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SEE LAST PAGE FOR IMPORTANT DISCLOSURES Page 1 of 13

Alex J. Fuhrman, CFA, CMTSenior Research [email protected]

Mark RosenkranzResearch Analyst612-334-6368mark.rosenkranz@craig-hallum.comwww.craig-hallum.com

Changes Previous CurrentRating: BuyFundamental Trend: StablePrice Target: $42FY16E Rev M: $336.5FY17E Rev M: $353.1FY18E Rev M: $370.7FY16E Adj EPS: $1.53FY17E Adj EPS: $1.65

FY18E Adj EPS: $1.85

ProfilePrice: $28.2252 Wk Range: $12.85 - $29.54 Avg Daily Vol (M): 88kShares Out (M): 16.6Market Cap (M): $469Insiders Own: 36.6%Short Interest (M): 857kBV/Sh: $7.40Est LT EPS Gr: 15%Net Cash/Sh: ($2.25)Debt / Capital: 23.3%Year Ends: December

Rev (M) 2016E 2017E 2018EMar $76.8A $80.4 $84.3Jun $88.4 $92.6 $97.1Sep $85.6 $89.9 $94.5Dec $85.6 $90.1 $94.8FY $336.5 $353.1 $370.7FY Growth 2.7% 4.9% 5.0%

Adj EPS 2016E 2017E 2018EMar $0.43A $0.44 $0.47Jun $0.38 $0.42 $0.48Sep $0.28 $0.31 $0.37Dec $0.45 $0.49 $0.53FY $1.53 $1.65 $1.85FY Growth 0.0% 7.9% 12.2%

P/E 18.5x 17.1x 15.2xEV/Sales 1.5x 1.4x 1.4xEBITDA (MM) $52.1 $55.6 $60.8EV/EBITDA 9.7x 9.1x 8.3x

ManagementCEO Gus GriffinCFO Tom Pigott

MGP Ingredients, Inc. BUY(MGPI - $28.22) Price Target: $42

MGPI Is An Undervalued Premium Spirits Company BarrelingTowards $3.00 In EPS. Initiating Coverage With BUY Rating And$42 Price Target.

MGPI is a leading producer of alcohol and food ingredients. MGP's food grade alcohol (whiskeybourbon, vodka, gin) is primarily produced for the premium beverage market. The ingredient segmen

produces high quality wheat-based proteins and starches for CPGs and other manufacturers.

Food grade alcohol producer MGP Ingredients serves as gatekeeper to thepremium spirit market, notably the supply of rye and bourbon to large brand

name companies. Those markets are seeing significant growth, but this has beenmasked by adverse trends last year in MGP’s smaller commodity alcohol and food businesses. Sensing a large opportunity, CEO Gus Griffin (a 30 year veteran ofthe beverage alcohol industry hired July 2014) has embarked on a strategy to takeadvantage of the competitive moat MGP has built around its unique distilleryassets. We believe this will produce a doubling of EPS between 2016 and 2019although it will suppress near term revenue and profits.

How EPS gets to $3.00. For the past year and for the foreseeable future, MGP

has been and will be investing ~$20M per year in new distillate (i.e. un-aged bourbon) that could be sold at a low profit margin today, but instead is being agedin barrels to be sold for 3x the price as aged whiskey in 3-5 years. This sets up astep-function increase in revenue and gross margin when aged inventory starts being sold in large quantities in 2019, and increasingly under MGPI’s own labelsThe table below illustrates the significant ramp in earnings we expect in 2019 asthis inventory begins to be sold off in significant amounts (top numbers). The bottom set of numbers shows what we believe MGPI would earn if instead ichose to sell this new distillate at low margins today.

2015 2016E 2017E 2018E 2019E*

Revs 328 337 353 371 421

EBITDA 45 52 56 61 91

EPS 1.53$ 1.53$ 1.65$ 1.85$ 3.01$

Revs 362 378 396 414

EBITDA 57 61 66 70

EPS 1.72$ 1.84$ 2.05$ 2.25$

*Reflects w hiskey contribution added to our published 2018 forecast

Source: Craig-Hallum research

Current Strategy of

Barreling New Distillate

to Sell as Aged Whiskey:

Numbers if New

Distillate Was Sold

Today Instead of Aged:

In essence, we believe MGP is sacrificing ~$0.20 in annual EPS from 2016-2018in order to permanently raise its EPS base to the $3.00 level by 2019.

Low valuation even on suppressed near term estimates. As detailed on page 2MGP sells at a substantial discount to other consumer alcohol and food companieson all relevant metrics. That’s likely a function of MGP’s much smaller markecap, its position as a supplier, an obscure corporate name, and that there has beenzero sell-side coverage. We believe that as investors come to appreciate the

coming conveyor belt of EPS growth and strong initial results with their own brands (Metze’s Select launched in Jul. ’15; Till Vodka in Mar. ‘16), the stock islikely to narrow the valuation gap on near term estimates that remain suppressed.

$42 near term price target but with $80 potential. Our $42 price targeassumes a 20% discount to other alcohol providers on 2018 EBITDA. As MGP beings selling its aged whiskey inventory in the next 3-4 years, we see it adding$50M in sustainable annual revenue and $30M in EBITDA. This would boosEBITDA from our ~$60M estimate in 2018 to a higher base of ~$90M, withgrowth at a normalized pace off of that higher level. Based on a peer EBITDAmultiple of ~15x for branded alcohol companies, this could make MGPI an $80stock.

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MGP Ingredients, Inc. Page 2 of 13Institutional Research

STOCK OPPORTUNITYOur $42 price target for MGPI is based on 12.1x CY18 EV/EBITDA, a discountto Consumer Alcohol peers trading at 15.0x. Estimates in the comp table reflectMGPI’s strategy of investing during 2016-2018 to achieve a much higher level

of profits in 2019. If MGPI chose to sell off its current new distillate inventoryinstead of aging it to sell at a premium, the company would be earning ~$0.20 inadditional annual EPS and ~$5.0M in EBITDA. Under this scenario, MGPIwould be trading at an even greater discount to peers.

WHAT DO THEY DO

Company OverviewMGP Ingredients, Inc., headquartered in Atchison, Kansas, is a leading producerof distillery products and ingredients. MGP's food grade alcohol is produced for

premium beverage and high quality industrial applications. The company's beverage alcohol consists primarily of vodka, gins, bourbon and whiskeys and issold in bulk form. Food grade industrial alcohol is sold for use in multipleapplications, including vinegar, flavorings, hand sanitizers, oral antiseptics,

personal care products, pharmaceutical products and household cleaningsolutions.

The company also owns a 30% equity stake in a non-consolidated joint ventureentity named ICP. ICP produces food grade alcohol for beverage and industrialapplications that is sold to the company and other customers, and fuel grade

alcohol and chemical intermediates that are marketed separately by ICP.

The company’s ingredient segment focuses on developing highly functionalingredients, including a host of wheat-based and other plant-derived specialty

proteins and starches created for use in multiple food systems.

MGP processes protein and starch ingredients, premium beverage alcohol andhigh quality food grade industrial alcohol at its headquarters in Atchison,Kansas, and premium beverage alcohol at its facility in Lawrenceburg, Indiana.As of December 31, 2015, MGP had a total of 293 employees and has been a

publicly-traded company since 1988.

Market

Ticker Company Price Cap CY16 CY17 CY18 CY16 CY17 CY18 CY16 CY17 CY18 CY16 CY17 CY18

Consumer Alcohol Providers

DEO Diageo $109.51 $67,035 $6.10 $4.77 $4.09 18.0x 23.0x 26.8x 11.2x 10.6x NA 3.7x 3.5x 3.3x

STZ Constellation Brands $157.70 $27,219 $6.13 $6.93 $7.87 25.7x 22.7x 20.0x 16.3x 14.5x 13.3x 5.4x 5.0x 4.7x

BF.B Brown-Forman $96.09 $11,017 $3.49 $3.80 $4.20 25.3x 22.9x NA 19.0x 17.9x 16.6x 5.4x 5.3x 5.1x

Average: 23.0x 22.9x 23.4x 15.5x 14.3x 15.0x 4.9x 4.6x 4.4x

Consumer Food Providers

WWAV WhiteWave Foods $44.52 $7,848 $1.40 $1.62 $1.89 31.9x 27.4x 23.5x 16.9x 14.9x 13.4x 2.3x 2.1x 2.0xHAIN Hain Celestial Group $48.56 $5,005 $2.13 $2.36 $2.69 22.8x 20.6x 18.1x 13.9x 12.9x 11.7x 1.9x 1.8x 1.7x

BGS B&G Foods $43.17 $2,690 $2.12 $2.26 $2.46 20.3x 19.1x 17.6x 13.3x 12.7x 12.2x 3.0x 2.9x 2.8x

NTRI Nutrisystem $27.33 $791 $1.06 $1.35 $1.46 25.7x 20.2x 18.7x 12.8x 10.5x NA 1.5x 1.3x NA

Average: 25.2x 21.8x 19.5x 14.2x 12.8x 12.4x 2.2x 2.0x 2.2x

Current Trading Levels

MGPI MGP Ingredients $28.22 $469 1.53$ 1.65$ 1.85$ 18.5x 17.1x 15.2x 9.7x 9.1x 8.3x 1.5x 1.4x 1.4x

Based on our $42 Price Target:

MGPI MGP Ingredients $42.00 $697 1.53$ 1.65$ 1.85$ 27.5x 25.4x 22.7x 14.1x 13.2x 12.1x 2.2x 2.1x 2.0x

Source: Thomson One, Craig-Hallum estimates

EPS P/E EV/EBITDA EV/Sales

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Company Segments

The company operates under two main revenue segments: Distillery Productsand Ingredient Solutions.

Distillery Products (83% of revenue and 86% of gross profits)

The distillery products segment consists of four main revenue categories: foodgrade alcohol, distillers feed and related co-products, warehouse revenue, andfuel grade alcohol.

86.6%

8.3%

2.9% 2.2%

Distillery Products - 2016E Revenue Mix

Food grade alcohol

Distillers feed and related co-products

Warehouse revenue

Fuel grade alcohol

Source: Company reports and Craig-Hallum estimates

Food grade alcohol : The majority of MGP’s distillery capacities are dedicatedto the production of high quality, high purity food grade alcohol for beverageand industrial applications. Food grade alcohol sold for beverage applicationsconsists primarily of grain neutral spirits and gin, premium bourbon, and cornand rye whiskey. Grain neutral spirits are sold in bulk quantities at various proofconcentrations to bottlers and rectifiers, which further process the alcohol forsale to consumers under numerous labels. The company’s gin is created byredistilling grain neutral spirits together with proprietary customer formulationsof botanicals or botanical oils. Its bourbon is created by distilling primarily corn.MGP whiskey is made from fermented grain mash, including primarily corn andrye.

Both bourbon and whiskey are typically aged in wooden barrels from two to fouryears. As a part of its strategy, MGP produces certain volumes of bourbon andwhiskey that are in addition to current customer demand. This product is

barreled and included in inventory, with the goal to maintain inventory levelssufficient to satisfy anticipated future purchase orders in the wholesale market.This inventory is in conjunction with the company’s Barreled Distillateinventory set aside for longer-term aging.

The company also sells food-grade industrial alcohol for use as an ingredient infoods (i.e. vinegar, food flavorings), personal care products (i.e. hair sprays and

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hand sanitizers), cleaning solutions, biocides, insecticides, fungicides, pharmaceuticals, and a variety of other products.

Distill ers Feed and related Co-Products: The bulk alcohol co-products consistsof distillers feed and corn oil. Distillers feed is principally derived from theresidue of corn from alcohol processing operations, which is dried and sold

primarily to processors of animal feeds as a high protein additive. Corn oil is produced as a value-added co-product through a corn oil extraction process indry-grind ethanol plants.

Warehouse revenue: Customers who purchase un-aged whiskey or bourbon mayalso enter into separate warehouse service agreements with MGP that includeservices for barrel put away, barrel storage and barrel retrieval. Revenue fromwarehousing services is recognized upon providing the service and over the

passage of time, as in the case of storage fees.

Fuel grade alcohol : MGP generates and sells only minimal amounts as a co- product of the food grade alcohol production process at the Atchison distillery.Fuel grade alcohol is sold primarily for blending with gasoline to increase the

octane and oxygen levels of the gasoline.Ingredient Solutions (17% of revenue and 14% of gross profits)

The Ingredient Solutions segment consists of four main revenue categories:specialty wheat starches, specialty wheat proteins, commodity wheat starch andcommodity wheat protein.

52.1%

33.7%

11.1%

3.1%

Ingredient Solutions- 2016E Revenue Mix

Specialty wheat starch

Specialty wheat protein

Commodity wheat starch

Commodity wheat protein

Source: Company reports and Craig-Hallum estimates

Special ty Wheat Starches. Specialty wheat starches are used primarily for foodapplications as an ingredient in a variety of food products to affect its nutritional

profile, appearance, texture, tenderness, taste, palatability, cooking temperature,stability, binding, and freeze-thaw characteristics. MGP’s premium wheat starchis altered during processing to produce certain unique specialty wheat starchesdesigned for special applications. MGP then markets its specialty wheat starchesin market niches where the unique characteristics of these starches are bettersuited to a customer’s requirements for a specific use.

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Notable among these products is the Fibersym Resistant Starch series. Thesestarches serve as a rich source of dietary fiber, possessing a clean white color andneutral flavor that allow food formulators to create a wide range of bothtraditional and non-traditional fiber enhanced products. Applications include pan

breads, pizza crust, flour tortillas, cookies, muffins, pastries and cakes.

Wheat starches, as a whole, generally compete primarily with corn starch, whichdominates the United States starch market. However, the unique characteristicsof specialty wheat starches provide a number of advantages over corn and otherstarches for certain baking and other end uses. Specialty wheat starches usuallyenjoy a price premium over corn starches and low grade wheat starches.

Special ty Wheat Proteins: MGP has developed a number of specialty wheat proteins for food and non-food applications. Specialty wheat proteins are derivedfrom vital wheat gluten through a variety of proprietary processes which changeits molecular structure. Notable products among its specialty proteins include:

Arise Series: This series of products consists of specialty wheat proteins thatincrease the freshness and shelf life of frozen, refrigerated and fresh dough

products after they are baked, or can substitute for egg whites. The uniquefilm-forming properties of these specialty proteins increase the moistureretention capabilities of batters and coatings

TruTex Textured Wheat Protein: This series of textured plant proteins can beused to enhance processed meat, poultry and seafood products and createdishes for vegetarian diets. TruTex takes on a unique meat-like fibrousstructure when hydrated, serving as an attractive replacement or additive formeat based products. In all of these applications, the use of TruTex canresult in improved nutritional benefits, including higher protein and lower fatlevels.

Optein Lightly Hydrolyzed Wheat Protein: Optein is ideally for use in products that aid in muscle recovery following exercise. Such productsinclude nutritional bars and beverages.

Specialty wheat proteins generally compete with other ingredients and modified proteins having similar characteristics, primarily soy proteins and other wheat proteins.

Commodity Wheat Starch: As is the case with value-added wheat starches,commodity wheat starch has both food and non-food applications, but suchapplications are more limited than those of value-added wheat starches andtypically sell for a lower price in the marketplace. As noted above, commoditywheat starch competes primarily with corn starches, which dominate themarketplace and prices generally track the fluctuations in the corn starch market.

Commodity Wheat Protein: Vital wheat gluten is a free-flowing light tan

powder which contains approximately 70 to 80 percent protein. Vital wheatgluten is added by bakeries and food processors to baked goods, such as breads,and to pet foods, cereals, processed meats, fish and poultry to improve thenutritional content, texture, strength, shape and volume of the product. Vitalwheat gluten in recent years has been considered a commodity, and therefore,competition primarily has been based upon price.

Weight Watcher s Program Change Highlights Value of MGP’s FoodPortfolio. In December 2015, Weight Watchers (Buy rated, $35 target) madethe first change to its program in five years, transitioning from “Points Plus” to

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“Smart Points.” We believe changes to the Weight Watchers program aretypically a coincident indicator of broader trends taking shape in healthy eating,and we note that the new Smart Points program emphasizes fiber and lean

proteins while adding an extra penalty for sugar and saturated fat. For example,a fat free yogurt loaded with sugar now “costs” more points than under the old

program, while cooked shrimp now has a lower points value. For foodmanufacturers looking to adjust their offerings to the new points system,swapping out old ingredients for MGP’s products are a practical way to increasea food item’s protein and fiber content without increasing overall calories.Given that Weight Watchers has more than two million members in NorthAmerica alone, we believe these program changes (and the broader trends indieting that they represent) could have a meaningful longer-term impact onMGP’s food business.

Market Opportunity

Within the Distillery Products segment, we note several favorable trends in FoodGrade Alcohol segment:

Whiskey:

CAGR 0.2% CAGR 1.1%1.7%

3.8%

6.2%

7.3%

-

10.0

20.0

30.0

40.0

50.0

60.0

2000 2005 2010 2011 2012 2013 2014

U.S. Whiskey Market: 2000-2014

9-Liter Cases (millions)

Source: Beverage Information Group, Distilled Spirits Council

The U.S. whiskey market has enjoyed a resurgence in the last decade, with alarge jump in popularity in the last 3-4 years, growing 7.3% in 2014 based oncases sold. Within this category, Bourbon/Tennessee Whiskey volume grew7.4% y/y to 19.4M cases in 2014. Strength in bourbon was seen across all

pricing categories, with Premium volume growing 8.8%, High End volumegrowing 5.7%, and Super-Premium volume growing 19.2%.

Aged inventory sales have grown even faster. In the U.S. sales of single-maltscotches, which tend to age for a minimum of 12 years, have doubled in the past10 years, while super-premium bourbon sales have tripled. Globally, Americanwhiskey exports topped $1B in 2013, up from under $400M in 2002. Whilerobust, the opportunity remains to grow further. For perspective, the 18.5M casesof whiskey sold in 2014 represent about half the total number of cases sold in1970.

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Barreled Distillate:

While these long secular trends have been a benefit for the industry, the recentunforeseen whiskey boom has created large supply pressures, notably in agedinventory. Simply put, producers can't go back in time to distill more barrels, andcan't age whiskey any faster. Large public evidence of distillers struggling tokeep up supply has been seen for several years. Maker's Mark introduced awatered down bourbon with poor results, Buffalo Trace has publicly warned of

potential shortages, and an increasing number of single-malt scotches are beingreleased without an age statement, a way for blenders to have more latitude towork around gaps in inventory.

MGP has responded to these trends by expanding its barrel warehouse capacitywhile growing its Barreled Distillate inventory from $11.1M in 2014 to $33.8Mat the end of March, 2016. Management continues to prioritize a portion of

production to the aged inventory, and believes aged whiskey represents a potential 3x value when sold in the wholesale market.

10.3 11.112.2

19.121.1

28.3

33.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

FY13 FY14 1Q15 2Q15 3Q15 4Q15 1Q16

Barreled Distillate Inventory ($mm)

Barreled DistillateInventory ($mm)

Source: Company reports and Craig-Hallum

Rye:

Though significantly smaller than whiskey, rye has seen significant growth inrecent years, notably since 2009. Sales volumes have risen over 500% in that

period, from 88k 9-liter cases sold to 671k in 2015. MGP is the dominantsupplier in rye, with ~70% market share.

Gin:

Gin represents another category which MGP enjoys a large market share,supplying roughly 65% of the U.S. market. Gin has experienced decreasingvolumes in recent years. In total, 10.3M 9-litre cases of gin were sold in the USin 2013 compared to 11.2M 9-litre cases of gin sold in 2006.

Metze’s Select and Till American

In July 2015, MGP announced its first retail-distributed brand which was madeavailable for retail sale in September 2015. The brand, Metze's Select , is alimited edition premium Indiana Straight Bourbon Whiskey. Although a limitedrelease of only 6k bottles, Metze’s Select drew very strong reviews, scoring a 91rating from Whisky Advocate, which also named MGP Distiller of the Year.

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Retailing at $74.99 a bottle, this premium offering expands the brand directly toconsumers, while enabling MGP to capture higher margins.

In March 2016, the company announced Till American Wheat Vodka. Distilled inKansas, Till American is the company’s second retail brand. Retailing at $24.99a bottle, Till American represents further brand expansion at a lower price point.

We believe MGP will continue to produce its own retail-distributed brands,further leveraging its impressive distilling background while moving into highermargin operations.

Whole Foods Shift Toward Non-GMO

MGPI’s food ingredients are primarily high quality wheat proteins and starchessold to food manufacturers (e.g. its starch is in Fiber One cookies). MGPIshould benefit as Whole Foods transitions away from all genetically modified

products in 2017 given that all wheat is inherently non-GMO. Wheat protein willnot need to go through the rigorous checks and testing to assure non-GMOcompliance, and should appeal to a larger audience as this trend continues.

Financial OutlookAs of 3/31/16, MGPI has $37M in net debt. MGP typically runs at a minimalcash balance, with operating cash flow and debt through its credit facility servingas the primary sources of cash to fund operating needs and capital expenditures.Our forecast for Operating Cash Flow is as follows:

Operating Cash Flow (mm)2015A $18.6

2016E $30.3

2017E $36.8

2018E $40.2

Source: Company reports, Craig-Hal lum estimates

MGP expects its sources of cash, including its credit facility, to be adequate to

provide for budgeted capital expenditures and anticipated operatingrequirements.

In its most recently reported quarter (ending 3/31), MGPI generated revenue of$76.8M, down 4.4% y/y, EBITDA of $14.0M (+47% y/y), and EPS of $0.43 vs.$0.29 y/y. For the remainder of FY16, the company is guiding toward mid-single digit revenue growth. For FY16, we are currently modeling total revenue,Adjusted EPS, and EBITDA of $337.0M (+2.9%), $1.55, and $52.3M,respectively. We are expecting revenues for the Distillery Products segment togrow 3.8% y/y in 2016 while growing gross margins from 18.7% to 20.3%, withIngredient Solutions declining 1.4% while increasing gross margins from 13.7%

to 16.7%.

Revenue, earnings, and free cash flow have been suppressed in recent quarters asthe company is forgoing low margin sales of new distillate (i.e. un-aged

bourbon) in order to significantly build up inventory of aged whiskeys, settingup a step-function increase in revenue and gross margin when aged inventorystarts being sold in large quantities in 2019, and increasingly under MGPI’s ownlabels. MGPI has built up more than $22M in distillate inventory (i.e. un-agedwhiskey) in the past year alone instead of selling it, temporarily weighing onrevenue and free cash flow. Based on current prices, management believes thisinventory can be sold in 4 years as aged whiskey for 3x its value today, setting

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up a permanently higher base of revenue and margins in 2019. Further, whileMGPI has historically been a supplier to branded alcohol companies, it hasrecently launched its two of its own brands (Metze’s Select in July 2015 and TillVodka in March 2016) with strong results so far. While these launches representa small shift towards competing with some of its main customers, we believe the

high-end premium spirits market is highly fragmented enough to not impactcustomer relationships.

Management Team

Key members of MGP Ingredients management team include:

Gus Griffin, President and CEO. Gus Griffin has served as President andCEO of MGP since July 2014 and as a member of the Board of Directorssince August 2014. Mr. Griffin has nearly 30 years of marketing and generalmanagement experience in the beverage alcohol industry. He served for 24years with Brown-Forman Corporation, where he ultimately became SeniorVice President and Global Managing Director in charge of the company'sflagship Jack Daniel’s business. Immediately prior to joining to MGP, Mr.

Griffin spent a year as Executive Vice President of Marketing for NextLevel Spirits, a northern California-based producer, importer and distributorof premium wine and spirits brands. Between 2011 and 2013, he served asBrand and Business Consultant for Nelson’s Green Brier Distillery,

Nashville, Tennessee.

Tom Pigott, Vice President of Finance and CFO. Tom Pigott has servedas Vice President of Finance and Chief Financial Officer since September2015. Prior to joining MGP, Tom was Vice President of Finance for theMeal Solutions Division of Kraft Foods Group. Between 1994 and 2009, heheld a succession of CFO and other financial leadership positions across awide number of Kraft operating divisions. From 2010 to 2012, Tom wasvice president of finance for Nestle Pizza Division.

RISKS

We believe an investment in MGPI involves the following risks:

Negative macroeconomic developments may affect consumer alcohol sales.

MGPI has limited experience in direct to consumer branding, and may facecompetitive pressures as the brand expands.

The senior management team of MGPI is critical to executing themerchandising, marketing, and financial elements of the company’s strategy.The departure of any key executives could have a material negative impacton the business.

Changes in bottler strategies may leave MGPI inventory out of assortment.

If MGPI does not react to changes in consumer taste, it may seedeteriorating sales.

MGPI has recently launched its own brands. Current customers may viewthis as competition and could negatively impact MGPI’s customerrelationships.

MGPI is currently carrying a large amount of inventory in barreled distillate.If interest rates were to rise, the cost to carry this large working capital couldnegatively impact the company’s current strategy.

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Alex Fuhrman, CFA, CMT | 612.334.6360 | [email protected] 5/26/2015

Mark Rosenkranz | 612.334.6368 | [email protected]

MGP Ingredients Inc. FY2012 FY2013 FY2014 1Q15 2Q15 3Q15 4Q15 FY2015 1Q16 2Q16E 3Q16E 4Q16E FY2016E 1Q17E 2Q17E 3Q17E 4Q17E FY2017E FY2018E(MGPI) (in millions) Dec-12 Dec-13 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Dec-17 Dec-18

Net Sales 334.335 323.264 313.403 80.413 85.354 80.328 81.509 327.604 76.835 88.439 85.629 85.641 336.544 80.440 92.649 89.937 90.073 353.098 370.729

% Change Y/Y 19.6% -3.3% -3.1% 1.8% 5.9% 3.6% 6.8% 4.5% -4.4% 3.6% 6.6% 5.1% 2.7% 4.7% 4.8% 5.0% 5.2% 4.9% 5.0%

Cost of Sales 309.312 302.025 284.972 67.025 67.826 68.466 65.754 269.071 59.789 70.029 72.578 67.961 270.357 62.372 72.948 75.791 71.041 282.151 293.467

Gross Profit 25.023 21.239 28.431 13.388 17.528 11.862 15.755 58.533 17.046 18.410 13.051 17.681 66.188 18.068 19.701 14.146 19.032 70.946 77.263

Gross Margin % 7.5% 6.6% 9.1% 16.6% 20.5% 14.8% 19.3% 17.9% 22.2% 20.8% 15.2% 20.6% 19.7% 22.5% 21.3% 15.7% 21.1% 20.1% 20.8%

Selling, General, and A dministrative 26.536 26.202 20.101 6.480 8.025 5.497 5.681 25.683 6.321 8.426 5.772 5.965 26.484 6.574 8.763 6.003 6.204 27.544 28.645

% of Sales 7.9% 8.1% 6.4% 8.1% 9.4% 6.8% 7.0% 7.8% 8.2% 9.5% 6.7% 7.0% 7.9% 8.2% 9.5% 6.7% 6.9% 7.8% 7.7%% Change Y/Y 20.7% -1.3% -23.3% 27.8% 55.3% 10.7% 16.0% 27.8% -2.5% 5.0% 5.0% 5.0% 3.1% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Insurance Recoveries and other (0.569) 0.236 (8.289) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total Operating Expenses 25.967 26.438 11.812 6.480 8.025 5.497 5.681 25.683 6.321 8.426 5.772 5.965 26.484 6.574 8.763 6.003 6.204 27.544 28.645

Operating Income ( GAAP) (0.944) (5.199) 16.619 6.908 9.503 6.365 10.074 32.850 10.725 9.984 7.279 11.716 39.703 11.494 10.938 8.143 12.828 43.403 48.617

Operating Margin % -0.3% -1.6% 5.3% 8.6% 11.1% 7.9% 12.4% 10.0% 14.0% 11.3% 8.5% 13.7% 11.8% 14.3% 11.8% 9.1% 14.2% 12.3% 13.1%

Interest Expense, net (0.868) (1.118) (0.816) (0.131) (0.129) (0.114) (0.160) (0.534) (0.311) (0.300) (0.300) (0.300) (1.211) (0.300) (0.300) (0.300) (0.300) (1.200) (1.200)

Equi ty Me thod Investment Ea rn ings and othe r 3 .754 (0.204) 10.137 1.352 3.096 1.562 0.092 6.102 0.517 0.125 0.125 0.125 0.892 0.125 0.125 0.125 0.125 0.500 0.500

Income Before Taxes 1.942 (6.521) 25.940 8.129 12.470 7.813 10.006 38.418 10.931 9.809 7.104 11.541 39.384 11.319 10.763 7.968 12.653 42.703 47.917

Provision (Benefit) f or Income Taxes 0.318 (0.714) 2.265 3.059 4.599 1.042 3.527 12.227 3.872 3.433 2.486 4.039 13.831 3.962 3.767 2.789 4.429 14.946 16.771

Tax Rate 16.4% 10.9% 8.7% 37.6% 36.9% 13.3% 35.2% 31.8% 35.4% 35.0% 35.0% 35.0% 35.1% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Net Income 1.624 (5.807) 23.675 5.070 7.871 6.771 6.479 26.191 7.059 6.376 4.617 7.501 25.554 7.357 6.996 5.179 8.225 27.757 31.146

Other Comprehensive Income ( loss), net of tax 0.802 0.878 0.000 (0.072) 0.330 (0.015) (0.011) 0.232 (0.017) 0.000 0.000 0.000 (0.017) 0.000 0.000 0.000 0.000 0.000 0.000

Comprehensive Net Income 2.426 (4.929) 23.675 4.998 8.201 6.756 6.468 26.423 7.042 6.376 4.617 7.501 25.537 7 .357 6.996 5.179 8.225 27.757 31.146

Basic EPS (GAAP) ex other Comp Inc. 0.10$ (0.34)$ 1.37$ 0.29$ 0.45$ 0.39$ 0.39$ 1.53$ 0.43$ 0.38$ 0.28$ 0.45$ 1.53$ 0.44$ 0.42$ 0.31$ 0.49$ 1.65$ 1.85$

Dilute d EPS (GAAP) e x othe r Com p Inc. 0.10$ (0.34)$ 1.37$ 0.29$ 0.45$ 0.39$ 0.39$ 1.53$ 0.43$ 0.38$ 0.28$ 0.45$ 1.53$ 0.44$ 0.42$ 0.31$ 0.49$ 1.65$ 1.85$

EPS Grow th Rate 49% -455% -503% 5% 53% 10% -11% 12% 46% -15% -30% 14% 0.0% 3% 9% 12% 10% 7.9% 12.2%

Basic Shares Outstanding 16.951 17.051 17.276 17.396 17.400 17.154 16.553 17.126 16.607 16.677 16.747 16.817 16.712 16.817 16.817 16.817 16.817 16.817 16.817

Diluted Shares Outstanding 16.952 17.051 17.263 17.396 17.401 17.155 16.553 17.126 16.607 16.677 16.747 16.817 16.712 16.817 16.817 16.817 16.817 16.817 16.817

EBITDA 37.487 38.447 24.137 9.571 11.117 8.573 13.197 45.232 14.029 13.029 10.324 14.761 52.142 14.539 13.983 11.188 15.873 55.583 60.797

8/16/2019 MGPI 05-25-16

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May 25, 2016


Alex Fuhrman, CFA, CMT | 612.334.6360 | [email protected]



Sales 338.232 334.070 338.525 84.864 92.071 83.880 85.072 345.887 77.191 92.861 89.910 89.923 349.886 84.462 97.281 94.434 94.576 370.753 389.266

% Change Y/Y 20.9% -1.2% 1.3% 0.3% 7.2% -0.1% 1.2% 2.2% -9.0% 0.9% 7.2% 5.7% 1.2% 9.4% 4.8% 5.0% 5.2% 6.0% 5.0%

Less: Excise Taxes 3.897 10.806 24.949 4.451 6.717 3.552 3.563 18.283 0.356 4.643 4.496 4.496 13.991 4.223 4.864 4.722 4.729 18.538 19.463

Excise taxes as % of sales 1.2% 3.2% 7.4% 5.2% 7.3% 4.2% 4.2% 5.3% 0.5% 5.0% 5.0% 5.0% 4.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Net Revenue 334.335 323.264 313.403 80.413 85.354 80.328 81.509 327.604 76.835 88.439 85.629 85.641 336.544 80.440 92.649 89.937 90.073 353.098 370.729

% Change Y/Y 19.6% -3.3% -3.1% 1.8% 5.9% 3.6% 6.8% 4.5% -4.4% 3.6% 6.6% 5.1% 2.7% 4.7% 4.8% 5.0% 5.2% 4.9% 5.0%

Food grade alcohol 224.323 208.695 208.375 55.304 58.296 57.039 59.625 230.264 54.206 62.085 62.743 63.799 242.833 58.000 66.431 67.135 68.265 259.831 278.019

% Change Y/Y 22.4% -7.0% -0.2% 9.1% 13.6% 6.1% 13.3% 10.5% -2.0% 6.5% 10.0% 7.0% 5.5% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%

Fuel grade alcohol 9.073 8.026 12.987 2.419 1.554 1.954 1.439 7.366 1.855 1.399 1.563 1.295 6.112 1.670 1.259 1.407 1.166 5.501 5.061

% Change Y/Y -23.3% -11.5% 61.8% -31.9% -52.9% -29.3% -57.3% -43.3% -23.3% - 10.0% - 20.0% - 10.0% -17.0% -10.0% -10.0% -10.0% -10.0% -10.0% -8.0%

Distillers feed and related co-products 40.739 43.513 30.361 6.787 7.468 6.157 5.770 26.182 5.780 6.721 5.541 5.193 23.236 5.202 6.049 4.987 4.674 20.912 18.821

% Change Y/Y 52.9% 6.8% -30.2% -29.0% -21.9% 1.7% 11.2% -13.8% -14.8% - 10.0% - 10.0% - 10.0% -11.3% -10.0% -10.0% -10.0% -10.0% - 10. 0% - 10. 0%

Warehouse revenue 2.555 3.864 4.838 1.352 1.649 1.563 1.849 6.413 2.001 1.979 1.954 2.219 8.152 2.301 2.276 2.247 2.552 9.375 9.844

% Change Y/Y 51.2% 25.2% 18.3% 35.2% 38.8% 37.1% 32.6% 48.0% 20.0% 25.0% 20.0% 27.1% 15.0% 15.0% 15.0% 15.0% 15.0% 5.0%

T ot al Ne t Di st il le ry Pr od uct s Re ve nu e 276.690 264.100 256.561 65.862 68.967 66.713 68.683 270.225 63.842 72.184 71.801 72.506 280.333 67.173 76.015 75.776 76.656 295.619 311.745

% Change Y/Y 24.8% -4.6% -2.9% 1.4% 5.4% 4.7% 9.8% 5.3% -3.1% 4.7% 7.6% 5.6% 3.7% 5.2% 5.3% 5.5% 5.7% 5.5% 5.5%

Distillery Gross Profit 14.309 22.332 11.487 13.647 10.372 15.156 50.662 14.850 14.509 11.488 15.973 56.820 15.786 15.659 12.503 17.248 61.195 66.266

Gross Margin % 5.4% 8.7% 17.4% 19.8% 15.5% 22.1% 18.7% 23.3% 20.1% 16.0% 22.0% 20.3% 23.5% 20.6% 16.5% 22.5% 20.7% 21.3%

Specialty w heat starch 26.393 27.820 28.217 7.729 8.526 7.523 6.211 29.989 6.176 8.526 7.862 6.708 29.271 6.423 8.867 8.176 6.976 30.442 31.660

% Change Y/Y 0.8% 5.4% 1.4% 18.5% 17.9% 5.4% -15.2% 6.3% -20.1% 0.0% 4.5% 8.0% -2.4% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Specialty w heat protein 19.947 20.086 18.618 4.479 5.533 4.165 4.245 18.422 4.989 5.533 4.165 4.245 18.932 5.064 5.616 4.227 4.309 19.216 19.504

% Change Y/Y 1.1% 0.7% -7.3% -1.5% 5.6% -9.6% 0.6% -1.1% 11.4% 0.0% 0.0% 0.0% 2.8% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%

Commodity w heat starch 9.027 8.509 7.884 1.987 1.644 1.575 1.873 7.079 1.612 1.512 1.449 1.686 6.259 1.564 1.467 1.406 1.635 6.071 6.071

% Change Y/Y 57.4% -5.7% -7.3% -14.1% -19.6% -10.6% 6.1% -10.2% -18.9% -8.0% -8.0% -10.0% -11.6% -3.0% -3.0% -3.0% -3.0% -3.0% 0.0%

Commodity w heat protein 1.121 2.552 2.123 0.356 0.684 0.352 0.497 1.889 0.216 0.684 0.352 0.497 1.749 0.216 0.684 0.352 0.497 1.749 1.749

% Change Y/Y -78.1% 127.7% -16.8% -48.0% 6.0% 14.7% 2.1% -11.0% -39.3% 0.0% 0.0% 0.0% -7.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

T ot al Ne t I ngr ed ie nt So lut io ns Re ve nue 56. 488 58.967 56.842 14.551 16.387 13.615 12.826 57.379 12.993 16.255 13.828 13.136 56.212 13.267 16.634 14.161 13.417 57.479 58.985

% Change Y/Y -0.5% 4.4% -3.6% 3.5% 8.1% -1.4% -7.1% 0.9% -10.7% -0.8% 1.6% 2.4% -2.0% 2.1% 2.3% 2.4% 2.1% 2.3% 2.6%

Ingredient Solutions Gross Profit 6.986 6.099 1.901 3.881 1.490 0.599 7.871 2.196 3.901 1.563 1.708 9.367 2.282 4.042 1.643 1.784 9.751 10.997

Gross Margin % 11.8% 10.7% 13.1% 23.7% 10.9% 4.7% 13.7% 16.9% 24.0% 11.3% 13.0% 16.7% 17.2% 24.3% 11.6% 13.3% 17.0% 18.6%

8/16/2019 MGPI 05-25-16

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May 25, 2016


Alex Fuhrman, CFA, CMT | 612.334.6360 | [email protected]



BALANCE SHEET

Cash and Equivalents 0.012 2.857 5.641 6.391 4.361 0.126 0.747 0.747 - 12.934 20.203 27.997 27.997 23.182 46.576 55.790 65.561 65.561 106.589

Receivables 35.325 27.821 32.672 32.866 36.753 31.659 30.670 30.670 31.204 38.082 33.748 32.225 32.225 32.668 39.894 35.446 33.892 33.892 35.657

Inventory 36.532 34.917 34.441 37.654 45.017 52.208 58.701 58.701 68.383 63.024 67.870 70.441 70.441 82.060 75.629 81.444 84.529 84.529 101.435

% Change Y/Y 17.5% -4.4% -1.4% 22.0% 40.9% 65.9% 70.4% 70.4% 81.6% 40.0% 30.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Prepaid Expenses 0.697 0.848 1.179 1.743 1.842 2.239 1.062 1.062 1.351 1.351 1.351 1.351 1.351 1.351 1.351 1.351 1.351 1.351 1.351

Deferred Income Taxes 5.283 4.977 7.924 6.524 6.093 5.555 - - - - - - - - - - - - -

Refundable Income Taxes 0.242 0.466 0.388 - - 0.707 - - - - - - - - - - - - -

Total Current Assets 78.091 71.886 82.245 85.178 94.066 92.494 91.180 91.180 100.938 115.390 123.173 132.014 132.014 139.261 163.449 174.031 185.334 185.334 245.032

Property and Equipment 190.519 194.687 198.176 202.850 206.362 219.866 229.914 229.914 233.002 238.582 243.933 249.065 249.065 252.486 255.767 258.914 261.931 261.931 272.814

Less Accumulated Depreciation and Amortization (115.128) (124.443) (134.295) (137.306) (140.319) (143.315) (146.360) (146.360) (149.585) (149.585) (149.585) (149.585) (149.585) (149.585) (149.585) (149.585) (149.585) (149.585) (149.585)

Net Property, Plant, and Equipment 75.391 70.244 63.881 65.544 66.043 76.551 83.554 83.554 83.417 88.997 94.348 99.480 99.480 102.901 106.182 109.329 112.346 112.346 123.229

Equity Method Investments 7.301 7.123 12.373 13.673 16.865 18.427 18.563 18.563 15.780 15.780 15.780 15.780 15.780 15.780 15.780 15.780 15.780 15.780 15.780

Other Noncurrent Assets 2.388 2.076 2.100 2.192 2.001 1.923 1.013 1.013 0.972 0.972 0.972 0.972 0.972 0.972 0.972 0.972 0.972 0.972 0.972

Total Assets 163.171 151.329 160.599 166.587 178.975 189.395 194.310 194.310 201.107 221.139 234.273 248.246 248.246 258.914 286.383 300.112 314.432 314.432 385.013

Current Maturities of Long-Term Debt 1.683 1.557 2.613 2.567 2.484 2.400 3.345 3.345 5.997 5.997 5.997 5.997 5.997 5.997 5.997 5.997 5.997 5.997 5.997

Accounts Payable 18.860 23.107 16.076 16.539 19.173 20.775 20.940 20.940 16.740 26.842 27.008 25.128 25.128 20.088 32.211 32.409 30.154 30.154 36.184

Accounts Payable to Affiliate, net 4.008 1.204 3.333 4.018 4.321 4.070 2.291 2.291 2.302 2.302 2.302 2.302 2.302 2.302 2.302 2.302 2.302 2.302 2.302

Accrued Expenses 5.220 8.282 8.010 7.848 9.889 10.348 10.400 10.400 7.335 7.335 7.335 7.335 7.335 7.335 7.335 7.335 7.335 7.335 7.335

Income Taxes Payable - - - 0.574 0.469 - 0.685 0.685 4.797 - - - - - - - - - -

Other Current Liabilities - - 0.716 0.725 - - - - - - - - - - - - - - -

Total Current Liabilities 29.771 34.150 30.748 32.271 36.336 37.593 37.661 37.661 37.171 42.476 42.642 40.762 40.762 35.722 47.845 48.043 45.788 45.788 51.818

Long- Ter mDebt, les s c ur rent matur ities 5.168 3.611 7.670 7.652 7.083 6.512 7.579 7.579 19.239 19.239 19.239 19.239 19.239 19.239 19.239 19.239 19.239 19.239 19.239

Credit Facility 25.893 18.000 - 0.014 0.014 19.901 22.536 22.536 12.208 12.208 12.208 12.208 12.208 12.208 12.208 12.208 12.208 12.208 12.208

Deferred Credit 4.133 3.925 4.099 3.939 3.759 3.579 3.402 3.402 3.228 3.228 3.228 3.228 3.228 3.228 3.228 3.228 3.228 3.228 3.228

Accrued Retirement, Health, and Life Insurance Benefits 5.096 4.423 4.420 4.305 4.259 4.193 4.136 4.136 4.085 4.085 4.085 4.085 4.085 4.085 4.085 4.085 4.085 4.085 4.085

Deferred Income Taxes and other 6.283 5.617 9.297 9.924 10.523 8.333 2.836 2.836 2.215 2.215 2.215 2.215 2.215 2.215 2.215 2.215 2.215 2.215 2.215

Total Liabilities 76.344 69.726 56.234 58.105 61.974 80.111 78.150 78.150 78.146 83.451 83.617 81.737 81.737 76.697 88.820 89.018 86.763 86.763 92.793

Total Shareholders Equity 86.827 81.603 104.365 108.482 117.001 109.284 116.160 116.160 122.961 137.688 150.656 166.509 166.509 182.217 197.564 211.094 227.670 227.670 292.220

CASH FLOWS (quarte rly, not cumulative) GOOD GOOD

Net Income (GAAP) 1.624 (4.929) 23.675 5.070 7.871 6.771 6.479 26.191 7.059 6.376 4.617 7.501 25.554 7.357 6.996 5.179 8.225 27.757 31.146

Depreciation and Amortization 11.568 12.009 12.325 3.091 3.093 3.076 3.122 12.382 3.304 3.420 3.649 3.868 14.241 4.079 4.219 4.353 4.482 17.134 19.117

Share-Based Compensation 0.969 0.932 1.393 0.205 0.485 0.727 (0.003) 1.414 0.652 0.652 0.652 0.652 2.608 0.652 0.652 0.652 0.652 2.608 2.608

Other Non-Cash Expenses (4.586) (1.354) (11.984) 0.675 (2.065) (3.215) 0.305 (4.300) 2.161 0.000 0.000 0.000 2.161 0.000 0.000 0.000 0.000 0.000 0.000

Inc reas e ( Dec reas e) In Wor king Capit al ( 14. 601) 10.642 (9.597) (2.920) (6.402) (3.664) (4.039) (17.025) (14.817) 3.787 (0.348) (2.927) (14.305) (17.101) 11.327 (1.169) (3.787) (10.730) (12.640)

Operating Cash Flow (5.026) 17.300 15.812 6.121 2.982 3.695 5.864 18.662 (1.641) 14.235 8.570 9.095 30.259 (5.014) 23.194 9.015 9.573 36.768 40.232

Pr oper ty Plant and Equipment Pur chas ed ( 9. 229) (6.208) (6.953) (5.030) (3.050) (11.963) (10.483) (30.526) (3.053) (9.000) (9.000) (9.000) (30.053) (7.500) (7.500) (7.500) (7.500) (30.000) (30.000)

Pr oc eeds fr om Pr oper ty Ins ur anc e Rec ov er ies - - 8.450 - - - - - - - - - - - - - - - -

Pr oc eeds fr om Sale of Pr oper ty and Other 12. 434 2.797 0.005 - - - - - - - - - - - - - - - -

Cash Flow From Investments 3.205 (3.411) 1.502 (5.030) (3.050) (11.963) (10.483) (30.526) (3.053) (9.000) (9.000) (9.000) (30.053) (7.500) (7.500) (7.500) (7.500) (30.000) (30.000)

Purchase of Treasury Stock (0.084) (0.540) (0.672) - (0.166) (15.200) (0.042) (15.408) - - - - - - - - - - -

Payment of Dividends (0.914) (0.916) (0.907) - (1.087) - - (1.087) - - - - - - - - - - -

Pr inc ipal Pay ments on Long- Term Debt (1.671) (1.683) (1.555) (0.398) (0.401) (0.404) (0.438) (1.641) (0.438) (0.400) (0.400) (0.400) (1.638) (0.400) (0.400) (0.400) (0.400) (1.600) (1.600)

Proceeds from Credit Facilities 127.089 95.512 62.146 1.086 0.149 19.890 4.967 26.092 8.099 8.099 8.099 8.099 32.396 8.099 8.099 8.099 8.099 32.396 32.396

Payments on Credit Facilities (122.338) (103.405) (73.476) (0.738) (0.400) (0.253) (1.947) (3.338) (3.646) (3.646) - -

Loan Fees Incurred with Borrowings and other (0.644) - (0.066) (0.291) (0.057) - 2.700 2.352 (0.068) - - - (0.068) - - - - - -

Cas h Flow From Financing Activitie s 1.438 (11.032) (14.530) (0.341) (1.962) 4.033 5.240 6.970 3.947 7.699 7.699 7.699 27.044 7.699 7.699 7.699 7.699 30.796 30.796

Net Change In Cash (0.383) 2.857 2.784 0.750 (2.030) (4.235) 0.621 (4.894) (0.747) 12.934 7.269 7.794 27.250 (4.815) 23.393 9.214 9.772 37.564 41.028

Free Cash Flow (14.255) 11.092 8.859 1.091 (0.068) (8.268) (4.619) (11.864) (4.694) 5.235 (0.430) 0.095 0.206 (12.514) 15.694 1.515 2.073 6.768 10.232

Free Cash Flow Per Diluted Share ($0.84) $0.65 $0.51 $0.06 ($0.00) ($0.48) ($0.28) ($0.69) ($0.28) $0.31 ($0.03) $0.01 $0.01 ($0.74) $0.93 $0.09 $0.12 $0.40 $0.61

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May 25, 2016

MGP Ingredients, Inc. Page 13 of 13Institutional Research © 2016 Craig-Hallum Capital Group LLC

REQUIRED DISCLOSURES

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Mgp Ingredients Inc 5/24/2016 $28.22MGPI

Initiate: May 25, 2016 – Rating: Buy – Price Target: $42

Source: Thomson One

Ratings definitions:Buy rated stocks generally have twelve month price targets that are more than 20% above the current price. Hold rated stocks generally have twelve month price targets near the current price. Sell rated stocks generally have noprice target and we would sell the stock.

Fundamental trend definitions:Improving means growth rates of key business metrics are generally accelerating. Stable means growth rates of keybusiness metrics are generally steady. Mixed means growth rates of some key business metrics are positive butothers are negative. Declining means growth rates of key business metrics are generally decelerating.

Ratings Distribution (3/31/2016)

% Of Companies % With Investment

Rating Covered Banking Relationships

Buy 79% 12%

Hold 21% 4%

Sell 0% 0%

Total 100% 10%

Information about valuation methods and risks can be found in the “STOCK

OPPORTUNITY” and “RISKS” sections, respectively, of this report. CHLM makes a market in this security.

CHLM expects to receive or intends to seek compensation for investment banking services from the subject companyin the next three months.

Analysts receive no direct compensation in connection with the firm’s investment banking business. Analysts may beeligible for bonus compensation based on the overall profitability of the firm, which takes into account revenues fromall of the firm’s business, including investment banking.

OTHER DISCLOSURES

Although the statements of fact in this report have been obtained from and are based upon recognized statisticalservices, issuer reports or communications, or other sources that Craig-Hallum believes to be reliable, we cannotguarantee their accuracy. All opinions and estimates included in this report constitute Craig-Hallum's judgment as ofthe date of this report and are subject to change without notice. Craig-Hallum may effect transactions as principal oragent in the securities mentioned herein. The securities discussed or recommended in this report may be unsuitablefor investors depending on their specific investment objectives and financial position. This report is offered forinformational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussedherein in any jurisdiction where such would be prohibited. Additional information available upon request. MemberSIPC.

REGULATION AC CERTIFICATION

I, Alex Fuhrman, hereby certify that the views expressed in this research report accurately reflect my personal viewsabout the subject security and issuer. No part of my compensation was, is or will be directly or indirectly related to thespecific recommendations or views contained herein.

mgpi 05-25-16

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