MGPI

Strategic Leadership Appointments

• Four new strategic leadership roles were announced to expand commercial and marketing expertise across segments: Tom Nyhalsos as VP leading Distilling Solutions Sales, Saul Clayhane as Managing Director/Leader of National Accounts, Marilyn Chen as Brand Director for Penelope Bourbon, and David Sanders as VP leading enterprise financial planning and analysis.

RNDC Bankruptcy & Distribution Transition

• Following RNDC's Chapter 11 bankruptcy filing, management had pre-emptively prepared a market-by-market transition strategy. 10 markets were successfully transitioned to the Raise Beverage Group in June with minimal disruption, resulting in early 7% depletion growth for Premium Plus and 4% growth for mid-tier portfolios. Transitions for remaining open and control states are ongoing, targeted to complete in Q3 2026.

Branded Spirits Portfolio Progress

• Premium Plus portfolio (led by Penelope Bourbon, Yellowstone, and Everclear) delivered strong growth: Penelope sales grew 13% YoY (cycling a strong prior-year launch), Yellowstone grew 54% YoY, and Everclear grew 13% YoY. Mid/value brands (led by Exotico, Juarez Tequila, and Ezra Brooks) stabilized after targeted improvements.
• 52 lower-priority brands (representing ~47% of the Branded Spirits product portfolio and 1% of segment sales) have been rationalized, exceeding original targets. This is expected to boost adjusted gross margin by ~25 basis points and improve top-line performance by 42 basis points, while simplifying operations and improving working capital efficiency.
• Off-premise points of distribution for national/regional chains grew 7% sequentially, on-premise grew 4% sequentially; Premium Plus off-premise grew 14% and on-premise grew 10% sequentially.

Distilling Solutions Operational Adjustments

• The segment faces sustained industry oversupply with elevated customer inventory levels pressuring new distillate demand; most customers prioritize balance sheet management over new long-term supply contracts.
• Management has expanded offerings beyond traditional new distillate supply, including opportunistic aged whiskey sales, premium white goods (GNS, gin), and value-added warehouse services. A large national private label customer secured last quarter has increased its business beyond initial projections, and warehouse services grew sales and gross profit YoY.

Ingredient Solutions Operational Improvements

• Demand for specialty starch (including Fibersym) and specialty protein (Arise) remained healthy, driven by consumer trends including GLP-1 adoption, low-carb and high-protein diets. Four new major national customers were added in the quarter.
• Operational reliability and production throughput have improved significantly following the Atchison Distillery closure and biofuel facility startup, though increased production generated more waste starch than originally projected. Engineering solutions reduced waste volumes in Q2, though implementation costs were higher than expected, pressuring near-term margins.

• Full year 2026 net sales guidance is reaffirmed at $480 million to $500 million, adjusted EBITDA is maintained at $90 million to $98 million, and adjusted basic EPS remains $1.50 to $1.80, with 21.4 million weighted average shares outstanding.
• 2026 full year operating cash flow guidance (excluding the Penelope earn-out payment) is maintained at $50 million to $55 million, and free cash flow (excluding the earn-out) is maintained at $30 million to $35 million. Full year capital expenditures guidance is unchanged at ~$20 million, and net whiskey put away is projected between $13 million and $18 million including both new production and barrel procurement.
• The 2026 effective tax rate is updated to ~23% due to a favorable deferred tax revaluation from revised Kansas state tax law. Net leverage is expected to peak in Q3 2026 after the $111 million Penelope earn-out payment made in Q2.
• Distilling Solutions full year guidance is unchanged: sales are projected to decline ~35% YoY, and gross profit is projected to decline ~40% YoY. Branded Spirits full year guidance is also unchanged: sales are expected to decline mid-single digits with slight gross margin improvement.
• Ingredient Solutions full year sales guidance is maintained at $140 million to $150 million (reflecting YoY growth), but gross margin guidance is revised downward to the high single-digit to low double-digit range due to higher-than-expected waste stream disposal and implementation costs.
• Q4 2026 is expected to be stronger than Q3 2026 across segments, with Ingredient Solutions cost headwinds expected to impact Q3 profitability most heavily.

MGP Ingredients reported consolidated Q2 2026 sales of $124.4 million, a 15% year-over-year decline. Consolidated gross profit was $46.5 million, down 20% YoY, with a gross margin of 37.4%, a 270 basis point decline from the prior year.

1. Branded Spirits: Reported sales were modestly below prior year levels; excluding contract bottle sales in Europe (the 'other products' category), sales increased 3% YoY. Gross margin expanded 20 basis points to 53%, with gross profit of $31.6 million. The Premium Plus portfolio grew 5% YoY, mid/value price brands grew ~1% YoY, and the segment outpaced broader declining industry trends. It contributes ~48.1% of total consolidated revenue.

2. Distilling Solutions: Q2 2026 sales were $29.2 million, down 42% YoY. Gross profit was $11.3 million, down 40% YoY, while gross margin improved 110 basis points to 38.7%. Warehouse services represented 30% of segment sales, with both sales and gross profit increasing YoY. It contributes ~23.5% of total consolidated revenue.

3. Ingredient Solutions: Q2 2026 sales increased 2% YoY to $35.5 million. Gross profit declined to $3.6 million, with a gross margin of 10.1%, pressured by elevated waste starch disposal costs from facility transition. It contributes ~28.5% of total consolidated revenue.

• Sustained industry oversupply and elevated customer inventory levels in the distilling segment continue to pressure new make distillate demand, with most customers focused on balance sheet reduction rather than new long-term supply commitments; tight inventory financing further discourages new purchases. While inventory growth has slowed, a sharp near-term recovery in demand is not expected.
• Elevated waste starch disposal and implementation costs associated with the transition to the new biofuel facility in Ingredient Solutions have pressured near-term profitability, and these cost headwinds are expected to persist through the end of 2026.
• RNDC's Chapter 11 bankruptcy required a $2.1 million credit loss provision in Q2 2026, and ongoing distributor transition across remaining markets carries risk of disruption to sales and operations.
• Facility optimization and transition projects at Ingredient Solutions have a 18-24 month implementation timeline, and costs have run ahead of original financial projections, creating uncertainty around the timing and magnitude of margin recovery.

Q: Was Q2 2026 an above-average quarter for Branded Spirits innovation, what is the distribution expansion runway, and how have gains been achieved? / A: Q2 had strong innovation activity, including two new core Penelope Bourbon expressions and a new Penelope Blackberry Old Fashioned ready-to-pour product that helped deliver 13% YoY Penelope growth even after cycling a major prior-year launch. Management plans ~15% less total innovation in coming quarters, with a more focused, better-resourced innovation pipeline: the company now holds 2.4% market share in ready-to-pours with only seven SKUs, showing early traction. Management notes MGP is under-indexed in national and regional distribution, with 3x to 6x remaining expansion runway, and a new industry veteran leading national accounts to capture this opportunity.

Q: With guidance reaffirmed despite stronger-than-expected Q2 results and updated Ingredient Solutions costs, is there any change to other segment outlooks, what is the cadence for H2 2026, and what is the latest outlook for the distilling segment recovery? / A: Branded Spirits and Distilling Solutions full-year outlooks are unchanged; the distilling market remains oversupplied and focused on inventory reduction, though management has grown alternative offerings like premium white goods and warehouse services to offset weakness. The latest TTV industry data shows production has fallen to 2018 levels, and year-over-year inventory growth has been cut in half, indicating gradual inventory rationalization, with no further deterioration but no sharp recovery expected. Q4 2026 will be stronger than Q3, with Ingredient Solutions cost headwinds hitting Q3 most heavily.

Q: What is holding back Ingredient Solutions margin improvement, when can margin progress be expected, and what is the end goal for the waste stream issue? / A: Operational reliability and production throughput have improved significantly since March 2026, but higher production volumes have generated more waste starch than originally projected, leading to higher disposal and implementation costs that will persist through the end of 2026. Management expects gross margin for Ingredient Solutions to reach the low 20% range by the end of 2027, driven by the new dryer installation, more efficient waste disposal processes, and successful upcycling of waste material. The facility transition is expected to take 18-24 months total, and management has a clear roadmap to reduce costs over time.

Q: How does MGP balance new ready-to-drink/ready-to-pour innovation versus scaling existing successful SKUs, and how significant is this category long-term? / A: MGP takes a measured, purposeful approach: after streamlining the broader product portfolio, the company can focus resources on high-potential innovation rather than launching untested products. Early results are strong: 2.4% market share with only seven SKUs, all priced below $30 to align with current consumer value expectations. Management will continue to prioritize innovation for highly engaged consumer bases like Penelope Bourbon, while filling gaps in the core portfolio (such as the new entry-priced Kentucky Straight Bourbon and Rye) to support national distribution growth, avoiding unfocused over-expansion of the SKU base.