Good morning. And welcome to the MGP Ingredients Fourth Quarter and Full Year 2018 Results Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mike Houston, Investor Relations. Please go ahead, sir.

Thanks, Laura. Good morning, everyone and thank you for joining the MGP Ingredients conference call and webcast to discuss the company's financial results for the fourth quarter and full year 2018. I'm Mike Houston with Lambert, MGP's Investor Relations firm and joining me today are members of their management team, including Gus Griffin, President and Chief Executive Officer, and Tom Pigott, Vice President of Finance and Chief Financial Officer. We will begin the call with management's prepared remarks, and then open the call to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenue, earnings and capital structure as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the press release issued by MGP today, you can access it at the company's website, www.mgpingredients.com. At this time, I'd like to turn the call over to MGP's President and Chief Executive Officer, Gus Griffin. Gus?

Thank you, Mike, and thank you all for joining us. On this call, we will provide an overview of our results, updates on key financial performance metrics and a discussion of progress against our strategy. Then, we'll take your questions. Now, turning to results. 2018 marked the fourth full-year of the implementation of our strategic plan and again, we are reporting strong financial results, consistent with this plan. The improved momentum of our business and continued solid execution of the strategic plan allowed us to deliver on all elements of our guidance for the year. We saw increased demand for our premium beverage alcohol products in the fourth quarter as well as a very strong performance in our Ingredient Solutions segment. Consolidated net sales for the year increased 8.2%. Gross profit increased 10% and the operating income grew 16.9%. Looking at each segment individually, in our Distillery Products segment, full year net sales grew 7.9%, as we continue to see strong demand for our premium beverage alcohol, which grew 5.9% year-over-year. The growth within premium beverage alcohol was driven by an 11% increase in net sales of our brown goods. We are very pleased with the continued strong demand for our premium beverage alcohol products, supported by our ability to cultivate strong partnerships with existing customers, as well as attract new customers. For the third consecutive year, we have added more incremental new customers than the prior year. This is a direct result of our initiative to increase our sales coverage and better tailor our product offerings. These results also reflected the robust underlying growth of the American Whiskey category and our role in supporting that growth. The increase in net sales of our American Whiskey offerings was across our portfolio, with new distillate net sales driving the vast majority…

Thanks, Gus. As Gus highlighted, this quarter featured strong revenue growth and gains in gross profit in both segments. Overall, we were pleased with the balanced top and bottom line performance of the business. For the quarter, consolidated net sales increased 18.9% to $104.9 million, reflecting growth in premium beverage alcohol and the ingredient solutions segment. Gross profit increased 31.2% to $25.6 million, reflecting stronger gross profit results in both the distillery products and ingredient solutions segments. Gross margin increased by 230 basis points to 24.4%, reflecting a 190 basis point improvement in distillery products and a 380 basis point increase in ingredient solutions. For the year, our consolidated net sales increased 8.2% to $376.1 million as a result of growth in both segments. Gross profit increased 10% to $83.6 million, driven by strong gains in distillery products and ingredient solutions segments. Gross margin increased by 30 basis points to 22.2% for 2018, reflecting consistent performance in distillery products and a 270 basis point improvement in ingredient solutions. Corporate selling, general and administrative expenses for the quarter were flat compared to the prior year quarter. For the full year, SG&A increased slightly to $33.5 million from $33.1 million compared to the prior year, primarily due to investments in the MGP brand's platform in the form of personnel costs and advertising and promotion. Operating income for the fourth quarter grew significantly to $16.6 million compared to $10.5 million during the prior year quarter, reflecting gross profit growth in both segments. For the year, operating income increased 16.9% to $50.1 million compared to $42.9 million in the prior year, also primarily due to gross profit growth in both segments. Our income tax expense was $4.5 million in the current quarter compared to a tax benefit of $2.4 million in the prior year…

Thanks, Tom. Overall, we are very pleased with our quarter and full year results and the progress we've made against our strategic plan. In our distillery products segment, our ability to leverage the continued growth of the American Whiskey category has produced strong results and offers us great potential. Our efforts and investments have us well positioned to continue to support the growth of this category. We have expanded our premium beverage alcohol product offerings, capabilities and sales coverage. The addition of our new international sales manager will enable us to more fully benefit from the global growth of the American Whiskey category. In 2018, we made significant progress in our $51.8 million warehouse expansion program, purchasing new land and opening new warehouses. We have now invested approximately $44 million and expect the project to be completed in 2020. We also continued to grow our inventory of aged whiskey and this valuable asset enhances our competitive position. While we have been consistent in our strategic use of limited sales of aged whiskey over the past several years, 2019 marks the next phase of our deployment of this inventory. We will begin selling both more aged whiskey and older aged whiskey. We will continue to work with our current and prospective customers and are pleased with our progress, implementing this initiative. As a result of sales already transacted and ongoing discussions with customers in the craft segment, multinational and national brand owners as well as the export market, we are confident that we have visibility to the aged sales we need to deliver against this year's guidance. Even with these increased sales, we expect to grow our inventory balance in 2019. And with the steady supply of inventory from our yearly put away, we feel confident that we have the resources…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Alex Fuhrman of Craig-Hallum Capital Group.

Great. Thank you for taking my question and congratulations on a really strong year. I wanted to ask about the guidance for 2019 and specifically the commentary around this is the year where we're going to start to see some more meaningful deployment of aged whiskey. Just wondering when we should start to see that, if you're seeing that already in the first quarter or if that's perhaps more back-end loaded? And then just specifically with your comment about intending to continue to grow the aged inventory throughout 2019, just wondering how we should interpret that if we should then expect to see more substantial sales of aged product in 2020 and thereafter? Or if perhaps, I know in the past, you've talked about 4-year-old whiskey really being the sweet spot where you're getting the greatest return on aging it. Is it possible now that perhaps there are opportunities to get an even greater return on 5 or 6-year-old whiskey?

Alex, you are correct. As I said, 2019 is really the next phase of this deployment. Aged, sales of aged whiskey will be a key driver of our growth in '19. We have started contracting that. We have started transaction-ing it. In terms of how it will flow out over the year, we will try to provide color on that much as we did with the fourth quarter, where we said the vast amount was due to new distillate, so we'll try to provide color on what's driving our revenue growth. But as you know from our past history, our business can be choppy and this is not going to flow out like a consumer product, but we are, we feel very confident that we have visibility to the aged sales. We need to deliver the guidance this year and it will continue to be a driver of our growth going forward in future years. We are going to increase our inventory, so we're going to continue to put away whiskey at a strong pace to make sure that we have the incremental inventory in future years to continue to drive that growth from incremental sales of aged whiskey.

And then just thinking about the guidance for the year, looking for mid-single digit growth in revenues. Is there anything you can share with us about your expectation for the beverage segment, is that expected to be in line with that mid-single digit growth as well?

Well, we don't give guidance by business segment, but we do have two headwinds or factors that could go into that. One is the continued headwind in industrial alcohol and we're seeing a little bit more competitive pricing in white goods, in general, so that's certainly a headwind that's factored into our guidance and then ingredient solutions is going against a very strong comp and that's also factored into our revenue guidance.

And the next question comes from Bill Chappell of SunTrust.

Thanks, good morning. Hey, Gus. Bear with me, but I'm going to ask a few short answer questions that maybe help clear my head a little bit on this. Is there any change in expectation that you can get three times the price for aged inventory.

No, even though I highlighted that there is some competitive aged whiskey out in the market and will continue to be, we think the consistency of our offerings, the quality of our offerings, that combination and really our efforts to provide structure to unstructured market, will allow us to continue getting strong pricing. So, no, no change in our expectation.

And if I look at your guidance for '19, that includes, is it fair to say that includes what covers part of what you've contracted for so far, but does not include all, selling all of the class of 2015 inventory?

It includes us selling, the aged whiskey, we need to deliver our guidance. As I mentioned before, we have some potential headwinds, industrial white goods pricing, strong comp in ingredients. And we don't feel the need to, we don't think it's in our best interest, our interest is in maximizing the value of that inventory, and so as opposed to focusing on sweeping out the warehouse of all four-year-old, that wouldn't be prudent. So we will judge the market, use it judiciously, use it to make sure we deliver the guidance and get them, if pricing is still great and we can sell more, we will, but we're not going to focus on emptying the warehouse at all cost just to do that. So we'll constantly look at the market, we feel confident we have the levers, both for this year and future years to continue to drive that growth.

And if you look at, I think you kind of alluded to that. But people have called around for some of the third party distributors and found that you can get a barrel for less than three times? Just kind of maybe highlight why that's not a concern? And also kind of tying into that, naturally, the bourbon facility, the craft industry has boomed and actually some of these companies are going to go out of business. Doesn't that supply change the dynamics down the road in terms of what you can get for your aged barrel distillate?

Yes, so, you are correct that there are and will continue to be other people out there selling aged whiskey. I think the two things that is important to focus on is consistency and quality. So if you're a brand owner, what you want is a consistent high-quality supply over the years. So as you referenced, if somebody goes out of business, that means there will be inventory for a short period of time, but it won't be able to continually source that same product over time. So we work with, we've built strong partnerships with our customers, we guarantee them that we can deliver, we can support their growth long term, they will be able to get the same consistency of mash bill, the same consistency of quality that they've always gotten from us and so that puts us in a strong position to continue to achieve the pricing we expect.

And then can you just, two last questions on industrial. Can you just kind of at least put some parameters around it of how this compares to the drop-off in industrial we saw, what, two years ago and three years ago, is it that kind of headwind or is it just a headwind?

I hesitate to quantify that, because the industrial market has sort of consistently surprised us with the volatility, so that's some of the reason for the, how we baked it into our guidance. I think, really, until there's a fundamental change in the structure of the industrial market, there will continue to be strong volatility.

And then last one from me on the protein side, do you expect that business to grow this year with the loss of a large customer in line?

We don't give guidance down to that level, but we do expect that business to grow over the longer term. That's, the trend is very strong. Our product offering is very strong, our position in that market is very strong. As I mentioned, our project funnel, we have people looking to use it in chicken and beef and crab. So we're very, very encouraged by the breadth of uses and applications and the customer interest in using it and are very confident in the long-term trend for that product.

Got it, thanks. I'll turn it over.

And this concludes our question-and-answer session. I would like to turn the conference back over to Gus Griffin for any closing remarks.

Thank you all for your interest in our company and for joining us today. We are certainly pleased with the continued strength and momentum we experienced this year and look forward to talking with you again after the first quarter.

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