Q1 2024 Boston Beer Co Inc Earnings Call

Operator: Greetings and welcome to the Boston Beer Company first quarter 2024 earnings 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 the conference, please press star zero on your telephone keypad.

Greetings and welcome to the Boston Beer Company first quarter 2024 earnings 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 the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin.

Operator: It is now my pleasure to introduce to you Mike Andrews Associate General Counsel and corporate Secretary. Thank.

Michael G. Andrews: Thank you Mike you may begin.

Yeah.

Michael G. Andrews: Thank you. Good afternoon, and welcome.

Thank you good afternoon and welcome. This is Mike Andrews Associate General Counsel and corporate Secretary of the Boston Beer Company I'm pleased to kick off our 2024 first quarter earnings call joining.

Michael G. Andrews: This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2024 First Quarter Earnings. Joining the call from Boston Beer are Jim Cook, founder and chairman, Michael Spillane, our CEO, and Diego Reynoso, our CFO. 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 reflects the company's or management's expectations or predictions of the future.

Speaker Change: Joining the call from Boston Beer are Jim Koch, founder and Chairman, Michael Splaine, Our CEO and Diego right now so our CFO.

Before we discuss our business I'll start with our disclaimer.

Speaker Change: As we stated in our earnings release some of the information, we discuss and that May come up on this call reflects the companys or managements expectations or predictions of the future such predictions are forward looking statements.

Michael G. Andrews: Such predictions are forward-looking statements. It's important to note that the company's actual results could differ clearly from those projected in these four 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. 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.

Speaker Change: It's important to note that the company's actual results could differ materially 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 the company does not undertake to publicly update forward looking.

Statements, whether as a result of new information future events or otherwise.

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

Jim Cook: Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Michael, who will provide an overview of our business. Michael will then turn the call over to Diego, who will focus on the financial details of our first quarter results, as well as our outlook for the remainder of 2024. Immediately following Diego's comments, we will open the line for questions.

Jim: Thanks, Mike I'll begin my remarks. This afternoon with a few introductory comments and then hand over to Michael who will provide an overview of our business. Michael will then turn the call over to Diego, who will focus on the financial details of our first quarter results as well as our outlook for the remainder of 2020 for immediate.

Jim Cook: Following diego's comments, we will open the line for questions.

Jim Cook: We were pleased to see flat depletions in the first quarter and to deliver revenue growth. Twisted Tea continues its strong momentum, and we continue to make steady progress on our margin enhancement initiative. Our strategy to return to long-term sustainable growth through investing in our powerful brands and continuing to innovate in Beyond Beer remains unchanged. The cash generative nature of our business and our strong balance sheet have supported our repurchase of $65 million in stock thus far in 2024.

Michael: We were pleased to see flat depletions in the first quarter and to deliver revenue growth twisted tea continues its strong momentum and we continue to make steady progress on our margin enhancement initiatives our strategy to return to long term sustainable growth through investing in our powerful brands.

Speaker Change: And continuing to innovate and beyond beer remains unchanged.

Michael: Cash generative nature of our business and our strong balance sheet, a coordinated our repurchase of $65 million in stock thus far in 2024.

Jim Cook: I'd like to thank our Boston Beer Company team, distributors, and retailers for their support in a solid start to the year. And I'm delighted to have on the call today Michael Spillane, who formally joined as our CEO earlier this month. Michael's strong operational experience in consumer products and his long history with our company make him the ideal choice to continue the implementation of our strategy to return to long-term growth. I'd also like to take this opportunity to thank Dave Burwick for his 19 years of excellent contributions to Boston Beer and his assistance to Michael in the transition. I will now pass the call over to Michael.

Speaker Change: I'd like to thank our Boston Beer company team distributors and retailers for their support and a solid start to the year and I'm delighted to have on the call today, Michael Spillane, formerly joined as our CEO earlier this month, Michael strong operational experience in consumer products.

And as long history, with our company and make him the ideal choice to continue the implementation of our strategy to return to long term growth I'd also like to take this opportunity to thank Dave Burwick for his 19 years of excellent contributions to Boston beer and assistance.

To Michael in the transition.

Michael: I will now pass the call over to Michael.

Michael G. Andrews: Thanks Jim, and good afternoon everyone. I'm excited to become Boston Beer's president and CEO after serving as a board member for eight years. I spent my first few weeks meeting with our team, our distributors, and visiting the breweries, which has reinforced my conviction and the opportunities that lie ahead for the company. Boston Beer has powerful brand equity, the best sales force in beer, and a strong team with a unique entrepreneurial culture.

Thanks, Jim and good afternoon, everyone I'm excited to join Boston beer as President and CEO after serving as a board member for eight years.

Michael: I spent my first few weeks meeting with our team our distributors and visiting the breweries, which has been reinforced my conviction in the opportunities that lie ahead for the company Boston Beer has powerful brand equities. The best sales force in beer and a strong team with a unique entrepreneurialism culture.

Michael G. Andrews: The cash generation of this business is powerful and allows us the option to invest in our brands and long-term innovation. We remain focused on implementing our strategy to deliver long-term sustainable growth and improve our operational efficiency while being disciplined stewards of capital. Our highest priority as a company is to return to delivering sustainable volume growth.

Michael: The cash generation of this business is powerful and allows us the optionality to invest in our brands and long term innovation.

Michael G. Andrews: We remain focused on implementing our strategy to liberal long term sustainable growth and improve our operational efficiency, while being disciplined stewards of capital.

Michael: Highest priority of our Coke as a company is to return to delivering sustainable volume growth. This involves protecting and nurturing our core brands so that they reach their full potential.

Michael G. Andrews: This involves protecting and nurturing our core brands so that they may reach their full potential while continuing to drive innovation in Beyond Beer, which we expect to drive category growth. For our core brands, we're highly focused on providing the appropriate levels of marketing spend on both working media to drive awareness and attract new customers, as well as in-store at the point of sale to drive conversion. Working with our distributors and retailers, we will continue to focus on maintaining strong service levels and ensuring we recapture and regain the share of shelf that our core brands deserve.

Michael: Central while continuing to drive innovation and beyond beer, which we expect to drive category growth.

Michael G. Andrews: In our core brands, we're highly focused on providing the appropriate levels of marketing spend on both working media to drive awareness and attract new customers as well as in store at the point of sale to drive conversion it working.

Michael G. Andrews: Working with our distributors and retailers will continue to focus on maintaining strong service levels and ensuring we recapture and recapture the share of shelf that our core brands deserved.

Michael G. Andrews: Finally, we'll continue to innovate on our core brands, and we'll be fine-tuning our product roadmap to manage innovation and line extensions in a disciplined way. Within our core brands, Twisted T's momentum continues with dollar sales up 21% in the first quarter, while growing share by 1.4 points in measured channels. We continue to increase distribution while maintaining strong sales per point and achieved additional space in the spring shelf reset. Twisted Tea is the original hard tea brand with strong brand awareness and loyalty, and we intend to invest appropriately to maintain the number one share position with strong growth.

Michael G. Andrews: Finally, we will continue to innovate on our core brands and we'll be fine tuning our product roadmap to manage innovation and line extensions and a disciplined area.

Michael G. Andrews: Within our core brands twisted keeps momentum continues with dollar sales up 21% in the first quarter, while growing share by one four points in measured channels. We continue to increase distribution, while maintaining strong sales per point and achieved additional space in the spring so shelf resets twisted tea is the.

Michael: Original hard tea brand with strong brand awareness and loyalty and we intend to invest appropriately to maintain the number one share position with strong growth.

Michael G. Andrews: Twisted Tea Lite continues to be highly incremental, and we're encouraged by the early results in test markets of a higher ABV Twisted Tea Extreme. We remain focused on stabilizing truly and have seen sequential improvement in our lighter flavor variety bags and single-serve packaging. However, the hard seltzer category remains under pressure in 2024, and we continue to expect category volume declines in the low teens. Thule is now a smaller part of our business mix, given Twisted's strong growth, but remains a 20% share of hard seltzer in measured channels, and we're working diligently to improve its trajectory.

Michael G. Andrews: Twisted tea light continues to be highly incremental and we're encouraged by the early results in test markets have a higher ABV twisted tea extreme.

Michael: We remain focused on stabilizing truly ever seen sequential improvement in our wider flavor variety packs and single serve packages. However, the hard seltzer category remains under pressure in 2024, and we continue to expect category volume declines in the low teens.

Michael: <unk> is now a smaller part of our business mix given twisted strong growth, but remains at 20% share of hard seltzer in measured channels and we're working on we're working diligently to improve its trajectory.

Michael G. Andrews: Across our other core brands, Sam Adams, Angry Orchard, and Dogfish Head, we see areas of opportunity and remain focused on nurturing these brands, which remain an important part of our portfolio and the company's craft legacy. We introduced the new Sam Adams packaging late in the first quarter, and we'll continue to invest in Boston Lager, Seasonals, and new innovation, as well as our non-alcohol offering. Sam Adams, a non-alcoholic beverage, grew 52% in dollars in the first quarter in Medley Channel.

Michael G. Andrews: Across our other core brands, Sam Adams, angry Orchard, and dogfish head, we see areas of opportunity and remain focused on nurturing these brands, which remain an important part of our portfolio and the company's craft legacy.

Michael G. Andrews: We introduced the new Sam Adams packaging late in the first quarter. It will continue to invest in Boston lager seasonal and new innovation as well as our non at all offerings, Sam Adams and nonalcoholic grew 52% in dollars in the first quarter in measured channels.

Michael G. Andrews: In addition to supporting our core brands, we'll continue to focus on long-term product innovation to plant seeds for future growth. Our goal is to generate a steady cadence of brand innovations, which will be tested in smaller markets to determine the winners and move forward to national launches. Our 2024 innovations in the early stages of rollout will have more significant impact in the second half of the year. Suncruiser Vodka-based tea is in its early stages of on-shelf availability and has thus far been well-received by distributors and retailers. Hard Mountain Dew has begun to transition to our network and positions us well to expand the reach and consumption of hard dew as we eventually will achieve national distribution.

Michael: In addition to supporting our core brands will continue to focus on long term product innovations to plant seeds for future growth. Our goal is to generate a steady cadence of brand innovations, which will test in smaller markets to determine the winners and move forward to national launches. Our 2020 for innovations in the early stages of rollout we will have more cigna.

Michael: Impact in the second half of the year.

Michael: Some cruiser vodka base T is in its early stages of on shelf availability and thus far has been well received by distributors and retailers hard mountain Dew has begun to transition to our network and positions us well to expand the reach and consumption that hard to do as we eventually will achieve national distribution.

Michael G. Andrews: Today we are reiterating our 2024 volume guidance of down low single digits or up low single digits. While the first quarter is a solid start to the year, it's a smaller quarter, and our Q selling season remains ahead of us. In my first few months at the company, I will continue to focus on further refining our product roadmap and innovation process. I believe we have the right teams, infrastructure, and strategies in place to return to long-term volume growth.

Today, we are reiterating our 2020 for volume guidance of down low single digits single digits or up low single digits. While the first quarter was a solid start to the year, it's a smaller quarter and our key selling season remains ahead of us.

Michael G. Andrews: In my first few months at the company I will continue to focus on further refining our product roadmap and innovation process. I believe we have the right teams infrastructure and strategies in place to return to long term volume growth I'm excited to work with the team our distributors and retailers to deliver on our objectives and look for.

Michael G. Andrews: I'm excited to work with the team, our distributors, and retailers to deliver on our objectives and look forward to meeting investors and analysts in the month ahead. I'll now pass the call over to Diego to review our first quarter results and 2024 guidance.

Michael: To meeting investors and analysts in the months ahead I'll now pass the call over to Diego to review, our first quarter results and 2020 for guidance.

Michael G. Andrews: Yeah.

Diego Reynoso: Thank you, Michael. Good afternoon, everyone.

Thank you Michael good afternoon, everyone.

Diego Reynoso: The depletions in the first quarter were flat, and shipments increased 0.9 percent from the prior year, primarily due to the growth in Twisted Teeth, offset by declines in Truly Hot Seltzer and our other brands. Shipments were higher than depletions as distributors built inventories to support our peak selling season, and we shipped some additional product to support the implementation of our new automated customer ordering and inventory management. We believe this system, along with other improvements in our supply chain process, will help us further reduce waste and optimize our network.

Diego Reynoso: Completions in the first quarter were flat shipments increased <unk>, 9% from the prior year.

Primarily due to the growth interested Pete offset by declines in truly hard seltzer and our other brands.

Diego Reynoso: Shipments were higher than Depletions as distributors built inventory to support our peak selling season, and we shipped some additional product to support the implementation of our new automated customer ordering and inventory management system.

Diego Reynoso: We believe this system along with other improvements in our supply chain process will help us further reduce waste and optimize our network.

Diego Reynoso: We believe that Schroeder Inventories, as of March 30, 2024, were at an appropriate level for each of our brands and averaged approximately four and a half weeks on hand, compared to four weeks on hand at the end of the fourth quarter of 2023 and mirroring the four and a half weeks at the end of the first quarter of 2023. Revenue for the quarter increased 3.9% due to volume increases, pricing, and lower returns.

Diego Reynoso: We believe distributor inventories as of March 32020 for what's an appropriate level for each of our brands and average approximately four and a half weeks on hand compared to four weeks on hand at the end of the fourth quarter of 2023, and mirroring the four and a half weeks at the end of the first quarter of 2023.

Diego Reynoso: Revenue for the quarter increased three 9%.

Diego Reynoso: Volume increases pricing and lower returns or underlying pricing for the first quarter was consistent with our full year guidance rich with additional benefits from the lower returns.

Diego Reynoso: Our underlying pricing for the first quarter was consistent with our full-year guidance, with additional benefits from the lower return. Please note that we do not expect the benefits from the returns in the first quarter to continue for the balance of the year.

Michael: Please note that we do not expect the benefits from the returns in the first quarter to continue in the balance of the year.

Diego Reynoso: Our first quarter gross margin of 43.7% increased 570 basis points year-over-year on a reported basis. Gross Margin was up 360 basis points year-over-year, excluding one time in the prior year quarter related to a truly black Caselto rebrand and the non-recurrent payment to a third-party contract broker. The underlying gross margin expansion in the quarter was primarily related to pricing, including a benefit from lower returns, procurement savings, and improved brewery performance on higher volumes, which were somewhat offset by inflationary costs.

Diego Reynoso: Our first quarter gross margin of 43, 7% increased 570 basis points year over year on a reported basis.

Diego Reynoso: Gross margin was up 360 basis points year over year, excluding one time in the prior year quarter related to a truly like to sell to a rebrand and the nonrecurring payments to a third party contract Brewer.

Diego Reynoso: Underlying gross margin expansion in the quarter was primarily related to pricing, including a benefit from lower returns procurement savings and improved brewery performance on higher volumes, which were somewhat offset by inflationary costs.

Diego Reynoso: Excluding sure fall fees and third-party production prepayments, which we've discussed in prior calls, our gross margin was 44.9%. Advertising, promotion, and selling expenses for the first quarter of 2024 decreased $5.2 million, or 4.1%, from the first quarter of 2023. Due to lower freight costs, it's a result of both lower rates and efficiency.

Diego Reynoso: Excluding shortfall fees and third party production prepayments, which we've discussed in prior calls our gross margin was 44, 9%.

Diego Reynoso: Advertising promotional and selling expenses for the first quarter of 2024 decreased $5 2 million or four 1%.

Diego Reynoso: From the first quarter of 2023 due to lower freight costs as a result of both lower rates and efficiencies.

Diego Reynoso: Within brand investment, we increased our media spend which was more than offset by declines in other promotional spending.

Diego Reynoso: Within brand investment, we increased our media spend, which was more than offset by declines in other promotional spend. General administrative expenses increased $6.7 million, or 15.3% year over year, primarily due to higher salaries and benefits, which included chief executive officer transition costs that were fully expensed in the first quarter, partially offset by decreased consulting. We reported EPS of $1.04 per diluted share, compared to a net loss of $0.73 per diluted share in the first quarter of 2023.

Michael: General administrative expenses increased $6 7 million or 15, 3% year over year.

Diego Reynoso: Primarily due to higher salaries and benefits us.

Diego Reynoso: Which includes chief Executive officer transition costs that were fully expensed in the first quarter.

Diego Reynoso: Partially offset by decreased consulting costs.

Michael: We reported EPS of $1 four per diluted share compared to a net loss of 73 per diluted share in the first quarter of 2023 for.

Diego Reynoso: The year over year improvement was driven by higher revenue and higher gross margins are.

Michael: Our tax rate of 33 point.

Michael: Zero percent in the first quarter was higher than our plan right, which was driven by nondeductible compensation expense related to the CEO transition cost.

Diego Reynoso: The year-over-year improvement was driven by higher revenue and higher gross market. Our tax rate of 33.0% in the first quarter was higher than our plan rate, which was driven by non-deductible compensation expense related to the CEO transition.

Speaker Change: Now I'll discuss our 2020 for guidance.

Diego Reynoso: Our fiscal week depletion trends for the first six weeks of 2024 have decreased 2% from 2023.

Diego Reynoso: We are reiterating our 2020 for volume and EPS guidance from our February call and updating our full year tax guidance to 28, 5% due to an increase in estimated non deductible compensation.

Diego Reynoso: Now I'll discuss our 2024 guide. Our fiscal week depletion trends for the first 16 weeks of 2024 have decreased 2% from 2023. We are reiterating our 2024 volume and EPS guidelines from our February talk and updating our full-year tax guidance to 28.5% due to an increase in estimated non-deductible compensation expenses related to our CEO transition. We continue to expect 2024 depletions and shipments to range between a decrease of low single digits to an increase of low single digits.

Diego Reynoso: Expenses related to our CEO transition cost.

Diego Reynoso: We continue to expect 2024, depletions and shipments to range between a decrease of low single digits to an increase of low single digits.

Diego Reynoso: We expect price increases between one and 2%.

Diego Reynoso: Full year 2024 reported gross margins are expected to be between 43% and 45%.

Diego Reynoso: We expect commodity inflation in 2024, but at a lower rate than 2023, primarily driven by street and there are some flavor rates.

Diego Reynoso: We expect price increases between 1% and 2%. Full year 2024 reported margins are expected to be between 43 and 45%. We expect commodity inflation in 2024, but at a lower rate than in 2023, primarily driven by street nurse employees.

Diego Reynoso: We continue to expect to cover commodity inflation.

Diego Reynoso: With pricing.

Diego Reynoso: But do expect some of the digital margin headwinds from higher labor costs in our breweries.

Diego Reynoso: Where we land within the range of our guidance will be somewhat dependent on the mix of products sold.

Diego Reynoso: The contractual shortfall fees and production prepayments and Amortizations that we discussed in our last call are expected to have a lower negative impact on full year 2024, reducing from 175 to $2 25 basis points to 135 to 185 due to changes in the timing of our production prepayment.

Diego Reynoso: We continue to expect to cover commodity inflation dollars with pricing but do expect some additional margin headwinds from higher labor costs in our. Where we land within the range of our guidance will be somewhat dependent on the mix of products. The contractual shortfall fees and production prepayments amortizations that we discussed in our last call are expected to have a lower negative impact on full year 2020. Reducing from 175 to 225 basis points to 135 to 185 due to changes in the timing of our production prepayment armor sales.

Diego Reynoso: Our amortization.

Diego Reynoso: As these contractual terms expire we will reassess our capacity needs and commitments with our third party production partners.

Diego Reynoso: Our investments in advertising promotional and selling expenses are expected to range from a decrease of $5 million to an increase of $15 million.

Diego Reynoso: This does not include any changes in freight costs for shipments of our products to our distributors.

Diego Reynoso: As these contractual terms expire, we will reassess our capacity needs and commitments with our third-party production partners. Our investments in advertising, promotional, and selling expenses are expected to range from a decrease of $5 million to an increase of $15 million. This does not include any changes in freight costs for the shipments of our products to our distributors. We are currently targeting full year 2024 earnings per diluted share of between $7 and $11.

Diego Reynoso: We are currently targeting full year 2024 earnings per diluted share of between $7 and $11. This projection is highly sensitive to changes in volume projections mix of owned versus partner brands supply chain performance and inflationary impacts on consumer spending.

Diego Reynoso: As you model out the year. Please keep in mind that our revenue performance is impacted by seasonal volume changes and timing of shipments.

Diego Reynoso: During the first quarter shipment trends were above depletion trends and we're currently estimated that they will rebalance resulted in shipment trends being lower than depletion trends in the second quarter.

Diego Reynoso: Also please note that the fourth quarter is typically our lowest absolute gross margin of the year.

Diego Reynoso: This projection is highly sensitive to changes in volume projections, the mix of owned versus partner brands, supply chain performance, and inflationary impacts on consumer spending. As you model out the year, please keep in mind that our revenue performance is impacted by seasonal volume changes and timing of shipments. During the first quarter, shipment trends were above depletion trends, and it is currently estimated that they will rebalance, resulting in shipment trends being lower than depletion trends in the second quarter. Also, please note that the fourth quarter is typically our lowest absolute growth margin of the year.

Diego Reynoso: Yeah.

Diego Reynoso: Turning to capital allocation.

Diego Reynoso: We ended the quarter with a cash balance of $205 4 million and an unused credit line of $150 million.

Diego Reynoso: <unk> provides us with the flexibility to continue to invest in our base business fund.

Diego Reynoso: So on future growth initiatives and return cash to our shareholders through our share buyback program.

Diego Reynoso: For the full year 2024, we expect capital expenditures of between $90 million and $110 million. These investments will be primarily related to our own breweries to build capabilities and improve efficiencies.

Diego Reynoso: During the 13 week period ended.

Diego Reynoso: 32024, and the period from April one 2024 through April 19, 2024, we repurchased shares in the amount of $50 million and $15 million.

Diego Reynoso: Turning to capital allocation, we ended the quarter with a cash balance of $205.4 million and an unused credit line of $150 million, which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to our shareholders through our share buyback. For the full year 2024, we expect capital expenditures of between $90 million and $110 million. These investments will be primarily related to our own breweries to build capabilities and improve efficiency.

Diego Reynoso: As of April 19, 2024, we had approximately $200 million remaining under our $1 $2 billion share repurchase authorization.

Speaker Change: This concludes our prepared remarks and now we will open the line for questions.

Diego Reynoso: We will now 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 that your line is in the queue. You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Diego Reynoso: During the 13-week period ending March 30, 2024, and the period from April 1, 2024 through April 19, 2024, we repurchased shares in the amount of $50 million and $15 million. As of April 19, 2024, we had approximately $200 million remaining on the $1.2 billion share repurchase authorization. This concludes our prepared remarks. And now, we will open the line for questions.

Speaker Change: One moment, while we poll for questions.

Diego Reynoso: And our first question comes from the line of Rob Hottenstein with Evercore ISI. Please proceed with your question.

Speaker Change: Great. Thank you very much and congratulations Mike.

Speaker Change: A few questions. One can you give us any sense of what was going on in April or is this just kind of timing with Easter and and you know kind of best to look at all 16 weeks together in terms of giving a fair picture of current trends.

Operator: We will now 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 tone will indicate that your question is in the queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. Please wait while we poll for questions. And our first question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

Robert Edward Ottenstein: So that would be number one.

Robert Edward Ottenstein: Number two.

Robert Edward Ottenstein: Can you talk about truly shelf space gains.

Operator: And.

Robert Edward Ottenstein: In in the spring shelf sets for the core products. So I think I know I know a lot of the some of the flavor and the innovations are lost some shelf space I believe but did you actually gain any shelf space for the core business.

Robert Edward Ottenstein: Great, thank you very much and congratulations, Mike. A few questions. One, can you give us any sense of what was going on in April? Is this just kind of timing with Easter and, you know, kind of best to look at all 16 weeks together in terms of giving a fair picture of current trends?

Robert Edward Ottenstein: And why don't I leave it there. Thank you.

Robert Edward Ottenstein: Perfect.

Speaker Change: I'll take.

Speaker Change: So I'll take the first one.

Robert Edward Ottenstein: So if you do you want to take the petroleum personnel.

Mike: Well I'll take the first one.

Mike: Take the first one which is we look at it.

Robert Edward Ottenstein: Least kind of that 16 weeks 13 week period, because to your point there is year on year comparisons.

Michael G. Andrews: So, that would be number one. Number two... Can you talk about truly shelf space games? Uh, in the spring shelf sets for the core products. I know a lot of the flavor and the innovations lost some shelf space, I believe. But did you actually gain any shelf space for the core business? And one. I'll leave it there. Thanks.

Robert Edward Ottenstein: Easter moved theirs.

Michael G. Andrews: There is specific ordering patterns from distributors that went from year on year. So if you take one when you go forward you can always have the comparisons for so from our point of view, we always take 13 week comparison is enough to look at the trends of our brands.

Speaker Change: Alright, and then in terms of that truly shelf space.

Michael G. Andrews: It continues to be a very fluid situation where.

Michael G. Andrews: We're moving to some of the lighter flavors, we also have.

Michael G. Andrews: perfect I'll take so I'll take the first one, so if you do you want to take the truly best one first and then we'll go? Well, I'll take the first one then. I'll take the first one, which is we look at at least kind of 16 weeks, 13-week period because, to your point, there are year-on-year comparisons, Easter moved, there are specific ordering patterns from distributors that move year-on-year. So if you take one week or four weeks, you can always have the comparisons for. So from our point of view, we always take 13-week comparisons seriously enough to look at the trends of our brands. Right? And then, in terms of the truly

Michael G. Andrews: This year truly unruly rolling out is.

Michael G. Andrews: Is it the New addition to the line. So again I think we will look for kantar.

Michael G. Andrews: Continued.

Michael G. Andrews: Adjustments, where we will be losing some shelf space with the flavors that are tracking and.

Michael G. Andrews: Adding in some of the lighter flavors.

Speaker Change: Thank you.

Michael G. Andrews: And the next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Speaker Change: Great. Thank you and congratulations Michael as well from me.

Speaker Change: Two questions if I could one for one for you and then one for for Diego.

Michael G. Andrews:

Michael G. Andrews: Firstly for Michael just I guess, if you could I'd love for you to expand a bit.

Michael G. Andrews: Right, and then in terms of shelf space, it continues to be a very fluid situation where we're moving to some of the lighter flavors. We also have this year truly and really rolling out as a new addition to the line. So again, I think we'll look for continued adjustments where we will be losing some shelf space with the flavors that are tracking and adding in some of the lighter flavors.

Speaker Change: Any new priorities.

Speaker Change: Do you see for the organization of any points of emphasis that you have either strategically or operationally.

Michael G. Andrews: As you as you approach the role of that and then Diego.

Operator: And the next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Michael G. Andrews: The start to the year at least from I think from an outside perspective was a lot stronger than expected on gross margin.

Stephen Robert R. Powers: Great, thank you, and congratulations, Michael, as well as for me. Two questions, if I could, one for you and then one for Diego. Firstly, for Michael, I guess if you could, I'd love for you to expand a bit on any new priorities that you see for the organization, any points of emphasis that you have either strategically or operationally as you approach the role. I'd love that. And then, Diego, the start to the year, at least from an outside perspective, was a lot stronger than expected on gross margin.

Stephen Robert R. Powers: Curious how that compares to your own expectations coming into the quarter and if it makes you more comfortable.

Stephen Robert R. Powers: With the upper end of the gross margin range for the year or if it's too premature to make that call. Thank you.

Stephen Robert R. Powers: Okay.

Michael: Appreciate the congratulations I'm really excited to be here.

Stephen Robert R. Powers: I'd start off by saying I've been on the board for eight years. So I was very familiar with the team and the strategy and.

Stephen Robert R. Powers: I'm really impressed by both.

Stephen Robert R. Powers: I'm curious how it compares to your own expectations coming into the quarter, and if it now makes you more comfortable with the upper end of the gross margin range for the year, or if it's too premature to make that call. Thank you.

Stephen Robert R. Powers: Where I think I'm leaning in is just making sure that we're truly.

Stephen Robert R. Powers: Executing to that strategy and making sure that we have end to end alignment.

Stephen Robert R. Powers: We're truly we're really focused on growth.

Michael G. Andrews: So, I appreciate the congratulations. I'm really excited to be here.

Stephen Robert R. Powers: And getting back to that long term sustainable growth.

Michael G. Andrews: I'd start off by saying, you know, I've been on the board for eight years, so I am very familiar with the team and the strategy, and I'm really impressed by both. Where I think I'm leaning in is just making sure that we're truly executing on that strategy and making sure that we have end-to-end alignment. We're really focused on growth and getting back to that long-term sustainable growth and probably trying to get a little bit sharper on our innovation, making sure that it's distinctive, it's profitable, and it's scalable.

Michael G. Andrews: And then probably trying to get a little bit sharper on our innovation and making sure that it's distinctive.

Michael G. Andrews: Profitable and scalable so.

Michael G. Andrews: Again, but I want to emphasize we have a fantastic team in place and walked into a really good plan that we're just going to drill down too and make sure that we execute at a really high level.

Speaker Change: Alright, Steve in your gross margin question, what I would say is we're still very confident with our gross margin plan.

Michael G. Andrews: And that's why we're maintaining our guidance.

Michael G. Andrews: Similar to two of the question around year on year comparisons. The gross margin has year on year ups and downs when you compare but overall, we think we have a strong plan.

Michael G. Andrews: So, again, but I want to emphasize that we have a fantastic team in place and have walked into a really good plan that we're just going to drill down to and make sure that we execute at a really high level. All right, Stephen and...

Michael G. Andrews: And we are maintaining our guidance to arrive at high 42 <unk> in the next three years. So I think this is just more and more positive step down the line in that planning.

Michael G. Andrews: And the next question comes from the line of Bonnie Herzog from Goldman Sachs. Please proceed with your question.

Diego Reynoso: Steve, in your gross margin question, what I would say is we're still very confident with our gross margin plan, and that's why we're maintaining our guidance. Similar to the question around year-on-year comparisons, gross margin has year-on-year ups and downs when you compare, but overall, we think we have a strong plan, and we are maintaining our guidance to grow at high 40s to 50s in the next three years. So I think this is just one more positive step down the line in that plan.

Speaker Change: Alright, Thank you and congratulations from me too my call.

Speaker Change: I had a question on your advertising, which was down in the corner. What do you believe is the right level of advertising spend I guess, that's a percentage of sales moving forward.

Speaker Change: I'm trying to understand I guess on some level why you maybe don't see a need to increase spending as competition intensifies.

Operator: And the next question comes from the line of Bonnie Herzog from Goldman Sachs. Please proceed with your question.

Bonnie Lee Herzog: And then in an attempt to return truly end and maybe quite frankly, some of the other brands to growth.

Bonnie Lee Herzog: All right. Thank you. And congratulations to me too, Michael.

Bonnie Lee Herzog: I have a question about your advertising, which was down in the quarter. What do you believe is the right level of advertising spend as a percentage of sales moving forward? I'm trying to understand, I guess, on some level why you maybe don't see a need to increase spending as competition intensifies, you know, and then in an attempt to return truly and maybe, quite frankly, some of your other brands to growth. Your thoughts there would be helpful.

Bonnie Lee Herzog: Your thoughts there would be helpful.

Speaker Change: Great and thanks Bonnie.

Bonnie Lee Herzog: We're always looking at opportunities to invest where we see good returns and again a lot of this could be timing.

Bonnie Lee Herzog: To the extent, we have upside in our performance. This year, we may choose to invest back in.

Speaker Change: We're continuing again.

Bonnie Lee Herzog: Look where we can drive sustainable.

Bonnie Lee Herzog: Gross.

Bonnie Lee Herzog: Look for twisted tea, we continue to invest in new and strong investment there and reassess the rest of the portfolio as it is we will see fit but.

Michael G. Andrews: Great. And thanks, Bonnie.

Michael G. Andrews: You know, we're always looking at opportunities to invest where we see good returns. And again, a lot of this could be timing. To the extent that we have upside in our performance this year, we may choose to invest back in. We're continuing, again, to look where we can drive sustainable growth. Look for twisted tea.

Michael G. Andrews: We're aligned that.

Michael G. Andrews: Where we see upside in the performance, we would probably choose to reinvest in marketing.

Bonnie: Okay Bonnie.

Speaker Change: Yes, no general rule of thumb for us.

Michael G. Andrews:

Michael G. Andrews: We continue to invest in the strong investment there, and we assess the rest of the portfolio as we see fit. But we're aligned that where we see upside in the performance, we will probably choose to reinvest in marketing.

Michael G. Andrews: We are a growth company, that's a very important objective.

Michael G. Andrews: And so we will tend to as a rule of thumb.

Michael G. Andrews: Have a higher share of voice via our advertising.

Michael G. Andrews: Okay. And Bonnie, as a general rule of thumb for us, you know, we are a growth company, that's a very important objective. And so we will tend to, as a rule of thumb, have a higher share of voice via our advertising than our share market. Because, in the long haul, that generates, you know, share gains, and we're in growing categories.

Michael G. Andrews: Our share of market.

Michael G. Andrews: Because in the long haul that generates.

Michael G. Andrews: Share gain and we are in growing categories.

Speaker Change: Okay. So you guys still get about the spending levels, China kind of maintained the momentum behind twisted and then reaccelerate some growth here or stabilize I should say.

Michael G. Andrews: Truly.

Michael G. Andrews: Okay, so you guys feel good about the spending levels, trying to kind of maintain the momentum behind Twisted and then re-accelerate some growth or stabilize, I should say.

Bonnie: Okay, Yes, that's fair statement okay.

Bonnie: Okay. That's helpful and then if I could just ask another question on <unk>.

Michael G. Andrews: I'd love to hear a little bit more color on the performance for the Brandon in the quarter and again, maybe whether it has lived up to your expectations and ultimately you know what are your ambitions for the brand this year, especially in light of.

Michael G. Andrews: Okay. Yes, I think that's a fair statement. Okay.

Bonnie Lee Herzog: Okay, that's helpful. And then, if I could just ask another question on hardmat blue.

Bonnie Lee Herzog: I'd love to hear a little bit more color on the performance for the brand in the quarter and, you know, again, maybe whether it's lived up to your expectations. And ultimately, you know, what are your ambitions for the brand this year, especially in light of the comments you made earlier about your expectations for the hard seltzer category to decline in the low teens. And then could you guys confirm whether, you know, hard Mountain Dew is in your guidance or not? So perfect.

Bonnie Lee Herzog: You know the comments you made earlier about your expectations for the hard Seltzer category to decline in the low teens and then could you guys confirm whether you know hard mountain Dew, it's in your guidance or not thank you.

Speaker Change: So perfect so I'll I'll take that.

Bonnie Lee Herzog: The first one is a lot of the performance is.

Bonnie Lee Herzog: In areas that we have not rolled over the Brian So as we've mentioned before.

Michael G. Andrews: So, perfect. So, I'll take that.

Bonnie Lee Herzog: It's going to be a long a longer transition of the different states and the different pieces to move over from Blue cloud to our distribution network. So we do expect to have.

Michael G. Andrews: I think the first one is that a lot of the performance is in areas that we have not yet rolled over to the brand. So, as we've mentioned before, it's going to be a longer transition for the different states and the different pieces to move over from Blue Cloud to our distribution network. So, we do expect to have some ups and downs along the way, but in the long term, we feel it's a strong brand.

Michael G. Andrews: Some ups and downs, along the way, but in the long term, we feel it's a strong brand that has really good equity and I think bringing it into our distribution networks.

Michael G. Andrews: We'll be really strong.

Michael G. Andrews: Is within our guidance.

Michael G. Andrews: Given our current roll plan, but there could be some upside or some adjustments. If we are able to move some of the <unk>.

Michael G. Andrews: It has really good equity, and I think bringing it into our distribution networks will be really strong. It is within our guidance as given our current role plan, but there could be some upside or some adjustments if we are able to move some of the territories faster than we currently have planned.

Michael G. Andrews: <unk> faster that we currently have planned.

Speaker Change: Alright, Thank you again.

Michael G. Andrews: And the next question comes from the line of Eric Cerrado with Morgan Stanley. Please proceed with your question.

Operator: And the next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed with your question.

Speaker Change: Great. Thanks, so much.

Eric Adam Serotta: Hoping you could give us your perspective in terms of the recent slowdown in twisted tea and track channels, obviously mid to high teens growth is still very impressive, but a big slowdown from where you were not long ago, how do you sort of unpack that slowdown between.

Eric Adam Serotta: Great, thanks so much. Hoping you could give us your perspective in terms of the recent slowdown in Twisted Tea and track channels. Obviously, mid-high teen growth is still very impressive, but a big slowdown from where you were not long ago. How do you sort of unpack that slowdown between your kind of interaction with other brands, just sort of tougher comps, larger base, and then how, Mike, do you look at the opportunity or runway from Twisted from here? I know your predecessor used to use the analogy of physical and mental availability.

Eric Adam Serotta: What kind of interaction with other brands.

Eric Adam Serotta: I'm, just sort of tougher comps larger base.

Eric Adam Serotta: And then how do you how.

Eric Adam Serotta: Mike do you look at the opportunity.

Eric Adam Serotta: Our runway from twisted from here I know your predecessor used to.

Eric Adam Serotta: The analogy of a physical and mental availability.

Michael G. Andrews: How do you do it, what lens do you look at it through, and where do you see the runway? Thank you.

Eric Adam Serotta: How do you what when you look at it through and where do you see the runway.

Speaker Change: Thank you.

Michael G. Andrews: In terms of the..., the sort of recent trends. It's a very short period of time, and we'll continue to assess it. We wouldn't say that it's anything we're going to – we're paying attention, but we don't see it right now as a longer-term trend for the business. As noted, we will be investing at the appropriate levels for Twisted Tea in terms of marketing. We have a Twisted Tea Lite that is coming in.

Michael G. Andrews: And in terms of the.

Michael G. Andrews: The sort of.

Michael G. Andrews: Recent trends.

Michael G. Andrews: It's a very short period of time, and we will continue to assess it.

Michael G. Andrews: We wouldn't say that it's anything we're going to work.

Michael G. Andrews: We're paying attention, but we don't see it right now as a <unk>.

Michael G. Andrews: Our longer term.

Michael G. Andrews: Trend.

Michael G. Andrews: The business.

Michael G. Andrews: As noted we will be investing at the appropriate levels for twisted tea in terms of marketing.

Michael G. Andrews: We have a twisted tea light that is coming in that is we're capturing.

Michael G. Andrews: We're capturing an additional customer, and it's not, in any way, cannibalizing our existing customers. We also have the Xtreme product, which is a higher content that we feel very optimistic about. I just believe that we're going to be able to maintain that. It's a high priority for the company, and the consumer is very much committed to the product. We also have an opportunity to bring new consumers into the brand, both Hispanic and African American consumers, which we are reaching out to.

Michael G. Andrews: Additional customer it's not.

Michael G. Andrews: In any way cannibalizing our existing.

Michael G. Andrews: Customer and we also have the extreme product, which has a higher.

Michael G. Andrews: Hello.

Michael G. Andrews: Rent that we feel very optimistic about so.

Michael G. Andrews:

Michael G. Andrews: I just believe that we're going to be able to maintain that it's at a high priority for the company.

Michael G. Andrews: And the consumer is.

Michael G. Andrews: Very much committed to the product. We also have an opportunity to bring new consumers into the brand both Hispanic.

Michael G. Andrews: And African American consumers, which we are reaching out to.

Michael G. Andrews: Great. Thanks so much. I'll pass it on.

Speaker Change: Great. Thanks, so much I'll pass along.

Operator: And the next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question.

Michael G. Andrews: And the next question comes from the line of Nadine Saar, what with Bernstein. Please proceed with your question.

Nadine Sarwat: Hi, thank you, evening, everybody. I have two questions for you. First, a question for Michael. Boston Beer has obviously had, as you know, many successful waves of innovation in the past year across multiple categories. So, as you come into this role, I would love to hear how you view the future of Boston Beer's portfolio, taking a long-term view, perhaps over the next three, five years, and how do you see the mix between that, the new-to-world innovation versus line extensions?

Nadine Sarwat: Hi, Thank you evening everybody two questions for me first a question for Michael.

Nadine Sarwat: In the area is obviously high.

Nadine Sarwat: As you know many successful.

Nadine Sarwat: In addition in the past year across multiple categories.

Nadine Sarwat: Last couple of years, so as you come into this role I would love to hear how you view the future of Boston <unk>.

Nadine Sarwat: Taking a long term view, perhaps over the next three five years and how do you see the mix between that the world innovation versus line extension and then a second question. Obviously, some very nice gross margin performance. This quarter could you give us an update on the level of your capacity utilized.

Nadine Sarwat: And then a second question, obviously, some very nice gross margin performance this quarter. Could you give us an update on the level of your capacity utilization, both for your internal production and your third-party contracted capacity? Thank you.

Nadine Sarwat: <unk> both for your internal production and your third party contracting capacity. Thank you.

Michael G. Andrews: I'll take the first part of that and I see us driving, as we have in the past, a balanced portfolio, and so we have our great brands, which the way I like to put it is we need them all to reach their potential. I would see a lot of opportunity in both beers, Dogfish Head and Angry Orchard.

Speaker Change: Okay I'll take the first part of that and.

Michael G. Andrews: I see us doing driving as we have in the past.

Michael G. Andrews: Our balanced portfolio and so we have our great brands, which.

Michael G. Andrews: The way I'd like to put it is we need the ball to reach their potential I'd say a lot of opportunity in both beer dogfish.

Michael G. Andrews: Angry Orchard.

Michael G. Andrews: We look to stabilize truly and get back to growth there and then continue to drive Twisted Tea. The exciting thing for me, and one of the key reasons why I signed on for this role, is that we're a great innovation company. And so we have some great products coming through the pipeline now, including Sun Cruiser, which is a vodka-based hard tea that has been well received in the marketplace.

Michael G. Andrews: And look to stabilize truly and get back to growth there and then continue to drive twisted tea.

Michael G. Andrews: The exciting thing for me and one of the key reasons why.

Michael G. Andrews: <unk> done for this role is because we are a great innovation company and so.

Michael G. Andrews: We have some some great products coming through the pipe now, including Sun cruiser, which is the vodka based car T, which has been well received.

Michael G. Andrews: In the marketplace.

Michael G. Andrews: But our ability to repeat that formula for success. So innovation will always be part of who we are. As you know, the Beyond Beer category is growing at a better rate than beer. We like to think we're the best people in that space. So we'll continue to feed that and drive that part of our business. It's really important for us. So a balance between doing core and innovation. To be honest, sometimes we maybe choose to do one or the other, and we're going to find the balance to make sure that we have both pillars reaching their potential. On the second part of your question, I'll...

Michael G. Andrews: But our ability to repeat that formula for success. So innovation will always be part of who we are.

Michael G. Andrews: As you know.

Michael G. Andrews: The beyond beer category is growing.

Michael G. Andrews: At a better rate than beer.

Michael G. Andrews: Like to think we're the best people in that space. So we will continue to feed that and drive that part of our business.

Michael G. Andrews: It's really important for us so our balance between doing core and innovation.

Michael G. Andrews: To be honest, sometimes we may be chose to do one or the other and we're going to find a balance to make sure that we.

Michael G. Andrews: We have both.

Michael G. Andrews: Pillars, reaching their potential.

Diego Reynoso: On the second part of your question, I'll confirm to you the exact numbers, but we've been moving from an 85-15 mix to a 90-10, where we really want to be 90% of the production in-house and especially leverage external for high-complexity products. But we'll come back and confirm the Q1 number, per se.

Speaker Change: On the second part of your question I'll confirm to you the exact numbers, but we've been moving from an 80 515.

Diego Reynoso: Mix to 90, 10, where we really want to be 90% of the production in house, and especially leverage external for.

Diego Reynoso: Complexity products, so, but we will come back and confirm the Q1 number of per se.

Speaker Change: Thank you.

Operator: And the next question comes from the line of Filippo Falorni with Citi. Please proceed with your question.

Diego Reynoso: And the next question comes from the line of Filippo <unk> with Citi. Please proceed with your question.

Filippo Falorni: Hey, good afternoon, everyone, and Michael, congrats on the new role. So I have two questions. One on Twisted Tea. Clearly, you've done very well over the last couple of years, including last year, with significant distribution and shelf space gains. Maybe you can give us some level of context on these current spring shelf space resets and how much you are expecting to gain incrementally for Twisted Tea. And then my second question is a follow-up on gross margins.

Filippo Falorni: Hey, good afternoon, everyone and Michael Congrats on the neuro.

Filippo Falorni: So two questions one on twisted tea.

Filippo Falorni: Clearly you've done very well over the last couple of years, including last year with significant distribution and shelf space gains maybe you can give us some level of context on these current spring shelf space resets and how much you're expecting to gain incrementally for twist the team and then we.

Filippo Falorni: Second question is a follow up on gross margin, Yes, I think you mentioned Q4 has the lowest gross margin.

Filippo Falorni: Diego, I think you mentioned Q4 is the lowest gross margin of the year, but typically, your gross margin is higher sequentially in Q2 and Q3. Should we expect a similar sequential improvement in gross margin in the next two quarters, or is there something in particular that we should think about from a gross margin cadence? Thank you.

Filippo Falorni: Of the year, but typically yogurt margin is higher sequentially in Q2, and Q3 should we expect a similar sequential improvement in gross margin in the next two quarters or is there something in particular that we should think about from a gross margin cadence. Thank you.

Michael G. Andrews: Okay, so I'll jump on the first part of that, and then I'll pass it to Diego. So, again, just reiterating on Twisted to Tea. You know, we're the market leader. We're continuing to expand our space and add brand support and making sure we're spending both on sponsorships and marketing to drive demand. We're bringing in new drinkers, which is really, you know, how this is going to continue to grow. And then we're bringing in energy.

Speaker Change: Okay I'll jump on the first part of that and then I'll pass to Diego. So again, just reiterating on twisted tea.

Michael G. Andrews: We're the market leader, we're continuing to expand our space, we're continuing to add brand support and making sure we're spending.

Michael G. Andrews: Both on sponsorships and marketing to drive demand.

Michael G. Andrews: We're bringing new drinkers, which is really.

Michael G. Andrews: How this is going to continue to grow and then we're bringing in energy for instance.

Michael G. Andrews: So, for instance, the Rocket Pop Party Pack will be dropping now, which was a big driver of business last year. And again, I mentioned Twisted Tea Extreme, which is the higher ALK, which we think is going to energize a new consumer for us. So we'll consistently feed that business with new energy, and we see opportunities to expand our shelf space. On your gross margin question...

Michael G. Andrews: The rocket pop party pack will be dropping now which was.

Michael G. Andrews: Big driver of business last year.

Michael G. Andrews: And again, I've mentioned twisted tea extreme which is the higher out which will.

Michael G. Andrews: We think it's going to energize, our new consumer for us. So we'll see we're consistently feed that business with new energy and we see opportunities to expand there are.

Michael G. Andrews: Our shelf space.

Diego Reynoso: On your gross margin question, yes, we will see a higher gross margin in Q2 and Q3. We also did mention that we had a really strong production and shipment quarter in Q1, so a little bit of that will come out of Q2, so the jump between Q1 and Q2 might not be as high as we've seen in other years, but we're maintaining a four-year guidance because we still believe that we have a really strong gross margin roadmap.

Michael G. Andrews: On your gross margin question.

Diego Reynoso: Yes, we will see higher gross margins in Q2 and Q3.

Diego Reynoso: We also did mention that we had a really strong production and shipment quarter in Q1, so a little bit of that will come out of Q2. So the jump between Q1 and Q2 might not be as high as we've seen in other years, but we're maintaining our full year guidance, because we still believe but we have a really strong gross margin.

Diego Reynoso: Roadmap.

Speaker Change: Great. Thank you.

Operator: And the next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Diego Reynoso: And the next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Michael G. Andrews: Thank you. Good evening. And congratulations, Michael, as well.

Michael G. Andrews: Thank you and good evening.

Michael G. Andrews: Congrats Michael as well.

Michael G. Andrews: Just, too, if I can, a follow-up on hard mountain dew and the distributor transition. I know you said it'd take some time. Are there likely to be gaps in existing distribution markets because of the transition as it gets handed off from one to the other, or will that be more seamless? Maybe just help us understand the mechanics a little bit, if you can. And then, on some of the new innovation, was pipeline fill a big factor in the quarter? Or is it just some ordinary trade loading and deloading that you're calling out as the one and two-queue dynamics there?

Michael G. Andrews: Just two if I can a follow up on hard mountain Dew and the distributor transition I know you said it takes some time.

Michael G. Andrews: Are there likely to be gaps in existing distribution markets because of the transition.

Michael G. Andrews: As it gets handed off from one to the other or is that more seamless maybe just help us understand the mechanics, a little bit if you can and then.

Michael G. Andrews: On.

Michael G. Andrews: Some of the new innovation was pipeline fill a big factor in the quarter or is it just more some ordinary trade loading and de loading that you're calling out is the one in <unk> dynamics there.

Diego Reynoso: So I'll start with the second part of the question. Yes, exactly. It's just the normal flow of the business and sort of timing.

Speaker Change: So I'll start with the second part of the question, yes, exactly its just the normal.

Diego Reynoso: Flow of the business and sort of.

Diego Reynoso: And I will also add, as we talked about before, we've implemented a new material sourcing and inventory management system with our distributors. So we loaded up a little bit before we put it in place in Q1 just to make sure that we were able to correctly source and supply all our customers. So it's not a huge piece, but it's a little bit of what I discussed.

Speaker Change: And I would also add as we've talked before we've implemented a new.

Diego Reynoso: Materials sourcing and inventory management system with our distributors, so we loaded up a little bit.

Diego Reynoso: Before we put it in place just in Q1, just to make sure that we.

Diego Reynoso: We were able to correctly source and supply all our customers. So it's not a huge piece, but it's a little bit of what I discussed.

Michael G. Andrews: And then, in terms of Mountain Dew, we feel like the transition is tracking, but again, I would say it's a little bit fluid. And, you know, we're hoping within a reasonable time that we'll have national distribution.

Diego Reynoso: And then in terms of mountain Dew, we feel like the transition is tracking but.

Michael G. Andrews: Again, I would I would say, it's a little bit fluid.

Michael G. Andrews: And.

Michael G. Andrews: We're hoping within a reasonable time that will have national distribution.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: Okay, great. Thanks, so much.

Michael G. Andrews: Yeah.

Operator: Yeah.

Operator: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Operator: One moment while we pull for additional questions. And the next question comes from the line of Bill Kirk with Roth Capital Partners. Please proceed with your question.

Operator: One moment, while we poll for additional questions.

Operator: And the next question comes from the line of Bill Kirk with Roth Capital Partners. Please proceed with your question.

Bill Kirk: Thank you guys for taking the question. I have a follow-up on one of Nadine's from earlier.

Bill Kirk: Thank you guys for taking the question I have a follow up on one of <unk> from earlier I think it looks like in the 10-Q that in house production number.

Diego Reynoso: I think it looks like in the 10Q, that in-house production number was 79%. And I guess the question is, one, that's the highest it's been in years. So I guess the question is, seasonally, when we get to those bigger production months in the summer, what can that number look like? It's 79 in 1Q. What can it look like in the heavier summer months?

Diego Reynoso: With 79% and I guess the question is one that's the highest it's been in years. So I guess the question is seasonally when we get to those bigger production months in the summer what can that number look like.

Diego Reynoso: 79% <unk>, what can it look like in the heavier summer months.

Diego Reynoso: So, again, as I mentioned, when we talk about where we would want to be, we want to be at 9010. We know right now that we're between 80 and 85, 2.79 specifically in the quarter, but we'd like to get to 9010, and that's our plan, but it also depends on the mix of products that's flowing through our facilities. There are some specific products that we only have externally, so that is one of the key drivers of where we end up, but that's our target to get to those levels as we go forward.

Diego Reynoso: So again as I mentioned, when we when we talk about where we would want to be we want to be at 90%. We know that we know right now we're between 80 and 85 to <unk> 79, specifically in the quarter, but we.

Diego Reynoso: Wed like to get to 90 10 and.

Diego Reynoso: That's our plan, but it also depends on the mix of products thats flowing through our facilities. There are some specific products that we only have externally. So that is one of the key drivers of where we end up but thats our thought.

Diego Reynoso: It's our target to get to those levels as we go forward.

Bill Kirk: Okay, and then on the shortfall fees, it looks like you got a payment from the third party, like a prepayment back from the third party. One question is, is that related to the loan you took out? And are there any other mechanisms like that to reduce shortfall fees by extending them some money up front like in the form of another loan?

Speaker Change: Okay, and then on the shortfall fees it looks like you've got a payment from the third party.

Bill Kirk: Prepayment back from the third party and <unk>.

Bill Kirk: Is that related to the alone.

Bill Kirk: So you kind of start the year and are there any other mechanisms like that too to reduce shortfall fees by extending them some money upfront.

Bill Kirk: In the form of another loan.

Diego Reynoso: So can you just repeat that question for a second, please?

Speaker Change: So can you just repeat that question for a second please.

Bill Kirk: Yeah, so on the cash flows, it looks like there's almost $3 million inbound from third-party production prepayments, like a positive cash flow from that relationship, and I was just wondering if it had anything to do with the money you lent them, where I think the payback is a reduction in prepayment. So I guess it's two questions. What is that positive number on the cash flow, and are there mechanisms to lower your prepayment obligations by extending them credit?

Speaker Change: Yes, so on the cash flows.

Bill Kirk: It looks like there is a almost 3 million inbound from third party production prepayments like a positive cash flow from that relationship and I was just wondering if it had anything to do with the money you lent them, where I think the.

Bill Kirk: <unk>.

Bill Kirk: The payback is a reduction in prepayment alright, So I guess I guess, there's two questions what is that positive number on the <unk>.

Bill Kirk: On the cash flow and are there mechanisms to lower your prepayment obligations by extending them credit.

Bill Kirk: So so there is there's two things at work here.

Diego Reynoso: So, there are two things at work here. There's the timing of the amortization of the payment, which has nothing to do with the loan, so that's one. So, and because we expanded part of our terms, we've changed the amortization of our payments. The second one is that we made a loan to Citi. That loan will be repaid, and the amount it will be repaid at will have some similarities to the fees that we would have been paying, but they're independent. They just happen to be similar amounts as the repayment schedule has been agreed.

Diego Reynoso: There is the the timing of the amortization of the payment that have nothing to do with the loan.

Diego Reynoso: So that's one.

Diego Reynoso: So and because we expanded part of our terms we've changed the amortization of our payments. The second one is we've made a loan to city that loan will be repaid and some of the N. The amount it will be repaid at will have some similarities to the.

Diego Reynoso: Fees.

Diego Reynoso: The piece that we would have been paying but they are independent they just happen to be.

Diego Reynoso: Similar.

Diego Reynoso: Mount assets.

Diego Reynoso: Repayments agreed.

Diego Reynoso: Agreed.

Speaker Change: Does that makes sense.

Diego Reynoso: It does. Are there any other ways, like that loan, to do something similar to reduce prepayment in the future?

Diego Reynoso: It does are there any other ways like that loan to do something similar to reduce prepayment in the future.

Diego Reynoso: Well, it's not technically reducing the prepayment, the shortfall fees, because the reality is we've loaned them the money, and we're getting the money back. That's an independent piece of the shortfall fees that just happen to be the mechanism while we get it back. But in the future, what we're doing is, as our contracts come to an end, we are reviewing what footprint we want going forward based on our strategies. And based on that, we will negotiate with our third parties to see what the right level should be. Okay.

Speaker Change: Well, it's not technically reducing the prepayments.

Diego Reynoso: They'll shortfall fees because the reality is we've learned that we're getting the money back in.

Diego Reynoso: Independent piece of the shortfall fees that just happened to be the mechanism, while we get it back but in the future. What we're doing is as contracts come from and we are reviewing what footprint, we want going forward based on our strategies and based on that we will have negotiated with our third parties to see what the right level should be.

Speaker Change: Okay. Thank you.

Speaker Change: And I might add.

Diego Reynoso: And I might add, the 90-10 balance of internal-external is a longer-term goal. We don't have the capacity to get there this year, and for the foreseeable future, Citi Brewing is our pretty much exclusive contract partner, and they are a key piece going forward. So it's going to be a while before we get to 90-10, not this year, probably not next year, but longer term, we could certainly see that.

Diego Reynoso: The.

Diego Reynoso: The 90 10 balance of internal and external is that there is a longer term goal.

Diego Reynoso: We have the capacity to get there this year.

Diego Reynoso: And our.

Diego Reynoso: For the foreseeable future.

Diego Reynoso: City Brewing is are are pretty.

Diego Reynoso: Pretty much exclusive contract.

Diego Reynoso: And they are a key piece going forward, so it's going to be a while before we get to 90 10.

Diego Reynoso: Not this year.

Diego Reynoso: Probably not next year, but longer term, we could certainly see that.

Jim Cook: Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to Jim for any closing comments.

Jim Cook: Ladies and gentlemen, there are no further questions at this time I would like to turn the floor back over to Jim <unk> for any closing comments.

Jim Cook: Well, thanks to everybody for joining us and for giving Michael a warm welcome. And, and I'll recognize Dave Burwick's contribution this quarter because most of it was under his guidance and direction. So I've been very fortunate to have two amazing people help lead this company. Thank you.

Jim Cook: Well, thanks, everybody for joining us and for giving Michael a warm welcome.

Speaker Change: And well recognized Dave Burwick contribution.

Jim Cook: <unk>.

Jim Cook: This quarter because most of it was under his guidance and direction. So I've been very fortunate to have two amazing people hopefully this company. Thank you.

Operator: And this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: And this concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Operator: [music].