization remain critical levers in these categories, and we are encouraged by early results as we execute against this strategy. Looking ahead, we are intentionally concentrating resources behind approximately 10 of our most promising brands with a clear focus on purposeful differentiation and innovation to support sustainable long-term growth.

At the same time, we are managing the portfolio with discipline. As discussed on our prior call, we have initiated comprehensive portfolio review and rationalization. During the first quarter of 2026, we discontinued more than 30 tail brands with approximately 15 additional brands planned to be discontinued by the end of this year. Combined, these brands represent approximately 1% of segment net sales, and we expect, when annualized, will represent an estimated 20 basis point of improvement to the segment's gross margin profile.

For our Branded Spirits segment, we are excited about the opportunities ahead across our broader portfolio. As with all growth trajectories, we will take many steps forward, some bigger and some smaller. We also will likely alternate between some really healthy quarters and some softer ones as we continue to successfully prioritize our best-performing offerings and ramp up our investments in these brands while continuing to cycle new product introductions.

Turning to Distilling Solutions, where despite the challenging domestic whiskey supply environment, our first quarter results came in as expected. Segment sales of $28 million decreased 40% over year, while gross profit of $8.6 million declined 54% as elevated inventory levels continued. In the first quarter, we maintained our focus on creating a differentiated value proposition to better position MGP as a long-term strategic partner for both large and small customers.

Our grounded customers expansion efforts are taking hold as demonstrated by growth of 9% in aged sales and the addition of more than 20 new customers in the first quarter, including a significant national private label whiskey customer. We are proud of the customer expansion progress we are making, particularly given the current industry backdrop. As discussed on our last earnings call, we are also broadening our premium white goods offerings, and these efforts are focused on complementing our brown goods portfolio.

During the quarter, we transacted our first customer sale under this new highly customized initiative. While we are pleased with the progress we are making, given the unique and highly customized nature of these product offerings, these projects will take time to fully commercialize and scale. That said, we now expect growth from this initiative to begin picking up in the second half of this year.

Our focus on premium white goods is designed to leverage the scale, heritage and quality of our Indiana distillery to produce premium gin and grain neutral spirits, which can then be customized to meet each customer-specific needs. We expect that this effort will allow us to move beyond commoditized offerings, generate more attractive economics and better asset utilization rates and also serve as a bridge to longer-term and deeper relationships with strategic customers.

Our efforts are also focused on driving cash generation by increasing our value-added service offerings as we look to attract and retain a wider pool of customers. Warehouse services made up approximately 30% of our Distilling Solutions segment sales in the first quarter, and both sales and gross profit were up versus the prior year.

Turning now to our Ingredient Solutions segment, where sales of $34.2 million increased 29% versus the prior year. This growth was primarily driven by higher sales volume, price and mix for our specialty wheat proteins and starches. Gross profit of $3.8 million was up 56% with gross margin of 11.2%, up nearly 200 basis points as higher sales of specialty protein and starch products were partially offset by higher waste disposal costs. This successful first quarter was driven by continued improvements in operational reliability with each month better than the past one.

For the quarter, efficiency was up 14% year-over-year with a slower start to the year firmly offset by a solid March. We plan to continue to move towards greater efficiency as we improve overall and as we begin to cycle previous throughput issues. In fluid disposal has been more complex and more costly than initially projected. Reducing waste and disposal costs are a key priority, and we're implementing additional measures by year-end and continue to expect to remove these costs over the long term.

At the end of the second quarter and into the third, we have a planned shutdown for scheduled maintenance and capital projects designed to further improve reliability and throughput and to provide some relief in our waste stream disposal costs. Brandon will share the related financial impacts in a moment. Despite the affluent challenge, we are moving in the right direction ingredient Solutions. We are pleased with the momentum as better operational reliability means we have more product to sell. And this is key as we continue to see increasing demand for our proprietary and unique products. We will remain focused on driving growth through our specialty fiber. Fibersym, our specialty protein Arise and our extrusion protein, ProTerra.

Now I'd like to highlight the progress we are making in driving an ownership cost management mindset that is supporting growth and our bottom line by eliminating waste, driving efficiencies and maximizing effectiveness. One reinvestment example of this is the work we completed to streamline marketing services and to reduce our nonworking media spend while reinvesting those savings into our Yellowstone digital marketing programs.

Going forward, we will continue to reinforce this mindset by embedding productivity and cost discipline into our operating routines, performance management and compensation metrics. Productivity and a cost management focus are becoming a part of our regular management teams, helping us to uncover and track opportunities to eliminate waste and driving us to operate more efficiently and effectively across the entire organization.

And with that, I'd like to turn the call over to Brandon.

Thank you, Julie. Turning now to our financial results. For the first quarter of 2026, we reported consolidated sales of $106 million. While sales decreased 13% compared to the year ago period, they were in line with expectations. Gross profit of $33.6 million was down 22%, while gross margin of 31.6% declined by approximately 400 basis points.

Our total SG&A spend declined by approximately 1% in the first quarter, while adjusted SG&A declined by approximately 2%. As expected, Branded Spirits advertising and promotion expenses or 13.6% of Branded Spirits sales, a reduction of approximately 24% year-over-year as we cycled the final period of elevated marketing spend prior to our current, more disciplined and efficient realignment efforts. We continue to expect full year Branded Spirits sales A&P to be 13% to 14% of Branded Spirits sales.

Net income decreased to a loss of $134.8 million, primarily due to a discrete noncash adjustment of $179.5 million to reduce the carrying amount of goodwill and other long-lived assets in the Branded Spirits segment. This also included approximately $27 million for equipment unrelated to the distillation process at our Lux Row facility in Kentucky. Adjusted net income of $3.3 million decreased 57% on a year-over-year basis. On a per share basis, we had a loss of $6.30 for the first quarter versus a loss of $0.14 in the prior year, primarily due to the adjustments I just noted.

On an adjusted basis, earnings per share of $0.15 decreased 58% year-over-year. Adjusted EBITDA of $15 million decreased 31% over the same period. Capital expenditures declined 75% to $2 million in the first quarter, and we continue to estimate CapEx of approximately $20 million for the full year as we look to optimize our capital deployment in the current industry environment. Finally, as of March 31, our net debt leverage ratio was approximately 2.1x.

Turning to annual guidance for 2026, which we are reaffirming. We continue to expect net sales between $480 million to $500 million. Adjusted EBITDA is projected to range from $90 million to $98 million. This is consistent with previous expectations as the efficiencies and savings from our recently implemented ownership cost management mindset initiative is expected to offset our reduced gross profit outlook in Ingredient Solutions. Our adjusted basic earnings per share range remains between $1.50 and $1.80 and average shares outstanding should be approximately 21.4 million shares for the full year. Our annual tax rate is expected to be approximately 27%.

Turning to our balance sheet and cash flow outlook. As Julie shared, the decision to temporarily idle our Kentucky distilling operations beginning in May was difficult. However, given the current environment, it is an additional example of the capital prudence necessary to position us for long-term success. As a result, we expect full year improvement in cash flows of $10 million versus previous expectations.

Excluding the impact of the Penalty earn-out payment, we now anticipate 2026 full year operating cash flow of $50 million to $55 million and free cash flows of $30 million to $35 million. We also anticipate an improvement in our net leverage ratio as a result of the temporary idling and expect it to peak at approximately 3.5x, down from the 3.75x figure we provided on our fourth quarter earnings call.

We continue to estimate net whiskey putaway in the $13 million to $18 million range for 2026, which represents our second consecutive year of meaningful capital investment optimization and stewardship. This target includes both new production and procurement of barrels and is consistent with prior expectations as much of the temporary idling was factored into the previously provided outlook.

From a business segment perspective, our full year segment outlook for Distilling Solutions sales and gross profit is consistent with previously shared estimates. However, our white goods sales outlook for 2026 has been reduced and is now expected to be up mid-single digits, largely due to the time needed to fully commercialize and scale these customized new projects. Much of this reduction is expected to be offset by improved sales within other product lines.

Our full year sales outlook for Ingredient Solutions is consistent with previously shared estimates. However, we now expect full year segment gross margins to be in the mid-teens as a result of the increased ethylene costs and planned shutdown at the end of the second quarter and into the third quarter. Our full year segment outlook for Branded Spirits is unchanged from previously shared estimates.

To close, I'd like to stress Julie's comments regarding our performance to date as it helps to validate the work we've been doing to drive progress in our business while simultaneously navigating a challenging industry backdrop.

And with that, I'd like to turn the call back over to Julie.

Thank you, Brandon. Before we wrap up, I want to thank the entire MGP team for another quarter of persistence, dedication and hard work and for the commitment to executing against our strategic road map. This strategic road map is designed to drive growth across all 3 businesses.

For our Branded Spirits, we will continue to focus on winning in the Premium Plus category with Penelope Bourbon while strengthening our overall brand focus. We will prioritize our best-performing brands and plan to rationalize approximately 20% of our tail brands. We will also strive to increase our penetration in national accounts and to strengthen our digital marketing capabilities. For Distilling Solutions, we will remain focused on rebuilding our aged whiskey pipeline while broadening our premium white goods offerings to complement our brown goods portfolio.

We will also continue to work on attracting and retaining a wider pool of customers by growing our private label and international whiskey programs and by expanding our value-added service offerings. And for Ingredient Solutions, our efforts will remain focused on driving growth through our industry-leading specialty fiber and specialty protein product offerings. We'll also continue to implement new processes to help return to operational excellence and improve reliability and throughput. In addition, managing high waste disposal costs will remain a key priority for this segment.

Looking ahead, I'm encouraged by the progress we are making across our organization. As I stated earlier, our strategy remains grounded focus, execution, discipline and accountability. We're actively evaluating all available levers to operate more efficiently and effectively. While the industry outlook remains challenging over the near term, we are committed to addressing our challenges in order to position MGP to emerge as a better aligned and more resilient company that is capable of delivering long-term value creation.

And with that, I'd like to turn the call over to the operator for any questions.

[Operator Instructions] The first question comes from Robert Moskow with TD Cowen.

This is Seamus on for Rob. I was hoping you guys could provide a little bit more detail on sort of the early learnings from your portfolio review in Branded Spirits and I guess, what approach you took to this review. You mentioned the investment in Yellowstone and 10 brands in total. I guess what went into the decision to invest in these brands? And I guess, secondly, does rationalizing tail brands have any impact on sort of like capacity or distributor alignment or any considerations there?

It's Julie, thanks so much. Appreciate it. Let's try -- let's do this SKU conversation first. As you've read, we did discontinue over 20 -- excuse me, over 30 tail brands in Q1 with expected another 15 by year-end. We are seeing that, that's approximately 1% of our segment net sales. And when we analyze it, we expect 20 basis points of improvement. We do see some learnings, as you said. The learnings are that these weren't highly visible brands in the market, but they consume resources.

And so you think about it, there's changeover configurations, there's glass containers, there's liquid that we had. So it does improve line efficiency. It provides more line time for core SKUs, and we do have a few that are growing quite nicely. And the main impact is really inventory reduction. We're reducing working capital over $2.5 million and other logistics supply chain costs like warehouse and storage.

From a distributor focus, it doesn't take away their focus. If anything, I'd have to say is that it's allowed them with our partnership approach this year of really targeting our top 10 brands for them to focus their execution, focus their activation on. We're seeing some nice momentum in their planning and both in their execution in Q1. And I'd say from a kind of shifting there to a power brands, the 10, how do we do it? I think you might recall, we did bring in new capabilities about 6 months ago to lead the marketing organization. And so as you can imagine, it's been a robust 6 months.

First and foremost, doing comprehensive reviews of our top 2 portfolios, which are American whiskey and tequila. So you can think about the positioning, where the brands stand for, consumer segments, competitive sets, key occasions, price pack architecture, A&P allotment, any overlap from the robust portfolio that we have that we're blessed with in American Whiskey and the same for tequila. And from that, you really come out with those key brands and then a strategic road map for investment and for execution.

We then kind of put a what we call a brand growth framework around those brands to make sure that they're selectively being pushed and executed and invested against a couple of key areas. One, it's about kind of mental availability and think about -- you referenced digital. Think about reaching out to more consumers through increased paid media, our ability to target those geo segments that we want based on ZIP codes. It's about having the right and dynamic content, the right message to the right consumer, the right channel at the right time.

And then it's physical availability, right? How are we going to increase our pods, our distribution, our velocities across all accounts. In particular, you've heard us talk about national account expansion and opportunities across off-premise and on-premise. And so increasing store visibility and execution remains a goal. And one of the heavy-up areas we did focus on is elevating our digital media capabilities. And so we've doubled the investment there. We've brought a highly capable, high expertise into the team.

We've also tested in-house digital media. So as you heard in my prepared comments, Yellowstone was our first test and learn. We did a couple of states. Within those states, we're seeing a nice turnaround for Yellowstone select up double digits. And that's really around both media and pricing heavy up in those markets and really tied to targeting those ZIP codes to actually purchase Yellowstone. So we're pleased with the results. It's early days, but you can see that type of approach going to our other focus brands as well.

The next question comes from Sean McGowan with ROTH Capital Partners.

I wanted to get a little bit more color on some of your gross margin comments. Well first, specifically to clear up, when you're talking about the 20 basis point improvement, is that on a run rate basis as you exit the year? Or is that for the full year?

Yes, that's a run rate annualized basis. So the impacts we mentioned, Sean, and thank you for the question, won't necessarily all hit in 2026. However, what is going to hit is factored into our guidance and can be expected on an annualized basis going forward.

Okay. And that's just within Branded Spirits, right? That's correct. Okay. And then on the ingredients side, so would you expect that by the end of the year, you would kind of be back to where you thought you would be on gross margin? Or is this hit going to linger into next year?

Yes. No, thanks for the question. First, I do want to say we are pleased with the operational reliability improvements we've sequentially made as the year has started. Our downtime is -- and we're more efficient by 14%. And really, what's driving that is our unplanned equipment outages have reduced since December by 10 basis -- or excuse me, 10 points and also throughput improvements are up 18%. So operational reliability has allowed us to obviously get more pounds out.

We have robust consumer demand for our proprietary platforms across starch and fiber. And so you saw that with our -- certainly with our sales number. So more to sell, more reliable. And the gross margin is being impacted by affluent. We talked about that before. And we are -- we do expect starting in the second -- the end of the second quarter with our planned shutdown that's going to cross over the end of Q2 into Q3.

We expect to bring in a piece of equipment that a third dryer that's going to help us eliminate some of that affluent. So we expect that impact to sequentially go down by the end of the year and cut it in half. And so by the time we end the year, we expect mid-teens on gross margin. And then again, as I stated before, by the end of 2027, we expect that to be into the high 20s.

Okay. And then on distilling, is that the commentary that you made about white goods maybe coming a little bit slower and offset though by other products. What are the gross margin implications for that shift?

Yes. We're still expecting, Sean, low to mid-30s gross margins for the Distilling Solutions segment. As we said in our prepared remarks, those sales are expected to be offset by other product lines within the segment and business unit. And so we're staying consistent with what we said last time.

The next question comes from Marc Torrente with Wells Fargo.

I guess first on Distilling Solutions. Last quarter, you talked about discussions with larger customers to take shape through the second quarter and potentially provide some color on the 2026 outlook and beyond. Wondering if you had any incremental color there? What are you hearing in terms of customer needs and timing to demand inflection? And any further comfort that 2026 could be a bottom?

Yes. Thanks Marc. Thank you. I appreciate that. I'll start with kind of the end. We do continue to view that 2026 will likely be a trough year for Distilling Solutions. Nothing we saw in Q1 necessarily changed that view. I'd tell you, we still are very pleased with our partnership approach that we've enacted. We believe it's working.

Our conversation with customers remain active. They're pragmatic. They're constructive. Inventory levels across the industry are still elevated, but we're certainly seeing customers move from a posture of broad pauses to much more targeted planning discussions. And importantly, those conversations are increasingly focused on how they want to reengage product types and customization services, not necessarily if.

We still do expect clarity as we move through the end of Q2, which is consistent with what we said previously from some of those multinationals on where they stand in their cycle. While the overall cycle, we think, is normalizing and will take time to normalize, we believe that we're going to exit this period stronger. better customer relationships with our more differentiated offering than before. And so again, we certainly will keep your abreast as we have those conversations, but not so many things have changed since the last time we talked.

Okay. And then just more color on the decision to idle distilling in Kentucky. Was there anything incremental you're seeing in the market that drove that decision during the quarter? And then what percent of your overall distilling capacity does that represent? And how much of that is for your own brands versus outside brands? And it doesn't really sound like that has any impact to your outlook for distilling sales or branded product availability.

Okay, Marc. No, good. I'll start the has no impact on either brand or distilling. And then I'd just say our decision to temper and idle our Kentucky distilling operations really impacts a modest portion of our total distilling capacity. And it really was driven by inventory alignment, not customer demand disruption. Most of the pause production was intended for future age inventory for our own brands rather than near-term customer commitments. As you recall, in 2025, I think we did a very nice job of really balancing our distilling solutions production to the sales impact. We had significant production reduction to more balance within our needs in the industry reset.

And also, as you know, it meaningfully reduced our fixed costs, and we're able to optimize production schedules and still hit into the 30s. We thought it was very prudent to do the same thing for our brand spirits. And once we did -- once we were able to hit our 2026 production needs that were met for our brands and for any of our customers, we did choose to idle that. And we announced that, as you know. And Brandon, I don't know if you want to clean up any impact to that idling to some of the balance sheet.

Yes. We showed the balance sheet and cash flow benefits. This is -- as Julie said, this is inventory-driven and working capital driven and us just being good stewards to the balance sheet. And as far as operations and the impact to the income statement, these costs that we incur there because they're primarily for our branded spirits put away, these are -- have historically been capitalized and so show up later in the income statement. But -- so we don't expect much of -- on an adjusted basis, much of an impact to operating margins, et cetera.

The next question comes from Ben Klieve with Lake Street Capital Markets.

A couple for me. First of all, in your prepared remarks, you talked about onboarding 20 new customers in the -- I can't remember if you said that was the Branded Spirits segment collectively or brown goods specifically. But I'm wondering if you can talk about kind of who this new customer base is, the extent to which these are aged versus new customers? And then kind of in this difficult environment, kind of how this really came about and kind of where they were sourcing from historically, if you can provide any context there?

Ben, yes, thanks for that question. Yes, we're pleased. Again, our partnership approach is working, and I kind of want to step back from the top of the funnel. You've probably heard of us talk about we believe the addressable market is around 1,000 customers in which we've been targeting the last couple of years, really engaging in some data, we've been able to address -- define an addressable total market of 4,000. And so we've allocated them out to our sales team who is, I would say, very adverse now on our differentiated value proposition and bringing that to life to our customers.

And they've had some hits. 75% of that pool was really new-to-industry customers and then 25% -- approximately 25% was sourced from competitors. Broadly speaking, these are brown goods, typically aged purchases. I think some of it is -- the team has done a nice job of really ensuring that the broader market and consumers and customers know that we're open for business. The craftsmanship that you get at MGP for brown and for white goods, we've got different mash builds.

We've got different ability to finish barrels. And we also have capabilities to do all sorts of sizes. And I think before, number one, they might not have heard of MGP that we actually do, do smaller batches. And some of these customers certainly are the ones that are hearing it and calling us surprise and they thought they had to go a different route to get our quality juice.

Very good. That's helpful. One more for me on the tax line. So 27% rate on a full year basis. Wondering if you can help us understand your expectations around cash taxes given the noncash expenses in the first quarter.

Yes. The OCM initiative that we highlighted on this call and last call, which is ownership cost mindset management is taking effect all across the organization and up and down the P&L. And the cash taxes are being optimized from an outflow and timing standpoint as much as possible. And so those benefits are going to be felt there. We still are expecting, excluding the impact of the impairment, around for the year, knowing that Q1 was going to be a little bunky because of a couple of discrete things that took place. But the cash management mindset is in full force. And so we're going to mitigate that as much as possible throughout the course of the year.

This concludes our question-and-answer session. I would like to turn the conference back over to Julie Francis for any closing remarks.

Thank you. I just want to say thank you on behalf of the entire MGP team, we thank you for your continued confidence and support. We look forward to talking to you in the next quarter. Take care.

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

Good day and welcome to the MGP Ingredients Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Amit Sharma, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to MGP's fourth quarter earnings conference call. I'm Amit Sharma, Vice President of Investor Relations. And this morning, I'm joined on the call by Julie Francis, our Chief Executive Officer; and Brandon Gall, Chief Financial Officer. We'll begin the call with management's prepared remarks and then open to questions.

Before we begin, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's reports filed with the SEC. The company yields no obligations to update any forward-looking statements made during the call, except as required by law.

Additionally, this call will contain references 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 is included in today's earnings release, which was issued this morning before the markets open and is available on our website at www.mgpingredients.com.

At this time, I would like to turn the call over to Julie for her opening remarks.

Thank you, Amit, and good morning, everyone. As we close out 2025, I want to start with a clear message. We are doing what we said we would do. We made progress on each of the 5 initiatives, and we finished the year above the top end of our guidance. The operating backdrop remains challenging for the spirits industry, and we recognize that 2026 is likely to be another down year for the industry and our company. That said, we are increasingly optimistic about MGP's future. Our confidence is grounded in 3 things.

First, our ability to deliver sustained growth off of our 2026 guidance expectations, which has been accelerated by our proactive self-help actions. Second, our new found strategic clarity, prioritizing our right to win, which we believe will also position us for solid and sustainable growth. And third, our financial strength which in this environment is a competitive advantage of increasing magnitude.

As I mentioned on our last call, we undertook an exhaustive review of our businesses to create a clear strategic road map for the next phase of our growth. This was a well-defined process grounded in an objective, data-driven assessment. We have since shifted from broad strategic discussions to a clear enterprise road map, including an organizational structure aligned to the strategic priorities of our business to further enhance our right to win. Strategy and structure are critical, but having the right talent and processes to execute with discipline is what we believe will lead to our ultimate success and sustainable growth. To that end, we recently announced organizational changes across our senior leadership teams. These are difficult decisions, but align with our strategic road map and position the company for long-term success.

On our last call, I shared the hiring of our new Chief Marketing Officer and Senior Vice President of Operations. Since then, we've also added a Senior Vice President of Strategy and Insights. Each of these leaders brings to MGP track records of success and global best practices. In the coming quarters, they will be the tip of spear of building out best-in-class processes that are designed to enable disciplined execution and long-term success.

Let me now provide a brief overview of our fourth quarter and full year results before outlining key elements of our strategic road map and the progress we are making against our key initiatives in each business. Our fourth quarter and full year 2025 results came in ahead of our expectations as the teams continue to act with diligence and focus. For the fourth quarter, consolidated sales declined 23% compared to a year ago. As double-digit sales growth in our Premium Plus portfolio was more than offset by the expected declines in the rest of our business. Adjusted EBITDA declined to [ $26 million ], while adjusted basic earnings per share reached $0.63. For the full year, we delivered consolidated sales, adjusted EBITDA and adjusted basic EPS of $536 million, $116 million and $2.85. Despite lower earnings, operating cash flows for the year increased by 19% to $122 million. Brandon will provide more detail on our financial results and 2026 guidance, but let me touch on the overall environment and our key initiatives that will shape our results over the next year.

At the broader level, the spirits industry has historically shown great resilience across economic cycles and periods of consumer behavioral changes. While we are confident about the long-term outlook for the industry, we expect near-term category trends to remain below historical levels. Consumer sentiment and spending remain under pressure, with competition from spending for online gambling, gaming and from cannabis-infused beverages, as well as an increased focus on health and well-being impacting consumer behavior. While we expect the near term to remain challenging, we are starting to see some encouraging signs, including a more balanced public conversation around alcohol, and its role in social settings and an overall well-being.

The recently released U.S. dietary guidelines placed greater emphasis on moderation and individual occasions for alcohol consumption rather than the no safe level guidance of the past. As we know, across generation, culture and geographies, shared moments and occasions of celebrations have included a drink among families and friends. In addition, a recent study from the American Heart Association concluded that low levels of alcohol consumption may not increase cardiovascular risk. The shift in overall tone is constructive and reinforces our long-term confidence in the category. But these developments are not expected to drive an immediate inflection in industry trends and our 2026 outlook does not assume a return to historical growth rates for the overall industry.

Shifting to our Branded Spirits segment. We believe this segment will continue to be our primary growth engine and the foundation of our long-term value creation strategy. In 2025, we executed well against our initiatives to concentrate on more attractive growth opportunities. Our Nielsen reported sales growth for the 52 weeks period ending December 27 came largely in line with the category, while our Premium Plus sales growth outperformed the overall category by 900 basis points during that same time period. As we look ahead, our focus here is clear. Win in the Premium Plus category with Penelope bourbon, strengthened our focus brands, increased penetration in national accounts, and strengthen our digital marketing capabilities.

Penelope is a key driver within this strategy. While Premium Plus American whiskey [ Listen ], reported dollar sales declined 3.5% during the 52-week period ending December 27, Penelope's reported dollar sales increased by 80%, making it the second fastest-growing brand during this time period among the top 30 Premium Plus American whiskey brands. This growth is fueled by innovation and distribution gains. With Penelope [indiscernible] cocktails being two of our biggest new product launches in 2025. These products were very well received and helped deliver a 100% growth in points of distribution, and a 12% increase in velocity. Our focus is on sustaining this ongoing momentum while strengthening our core by making incremental targeted investments designed to drive brand awareness, improving in-store execution and filling distribution gaps.

Beyond Penelope, we have a portfolio of high-quality brands, evidenced by Yellowstone and Luxco's inclusion in whiskey advocates prestigious top 20 whiskeys of 2025. We are the only company to have 2 brands in this year's top 20 list. This external validation reinforces the strength across our portfolio and highlights the unrealized potential of a focused portfolio. To achieve this potential, we have established a comprehensive cross-functional portfolio management review process, which will take a deeper look at the long tail of our Brand Spirits portfolio, reduce complexity and rationalize SKUs and brands.

As a first step, we are targeting a rationalization of 20% of the portfolio's tail brands. We believe this new rigorous portfolio review process will help us make even clear decisions about where we invest and where we protect to better position our brands across targeted consumer segments, channels, price points and consumption occasions.

Another key priority for the Brand Spirits segment is to increase our penetration in national accounts across both retail and on-premise accounts. We believe that having a greater presence with these customers not only creates additional distribution opportunities but also drives greater scale, visibility and recognition of our brands. Our continued commitment to invest behind our most attractive growth opportunities underpins these initiatives. We ended the year with Branded Spirits A&P spend at 12.5% of segment sales and expect it to increase modestly in 2026 to roughly 13.5%. We are also prioritizing investing in digital media, analytics and tools designed to drive awareness and consideration for our key brands, to bring greater discipline to how we track and improve brand health and allow us to connect more precisely with consumers around specific consumption occasions and social moments.

Our Distillery Solutions segment saw sales and profitability reset in 2025 as many large customers pause purchases in an effort to balance their whiskey inventories and manage working capital. Full year 2025 sales and gross margin declined significantly from 2024, but came in modestly ahead of our expectations. As our initiatives to strengthen our partnership with key customers led to improved visibility and alignment, we continue to stay close to these customers and expect to gain good clarity on their brown good needs for 2026 and beyond towards the end of the second quarter.

Overall domestic whiskey production continues to decline sharply, and we continue to see media reports about closing or idle distilleries. According to the latest available [ TTP ] data through October of 2025, domestic whiskey production was down 26%, 29% and 27% for the trailing 12-, 6- and 3-month periods. In this environment, we are focused on creating a differentiated value proposition to better position MGP as a long-term strategic partner for both large and small customers. That means broadening our premium white good offerings to complement our brown goods portfolio, rebuilding our aged whiskey pipeline, and attracting and retaining a wider pool of customers by offering greater value-added services.

Our increasing focus on premium white goods is designed to leverage the scale, heritage and quality of our Indiana distillery to produce premium gin and GNS spirits that are customized for our customers. This would allow us to move beyond commoditized offerings to not just generate more attractive economics and better asset utilization, but also serve as a bridge to longer-term, deeper relationships with strategic customers.

With respect to our aged whiskey strategy, producing and storing various vintages and mash bills is critical. And after taking a pause in 2025, we are committed to prudently building our aged whiskey offerings. MGP is one of the few distillers with the technical depth and operational expertise to consistently produce high-quality whiskey at precise specifications of our customers and that capability continues to differentiate ourselves. Our focus is broadening our customer base, better leveraging the depth of our aging whiskey inventories and capturing a greater share of aging whiskey sales. We also see meaningful opportunities to expand each whiskey sales to both domestic and international private label whiskey customers, an area that has historically been underpenetrated for our brown goods business.

While the industry-wide aged whiskey [indiscernible] is unlikely to improve meaningfully in the near term, the strategic repositioning of our Distillery Solutions business and the actions initiated by our team give us confidence that our [ distilling ] solutions segment sales and profitability will approach trough levels in 2026.

Turning to our Ingredient Solutions business. As expected, the outage of a key piece of equipment that impacted Q3 results remained a sales and profit headwind in the fourth quarter. The equipment came back online in the last part of November as planned. As I look ahead, I continue to draw confidence as our agreed solution business continues to enjoy consumer-driven tailwinds. Commercially, we continue to focus on driving growth through our 3 core platforms, [indiscernible] fiber with Fibersym, specialty protein with [indiscernible] and extrusion protein through ProTerra. Each of these platforms serve large and growing end markets. Consumer demand for high protein and high fiber products remain strong, and we are leveraging our R&D and innovation capabilities to make MGP an even more integral part of our key customer supply chain.

In our texture protein business, the continued commercialization of a large multinational customer is a clear example of our ability to build strategic, growing and sustainable relationships with leading food companies. With the commercial demand side of Ingredient Solutions on solid footing, our focus remains squarely on the supply side and returning to operational excellence. To that end, we are adding people, increasing capital investment and implementing new processes to return operational execution back to historical levels. As a result, we are seeing early signs that these efforts are paying off in the form of reduced unplanned outages and more consistent throughput. This improved reliability gives us confidence to deliver strong double-digit growth in segment sales and improved gross margins in 2026.

As I have set more time focusing on this business, it's become clear that lease treatment and disposal is more complex and more costly than initially expected. The commercialization of the biofuel plant along with our other waste stream handling initiatives is helping to reduce these costs. But a portion of these costs will persist in the near to medium term, and is reflected in our full year guidance. Managing high disposal costs remains a key priority. We are evaluating additional measures and continue to expect to remove these costs over the long term.

Finally, I want to highlight the progress we are making on our enterprise-wide [indiscernible] agenda, which was one of our 5 key initiatives in 2025. We are proud of our teams for delivering against all of our '25 [indiscernible] and more importantly, productivity is becoming embedded in how we operate at MGP. We're reinforcing an ownership cost mindset by incorporating productivity and cost discipline into our operating routines, performance management and compensation metrics.

Productivity and the cost management focus is becoming a part of our regular management routines, helping us uncover and track opportunities to eliminate waste and operate more efficiently and effectively across the organization. As we look ahead, we are encouraged by the progress we are making. Across all 3 businesses, our strategy is grounded in focus, execution and discipline, and we're actively evaluating all available levers to operate more efficiently. I am committed to addressing our challenges directly, focusing on disciplined execution and accountability, while positioning MGP to emerge better aligned, more resilient and well positioned for long-term value creation.

With that, let me hand it over to Brandon for a more detailed review of our financial results and 2026 guidance.

Thank you, Julie. For the fourth quarter of 2025, consolidated sales decreased 23% compared to the year ago period, to $138 million. Branded Spirits segment sales declined by 1% in the fourth quarter and 3% for the full year. Our Premium Plus sales posted its strongest quarterly sales growth of the year with a 10% increase, driven primarily by Penelope bourbon's continued momentum. Our mid and value price brands collectively declined by 11% for the quarter, slightly better than the 13% decline for the full year.

Fourth quarter Distilling Solutions segment sales declined by 47%, including a 53% decline in our brown goods sales. Full year segment sales declined 45% and gross profit declined 52%. Each of these came in ahead of our initial outlook, underscoring the improved visibility in our brown goods business. Ingredient Solutions sales declined by 10% for the fourth quarter and 7% for the full year. The equipment outage and higher waste starch stream disposal costs that Julie mentioned earlier were the key drivers of lower segment sales and profits.

On the other hand, fourth quarter extrusion protein sales reached a new high as we continue to increase sales volume to new customers and expand our extrusion platform beyond [indiscernible]. Consolidated gross profit declined 35% to $48 million during the quarter, primarily due to lower gross profits in the Distilling Solutions and Ingredient Solutions operating segments. Consolidated gross margin declined by 630 basis points to 34.9% in the fourth quarter. While full year gross margin decreased 350 basis points to 37.2%.

Fourth quarter SG&A expenses increased by 5%. Adjusted basis, SG&A increased by 18%, as the reinstatement of performance incentives more than offset our cost savings initiatives. Excluding these incentives, adjusted SG&A declined by 5% for the quarter and 4% for the full year. Advertising and promotion expenses declined 11% in the fourth quarter and 23% for the full year as we realigned our spending behind our most attractive growth opportunities. For the full year, our Branded Spirits A&P was approximately 12.5% of Branded Spirits segment sales.

Adjusted EBITDA decreased 51% to $26 million for the fourth quarter and decreased 41% to $116 million for the full year. Net income for the quarter declined to a loss of $135 million, primarily due to a discrete noncash adjustment of $153 million to lower the carrying amount of goodwill and certain [indiscernible] intangible assets in the Branded Spirits segment. On an adjusted basis, net income decreased 60% to $14 million. Basic earnings per common share decreased to a loss of $6.22 per share, while adjusted EPS decreased 60% to $0.63 per share.

Despite lower earnings, our cash flow from operations increased 19% to $122 million for the full year as we continue to prioritize strong cash generation by managing our working capital, including barrel inventory put away, which reduced from $33 million in 2024 to $19 million in 2025. Full year capital expenditures of $32 million were down more than 50% from the year ago level as we continue to optimize capital expenditures in the current environment.

Turning to our 2026 outlook. We expect the operating environment to remain challenging, and we are planning accordingly. Our outlook assumes continued pressure in certain categories. Lower contracting activity levels in Distilling Solutions, and improving execution in Ingredient Solutions as our operational initiatives take hold. Specifically for 2026, we expect net sales in the $480 million to $500 million range. Adjusted EBITDA in the $90 million to [ $98 million ] range, and adjusted basic earnings per share in the $1.50 to $1.80 range. With average shares outstanding of approximately 21.4 million shares and a full year tax rate of approximately 27%.

Our first quarter tax rate is expected to be approximately 75% due to the vesting impact of share-based awards granted during periods of higher share prices. Full year CapEx is expected to be approximately $20 million. We expect first quarter adjusted EBITDA to represent approximately 15% of our full year target and to be the lowest quarter of the year. 2026 Branded Spirit sales are expected to be down mid-single digits compared to 2025, as our continued momentum and growth in the Premium Plus category is expected to be offset by lower sales of our mid- and value-priced brands, as well as lower private label sales. We expect Branded Spirits segment gross margin to improve modestly in 2026.

Given the ongoing [indiscernible] environment, we expect 2026 to be another down year for our Distilling Solutions segment, with sales down 35% and gross profit down 40% compared to 2025. We expect performance for both metrics to be down relatively more in the first half of the year than the second half when compared to the prior year as we cycle against completion of certain [indiscernible] contracts during 2025.

However, as Julie outlined earlier, we believe that our proactive actions are helping us stabilize this business and position it for growth from the 2026 levels. We also believe our Ingredient Solutions business is poised to recover after a tough 2025. Given sustained commercial tailwinds and expected operational improvements, we expect segment sales in the $140 million to $150 million range in gross margin, in the mid- to high teens in 2026. As Julie stated, we expect first half gross margins to improve from the second half of 2025 to the low teens, and improve again in the second half of 2026 as our operational efforts set in. We expect Branded Spirits A&P to be approximately 13.5% of segment sales and total company SG&A to be approximately 18% of total company sales, both of which are up versus prior year, primarily due to our lower sales outlook.

Maintaining a flexible balance sheet remains a priority. As we look ahead to 2026, we expect to pay $111 million in the second quarter as an earn-out payment related to our Penelope acquisition. We also expect to refinance $201 million of convertible notes in the fourth quarter. Given Penelope earn-out payment, our net debt leverage is expected to peak and be approximately 3.75x in the second quarter of 2026.

We remain committed to reducing costs, prioritizing cash generation, managing working capital and being deliberate about our capital allocation. We expect that these actions will allow us to delever over time following the Penelope payment. To that end, we expect 2026 CapEx to be approximately $20 million, and net whiskey put away in the $13 million to $18 million range, which represents a second consecutive year of meaningful capital optimization and stewardship. We expect full year interest expense to be approximately $12 million, and for it to increase sequentially during 2026 due to the Penelope payment and a convertible note refinancing. The Penelope earnout payment will reduce our 2026 operating cash flow by nearly $50 million. Excluding the impact of this payment, we expect 2026 cash flows from operations in the range of $40 million to $45 million, and free cash flow in the $20 million to $25 million range.

To close, I want to echo Julie's comments. 2025 was a year of progress, discipline and important foundational work and we believe that the actions we are taking position MGP to emerge stronger, more focused and more resilient over time.

With that, I'll turn the call back over to Julie.

Thank you, Brandon. Before we wrap up, I want to thank the entire MGP team for all their hard work persistence and focus in a dynamic environment. This past year would not without its challenges. The operating environment remains difficult, and we are clear eyed that 2026 will likely be another down year of sales and earnings.

At the same time, 2025 was a year of important progress for MGP. We delivered results in line with and in several areas ahead of expectations, while beginning the hard work we feel is required to reposition the company for the future. I've shared that since joining in the third quarter, I've made it my priority to look within, to fully understand what makes this company unique and what actions we need to take. In doing so, I've traveled to all of our facilities, many numerous times. I've spoken with customers and suppliers of all sizes, engaged in exhaustive business unit function reviews and hosted more than 60 one-on-ones with employees. These insights were used to formulate our strategy, design and effective organizational structure, bringing the right talent drive impact, make prioritization decisions and implement processes designed to enable sustainable results and growth.

The success we aim to achieve will not come overnight, nor will it be without tough decisions. But the progress we have made over the last 6 months has been made with expeditious prudence. We believe it has positioned us to deliver sustained growth off of our 2026 guidance expectations to sharpen our strategic focus and strengthen execution across the organization, and to utilize our financial strength to position us for long-term and sustainable growth. While I'm pleased with the progress we are making, what gives me the greatest confidence is the alignment I see across our teams. There is a growing clarity around where we can win, greater accountability for results and a shared commitment to doing what we said we would do.

Operator, please open the lines for questions.

[Operator Instructions] The first question will come from Sean McGowan with ROTH Capital Partners.

First question is a general one. What are you seeing regarding pricing in the industry? Are you able to hold the prices that you expected to? And then a more technical question on the -- does your credit facility allow -- is there any limitations on how you can use the credit facility regarding your Penelope payment?

Sean, Its Julie. Appreciate your question. On pricing, I would -- broadly speaking, listen, I would say pricing is rational. You certainly have pockets across some states in a couple of different categories. Affordability is an issue. So our price pack architecture, we've sharpened up. In particular, we're launching smaller patch size, [ 50 mLs and 375 mLs ] to kind of have a more affordable price point out there. So broadly speaking, [indiscernible], I'd say it's very rational.

In Distilling, obviously, we have an oversupply situation. So while pricing is certainly impacted, we have the tools that we need and we understand where we want to be on some of the barrel pricing, and we've been moderately pleased with our ability to work with our customers. And our partnership approach is working. We haven't lost any customers to date. And so certainly, our ability to have those conversations and understand their intent really helps us in that matter.

Now I'll turn it over to Brandon for your second question.

Yes, Sean, as far as the credit facility as it relates to the Penelope earn-out, no limitations. As you recall, we upsized and extended the facility on the first part of last year. Our bank group views this payment as a positive thing. They're excited for Penelope. They view this as all good news. And we're very, very fortunate to have such a supportive bank group that we do have impact.

We also have the ability to exercise our acquisition holiday in Q2, if needed, which actually gives us even more covenant headroom should we desire to do that. So no limitations on that side of things.

The next question will come from Robert Moskow with TD Cowen.

This is Seamus Cassidy on for Robert. First, I'm [indiscernible] your expectations for a down year for the industry takes into account the slightly positive year-to-date trends we're seeing in scanner data. And then on brown goods, can you speak to your visibility, sort of on 2026 being the trough, i.e., our new [indiscernible] contracts largely locked in? And then sort of on that point, you spoke to a pivot back to aged whiskey sales. This has historically been sort of more choppy and difficult to predict demand for. So I'm hoping you can talk us through that dynamic?

Yes. Thanks so much. Appreciate the question. Yes, I would say going back to Branded Spirits, our 2026 guidance does certainly reflects of both our Premium Plus momentum and then the mid- to value expectations across the industry. So we feel we've got good visibility in what we're seeing, and we're pretty encouraged by some of the commercialization strategy, planning and execution that we have newly introduced. We see that coming into play. But you would expect Penelope to continue to drive our Premium Plus brands. In addition, our other 3 focuses.

Some refinements in how we're looking at the mid- to value price tier. We do think that there's a few key brands that we can really dial in some of our pricing, some of our architecture on offerings and sizes to really address that. But I'd say, broadly speaking, our 2026 guidance reflects the industry and where we have visibility.

And then switching to your distilling question, I would say, from a guidance there. Certainly, most of our, I would say, substantially under contract for the majority of our aged and distillate customers for the year. So we've got good visibility in 2026. Our brown goods [indiscernible] reflects similar spot ages to 2025 at current market pricing. Partnership approach is working. And so we have expanded with some of our larger customers into the premium white goods. So we're reflecting that up. Guidance reflects up double digits. And we really like this.

Number one, it's sticky, right? We're deepening our relationships with some key customers. And two, it's a great mechanism to reduce cost -- reduce cost to cost of brown goods. And then our warehouse services continues to play an important role. Our customers are tight on working capital, and we can provide them service, and it's also a fairly strong cash flow generation. So that's a balanced approach, visibility. But certainly, I think our guidance reflects appropriately the oversight environment that we're seeing.

The next question will come from Marc Torrente with Wells Fargo.

I guess just building on the last one. Any more visibility that you could provide into the guidance building blocks for [indiscernible] Just specifically what is embedded from a fully committed orders that you proactively worked with customers on? How much potential spot business is assumed? And then just any other color you can give on cadence through the year?

Yes. Thanks for the question, Marc. On -- yes, so for our brown goods business, let's start with age. Age was obviously -- came in ahead of our expectations last year, albeit they did start from an expectation standpoint at a pretty low point. So what we're guiding for this year is the same spot volume sales that we were able to do last year. So we feel that level is appropriate in this environment given the success we were able to have last year. There are more age sales above that, and that's really due to the team's successful efforts in commercializing some private label large customers internationally and domestically. And so those age sales are under contract. So that's factored into our guide.

And then as it relates to our new distillate, substantially all that is under contract. So we feel that we are exercising the same discipline and visibility that we were able to exercise throughout the course of last year.

As it relates to Ingredient Solutions, then moving on there. As we've said in our opening comments, 2025 was a tough year. And we learned quite a bit, and we're doing the right things. We're putting the right efforts against it and you see sequential improvement as the year goes on. So that's going to be seen in double-digit growth in sales, as well as pretty substantial improvement in gross profit. So we're excited about what's to come this year with Ingredients. And Julie already spoke quite a bit to Brand Spirits, so those are building [indiscernible].

Yes. As far as quarterly cadence goes, Q1 will likely be the low point for the year, which is pretty typical. Brown goods customers tend to taking a little bit of a pause during the quarter and Branded Spirits, it's historically softer coming out of the holidays. But we do expect to perform against all these expectations as well as contracts as the year goes on.

Okay. I appreciate that. And then on Branded, you spoke to further rationalization of tail brands. Maybe talk about the ability to reallocate resources behind your premium brands. where this can take Premium Plus as a percentage of the portfolio in the near term? And how to think about margin potential, and I guess, the balance of the portfolio going forward?

Yes. No, thanks for that question. So we did do a pretty intense portfolio review process of all of our brands. We're starting this year. Again, we have a road map. So this strategic road map starts in 2026, shared on the call that 20% of the tail brands. And it's important to know they are tail brands. So availability, investments out in the marketplace is different across different states. These aren't the first 20% -- are high visibility, high volume ones, but certainly, they take away focus. They take warehouse space, they take raw ingredients. They take up production line availability, et cetera. So we're going to start there.

It's not going to reduce any scale with distributors or anything like that because, again, broadly speaking, we have our lineup in Premium Plus. So I won't say a change to Premium Plus lineup of our core 4 focuses. I kind of attribute our commercial execution and planning that we're really ramping up in that area, not directly linked to portfolio review, but really linked to with a new leader in marketing. We've got dialed in commercial strategies, dialed in execution plans and then certainly tools and enablement at a distributor level to ensure that we're delivering the key value drivers we expect.

And most importantly, what does that look of success that we expect in a different channel and different customers. That's really what's going to drive some nice movement, we believe, with our premium plus and our distributors. But we do think portfolio management and rationalization plays an important role. But as we get past this first 20%, you would expect towards the end of the year and into 2027 for us to focus on the next 20%, which we do [indiscernible] out there for rationalization.

The next question will come from Mitchell Pinheiro with Sturdivant & Company.

Yes. So most of my questions have been asked. I did want to sort of follow up on the on the Distilling Solutions business where we're looking sort of for a trough year here this year, and you talked about some of the reasons why you have some confidence there. What -- what would cause you to sort of miss that trough year expectation?

Yes, I'll start on that. What gives us the confidence are all the actions that we're taking and -- which we went into a lot of detail in our opening remarks. Our connection and continued connection with our customers, especially those large customers that are pausing on brown goods buying. We're talking to the other projects, whether it's ways to innovate with the barrels they currently have in our warehouses, or whether it's to do some of these really interesting premium white goods services and products that we've talked to. So just that connectivity definitely gives us a lot of confidence.

But as time goes on, they're going to have to come back to the table, and we got to be patient, and we got to continue to be good partners in the interim. And we've shared that. We hope to have more visibility by the midpoint of this year. But ultimately, we're going to do what's right for them and looks best for them. And what gives us a lot of the confidence is just the levels we're at today, Mitch. The level of brown good sales that we're forecasting and guiding to, a lot of the risk has been removed from that standpoint, not to say that there's not ever risk out there, but we feel like a lot of that has been alleviated from our outlook.

Okay. And then when you look at most recent, sort of, inventory data -- industry inventory. It's over like 13 years of inventory in it right now. And typically, back in the 2022, 2023 range, it was down around 9 or 10 years. So that delta [ for years ], some of it obviously has to do with consumer preferences for more aged products. But I'm wondering, how does that compare to sort of your inventory levels? Have you -- are you out there that long with your barrel distillate? Or is your barrel distillate closer to sort of -- sort of your near-term and needs? So I guess what I'm trying to say is, have you overproduced on your barrel distillate? Or do you feel that you're your performance is, sort of, in a better shape than the industry?

Yes. I think -- I don't think anyone's gotten it exactly right over these last 5 years, ourselves included. But what we do feel, Mitch, is that we've taken action very quickly. And the industry numbers are down over the last 12 months, anywhere between 25% and 30%. If you look at just our sales and Distilling Solutions and equate that loosely production, we're down much more than that. And then we're also guiding this year for Distilling Solutions sales to be down another roughly 35%.

So we've definitely taken our production down, but we're still putting away anywhere from $13 million to $20 million in both years for our future. Because both our brands and having a full age portfolio offering are critical strategies of ours, and we're committed to those. But we do think we're doing the right things. We've also been able to do so in a very cost-effective manner. Our cost structure overall for brown goods in a really, really great spot, really due to the team the team's ability to reduce costs, largely fixed costs out of the operations. But also our ability to do unique savings that our competitors can do, like offer premium white goods that can absorb a lot of the cost structure that otherwise wouldn't be there.

Yes. And the only thing I'd add to that, Mitch, I think Brandon did a great job to summarize it. As I'd say, yes, volume pricing is reflected in our guide. In the [ tough ] environment, we're still guiding to mid-30s. And as Brandon said, reducing our operating cost, team has done a great job. We've got cash-generating warehouse services. Aged whiskey sell inventory. We've expanded into aged whiskey with private label contracts, and we're pleased that a couple of them. These take a long time to get through the process. But by the end of first half, we should have some sales for a couple of them. And we're entering into premium white goods, both services and saleable products.

So again, tough environment. We're pleased with some of the progress. But certainly, I think our actions are very appropriate, and we're certainly pleased where some of the TTP data has come in.

Okay. That's helpful color. One last question is curious if you mentioned it before, I apologize, but I'm curious where your marketing focus is on your Branded Spirits? What particular brands? What you intend to do, if you can talk about that?

Sure, Mitch, I'd love to give you a little color. So first, Premium Plus will be our primary growth engine. Fairly pleased with our Penelope results. It continues to have a mass consumer appeal. Innovation has been robust. It's -- we would have another strong year as well in 2026. So you can certainly expect us to have that focus. We are going to have even more, I would say, digital dollars on Premium Plus led by Penelope. Our A&P in 2026 was about 12.5% of sales. We are modestly going to take that up in 2026. But most importantly, we're going to shift to digital media. We're increasing over 200%.

We are also taking a streamlined approach to our agencies. Better brand brief, better dial than RFPs. We think 1 to 2 points of shifting A&P to actually real media or in-store dollars. From a commercial support we did shift from 55% brand building to 45% commercial support for 2025. We think this is appropriate given the current environment to bring those pull-throughs. So will be mainly on focused Premium Plus, [ Elmer ], Yellowstone, [ Rebel ] and also, obviously, Penelope. We've got a great NASCAR activation program for the races this year with our [indiscernible]. So looking forward to that, but that's what we'll be spending our dollars.

The next question will come from Ben Klieve with Benchmark [indiscernible]

First question on the expectation of rationalizations in the Branded Spirits segment. I'm wondering, Julie, if you can, first of all, characterize the degree to which those rationalizations are kind of proactively built into your 2026 guidance that you laid out? Or if there's going to be potential downside to the Branded Spirits outlook when those [indiscernible] come? And then second, the degree to which you think those are going to be monetizable versus just written off?

Yes. No, good question. Number one, I would say, broadly speaking, there's not going to be an impact on our 2026 guidance that reflected in that. So the 20%, again, it's important. I use the word -- it's our long tail. And by that, it's probably our heritage Luxco brands that are in the value space in some categories and segments that -- in states that are unique. So no real -- it should be no effect on 2026 guidance that is accounted for.

And then moving forward, we do have our next wave of that. And certainly, as you get -- as you optimize SKUs, there's a few different things we can do. We do think there's a handful of them that will divest. And we think recovering at least our packaging and inventory costs is the minimal amount that we'll get for those. We're also going to be prudent and efficient and effective on how we draw those down. Whether it's a write-up or obviously, there's several different places or states that we could go to that it may make sense. So -- and those will come forward as they're expected in the 2026.

And as we move forward to our next 20%, that's when we'll move into some other stronger volume plays that we think streamline them does provide us with the ability to replace some of these some of these SKUs and their shelf presence with some more higher velocity SKUs. So that's our road map for portfolio management, and it's -- it's in progress, it's accounted for. And most importantly, it's not an episodic event.

Okay. And then my follow-up question, moving to the ingredient segment. Great to see your -- kind of emerging outlook here for that business here in '26. I'm wondering if you can break down or quantify the impact of the mechanical challenges and the elevated cost of the waste stream within '25? Wondering how much of a profit headwind those 2 buckets were?

And then second, if you can kind of characterize the degree to which those headwinds are going to persist in '26. Especially on the waste stream, I thought that that's going to be effectively zero with the emergence of the biofuel facility. But clearly, those are going to persist a bit. So help me understand those dynamics.

Yes. I'm going to take your questions kind of together, and then Brandon can clean up any of the impacts that you see. So let's talk [indiscernible] solutions.

First and foremost, significant consumer talents. High fiber, high protein, on point right now. And our ability to have co-creation events with large customers. Many of these products are well known and certainly very strong. And so our ability to partner with them on these -- and we have consistent demand. We've been able to now, most importantly, in the -- since late November, we've gotten out the production pounds and have had stronger operational reliability than we had in the last 4 months. So you're going to see segment sales up north -- well north of double digits in 2026.

That being said, the [indiscernible] part, and yes, and I think I was pretty transparent in our remarks. That has been a little bit more complex. It's been more costly. Obviously, that plant was stood up in sometime in Q2 of 2025. There's multiple waste streams, one of which this biofuel cannot digest. And so we do have to send that out to a municipality. That municipality was offline since early December. We expect them to go back online sometime in the spring of 2026. So that certainly will help mitigate some costs.

And then we do have work underway, and this work is months, not weeks on how to eliminate that final work stream or [indiscernible] stream that we can't mitigate right now. But I will tell you very bullish on the commercial side of the business. Very good operational reliability. We're getting up the talent and the influence certainly is the last kind of stool on this leg here that we have to get better at. And I would expect sequential improvement across gross margins and [indiscernible] stream across each quarter in the back half of the year. And then 2027 we do expect this to be in the [ 20s ] gross margin. It will take us to that time to get there, but we certainly think those are comfortable ranges that we can get to.

Brandon?

Yes. No, well said. And I think, yes, it really depends on the month of the quarter, Ben. But largely speaking, if you just look at Q4 in terms of what was the driver to [indiscernible] headwinds in this segment. Year-over-year, the segment was down $5.7 million gross profit. A little more than half of that was due to that key equipment outage and then the other half or less was due to [indiscernible] disposal. So as we get into Q1 of this year, that [indiscernible] disposal is expected to be more of the cost driver in headwind because as Julie said, a lot of the netted throughput and reliability issues are being dissolved.

So if you look at it in [indiscernible] areas, the demand side is still intact and very constructive. The throughput and reliability is improving every day. So we're feeling really good about those, which is really allowing us now to circle around the last item, which is the [indiscernible] and that's what we're going to do.

This concludes our question-and-answer session. I would like to turn the conference back over to Julie Francis for any closing remarks.

Thank you. In closing, thank you for your time and engagement with MGP Ingredients. We look forward to talking again soon and after our next quarterly announcement. Thank you.

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

Good morning, and welcome to the MGP Ingredients Third Quarter of 2025 Earnings Conference Call. [Operator Instructions] Please also note that this event is being recorded today.

I would now like to turn the conference over to Amit Sharma, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to MGP's Third Quarter Earnings Conference Call. I'm Amit Sharma, Vice President of Investor Relations. And this morning, I'm joined on the call by Julie Francis, our Chief Executive Officer; and Brandon Gall, our Chief Financial Officer. We will begin the call with management's prepared remarks and then open to your questions.

Before we begin, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's annual report filed with the SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law.

Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release, which was issued this morning before the markets opened and is available on our website, www.mgpingredients.com.

At this time, I would like to turn the call over to Julie for her opening remarks.

Thank you, Amit. Good morning, everyone. As we review our third quarter results, I want to begin by sharing reflections from my time in the business and how it's shaping our priorities and actions. I will then provide an update of our 5 key initiatives before handing it over to Brandon for a deeper review of our third quarter results and updated guidance.

These first few months truly have been a whirlwind as I've traveled around the country to visit our distilleries, bottling facilities, manufacturing plants, as well as to meet with our distribution partners and retailers in the market. Most importantly, I've had honest and candid conversations with a broad cross-section of our organization, hosting more than 60 one-on-ones and several town hall meetings. I'm also appreciative of the feedback and conversations I've had with investors and analysts as well.

MGP is a company with a proud heritage, strong brands and amazing people who are passionate about our business. What I've seen is inspiring and the opportunity now is to harness that passion with greater focus, performance and accountability to drive meaningful progress. While we fully recognize the challenges facing our industry and our company, we are committed to improving our strategic clarity, taking decisive actions, controlling the controllables and emerging stronger. This will not be an overnight fix. Some initiatives will bear fruit quickly, while others will take a bit longer, but the work is already underway.

While it's too early to get into specifics, let me share a few highlights. First, we are conducting an exhaustive strategic review of our business and using a thorough approach that takes the time to ask these hard questions. What capabilities will differentiate us in the future? How do we allocate resources that ensure both growth and discipline? Where can we create the most value? This is not just a planning exercise. It's about execution and a data-driven approach to ensure that we are making the right choices, establishing clear priorities and setting ambitious targets and ensuring accountability for results.

Another key component of the strategic work is a more active portfolio management of our spirits brands. While having a branded portfolio spanning across all price points and categories is an undeniable strength, we believe that the opportunity ahead lies in being more precise and focused, prioritizing the brands with the greatest potential, distinctive positioning and scalable growth while trimming persistent underperformers. The goal is clear: a streamlined, more balanced portfolio that drives sustainable growth and delivers higher margins.

As part of these plans this morning, we announced the appointment of Matias Bentel as our Chief Marketing Officer; and Chris Wiseman as Senior Vice President of Operations. I am confident that Matias' strong expertise and deep experiences in building and growing brands at Brown-Forman and other leading alcoholic beverage companies will be instrumental in accelerating our branded growth agenda.

Strengthening operational execution is another key component of our strategic agenda. Chris' appointment to lead our operations underscores our commitment to and deliberate focus on strengthening operational reliability, agility and efficiency across the enterprise. To fuel growth, we are focusing on unlocking additional cost savings. MGP has always been an efficient operator and our current initiatives are delivering excellent results. As we look ahead, we are developing scalable and repeatable processes that promote a continuous improvement mindset, foster cross-functional collaboration and build a robust pipeline of projects designed to unlock additional productivity and savings.

I am encouraged and energized by the enthusiasm and alignment I see across the organization and look forward to sharing the strategic road map for the next phase of our growth with you early next year.

Now turning to our third quarter results. We delivered another strong quarter and are seeing early signs of progress across many parts of our business. The environment remains challenging, but our results continue to reflect the strength of our brands, the resilience of our businesses and the focus of our team. We are leveraging MGP's unique capabilities to navigate the near-term while positioning the company for better results ahead. There's more work to be done, but the foundation we are building is solid and gives us confidence in MGP's long-term potential.

For the third quarter, consolidated sales declined 19% as the continued growth in our premium plus portfolio and higher specialty ingredient sales were offset by the expected declines in brown goods and mid- to value brands. Adjusted EBITDA declined to $32 million, while adjusted basic earnings per share reached $0.85, both above our expectations, reflecting favorable mix improvements, pricing discipline and productivity initiatives. Our solid cash flows continue to be a key highlight with year-to-date operating cash flows up 26% for the same period last year to $93 million.

With another quarter of solid delivery, we are confident in finishing the year ahead of our previous expectations. Brandon will provide greater detail on our updated guidance shortly, but we are raising our full year 2025 adjusted EBITDA and adjusted earnings per share guidance to the range of $110 million to $115 million and $2.60 to $2.75 of EPS, respectively, while tightening our sales guidance to a range of $525 million to $535 million.

This has been a period of transition for our company, our customers and the broader alcoholic industry. Despite these challenges, our team continue to advance our 5 key initiatives for 2025, which are: sharpen our commercial focus; strengthen key customer relationships; improve operation execution; fortify our balance sheet; and drive greater productivity.

Let me provide brief highlights of our progress on each of these initiatives. Beginning with our focus initiative, Branded Spirits, which we believe is the main engine of growth and value creation for MGP. Our decision to focus our A&P investments behind the most attractive growth opportunities continues to deliver results as our premium plus portfolio once again outperformed the overall category. The most tangible example of this focused approach is Penelope Bourbon as it continues to exceed expectations. According to Nielsen dollar sales data for the past 52 weeks, Penelope now ranks among the top 30 premium plus American whiskey brands in the country. Even more impressively, it has been the second fastest-growing brand in this group over the last 52 weeks and the fastest-growing over the past 13 to 26 weeks. Our team's relentless focus has fueled Penelope's remarkable growth since acquisition. We are applying that same discipline to elevate other brands in our portfolio, new tools, including brand health dashboards and advanced analytics are enabling smarter A&P decisions, sharper insights and stronger brand equity across the portfolio.

Innovation is central to our growth agenda as it enables us to meet consumers where they are in terms of quality, price points, occasions and convenience. Our exciting new product launches in the fast-growing ready-to-pour cocktail segment demonstrates how we are applying our deeper understanding of consumer insights and category trends. The Penelope Black Walnut Old Fashioned launched during the third quarter is off to a strong start, building on the success of Penelope Peach Old Fashioned that launched earlier this year. We also introduced 3 new cocktails under the Yellowstone brand to further expand our presence in this fast-growing segment. With their beautiful presentation, approachable price point and desirable alcohol proof, these new products are directly addressing consumer need for high-quality, affordable and convenient crafted cocktails, making them an especially attractive entry point for females and new to whiskey drinkers.

The year-to-date results in our distilling business show that our second initiative to strengthen partnership with key customers is working. Though sales and profits declined during the quarter, they came in ahead of our expectations, reflecting disciplined pricing, operational efficiencies and better aged whiskey sales. Throughout the year, we have maintained a close engagement with our key distilling customers to align on their production needs. While some customers have paused their near-term whiskey purchases as they rebalance their inventories, most have expressed their commitment to a continued long-term strategic partnership with MGP. Our commercial teams are working closely with them to develop innovative solutions that leverage our unrivaled scale and aged whiskey inventories as well as our high-quality and flexible production capabilities to offer premium gin, white spirits, specialty grain distillates in addition to brown goods. Importantly, our customers recognize our differentiated value proposition. And last month, Diageo North America named MGP as one of its distinguished suppliers, a meaningful acknowledgment of our strong partnership and contribution to the success of their brands.

I'm also pleased to see that the broader domestic whiskey industry continues to recalibrate to the current environment. According to TTB data through June of 2025, total U.S. whiskey production is down 19% over the prior 12 months, down 28% over the prior 6 months and down 32% over the prior 3 months. While inventories remain high, this trend is encouraging signal that the market is working through its imbalance. We believe this rational behavior by the broader industry, combined with our strong partnership with strategic customers, will position MGP to emerge stronger once brown goods supply and demand dynamics normalize.

Turning to our Ingredient Solutions segment. We are pleased with the ongoing top line momentum in this business. However, operational execution fell short of our expectations and pressured segment margins. This resulted from an unanticipated equipment outage and lower operational reliability, elevated waste starch disposal costs and higher start-up costs in our textured protein business. This critical equipment outage pressured our third quarter performance and is expected to remain a headwind in the fourth quarter, which is reflected in our revised full year outlook. We are taking decisive actions to strengthen operational reliability. We've increased plant staffing, raised maintenance capital and engaged an external engineering firm to partner with our operations team for a comprehensive review of plant performance.

Together, we are addressing critical process dependency, restructuring key workflows and implementing predictive analytics and enhanced preventative maintenance protocols to identify and resolve potential issues before they impact production. I am confident that the addition of Chris Wiseman to lead our operations team will further strengthen and accelerate these initiatives, enabling us to return to our targeted level of performance in the coming quarters. While the newly operational biofuel plant is expected to mitigate our waste starch disposal costs, these costs were higher than expected during the quarter due to operational challenges during start-up. Learnings from that start-up are already helping us refine our processes. And as production ramps up, we expect the biofuel plant to provide greater relief on waste starch disposal costs over time.

And lastly, our extrusion protein business is gaining traction as we expand our portfolio beyond wheat to soybean and pea-based proteins to compete more effectively across the full extrusion segment. During the quarter, we secured a large new customer, underscoring the potential of this expanded platform. While start-up costs associated with this commercialization effort temporarily pressured margins, we expect these costs to moderate as volumes ramp up and the businesses scale.

Even as we make steady progress on these operational challenges in the Ingredient Solutions segment, commercially, we continue to have a clear right to win in this segment. Consumer demand for high fiber and high-protein foods continues to accelerate, and we are well positioned to capture this growth. The specialty starch and protein categories are expected to post mid- to high single-digit growth over the next 5 years according to industry reports.

Our flagship Fibersym and Arise brands are already category leaders, and our R&D teams are partnering with a growing number of leading food manufacturers to incorporate our specialty ingredients into their new existing products. We also continue to collaborate with leading university and research institutions to expand the functionality and application of these ingredients. With these commercial strengths and ongoing progress towards restoring operational excellence, we believe that we're well positioned to deliver solid top line and margin growth in our Ingredient Solutions business over the next several years.

Our last 2 initiatives to fortify our balance sheet and drive productivity savings remain firmly on track. Brandon will provide additional details on these 2 key initiatives, but I'm pleased with our financial strength and our team's efforts to drive efficiencies throughout the enterprise.

Let me close by saying that we are doing what we said we will do, controlling the controllables and being transparent about what's working and what's not working. This balance between accountability and opportunity guides how we view our businesses and how we communicate about them. While the path ahead is unlikely to be linear, it's increasingly becoming well defined. As we look ahead, we are continuing to build on the strength of our differentiated customer value propositions across each of our businesses. I see greater alignment, stronger commercial execution, a clear view of where we can win and a growing sense of confidence and optimism across the organization.

With that, let me hand it over to Brandon for a review of our quarter and updated guidance.

Thank you, Julie. For the third quarter of 2025, consolidated sales decreased 19% to $131 million compared to the year-ago period. Within our segments, third quarter sales for the Branded Spirits segment decreased by 3%. Our premium plus sales posted a third consecutive quarter of positive growth, driven by the continued momentum of the Penelope Bourbon brand. However, premium plus performance was more than offset by the expected softness in the rest of this segment, including a 7% collective decline in the mid and value brands.

Distilling Solutions segment sales declined by 43% compared to the prior year period. Although our brown goods sales decreased by 50%, our year-to-date sales and margin are trending above our initial outlook, reflecting higher aged whiskey sales and the success of our proactive partnership approach with key customers. Given that, we now expect 2025 Distilling Solutions sales and gross profit to be down 46% and 55%, respectively, from prior year relative to our previous outlook of down 50% and 65%.

Ingredient Solutions sales increased by 9% compared to the prior year quarter, primarily due to higher specialty and commodity wheat protein sales. Third quarter gross profit, however, declined by 36% due to equipment outage and other operational reliability issues that Julie mentioned earlier. While we have a good line of sight to resolving these issues, they'll remain a headwind in the fourth quarter. As a result, we now expect Ingredient Solutions segment sales and gross profit to be down mid- to high single digits and approximately 40% for the full year, respectively.

Consolidated gross profit decreased 25% to $49 million, primarily due to lower gross profits in the Distilling Solutions and Ingredient Solutions operating segments. Gross margin declined by 300 basis points to 37.8%.

Third quarter SG&A expenses increased by 10%. But on an adjusted basis, this increase was reduced to 4%. It's important to note also that when removing the impact from the reinstatement of the incentive accrual in 2025, adjusted SG&A was down 9% due primarily to our productivity initiatives.

Advertising and promotion expenses declined 31% as we continue to realign our spending behind our most attractive growth opportunities.

For the full year, we continue to expect Branded Spirits A&P to be approximately 12% of Branded Spirits segment sales, largely in line with the year-to-date trends.

Adjusted EBITDA decreased 29% to $32 million, primarily due to lower gross profit.

Net income declined to $15 million, primarily due to lower operating results. On an adjusted basis, net income decreased 36% to $18 million.

Basic earnings per common share decreased to $0.71 per share, while adjusted basic earnings per share decreased 34% to $0.85 per share.

Year-to-date cash flows from operations increased 26% to $93 million as we continue to prioritize strong cash generation by managing our working capital, including barrel inventory putaway. Our year-to-date barrel putaway reduced to $16 million, and we continue to expect the full year net putaway to be in the $16 million to $20 million range relative to $33 million in 2024.

Capital expenditures were $7 million during the quarter and $25 million year-to-date. We continue to expect full year 2025 CapEx of $32.5 million, a reduction of more than 50% from last year as we continue to streamline capital expenditures in the current environment.

Our balance sheet remains healthy. We remain well capitalized to support the Penelope contingent consideration payment, and we'll be prudent in our support of ongoing operations, long-term growth investments and future capital structure considerations. We ended the quarter with total debt of $269 million and net debt leverage ratio of 1.8x.

Given the encouraging year-to-date results, we are raising our full year adjusted EBITDA and adjusted EPS guidance while tightening the guidance range for sales. We now expect 2025 sales to be in the $525 million to $535 million range, adjusted EBITDA to be in the $110 million to $115 million range and adjusted basic earnings per share to be in the $2.60 to $2.75 range. For the full year, we continue to expect average shares outstanding of approximately 21.4 million and an effective tax rate of approximately 25%.

For the final quarter of the year, our focus remains on staying close to our customers, keeping tight control of costs, maintaining financial discipline and allocating capital carefully to the areas that we believe create the greatest value. I'm proud of how our teams are navigating this period and confident that the foundation we are building today under Julie's leadership will support durable, profitable growth in the years ahead.

With that, let me now hand it over to Julie before opening for your questions.

Thank you, Brandon. As we look ahead, our focus remains on delivering results with the confidence and credibility. We're working to create a more resilient business model, one that can weather industry cycles and still deliver sustained growth. That means making the tough decisions, prioritizing the highest return opportunities, driving operational excellence and supporting our businesses with the right level of investment. There is still work ahead. But what encourages me most is how aligned our team has become around the company's direction and purpose. That alignment, combined with our strong balance sheet, differentiated capabilities and growing brand momentum gives me confidence that MGP is on a stronger, steadier path towards creating lasting value for our shareholders, customers and organization. Thank you.

Brandon and I will now take your questions.

[Operator Instructions] And our first question for today will come from Sean McGowan with ROTH Capital.

First question is, I guess, a broad one on industry trends. You talked about the reduction in production, but what are you seeing? What are you hearing from your customers regarding channel inventory and how much further work needs to be done?

Yes. Thanks for the question, Sean. What we're hearing from our customers is really the need and the willingness to stay close. There's a lot of changes going on in the industry. There's still elevated inventory. There's obviously reduced production, as you mentioned. There's also distilleries that are closing their doors or furloughing employees. And the general response that we're seeing from our customers is increasingly wanting to communicate and have open dialogue. But what we're also seeing, Sean, is a lot of our historically indirect customers that usually purchase from third parties, our product want to deal directly with MGP. They want to have that relationship. They want to be close to us because they know that we're committed to the space and going to be there over the long term.

Okay. Maybe that ties into a follow-up. A lot of the numbers in the quarter were a little better than I had thought. So congrats on that. But the gross margin in distilling was especially strong. Is that kind of related to what you just mentioned of staying close to the customer? Or can you talk generally about how you were able to hold up those margins?

Yes. The margins definitely came in even better than our expectations in the quarter. And there's really 2 reasons for that. A larger volume of aged sales than we had anticipated. Again, it's the customers working very closely with the team. And we're seeing orders from customers who predominantly historically have only purchased new distillate. But like everyone else in the space, they're looking for ways to innovate and to differentiate further on the shelf. And we're getting calls from customers like those that want to buy aged for the first time. They want to put out a new limited time-only product on the shelf, maybe at a different price point from their core portfolio. And we're really well set up for that, as you know, due to the breadth and scale of our aged offerings and our ability to help them innovate, whether that's through blending, through picking out the right match fill or the right age profile. So it's things like these that are really improving our aged performance over our initial expectations.

The second thing, Sean, is the team operationally is doing a tremendous job in managing the cost structure of the facility. That's a top 4, 5 volume-producing bourbon facility in the United States. So while ramping up is difficult, like we've had to do in previous years, ramping down is even more complex. And the team has done a really nice job from a productivity initiative point of view in executing the cost side.

And our next question will come from Robert Moskow with TD Cowen.

This is Seamus Cassidy on for Rob Moskow. Julie, you mentioned in your prepared remarks sort of more active portfolio management around the Branded Spirits portfolio. Since the Luxco acquisition, MGPI has focused its ad spend and acquisitions on more premium brands. And you've said you're comfortable letting mid and value decline as a result of this. So I guess my question is, could you walk us through some of the pros and cons between sort of trimming some of these lower-performing brands? Because while they may be slower growing, I imagine they still add scale to your portfolio and provide positive cash flow.

Yes. Thanks for that question. I appreciate it. Listen, Branded Spirits certainly is our true north on our strategic growth platform. We're certainly pleased with the premium plus performance, focusing on those core 3 Penelope, El Mayor and Rebel certainly have been paying off. We're up 4% on the premium plus versus a category that's not showing the same results. And then Penelope is certainly growing very fast.

But I think your point is interesting because the mid- to value, certainly, we are heavily weighted still in that area. So I would tell you, and I think as I've talked to analysts throughout the first few months that I do think there's an opportunity for us to be -- take some of the core focus that we've had in the premium plus and be precise in the mid- to value because there are some brands, as you know, that have some pretty good density, and there are some regional and channel opportunities that we certainly could bed out a little bit more with some flavor innovations with some regional brands that may make sense. So I'd tell you that we are reevaluating that because I do see some strong brands in there that we could certainly provide a little bit of ignition to and to help us offset some of that mid- to value decline. But again, if you look at it, we're certainly focused on mid first, and I think you're seeing some progress there and value we should start looking at very shortly into 2026.

Our next question will come from Marc Torrente with Wells Fargo.

I guess first on billings, with the larger customers that have paused their purchases you've referenced this call in the past, have there been any incremental pauses or maybe even restarts out of those customers? And then how is planning progressing with those customers? Any, I guess, additional commentary on your visibility into 2026?

Marc, it's Julie. Thanks for the question. A couple of things. I think we've said in the past, and we still feel this way that our large multinationals certainly have communicated with us that they're paused. We do expect to hear more about 2026 near spring of next year. But we're staying close. And I think you saw -- you heard in the prepared comments that we were acknowledged by Diageo as they -- one of their more distinguished suppliers. So I think you're seeing our customers and our team's ability to engage and stay close. We've been really accommodating to the crafts. They're certainly going from kind of like just-in-case to just-in-time buying, where cash really is and availability of cash really is playing in a role into how they're purchasing and when they're purchasing. But we've also seen, as Brandon said, it's been interesting to see some craft customers that have only been in new distillate come to us for aged whiskey because that certainly is where the demand is. And we're known for our unique mash builds, our variety, our master distillery. So that certainly has been an area that we were pleasantly surprised with.

And it goes back to the approach the team took probably 6 months ago where we went to really engaging with our customers, being accommodating, showing agility and most importantly, the larger folks certainly know we're here to stay. The Distilling segment is extraordinarily part -- important part of our business. You probably recall that Penelope started in that area, right? They're a customer of our Ross & Squibb distillery. We noticed that they were putting out some good juice, choosing some good juice and they're very innovative and coming together and acquiring Penelope in 2023, certainly, we're very pleased with those results. But we do expect the headwinds into the first half of 2026 with hopefully some moderation in the back half.

Okay. Great. Appreciate that. And then on the ingredients side, it sounds like there's a combination of headwinds in the quarter, sales perhaps a bit lighter versus expectations, but then also some execution issues. Maybe just some more color on the recovery timing here. It sounds like would be ongoing impact into Q4. Will this all be contained in 2025? And you also started to report some biofuel sales. Maybe any other detail on the expected ramp there and cost offsets?

Yes. Thanks, Marc. First, obviously, we're not satisfied with the results we saw in Ingredient Solutions, both from a year-to-date and then in particular, in Q3. I tell you, first, it's important to note that it's not a commercial demand issue. These are platforms that are in high demand, and we've ramped up our R&D department, which really is paying off dividends. We've got some large customers that have come on board that are expanding their products. So the demand is there.

And where we fell short, we're in a few different areas. One, there was an equipment outage, and I'll take full responsibility for that. As I've got in the business, Marc, it became clear that one of our more important dryers had had significant operational reliability issues, downtime, yield, waste. And in my experience, it was best for us to take that equipment offline, rebuild it. It did come offline a couple of months ago, and it will be online by the end of this month and we will see better performance. So that is a discrete event, but I did want to make sure that people understood that our expectation is for it to have headwinds into Q4. But after that, we certainly will be on a better path to full productivity coming out of that dryer. But we have had continuous operational reliability across the plant as we closed down that Atchison distillery.

And we've taken a few discrete decisive actions. One, I did bring in a project engineering team, boots in the plant, I'd like to say. They're well-known for working alongside management and leadership to bring a plant back to performance. We've invested 15% more in adding staffing. We're increasing maintenance CapEx. And also, we're bringing back predictive analytics and some of the enhanced preventive maintenance that we are known for. And then certainly bringing in a leader that has extensive operational turnaround experience that's led manufacturing, production, engineering and also some of the other key safety and quality metrics, bringing Chris on board is an important part. So we do believe and expect to see continuous improvement heading into next year. And the teams are working really hard.

So I'm going to turn it over to Brandon on biofuel. But I do want to say one area we're pleased to see is our ProTerra line in extrusion. We did get online our larger customer that we've been talking about. A little bit higher start-up costs, which could be expected with all the different R&D and test runs that you do. But that is starting up mid-November with salable product. And so, we're pleased to get that online. And now I'll turn it over to Brandon for biofuel.

Yes. Before I get into biofuel, all these actions, Marc, that Julie just listed, and there's a lot of very positive actions that she and the team are taking. We do not expect it to be fully contained. Maybe the dryer will be that specific discrete issue. But when you're hiring new people, when you're investing capital, when you're building in new processes, that does take a bit of time. So we do expect to return to our historical high level of performance, but probably not until the first part of next year or the first half of next year. So more to come on that, Marc.

But yes, to your question around biofuel. So that project was commissioned in the quarter. Proud to say that the team shipped out their first tanker biofuel in September. You saw some of that in the numbers. But these things do take time. And so, whether it's getting it efficiently started up, whether it's hitting customer spec, rebuilding the customer network for this type of facility and a couple of other things, they do take time. But over time, we do expect this to offset a large part of the disposal costs we're currently incurring in addition to some of the other initiatives we have going to dispose of some of the other byproduct.

So while Julie said very well, we're not pleased with the performance to date. We do believe that we're doing the right things to correct that going forward.

And our next question will come from Ben Klieve with Lake Street Capital Markets.

First, I want to see if you guys can double down a bit on the success of Penelope of late. I mean, it seems quite impressive that, that growth is accelerating even as that business has really, I think, developed some scale. I'm wondering if you can kind of isolate any of the variables behind this growth. I mean, is it -- are you guys seeing any accelerated growth from greater velocity, increased household penetration, distribution gains? Anything to specifically call out behind the growth numbers over the last 6 months or so?

Ben, it's Julie. I appreciate the call. Yes, Penelope certainly is performing quite nicely. We're pleased to say we're the second fastest-growing brand out there in the last 52 weeks. So we're pleased on that. But I would tell you this, if you think about Penelope and the positioning, it's kind of like an [ unbourbon bourbon ]. So it's attracting a broader range of folks across the spectrum. It's a brand that's built on innovation. So we're very purposeful on sending out innovation. It's also very tight on the releases. I was out in the market the last couple of weeks and talking to retailers and how the excitement that they generally have around Penelope, and they definitely said that our approach to limiting the number of cases with each launch. One guy was saying that he's got 60 people on his bourbon list and a lot of the releases are sold out and don't even come on to shelf. So we think that's a key part of it.

And then knowing our consumers. We just launched the Penelope Old Fashioned line. We started with Peach, which was highly successful. We're just out with Black Walnut. And some of the brand insights that we saw there was that we had an opportunity to engage with females. Females who were curious about bourbon and entering into this category, and they were looking for a lower proof, attractive price point. And also, they're about image and visual appeal. So if you've ever seen that bottle, it's a beautiful bottle. So we think that that hit on bringing in new consumers.

And then certainly, from a distribution standpoint, our independents certainly are doing a great job of launching Penelope and having a significant number of average items. Our opportunity still does lie with a national footprint across on-premise and national accounts. So we do feel bullish that there's some upside on getting more distribution across the nation, in particular, in some of those national accounts.

Great. That's all very helpful. And then for my follow-up, I'm curious, Julie, about one of the comments you made about the dynamic where your Distilling Solutions customers are shifting from just-in-case to just-in-time. In that context, how are you guys -- how was that context contemplated within your updated full year guidance? I mean, are you banking on some just-in-time orders still here to come in, in the next month or 2 that you have real visibility of? Or is this something that you're kind of looking for given historic conversations with customers that don't really have locked in yet?

No. I would just say in Q4, you've heard us talk about our guidance. And so, we certainly are confident on what we reaffirmed and where we took some of the levels. And listen, the biggest thing we did was in the past 8 months is go out there and truly engage the customers, right? And we're only a phone call away, and we're very accommodating. And so, as they have money availability, we're willing to take any order that they're willing to give us. So I think that's important.

But our -- we've been pretty tight to hitting our forecast the past few quarters. So we believe that the planning and the forecast that we have out there represents the demand. And certainly, if there's these intermittent customers coming to us, that's just a slight net positive upside. But understand these are craft customers where the number of barrels that they're taking are on the lower end.

Yes. And what I'd add to that, Ben, is this is -- we're now approaching 1,000 customers that have bought whiskey from us over the years. And the just-in-time versus just-in-case, what that means is, they're not willing to necessarily contract out. So it does limit visibility to a specific customer necessarily. But because of the breadth and size of our book of customers, what we do see, especially at the craft level is the market effect, which is, we can see the overall trend that they're moving toward -- more toward this. And we are seeing greater demand for aged, which is obviously a positive. So while it's hard to really visibly measure when a certain craft is going to purchase, the breadth and size of the number that we serve gives us that added confidence that as a collective, these trends are taking place, and we expect to continue.

Very good. I appreciate that from both of you. Congratulations on a good quarter here and a healthy outlook for the rest of the year.

And our next question will come from Mitch Pinheiro with Sturdivant.

So when you look at the data, both for Branded Spirits and even the TTB data, we see inventory, both barrels and also in the retail side and the distributor level kind of full, still full. But pricing data is still much better than I would have expected, holding up. You might expect to see more discounting and pricing actions, but we're not. And I'm just curious as your view on this. Is it saying something larger about the category? Is it saying anything about consumer preferences and/or consumer value?

Mitch, Julie, thanks for the question. First and foremost, we certainly believe strongly as most folks, American whiskey and tequila, our really strong long-term outlook is really healthy. And as we talk about the pricing environment, yes, it's largely remained rational across all core categories. And certainly, there are pockets, regional pockets of greater competitive intensity. And we're certainly seeing in the nonpremium end some investment and some pricing in the value brands in particular, but nothing that causes us concern. And as you called out, it's been pretty rational. So I think that to me, it shows that people are bullish on the strength of the categories and the health of the categories for long-term value, and they don't want to do anything rash to destroy any of the value that they can capture.

And I guess then just sort of a follow-up. So you've always talked about your revenue in the Distillery Solutions business being 1/3, the multinationals, 1/3, your larger regionals or nationals and then 1/3 craft. Is that still there? Or with the sort of decline, it seems like there's a greater decline in craft. Is that now a smaller portion of your business? And yes, let's leave it at that.

And Mitch, you were breaking up in the middle. Can you repeat that, please?

I was just curious about your Distillery Solutions sort of revenue breakdown. It was typically 1/3, 1/3, 1/3, multinational, but your larger regionals or nationals and then your craft. And I'm curious if that's changed.

Yes. I'd say, Mitch, I'll start on that one. We are seeing, generally speaking, a larger proportion of aged sales relative to new distillate than we had expected coming into the year. And so, broadly speaking, like you said, it's typically 1/3, 1/3, 1/3. Age customers tend to skew much more towards the craft. So -- and that is where we're seeing the incremental demand, and that is where we're seeing the improved performance as the year has gone on. So a lot of those larger national, multinational customers that typically buy new distillate, a lot of them still are, but some of them have paused, and we've talked about that. And so, because of that pause the proportionality of our sales mix has moved in that direction.

And our next question is a follow-up from Sean McGowan with ROTH Capital Partners.

A quick question first. What is your expectation for the margin profile on the biofuel? And then more broadly, again, I'm a little surprised with this deep into the call and the word tariff hasn't come up. So could you give us your latest thoughts on that?

Yes. I'll start on the biofuel. Margin -- gross margin profile, we're going to maybe get a little further along until we share our expectations there. But generally speaking, we believe that the biofuel facility, once it's fully ramped up, once it's efficient and selling at the prices that we think it will hit and get all the tax accreditations that are going to come with it over time. We expect that to offset a large part of the disposal costs we're currently incurring. And -- but let us get a little bit further in, let us see what the market pricing is, where the expectations are for next year, and we'd be happy to share more.

And on the tariff front, yes, we are seeing some tariff pressure, not to the extent of probably some of our peers. That's the benefit of being mostly domestic. So a lot of the tariffs we're seeing are mostly on dry goods, some of the product and other materials that we're bringing in. But what's harder to quantify, Sean, is the impact it's having on some of our customers that do have more of an international business. We can see the export data. It's been very volatile this year, especially in terms of American whiskey specifically going out of the country. And so, we do think that it is causing some near-in volatility in patterns as it relates to that.

And it's included in our guidance.

Yes. Great point. And the incremental tariff exposure that we are experiencing is contemplated in our full year guide.

And with that, we will conclude our question-and-answer session. I'd like to turn the conference back over to Julie Francis for any closing remarks.

Thank you, Joe. I'd like to thank everyone for joining us today on our quarterly earnings call. I look forward to engaging with all of you in the very near future and playing a much more active role in the next earnings call. So good luck, everyone, and we'll talk soon. Cheers.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Good morning, and welcome to the MGP Ingredients Second Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Amit Sharma, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to MGP's Second Quarter Earnings Conference Call. I'm Amit Sharma, Vice President of Investor Relations. And this morning, I'm joined on the call by Julie Francis, our new Chief Executive Officer and President, who will introduce herself and make some initial observations; Brandon Gall, our Chief Financial Officer; and Mark Davidson, our VP, Corporate Controller and Head of Treasury. They will provide an overview of our quarterly results and outlook.

As customary, we will begin the call with management's prepared remarks before opening the call to analyst questions. Before we begin, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's quarterly and Annual Reports filed with the SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by the law.

Additionally, this call will contain references 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 is included in today's earnings release, which was issued this morning before the market opened and is available on our website, www.mgpingredients.com.

At this time, I would like to turn the call over to Brandon for opening remarks.

Thank you, Amit. Good morning, everyone. As we announced last week, after a thorough search, our Board of Directors appointed Julie Francis as our next President and CEO.

I strongly believe that Julie is the right person to lead us forward during this important time for the company. She brings a strong strategic lens, deep commercial expertise and a proven ability to build and lead teams. Her fresh perspectives and track record of success at global industry-leading CPG companies, particularly in the beverage segment, will be critical as we advance our long-term vision of becoming a premier branded spirits company.

Julie has taken the reins during a challenging time for our industry, and she's wasting no time diving into all aspects of our business. There is no doubt she's the right person for the job, and I look forward to partnering with her during this next chapter. Julie, welcome aboard.

Thanks, Brandon, and hello, everyone. I'm thrilled to be joining the MGP team. Let me first thank Brandon and the executive team and our entire MGP family for their hard work, collaboration and dedication in delivering solid second quarter results.

I've had the opportunity to attend our leadership and business meetings and to also meet individually with our broader teams last week. And what I've learned has only reinforced what drew me to this opportunity.

First and foremost, MGP's culture. There's something unique about working in the type of culture where everyone is deeply passionate and takes great pride in our business, in their teams and our people. MGP has an integrated partnership approach to customers and suppliers as well as a deep commitment to the communities we serve. There is a certain responsibility we have when we are part of these teams, and I really like and thrive in that type of culture.

Second, a growth mindset. MGP's unique capabilities, impeccable reputation and product offerings give us the right to win in each of the industries in which we compete. More importantly, I believe that all 3 businesses have a significant growth runway, which can be unlocked as we operate with clarity, operational and executional excellence with integrity, tough-mindedness and agility across all of our platforms and functions.

I'm energized by the opportunity ahead, confident in our ability to build on our progress and look forward to working with all of you in the investor community.

With that, I will turn the call back to Brandon for the business update.

Thanks, Julie. Our second quarter 2025 performance demonstrated the strength of the foundation Julie mentioned as all 3 of our segments showed sequential improvements relative to the first quarter of 2025.

Overall, second quarter results came in largely as expected, driven by the continued strength in our premium plus Branded Spirits portfolio and improved year-over-year performance in Ingredient Solutions. Distilling Solutions also progressed in line with our expectations with improving stability and visibility.

At a high level, we believe all 3 business segments are on solid trajectory. We're seeing progress against the priorities we laid out earlier in the year, and I'm excited to build on that momentum as we move into the second half of the year.

Specifically for the second quarter of 2025, as expected, consolidated sales and adjusted EBITDA decreased 24% and 38%, respectively, from the prior year period, primarily due to the anticipated decline in Distilling Solutions performance. Branded Spirits segment sales declined by 5% but our premium plus portfolio posted positive growth.

Adjusted earnings per common share declined to $0.97 per share, while year-to-date operating cash flows increased to $56.4 million versus $29.6 million in the same period last year. With another quarter of solid execution, we remain on track to achieve our full year 2025 sales and adjusted earnings guidance. Mark will provide greater detail on our quarterly results shortly.

Let me take the next few minutes to highlight the current operating environment and the progress we're making against each of our key initiatives. The external environment remains challenging and fluid. Overall economic uncertainty, persistent inflation and higher interest rates continue to weigh on consumer sentiment, which fell to a multiyear low during the quarter.

While sentiment improved a bit last month, consumer confidence in this backdrop continues to pressure discretionary spending, leading to more cautious purchasing behaviors. Despite this setting, we continue to execute with discipline and make progress on our key initiatives.

Starting with the Branded Spirits segment. Our key initiative for the Branded Spirits segment is focus. We believe our decision to focus on fewer but more attractive growth opportunities is working as our premium plus portfolio again outperformed the broader category with 1% growth for the second quarter compared to the year ago period.

Our key brands, Penelope, El Mayor and Rebel 100 are particularly well positioned to benefit from our focus initiative as we continue to prioritize investments behind these brands.

For the full year, we expect a healthy double-digit percentage increase in the A&P spending for these brands collectively, even as our overall A&P spend will be down, as we've mentioned on the last calls.

While our focus brands delivered positive dollar sales growth in the latest 13-week period ending on July 12, as reported by Nielsen, let me briefly talk about the terrific growth trajectory of Penelope, the key driver of our continued premium plus performance.

Penelope is our flagship premium plus offering in the American Whiskey category with a brand identity that's built on innovation, craftsmanship, authenticity and accessible price points, attributes that resonate strongly with today's bourbon drinkers.

Penelope Wheated is expanding the brand's strong foundation by capitalizing on consumer demand for more approachable bourbon with softer, smoother taste profile. Penelope Wheated continues to build on its strong start with continued expansion into new markets.

Penelope is also expanding its ready-to-pour offerings to tap into the faster-growing cocktail segment. Penelope Peach Old Fashioned is already among the top 15, 750 milliliter premium plus RTP offerings in Nielsen, and we plan to further expand Penelope's RTP offerings with the introduction of Penelope Black Walnut Old Fashioned in the third quarter.

This continued momentum has made Penelope one of the fastest-growing premium plus American Whiskey brands. Based on the retail dollar sales growth reported by Nielsen for the past 4, 13 and 52-week periods ending on July 12, Penelope has been the second fastest growing of the top 30 premium plus American Whiskey brands. With a full pipeline of planned innovation, we expect this broad-based momentum to continue through the rest of the year.

Given year-to-date trends, we now expect our premium plus segment to grow by low single-digits for the full year compared to 2024, an improvement from our initial projections. At the same time, as expected, sales of our mid and value tier brands remained softer in the second quarter due to heightened price competition in select pockets.

As I mentioned last quarter, we are taking appropriate actions, including greater price support to make these offerings more appealing. Although the rate of decline for sales in these price tiers improved sequentially in the second quarter, we believe the impact of these actions on shipments is still taking effect. While we remain encouraged, we now expect the mid and value price tier to be down low double-digits for 2025 compared to 2024 versus our initial expectations of mid to high single-digit declines.

Earlier this week, we announced our decision to partner with Breakthru Beverage Group for distribution of our products in California. Breakthru is one of the leading beverage distributors in the country. And their proven track record and deep expertise in the premium plus categories made them the ideal choice to drive growth for us in this market.

RNDC continues to be our distributor in many states, and they remain a valuable partner. We're currently working with both companies in an effort to minimize any potential disruptions during the transition and do not expect this transition to have a material financial impact on our 2025 results.

For the Distilling Solutions segment, our key initiative to strengthen partnership with key customers continues to show positive results. While brown goods volume and pricing were down during the quarter compared to the second quarter of 2024, they were consistent with our expectations, and more importantly, continue to show signs of stabilization.

The brown goods industry is navigating a challenging environment, one that we expect to persist in 2026. We're responding by listening carefully to our customers' needs, offering them tailored solutions and demonstrating flexibility with respect to quantities, pricing and timing.

As expected, a number of our large strategic customers, after completing their existing contracts, have expressed the need to temporarily pause their whiskey purchases, which continues to be reflected in our full year guidance.

In most cases, these brands are well established with a taste profile that we are uniquely positioned to support. But importantly, these customers remain engaged with our team pertaining to their future needs for brown goods as well as other products we're able to offer, including premium gin and neutral grain spirits. As a result, we continue to expect Distilling Solutions first half sales and profits to be stronger than the second half.

We are complementing our refreshed commercial outreach by taking a disciplined approach to our brown goods production levels and optimizing our cost structure by collaborating with our suppliers and adjusting our distillery downtimes. As I mentioned last quarter, we're also significantly reducing our whiskey put away to manage our aging whiskey inventory levels and our cash flows.

More broadly, overall American Whiskey production appears to be responding to the current environment. The year-over-year decline in total industry whiskey production, which began late last year, has picked up pace. The latest available TTB data through April 2025 shows even deeper production cuts with total whiskey production in the U.S. now down 14% for the last 12 months, down 24% in the last 6 months and down 28% in the last 3 months.

While challenges remain, including excess whiskey inventories and soft demand, the actions being taken across the industry are constructive, and we believe that increasing industry discipline and rational behavior, combined with our decisive actions position us to emerge with a stronger competitive position.

I'd like to take a moment to acknowledge the entire Distilling Solutions team for their bold actions to make difficult but necessary adjustments over the course of the year.

Since our Q4 2024 earnings call, not only have no customers canceled their contracts, but substantially all have either confirmed or amended their purchases in a way that prioritizes the needs of their brands and business.

As a result of the commitment we have shown our customers, we're encouraged by the commitment they have shown us in return and now have higher confidence in the remainder of 2025 and increasingly 2026.

Turning to our Ingredient Solutions segment. The sequential performance improvements in the second quarter give me confidence that our key initiative to achieve operational and commercial executional excellence in our Ingredient Solutions segment is on track.

Although still present in the second quarter, supply challenges that impacted segment results in the first quarter moderated as our team focused on increasing manufacturing reliability, simplifying processes and aligning resources.

We're increasing our capital investments in the Atchison plant with the goal of further streamlining operations, unlocking additional growth capabilities and improving operational consistency.

Our commercial execution also improved during the quarter. Strong consumer demand for higher protein and fiber in their diets is a powerful driver for our specialty starch and protein offerings. Our Fibersym branded specialty starch continues to gain traction across a growing number of food categories, while our sales team continue to gain North American-based customers for our Arise branded specialty protein offerings.

As expected, our new biofuel plant came online in July. The new plant is a key component of our efforts to mitigate costs associated with the disposal of the waste starch stream, which is a byproduct of our Ingredients facility. While we continue to expect the new plant to mitigate these costs in the long-term, realizing the full extent of these cost savings will take time as we ramp up production and fully commercialize our end product.

Overall, despite the soft start to the year, we believe the Ingredient Solutions segment remains well positioned to post higher sales and profitability in the second half of the full year 2025 compared to the first half.

Across the organization, our productivity initiatives remain on track and are expected to make substantial contribution to our full year outlook. Our balance sheet remains a key strength, particularly given the higher liquidity and flexibility following the upsizing of our credit facility and the extension of our private placement shelf in the first half of the year.

Our net debt leverage remains under 2x, and we continue to generate cash to support our capital allocation priorities. Given the solid results in the quarter, we are reaffirming our 2025 guidance, and we continue to expect net sales in the $520 million to $540 million range. Adjusted EBITDA in the $105 million to $115 million range, and adjusted basic earnings per share in the $2.45 to $2.75 range.

We now expect average shares outstanding of approximately 21.4 million for the full year and capital expenditures of approximately $32.5 million. Our full year effective tax rate remains unchanged at approximately 25%.

Within our Branded Spirits segment, we now expect premium plus sales to be up low single-digits for the year. However, we expect sales of our mid and value price portfolio and other to be below our initial expectations, leading to a modest decline in Branded Spirits segment sales for the full year 2025 as compared to 2024. We continue to expect Branded Spirits segment gross margins to be in the upper 40% range.

Turning to tariffs. Similar to our industry peers, we're not completely immune to tariff impacts and continue to closely monitor the tariff environment, particularly related to exemptions for goods compliant with the U.S.-Mexico-Canada agreement and the potential impact of tariffs on consumer purchasing behavior.

Given the evolving situation regarding the implementation and timing of tariffs, their potential financial impacts are not included in our current outlook, and we continue to look across our supply chain for additional opportunities to mitigate any potential headwinds.

Let me now hand it over to Mark for a review of the second quarter results.

Thank you, Brandon. For the second quarter of 2025, consolidated sales decreased 24% to $145.5 million compared to the year ago period. Within our segments, Branded Spirits sales decreased by 5% due to the expected double-digit decline in our mid and value-priced brands, driven by lower volumes of certain tequila, liqueur and cordial brands.

Our premium plus sales increased by 1%, reflecting continued momentum in our focus brands, in particular, Penelope. Distilling Solutions segment sales declined by 46%, primarily driven by a 54% decline in brown goods sales.

Second quarter warehouse service sales decreased by 5%, while white goods sales declined by 27% due to the phasing out of a number of white goods customer contracts in the wake of the Atchison distillery closure as well as reduced production volumes of co-products, primarily dried distillers grain.

Ingredient Solutions sales increased by 5% during the second quarter, driven by a strong rebound in our specialty wheat protein sales. Following a 26% decline in the first quarter, specialty protein sales increased by 13% in the second quarter as we successfully commercialized new customers for these product offerings. Our Fibersym branded specialty wheat starch sales declined 4% below year ago levels.

Consolidated gross profit decreased 30% to $58.4 million, primarily due to lower gross profits in the Distilling Solutions and Branded Spirits segments. Gross margin declined by 350 basis points to 40.1%.

First quarter SG&A expenses increased 2% compared to the prior year period. However, excluding the impact of a higher incentive compensation accrual in 2025 as we rebuild incentives, SG&A expense decreased by 8%, driven primarily by our cost savings initiatives.

Advertising and promotion expenses declined 41% compared to the prior year as we lapped elevated spend for certain advertising campaigns during the year ago quarter as well as continued realignment of our spend behind our most attractive growth opportunities.

Although, we continue to expect Branded Spirits A&P spend to be approximately 12% of segment sales for the full year 2025, it represented 10% of Branded Spirits sales in the second quarter, largely due to the timing of certain advertising campaigns within the year.

Second quarter adjusted EBITDA decreased 38% to $35.9 million due primarily to lower gross profits as previously discussed. Net income for the second quarter declined to $14.4 million, primarily due to a lower operating performance and an $8 million increase in the fair value of the contingent consideration liability related to the continued improved performance of the Penelope brand.

On an adjusted basis, net income decreased 45% to $20.9 million. Basic earnings per common share decreased to $0.67 per share, while adjusted basic EPS decreased 43% to $0.97 per share.

We continue to prioritize strong cash generation by managing our working capital and reducing our barrel inventory put away. Our year-to-date cash flow from operations was $56.4 million, up $26.8 million compared to the prior year period, driven primarily by favorable working capital changes.

Our year-to-date net barrel inventory put away of $14.7 million was down 28% versus the prior year period, and we continue to expect net put away of $15 million to $20 million for the full year.

Capital expenditures were $10.6 million during the second quarter and $18.7 million year-to-date. We now expect full year 2025 capital expenditures of approximately $32.5 million, a reduction of more than 50% compared to 2024 and down from our previous expectations of $36 million due to decreased investment in certain barrel warehouse projects to better align our warehouse investment with customer demand.

Our balance sheet remains healthy, and we remain well capitalized with debt totaling $297.1 million as of the end of the second quarter, leaving us with more than $600 million in availability under our debt facilities. We ended the quarter with a cash position of $17.3 million, and our net debt leverage ratio remained largely stable at approximately 1.8x as of June 30, 2025.

With that, let me hand it over to Brandon before opening for questions.

To close, given the sequential improved results in the second quarter, we remain on track to deliver our full year outlook. Our teams are executing with purposeful focus, agility and a targeted approach, leading to continued momentum across key branded segments, improved execution in the Ingredients business and greater visibility and stability in the Distilling Solutions business.

We are excited to have Julie on the team to lead us forward on our journey in becoming a premier Branded Spirits company.

That concludes our prepared remarks. Operator, we're ready to begin the question-and-answer portion of the call.

[Operator Instructions] And our first question comes from Bill Chappell from Truist Securities.

Welcome Julie. Welcome aboard. I just wanted to, I guess, first, talk a little bit more about the new distillate contracts and kind of where we are and visibility from that standpoint. I mean, I guess, question one, are you now through all or a high majority of the contract kind of negotiations, discussions?

Two, can you see, assuming that they hold in place kind of where we will hit a low watermark in terms of revenue over the next few quarters?

And three, what's your sense that these are conservative enough or overly conservative in terms of kind of what they're ordering? I mean, historically, brands are overly conservative until they run out and then they add more. So I'm just trying to understand maybe a little more color on that whole process.

Yes. Thanks, Bill. So as we shared in the prepared remarks, well, firstly, we just couldn't be any more proud of our Distilling Solutions team. Their outreach and partnership-first approach is really resonating with our customers and with our business.

And as of today, no contracts that we have with customers in February have been canceled. In fact, substantially all bill have been either confirmed or amended. The little we have remaining are progressing well. And a lot of -- maybe the holdup, if you want to describe it as that, maybe have to do with possibly extending the agreement in some cases. So very, very encouraged by the team's progress there.

As far as the visibility goes, this gives us really, really great visibility for the remainder of 2025. We can talk about this more in a moment. But the back half is going to be relatively lighter than the first half due to some contracts that were reset. But even with that, that was expected and that was contemplated in our guide at the beginning of the year and in our current guide. So we feel that things are coming in as we had projected and in some cases, slightly better. So that's through 2025.

We've also stated consistently that this dynamic is going to persist into '26. And while some of our customers are taking temporary pauses in their purchasing as they want to balance out and work down their inventory, we're confident that we're going to remain their long-term partner and supplier. We just don't know exactly when that's going to resume and at what type of volumes. So we need a little bit more time there in this dynamic environment to work that out with them.

And then as far as conservatism goes, Bill, the quarter came in really pretty much in line with our expectations. Again, some of the renegotiations that we've had have come in slightly better collectively. And we've had a little bit better performance in aged than expected at the beginning of the year. But other than that, things are playing out as we had thought.

We still continue to expect Distilling Solutions sales, excuse me, to be down 50% on the year. And we earlier stated that gross profit dollars for the segment are going to be down 65%. That latter number may come in a little bit better for the reasons we described. But other than that, we feel like we're right down the middle in terms of our projections, and we're very, very confident in the way things have come in and are playing out so far.

And so just to make sure back to the age -- I mean, your original expectations were little to no aged sales this year. So maybe you can talk a little bit of why it's better other than just being conservative? Like where you're seeing the orders? And how you manage -- I mean, I imagine everybody wants a discount. Somebody could come and buy some discounted product in the back half of the year? Or are you just saying holding off because its -- we're not going to give it away, it's not going to go bad?

Yes. Great question. So we're really seeing it in a couple of pockets. Firstly, our -- again, going back to our partnership approach, our increased outreach to our craft and regional customers is resonating. And it's almost always their preference to deal directly with MGP and our team than to go through a third-party broker.

In almost all these cases, they're already using our liquid. And so the ability to go to them directly has been a great step forward in our relationship there. So that's part of the improvement we're seeing this year.

But additionally, if there are, in some instances, customers that are coming to market for the first time for a number of reasons, and they want to buy aged, but they view this as a long-term plan and program for what they're trying to do. So they also want someone who can provide the new distillate. As we've said a number of times, we're unique in that we can offer both in both breadth and scale. And so we're starting to see some traction there as well, Bill.

The next question comes from Marc Torrente from Wells Fargo.

Julie, congratulations. We look forward to working with you.

Thanks Marc. I appreciate that.

Yes. First question, Branded margins stood out, I think, highest GMs and EBITDA since the acquisition. Any additional color on gross margin phasing from here? And then advertising came down materially, perhaps some timing, but we know the strategy for this year is to be more targeted around central brands. There seems to be success. What's been working? What else do you need to adjust? And any other changes in Branded to consider with price positioning or distribution as we go forward?

All right. I think I got most of them, Marc. You may have to help me fill out some pieces I missed. But yes, Branded Spirits margins were very strong in the quarter. That's really reflective of our performance of our premium plus portfolio and the proportionate mix we're seeing over time there.

We do think in the back half of the year, our margins may be relatively lighter than that as we expect value to continue to be under pressure and the gross profit dollars associated with that are going to continue to be a bit of a headwind.

A&P was down quite a bit in the quarter, but it sticks out more only because Q2 of last year was very high due to some programming we did around college basketball that we didn't redo again this year. We're still expecting for the year A&P for our Branded Spirits to be roughly 12% of net sales, which is down from the roughly 15% we've been seeing.

However, when you take that A&P investment and do it as a percentage of our premium plus brands, which is where all that money is going, that number is actually closer to 25%, which is, as we all know, well above the industry averages.

So what's working? Focus. The key initiative here is focus. We've got a lot of great brands. And sometimes, we don't know where to begin and where to focus. So we've really tried to improve that this year in both our sales and our marketing execution. And Penelope, El Mayor and Rebel are all reacting to that in a positive way. And so that's what we're seeing. That's what's working.

As far as further pricing in mid and value, I think, was your last question, Marc. Look, value especially is somewhere that's getting increasingly competitive, whether it's in promotions, taking down line pricing or even rebates. It seems like everything is on the table. And there are just so many things we can or want to do there. And so we'd rather use our marketing dollars in support for the higher-margin premium plus brands in our portfolio. But we aren't afraid to adjust our line pricing to adjust to our competitive set and what they're doing.

And then I guess more on Distilling, sales and earnings were a bit better than at least we were thinking, but seem more in line with your own expectations. Maybe just any more on how you're thinking about the phasing front half versus back half in the context of the full year.

I guess, any upside in the front half could seem to imply more or a deeper impact into the back half and perhaps even in the front half of '26. So if margins were to hold in better than expected as they seem to be, is that coming from more cost control? Is that where just pricing is falling in on these contract resets? Is it mix or a combination of all of the above?

Yes, Mark, I'll start with that one. Yes, as we've mentioned, there is some phasing of contracts. And as a result, with the 50% decline in sales for the full year, that would imply a big decrease in H2 from H1. On the gross profit standpoint, as Brandon mentioned, we expect that 65% decline that we previously guided to, to be a little bit better.

And where we're seeing that benefit is in pricing. Pricing negotiations have gone well. And so we've seen some favorability there, again, as we've been able to successfully partner with our Distilling Solutions customers. And so we're encouraged by that. We see that show through in pricing, and that's where we see that margin and gross profit benefit coming through in the back half.

Yes. The only thing I'd add to that is, just due to the lower sales and lower production volume in the second half, the team is doing a phenomenal job in doing what they can to mitigate costs and especially fixed cost absorption levels. But we do expect some margin pressure, gross margin pressure in the back half. And as such, we're still expecting roughly 30% margins for the segment, which would imply that the back half is going to be probably closer to the mid-20s levels.

The next question comes from Robert Moskow from TD Cowen.

This is Seamus Cassidy on for Rob Moskow. Welcome Julie as well. So my question is on Distilling Solutions. You cited the TTB data, which shows pretty notable production cuts. In light of that, could you sort of help frame where we are in terms of inventory rationalization at the industry level?

And then secondly, would you describe the competitive environment as sensible still, especially in the context of your proactive engagement on pricing negotiations?

Yes. So on the TTB, yes, very encouraging signs. And from an overall inventory dynamic perspective, we still have a ways to go, Seamus. This is not going to be an overnight fix. However, and as we said, this is going to go into 2026, and we still feel that way.

But what we are seeing is in tough environments like these, we keep coming back to it, but partnerships matter. Customers and suppliers want to line up with those that they see a long-term relationship with. And the commitment that the team is showing out in the market is demonstrating that commitment. And I feel that our customers are responding, both current customers and new. We are actually adding customers in this environment. And so we're very encouraged by all that.

So definitely, this dynamic is going to persist. But we do feel that as a leading contract distiller for American Whiskey, we are positioned well coming into this. And we feel like we're doing all the right things, and we're controlling the controllables to be better positioned coming out of it.

And the next question comes from Sean McGowan from ROTH Capital Partners.

My question is on could you give us some color on the difference in your mind between a paused purchase and a canceled contract? Like how solid are those contracts if they've been paused? And is that pause like indefinite?

Yes. Their purchasing has been paused. The contract came to an end. And typically, these come up for renewal and they're negotiated as all contracts are. But we got the sense when we really began our outreach at the beginning of the year that there may be a pause coming. We have -- we can see inventory and pull rates on our customers with barrels in our warehouse. So we were able to have that open dialogue.

And look, like I said, Sean, these are, especially in the cases I mentioned, and we're talking about very large multinational customers with well-established, very large brands. And historically, there is very little customer churning in instances like these. Our relationship with these customers in a lot of cases, goes back years and years and years and years. And the uniqueness of our product and taste profile, we think is a very strong positive for -- as it represents their brand with their consumers.

So we do view it that way as a temporary pause. And we're also confident that it will resume. It may not resume at the same volumes it left off at when it does pick back up. But that's okay. We'll work back into it with them. And in the meantime, we're going to look to partner in different ways, whether it's through other product offerings like gin and GNS for vodka or in helping them find homes for their inventory or other creative solutions for them to benefit their business.

And one little other clarification question. On the SG&A in the quarter, I think you mentioned that there were some items in there related to incentive comp that if you exclude that, the SG&A was down a little bit more. Should we expect that elevated level of incentive comp to continue in the subsequent quarters? Or was that kind of a onetime thing?

Yes. No, we expect SG&A as a percentage of sales in Q2 to persist in the back half of the year. And additionally, yes, this is a reinstatement of the incentive comp, so it is year-over-year going to stick out a little bit more. But the important thing there is going back to controlling what we can control. Our cost savings initiatives and productivity initiatives at the beginning of the year. If you peel that out, is actually showing an 8% decline in adjusted SG&A. So very proud of the team for coming together and driving those savings. And yes, we look forward to finding more as the year goes on.

And the next question comes from Mitch Pinheiro from Sturdivant & Co.

Welcome Julie. I just had a couple of questions for you. So you talk about visibility. You've been talking to your customers, you have good visibility. But we do see visibility -- I think we're going to have significant downward pressure in sales for a while on the distilling side. Like what does the visibility do for you? I mean, are we seeing it? Is that visibility enabling you to maintain a 30% gross margin? Or do you think the visibility is more advantageous than that and maybe it will help you to improve the margins from these current levels?

Yes. So what the visibility gives us more than anything is confidence. We can see the proverbial bottom of the pool a little bit more clearly. And what it also allows us to do is set ourselves up for operational success. So we know how many shifts to run. We know what campaigns run product-wise. We know how many operators we need on site and so on. So it's visibility in the numbers, but also the visibility in being able to operate efficiently.

And this pullback in the overall market happened pretty fast, and the team has done a very, very nice job of reacting. But to your gross margin question, if we're going to be in the mid-20s in the back half of 2025. We're doing what we can to chip away at that and get those numbers up and whether it's through finding greater efficiencies or doing what makes us unique.

So one of those examples is we're one of the only contract distillers of American Whiskey that can also distill GNS and premium gin for our customers. And while it's not necessarily as high a price as brown goods, it's an excellent way to gain efficiencies and scale in our facility. And also, it's an excellent way to further partner with our customers in these hard times. So there's even proactive commercial activities that can actually improve the margin profile.

So we're hopeful, Mitch, to answer your question in a long way, that we're going to keep chipping away, and we're going to get those margins up over time.

And then how -- so I think I heard you say that you expect put away -- net put away for 2025 to be in the $15 million to $20 million range. Is that correct?

That's right.

That's correct.

So I mean is that -- I mean, how does that foot with just the overall slowdown? Is this $15 million to $20 million of net put away sort of specific juice for certain customers that you need to do and there's a chunk of your inventory that's sitting there sort of just unaccounted for?

Yes. Most of it -- most of our put away is for our own brands, okay? So those are brands like Penelope, Rebel and so on. So that's where most of our $15 million to $20 million is going. And then the pockets of put away that we are doing for Distilling Solutions have more to do with long-term agreements to supply aged in the future for potential customers and for current customers. So there's some of that contemplated in there as well.

But what we're also in a really unique position to do in any quarter or any month is find good opportunities in the market, okay? So we've got as good of a feel as anyone as to value. And so if there are barrels out there that we know are not only unique and rare, but we can also monetize in a better way, we'll go out and buy those in the open market. And we can then resell them. We could also dump them and bottle them in our own brands. So that's also factoring into that $15 million to $20 million Mitch. So that's just a little bit of context around what that consists of and how we approach it.

And then with sort of the ready-to-drink segment sort of really helping the spirits industry, at least in terms of volume, are you doing -- are you participating in any of that growth through -- obviously, through third-party brands?

Yes, absolutely. And we've participated in that in white goods and GNS too, but also, to your point, in American Whiskey. So a lot of that tends to go out the door. It's not always aged for very long, if at all. But yes, no, you can imagine that a lot of our customers who buy traditional bourbon for traditional brands would also lean on us for that capability as well.

And then I guess, finally, just on the Branded Spirits side. So Penelope, obviously, has been -- you see SKUs increasing, your distribution is increasing. I mean, what's the rest of the portfolio like? I mean, obviously, if Penelope is doing really well, that would obviously imply some weakness there. Is there any particular brands that have been weaker than normal or also are shining besides -- you've called out Rebel and well, El Mayor on the tequila side. So anything happening within the premium plus that's weaker than it should be? Or -- love to hear that.

Yes. So Penelope, like you said, is continuing just with tremendous momentum. The lifeblood of that brand is innovation and coming out with offerings and items that are -- that resonate with consumers and meet them exactly where they are. Penelope Wheated is a great example of that, but even our recently introduced ready-to-serve line, a ready-to-pour line of Penelope Peach Old Fashioned and Black Walnut Old Fashioned are great examples of doing exactly that. So very, very proud and pleased with the progress of Penelope.

El Mayor too, strong volumes in the quarter. We came out with new packaging and some new size offerings. So we're excited for that. And Rebel too, showed sales growth in the quarter. But there are offsets, Mitch, primarily in a couple of larger volume American Whiskey brands. And those are actually declines that we've been dealing with in recent quarters as well. But we're not just sitting on our hands there. We are making adjustments, whether it's with line pricing to better position it with their respective competitive sets, but also with innovation as well. And so there's additional ready-to-serve products coming out possibly across other parts of our portfolio, albeit at different price points than penalty. So that may round out our premium plus price for you a better mitch.

[Operator Instructions] And the next question comes from Ben Klieve from Lake Street Capital Markets.

Julie, congratulations on the new role. A couple of questions on the Ingredient segment. It's great to see year-over-year growth, both on the top line and on earnings here. I have 2 questions. First one is, Brandon, I'm wondering if you can give us an update on the challenges in the export market specific to this segment and both on a kind of sequential basis and year-over-year basis, what that impact was in the second quarter? And then kind of if you have any insights regarding the export opportunity in the back half of the year?

Yes. So as it relates to export with Ingredient Solutions, what we're really talking about there is our specialty protein product line, specifically our Arise specialty protein. And as you recall, most of that for a long time has been sold with a long-term partner into Japan. And as we've discussed last year, they started -- they began really slowing down their purchases. And so it was a little bit of a surprise at the time, but the team has done a great job in re-commercializing that Arise line in North America with new and existing customers.

And the demand from Japan is still there, not at the same volumes that we've seen historically. But interestingly enough, as we look into next year, they're looking to possibly increase their orders. But the important thing is that we've been able to find a home for that, not quite at the same pricing that we may have been getting prior, but still at very profitable pricing. So very proud of the team and their ability to react to what's going on internationally.

And just to add to that, Ben, to that point, that's the key component of the driver of the increase versus Q2 of last year. Specialty protein sales increased 13% due to our ability to replace that export volume with domestic customers. And then you mentioned sequential increase, the Ingredients segment increased significantly sequentially from Q1, sales are up 32%. The biggest driver of that increase is our specialty wheat protein offerings, which increased $5.3 million versus Q1 due to our ability to commercialize that lost export business domestically as we messaged earlier this year.

And then my second question on this segment, and I'll get back in queue is around -- there's a lot of things moving in the right direction here. The biofuel plants coming online for some cost savings. You've got this dynamic with the export pressure starting to maybe wane that you just talked about, new customers onboarding and you expect second half to be better both in revenue and profit than the first.

I'm wondering if you can maybe help us isolate that new customer contribution element of this. You talked about a couple of new customers coming online here at some point within the second quarter. Wondering, one, if they came online as in the magnitude that you expected? And then kind of where they stand today from a revenue perspective versus where you think they'll be at a run rate basis here in the quarters to come?

Yes. So a lot of the new customers that we've been getting, as Mark just said, has been on the specialty protein Arise front in North America. And any new customer, especially in this business, there can be a load-in and then some choppiness, and we've seen some of that.

In fact, Q1 was choppy as a result of this. Q2 was where we expected it to be. We expect Q3 to be strong as well for specialty protein, maybe not quite as strong as in Q2, but then we expect a strong Q4. So it's going to be maybe a slight step down in Q3, but the choppiness is reducing in its size, which is great to see and what you would expect.

Where the opportunity really is on the new customer front is in our ProTerra extruded protein facility that came online last April. And like I said, in this business, it can take anywhere from 8 to 12 to 24 months to commercialize a new customer. It's a lot of work. It's a lot of commitment. And the team is making a lot of progress there. This is a great facility up to 10 million pounds of production capability.

And I shared earlier in the year that we had 2 large customers that we've been working with that we were hoping to come on in the back half of the year. I had a discussion about that just recently with the team, as you'd imagine, that is still looking good in both cases. It could be more Q4, but the point is that we're making progress.

Additionally, something we're doing to increase our customer pipeline and funnel is we're expanding our capabilities and our offerings at our ProTerra facility. We are now working with soy as an example. And the result of that has been a complete inbound of new customers and new opportunities. So because this facility is located separately from our overall ingredients facility, we're able to experiment with different grains such as this. So that's really where our runway is for growth in terms of new customer acquisition, Ben, and that's what the team is focused on making a lot of progress.

Very good. That's interesting to hear. Well, congratulations on that segment specifically having some good momentum here and mitigating a lot of the challenges in the spirits side as well in the quarter.

Perfect. Thank you, Ben.

This concludes our question-and-answer session. I would like to turn the conference back over to Julie Francis for any closing remarks.

Thank you. I'd like to thank everyone for joining our quarterly earnings call today. I look forward to engaging with all of you in the very near future and playing a much more active role in the next earnings call. So good luck, everyone. We'll talk soon. Cheers.

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