Q4 2021 Boston Beer Company Inc Earnings Call

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Greetings and welcome to the Boston Beer Company fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad as a reminder.

Speaker 1: Greetings and welcome to the Boston Beer Company fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

This conference is being recorded I would now like to turn this conference over to Mr. Mike Andrews Associate General Counsel and corporate Secretary. Thank you Sir you may begin.

Speaker 2: Thank you. Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company.

Thank you good afternoon and welcome. This is Mike Andrews Associate General Counsel and corporate Secretary on the Boston Beer Company I'm.

Speaker 2: I'm pleased to kick off the 2021 fourth quarter earnings call for the Boston Beer Company.

I am pleased to kick off the 2021 fourth quarter earnings call for the Boston Beer company.

Speaker 2: Joining the call from Boston Bureau, Jim Cook, our founder and chairman, Dave Berwick, our CEO , and Frank Smalow, our CEO .

Joining the call from Boston Beer are Jim Koch, founder and Chairman, Dave Burwick, our CEO and Frank smaller our CFO .

Speaker 2: Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions are...

Before we discuss our business I'll start with our disclaimer as we state in our earnings release some of the information, we discuss and that May come up on this call reflect the company's or management's expectations or predictions of the future such predictions are forward looking statements. It's important to note that the company's actual results could differ materially.

Speaker 2: It's important to note that the company's actual results could defer materially from those projected in these forward looking statements. Additional information concerning factors that could cause actual results to defer materially from those in the forward looking statements is contained in the company's most recent 10Q and 10K.

From those projected in these forward looking statements additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in the company's most recent 10-Q and 10-K.

Speaker 2: the company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. I will now pass it over to Jim for some information on the

The company does not undertake to publicly update forward looking statements, whether as a result of new information future events or otherwise.

I will now pass it over to Jim for some introductory comments.

Thanks, Mike I'll begin my remarks. This afternoon with a few introductory comments and then hand over to Dave who will provide an overview of our business. Dave will then turn the call over to Frank who will focus on the financial details of the fourth quarter results as well as the outlook for 2022, and then immediately after Frank's comments, we'll open up.

Speaker 3: Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Dave who will provide an overview of the

Speaker 3: Dave will then turn the call over to Frank who will focus on the financial details of the fourth quarter results as well as the outlook for 2022. Then immediately after Frank's comments, we'll open up the line for questions.

Up the line for questions.

Speaker 3: Our fourth quarter depletion growth was 15% and full year depletion growth was 22%.

Our fourth quarter Depletions growth was 15% and full year depletion growth was 22%.

Speaker 3: Despite these strong depletion results, we experienced a decline in shipments in the fourth quarter as we continue to work through challenges with our supply chain and the impacts of the slowdown in hard-stilted

Despite these strong depletion results, we experienced a decline in shipments in the fourth quarter as we continue to work through challenges with our supply chain and the impact of the slowdown in hard Seltzer fourth quarter shipments declined 24, 5% compared to last year's fourth quarter.

Speaker 3: Fourth quarter shipments declined 24.5% compared to last year's fourth quarter as a result of more aggressive wholesaler inventory reduction than expected around truly. And then, beginning in early 2022, our service levels to wholesalers declined due to supply chain constraints. This led to increased out of stocks for certain brands and packages with our Hall Act central areas theyockingadult acids because of their sustainability massive amount of printing andNow over 13 years, thereby increasing adoption this and likes it as a result of us getting paid for our companies from the bottom really looking to wage. So typically there's a lot of problems and sometimes the lacks of19 11 small businesses that do not get moved to high levels just generally looking to hasn't been possible in country product for as long as market aspire to self-certifications and bolster opportunities,

As a result of more aggressive wholesaler inventory reduction than expected around truly and then beginning in early 2022, our service levels at the wholesalers declined due to supply chain constraints. This has led to increased out of stocks for certain brands and packages with our.

Wholesalers.

Speaker 3: Additionally, the beer industry is off to a slow start in 2022, likely as a result of the large outbreak of Omicron, the continued broad scale supply chain issues, and commodity inflation that is affecting consumer purchase.

The beer industry is off to a slow start in 2022 likely as a result.

The large outbreak omicron the continued broad scale supply chain issues and commodity inflation that is affecting consumer purchases as a result, thus far in 2022 lower shipment trends have continued and now our depletions are also declining.

Speaker 3: As a result, thus far in 2022, lower shipment trends have continued and now our depletions are also declining compared to last year's comparable period, mostly attributable to the significant shipments from truly inventory pre-billed and sell-through one year ago, and partly as a result of out of stock.

Compared to last year's comparable period, mostly attributable to the significant shipments from truly inventory pre build and sell through one year ago and partly as a result of out of stocks. We are focused on resolving our supply chain issues as quickly as possible, but believe.

Speaker 3: We are focused on resolving our supply chain issues as quickly as possible, but believe they will continue to negatively impact our business until the inventory levels have recovered, which we expect will happen by the end of the first year.

They will continue to negatively impact our business until the inventory levels have recovered, which we expect will happen by the end of the first quarter in.

Speaker 3: In measured off-premise channels through December 26, 2021, where our brand portfolio represents only 4.3 of the total beer industry volume, we delivered 43% of the total industry volume growth, the highest by far of all mentality supply ever

And measured off premise channels through December 26, 2021, where our brand portfolio represents only four three of the total beer industry volume, we delivered 43% of the total industry volume growth the highest by far.

Of all Brewers.

Speaker 3: In addition, we're pleased that all five of our brands grew depletions during the fourth quarter, a good sign of the inherent demand for our products.

In addition, we're pleased that all five of our brands grew depletions during the fourth quarter, a good sign the inherent demand for our products.

Speaker 3: We have a broad portfolio of healthy brands, and we expect that our business will recover and grow volume between 4 and 10% for the full year in 2022. We're thankful to our outstanding coworkers, distributors, and retailers whose continued support helped grow our business during 2021.

We have a broad portfolio of healthy brands and we expect that our business will recover and grow volume between four and 10% for the full year in 2022, we're thankful to our outstanding coworkers distributors and retailers, whose continued support helped grow.

Our business during 2021.

Speaker 3: I will now pass it over to Dave for a more detailed overview.

I will now pass it over to Dave for a more detailed overview of our business.

Speaker 2: Okay, hey, thanks, Jim. I'd like to start my comments with some reflections on 2021, as a little distance can provide a lot of perspective.

Okay. Thanks, Jim I'd like to start my comments with some reflections on 2021 is a little assistance can provide a lot of perspective we've.

Speaker 2: We've been chasing growth aggressively the past several years and still believe this was the right decision. In particular, the nascent heart seltzer category presented a rare game-changing opportunity. And we did change the game. Our three-year depletion CAGR has been 27%. We transformed our company by growing net revenue from $863 million in 2017 to $2.1 billion in 2021.

We've been chasing growth aggressively over the past several years and so believe this was the right decision in particular, the nascent hard seltzer category presented a rare game changing opportunity and we did change. The game are three year Depletions CAGR has been 27% we transformed our company by growing net revenue from 860.

$3 million in 2017 to $2 1 billion in 2021.

Speaker 2: In hindsight, perhaps, as the innovation leaders in the hard-sells for category, we needed to have a better feel for the category trajectory.

In hindsight, perhaps as innovation leaders in the hard Seltzer category, we needed to have a better feel for the category trajectory. We were squarely in line with everyone else, but maybe we needed to be more prescient, even amidst the unprecedented environment over the last two years.

Speaker 2: We were squarely in line with everyone else, but maybe we needed to be more prescient, even amidst the unprecedented environment of the last two years.

Speaker 2: There's clearly much to be proud of and to look forward to. We've transformed truly into a very strong number two player and a billion dollar brand amidst an unprecedented flurry of competitive activity and innovation from many well-resourced competitors.

There is clearly much to be proud of and to look forward too we transform truly into a very strong number two player and $1 billion brand amidst an unprecedented flurry of competitive activity and innovation for many well resource competitors.

Speaker 2: Hard seltzers have generated tremendous growth for the beer industry over the last five years, and we believe they'll remain a very important beer industry category in the future.

<unk> have generated tremendous growth for the beer industry over the last five years and we believe they will remain a very important beer industry category in the future.

Speaker 2: Hartzell's were 10.4% of total beer dollars for the full year 2021, up from 8.9% during the same period in 2020.

<unk> were 10, 4% of total beer dollars for the full year 2021 up from eight 9% during the same period in 2020.

Speaker 2: And much like the energy drink category, we believe that the top two players will continue to represent about 70% of total share of the segment as they have from the beginning, despite significant attempts from hundreds of brands to enter the category.

And much like the energy drink category, we believe that the top two players will continue to represent about 70% of total share of the segment as they have from the beginning despite significant attempts from hundreds of brands to enter the category.

Speaker 2: Consumer metrics remain favorable, and truly social media sentiment continues to trend positively. The categories household penetration, frequency, and buy rates all increased during 2021.

Consumer metrics remained favorable and truly social media sentiment continues to trend positively the category household penetration frequency and buy rates all increased during 2021.

Speaker 2: truly generated 57% of all hard sells for category growth in 2021, more than twice the next highest brand. We've gained 18 share points against the category leader since January , 2020. We've led the category in innovation and brand building and outgrew the category for 16 straight months from September , 2020 through December , 2021.

Truly generated 57% of all hard seltzer category growth in 2021 more than twice the next highest brand.

<unk> gained 18 share points against the category leader since January 2020, we've led the category innovation and brand building and outgrew the category for 16 straight months from September 2020 through December 2021.

Speaker 2: truly was number one in percentage and absolute volume growth in all of beer in 2021. And grew household penetration more than any other brand, catapulting it to the second highest penetrated brand in all of beer in 2021.

Truly was number one in percentage and absolute volume growth in all of beer in 2021 and grew household penetration more than any other brand catapulting. It to the second highest penetrated brand in all of beer in 2021.

Speaker 2: This is very important because it means we have a large, avid base of consumers who are eager for more innovation and news from truly.

This is very important because it means we have a large avid base of consumers who are eager for more innovation and news from truly.

Speaker 2: At our last earnings call, we updated and evolved our heart cell growth model and shared our category outlook. As we sit here today, we continue to believe category growth in 2022 will be between flat to plus 10%. Clarity will probably not increase until we start to lap July 2021, when the category started to decelerate rapidly, especially in the two-year volume stack, which we look at closely.

At our last earnings call, we updated and evolved our hartzell growth model and shared our category outlook as we sit here today, we continue to believe category growth in 2022 will be between flat to plus 10% clarity will probably not increase until we start to lap July 2021, when the category has started to do so.

Very rapidly, especially in the two year volume stack, which we look at closely.

Speaker 2: Regardless of which scenarios proved most accurate, we fully intend to outgrow the category throughout the year, driven by innovation, continued brand building, and superior retail execution and distributor support.

Regardless of which scenarios prove most accurate we fully intend to outgrow the category throughout the year driven by innovation continued brand building and superior retail execution and distributor support.

Speaker 2: Beyond our efforts growing truly, we also positioned ourselves for the long term by continuing to build our consumer relevant portfolio of brands and creating more pathways to growth. We're the number two player in Beyond Beer with a 26 share, while the number three in Beyond Beer is at a distant 10 share.

Beyond our efforts growing truly we also positioned ourselves for the long term by continuing to build our consumer relevant portfolio of brands and creating more pathways to growth. We're the number two player in beyond beer with a 26 share while the number three and beyond beer is that a just intend share.

Speaker 2: We led Category Innovation with truly established strategic partnerships with PepsiCo and Beam Suntory, and dialed up our spend behind Twisted Tea.

We led category innovation with truly established strategic partnerships with Pepsico and beam Suntory and dialed up our spend behind twisted tea.

Speaker 2: At the same time, we've increased our investment in our R&D and innovation capability over the past few years, and the quality of our innovation is greatly benefited.

At the same time, we've increased our investment in our R&D and innovation capability over the past few years and the quality of our innovation has greatly benefited.

Speaker 2: We're far more than the Truli company. We have a broad portfolio of brands beyond Truli and a terrific innovation pipeline that's well situated to address consumers' changing preferences.

We're far more than the truly company, we have a broad portfolio of brands beyond truly a terrific innovation pipeline that is well situated to address consumers' changing preferences to be clear, we do not need truly to grow in 2022 to achieve our growth objectives, because we fully expect to achieve broad based growth across our entire <unk>.

Speaker 2: To be clear, we do not need truly to grow in 2022 to achieve our growth objectives, because we fully expect to achieve broad based growth across our entire portfolio of brands. More about our broader portfolio.

All of our brands more about our broader portfolio with just a minute.

Speaker 2: As a reminder, we had expected the hard seltzer category to grow at over 70% in 2021 and truly to gain share. Truly grew depletions by 27% for the full year 2021 and gained almost 4 share points but the category did not grow as we had expected.

As a reminder, wed expected the hard seltzer category to grow at over 70% in 2021 and truly to gain share.

Truly grew depletions by 27% for the full year 2021, and gained almost four share points, but the category did not grow as we had expected.

Speaker 2: Because of our higher demand projections coming into 2021, and our commitment to avoid the out of stocks that we had experienced during the summer of 2020, we added significant capacity and pre-built inventories of cans of finished goods to levels that ended up exceeding our actual needs as the categories slowed down.

Because of our higher demand projections coming into 2021, and our commitment to avoid the out of stocks that we had experienced during the summer 2020, we added significant capacity and prebuilt inventories of Kansas finished goods to levels that ended up exceeding our actual needs as the category has slowed down.

Speaker 2: Wholesalers stocked up on truly during the first half of 2021, but wholesaler inventory didn't move as quickly during the high consumption months as we all had expected. The lower shipment volumes resulted in extra inventory in our warehouses and led to damaged and expired inventory.

Wholesaler stocked up on truly during the first half of 2021, but wholesaler inventory didn't move as quickly during the high consumption months as we all had expected the lower shipment volumes resulted in extra inventory in our warehouses and lead to damage and expired inventory as.

Speaker 2: As a result, we incurred significant temporary costs as we adjusted to the new category trends. These cost impacts are reflected in our third and fourth quarter financials.

As a result, we incurred significant temporary costs as we adjusted to the new category trends. These cost impacts are reflected in our third and fourth quarter financials.

Speaker 2: In early 2022, our supply chain problems shifted back to out-of-stocks on certain brands and packages. As such, we were unable to react to changes in demand and replenish the damaged product at wholesalers. We have the capacity in place and are working through the process to resolve these issues quickly, build inventory levels and reduce out-of-stock.

In early 2022 are supply chain problems shifted back to out of stocks on certain brands and packages.

As such we were unable to react to changes in demand and replenish the damaged product at wholesalers.

The capacity in place and are working through the process to resolve these issues quickly build inventory levels and reduce out of stocks.

Speaker 2: Our depletion and shipment trends for the first seven weeks of 2022 have declined 9 and 26% from the comparable 2021 results respectively, due primarily to the significant overlap from last year's truly shipments and depletions in addition to the out of stock.

Our depletion and shipment trends for the first seven weeks of 2022 have declined 9% and 26% from the comparable 2021 results respectively. Due primarily to the significant overlap from last year's truly shipments and Depletions. In addition to the out of stocks, we expect them to start to reverse at the end of the first quarter and go positive in the.

Speaker 2: We expect them to start to reverse at the end of the first quarter and go positive in the second quarter. We still have work to do to improve our supply chain performance, but we're making good progress.

<unk> quarter, we still have work to do to improve our supply chain performance, but we're making good progress.

Speaker 2: With respect to our broader brand portfolio, we believe the ability to create alcoholic beverages from a beer base with a range and variety of flavors previously only available to mixed drinks.

With respect to our broader brand portfolio, we believe the ability to create alcoholic beverages from a beer base with a range of variety of flavors previously only available to <unk> strengths.

Speaker 2: coupled with the convenience, portability, and affordability of beer, will be a platform for long-term growth for Boston Beer.

Coupled with the convenience portability and affordability of beer will be a platform for long term growth for Boston beer.

Speaker 2: TUI Margarita just launched at the beginning of the year and already is a 5.3 share of hard seltzer and measured off-premise channels with limited distribution.

Truly Margarita just launched at the beginning of the year and already has a five three share of hard seltzer and measured off premise channels with limited distribution.

Speaker 2: It also holds the highest sales per point of any hard seltzer brand so far this year, and while still early, the first four weeks repeat rate, according to Numerator, is 16.4%, which is 50% more than Truly Punch and four times larger than Truly Tea during comparable timeframe.

It also holds the highest sales per point of any hard seltzer brands. So far this year and while still early the first four weeks repeat rate accordance numerator is 16, 4%, which is 50% more than truly punch and four times larger than truly T. During comparable time frames.

Speaker 2: This quick start is a reflection of the large consumer base to truly drink.

Quick start as a reflection of the large consumer base a truly drinkers.

Speaker 2: In addition to Margarita, we're announcing today two new innovations to the Trulia lineup this year.

In addition to Margarita we're announcing today two new innovations to the truly lineup this year.

Speaker 2: The first is truly flavored vodka. A flavored vodka which is being produced and distributed by our partners at Beam Suntory and hit shelves next month.

The first is truly flavored vodka of flavored vodka, which is being produced and distributed by our partners at beam Suntory and hits shelves next month.

Speaker 2: The next one is called Truly Poolside, a cocktail themed variety pack inspired by Grammy winner Dua Lipa. This will be a limited summer release building on the learning from our highly successful limited release this past holiday season.

The next one is called truly pull side, a cocktail themed variety pack inspired by Grammy winner to be bought.

This will be a limited summer lease building on the learning from our highly successful limited released this past holiday season.

Speaker 2: As Jim mentioned, we have a balanced portfolio of healthy, well-positioned brands, all of which grew depletions in the fourth quarter of 2021. As we look towards 2022 and beyond, our aim is to continue to outgrow the category, especially as consumers drink more Beyond Beer products.

As Jim mentioned, we have a balanced portfolio of healthy well positioned brands all of which grew depletions in the fourth quarter of 2021 as.

As we look towards 2022 and beyond our aim is to continue to outgrow the category, especially as consumers drink more beyond beer products are.

Speaker 2: Our very strong position in Beyond Beer is a result of owning the number one FMB in Twisted Tea, the strong number two Hard Seltzer in Truly, and the number one Hard Spider in Angry Orchard.

Our very strong position in beyond beer as a result of owning the number one in F&B and twisted tea, the strong number too hard seltzer and truly and the number one hard cider and angry orchard.

Speaker 2: Twisted Tea was the second fastest growing brand in 2021 and measured off-premise channels among the top 25 in beer and has been the fastest growing brand in the last 13 weeks and measured off-premise channels at 24% growth.

<unk> was the second fastest growing brand in 2021 and measured off premise channels. Among the top 25 in beer and has been the fastest growing brand in the last 13 weeks and measured off premise channels at 24% growth to.

Speaker 2: To build on a strong growth and market leading position, we launched Twisted Tea Lite earlier this month. And we've also started running winter theme commercials to help boost the brand year round.

To build on our strong growth and market leading position, we launched twisted tea light earlier. This month and we've also started running winter theme commercials to help boost the brand year round.

Speaker 2: Angry Orchard remains the number one brand insider with a 49 share of the segment. In the last 13 weeks, it measured off-premise channels up to share points, thanks to the continued success of Angry Orchard variety packs and Angry Orchard Crisp.

I think the Orchard remains the number one brand in cider with with a 49 share of the segment in the last 13 weeks and measured off premise channels up two share points. Thanks to the continued success of angry orchard variety packs and angry Orchard crisp.

Speaker 2: Regarding 2022 innovation, we previously announced the introduction of several new brands. The Bevvy Long Drink, which launched in 20 markets last November and continues to expand distribution. Sousa Agave cocktails, which will launch at the end of the month nationwide. And Hard Mountain Dew, which will be introduced in three states beginning next week and roll to another 13 states by the end of April . We also expanded our lineup of award-winning Dogfish Headcan cocktails with new vodka and gin crush style.

Regarding 2000 22022 innovation, we previously announced the introduction of several new brands. The bevy long drink, which launched in 20 markets last November and continues to expand distribution <unk> agave cocktails, which will launch at the end of the month nationwide and hard mountain Dew, which will be introduced in three states beginning.

Next week and role to another 13 states by the end of April .

We also expanded our lineup of award winning dogfish I can't cocktails with new vodka and gin crush styles and in April our dogfish head brand will kick off a partnership with Patagonia provisions a wholly owned subsidiary of Patagonia that offers responsibly sourced food and beverage products to launch curves of pills, a classic German style pilsner.

Speaker 2: And in April , our Dogfish Head brand will kick off a partnership with Patagonia Provisions, a wholly owned subsidiary of Patagonia that offers responsibly sourced food and beverage products to launch Kernza Pills, a classic German style pilsner made with Kernza perennial grain, organic malt, and organic hops.

Made with currency perennial green organic <unk> inorganic hops current appeals is the first in our lineup of collaborative thoughtfully craft beers feature an environmentally conscious ingredients that not only in taste, good but do good with every client or canceled and consumed.

Speaker 2: Curls of Pills is the first in a lineup of collaborative, thoughtfully crafted beers, featuring environmentally conscious ingredients that not only taste good, but do good with every pint or can sold and consumed.

Lastly, our Samuel Adams your cousin from Boston AD campaign is helping turn the brand around as Tim Adams grew depletions double digits in the fourth quarter and grew faster than all other natural Kraft brands in measured channels, where the brand is consistently gaining share for the first time in several years, we just launched the Super Bowl spot for the second year.

Speaker 2: Lastly, our Samuel Adams, your cousin from Boston ad campaign, is helping turn the brand around. As Sam Adams grew to police since double digits in the fourth quarter and grew faster than all other national craft brands and measured channels where the brand is consistently gaining share for the first time in several years. We just launched a Super Bowl spot for the second year in a row with the extraordinary robots from our neighbor Boston Dynamics and it delivered a great PR win with 1.8 billion impressions and about 17 million dollars in ad equivalency.

ROE with the extraordinary robots from our neighbor Boston dynamics and it delivered a great peer win with $1 8 billion impressions and about $17 million in adequate <unk> C disc.

Speaker 2: Despite the slow industry start to 2022, we believe we have the plans, the capability, and the grit to continue our string of double digit growth years. And we look forward to demonstrating that in the weeks ahead.

Despite the slow industry start to 2022.

Believe we have the plans the capability and the grit to continue our string of double digit growth years, and we look forward to demonstrating that in the weeks ahead.

Speaker 2: Now I'll hand it over to Frank to discuss fourth quarter financials as well as our outlook for 2022. Okay, thanks Dave. Good afternoon everyone. Before I get into the financial review of our fourth quarter results and financial outlooks, I'd like to provide more detail on the fourth quarter and foliate charges and other costs related to the hard sales or slowdown.

Now I'll hand, it over to Frank to discuss fourth quarter financials, as well as our outlook for 2022.

Okay. Thanks, Dave Good afternoon, everyone.

Before I get into the financial review of our fourth quarter results and financial outlook I'd like to provide more detail on the fourth quarter and full year charges and other costs related to the hot sofa slowdown.

Speaker 4: As Dave explained, we strategically resource against the high side of our 2021 internal category growth and market share projections to ensure we would not be constrained in our efforts to build our share position in the hyper-growth hot-soucer category.

As Dave explained, we strategically resource against the high side of our 2021% and total category growth and market share projections to ensure we will not be constrained in our efforts to build our share position in the hyper growth hard seltzer category.

Speaker 4: Following last summer's rapid slowdown, actual hard cells have category growth still below our internal loci projections and resulted in excess capacity and higher than planned inventory levels of input materials and finished goods.

Following some rapid slowdown actual hard seltzer category growth fell below our internal northside projections and resulted in an excess capacity and higher than planned inventory levels of input materials and finished goods.

Speaker 4: As a result, in the third quarter, we reported direct and indirect volume adjustment costs of $143.9 million before tax, and we estimated we would have an additional $36.8 million of indirect volume adjustment costs in the fourth quarter, primarily due to unfavorable absorption impacts that our company owns slowly.

As a result in the third quarter, we reported a direct and indirect volume adjustment costs of $143 $9 million before tax and we estimated we would have an additional $36 8 million of indirect volume adjustment costs in the fourth quarter, primarily due to unfavorable absorption impacts that our company owned breweries.

<unk>.

Speaker 4: In the fourth quarter, due to slower than anticipated truly hard sales or shipment growth and higher provisions for out of coat or damaged products, we recorded total fourth quarter indirect volume adjustment costs of $52 million before the related tax benefit which exceeded our previous estimate of $36.8 million.

In the fourth quarter due to slower than anticipated truly hard seltzer shipment growth and higher provisions for out of code for damaged products. We recorded total fourth quarter indirect volume adjustment cost of $52 million before the related tax benefit which exceeded our previous estimate of $36 8 million.

Speaker 4: This $52 million cost impact includes unfavorable absorption impacts at company owned breweries and downtime charges at third party breweries of $30.7 million, provisions for out of code for damaged products of $13.8 million, increased material sourcing and warehousing costs of $5.7 million and other costs of $1.8 million.

This $52 million cost impact includes unfavorable absorption impacts at company owned breweries and downtime charges at third party breweries of $30 7 million.

Provisions for out of code for damaged products of $13 $8 million increased materials sourcing and warehousing costs of $5 7 million and other costs of $1 8 million.

These total indirect costs of $52 million has been recorded in the fourth quarter financial statements as of $9 $2 million reduction in net revenue and a $42 8 million increase in cost of goods sold.

Speaker 4: These total indirect costs of $52 million have been recorded in the fourth quarter financial statements as a $9.2 million reduction in net revenue and a $42.8 million increase in cost of goods sold.

Speaker 4: With this background on the third quarter and fourth quarter financial impacts related to the slowdown in hard sell. I will now turn to our overall fourth quarter results and our current outlook for the full year 2022.

With this background on the third quarter and fourth quarter financial impacts related to the slowdown in hard seltzer.

We'll now turn to our overall fourth quarter results and our current outlook for the full year 2022.

For the fourth quarter, we reported a net loss of $51 8 million or $4 22 per diluted share compared to net income of $32 8 million or $2.64 per diluted share for the fourth quarter of 2020.

Speaker 4: For the fourth quarter, we reported a net loss of $51.8 million or $4.22 per diluted share, compared to net income of $32.8 million or $2.64 per diluted share in the fourth quarter of 2020.

Speaker 4: This net loss was due to the indirect volume adjustment cost of $52 million previously discussed and the decrease in revenue due to lower shipment volumes only partially offset by lower operating expenses.

This net loss was due to the indirect volume adjustment costs of $52 million previously discussed.

The decrease in revenue due to lower shipment volumes, only partially offset by lower operating expenses.

Speaker 4: Depletions for the quarter increased 15% from the prior year, reflecting increases in our twisted teeth, stem-cellulans, truly hot salsa, angry orchard and dogfish head brine.

Depletions for the quarter increased 15% from the prior year, reflecting increases in our twisted tea similar Adams Trulia angry Orchard and dogfish head brands.

Speaker 4: Shipment volume for the quarter was approximately 1.5 million barrels, a 25.5% decline from the prior year, reflecting decreases in our truly hot sulfur and angry orchard brands, partially offset by increases in electricity, semi-adams and dark fish at brands.

Shipment volume for the quarter was approximately one 5 million barrels a 25, 5% decline from the prior year, reflecting decreases in our truly hard seltzer and angry orchard brands, partially offset by increases in the <unk> summit in Adams and dogfish head brands.

Speaker 4: We believe distributor inventory as of December 25th, 2021 averaged approximately five weeks on hand and was an appropriate overall level, but included too much inventory for some packages, but not enough for others.

We believe distributor inventory as of December 25, 2021 averaged approximately five weeks on hand and was at an appropriate overall level, but included too much inventory for some packages, but not enough for us.

Speaker 4: We expect distributors will keep inventory levels below 2021 levels in terms of weeks on hand, as the need for peak season inventory pre-build is greatly reduced due to our increased production capacity.

We expect distributors will keep inventory levels below 2021 levels in terms of weeks on hand, as the need for peak season inventory pre build is greatly reduced due to our increased production capacity.

Speaker 4: As a result, we expect shipments will continue to decline in the first quarter of 2022 and then return to growth in the second quarter compared to 2021.

As a result, we expect shipments will continue to decline in the first quarter of 2022, and then return to growth in the second quarter compared to 2021.

Speaker 4: Our fourth quarter gross margin of 28.7% decreased from the 46.9% margin realized in the fourth quarter of 2020.

Our fourth quarter gross margin of 28, 7% decrease from the 46, 9% margin realized in the fourth quarter of 2020.

Speaker 4: primarily due to the $52 million indirect volume adjustment costs and higher material costs, partially offset by price increases.

Primarily due to the $52 million indirect volume adjustment costs and higher material cost, partially offset by price increases.

Speaker 4: Advertising, promotional and selling expenses decreased $3.6 million or 2.6% from the fourth quarter of 2020.

Advertising promotional and selling expenses decreased $3 6 million or two 6% from the fourth quarter of 2020.

Speaker 4: primarily due to a net decrease in brand investments of $9.5 million, mainly driven by lower media and production costs.

Primarily due to a net decrease in brand investments of $9 5 million mainly.

Mainly driven by lower media and production costs, partially offset by investments in local marketing and increased freight to distributors of $5 9 million that was primarily due to higher freight rates.

Speaker 4: partially offset by higher investments in local marketing and increased freight to distributors of $5.9 million that was primarily due to higher freight rates.

Speaker 4: General and administrative expenses increased $5.5 million, or 17.6% from the fourth quarter of 2020, primarily due to increases in external services and increased salaries and benefits costs. Based on information of which we are currently aware, we are now targeting fully a 2022 earnings per diluted share of between $11 and $16. However, actual results could vary significantly from this target.

General and administrative expenses increased $5 5 million or 17, 6% from the fourth quarter of 2020, primarily due to increases in external services and increased salaries and benefits costs.

Based on information of which we're currently aware we are now targeting full year 2022 earnings per diluted share of between $11 $16.

However, actual results could vary significantly from this target.

Speaker 4: This projection excludes the impact of ASU 2016-09 and is highly sensitive to changes in volume projections, particularly related to the hot-sulfur category and supply chain performance.

This projection excludes the impact of ASU 2016, <unk> nine and is highly sensitive to changes in volume projections, particularly related to the hard seltzer category and supply chain performance.

The 2022 fiscal year includes 53 weeks compared to the 2021 fiscal year, which included only 52 weeks.

Speaker 4: Full year 2022 depletions and shipments growth is now estimated to be between 4% and 10%. As indicated, we expect shipment trends will decline in the first quarter and then grow in the second quarter after lapping last year's peak season inventory pre-build. We expect total shipments to decline in the first half of the year and grow in the second half of the year as compared to 2021.

Full year 2022, Depletions and shipments growth is now estimated to be between 4% and 10%.

As indicated we expect shipment trends were a decline in the first quarter and then grow in the second quarter. After lapping last year's peak season inventory pre build.

We expect total shipments to decline in the first half of the year and go into the second half of the year as compared to 2021.

Speaker 4: We project increases in revenue per barrel of between 3% and 5%.

We project increases in revenue per barrel of between 3% and 5%.

Speaker 4: For the year 2022 growth margins are expected to be between 45% and 48%.

Full year 2022, gross margins are expected to be between 45% and 48%.

Speaker 4: Our full year 2022 investments in advertising, promotion, and selling expenses are expected to increase between $0 and $20 billion. This does not include any increases in freight costs for the shipment of products to a distributor.

Full year 2020 to investments in advertising promotional and selling expenses are expected to increase between zero and $20 billion.

This does not include any increases in freight costs for the shipment of products to our distributors.

Speaker 4: We estimate our full year 2022 non-GAAP effective tax rate to be approximately 26%, excluding the impact of ASU 2016-09.

We estimate our full year 2022, non-GAAP effective tax rate to be approximately 26%, excluding the impact of ASU 2016 industrial mines.

Speaker 4: We are not able to provide forward guidance on the impact that ASU 2016-09 will have on our 2022 financial statements and fully effective tax rate, as this will mainly depend upon unpredictable future events including the timing and value realized upon the exercise of stock options versus the fair value when those options are granted.

We are not able to provide forward guidance on the impact of ASU 2016, <unk> will have on our 2022 financial statements and full year effective tax rate as this will mainly depend upon unpredictable future events, including the timing and value realized upon exercise of stock options versus the fair value of those options are granted.

We're continuing to evaluate 2022 capital expenditures and currently estimate investments of between $140 million of $190 million.

Speaker 4: We continue to evaluate 2022 capital expenditures and currently estimate investments of between $140 million and $190 million.

Speaker 4: The capital will be spent mostly on continued investments in our breweries and could be higher if deemed necessary to meet future growth.

The capital will be spent mostly on continued investments in our breweries and could be higher if deemed necessary to meet future growth. We expect that our unrestricted cash balance of $26 9 million as of December 25, 2021, along with our future operating cash flow an unused line of credit of $150 million will be.

Speaker 4: We expected our unrestricted cash balance of $26.9 million as of December 25, 2021, along with our future operating cash flow and unused line of credit of $150 million will be sufficient to fund future cash requirements. We will now open up the call for questions.

Sufficient to fund future cash requirements.

We will now open up the call for questions.

Speaker 1: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation cell will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key. One moment while we pull for questions. Our first question comes from the line of Felitho Filorni with RBC Capital Markets. You may proceed with your question.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you might start to move your question from the queue for participants.

Speaker equipment and may be necessary for you to pick up your handset before pressing the star keys enrollment Molly poll for questions. Our first question comes from the line of lethal for warning with RBC capital markets. You May proceed with your question.

Speaker 5: Hey, good afternoon guys. So first on your innovation.

Hey, good afternoon guys.

So first on your innovation for 2022 can you comment on the level of incremental <unk> that you are expecting from the innovation and your contribution to topline and specifically for the truly line expansions, we're seeing that.

Speaker 5: For 2022, can you comment on the level of incrementality that you're expecting?

Speaker 5: from the innovation and your contribution to top line, and specifically for the truly line extension.

Speaker 5: We're seeing that for truly margarita.

Truly Margarita early results are really strong, but it seems like the cannibalization has been a little bit higher than historically saw I'd love to get your comments on that.

Speaker 5: Early results are really strong but it seems like the cannibalization has been a little bit higher.

Speaker 5: historically so I'd love to get your comments on that.

Speaker 2: Sure, this is Dave. I'll answer that. I think as it relates to margarita, it's really hard to make a comment right now about how incremental it will be. We believe it will be because

Sure. If we play this is Dave I'll answer that I think as it relates to Margarita. It is it's really hard to make that to make a comment right now, though how incremental will be we believe it will be because it's really a hybrid is a hard seltzer, but it's also it's also placement can cocktail space and it provides.

Speaker 2: It's really a hybrid. It's a hard seltzer, but it's also a place in the canned cocktail space. And it provides a margarita drink, which is, as you know, the most popular.

Marie to drink, which is as you know the most popular spirit.

Speaker 2: at a much reduced calorie count versus a traditional margarita. So we're optimistic about that, but I'd say it's too early to tell. As it relates to the broader truly family, it depends on what you want to look at. You can look at Nielsen panel, you can look at numerator.

At a much reduced calorie count versus Attritional Margarita. So we're optimistic about that but I'd say, it's too early to tell as it relates to the broader truly.

Family It depends on what you want to look at Utica look at Nielsen panel, you'll get numerator data et cetera.

Speaker 2: data, etc. And everybody has a different number for incrementality. We looked at it last year. Even, I looked at PONGE, which started very strong, but then it did fade a bit in the fall. It had at least a 50% incrementality. So it's really hard to truly measure what is incrementality, but obviously our goal when we innovate is to find a way to deliver something different to the marketplace that will draw new consumers in. Thanks for watching!

Everybody has a different number for incrementally as we looked at it last year, even I looked at the punch, which which started very strong, but then it did fade a bit.

Fall it had at least a 50% instrumentality. So it's really hard to truly measure what what is incremental but obviously our goal when we innovate.

Bring find a way to deliver something different to the marketplace that will drive new new consumers in.

Speaker 2: It's either into the category or away from other categories or from other brands.

It's either into the category in a way from other categories or from other brands.

And in so doing we're hopefully optimize the instrumentality, but if anybody tells you that they know an exact number of what the incremental it is.

Speaker 2: In so doing, we're hopefully optimizing the incrementality, but if anybody tells you that they know an exact number of what the incrementality is, I'd like to meet them because it's really, really hard to do that.an Administrative Lesson

I'd like to meet them, because it's really really hard to do.

Do that.

Got it that makes sense.

Speaker 5: And then on the hard sell category broadly for 2022, Jim, you mentioned that the entire beer industry has started at 2022, a little bit slower than expected in January .

And then on the on the hard Seltzer category.

Broadly.

For 2022, Jim you mentioned the entire beer industry has started at 2022, a little bit slower than expected in January but youre still thinking the category can be flat to up 10% for 2022, I guess, what gives you the comfort that we're going to see a rebound as we get we will get past the January or maybe the winter.

Speaker 5: But you're still thinking the category can be flat to up 10% for 2022. I guess what gives you the comfort that we're going to see a rebound as we get past the January or maybe the winter season as we get through 2022.

Zone.

As we got through 2022.

Speaker 3: The confidence really comes from the consumer. And I think it's becoming increasingly clear that the growth in all alcoholic beverages is going to come from this.

The confidence really comes from the.

The consumer.

And I think it's becoming increasingly clear that the growth.

<unk> all alcoholic beverages is going to come from.

Speaker 3: It's being called beyond beer space, but it's also beyond wine. It's beyond the liquor. It's sort of a fourth category that is built on flavor and convenience and consumers that are alcohol agnostic.

Yes.

It's being called beyond beer space, but it's also beyond wine, it's beyond the liquor.

A fourth category that.

Is built on flavor.

And convenience.

And consumers that are.

Alcohol agnostic.

Speaker 3: So I see that continuing to grow.

So I.

See that continuing to grow.

Hi.

Speaker 3: see consumers gravitating towards primarily hard seltzer and sort of beer-based items in there because they offer a better value. The spirit-based products because we've always had different techs.

See consumers gravitating towards.

Primarily.

Seltzer.

Sort of.

Beer base.

Items in there because they offer a better value.

The Paris.

Barrett based products because of.

We've always had different tax regimes for beer wine and liquor they've always been differentiated since.

Well since the beginning of the Republic and 17 91, when the first broad based tax came out it was on whiskey and not on beer spirits. So.

So basic.

Basically to boil it down.

Did you want experienced space Brian .

Speaker 3: fry them. You get four cans for 10 bucks and if you want a beer based one you get six cans for 10 bucks.

You get four cans for 10 Bucks and if you want a beer based when you get six cans for 10 Bucks.

Speaker 3: and you also have significantly better distribution opportunities. All of this is playing into where consumers are moving.

And you also have significantly better distribution opportunities so.

All of this is playing into where consumers are moving and the RTD.

Speaker 3: And the RTD products will certainly get their share and they're growing.

Products will certainly get their share and theyre growing last year triple digits. So I think they've got another year or two of growth, but at the end of the day.

Speaker 3: last year triple digits, so I think they've got another year or two of growth. At the end of the day, the beer-based product...

The fear based products offer better value to the consumer and wider distribution and I just I think.

Speaker 3: offer better value to the consumer and wider distribution. And I just, I think ourselves are, you know, it's.

Hard seltzer.

Let's move beyond just <unk>.

Speaker 3: sort of LaCroix with alcohol.

Sort of Lacroix with alcohol.

Okay.

Speaker 3: of seltzerizing other categories like lemonade, like tea, and now margaritas, the most popular cocktail in the country.

Seltzer rising other categories like eliminate like key now.

Margarita is most popular cocktail in the country.

Got it thanks for the color guys.

At all.

Our next question comes from the line of Eric <unk> with Evercore. You May proceed with your question.

Speaker 1: Our next question comes from the line of Eric Serota with Evercore. You may proceed with your question.

Good afternoon.

Speaker 6: Good afternoon. I'm hoping you could give some color on your confidence in being able to outgrow the hard sell category for the year. Certainly starting the year it looks like you're seeding some market share kind of on both.

Hoping you could give some color on your confidence in being able to outgrow the hard seltzer category for the year.

Certainly starting the year it looks like you're ceding some market share kind of on both.

Speaker 6: sequential and you're on your basis, I realize that comps are very different for you and the largest competitor and the number four player is expanding distribution nationally.

Sequential and year on year basis, I realize that comps are very different for you and the largest competitor and the number four player is expanding distribution nationally, but I guess, what gives you the confidence in being able to hold or grow market share for truly.

Speaker 6: But I guess what gives you the confidence in being able to hold or grow market share for truly for the year? And then a separate question on pricing. It looks like you took down your expectation for pricing at the top end slightly. Just wondering what the reason was that the 6% always seemed a little aggressive, but wondering if that's...

For the year and then.

Separate com a separate question on pricing it looks like you took down your expectation for pricing at the top end slightly.

Wondering what the reason was that the 6% always seemed a little aggressive.

But.

Wondering if thats.

Speaker 6: related to any particular brand or region.

Related to any particular brands or.

Or regions.

Speaker 2: Hey, thanks Eric. I think Frank and I will tag team your two questions. I'll take the first one.

Hey, Thanks, Eric I think Frank and I will tag team your two questions I'll take the first one.

Speaker 2: regarding our confidence and truly able to gain chair. I mean, I would start with, to me the most important thing is that we have

Regarding our confidential truly able to gain share.

Start with to me. The most important thing is that we have we've built a brand that has the second largest penetration will be or about 13, 4%. So bud light beer is number one in choice number two so we have a very large base to play too we have a base of consumers who are going to be interested in innovation interested in news and we're going to have their attention.

Speaker 2: We built a brand that has the second largest penetration of beer, about 13.4%.

Speaker 2: So Bud Light beer is number one and truly is number two. So we have a very large base to play to. We have a base of consumers who are gonna be interested in innovation, interested in news, and we're gonna have their attention. I think that's really important as we innovate. So truly margarita is the first one we talked about just today, truly poolside. There are others that we can't talk about yet. So there'll be continued innovation. And.

And I think that's really important as we as we innovate so truly Margarita is the first one we talked about <unk> just today truly pool side. There are others that we're not we can't talk about yet so there'll be there'll be continued innovation and.

Speaker 2: The key is to look at, it's hard not to, but.

I think the key is to look at it is hard to it's hard not to but.

Speaker 2: You can't look at the category one week at a time or even three or four weeks. You've got to look at it over a longer period of time. And that's how we're doing it. And yes, we have huge overlaps right now. We grew and truly grew in January last year 135% in IRI. And I think the category grew around 80-85% in IRI a year ago. So...

Can't look at the category week, one week at a time or even three or four weeks, you've got to look at it over a longer period of time and that's how we're viewing it and yes. We have huge overlaps right now we grew and truly grew in January last year of 135% in IRI.

The category grew about 80% to 85% in IRI a year ago. So we.

Speaker 2: We have to look beyond these overlaps and just focus on we built an important brand that has a large consumer following.

We have to look beyond these overlaps and just focus on we built.

And an important brand that has a large consumer following we have really strong social media sentiment. It continues to grow our aided awareness levels are still below the number one player. So there's there's definitely opportunity to to improve that we have the highest repeat rate and we have the highest buy rates. So we're starting from a position of strength, but it's really.

Speaker 2: We have really strong social media sentiment. It continues to grow. Our aid and awareness levels are still below the number one player. So there's definitely an opportunity to improve that. We have the highest repeat rate and we have the highest buy rate. So we're starting from a position of strength, but it's really, it's up to us though to find the right ways to innovate and also to build the core business as well. The base business.

It's up to us, though to to find the right ways to innovate and also to build the core business as well the base business.

Speaker 2: you know, and market that business. And we have, in fact, we have a new ad campaign that kicked off today that started with truly margarita. So there's a multiplicity of things we need to do, but we feel we feel like we've got

A market that business and we have in fact, we have a new AD campaign that kicked off today, that's starting with truly Margarita. So theres a multiplicity of things we need to do but we feel we feel like we've got.

Speaker 2: understand the brand, we understand the consumer, and we know what people are looking for. And so we feel like we're in a good place and we're now, though, we're going to put our heads down and we drive the business and we'll see three, four months from now where we are. So that's sort of my response to the...

We understand the brand we understand the consumer and we know what people are looking for and so we feel like we are.

We're in a good place and we've now, though we're going to put our heads down and we and we drive we drive the business, we will see three or four months from now where we are so that's sort of my understanding that's my.

Bonds to the confidence level, and gaining share and I'm going to hand to frankly could talk a little bit more about the pricing piece there yes, Eric.

Speaker 2: Confidence level grow and gaining share and I'm gonna hit the Frank who could talk a little bit more about the pricing piece here

Speaker 4: Yeah, Eric, we slightly narrowed the rain from 3 to 5 as you know that.

We slightly narrowed the range from three to six months to three three.

Three to five as you noted.

Speaker 4: And and it's just like we've learned a little bit more there was not a singular event when we gave the last guidance it was in October .

And it's just like we've learned a little bit more there was not a singular event. When we gave the last guidance. It was in October .

Speaker 4: Since then we have executed quite a bit of pricing as we go into 2022.

Since then we have.

We have executed quite a bit of pricing as we go into as we came into 2022 of this naturally there is theres a lot of carryover pricing, which is defining big part.

Speaker 4: Naturally, there's a lot of carryover pricing which is defining big parts.

Speaker 4: And you know pricing is a very local affair. We give you a national average for our company, but it's a very local affair and as we see what makes sense for our product and also as we look at the inflation that we have in our cost base.

And pricing is a very local affairs will give you a national average for our company, but it's a very local if there and as we see.

What makes sense for our product and also as we look at the inflation that we have.

Our cost base.

We see a 3% to five as a more realistic in its more unlikely to get it to get to 6% on an average there will be markets that have a little bit more.

The variances between markets.

But on average.

We figured that that's the better range based on what we've learned and the pricing that we have implemented but no big differences between brands. So anything on no. One major event. It will it's just like when we came out in October .

We just don't know a lot then we felt this was kind of a range of 3% range, where we would land at the end of the day.

Speaker 6: Great, thanks. I'll pass it on.

Great. Thanks, I'll pass it on.

Speaker 1: Our next question comes from the line of Camille Garagiola with Credit Suisse. You may proceed with your question.

Our next question comes from the line of <unk> <unk> with Credit Suisse. You May proceed with your question.

Speaker 6: Hi, thanks for the question. If I could ask maybe for some more details, it was quite a kind of notable change in the beginning of January versus where you were trending before. As you've dug into it, is there anything additional you can add into what's behind, obviously not from a shipments perspective, but from a depletions perspective, just what you're seeing in this sort of short period of time is quite a big change versus where you were in the first quarter. Yeah, let me take that. You've seen the shipments

Speaker 6: Hi, thanks for the question. If I could ask maybe for some more details, it was quite a kind of notable change in the beginning of January versus where you were trending.

Alright. Thanks for the question if I could ask maybe for some more details as quite a kind of notable change in the beginning of January versus where you were trending before.

Speaker 6: As you've dug into it, is there anything additional you can add into what's behind, obviously not from a shipment's perspective, but from a depletion's perspective, just what you're seeing in the sort of...

As you've dug into it is there anything additional you can add into what's behind obviously not from a shipments perspective, but from a depletion perspective.

Just what youre seeing.

In the short period of time, so it's quite a big change versus where you were in the fourth quarter.

Speaker 4: Yeah, let me take that. You've seen the shipments, I think the shipments is pretty clear year-to-date. We're 29%. The drivers are somewhat similar. I mean, you have, we're lapping the pre-build for the shipment one. The pre-build is also, that we had last year, is impacting a little bit of depreciation as well because if you recall, we were rolling shipments in Q1 60%.

Yeah, Let me, let me take that you've seen the shipments I think the shipments is pretty clear year to date were 29% the drivers.

Similar I mean do you have with lapping the pre build for the shipment to one.

The pre build is also that we had lost is impacting Elizabeth depletions as well because if you'll recall we were growing shipments in Q1, 60% Depletions were up 48%.

Speaker 4: depletion were up 48%. If you, yeah, everybody was building up the inventory, not only at wholesaler level, but also at retailer level. So this, you know, in a more flat category, as we are now, we're slightly growing, that has reversed very clearly. So this is one thing.

He was building up the inventory not only at wholesaler level, but also at the retailer level.

So this.

In a more flat category.

As we are now a slightly growing.

That has reversed very clearly so so this is.

This is one thing.

Speaker 4: The second thing I'd say, as we indicated.

The second thing I'd say is.

We indicated.

Speaker 4: because we had more damaged products and we suddenly had a bit of a gap in our inventory. So inventory that we thought we were going to have, we didn't have. It took us a while to pivot our supply chain and replenish that inventory internally and at wholesaler. So we didn't have the production that we needed to get to the shipments that we needed, so that had an impact as well.

Because we had more damaged products.

<unk>.

We suddenly had a bit of a gap in our inventory. So inventory that we thought were going to have we didn't have and it took us a while to pivot our supply chain and replenish that inventory internally and that wholesalers. So we didn't have the production that we needed to get to the shipments that we needed so that had an impact.

Speaker 4: And then I think the third one is in general to be a category. But I'd say our internal problems account, I would say probably for 2 thirds of the depletion decline that you see in year to date numbers that we gave you the 9th of September .

And then I think the.

The third one is in.

In general the beer category, but I'd say, our internal programs I would say probably for two thirds of the.

Depletions decline that you see.

And.

And year to date numbers that we gave you the 9%.

Okay, great. Thank you and can I ask about your outlook for cash cost over the course of this year.

Speaker 6: Great, thank you. Can I ask about your outlook for CAN costs over the course of this year?

And maybe you can kind of availability.

So.

Speaker 4: availability we have, we feel confident that we have the available cans.

Variability, we have we feel confident that we have the.

The available cans I mean.

Speaker 4: Clearly the dynamics have shifted quite a bit, as in the past there was like up until I'd say the middle of 2021.

Clearly the dynamics have shifted quite a bit.

As in the past there was like up until I would say the middle of 2021.

Speaker 4: The shortage was clearly in slim cans, which was all the cells and then with the slow down, slim can capacity became more available and standard cans became more scarce.

The shortage was clearly and flip accounts, which was all the cells and then with the slowdown slim can capacity became more available.

And standard cans.

<unk> more scars.

Speaker 4: which is mainly where our electricity is and our other products and truly is the slim cans. But we feel confident we have secured the volume for all the cans.

Which is mainly where <unk> is and no other products and truly especially on weekends, but we feel confident we have secured.

The volume fall to can so.

And then on.

Speaker 4: On the pricing in itself, we don't expect major changes. The only thing that we will see is like what is the pass-through is the commodity cost, which is the aluminum and general inflation. And that is going up and that's reflected basically in the cost that we've taken as a basis for our pricing that I covered earlier.

<unk>.

On the pricing in itself, we don't expect major changes the only thing that we will cease liquids, whether it's a pass through as the commodity costs.

As the aluminum and general inflation and that is going up and Thats reflected basically in the costs that we've taken as a basis for our pricing that I covered earlier.

Okay. Thank you.

Alright.

Speaker 1: Our next question comes from the line of Laurent Grande with Guggenheim. You may proceed with your question. Yes, good afternoon.

Our next question comes from the line of Laurent <unk> with Guggenheim You May proceed with your question.

Yes, good afternoon, everyone.

Speaker 4: So I do have two questions. The first one is really a follow-up from an earlier question. It seems like on truely share a bit of softness in the beginning of the year there's been a...

So I do have two questions. The first one is really a follow up.

From an earlier question.

It seems like on truly share.

Softness in the beginning of the year that's been a.

Speaker 4: discussed already but when you dig into the numbers it seems like the share loss is coming more from the what we call the mild flavor, the white can, not the bold flavors where you pivoted them two years ago. So it is a declining subsegment and it's still the largest one where you are losing share. Is there anything you would do about that piece of the segment that I know is not growing but it's still about 60 plus percent of...

I discussed already but when you dig into the numbers it seems like the the <unk>.

She is coming more from the what we call the Midas flavor. The white can the bold flavors, where you compete with tw two years ago.

So it is a declining segment.

The largest swan, where you are losing share.

Is there anything you would do about that piece of the segment.

Anybody can feed about 60 plus percent of.

Speaker 4: of the category. That would be great because that is impacting your market share right now.

All of the category.

It would be great because it.

It's impacting your market share right now.

Speaker 2: Hey, they're on this is Dave. I'll take that and maybe maybe Jim wants to and later on top of this, but I think yeah I mean we

Hey, Rob This is Dave I'll take that and then maybe Jim wants to add.

Layer on top of this but I think yes, I mean, we.

Speaker 2: what you see is correct and we are focused on that because we can't... The challenge with this category is that, you know, people want, they want, consumers want news and innovation and the further you go out on the innovation limb the more you have to support where you started at the base. In this case, the white cans, we call them the OGs, if you will. So there's definitely, there will be news that we will be sharing.

Would you say is correct and we are we are focused on that because we can the challenge with this category is that people want they want consumers want news and innovation and the further you go out on the innovation lab. The more you have to support where you started the base in this case the white to white cans, we call them <unk>. If you will so theres Stephan.

There will be news.

But we will be sharing.

Speaker 2: you know, later in the year when we can about the about the about what we're going to do to support the OGs. Certainly there's a new campaign, but we have to look at everything to focus on that part of the business because it's important and to your point it's sizable and it hasn't been growing. So it's a point well taken and that's something that we are focused on.

Later in the year when we can about to you about the about what we're going to do to support Doj certainly as a new campaign, but we have to look at everything to focus on that part of the business because it's important and to your point it is sizable and it and it hasnt been it hasnt been growing so so it's a point well taken and Thats something that we are for.

<unk>.

Speaker 4: Thanks, thanks, because ultimately you don't want, I mean especially in convenience store, having retailers choosing, I mean to have white clothes to represent that segment and you focus.

Thanks, Thanks, because you don't want I mean.

Especially in Caribbean store, having.

We tend to just choosing not to have workflow to represent that segment.

Are you focusing on multiple flavors okay.

Speaker 4: The second question is really about margin, trying to figure out the put intakes here. You mentioned about the aluminum costs already, but on the other hand, on the positive side, you get to...

Second question is.

It's really about margin trying to figure out the puts and takes here you mentioned about the aluminum costs already but on the other and on the positive side I mean to get to.

Speaker 4: a better level of comfort on the occurs margin guidance.

Probably a better level of comfort on the gross margin guidance. The operator, some element of mix benefit between the sitting less tree and more twisted tea.

Speaker 4: There are probably some elements of mixed benefit between selling less truly and more twisty. There is probably a bit of upside coming from the new contract manufacturing setup, with focusing on fewer but probably more profitable contract manufacturers.

There is probably a bit of upside coming from the new contract manufacturing setting it set up.

Focusing on fewer but more profitable contract manufacturers.

Speaker 4: And probably also a bit of shipment benefits as you've got two facilities now operating on the west part of the U.S. in California and Arizona. So, could you...

So it would be tough.

Shipman benefits us.

<unk> got two facility is now operating on the west part of the U S in California, and Arizona So could.

Could you could you help us kind of.

Speaker 4: to go on basically the put-and-takes in how you get to your gross margin that you indicated and Korea give us a bit more on the...

Basically the put and takes.

How you get to your.

Gross margin.

You indicated in Korea give us a bit more on the positives.

Speaker 7: Yeah, Laurent, this is Frank, I gonna cover that. I think on the dynamics and on the building blocks to get the gross margin back to target, ultimately, to over 50%.

Yeah Lorraine this is Frank I'm.

Going to cover that I think.

The dynamics on the building blocks to get the gross margin back to target ultimately to over 15% 50%.

Speaker 7: those those building blocks have not changed. And you know, you mentioned that partly one is the network we have like four anchor breweries that we have.

Those building blocks have not changed.

You mentioned that partly one of the network, we have like four anchor breweries that we have.

Speaker 7: that will be able to produce the key products that we have that will give you benefits internally on the efficiencies and lower internal freight which is showing up in gross margin. In addition to you get outbound freight benefit which technically is not part of gross margin but that's part of the savings.

That will be able to produce the key products that we have that will give you benefits.

And currently on the efficiencies and lower internal freight which is showing up in gross margin and then in addition to your outbound freight benefit which technically is no product gross margin, but thats part of the savings. The other one is the lower <unk>.

Speaker 7: The other one is the lower variety pack cost. That's really where we had the highest cost. As we grew truly, nobody really had variety pack costs that were affordable. It was like when you went outside, they were significantly higher than what we had inside.

Variety pack cost, that's really where we had the highest cost.

As we grew truly nobody really had.

Dry that caused that.

Affordability was like when you went outside there was significantly higher than what we had inside.

Speaker 7: And we were like planning to bring a lot of that volume in-house. We're still doing that. We're a little bit delayed on that because we had the startup, took a little longer. You know, the focus on the cleanup that we had to do end of the year took a little bit of time. So we're getting some of the benefits in 2022, but not as much as we had originally projected. That's coming a little later and a big chunk of that will come in 2023.

And.

We were planning to bring a lot of that volume in house, we're still doing that with a little bit delayed on that.

Because we had the startup took a little longer.

Focus on on the cleanup that we had to do.

End of the year took deliver of time, so we're getting some of the benefits in 2022, but not as much as we had originally projected thats coming a little later and a big chunk of that will come in 2023.

<unk>.

Speaker 7: There's also, so we get a better mix between internal and external, and we also lower overall the cost of variety packing internally and externally.

There's also so we get a bit of a mix between internal and external and we also lower overall the cost of variety packing internally and externally.

Speaker 7: And then we're working on higher internal throughput. We put the lines in relatively quickly. As we improve the running of those lines, we will create more capacity. And then, as we've mentioned before, there's the supply chain transformation efforts that are underway will give us significant efficiency. So those are clear changes that we have, like the structural changes that we're pursuing. Those have not changed based on the slow start, the beginning of the year, and the slower start, of course, versus what we had originally projected. They're a little bit delayed, but the drivers haven't changed and the absolute target hasn't changed.

We are working on higher internal throughput when we put the lines in relatively quickly.

As we improve the.

The running of those lines, we will create more capacity and then as we've mentioned before this the supply chain transformation efforts that are underway will give us significant deficiency. So those are clear.

Changes that we have like the structural changes that we are pursuing those have not changed.

Based on the slow start at the beginning of the year.

And the slower startup cost versus what we had originally projected there a little bit delayed, but the the drivers haven't changed and the absolute target hasn't changed.

Speaker 4: Thank you, Frank. Maybe you can specify what was the percentage of in-house manufacturing now for Truli, where you are right now.

Maybe you can specify what was the percentage of in house manufacturing now for tree.

Where you are right now.

Yes.

So so.

So.

We don't give it by package to be honest.

Speaker 7: We don't give it by package, to be honest, Laurent. We're at 50-50 and it has come down overall because the in-house has increased. I'm sorry, the outside has decreased. The in-house has increased as the volume has come down. And I believe that for total that has gone up by about 10 percentage points.

All.

50, <unk> it has come down overall because.

<unk> increased I'm sorry, the outside as a decrease in order is increased as the volume has come down.

And our belief that for total debt has gone up by about 10 percentage points.

Speaker 7: But again, that depends. We're running our internal breweries to 100% of the capacity that is available, and only the balance goes externally. So as we create more capacity during the year, that mix shift should improve over time. Thank you. I pass it on. Thank you very much.

But again that depends we are running our internal breweries to 100% of the capacity that is available and only the balance goes cold externally. So as we create more capacity during the year that that mix shift should improve overtime.

Thank you I'll pass it on thank you very much.

Thanks.

Our next question comes from the line of maybe somewhat with Bernstein. You May proceed with your question.

Speaker 1: Our next question comes from the line of Nadine Sarwat with Bernstein. You may proceed with your question.

Speaker 8: Yeah, hi, everybody. Thank you for taking my question. This is Nadine. Two for me. First, so in the past, you've had EBIT margins in the high teens. Is there any reason why you wouldn't be able to get back to that over the next couple of years? I know we've touched on the gross margin, but taking that down to the EBIT margin would be helpful.

Yes, hi, everybody. Thank you for taking my question. This is Nadine Q.

Two for me first so in the past you've had EBIT margins in the high teens is there any reason why you wouldn't be able to get back to that over the next couple of years I know we've touched on the gross margin, but taking that down to the EBIT margin would be helpful.

Speaker 8: And my 2nd question, you know, you've discussed the narrowing of your shipment guidance towards the more bottom end of what you had said in January . Could you give us color on what exactly had changed in your expectations over the last month? Thank you.

And my second question.

You've discussed the narrowing of your shipment guidance towards the more bottom end of what you had said in January could you give us color on what exactly has changed in your expectations over the last month. Thank you.

Yes.

Speaker 7: Yeah, Nadine, let me talk to the EBIT margin. So your assumption is correct. It is correct.

Let me, let me talk to the EBIT margin so your.

The assumption is correct is that.

Speaker 7: is a drop from wherever we were before in the mid to high teens is essentially due to the reduction in gross margin. And as you know, there were a number of reasons. We wanted to take advantage of the volume in the hard cells category. So we were focused on getting incremental capacity rather than focusing on cost.

The drop from where we were before in the mid <unk> mid to high teens is essentially due to the reduction in gross margin.

You know there were a number of reasons.

We wanted to take advantage of the volume in the hard Seltzer category. So we're focused on getting incremental capacity rather than focusing on costs.

Speaker 7: I just went through, we have the building blocks to improve the growth margins that should fall through. We have clearly increased our operating expenses over the last few years, but below the top line growth. Okay, so we got some leverage.

Went through we have the building blocks to improve the gross margin.

Should fall through we have clearly increased our operating expenses.

Over over the last few years, but but below the top line growth. Okay. So we've gotten some leverage.

Speaker 7: we didn't get a ton of leverage, but we got some leverage and we expect more over the years to come. So operating income margins should clearly increase as the gross margin increases.

We didn't get a ton of leverage where we got some leverage and we expect more over the years to come so operating income margin. So clearly increase as the gross margin increases.

Speaker 8: Got it, thank you. And on the second on the change in

Got it thank you and on the second on the change in expectations.

Speaker 7: The change in expectation, so again, the main shift happened literally late in December . And I wanna bring, there are two things. One is the wholesalers reduced inventory a little bit more than what we had expected. And then the other

The change in expectations. So again the main shifts happen literally late in December were.

I want to bring that two things one is the wholesalers reduced inventory a little bit more than what we had expected.

And then the other.

Speaker 7: which is kind of related is there was more damaged product. We had quite a bit of damaged product that we had discovered internally, but also at wholesalers, and that came back. aboutAnd

Reason, which is kind of related is there was more damaged product.

We add like quite a bit of damage products at.

We had discovered internally, but also at wholesalers and that came back so.

Speaker 7: with that amount of inventory that we thought we had available for depletion.

With that amount of inventory that we thought we had available for depletions that kind of left to supply chain and we needed to replenish that.

Speaker 7: that kind of left the supply chain and we needed to replenish that. We have enough capacity in the system but we couldn't react quickly enough to replenish that.

We have enough capacity in the system, but we couldnt react quickly enough.

To replenish that.

Speaker 7: Part of the reason was that we're delayed in the startup of our internal lines.

Part of the reason was that were delayed and the startup of our internal lines and then also the external capacity there is a little bit of time notice that you need to give too.

Speaker 7: And then also the external capacity. There's a little bit of time notice that you need to give to bring the volume upstream. So we're getting this volume in February , but clearly January was impacted by that. So those are the main reasons.

To bring the volume.

Stream. So we're getting this volume in February but clearly.

<unk> was impacted by that.

Those are the main the main reasons.

Perfect. Thank you I'll pass it on.

Yes.

Speaker 1: Our next question comes from the line of Bonnie Herzog with Goldman Sachs. You may proceed with your question.

Our next question comes from the line of Bonnie Herzog with Goldman Sachs. You May proceed with your question.

Alright, Thank you hi, everyone.

Speaker 9: I just had a little bit of a follow up question first on sort of what you were just talking about or just gross margins and costs. I guess what I wanted to make sure to understand is that your guidance, which is a pretty wide range for gross margins.

Hey, Bonnie.

Hi, I just had a little bit of a follow up question first on.

Sort of what you were just talking about our gross margins and cost I guess, what I wanted to make sure to understand is that your guidance, which is a pretty wide range for gross margin.

Speaker 10: you know, what does that assume in terms of, you know, further inventory reductions, any other, you know, fees, you guys in incurred a fair amount in Q3 and Q4. So just trying to understand.

What does that assume in terms of.

No further inventory reductions any other.

<unk> incurred a fair amount in Q3 and Q4, so just trying to understand.

Speaker 10: Is that behind you or should we assume a lot of, or some of that continues into at least the first half of this year?

Is that behind you or should we assume a lot of or some of that continues into at least the first half of this year.

So.

Speaker 7: In terms of write-offs, if we get to the volumes that we have given you as a guidance, in terms of write-offs, that is essentially behind us.

In terms of the write offs, if you get to the volumes that we that we have given you as a guidance in terms of write offs that is that.

That is essentially behind us.

Speaker 7: the shipment decline that you're seeing is literally largely driven by the fact that we're lapping last year's inventory. And as you know, we're expecting a significant sum up, as I mentioned before, shipments were up 60% in Q1 and then 48% in terms of depletions. So,

The shipment decline that Youre seeing is literally largely driven by.

By the fact that we're lapping.

Last years.

Lastly, as inventory, both and as you know, we're expecting a significant sum up as I mentioned before shipments were up 60%.

In Q1, and then 48% in terms of Depletions.

Sure.

So.

Speaker 7: It is, we feel, relatively good. The question on the gross margin is like, what is the actual split at the end of the day between internal manufactured volume and external manufactured volume? And how quickly can we get the benefits from supply chain transformation? But if there are no significant changes in volume versus our assumptions, we should have that behind us. And that should be the end of the talk.

It is we feel relatively good that the quests. The question on the gross margin is like what is what is the actual split at the end of the day between internally manufactured volume and external manufactured volume.

And how quickly can we get the benefits from supply chain transformation.

But if there are no significant changes in volume versus our assumptions.

We should have that behind us and that should be in the in the results.

Speaker 10: Okay, that's helpful. And just to clarify in terms of, you know, any of the contracts you have with some of these third parties for this year, I mean, I guess it will depend on your top line and what you, you know, you buy or need. And I'm just kind of trying to think through, could there also be some fees if you don't need that much volume this year, depending on how the category evolves.

Okay. That's helpful and Frank just to clarify in terms of any of the contracts you have with some of these these third parties for this year I mean, I guess it will depend on your topline and white you.

You buy our need and I'm, just kind of trying to think through could there also be some some fees if he doesn't need that much volume this year, depending on how the category evolves.

Speaker 7: Yes, that is correct. So the way, I mean, as you know, those third party contracts are structured, you have shortfall fees if you fall below a certain threshold. Now, I think we've done a fairly good job in like limiting our external contracts to what we really need. So we have essentially two external partners, we had quite a few more last year.

Yes.

That is correct so the way.

Those third party.

The contracts are structured you had gas shortfall fees, if you fall below a certain threshold no.

I think we've done a fairly good job and like limiting our external contracts to what we really need.

So we have essentially two external partners will be it.

Quite a few more last year.

Speaker 7: And so we've listed the shortfall fees in the K that you will see, but we don't expect, like if the shortfall fees come, that should be less than half a percentage point in gross margin. And that's what we have also reflected in the guidance that we gave you.

And.

So so.

We've listed the shortfall of fees in the case that you will see but.

We don't.

Expect like if the shortfall fees come.

That should be less than half a percentage point in gross margin and Thats. What we are also reflected in the guidance that we gave you.

Okay. That's really helpful. And then if I may just ask.

Speaker 10: helpful. And then if I may just ask a different question more on your top line just thinking about...

A different question more on your top line just thinking about.

Speaker 10: You know, your shipment and depletion guidance tonight. I really do appreciate that you guys are, you know, taking a step back on everything, but just kind of thinking about it and wondering, you know, if your guide is conservative enough right now.

Your shipment and depletion guidance I really do appreciate that you guys are taking a step back on everything, but just kind of thinking about it and wondering.

Is your guide is conservative enough right now and I guess.

Speaker 10: you know, what really needs to happen for you to hit the high end? And then you know, what happens or needs to happen for you to hit the low end of your guide? And you know, you mentioned that truly doesn't need to grow this year. So I guess I assume that would put you at the low end of your guide. But then how much share would truly have to take, I guess, to put you at the high end?

What really needs and for you to hit the high end and then what happens or needs to happen for you to hit the low end of your guide and you mentioned that truly does it need to grow this year. So I guess I assume that would put you at the low end of your guide.

And how much share would you really have to take I guess to put you at the Hyatt.

Speaker 6: Hey, Bonnie, it's Dave. I'll try to take a shot at that. I think as we look at this year, as I mentioned in the prepared remarks,

Thanks.

Hey, Brian It's Dave I'll try to take a shot at that I think.

As we look at this year.

As I mentioned in the prepared remarks.

Speaker 2: We have a lot of activity around the base business and a lot of innovation. And we look at it, there's many different ways it could come out at the end. So there's different scenarios where we end up at four, different where we end up at 10. As I mentioned, to hit that in the range truly doesn't have to grow. We want it to grow, and that's the intent, which would put us toward the higher end of the range. But we have a lot of momentum behind Twisted Tea. We have some really nice momentum behind Sam Adams.

We have a lot of activity around the base business and a lot of innovation and we look at it there is many different ways that could come out at the end. So there's different scenarios, where we end up before different where we ended up at 10 as I mentioned to hit that in the range truly doesn't have to grow.

Wanted to grow and that's the intent, which would put us towards the higher end of the range, but we have a lot of momentum behind twisted tea.

We have we have some really nice momentum behind Sam Adams.

Speaker 2: Angry orchards been hurt a little bit by these out of stocks that we talked about but it shows some good momentum in Q4. Dogfish we have canned cocktails coming that we're hopeful about. So we have basically replacing a lot of bets this year and again there's a lot of different permutations in terms of how it could come out but between just you know, just base you know investment behind Sam Adams and Twisted Tea.

<unk> has been hurt a little bit by these out of stocks that we talked about but it showed some good momentum.

Momentum in Q4, dogfish, we have can't cocktails coming that we're hopeful about so we have basically replacing a lot of beds. This year and again theres a lot of different permutations in terms of how it could come out but between just.

Just based investment behind Sam Adams interested team truly innovation and the other innovation, we talked about around <unk> et cetera, which again, we feel like that that range is we did it is a little more cautious and I think maybe when we talked about at the end of last year rightly, so we'd rather be in the future more cautious.

Speaker 2: truly innovation and the other innovation we talked about around hard-do and Sows et cetera.

Speaker 2: Again, we feel like that range, it is a little more cautious than I think maybe what we talked about at the end of last year, rightly so. We'd rather be in the future more cautious in how we guide. But we think there's a lot of ways to get there. And it's really hard to say right now.

And how we guide, but we think theres a lot of ways to get there and it's just really hard to say right now how we're going to get there and I think I understand that now there's a lot of noise right now obviously the first several weeks.

Speaker 2: how we're gonna get there. And I think I understand that now there's a lot of noise right now. Obviously the first seven weeks, they don't look great. And I think Frank talked to some of the reasons why in terms of the industry, the out of stocks, the overlaps, et cetera. We separate get through this moment and let's see how things evolve. We will have.

They don't look right and I think Frank talk to some of the reasons why in terms of the industry the out of stocks the overlaps et cetera.

We said forget to get through this moment and let's see how things evolve.

We will have.

Speaker 2: cover the out of stocks as we mentioned as we get into it by the end of March. And we're often running in Q2 and that's when we'll have a better sense of where it all ends up. But we feel like this 4 to 10 range.

Cover the out of stocks as we mentioned as we as we get into by the end of March and we're often running in Q2 and that's when we'll have a.

A better sense of where it all ends up but we feel like this 4% to 10 range.

Speaker 2: Is it's got a lot of different ways to hit it. It's not just one way and again like a year ago You know a lot of it was based on truly hitting some big numbers and this year again We don't have to be successful with any one one initiative. We just need to be successful with with enough to get there That makes sense It does so

It's got a lot of different ways to hit is not just one way and again like a year ago a.

A lot of it was based on truly hitting some big numbers and this year again.

We don't have to be successful with any one one initiative, we just need to be successful with enough to get there.

That makes sense.

Hey, guys I really appreciate that thank you.

Speaker 1: Our next question comes from the line of Kevin Grundy with Jeffries. You may proceed with your question.

Our next question comes from the line of Kevin Grundy with Jefferies. You May proceed with your question.

Speaker 11: Great, thanks. Good evening everyone. Two for me if I could. The first one a follow up for Frank on Gross Martins and the second for Jim on the Treasury Department's report. So first Frank,

Great. Thanks, Good evening, everyone. Two for me if I could the first one a follow up from Franco gross margin the second for Jim on the Treasury Department's report.

So first Frank not to belabor this but just longer term on the gross margin I think you mentioned a number of times.

Speaker 11: longer term on the gross margin, I think you mentioned a number of times.

Speaker 11: the potential to get back to the low to mid 50s.

The potential to get back to the low to mid fifties.

Speaker 11: Can you box in a timeframe for that in a sort of steady state? What is the internal planning for that, for the company? We're talking two years, three years as supply chain pressures sort of ease and commodity costs ease to some degree. And how would you characterize the importance of this metric to the company? Because I think historically there's a lot of focus on depletions and operating income as sort of the key performance indicators and key metrics for management of.

Can you box in a timeframe for that any sort of steady state what is the internal planning for that.

For the company were talking two years three years.

Why chain pressures sort of ease in.

And commodity costs eased to some degree and how would you characterize the importance of this metric to the company.

Historically, there's a lot of focus on Depletions in operating income is certainly key performance indicators in key metrics for management comp.

Speaker 11: Is there sort of a willingness to sort of heighten the importance of this as a big value driver for shareholders? I appreciate your thoughts there.

Is there sort of a willingness to certain heightened the importance of this is a big value driver.

For shareholders.

Appreciate your thoughts there and I can follow up for Jim.

Speaker 7: Yeah, so let me start with the second question, with the end first. It is clearly a key value driver that we see, and our target is absolutely to get it back to over 50%. We see it in the first question, and the second question is, is it a key value driver that we see, and our target is absolutely to get it back to over 50%.

Yes, So let me start with the second question.

<unk>.

It is clearly.

A key value driver that we see.

And our target is absolutely to get it back to over 50%.

We it's not an absolute though I have to be honest and thats, what <unk> seen during the hard seltzer, if we hit like a product that's growing tremendously we will always prioritize getting the product to the consumer and build market share.

Speaker 7: It's not an absolute though, I have to be honest, and that's what you've seen during the hard sell. So if we hit like a product that's growing tremendously, we will always prioritize getting the product to the consumer and build market share.

Speaker 7: As then we flatten out, we will very clearly focus on the gross margin.

As then we flattened out very clearly focus on on the gross margin so solid.

Speaker 7: model is typically service level first, like service to the customer and then we go to the cost. But it is a very important initiative that we have. And I laid out the building blocks and if you look at the timing, the network we are implementing, we started implementing it and that is what we are seeing this year. So we are going to get some benefits from the network.

Model has typically.

Service level, one like service the customer and then we go to the cost but it is a very important initiatives that we have in yes.

<unk> laid out the building blocks and if you look at the timing the network with implementing we've started implementing it and Thats what were seeing this year. So we're going to get some benefits from the network.

Speaker 7: The variety pack cost, that's a little delayed as I mentioned. So we don't get, we have some higher cost variety pack productions still out there that we will be able to bring in.

The the variety pack cost that's a little delayed.

As I mentioned, so we don't get we have some higher costs.

Variety pack production still out there.

That we would be able to bring in.

Speaker 7: The effectiveness, supply chain, transformation savings, this is a combination of systems and processes that will drive waste reduction, handling cost reduction, warehouse cost reduction, where significant waste product that's coming.

The effectiveness of the supply chain transformation savings.

This is a combination of systems and processes that will drive waste reduction Henry.

Handling cost reduction of warehouse cost reduction, we have significant well cost.

A waste product that is coming back so once that gets in place.

Speaker 7: So once that gets in place, that comes to its stage.

It comes that come so its stage.

Speaker 7: You will see the benefit we've given it in the gross margin guidance for 2022. There will be a significant chunk coming in 2023, but it won't be 100% of all the building blocks. That will come after 2023, probably in 2024. But there's a big chunk that's going to come in 2023.

You will see the benefit we've given that is the gross margin guidance for 2022, there will be a significant chunk coming in 2023, but it wont be 100% of all the building blocks that will come after 'twenty three.

Maybe.

Probably in 'twenty four.

But there is a big chunk, that's going to come in 'twenty three.

Speaker 11: Okay, so it sounds like you get most of the way there by 24. Okay, thank you. That was helpful. Just a quick follow-up, I know the call is kind of dragging on here a little bit, but Jim, it would be great to get your thoughts on the Treasury Department's report. It touched on competition in the U.S. alcohol industry. I think a number of differences, but a conflicting finding. But I think competition certainly sort of stands out. It would be great to kind of get your take on the report, what you think the implications are going to be for the beer industry, if anything. And then I'll pass it on. Thanks.

Okay. So it sounds like you'll get most of the way there bye bye bye.

By 'twenty four okay. Thank you.

That was helpful. Just a quick follow up call is kind of dragging on here, a little bit, but Jim would be great to get your thoughts on the Treasury Department's report touched on competition in the U S alcohol industry I think I think.

A different sort of conflicting fireproofing competition, certainly sort of stands out it would be great to kind of get your take on there for what you think the implications are going to be for the beer industry.

And then I'll pass it on thank you.

Yeah.

Okay.

Okay.

Speaker 6: Do we use Jim? Yeah. Jim is in a different location. Hopefully, he's still with us. Jim, are you there? Okay. Okay, good. Okay. Sorry. I heard everything. So, Kevin. Yeah.

The reduced too Jeff.

Jim as Jim was in a different location hopefully so with us.

Okay, Okay great.

I heard everything.

Kevin.

Sure.

My take on this great report.

Speaker 3: court, they noticed and stated the obvious.

The report.

Yeah.

They noted and stated the obvious which is theres a fairly concentrated industry.

Speaker 3: This is a fairly concentrated industry. You've got two big players who are losing share, but still have maybe 70% of the volume in the industry. And you've got one big one that, at Anheuser-Busch, probably has, I think they average 94% of the volume on their wholesaler's truck.

You've got two big players, who are losing share but still have.

Maybe 70% of the volume in the industry.

<unk> got one big one that.

And how does the bush probably has I think they averaged 94% of the volume.

On their wholesalers trucks.

Speaker 3: So that channel to market is dominated.

So that channel to market is dominated.

Speaker 3: buy a big brewer and it sort of forecloses it to independent producers. I think the Treasury Department, you know, I...

By a big Brewer and it sort of forecloses.

Two independent producers I think.

Treasury Department.

Speaker 3: bias maybe is they should be to protecting the small independent brewers. Also notice that on a local basis, the wholesale tier is very consolidated. Often, there's only really two viable players.

Bias, maybe as it should be to protecting this.

<unk> independent Brewers.

Also notice that on a local basis, the wholesale tiers very consolidated often.

There is only really two viable players would give you.

Speaker 3: a comprehensive route to market and they probably did not give

Comprehensive routes to market.

And they probably.

Did not give.

Speaker 3: to me, appropriate weight to the beneficial effects of a three-tier system that has in between brewers and retailers this unique tier of independent, often family-owned wholesalers.

Me appropriate way too.

The beneficial effects of <unk>.

A three tier system that has in between.

Brewers and retailers this.

Unique here.

Independent.

And family owned wholesalers and frankly without that.

Speaker 3: And frankly, without that, if we had the system we have in many, many other countries where the brewer owns the wholesaler and sometimes even the retailer, there probably would not have been craft beer. Craft beer emerged in the United States in part because of the independent wholesaler tier. I was.

We had the system we have in many many other countries where.

Brewer.

The wholesaler and sometimes even the retailer they probably would not have been craft beer craft beer emerged in the United States.

In part.

Because.

The independent wholesaler tier.

I was heartened I guess.

Speaker 3: I guess that the Treasury Department questioned previous decisions that have allowed the two big players to grow by acquisition.

The Treasury Department question previous decisions that have allowed to.

Two big players to grow by acquisition.

Speaker 3: It always struck me a little weird. If you've got two guys who have 70, even 80 percent at the beginning of the last decade of the market, that they're allowed to grow by buying up their competition.

It always struck me a little weird.

Two guys, who have 70, even 80% at the beginning of the last decade.

Of the market that they are allowed to grow by buying up their competition.

Speaker 3: Standard Oil, I don't think they had that big a share when they put the antitrust laws in place.

Standard oil I didn't think they had on.

That big a share.

When they put the antitrust laws in place so that but.

Speaker 3: would the big question is kind of so what? I think you know clearly the treasury department came out on the side of small brewers small producers.

Good.

The Big question is so what.

I think clearly the Treasury department came out on the side of small Brewers small producers.

Speaker 3: But many of the...

But.

Many of the.

Speaker 3: the tweaks that one might want to make to the three-tier system like, you know, limiting the reach of franchise laws that give permanent monopolies to wholesalers. Those are state issues. The Fed's really...

Tweaks or one might want to make to the three tier system like eliminating the reach of our franchise laws to give permanent.

Permanent monopolies to wholesale those are state issued.

The beds really there's not it's not an appropriate place for them to go.

Speaker 3: It's not an appropriate place for them to go. Uh, and while they, you know, might like to have, uh, more options for small producers to move wholesalers, it's probably not really gonna happen.

And while they might like to have.

No.

More options for small producers to move wholesalers.

Not really going to happen.

Speaker 3: That's a long winded answer. But I thought they made a lot of good points. I'm just not sure what any major levers. I doubt it. They do have some small levers like better enforcement of the tied house laws that

That's a long winded answer.

But.

Got it made a lot of good points I'm just not sure.

Any major leverage out it you do have some small levers like.

Better enforcement of.

The tide house laws that.

Through things like category management, and tying up venues.

Speaker 3: like category management and tying up venues, big brewers are able to preclude smaller brewers from a lot of venues and maybe getting their shelves.

Brewers are able to preclude smaller brewers from.

Sure.

Venues and.

And may be getting there Eric shelves.

Okay.

Physical and.

Speaker 1: Our next question comes from the line of Vivian Azar with Cowen. You may proceed with your question.

Our next question comes from the line of lithium Asia with Cowen You May proceed with your question.

Speaker 10: Hi, thanks very much. I know it's been a long call, so I'll try to be quick about it. With the reduction in terms of the incremental A&P spend, I'm contrasting that with some of the commentary around focused innovation, clearly, truly a focus, clearly some of your partner brands a focus. I was a little bit surprised not to hear about Debbie, because that's what aOTC does in the way of made

Hi, Thanks very much.

I know, it's been a long call. So I'll try to be quick about it with the reduction in terms of the incremental A&P spend contrasting that with some of the commentary around focused innovation clearly truly at the okay. It's clearly from your partner brands that's okay.

It was a little bit surprised not to hear about Debbie because that's.

Speaker 10: unique and organic innovation. So as we kind of think about what your priorities are for 2022, is it fair to assume that it's a little bit more concentrated in terms of where your priorities are going to lie to achieve the full year guidance? Thank you.

It's a unique and.

Inorganic innovation, so as we kind of think about what your priorities are for 2022.

Is it fair to assume that it's a little bit more concentrated in terms of what your priorities are going to lie to achieve the full year guidance. Thank you.

Hey, Vivien, it's Dave I'll take it I think.

Speaker 2: I would say we're going broader this year than we were. I mean, a year ago, there was a lot of huge investment and focus behind truly there's still going to be that support. But we see, you know, we're fueling the fire on Tehrista T and it's working. It is with Sam Adams as well. We've got a lot of innovation, including Bevy, which we're excited about.

I would say I'd say, we're going broader this year than we were a year ago. There was a lot of huge investment and focus behind truly theres still going to be that that support but we see we're fueling the fire on to Christopher T and is working it is with Sam Adams as well.

We've got a lot of innovation, including Debbie, which we're excited about.

Speaker 2: And we're going to support all of that. I think some will play bigger regionally, some will play bigger nationally, but our intent is to support. And I think if you look back over

And we're going to we're going to support her in support of all of that I think.

Some some will be will play a bigger and regionally some will play bigger nationally, but our intent is to support and I think if you look back over a year to year between last year was an anomaly for many reasons. If you look back just a couple of years.

Speaker 2: year to year between, last year was an anomaly for many reasons. If you look back just a couple years, you know, to 2019, 2020, our APNS is up by 50%. And frankly, correct me if I'm wrong, but it's up significantly. So we feel like we have the resources to support a broader portfolio. We're focused really very much on the brand positioning, who we're targeting, how to reach them. We've also done a lot of work in the last couple of years

To <unk> 2019 2020.

Our EPS is up by 50% and Frank can correct me, if I'm wrong, but its obviously its up significantly. So we feel like we have the resources to support our product portfolio.

We're focused very much on the brand positioning and who we're targeting and how to reach them. We have also done a lot of work in the last couple of years to really improve the quality of our creative that we put out there and we have a highway.

Speaker 2: to really improve the quality of our creative that we put out there. And we have a highly analytical approach to measuring the impact of creative and we feel like it's working harder for us. I think.

Analytical approach to measuring the impact of creative and we feel like it's working harder for US I think Sam Adams is a good example, honestly because we're not spending crazy dollars on salmon is having an impact on the business. So.

Speaker 2: Sam Adams is a good example, honestly, because we're not spending crazy dollars on Sam and is having an impact on the business.

Speaker 6: Anyway, I'll hand over to Frank who wants to build on top of that. Yeah, and so on the overall spend, I think, you know, looking at the variations versus last year is a little bit misleading because of the spend that we had. We were clearly planning to grow truly significantly more than what we ended up, and as such was the spend. You know, we entered the year, like, really spending against the category, and, you know, until we realized that the growth wasn't going to come through, the majority of the money was spent. We scaled it back a little bit, but you don't have too much flexibility. 2020, as you know, was COVID-related, so a lot of stuff happened there. So what we did is, if you take 2019 as a base year and just, like, look at the high-level numbers, you know, our top-line growth was, you know, 70 to 80 percent between shipments and depletions. Like, versus 2019, we've grown the top line over 70 percent.

Anyway, let me out here.

So I'll hand over to Frank who wants to build on top of that and so on.

On the overall spend I think looking at the variations versus last year is a little bit misleading because of the spin. We had we're clearly planning to go truly significantly more than what we ended up.

And as such was the spin we entered the year.

Like really spending against the category.

And until we realize that the growth wasn't going to come through the majority of the money was spent that we scaled it back a little bit but you don't have too much flexibility 2020. As you know is was COVID-19 related sort of lot of stuff happens. There. So what we did is if you. If you take 2019 as a base here and just like look at the high level number.

Our topline growth was <unk>.

70% to 80% down between shipments and Depletions.

Like versus 2019, we have grown the topline over 70% our our <unk> event in the same timeframe has grown 60%. So that's 10 points below that.

Speaker 7: our AP&S spend in the same timeframe has grown 60%. So that's 10 points below that shows your leverage. I would argue with such a growth rate, you should see more leverage that you're gonna get. So we kept the spending high because we were going after share. But that also means we have sizable spending in our P&L that we can allocate to the brand. So.

That shows the leverage I would argue with such a growth rate you should see more leverage.

That youre going to get so we kept the spending high because you know we're going after share and but that also means we have.

Sizable spending in our P&L that we can allocate to the brand. So so while it looks like we are not increasing much reverses.

Speaker 7: So while it looks like we're not increasing much reverses last year, we feel the overall spend is quite healthy. And I would add

Last year we.

The overall spend is quite healthy.

And I wanted to ask okay.

But.

Speaker 3: I know it's been a long call, but I like to talk about this stuff. So I'm here as long as anybody has questions. And I think Dave and Frank are too. What I would say is, you know, I think what happened with Truly was once in a lifetime. That my main focus around rocket launching, derived back from the

I know, it's been a long call but.

I'd like to talk about the steps so I'm here as long as anybody has questions and I think David Frank are too.

What I would say is.

I think what happened with truly.

<unk> was once in a lifetime.

It's not going to happen again.

Speaker 3: In the last 50 years, there have been like two huge, really disruptive beer innovations. One was light beer. And that took, you know, at least 10 years to get to 10% share, and the second was hard seltzer. And that got there in four and a half years.

And.

Yes.

And the last 50 years have been like two huge.

Really disruptive renovations one was light beer.

And that took it Lee.

These 10 years to get the 10% share in the second was hard seltzer and that got there.

In four and a half years.

Speaker 3: The hard sell phenomenon was exactly that, a phenomenon. So at least as I've been thinking about our innovation going forward, we're innovating into a fairly fragmented category. Consumers are getting more and more niche-y as they choose beverages by occasion and by cost and who they're drinking with and what time of day. So that's really the innovation.

That.

Hard seltzer phenomenon was exactly that a phenomenon so at least as I've been thinking about our innovation going forward.

Innovating into a fairly pragmatic category consumers are getting more and more niche.

As they choose beverages by occasion and by cost and who they are drinking with and what time of day.

The innovations.

Speaker 3: may take longer to develop, and they're not going to turn into 10% of the beer category. So something like Bevy, we think it's got a lot of promise, but it's not going to be like truly was. It's just not going to take off that way.

Hey.

It will take longer to develop.

And they're not going to turn into 10% of the beer category, So something like bevy.

We think it's got a lot of promise, but it's not going to be like.

Truly wise.

It's just not going to take off that way.

And it may take seven years to develop and then of course. The Best example is twisted tea, which is now a major brand big part of our business Big driver of our growth in 2022.

Speaker 3: it may take some years to develop.

Speaker 3: The best example is Twisted Tea, which is now a major brand, big part of our business, big driver of our growth in 2022. That brand has grown double digits for over 20 years, but it never grew triple.

And that brand has grown double digits for over 20 years, but it never grew triple digits.

Speaker 3: And, you know, Seltzer truly, I guess, grew triple digits.

And seltzer truly I guess grew triple digits.

The first.

Speaker 3: four years. He never did, but it has the same kind of potential to be as big as Truly at some point. It'll just take it 25 years.

Four years.

Key never did.

Has the same kind of potential to be as big as truly at some point. It will just take it 25 years instead of 'twenty. So we are kind of truly.

Speaker 3: So we are kind of, you know, we truly hit a grand slam.

Truly we hit a grand Slam home run.

Speaker 3: We've never done that before. We'll probably never do it again. Our business has historically been built on.

Sure.

<unk> never done that before we'll probably never do it again, our business has historically been built.

On <unk>.

Speaker 3: retail execution, the blocking and tackling, high quality product.

Retail execution blocking and tackling high quality products that slowly find their place in the marketplace and we score and run by.

Speaker 3: slowly find their place in the marketplace and we score runs by, you know, singles, occasional doubles, maybe a bunch or a sacrifice fly. And I think that's more going to characterize the future than pulling another rabbit out of the hat like we did with Truly.

Singles occasional doubles, maybe of bonds or a sacrifice fly and I think that's more going to characterize the future there.

And pulling another.

A rabbit out of the hat like we did with truly.

Thank you Jim I really appreciate that perspective.

Speaker 10: Thank you, Jim. I really appreciate that perspective. And since you gave me the opportunity, I'm going to have to follow up, and it's for you.

Gave me the opportunity I am going to ask a follow up for you.

I think your comment during the prepared remarks around some of the near term softness really stood out to me.

Speaker 10: comment during the prepared remarks around some of the near term softness really stood out to me because you did call out.

Because you did call out consumers kind of response to inflationary pressures in it when I try to pair that with some of the commentary that Frank offered in terms of the narrowing of your pricing outlook at the high end of the range.

Speaker 10: response to inflationary pressures. And when I try to pair that with some of the commentary that Frank offered in terms of the narrowing of your pricing outlook at the high end of the range, I'm just curious if there is any kind of incremental detail you can offer in terms of what you're seeing in terms of the health of the consumer. Because I feel like most of your larger CPG peers are just really leaning into pricing, and they assume the consumer can absorb all of it. It seems like perhaps you're a little bit more cautious.

I'm curious if there is any kind of incremental detail you can offer in terms of what youre seeing in terms of the health of the consumer because I feel like most of your larger CPG peers really leaning into pricing and they assume the consumer can absorb all of that and it seems like perhaps you're in here a little bit.

More cautious on that thank you.

Yes, it's I mean, it's a competitive industry.

Speaker 3: Yeah, it's a competitive industry. So, pricing is maybe a little more restrained than a lot of other CPG categories because it is, we all want to grow share, we're all very mindful of volume.

So pricing.

That is maybe a little more restrained than a lot of other CPG categories because it is.

And we all want to grow share, we're all very mindful of volume.

And it just.

Speaker 3: competitive in some ways. And I think we're also, and our revenue per barrel is maybe not, might not grow as much as other people's because we don't have to trade up.

It is competitive in some ways.

Yeah.

And I think.

We're all so and so.

And R R.

Our revenue per barrel.

And maybe not.

Might not grow as much as other people because we don't have to trade up opportunities pretty much.

Speaker 3: Pretty much all the big players, they can get their revenue per barrel up by dumping the low end of their brand portfolio and trying to replace it, maybe not fully replacing it at the high end, but their revenue per barrel goes up more than ours because we don't have a high end.

All the big players.

They can get the revenue per barrel up by dumping the low end of their brand portfolio.

And.

And trying to replace it maybe not fully replacing in at the high end, but the revenue per barrel goes up.

More than ours, because we don't have a high end to migrate and we don't have a low end to dump.

Speaker 3: migrate and we don't have a low end to dump. And I guess the last thing is just frankly I think we've been surprised by this.

And I guess the last thing.

Frankly, I think we've been surprised by the softness.

Speaker 3: uh, in the first six weeks of the year. I mean, it's, uh, I think the whole industry has.

And the first six weeks of.

The year.

And I think the whole industry has dipped.

Speaker 3: depending on your data source, volume is down 6-10%.

Depending on your data stores volume is down kind of 6% to 10%.

For no obvious apparent.

Speaker 3: And you can explain a little bit of it by some timing changes, notably the Super Bowl being, you know, a week later this year. So we're looking at an IRI data set that last year has a Super Bowl and this year didn't. So we're looking at a little bit of noise around, I think.

And you can explain a little bit of it is some timing changes, notably the Super Bowl being a week later this year. So we're looking at in IRI data set.

And that last year had the Super Bowl and this you didnt.

A little bit of noise around that I think.

Speaker 3: you know, new year's day was on a Monday, that made him.

Jan.

New year's day was on a Monday that made them.

Uh huh.

Speaker 3: It's better if it's in the middle of the week. There's a little bit of noise like that, but frankly it doesn't explain what we're seeing and I Honestly, I don't know.

It's better if it's in the middle of the week, there's a little bit of noise like that but frankly, it doesn't explain well being.

Honestly I don't know.

I really appreciate the perspective, thank you.

Speaker 1: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Wendy Nicholson with City. You may proceed with your question.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Our next question comes from the line of Wendy Nicholson with Citi. You May proceed with your question.

Speaker 12: Hi guys. My question is kind of a follow up to a lot of the things we've talked about. And I guess it's more a question of how you approach managing the business.

Hi, guys.

Question is kind of a follow up to a lot of the things we've talked about and I guess its more question of how you approach managing the business kind of given the.

Speaker 12: kind of given the lack of ability on anyone's part to really forecast the business. And I say that in the context of just the increasing SKU complexity in your business and the fact that lemonade was a hit but punch was not. Looks like margarine is going to be a hit but might cannibalize something else. So you said a couple of times, hey, our focus is to make sure we have enough product on the shelves.

The lack of ability.

Any ones part to really forecast the business and I say that in the context of just the increasing SKU complexity in your business and the fact that lemonade was a hit but punch was not looks like Margaret it's going to be a hit but might cannibalize something else. So.

You said a couple of times here, our focus is to make sure we have enough product on the shelves.

Speaker 12: But the reality is, your margins were a lot stronger when you head out of stocks. And so I'm just, I'm sort of wondering, should we be bracing for more write downs this year? Because the odds that you're able to forecast exactly which SKUs sell, are you going to be able to forecast exactly which SKUs sell?

But the reality is your margins were a lot stronger when you have out of stocks.

And so I'm just sort of wondering should we be bracing for a write down this year because the odds that you were able to forecast exactly which is to use cell.

Speaker 12: how well seems very low and again that's not a that's not a statement about you that's just a statement about how quickly the industry is changing so so so curious about your priority of making sure you've got the inventory out there even if it costs you on the margins or even if there's a risk of another write-down

How well seems very very low and again, that's not that's not a statement about you could that's just a statement about how quickly the industry is changing so.

So curious about your priority.

Sure you've got the inventory out there even if it cost you on the margins or even if theres a risk of another write down.

Okay.

Speaker 7: I can go first.

Yes.

Go for it so.

Speaker 7: Wendy, I think the situation last year was very, very different. We had, like as we said at the beginning of the year, we're thinking that the hot sales category was going to double. We wanted to be really prepared. We saw truly gaining shares. So that was a massive increase versus the prior year. And we had incurred out of stocks in 2020 and in 2019.

I think the situation last it was very very different.

We had like.

We said at the beginning of the year, we're thinking that the the hard seltzer category was going to double.

Wanted to be.

The preferred we saw truly gaming data so that was a massive increase versus the prior year and we had incurred out of stocks. In 2020 ended 2019. So we did line everything up to have the capacity to.

Speaker 7: So we did line everything up to have the capacity.

Speaker 7: to have the cans available and to have the flavors. Those were the three bottlenecks. So we committed to everything at the beginning of the year for peak season.

The cancer available in 12 flavors those were the three bottlenecks. So we committed to everything at the beginning of the year for peak season, when it slowed down we had there was no way to react because we didn't have the capacity.

Speaker 7: When it slowed down, we had everything. There was no way to react because we didn't have the capacity. That picture has changed dramatically.

That picture has changed dramatically so.

Speaker 7: we at the end of the year we ended up with too much capacity to the point that we had to cancel external manufacturing contracts. We still have a lot of capacity.

At the end of the year, we ended up with too much capacity to the point that we have to cancel.

External manufacturing contract, we still have a lot of capacity, we don't prebuilt anymore.

Speaker 7: So our reactivity and firepower has greatly improved. Now, we need to execute between the external and the internal because we wanna run our internal breweries 100%, but we're not really producing a ton of inventory. In fact, our ultimate objective is to go to a replenishment model which will significantly reduce inventories. Now, that's hard to execute.

So so OLED reactivity and.

And fire power has greatly improve now we need to execute between the external and the internal because we want to run our internal breweries are 100%, but we're not really producing a ton of inventory in fact.

Our ultimate objective is to go to a replenishment model, which will significantly reduce inventories now.

Hard to execute at the moment, because we don't have the systems and the processes that we talked about supply chain transformation, which will enable that but we should not see a repeat of what happened in 2021, just because of the sheer size of the increase and the growth that we experienced that were forecasting in 'twenty one.

Speaker 7: At the moment, because we don't have the systems and the processes that we talked about supply chain transformation, which will enable that.

Speaker 7: But we should not see a repeat of what happened in 2021 just because of the sheer size of the increase and the growth that we experienced and we were forecasting in 2021. That's not the case in 2022.

That's not the case in 2022.

Speaker 12: Fair enough, but for example, I know you've called out a couple of times the damaged goods in the fourth quarter and I think it was $14 million, the charge that you took for that.

Fair enough, but for example, I know you've called out a couple of times the damaged goods in the fourth quarter and I think it was $14 million charge that you took for that.

Speaker 12: Again, it's not a big number, it's kind of a rounding error, but at the same time, damaged goods are something we don't hear about all the time. So I'm wondering, in this shifting supply chain, in this increasingly complex supply chain, what led to the damaged goods? Was that on your part? Was it because you used a newer third-party supplier who wasn't as good as the ones you've used historically? Again, I just want to make sure that some of the supply chain stuff that you got stuck with over the last couple of quarters really is truly behind us.

Again, it's not a big number it's kind of a rounding error, but at the same time damage because theres something we don't care about all the time, so I am wondering.

In this shifting supply chain in this increasingly complex supply chain, what led to the damaged goods was that on your part was it because you used a new or a third party supplier who wasn't as good as the ones you've used historically again just wanted to make sure that some of the supply chain stuff that you've got stuck with over the last couple of quarters.

Really is truly behind us.

Speaker 7: So when it comes to damaged goods, there was a certain part that was unique and there was the aftermath of the tremendous stock build. Normally you have like two to four weeks in inventory as a wholesaler. It rotates through your visibility of the product. What happened is that we were building up to significantly higher weeks of supply that then.

So when it comes to damaged goods there was certain part there was unique and there was the aftermath of the tremendous stock, but a few of those.

Normally you have like you have two to four weeks of inventory at the wholesaler if voltage to give visibility of the product what happened.

Debt.

We were building up to significantly higher weeks of supply that then suddenly double because of the demand didn't come through so that the product stays a very long time.

Speaker 7: suddenly doubled because the demand didn't come through. So the product stayed a very long time in inventory, and it wasn't really visible, it didn't turn. So when we had certain damage and the product was leaking, the damage was growing and it was invisible. So it was a bit of a result of like that we had that much inventory. And as we have more manageable inventory, that part should not really repeat to the same extent. Having said that, we need to execute on our supply chain. There's no, I don't wanna take that away. There's work to be done as we improve, but the big ticket items.

<unk>.

And inventory and it wasn't really visible it didnt turn so when we had certain damage and the product was leaking the damage was growing and it was invisible. So it was a bit of a result of that we have at that much inventory and as we have more manageable inventory that part sure.

Not really repeat to the same extent, having said that we need to execute on our supply chain does not I don't want to take that away there's work to be done.

As we improve but the big ticket items.

Speaker 7: that led to the major write-offs.

That too.

The major write offs those big ticket items should be behind us if the volume doesn't change dramatically versus our forecast.

Speaker 7: Those big ticket items should be behind us if the volume doesn't change dramatically versus our forecast.

Fair enough. Thank you. Thank you very much.

Yes.

Speaker 1: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Jim Cook for closing remarks.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Jim Koch for closing remarks.

Speaker 3: All right, well, thank you for your endurance and we'll talk again in a couple of months.

Alright.

Well. Thank you for your endurance and we'll talk again in a couple of months.

Bye now.

Speaker 1: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day and remember the rest of your day.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and you go to the rest of your day.

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