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MGP Ingredients Reports Strong Third Quarter 2022 Results
Source: Nasdaq GlobeNewswire / 03 Nov 2022 07:30:01 America/New_York
Consolidated sales increased 14% from prior year period
Continued strength across each business segmentATCHISON, Kan., Nov. 03, 2022 (GLOBE NEWSWIRE) -- MGP Ingredients, Inc. (Nasdaq:MGPI), a leading provider of distilled spirits, branded spirits, and food ingredient solutions, today reported results for the third quarter ended September 30, 2022.
2022 third quarter consolidated results compared to 2021 third quarter
- Sales increased 14% to $201.2 million, as a result of record third quarter sales across all three business segments.
- Gross profit increased 3% to $59.1 million, representing 29.4% of sales.
- Operating income increased 3% to $33.9 million. Adjusted operating income increased 2% from $33.2 million.
- Net income decreased slightly to $23.6 million. Adjusted net income decreased 1% from $23.9 million.
- Adjusted EBITDA increased 1% to $38.7 million.
- Basic earnings per common share (“EPS”) decreased to $1.07 per share from $1.08 per share. Adjusted basic EPS decreased to $1.07 per share from $1.09 per share.
- Diluted EPS decreased to $1.06 per share from $1.08 per share. Adjusted diluted EPS decreased to $1.06 per share from $1.09 per share.
“Our strong performance this quarter demonstrates sustained momentum across each of our segments and the value we bring to our global customer base,” said Dave Colo, president and CEO of MGP Ingredients. “Demand for new distillate and aged whiskey remains strong and contributed to brown goods sales growth of 34% versus the prior year period, driving an overall increase of 22% in sales of premium beverage alcohol. Although brown goods gross profit continued to be healthy, industrial alcohol and white goods gross profits continue to be negatively impacted by increased commodity costs and excess supply in the market. Consumer demand for our premium, super premium, and ultra premium spirits brands remains strong and continues to drive gross margin expansion in our Branded Spirits segment. Our Ingredient Solutions segment continues to benefit from the shift in consumer behavior toward plant-based foods in their diets, which contributed to record sales during the third quarter. Our solid performance year-to-date underscores the strength of our business model and, as we look forward, we are committed to executing our strategies to create long-term shareholder value.”
Distilling Solutions
In the third quarter 2022, sales for the Distilling Solutions segment increased 19% to a record $108.6 million, reflecting a 22% increase in sales of premium beverage alcohol. Gross profit decreased to $25.9 million or 23.9% of segment sales, compared to $27.0 million, or 29.6% of segment sales in the third quarter 2021.Branded Spirits
For the third quarter 2022, sales for the Branded Spirits segment increased 2% to a record $62.8 million. Gross profit increased to a record $25.1 million, or 39.9% of segment sales compared to $23.2 million, or 37.7% of segment sales in the third quarter 2021.Ingredient Solutions
In the third quarter of 2022, sales in the Ingredient Solutions segment increased 24% to a record $29.7 million. Gross profit increased to $8.1 million, or 27.1% of segment sales, compared to $6.9 million, or 28.7% of segment sales in the third quarter 2021.Other
Advertising and promotion expenses for the third quarter 2022 increased $1.6 million, or 29%, to $7.3 million as compared to the third quarter 2021, primarily driven by further incremental investment to support continued growth in the ultra premium, super premium and premium price tier spirit brands.Corporate selling, general and administrative ("SG&A") expenses for the third quarter 2022 decreased $0.6 million to $17.9 million as compared to the third quarter 2021.
The corporate effective tax rate for the third quarter 2022 was 24.2%, compared with 24.5% from the year ago period.
2022 Outlook
MGP is revising upward its previous consolidated guidance for fiscal 2022:- Sales are projected to be in the range of $765 million to $780 million.
- Adjusted EBITDA is expected to be in the range of $162 million to $167 million.
- Adjusted basic earnings per common share are forecasted to be in the $4.62 to $4.80 range, with basic weighted average shares outstanding expected to be approximately 22.0 million at year end.
Full year 2022 guidance measures of adjusted EBITDA and adjusted basic EPS are provided on a non-GAAP basis without a reconciliation to the most directly comparable GAAP measures because MGP is unable to predict with a reasonable degree of certainty certain items contained in the GAAP measures without unreasonable efforts. Such items include, but are not limited to, acquisition related expenses, restructuring and related expenses, and other items not reflective of MGP’s ongoing operations.
Conference Call and Webcast Information
MGP Ingredients will host a conference call for analysts and institutional investors at 10 a.m. ET today to discuss these results and current business trends. The conference call and webcast will be available via:Webcast: ir.mgpingredients.com on the Events & Presentations page Conference Call: 844-308-6398 (domestic) or 412-717-9605 (international) About MGP Ingredients, Inc.
MGP Ingredients, Inc. (Nasdaq: MGPI) is a leading producer of premium distilled spirits, branded spirits, and food ingredient solutions. Since 1941, we have combined our expertise and energy aimed at formulating excellence, and bringing product ideas to life collaboratively with our customers.As one of the largest distillers in the U.S., MGP’s offerings include bourbon and rye whiskeys, gins, and vodkas, which are created at the intersection of science and imagination, for customers of all sizes, from crafts to multinational brands. With distilleries in Kentucky, Kansas, Indiana and Mexico, and bottling operations in Missouri, Ohio, and Northern Ireland, MGP has the infrastructure and expertise to create on any scale.
MGP’s branded spirits portfolio covers a wide spectrum of brands in every segment, including iconic brands from Luxco, which was founded in 1958 by the Lux Family. Luxco is a leading producer, supplier, importer and bottler of beverage alcohol products. Our branded spirits mission is to meet the needs and exceed the expectations of consumers, associates and business partners. Luxco’s award-winning spirits portfolio includes well-known brands from five distilleries: Bardstown, Kentucky-based Lux Row Distillers, home of Ezra Brooks, Rebel, Blood Oath, David Nicholson and Daviess County; Lebanon, Kentucky-based Limestone Branch Distillery, maker of Yellowstone Kentucky Straight Bourbon Whiskey, Minor Case Straight Rye Whiskey and Bowling & Burch Gin; Jalisco, Mexico-based Destiladora González Lux, producer of 100% agave tequilas, El Mayor, Exotico and Dos Primos; MGP’s historic distillery in Lawrenceburg, Indiana, where the George Remus Straight Bourbon Whiskey and Rossville Union Straight Rye Whiskey are produced. The innovative and high-quality brand portfolio also includes Everclear Grain Alcohol, Pearl Vodka, Saint Brendan’s Irish Cream, The Quiet Man Irish Whiskey and other well-recognized brands.
In addition, our Ingredient Solutions segment offers specialty proteins and starches that help customers harness the power of plants and provide a host of functional, nutritional and sensory benefits for a wide range of food products.
The transformation of American grain into something more is in the soul of our people, products, and history. We’re devoted to unlocking the creative potential of this extraordinary resource. For more information, visit mgpingredients.com.
Cautionary Note Regarding Forward-Looking Statements
The forward-looking statements contained herein include, but are not limited to, statements about the expected effects on MGP Ingredients, Inc. ("the Company") of continuing consumer trends and our announced expansionary projects. Forward looking statements are usually identified by or are associated with such words as “intend,” “plan,” “believe,” “estimate,” “expect,” “anticipate,” “hopeful,” “should,” “may,” “will,” “could,” “encouraged,” “opportunities,” “potential,” and/or the negatives or variations of these terms or similar terminology.These forward-looking statements reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance, and Company financial results and financial condition and are not guarantees of future performance. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, (i) disruptions in the operations at any of our facilities, (ii) the availability and cost of grain, flour, and agave, and fluctuations in energy costs, (iii) the effectiveness of our grain purchasing program to mitigate our exposure to commodity price fluctuations, (iv) the effectiveness or execution of our strategic plan, (v) potential adverse effects to operations and our system of internal controls related to the loss of key management personnel, (vi) the competitive environment and related market conditions, (vii) the impact of COVID-19 and other pandemics, (viii) the effects of inflation and our ability to effectively pass raw material and other price increases on to customers, (ix) our ability to maintain compliance with all applicable loan agreement covenants, (x) increases in interest rates, (xi) our ability to realize operating efficiencies, (xii) actions of governments, and (xiii) consumer tastes and preferences. For further information on these and other risks and uncertainties that may affect our business, including risks specific to our Distilling Solutions, Branded Spirits and Ingredient Solutions segments, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
Non-GAAP Financial Measures
In addition to reporting financial information in accordance with U.S. GAAP, the Company provides certain non-GAAP financial measures that are not in accordance with, or alternatives for, GAAP. In addition to the comparable GAAP measures, MGP has disclosed adjusted gross profit, adjusted operating income, adjusted income before income taxes, adjusted net income, adjusted MGP earnings, adjusted EBITDA and adjusted basic and diluted earnings per common share. The presentation of non-GAAP financial measures should be reviewed in conjunction with gross profit, operating income, income before income taxes, net income, net income used in earnings per common share calculation and basic and diluted EPS computed in accordance with U.S. GAAP and should not be considered a substitute for these GAAP measures. The non-GAAP adjustments referenced in the section entitled "Reconciliation of Selected GAAP Measures to Non-GAAP Measures," take into account the impacts of items that are not necessarily ongoing in nature and/or predictive of the Company's operating trends. We believe that these non-GAAP measures provide useful information to investors regarding the Company's performance and overall results of operations. In addition, management uses these non-GAAP measures in conjunction with GAAP measures when evaluating the Company’s operating results compared to prior periods on a consistent basis, assessing financial trends and for forecasting purposes. Non-GAAP financial measures may not provide information that is directly comparable to other companies, even if similar terms are used to identify such measures. The attached schedules provide a full reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure.For More Information
Investors & Analysts:
Mike Houston
646-475-2998 or investor.relations@mgpingredients.comMedia:
Greg Manis
913-360-5440 or greg.manis@mgpingredients.comMGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD
(Dollars in thousands)Operating income, quarter versus quarter Operating
IncomeChange Operating income for quarter ended September 30, 2021 $ 32,884 Increase in gross profit - Branded Spirits segment 1,850 5 pp(a) Increase in gross profit - Ingredient Solutions segment 1,176 4 pp Decrease in gross profit - Distilling Solutions segment (1,064 ) (3 ) pp Increase in Advertising and promotion expenses (1,615 ) (5 ) pp Decrease in SG&A expenses 623 2 pp Change in Other operating income (expense), net 10 — pp Operating income for quarter endedSeptember 30, 2022 $ 33,864 3 % Operating income, year to date versus year to date Operating
IncomeChange Operating income for year to date ended September 30, 2021 $ 81,047 Increase in gross profit - Branded Spirits segment 29,072 36 pp(a) Increase in gross profit - Distilling Solutions segment 7,419 9 pp Increase in gross profit - Ingredient Solutions segment 7,390 9 pp Increase in Advertising and promotion expenses (8,960 ) (11 ) pp Decrease in SG&A expenses 3,237 4 pp Change in Other operating income (expense), net 45 — pp Operating income for year to date September 30, 2022 $ 119,250 47 % (a) Percentage points (“pp”).
MGP INGREDIENTS, INC.
EARNINGS PER COMMON SHARE (“EPS”) ROLLFORWARDChange in basic and diluted EPS, quarter versus quarter Basic and
Diluted EPSChange Basic and diluted EPS for quarter ended September 30, 2021 $ 1.08 Increase in Operating income(b) 0.03 3 pp(a) Change in other income (expense), net(b) (0.03 ) (3 ) pp Change in interest expense, net(b) (0.01 ) (1 ) pp Basic EPS for quarter endedSeptember 30, 2022 $ 1.07 (1 ) % Impact of dilutive shares outstanding (0.01 ) (1 ) pp Diluted EPS for quarter ended September 30, 2022 $ 1.06 (2 ) % Change in basic and diluted EPS, year to date versus year to date Basic and
Diluted EPSChange Basic and diluted EPS for year to date ended September 30, 2021 $ 2.91 Increase in Operating income(b) 1.63 56 pp(a) Change in interest expense, net(b) (0.08 ) (3 ) pp Change in other income (expense), net(b) (0.06 ) (2 ) pp Tax: Change in effective tax rate 0.02 1 pp Change in weighted average shares outstanding (0.51 ) (18 ) pp Basic and diluted EPS for year to date endedSeptember 30, 2022 $ 3.91 34 % (a) Percentage points (“pp”).
(b) Items are net of tax based on the effective tax rate for the base year (2021).
MGP INGREDIENTS, INC.
SALES BY OPERATING SEGMENT
(Dollars in thousands)DISTILLING SOLUTIONS SALES Quarter Ended September 30, Quarter versus Quarter Sales
Change Increase/(Decrease)2022 2021 $ Change % Change Brown goods $ 57,423 $ 42,793 $ 14,630 34 % White goods 20,469 21,187 (718 ) (3 ) Premium beverage alcohol 77,892 63,980 13,912 22 Industrial alcohol 10,761 14,790 (4,029 ) (27 ) Food grade alcohol 88,653 78,770 9,883 13 Fuel grade alcohol 3,713 3,592 121 3 Distillers feed and related co-products 9,943 4,016 5,927 148 Warehouse services 6,335 4,666 1,669 36 Total Distilling Solutions $ 108,644 $ 91,044 $ 17,600 19 % BRANDED SPIRITS SALES Quarter Ended September 30, Quarter versus Quarter Sales
Change Increase/(Decrease)2022 2021 $ Change % Change Ultra premium $ 13,804 $ 11,363 $ 2,441 21 % Super premium 3,350 2,798 552 20 Premium 6,013 5,683 330 6 Mid 20,834 22,992 (2,158 ) (9 ) Value 12,097 12,756 (659 ) (5 ) Other 6,663 5,969 694 12 Total Branded Spirits $ 62,761 $ 61,561 $ 1,200 2 % INGREDIENT SOLUTIONS SALES Quarter Ended September 30, Quarter versus Quarter Sales
Change Increase / (Decrease)2022 2021 $ Change % Change Specialty wheat starches $ 16,241 $ 12,231 $ 4,010 33 % Specialty wheat proteins 9,697 8,901 796 9 Commodity wheat starches 3,803 2,626 1,177 45 Commodity wheat proteins — 248 (248 ) (100 ) Total Ingredient Solutions $ 29,741 $ 24,006 $ 5,735 24 %
MGP INGREDIENTS, INC.
SALES BY OPERATING SEGMENT
(Dollars in thousands)DISTILLING SOLUTIONS SALES Year to Date Ended September 30, Year to Date versus Year to date Sales
Change Increase/(Decrease)2022 2021 $ Change % Change Brown goods $ 175,899 $ 129,600 $ 46,299 36 % White goods 57,996 56,049 1,947 3 Premium beverage alcohol 233,895 185,649 48,246 26 Industrial alcohol 35,141 46,896 (11,755 ) (25 ) Food grade alcohol 269,036 232,545 36,491 16 Fuel grade alcohol 10,307 10,862 (555 ) (5 ) Distillers feed and related co-products 30,127 13,660 16,467 121 Warehouse services 17,821 12,949 4,872 38 Total Distilling Soutions $ 327,291 $ 270,016 $ 57,275 21 % BRANDED SPIRITS SALES Year to Date Ended September 30, Year to Date versus Year to date Sales
Change Increase/(Decrease)2022 2021 $ Change % Change Ultra premium $ 35,836 $ 19,491 $ 16,345 84 % Super premium 9,522 6,393 3,129 49 Premium 17,928 11,012 6,916 63 Mid 63,408 48,399 15,009 31 Value 36,304 25,984 10,320 40 Other 14,080 11,278 2,802 25 Total Branded Spirits $ 177,078 $ 122,557 $ 54,521 44 % INGREDIENT SOLUTIONS SALES Year to Date Ended September 30, Year to Date versus Year to date Sales
Change Increase/(Decrease)2022 2021 $ Change % Change Specialty wheat starches $ 47,445 $ 35,051 $ 12,394 35 % Specialty wheat proteins 29,225 23,299 5,926 25 Commodity wheat starches 10,286 7,572 2,714 36 Commodity wheat proteins 38 1,378 (1,340 ) (97 ) Total Ingredient Solutions $ 86,994 $ 67,300 $ 19,694 29 %
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share and per share amounts)Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Sales $ 201,146 $ 176,611 $ 591,363 $ 459,873 Cost of sales 142,098 119,525 401,270 313,661 Gross profit 59,048 57,086 190,093 146,212 Advertising and promotion expenses 7,279 5,664 18,848 9,888 Selling, general and administrative expenses 17,904 18,527 52,029 55,266 Other operating (income) expense, net 1 11 (34 ) 11 Operating income 33,864 32,884 119,250 81,047 Interest expense, net (1,350 ) (1,116 ) (4,491 ) (2,708 ) Other income (expense), net (1,353 ) (421 ) (2,361 ) (479 ) Income before income taxes 31,161 31,347 112,398 77,860 Income tax expense 7,533 7,674 26,037 18,701 Net income 23,628 23,673 86,361 59,159 Net (income) loss attributable to noncontrolling interest 180 203 444 279 Net income attributable to MGP Ingredients, Inc. 23,808 23,876 86,805 59,438 Income attributable to participating securities (188 ) (175 ) (688 ) (471 ) Net income used in Earnings Per Common Share calculation $ 23,620 $ 23,701 $ 86,117 $ 58,967 Share information: Basic weighted average common shares 22,008,381 21,981,201 22,000,026 20,293,818 Diluted weighted average common shares 22,228,814 21,981,201 22,000,026 20,293,818 Basic Earnings Per Common Share $ 1.07 $ 1.08 $ 3.91 $ 2.91 Diluted Earnings Per Common Share $ 1.06 $ 1.08 $ 3.91 $ 2.91
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)September 30,
2022December 31,
2021ASSETS Current Assets: Cash and cash equivalents $ 50,674 $ 21,568 Receivables, net 107,653 92,537 Inventory 275,478 245,944 Prepaid expenses 5,833 1,510 Refundable income taxes 1,006 5,539 Total Current Assets 440,644 367,098 Property, plant, and equipment 430,945 404,149 Less accumulated depreciation and amortization (210,254 ) (196,863 ) Property, Plant, and Equipment, net 220,691 207,286 Operating lease right-of-use assets, net 14,516 9,671 Investment in joint ventures 6,140 4,944 Intangible assets, net 217,285 218,838 Goodwill 226,294 226,294 Other assets 6,505 7,336 TOTAL ASSETS $ 1,132,075 $ 1,041,467 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Current maturities of long-term debt $ 4,800 $ 3,227 Accounts payable 64,858 53,712 Federal and state excise taxes payable 4,713 6,992 Accrued expenses and other 26,420 24,869 Total Current Liabilities 100,791 88,800 Long-term debt, less current maturities 31,105 35,266 Convertible senior notes 195,146 194,906 Long-term operating lease liabilities 11,327 6,997 Other noncurrent liabilities 4,047 5,132 Deferred income taxes 65,799 66,101 Total Liabilities 408,215 397,202 Total equity 723,860 644,265 TOTAL LIABILITIES AND TOTAL EQUITY $ 1,132,075 $ 1,041,467
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)Year to Date Ended September 30, 2022 2021 Cash Flows from Operating Activities Net income $ 86,361 $ 59,159 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,257 13,668 Share-based compensation 3,086 5,247 Deferred income taxes, including change in valuation allowance (302 ) 465 Other, net 1,462 (231 ) Changes in operating assets and liabilities, net of effects of acquisition: Receivables, net (15,582 ) (5,593 ) Inventory (30,599 ) (7,588 ) Prepaid expenses 1,165 1,206 Refundable income taxes (1,006 ) (2,086 ) Accounts payable 12,613 (6,678 ) Accrued expenses and other 1,220 15,859 Federal and state liquor excise payable (2,279 ) (1,961 ) Other, net (143 ) (682 ) Net cash provided by operating activities 72,253 70,785 Cash Flows from Investing Activities Additions to property, plant, and equipment (29,217 ) (37,257 ) Purchase of business, net of cash acquired — (149,613 ) Contributions to equity method investment (2,232 ) (988 ) Other, net (315 ) (1,308 ) Net cash used in investing activities (31,764 ) (189,166 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents (7,984 ) (7,362 ) Purchase of treasury stock (714 ) (767 ) Loan fees paid related to borrowings — (666 ) Principal payments on long-term debt (2,603 ) (813 ) Proceeds from credit agreement - revolver — 242,300 Payments on credit agreement - revolver — (32,300 ) Payment on assumed debt as part of the Merger — (87,509 ) Net cash provided by (used in) financing activities (11,301 ) 112,883 Effect of exchange rate changes on cash (82 ) (2 ) Increase (decrease) in cash and cash equivalents 29,106 (5,500 ) Cash and cash equivalents, beginning of period 21,568 21,662 Cash and cash equivalents, end of period $ 50,674 $ 16,162
MGP INGREDIENTS, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO ADJUSTED NON-GAAP MEASURES (UNAUDITED)
(in thousands)Quarter Ended September 30, 2022 Gross
ProfitOperating
IncomeIncome before
Income TaxesNet
IncomeMGP
Earnings(a)Basic
EPSDiluted
EPSReported GAAP Results $ 59,048 $ 33,864 $ 31,161 $ 23,628 $ 23,620 $ 1.07 $ 1.06 No adjustments for the period — — — — — — — Adjusted Non-GAAP results $ 59,048 $ 33,864 $ 31,161 $ 23,628 $ 23,620 $ 1.07 $ 1.06 Quarter Ended September 30, 2021 Gross
ProfitOperating
IncomeIncome before
Income TaxesNet
IncomeMGP
Earnings(a)Basic and
Diluted EPSReported GAAP Results $ 57,086 $ 32,884 $ 31,347 $ 23,673 $ 23,701 $ 1.08 Adjusted to remove: Business acquisition costs (b) — 294 294 221 221 0.01 Adjusted Non-GAAP results $ 57,086 $ 33,178 $ 31,641 $ 23,894 $ 23,922 $ 1.09 Year to Date Ended September 30, 2022 Gross
ProfitOperating
IncomeIncome before
Income TaxesNet
IncomeMGP
Earnings(a)Basic and
Diluted EPSReported GAAP Results $ 190,093 $ 119,250 $ 112,398 $ 86,361 $ 86,117 $ 3.91 No adjustments for the period — — — — — — Adjusted Non-GAAP results $ 190,093 $ 119,250 $ 112,398 $ 86,361 $ 86,117 $ 3.91 Year to Date Ended September 30, 2021 Gross
ProfitOperating
IncomeIncome before
Income TaxesNet
IncomeMGP
Earnings(a)Basic and
Diluted EPSReported GAAP Results $ 146,212 $ 81,047 $ 77,860 $ 59,159 $ 58,967 $ 2.91 Adjusted to remove: Inventory step-up - Branded Spirits (c) 2,529 2,529 2,529 2,529 2,510 0.13 Business acquisition costs (b) — 8,922 8,922 7,524 7,462 0.37 Adjusted Non-GAAP results $ 148,741 $ 92,498 $ 89,311 $ 69,212 $ 68,939 $ 3.41 (a) MGP Earnings has been defined as "Net income used in Earnings Per Common Share calculation." (b) The Business acquisition costs are included in the Condensed Consolidated Statement of Income within the Selling, general and administrative line item. The adjustment includes transaction and integration costs associated with the merger with Luxco. (c) The finished goods Inventory valuation step-up costs are included in the Condensed Consolidated Statement of Income within Cost of goods by the Branded Spirits segment. The adjustment includes the purchase accounting adjustment to value the finished goods inventory acquired in the Luxco acquisition at its estimated fair value.
MGP INGREDIENTS, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(UNAUDITED)
(in thousands)Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Net Income $ 23,628 $ 23,673 $ 86,361 $ 59,159 Interest expense 1,350 1,116 4,491 2,708 Income tax expense 7,533 7,674 26,037 18,701 Depreciation and amortization 5,333 5,243 16,257 13,668 Equity method investment 856 405 1,036 739 Inventory step-up - Branded Spirits — — — 2,529 Business acquisition costs — 294 — 8,922 Adjusted EBITDA $ 38,700 $ 38,405 $ 134,182 $ 106,426
The non-GAAP adjusted EBITDA measure is defined as earnings before interest, taxes, depreciation and amortization, equity method investment and business acquisition costs. See section "reconciliation of selected GAAP measure to non-GAAP measures" for further details on each of these non-GAAP Items.MGP INGREDIENTS, INC.
DILUTIVE SHARES OUTSTANDING CALCULATION
(UNAUDITED)Quarter Ended
September 30,Year to Date Ended
September 30,2022 2022 Principle amount of the bonds $ 201,250,000 $ 201,250,000 Par value $ 1,000 $ 1,000 Number of bonds outstanding (b) 201,250 201,250 Initial conversion rate 10.3911 10.3911 Conversion price $ 96.23620 $ 96.23620 Average share price (c) $ 107.44873 $ 94.08909 Impact of conversion (d) $ 224,697,738 $ — Cash paid for principle (201,250,000 ) (201,250,000 ) Conversion premium $ 23,447,738 $ — Average share price $ 107.44873 $ 94.08909 Conversion premium in shares (a) (e) 218,223 — (a) The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares outstanding if the impact was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $96.23620 per share. For the quarter ended September 30, 2022, the inclusion of the shares had a dilutive impact and were included in the diluted EPS calculation. For the year to date ended September 30, 2022, the inclusion of the shares would have an anti-dilutive impact and were therefore excluded from the diluted EPS calculation. (b) Number of bonds outstanding is calculated by taking the principle amount of the bonds divided by the par value. (c) Average share price is calculated by taking the average of the daily closing share price for the period. If the average share price is less than the conversion price of $96.23620 per share, the impact to EPS is anti-dilutive and therefore the shares were excluded from the diluted EPS calculation. (d) Impact of conversion is calculated by taking the number of bonds outstanding multiplied by the initial conversion rate multiplied by the average share price. If the average share price is less than the conversion price then the impact of conversion is zero. (e) Conversion premium in shares is calculated by taking the conversion premium divided by the average share price. If the average share price is less than the conversion price then the conversion premium in shares is zero.