MGP Ingredients sees 19% sales drop but raises 2025 EBITDA and EPS guidance, driven by premium brand growth and strategic initiatives.

OPERATOR - (00:01:13)

Good morning and welcome to the MGP Ingredients third quarter of 2025 earnings conference call. All participants will be in a listen only mode and should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad and to withdraw a question you may press star then two. 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 3rd 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 Brendan Gaul, our Chief Financial Officer. We will begin the call in 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.

Amit Sharma - Vice President of Investor Relations - (00:02:30)

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.

Julie Francis - Chief Executive Officer - (00:03:05)

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 five 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 61 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 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 this 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 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's 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 roadmap 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 85 cents, 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 and adjusted earnings per share guidance to the range of 110 to $115 million and $2.6 to $2.75 of EPS respectively while tightening our sales guidance to a range of 525 to 535 million dollars. 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 five 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 and P investments behind the most attractive growth opportunities continues to deliver results and 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 and 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 three new cocktails under the Yellowstone brand to further expand our presence in this fast growing segment. Segments 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 Yeageo 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 am 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 US whiskey production is down 19% over the prior 12 months, down 28% over the prior six months and down 32% over the prior three months. While inventories remain high, this trend is an 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 startup 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 in 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 preventive maintenance protocols to identify and resolve potential issues before they impact production. I am confident that the addition of Chris Wiseman to Leader 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 cost, these costs were higher than expected during the quarter due to operational challenges during startup. Learnings from that startup are already helping us refine our processes and 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 startup 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 five years. According to industry reports. Our flagship fibersym and ARISE brands are already category leaders and our RD 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 agreement Solutions business over the next several years. Our last two initiatives to fortify our balance sheet and drive productivity savings remain firmly on track. Brandon will provide additional details on these two 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 clearer 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 review of our quarter and updated guidance.

Brendan Gaul - Chief Financial Officer - (00:17:02)

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 the 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 age 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 profits, 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 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 put away our year to date barrel put away reduced to $16 million and we continue to expect the full year net put away to be in the 16 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 will 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 1.8 times. 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 260 to 275 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.

Julie Francis - Chief Executive Officer - (00:22:24)

Thank you, Brandon. As we look ahead, our focus remains on delivering results that build 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 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 - (00:23:15)

We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. On today's call, we ask that you please limit yourself to one question and one follow up. You may rejoin the queue for additional questions. And if at any time your question has been addressed and you'd like to withdraw that question, you may Press Star Then 2. At this time, we will pause just momentarily to assemble our roster. And our first question for today will come from Sean McGowan with Ross Capital. Please go ahead. Morning, Sean. Hi. Thanks, everybody. First question is, I guess, a broad one on industry trends. You talk 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? Yeah, thanks for the question, Shawn. What we're hearing from our customers is really the need and the willingness to stay close. There's a lot of, you know, a lot of changes going on in the industry. There's still elevated inventory. There's obviously reduced production, as you mentioned. You know, there's also distilleries that are closing their doors or furloughing employees. And you know, 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, thanks. And maybe that ties into a follow up on, you know, 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? Yeah, the margins definitely came in even better than our expectations in the quarter. And there's really two reasons for that. A larger volume of age sales than we'd 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, you know, want to buy aged for the first time. They want to put out a new, you know, 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, you know, improving our age 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 four or five volume producing bourbon facility in the United States. So, you know, while ramping up is difficult, like we've had to do in previous years, ramping down is even more complex. And the team's done a really nice job from a productivity initiative point of view in executing the cost side. Okay, thank you. Thanks, Sean. And our next question will come from Robert Moscow with TD Cohen. Please go ahead. Hi, this is Seamus Cassidy on for Rob Mosco. And thanks for the question. Julie, you mentioned in your prepared remarks sort of more active portfolio management around the Branded spirits portfolio. You know, since the Luxco acquisition, MGPI has focused, you know, its ad spend and, you know, acquisitions on more premium brands. And you've said you're comfortable letting mid in 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, you know, 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, you know, provide positive cash flow.

Julie Francis - Chief Executive Officer - (00:27:53)

Yeah, thanks for that question. I appreciate it. You know, listen, brand and spirit certainly is our true north. You know, on our strategic growth platform, we're certainly pleased with the premium plus performance focusing on those core three. Penelope, El Mayor and Rebl certainly have been paying off. You know, we're up 4% on the premium plus versus, you know, a category that's not showing the same results. And then Penelope is certainly growing very fast. But I think your point's 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 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's some regional and channel opportunities that we certainly could vet 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.

UNKNOWN - (00:29:24)

Joe, are you still there? I am. We'll go on to the next question. Our next question will come from Mark Torrento with Wells Fargo. Please go ahead. Hey, good morning and thank you for the questions. It goes first on billing with the larger customers that have positive 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?

Julie Francis - Chief Executive Officer - (00:30:03)

Thanks. Hey Mark, it's Julie. How you doing? Thanks for the question. You know, a couple Things I think we've said in the past and we still feel this way that, you know, our large multinationals certainly have communicated with us that, you know, they're paused. We do expect to hear more about, you know, 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, you know, Diageo as their more. One of their more distinguished suppliers. So I think you're seeing our customers 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, you know, 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 diller, so 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, you know, probably six months ago, where we went to really engaging with our customers, being accommodating, showing agility, and most importantly, you know, the larger folks certainly know we're here to stay. The distilling segment is extraordinarily important part of our business. You probably recall that Penelope started in that area, right? They're a customer of our Ross and 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 headwinds into the first half of 2026 with hopefully some moderation in the back half.

Mark Torrento - (00:32:04)

Okay, great, Appreciate that. And then on the ingredient side, it sounds like there's 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 could 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. Thank you.

Julie Francis - Chief Executive Officer - (00:32:38)

Yeah, thanks, Mark. Yeah, first, you know, 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, tell you first, it's important to note that it's not a commercial demand issue. These are, you know, these are platforms that are in high demand and we've ramped up our R&D department, which really is paying off dividend. Got some large customers that have come on board that are expanding their products. So the demand is there. And where we fell short were 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. Mark, 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 did come offline a couple 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 close 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 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 and extrusion. We did get online, our larger customer that we've been talking about a little bit higher starter costs, which could be expected with all the different RD and test runs that you do, but that is starting up mid November with saleable product and so we're pleased to get that online. And now I'll turn it over to Brandon for Biofuel.

Brendan Gaul - Chief Financial Officer - (00:35:22)

Yeah, before I get into Biofuel, you know, all these actions, Mark, 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. The dryer will be that specific discrete issue. But when you're hiring new people, when you're investing capital, when you're, you know, building in new processes, that does take a bit of time. So we do expect, you know, to return to our historical high level of performance, but probably not until, you know, the first part of next year or the first half of next year. So more to come on that mark. But yeah, to your question around biofuels. So that project was commissioned in the quarter. Proud to say that the team shipped out their first tanker of biofuel in September. You saw some of that in the numbers. But, you know, these things do take time. And so whether it's, you know, getting it efficiently started up, whether it's hitting customer spec, rebuilding the customer network for this type of facility, and a couple 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, you know, while Julie, you know, 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. Thanks, guys. Thank you, Matt. And our next question will come from Ben Clevey with Lake Street Capital Markets. Please go ahead. All right, thanks for taking my questions. First, want to see if you guys can double down a bit on the success of Penelope of Wade. I mean, it's, it seems quite impressive that growth is accelerating even as that business has really, I think, developed in scale. I'm wondering if you can kind of isolate any of the variables behind this growth. I mean, 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 six months or so?

Julie Francis - Chief Executive Officer - (00:37:50)

Hey, Ben, it's Julie. Appreciate the call. Yes, you know, 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 the un-bourbon bourbon. So it's attracting a broad 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 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 onto 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 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, you know, 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.

Ben Clevey - (00:39:54)

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

Julie Francis - Chief Executive Officer - (00:40:35)

No, I would just say, you know, 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 you know, listen, the biggest thing we did was in the past eight months was, is go out there and truly engage the customers, right? And we're at, we're only a phone call away and we're very accommodating. So as they have money and availability, we're willing to take any order that they're willing to give us. So I think that's important. But you know, 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.

Brendan Gaul - Chief Financial Officer - (00:41:22)

Yeah. 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, 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 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, that we serve, you know, gives us that added, you know, confidence that as a collective, you know, these trends are, are taking place and we, 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. Thanks for taking my questions.

Ben Clevey - (00:42:38)

I'll get back in queue. Thanks so much.

OPERATOR - (00:42:40)

Thank you, Ben. And our next question will come from Mitch Pinero with Sturdivan. Please go ahead.

UNKNOWN - (00:42:50)

Yeah.

Mitch Pinero - (00:42:51)

Hey, good morning.

OPERATOR - (00:42:53)

Morning.

Mitch Pinero - (00:42:53)

Morning. Morning, Mitch. Hey. So you know, when you look at the, the data both, both for branded spirits and even the TTP data and you know, we see inventory both barreled and also in the retail side and the distributor level, you know, kind of full, still full, but pricing data is still, you know, 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?

Julie Francis - Chief Executive Officer - (00:43:48)

Thank you, Mitch. Julie, thanks for the question. First and foremost, we certainly believe strongly as most folks, American whiskey and tequila are 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 non premium and 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, you know, rash to destroy any of the value that they can capture.

Mitch Pinero - (00:44:41)

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

Julie Francis - Chief Executive Officer - (00:45:20)

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

Brendan Gaul - Chief Financial Officer - (00:45:24)

I was just curious about your Distillery Solutions sort of revenue breakdown. It was typically a third, a third, a third, you know, multinational, but your larger regionals or nationals and then you're crashed. And I'm curious if that's changed. Thank you. Yeah, I'd say, Mitch, I'll start on that one. We are seeing, generally speaking, a larger proportion of age sales relative to new distillate than we'd expected coming into the year. And so broadly speaking, like you said, it's typically a third, a third, a third 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, you know, we're seeing the improved performance as the year has gone on. So, you know, a lot of those larger national multinational customers that typically buy new distillate, a lot of them, you know, still are, but some of them have pause and we've talked about that. And so because of that pause that, you know, the proportionality of our, of our sales mix has moved in that direction. Okay, all right, thank you. Thank you, Mitch. And our next question is a follow up from Sean McGowan with Roth Capital Partners. Please go ahead. Thank you very much. A quick question first on what is your expectation for the margin profile on the biofuel and then more broadly, again, I'm a little surprised we're this deep into the call and the word tariff hasn't come up. So could you give us your latest thoughts on that? Yeah, I'll start on the biofuel margin, you know, 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, and selling at the prices that we think it'll 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. But let us get a little bit further in. Let us see what the market pricing is or the expectations are for next year. Excuse me. And we'd be happy to share more. Oh, and on the tariff front, yeah, we are seeing, 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, you know, a lot of the, you know, a lot of the tariffs we're seeing are mostly on, you know, 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 end volatility in patterns as it relates to that and it's included in our guidance. Yep, great point. And the incremental tariff exposure that we are experiencing is contemplated in our full year guide. All right, thank you very much. You bet.

Sean McGowan - (00:49:00)

Thanks, Sean.

OPERATOR - (00:49:04)

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.

Julie Francis - Chief Executive Officer - (00:49:12)

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.

OPERATOR - (00:49:28)

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