MGP Ingredients, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; includes fourth-quarter results. Unless stated otherwise, dollar amounts below are in millions. The Luxco acquisition closed April 1, 2021, so its results are consolidated from that date.
Business context
MGP produces distilled and branded spirits, industrial alcohol, and wheat-based food ingredients. Following the Luxco acquisition, it reported three segments: Distillery Products, Branded Spirits, and Ingredient Solutions. Luxco expanded the branded-spirits business and contributed $177.6 million of 2021 sales, approximately 28% of consolidated revenue.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Sales | $626.7 | $395.5 | +58.5% |
| Gross profit / margin | $199.0 / 31.7% | $98.8 / 25.0% | Margin +6.7 percentage points |
| Operating income / margin | $126.4 / 20.2% | $54.2 / 13.7% | +133.0% |
| Net income | $90.8 | $40.3 | +125.1% |
| EPS, basic / diluted | $4.37 / $4.34 | $2.37 / $2.37 | Basic +84.4%; diluted +83.1% |
| Cash from operations | $88.3 | $53.3 | +$35.0 |
Fourth quarter: Sales were $166.8 million versus $100.9 million in Q4 2020; net income was $31.7 million versus $11.6 million. Q4 2021 operating income was $45.3 million, including a $16.3 million insurance recovery related to the Atchison dryer fire.
Segments: Distillery Products sales rose 12.5% to $352.5 million, with gross margin increasing to 32.4% from 24.2%. Branded Spirits sales were $183.6 million, largely reflecting Luxco; segment gross margin was 34.1%, down from 52.7% in the smaller pre-acquisition comparison period, partly due to the acquired portfolio’s different product mix and purchase-accounting inventory step-up. Ingredient Solutions sales rose 16.1% to $90.7 million, while gross margin declined to 24.5% from 26.7% as input costs increased.
Financial position and liquidity
- Cash was $21.6 million at year-end. Current assets exceeded current liabilities by $278.3 million; inventory was $245.9 million, including $174.1 million of barreled distillate.
- Total debt principal was $239.9 million; reported debt net of unamortized fees was $233.4 million. Debt increased substantially with acquisition financing and issuance of $201.3 million of 1.875% convertible senior notes due 2041. The company had no revolver borrowings and reported $400 million available under its credit facility.
- Cash used in investing was $182.6 million, including $149.0 million for the Luxco acquisition and $47.4 million of capital expenditures, partly offset by $16.3 million of property-insurance proceeds. Cash provided by financing was $94.3 million.
- 2021 capital expenditures incurred were $51.7 million. Management expected approximately $37.2 million of 2022 capital expenditures for facility improvements and expansion, maintenance, and environmental, health and safety projects.
- The company reported compliance with its debt covenants at year-end. It declared a quarterly dividend of $0.12 per share in February 2022.
Material changes, outlook and notable items
- The Luxco merger materially changed the scale and mix of the business. MGP issued approximately 5.0 million shares as consideration, diluting existing shareholders; year-end shares outstanding were approximately 22.0 million versus 16.9 million at the end of 2020.
- The Atchison dryer-fire insurance settlement totaled $43.7 million: $27.4 million for business interruption and $16.3 million for the damaged dryer. The business-interruption recovery reduced cost of sales; the property recovery was reported as an insurance recovery. Replacement equipment entered service in 2021.
- Management cited growth opportunities in premium spirits and specialty ingredients and said it expected operating cash generation to support near-term needs. It provided no specific revenue or earnings forecast. The filing’s general outlook describes market growth opportunities in 2022 and beyond.
- Principal risks include volatility in grain, wheat flour, agave and natural-gas costs and difficulty passing cost increases through promptly; competitive and changing spirits markets; demand and valuation risks from aging whiskey inventory; acquisition integration and impairment risks; supply-chain, transportation and facility disruptions; regulation and taxation of alcohol; and cybersecurity, climate and water-related risks. COVID-19 had not caused significant adverse operating, supply-chain or demand effects as of the report date, but uncertainty remained.
- The 2020 securities class action was dismissed with prejudice in August 2021 and was not appealed. Related derivative litigation had remaining procedural developments; a 2016 Atchison chemical-release matter remained, with potential damages not reasonably estimable by the company.
- Management and the auditor reported effective internal control over financial reporting, but Luxco—representing approximately 21% of consolidated assets excluding goodwill and intangibles and 28% of 2021 revenue—was excluded from the year-end control assessment during integration.
Key facts for investors to verify
- How much of earnings growth reflects Luxco and the unusual dryer-fire insurance recoveries versus ongoing organic performance.
- Whether branded-spirits growth and segment margins can be sustained, and whether Ingredient Solutions can offset higher input costs.
- Debt service, conversion and potential dilution under the 2041 notes, alongside the use of available revolver capacity and planned capital spending.
- Progress integrating Luxco, including internal-control coverage, and the performance assumptions underlying acquired goodwill and intangible assets.
- Exposure to aged-whiskey inventory, commodity-cost pass-through, unresolved contingencies and other principal risks identified in the filing.