Q2 2024 Boston Beer Co Inc Earnings Call

Operator: Greetings and welcome to the Boston Beer Company second quarter 2024 earnings. At this time, all participants are in a listen-only mode.

Speaker Change: Greetings and welcome to the Boston Beer Company second 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.

Speaker Change: 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. And it is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary.

Operator: 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. And it is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin. Thank you. Good afternoon, and welcome.

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 second quarter earnings call. Joining the call from Boston Beer are Jim Cook, Founder and Chairman, Michael Spillane, our CEO, and Diego Reynoso, our CFO.

Speaker Change: Thank you, Mike. You may begin.

Michael G. Andrews: 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 second quarter earnings call. Joining the call from Boston Beer are Jim Cook, Founder and Chairman, Michael Spillane, our CEO , and Diego Reynoso, our CFO .

Michael G. Andrews: 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. Such predictions are forward-looking statements.

Speaker Change: 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. Such predictions are forward-looking statements.

Michael G. Andrews: It is 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. I will now pass this over to Jim for some introductory comments. Thanks, Mike.

Speaker Change: It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements.

Speaker Change: Additional information concerning factors that could cause X results to differ materially from those in the forward looking statements is contained in the company's most recent 10-Q and 10-K.

Jim: 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.

Jim Cook: I'll begin my remarks this afternoon with a few introductory comments and then hand over to Michael, who will provide his view of the business and the actions we are taking to position the company for a return to long-term growth. Michael will then turn the call over to Diego, who will focus on the financial details of our second quarter results, as well as our updated outlook for 2024. Immediately following Diego's comments, we will open the line for questions.

Jim: Thanks, Mike.

Jim: I'll begin my remarks this afternoon with a few introductory comments and then hand over to Michael who will provide his view of the business and the actions we are taking to position the company for a return to long-term growth.

Jim: Michael will then turn the call over to Diego, who will focus on the financial details of our second quarter results, as well as our updated outlook for 2024. Immediately following Diego's comments, we will open the line for questions.

Jim Cook: I'll begin my remarks with an overview of the market environment. In the first quarter, we were pleased to see flat depletions and solid shipment growth, with shipments benefiting somewhat from shipping ahead of the implementation of our new customer order management system. As I mentioned at a recent investor conference, April depletions began to slow across the industry, with Easter time shifting results and coming in soft. May and June depletions improved somewhat from April, but they continued to decline compared to the prior year periods.

Michael: I'll begin my remarks with an overview of the market environment. In the first quarter, we were pleased to see flat depletions and solid shipment growth, with shipments benefiting somewhat by shipping ahead of the implementation of our new customer order management system.

Michael: As I mentioned at a recent investor conference, April depletions began to slow across the industry with Easter time shifting results and coming in soft.

Michael: May and June depletions improved somewhat from April , but continued to decline compared to the prior year periods.

Jim Cook: Our current assessment is that demand appears to be improving from April lows and that April trends likely reflect the comparison against significant dislocations in the beer industry that began in April of last year. Our shipments for the second quarter reflect the impact of shipping ahead of depletions in the first quarter and not fully shipping into improving demand in the latter weeks of June. We are working in July and August to build inventories at our wholesalers back to target levels.

Michael: Our current assessment is that demand appears to be improving from April lows and that April trends likely reflect the comparison against significant dislocations in the beer industry that began in April of last year.

Speaker Change: Our shipments for the second quarter reflect the impact of shipping ahead of depletions in the first quarter and not fully shipping into improving demand in the latter weeks of June . We are working in July and August to build inventories at our wholesalers back to target levels. I'm pleased to have Michael complete his first quarter as Boston Beer's CEO and he will discuss his assessment of the business and areas where we plan to focus to reach the full potential of our strong brands. We've also updated our guidance to reflect the first six months of results and our view of potential outcomes for the second half, which Michael and Diego will discuss.

Jim Cook: I'm pleased to have Michael complete his first quarter as Boston Beer's CEO, and he will discuss his assessment of the business and areas where we plan to focus to reach the full potential of our strong brands.

Jim Cook: We've also updated our guidance to reflect the first six months of results and our view of potential outcomes for the second half, which Michael and Diego will discuss. In summary, we saw soft volume trends early in the second quarter, which we have reflected in our revised volume guidance, but we're confident in our plans to grow our brands over time and have our brands reach their full potential. The commitment to invest in and innovate across both our core brands and in new beyond beer categories remains unchanged.

Michael: In summary, we saw soft volume trends early in the second quarter, which we have reflected in our revised volume guidance, but we are confident in our plans to grow our brands over time and have our brands reach their full potential. The commitment to invest and innovate across both our core brands and in new Beyond Beer categories remains unchanged. Our margin initiatives are taking hold, with gross margin expanding over 250 basis points year-to-date and potential for continued meaningful improvement in the coming years. The high cash-generative nature of our business and strong balance

Jim Cook: Our margin initiatives are taking hold, with gross margin expanding over 250 basis points year to date and the potential for continued meaningful improvement in the coming years. The high cash-generative nature of our business and strong balance sheet allow us to fund our strategic initiatives for the business while also returning significant cash to shareholders. Year to date, we've generated over $90 million in operating cash flow and repurchased $125 million worth of stock. I'd like to thank our Boston Beer team, our distributors, and our retailers for their continued support, and I'll now pass the call over to Michael. Thanks, Jim, and good afternoon, everyone.

Michael G. Andrews: and Michael Andrews.

Michael Spillane: I've spent my first 90 days as CEO evaluating the business in detail. Boston Beer is a great company with great brands, a strong team, and a legacy of innovation and great service to our customers. We started as a craft beer company with a visionary founder and evolved into a $2 billion company with a diversified portfolio of brands across beer and beyond beer. Over the last few years, we've experienced more volatility with shifts in consumer preferences away from beer to beyond beer categories.

Michael G. Andrews: Thanks Jim and good afternoon everyone. I've spent my first 90 days as CEO evaluating the business in detail. Boston Beer is a great company with great brands, a strong team, and a legacy of innovation and great service to our customers.

Michael G. Andrews: We started as a craft beer company with a visionary founder and evolved into a $2 billion company with a diversified portfolio of brands across beer and beyond beer. Over the last few years, we've experienced more volatility with shifts in consumer preferences away from beer to beyond beer categories.

Michael Spillane: With an unprecedented surge in demand for our products during the pandemic and navigating the macroeconomic impact of high inflation on consumers, over the past few years, our focus has been on growing our portfolio of products, ensuring access to production capacity, and beginning to build the systems and infrastructure to support our diversified portfolio. Going forward, we'll be focused on improving end-to-end execution, which should unlock additional revenue, as well as improve margins and lower costs.

Michael G. Andrews: with an unprecedented surge in demand for our products during the pandemic and navigating the macroeconomic impact of high inflation on consumers.

Michael G. Andrews: Over the past few years, our focus has been on growing our portfolio of products, ensuring access to production capacity, and beginning to build the systems and infrastructure to support our diversified portfolio.

Michael G. Andrews: Going forward, we'll be focused on improving end-to-end execution, which should unlock additional revenue, as well as improving margins and lowering costs.

Michael Spillane: Our status as a diversified beyond beer company requires being more precise in our execution from product development all the way to getting our products into the marketplace. We'll be focused on nurturing our core brands, developing margin-accretive innovation, leveraging the capital investments we have made in our breweries and IT systems, and driving efficiency and operating expectancy. To position ourselves for a return to volume growth, we'll be implementing plans to grow our core brands while developing a disciplined product roadmap of innovation.

Michael G. Andrews: Our status as a diversified beyond beer company requires being more precise in our execution from product development all the way to getting our products into the marketplace.

Michael G. Andrews: We'll be focused on nurturing our core brands, developing margin accretive innovation, leveraging the capital investments we have made in our breweries and IT systems, and driving efficiency and operating expenses.

Michael G. Andrews: To position ourselves for return to volume growth, we'll be implementing plans to grow our core brands while developing a disciplined product roadmap of innovation.

Michael Spillane: We continue to expect category growth to come from beyond beer and believe we have opportunities to improve execution across our portfolio. I'll now provide some color on our brand. And beyond beer, hard tea continues to be an attractive category which we'll participate in through our category leader, Twisted Tea, and accretive innovations like Suncruiser.

Michael G. Andrews: We continue to expect category growth to come from beyond beer and believe we have opportunities to improve execution across our portfolio. I'll now provide some color on our brands.

Michael G. Andrews: And beyond beer, hard tea continues to be an attractive category, which we'll participate in through our category leader, Twisted Tea, and accretive innovations like Suncruiser.

Michael Spillane: We continue to see potential in additional distribution, underpenetrated consumer demographics, variety packs for core Twisted Tea, as well as multiple areas of growth for Twisted Tea Light and higher ABV Twisted Tea Extreme. Despite increased competitive activity year to date in measured off-premise channels, Twisted Tea has grown 15.1% in dollars and increased dollar share of F&Bs by 1.6 share points while increasing shelf space, approximately 30% over the prior year period. In the second quarter, the growth of Twisted Tea slowed in measured channels, which we believe is primarily due to difficult prior year comparisons and naturally slowing against a larger base.

Michael G. Andrews: We continue to see potential in additional distribution.

Michael G. Andrews: underpenetrated consumer demographics, variety packs for core twisted tea, as well as multiple areas of growth for twisted tea light and higher ABV twisted tea extreme.

Michael G. Andrews: Despite increased competitive activity year-to-date in measured off-premise channels, Twisted Tea has grown 15.1% in dollars and increased dollar share of FMVs by 1.6 share points while increasing shelf space.

Michael G. Andrews: approximately 30% over the prior year period. In the second quarter, the growth of twisted teeth slowed in measured channels, which we believe is primarily due to difficult prior year comparisons and naturally slowing against a larger base.

Michael Spillane: We continue to believe that Twisted Tea is a strong brand with many avenues for growth, and we will grow share in the FMV market and grow volume for the remainder of 24 and beyond. We also see potential for our vodka-based tea innovation, Sun Cruiser, which expands our tea portfolio to bring new consumers to the category who prefer a spirits-based beverage. Initial feedback on the brand from wholesalers, retailers, and drinkers has been very positive.

Michael G. Andrews: We continue to believe that Twisted Tea is a strong brand with many avenues towards growth, and we will grow share in the FMV market and grow volume for the remainder of 24 and beyond.

Michael G. Andrews: We also see potential for our vodka-based tea innovation, Suncruiser, which expands our tea portfolio to bring new consumers to the category who prefer a spirits-based beverage. The initial feedback on the brand from wholesalers, retailers, and drinkers has been very positive.

Michael Spillane: It's early in the launch, with most of our focus on the New England and Atlantic regions, but we're encouraged by consistently improving weekly sales trends and distribution gains. Turning to hard seltzer, we are continuing to see declines in the overall hard seltzer category as consumers have an increasing number of choices across Beyond Beer. In measured off-premise channels, hard seltzer is down 14.9% in volume, with truly declining 22.8% and losing 2.1 share points.

Speaker Change: It's early in the launch with most of our focus on the New England and Atlantic regions, but we are encouraged by consistently improving weekly sales trends and distribution gains.

Speaker Change: Turning to hard seltzer, we are continuing to see declines in the overall hard seltzer category as consumers have an increasing number of choices across beyond beer.

Speaker Change: In measured off-premise channels, hard seltzer is down 14.9% in volume with truly declining 22.8% and losing 2.1 share points.

Michael Spillane: However, within our Truly portfolio, there's bifurcation between the performance of lighter core packages compared to the bolder flavors, with Truly lighter core packages down mid-signal digits, year-over-year, and measured channels. We're focusing on our efforts to gain share and additional shelf space for light flavors, optimizing our bold flavor assortment, innovating with higher alcohol offerings, and continuing our successful lighter flavored rotator pack We are also seeing good results from our launch of the higher ABV Truly Unruly, with positive trends in depletions, distribution, and sales per point. The Truly Unruly variety pack has performed particularly well in grocery, where it was the number one Truly SKU in one of our largest national chains.

Speaker Change: However, within our Truly portfolio, there's bifurcation between the performance of lighter core packages compared to the bolder flavors, with Truly lighter core packages down mid-signal digits year-over-year in measured channels. We're focusing on our efforts on gaining share and additional shelf space for light flavors.

Speaker Change: optimizing our bold flavor assortment, innovating with higher alcohol offerings, and continuing our successful lighter flavored rotator pack strategy.

Speaker Change: We are also seeing good results from our launch of the higher ABV, Truly Unruly, with positive trends in depletions, distribution, and sales per point.

Speaker Change: The Truly Unruly Variety Pack has performed particularly well in grocery, where it was the number one Truly SKU in one of our largest national chains.

Michael Spillane: Overall, the efforts we are taking to reposition the portfolio towards lighter flavor offerings and higher ABV innovation are gaining traction, and we expect these efforts to continue to improve Truly's volume trajectory over time. We've almost completed the transition of hard Mountain Dew from Blue Cloud to our wholesaler network in existing states and are continuing to work through obtaining regulatory approval, and Distribution and Additionals. There is opportunity for hard Mountain Dew across expanded pack sizes and channels, including convenience stores, but these efforts will take time and have more of a positive impact on our 2025 results.

Speaker Change: Overall, the efforts we are taking to reposition the portfolio towards lighter flavor offerings and higher ABV innovation are gaining traction, and we expect these efforts to continue to improve Truly's volume trajectory over time.

Speaker Change: We've almost completed the transition of hard Mountain Dew from Blue Cloud to our wholesaler network in existing states and are continuing to work through obtaining regulatory approval.

Speaker Change: and distribution in additional states.

Speaker Change: There is opportunity for hard Mountain Dew across expanded pack sizes and channels, including convenience stores, but these efforts will take time and have more of a positive impact in our 2025 results.

Michael Spillane: In 2024, we expect hard Mountain Dew to primarily benefit fourth quarter shipments, given our expectation to launch in some larger states in the first quarter of 2025. For our Samuel Adams brand, we continue our efforts in seasonals in our award-winning non-elk styles and have recently launched a distinctly American-like craft lager we call Samuel Adams American Light. American Light launched in late May and is available in 6 and 12-pack cans in a small number of on-premise locations. The initial distribution began in New England to dependents and is further expanding to New England large format retailers, as well as Florida and Texas.

Speaker Change: In 2024, we expect Hard Mountain Due to primarily benefit fourth quarter shipments given our expectation to launch in some larger states in the first quarter of 2025.

Speaker Change: For our Samuel Adams brand, we continue our efforts in seasonals in our award-winning non-elk styles and have recently launched a distinctly American-like craft lager we call Samuel Adams American Light.

Speaker Change: American Light launched late May and it's available in six and twelve pack cans in a small number of on-premise locations.

Speaker Change: The initial distribution began in New England to dependents and is further expanding to New England large-format retailers as well as Florida and Texas.

Michael Spillane: Early feedback is promising, and we expect sales per point to increase as distribution moves more fully into large format channels. We're pursuing a measured launch strategy and will further expand distribution and increase market support as we have more data on consumer acceptance. With respect to other innovations, we plan to focus on line extensions for our core brands, including IRABV and targeted seasonals and rotator pack offerings.

Speaker Change: Early feedback is promising and we expect sales per point to increase as distribution moves more fully into large format channels. We're pursuing a measured launch strategy and will further expand distribution and increase market support as we have more data on the consumer acceptance.

Speaker Change: With respect to other innovations, we plan to focus on line extensions for our core brands, including IRABV and targeted seasonals and rotator pack offerings.

Michael Spillane: We also continue to develop our new product pipeline in a disciplined, fewer things, better approach. While we'll always need multiple ideas to find the next winning product, we will be thoughtful about the number of projects we take on to ensure that we provide sufficient resourcing across the organization to make new launches successful while also giving appropriate attention to all of our core brands. Additionally, we will be paying careful attention to product mix, with all internally developed new products designed to be gross margin accretive, as Suncruiser and American Light are today. Turning to margins.

Speaker Change: We also continue to develop our new product pipeline in a disciplined, fewer things, better approach.

Speaker Change: While we will always need multiple ideas to find the next winning product, we will be thoughtful about the number of projects we take on to ensure that we provide sufficient resourcing across the organization to make new launches successful while also giving appropriate attention to all of our core brands.

Speaker Change: Additionally, we will be paying careful attention to product mix with all internally developed new products designed to be gross margin accretive as Suncruiser and American Light are today.

Michael Spillane: We're modernizing our supply chain through investments in systems and processes and are continuing our productivity initiatives across three buckets of procurement savings, waste and network optimization, and brewery performance. We've achieved our savings target thus far in our ingredient purchasing, which you've seen positively impact our results over the last year and will continue to focus on these efforts as this area continues to have significant opportunities for further savings in the near term.

Speaker Change: Turning to margins.

Speaker Change: We're modernizing our supply chain through investments in systems and processes and are continuing our productivity initiatives across three buckets of procurement savings, waste and network optimization, and brewery performance.

Speaker Change: We've achieved our savings target thus far in our ingredient purchasing, which you've seen positively impact our results over the last year, and we'll continue to focus on these efforts as this area continues to have significant opportunities for further savings in the near term.

Michael Spillane: With respect to waste and network optimization, our investments in systems, such as planning tools and automated customer ordering systems, are helping us refine our inventory management. The Fewer Things Better process that I mentioned earlier should also enable additional progress on lowering scrap and return levels. Our strategy to improve brewery performance and generate cost savings is unchanged.

Speaker Change: With respect to waste and network optimization, our investments in systems such as planning tools and automated customer ordering systems are helping us refine our inventory management.

Speaker Change: The Fewer Things Better process that I mentioned earlier should also enable additional progress on lowering scrap and return levels.

Speaker Change: Our strategy to improve brewery performance and generate cost savings is unchanged. Line efficiencies in our breweries have been slightly improved but are not yet where we want them to be across all of our breweries.

Michael Spillane: Line efficiencies in our breweries have been slightly improved, but they are not yet where we want them to be across all of our breweries. As we have previously communicated, line efficiency is a significant focus, and these savings will take more time to achieve. We believe we have the capital in place but need more time to capture these savings and demonstrate that we can consistently and reliably improve performance, especially during the peak summer season.

Speaker Change: As we have previously communicated, our line of mission is a significant focus and these savings will take more time to achieve.

Speaker Change: We believe we have the capital in place, but need more time to capture these savings and demonstrate that we can consistently and reliably improve performance, especially during the peak summer season.

Michael Spillane: The timing and ultimate amount of the volume that we insource will be dependent on our progress in our own breweries, as well as the product and geographic mix of our sales. In summary, we have the plans in place to generate cost of goods sold productivity, help offset near-term volume headwinds, and expand margins over the next few years. There is also opportunity in the product mix as we make adjustments to our portfolio through new innovations.

Speaker Change: The timing and ultimate amount of the volume that we insource will be dependent on our progress in our own breweries as well as the product and geographic mix of our sales.

Speaker Change: In summary, we have the plans in place to generate cost of goods sold productivity, help offset near-term volume headwinds, and expand margins over the next few years.

Speaker Change: There is also opportunity in the product mix as we make adjustments to our portfolio through new innovations. In the second quarter, these efforts allowed us to deliver 60 basis points of year-over-year gross margin expansion despite volume declines.

Michael Spillane: In the second quarter, these efforts allowed us to deliver 60 basis points of year-over-year gross margin expansion despite volume declines. Turning to operating expenses, we're committed to supporting our brands with the appropriate levels of advertising investment for both brand awareness and in-store marketing.

Speaker Change: Starting to operate expenses we're committed to supporting our brands with the appropriate levels of advertising investment for both brand awareness and in-store marketing.

Michael Spillane: Our 2024 investments will be across the portfolio, but we'll be particularly focused on supporting those brands that are driving growth, which include Category Leading, Twisted Tea, Sun Cruiser, and Hard Mountain Dew. Our advertising spend is more heavily weighted to the second half to position us well for the remainder of the summer selling season and into 2025. With respect to non-advertising selling and brand costs, we're continuing our efforts to better align internal costs with revenue.

Speaker Change: Our 2024 investments will be across the portfolio, but we'll be particularly focused

Speaker Change: on supporting those brands that are driving growth, which include category-leading Twisted Tea, Sun Cruiser, and Hard Mountain Dew. Our advertising spend is more heavily weighted to the second half to position us.

Speaker Change: well for the remainder of the summer selling season and into 2025. With respect to the non-advertising selling and brand costs, we're continuing our efforts to better align internal costs with revenue.

Michael Spillane: To summarize my comments, I've spent the last 90 days doing deep dives with our team members across all functions, visiting our breweries, and meeting with our distributors. I'm confident that there is a great deal of opportunity ahead for Boston Beer. During my time on the board, I saw Boston Beer transform into a diversified alcoholic beverage company with $2 billion in revenue. The company modernized its brand in selling functions, built strong teams, and made investments in production capacity and technology that set us up with a good foundation for future success. We've also lived through changes in consumer demand, a pandemic, and the impact of abnormally high inflation on the consumer environment.

Speaker Change: To summarize my comments, I've spent the last 90 days in deep dives with our team members across all functions, visiting our breweries and meeting with our distributors. I'm confident that there is a great deal of opportunity ahead for Boston Beer.

Speaker Change: During my time on the board, I saw Boston Beer transform into a diversified alcoholic beverage company with $2 billion in revenue.

Speaker Change: The company modernized its brand and selling functions, built strong teams, made investments in production capacity and technology that sets us up with a good foundation for future success.

Speaker Change: We've also lived through changes in our consumer demand, a pandemic, and the impact of abnormally high inflation on the consumer environment.

Michael Spillane: We now have the opportunity to turn focus to optimizing all aspects of execution, from product development to manufacturing to how we allocate investment and sell our product portfolio. These changes are beginning now and will continue through the second half of 2024. While the pace of improvement in our results is somewhat dependent on the volume environment, I believe there are multiple areas of opportunity, and I believe that the changes we are implementing this year will set us up well for 2025 and a return to long-term growth.

Speaker Change: We now have the opportunity to turn focus to optimizing all aspects of execution, from product development to manufacturing to how we allocate investment and sell in our product portfolio. These changes are beginning now and will continue through the second half of 2024.

Speaker Change: While the pace of improvement in our results is somewhat dependent on the volume environment, I believe there are multiple areas of opportunity, and I believe that the changes we are implementing this year will set us up well for 2025 and a return to long-term growth.

Speaker Change: And most importantly, our strong operating cash flow provides us with the resources to fund investment in the business while returning cash to shareholders through share repurchases.

Speaker Change: I'll now pass the call to Diego for a detailed review of the second quarter and updated 2024 guidance.

Michael Spillane: And most importantly, our strong operating cash flow provides us with the resources to fund investment in the business while returning cash to shareholders through share repurchases. I'll now pass the call to Diego for a detailed review of the second quarter and the updated 2024 guidance. Thank you, Michael. Good afternoon, everyone.

Diego Reynoso: Completions in the second quarter decreased 4 percent and shipments decreased 6.4 percent from the prior year, primarily due to declines in truly hard seltzers that were only partially offset by growth in our Twisted Tea and SunCruiser brands. We believe distributor inventories as of June 29, 2024, will average approximately three and one half weeks on hand compared to our target wholesaler inventory levels of four to five weeks for our peak summer season. These lower-than-targeted wholesaler inventory levels were the result of the variability of demand across the months of the quarter and the inability to ship enough product in the last few weeks of the quarter, as Jiz mentioned earlier. Revenue for the quarter decreased 4% due to lower volumes partially offset by pricing and low returns.

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

Diego: Depletions in the second quarter decreased 4% and shipments decreased 6.4% from the prior year, primarily due to declines in truly hard seltzers that were only partially offset by growth in our Twisted Tea and Sun Cruiser brands.

Diego: We believe distributor inventories, as of June 29, 2024, average approximately 3 1?2 weeks on hand compared to our target wholesaler inventory levels of 4 to 5 weeks for our peak summer season.

Diego: These lower-than-targeted wholesaler inventory levels were the result of the variability of demand across the months of the quarter and inability to ship enough product in the last few weeks of the quarter that Jim mentioned earlier.

Jim: Revenue for the quarter decreased four percent due to lower volumes partially offset by pricing and low returns.

Diego Reynoso: Our underlying pricing for the first half was consistent with our full year guidance range and additional benefits from lower returns. Please note that we do not expect the benefit from returns in the first half to continue at the same rate for the balance of the year. Our second quarter gross margin of 46% increased 60 basis points from the 45.4% margin realized in the prior year. Gross margin primarily benefits from price increases, procurement savings, and lower returns, which more than offset higher brewery processing costs per barrel due to lower volumes and increased inflationary costs.

Speaker Change: Our underlying pricing for the first half was consistent with our full year guidance range and additional benefits from lower returns. Please note that we do not expect the benefit from returns in the first half to continue at the same rate for the balance of the year.

Speaker Change: Our second quarter gross margin of 46% increased 60 basis points from the 45.4% margin realized in the prior year.

Speaker Change: Gross margin primarily benefits from price increase, procurement savings, and lower returns, which more than offset higher brewery processing costs per barrel due to lower volumes and increased inflationary costs.

Diego Reynoso: Excluding shortfall fees and third-party production prepayments that we've discussed on prior calls, gross margin was 47.6%. Advertising, promotion, and selling expenses for the second quarter of 2024 decreased $5.1 million, or 3.4% from the second quarter of 2023 due to lower freight costs and a result of both lower rates and lower volumes and lower brand investment. General administrative expenses increased $3.1 million, or 7%, year over year, primarily due to inflation in salaries and benefits costs.

Speaker Change: Excluding shortfall fees and third-party production prepayments that we've discussed on prior calls, gross margin was 47.6 percent.

Speaker Change: Advertising, promotional, and selling expenses for the second quarter of 2024.

Speaker Change: Decreased $5.1 million.

Speaker Change: or 3.4% from the second quarter of 2023 due to lower freight costs and a result of both lower rates and lower volumes and lower brand investments.

Speaker Change: General and administrative expenses increased $3.1 million or 7% year-over-year, primarily due to inflation in salaries and benefits costs.

Diego Reynoso: We reported EPS of $4.39 per diluted share, which was $0.32 lower than the second quarter of 2023. The year-over-year decrease was driven by lower volumes, partially offset by higher gross margins. Our tax rate of 29.5% in the second quarter was slightly higher than our plan rate, which was driven by an increase in non-deductible stock compensation expenses related to the CEO transition costs.

Speaker Change: We reported EPS of $4.39 per diluted share, which was $0.32 lower than the second quarter of 2023.

Speaker Change: The year-over-year decrease was driven by lower volumes, partially offset by higher gross margins.

Speaker Change: Our tax rate of 29.5% in the second quarter was slightly higher than our plan rate, which was driven by an increase in non-deductible stock compensation expenses related to CEO transition costs.

Diego Reynoso: Now I'll discuss our 2024 guidance. Our fiscal week depletion trends for the first 29 weeks of 2024 have decreased 2% from 2023. We are updating our 2024 volume guidance to reflect the first half performance and current outlook for the remainder of the year. Our volume outlook differs from our prior guidance due primarily to a softer second quarter and a slower-than-expected rollout of hard mountain dew. We now expect 2024 depletions and shipments to range between a decrease of low single digits to flat versus our prior guidance of a decrease of low single digits to an increase of low single digits.

Speaker Change: Now I'll discuss our 2024 guidance.

Speaker Change: Our fiscal week depletion trends for the first 29 weeks of 2024 have decreased 2% from 2023.

Speaker Change: We are updating our 2024 volume guidance to reflect the first half performance and current outlook for the remainder of the year.

Speaker Change: Our volume outlook differs from our prior guidance, due primarily to a softer second quarter and a slower-than-expected rollout of hard mountain dew.

Speaker Change: We now expect 2024 depletions and shipments to range between a decrease of low single digits to flat versus our prior guidance of a decrease of low single digits to an increase of low single digits.

Diego Reynoso: We continue to expect price increases of between 1% and 2%. We also continue to expect full-year 2024 gross margins between 43% and 45%, commodity inflation in 2024, but at a lower rate than 2023, primarily driven by sweeteners and flavorings, that we will cover commodity inflation dollars with pricing, and we'll have higher labor costs in our breweries. Where we land within our range of our margin guidance will be somewhat dependent on the mix of products sold during the remainder of the year. Contractual shortfall fees and production prepayments amortization, which we've discussed on previous calls, will have a negative impact on our full-year 2024 gross margin of between 135 to 185 basis points.

Speaker Change: We continue to expect price increases of between 1% and 2%.

Speaker Change: We also continue to expect full-year 2024 gross margins between 43% and 45%.

Speaker Change: Commodity inflations in 2024, but at a lower rate than 2023, primarily driven by sweeteners and flavorings.

Speaker Change: that we will cover commodity inflation dollars with pricing and we'll have higher labor costs in our breweries.

Speaker Change: Where we land within our range of our margin guidance will be somewhat dependent on the mix of products sold during the remainder of the year.

Speaker Change: Contractual shortfall fees and production prepayments amortization that we've discussed on previous calls will have a negative impact on our full year 2024 gross margin of between 135 to 185 basis points.

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 will range from a decrease of $5 million to an increase of $15 million. This does not include any changes in freight costs for the shipment of products to our distributors.

Speaker Change: As these contractual terms expire, we will reassess our capacity needs and commitments with our third-party production partners.

Speaker Change: Our investments in advertising, promotional, and selling expenses will range from a decrease of $5 million to an increase of $15 million. This does not include any changes in freight costs for the shipment of products to our distributors.

Diego Reynoso: Our estimated tax rate will be 28.5%, which is higher than the previous year's rate due to the CEO transition cost impact in the first half. We are continuing to target full-year 2024 earnings per diluted share of between $7 and $11 as we expect our declines in volumes to be offset by slightly better margins and lower operating expenses. Please note that our EPS projection is highly sensitive to changes in volume projections, mix of own versus partner brands, supply chain performance, and inflationary impacts on consumer spending. As you model out the year, please keep in mind the following factors.

Speaker Change: Our estimated tax rate will be 28.5% which is higher than the previous year's rate due to the CEO transition cost impact in the first half.

Speaker Change: We are continuing to target full-year 2024 earnings per diluted share of between $7 and $11, as we expect our declines in volumes to be offset by slightly better margins and lower operating expenses.

Speaker Change: Please note that our EPS projection is highly sensitive to changes in volume projections, mixed-owned versus partner brands, supply chain performance, and inflationary impacts on consumer spending.

Diego Reynoso: During the first half, shipment trends were below depletion trends, and we currently estimate that they will rebalance, resulting in shipment trends being higher than depletion trends in the second half. As Michael mentioned earlier, our advertising spend is more weighted to the second half of the year. Also, please note that the fourth quarter is typically our lowest absolute gross margin rate of the year. Turning to capital allocation, We ended the quarter with a cash balance of $219.3 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 shareholders through our share buyback program. For the full year 2024, we continue to expect capital expenditures of between $90 million and $110 million.

Speaker Change: As you model out the year, please keep in mind the following factors.

Speaker Change: During the first half, shipment trends were below depletion trends, and we currently estimate that they will rebalance, resulting in shipment trends being higher than depletion trends in the second half.

Speaker Change: As Michael mentioned earlier, our advertising spend is more weighted to the second half of the year.

Michael: Also, please note that the fourth quarter is typically our lowest absolute gross margin rate of the year.

Michael: Turning to capital allocation.

Michael: We ended the quarter with a cash balance of $219.3 million and an unused credit line of $150 million.

Michael: which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to shareholders through our share buyback program.

Michael: For the full year 2024, we continue to 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: These investments will be primarily related to our own breweries to build capabilities and improve efficiency. During the 26-week period ended June 29, 2024, in the period from July 1, 2024 through July 19, 2024, we repurchased shares in the amount of $113 million and $14 million. As of July 19, 2024, we had approximately $140 million remaining on the $1.2 billion share repurchase authorization.

Michael: During the 26-week period ended June 29, 2024, in the period from July 1, 2024 through July 19, 2024, we repurchased shares in the amount of $113 million and $14 million.

Michael: As of July 19, 2024, we had approximately $140 million remaining on the $1.2 billion share repurchase authorization.

Operator: This concludes our prepared remarks, and I will open the line for questions. Thank you, sir. 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 line is in the queue. You may press star 2 if you'd like to remove a question.

Michael: This concludes our prepared remarks, and I will open the line for questions.

Speaker Change: Thank you, sir. 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 line is in the queue. You may press star 2 if you'd like to remove a question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing. One moment, please, while we poll for questions. And the first question comes from the line of Kaumil Gajrawala with Jeffreys. Please proceed with your question. Hi, I'd like to dig in a little bit on your commentary that sort of April was the trough and things are getting better. Just curious, what you're seeing specifically, is it related to some of your own launches in your own work? Or is it sort of more macro in what you're seeing for the category overall? Hi. All right. This is Diego.

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

Speaker Change: And the first question comes from the line of Kaumil Gajrawala with Jeffries. Please proceed with your question.

Kaumil S. Gajrawala: Hi, I'd like to dig in a little bit on your commentary that sort of April was the trough and things are getting better. I'm just curious what you're seeing specifically. Is it related to some of your own launches in your own work or is it sort of more macro in what you're seeing for the category overall?

Diego Reynoso: What I would say is the overall industry had a really rough start to the quarter, and also our brands within that had some challenges. As we've seen the rest of the quarter come back, we've seen both our brands, particularly in Twisted Tea, and some of the overall category recover throughout the quarter. So we are expecting the rest of the year to look more like Q1, less like Q2. Okay, I get it. And then when it came to Mountain Dew or Hard Mountain Dew, was it just the transition that was slower?

Kaumil S. Gajrawala: Excellent. Hi, how are you? This is Diego. What I would say is if you look at the overall industry, had a really rough start to the quarter.

Diego: and also our brands within that had some challenges. As we've seen the rest of the quarter come back, we've seen both our brands particularly in Twisted Tea and some of the overall category recover throughout the quarter.

Diego: So, we are expecting the back end of the year to look more like Q1, less like Q2.

Michael Spillane: Or is it something going on with sort of the brand and the marketing? Thanks for that question. This is Michael.

Speaker Change: Okay, got it. And then when it came to Mountain Dew or Hard Mountain Dew, is it just a transition that was slower or is it something going on with sort of the brand and the marketing?

Michael Spillane: Yeah, it was a fairly complex transition, and so that was really it. It was more complex than we thought, and it took longer than we thought. Okay, got it. Thank you. The next question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

Speaker Change: Thanks for that question, this is Michael. Yeah, it was a fairly complex transition and so that was really it. It was more complex than we thought and it took longer than we thought.

Speaker Change: Okay, got it, thank you.

Speaker Change: And the next question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

Michael Spillane: Great Thank you. I was wondering if you could talk a little bit about how you see the development, any new thoughts in terms of how you see the development of Beyond Beer and specifically Surfside, which has kind of been the star product this year by many accounts. Why do you think it's doing so well, what does that say about the category, does it suggest any pivoting on your side, and then I have a follow-up. Um, I think first and foremost that the Surfside product is a great product.

Robert Edward Ottenstein: Great. Thank you.

Robert Edward Ottenstein: I was wondering if you could talk a little bit about how you see the development, I mean, any new thoughts in terms of how you see the development?

Speaker Change: and Beyond Beer and specifically Surfside has been the star product this year by many accounts.

Speaker Change: Why do you think it's doing so well? What does that say about the category? Does it suggest any pivoting on your side? And then I have a follow-up.

Speaker Change: I think, first and foremost, the Surfside product is a great product. It resonates with consumers.

Michael Spillane: It resonates with consumers, both in terms of taste and just a certain spot on the market. We've been very thoughtful about where we launched it. We've learned over the course of time to be very thoughtful and make sure that the launch is resourced correctly. So we think it's a new drinker, and we're finding that it's not at the expense of Twisted Tea, but it's in addition to it. Oh, so again, to build on Michael's comments, we're talking about Suncruiser, so you're correct that Surfside has been a good product this year. We've launched Suncruiser 2, which we think is an even better product, and it's doing well in the markets that we've launched it in. Yeah, sorry, I apologize.

Michael Spillane: We're so deep in the Suncruiser years that I thought you were mentioning that because we just had a discussion about that. But we have a product that is right up against that that is performing really well, and you'll be hearing more about that as we go along. And then I was wondering if we could just kind of touch on the beer side of the business, which we really haven't paid much attention to for a number of years.

Michael Spillane: I mean, you've got, with Phenomenal Liquids, you've got the best sales force, you know, arguably out there. How were you thinking about this business because the volumes keep going down and the levels of the decline are, you know, at least in the scanner data, not encouraging. And so, you know, what can be done to stem that? Does the portfolio need to be, you know, "pruned"? You know, what do you think is missing on the beer side? Dan, would you like to take that question? Yeah, I think we're having some technical problems.

Michael Spillane: Okay, so great. I think we've lost him there. But look, I think... American Light is a good example of how we're approaching the category where we've got a profile of a younger drinker. We've done a very thoughtful launch, as I've mentioned before, like we did with Suncruiser, and we're getting it into the right place, and we plan to scale that at the right pace. You know, there's a macro proposition here that just overall beer is in a particular place, but we feel very strongly that with the right attention, a big part of our opportunity here is that through the disruption in seltzer, both the ride up and the ride down, and the steady increase in twisted tea, we probably could have given more attention to the rest of our portfolio.

Speaker Change: Our American light is a good example of how we're approaching the category, where we've got a profile of the younger drinker.

Speaker Change: We've done a very thoughtful launch as Ive mentioned before like we have with Sun cruiser and.

Speaker Change: We're getting it into the right place and we plan to scale that.

Speaker Change: <unk>.

Speaker Change: At the right pace.

Speaker Change: There is a macro.

Speaker Change: Proposition here that just overall beer is that a particular place.

Speaker Change: But we feel very strongly that with the right attention a big part of our our opportunity here is that.

Speaker Change: Through the disruption in self serve both the ride up and the write down and the steady increase in twisted tea.

Speaker Change: We probably could have given more attention to the rest of our portfolio. So when I talked last time about <unk>.

Speaker Change: Supporting and growing our core to the intent will be to do that through a balanced portfolio and supporting all of our brands and bear is a big part of that.

Michael Spillane: So when I talked last time about supporting and growing our core, the intent will be to do that through a balanced portfolio and supporting all our brands, and beer is a big part of that. Thank you. And, yeah, I would add, can you hear me okay?

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Yeah, I would add if can you hear me okay.

Speaker Change: Yes.

Michael Spillane: Yes. Yes. Yes.

Speaker Change: Yes, yes, yes, okay I would add.

Michael Spillane: Okay. We in particular took our eye off of draft, along with our wholesalers. So we are making changes in the priorities for our salespeople to move some of the calls that they made with the explosion of Truly and now the rise of Tea. Those are off-premise brands. As Michael kind of alluded to, we neglected the on-premise, and so we are reorienting our sales force and expect to see more draft lines and more on-premise business for Sam Adams and for Angry Orchard. And the next question comes from the line of Michael Lavery from Piper Sandler.

Speaker Change: No.

Speaker Change: We in particular took our eye off of draft, along with our wholesalers. So.

Speaker Change: We are making changes in the priorities for our salespeople to move.

Speaker Change: Some of the calls that they made with.

Yes.

Speaker Change: Explosion of truly and now the rise of T hose or off premise brand.

Speaker Change: Michael kind of alluded we neglected the on premise and so we are reorienting, our sales force and expect to see more.

A draft lines and more on premise business or Sam Adams and for angry Orchard.

Speaker Change: Thank you.

Michael G. Andrews: And the next question comes from the line of Michael elaborate from Piper Sandler. Please proceed with your question.

Michael Scott Lavery: Please proceed with your question. Thank you. I just wanted to unpack the SG&A piece a little bit better.

Speaker Change: Yeah.

Michael Scott Lavery: You've called out the higher marketing push in the second half. Overall, SG&A was kind of flat in the first half versus last year. And so, just maybe, trying to understand, are there some non-marketing savings that are meaningful enough that you are suggesting might still run flat? I know you gave us a marketing guide for the year. Are we right to think that SG&A could be going up in the second half as well?

Michael G. Andrews: Thank you just wanted to unpack the SG&A piece, a little bit better you called out the higher.

Speaker Change: Marketing push in the second half overall SG&A was flat in first half versus last year.

Speaker Change: So just maybe trying to understand.

Speaker Change: Or are there some non marketing savings that are meaningful announced that U.

Speaker Change: Are suggesting you might still run flat.

Speaker Change: You gave the marketing guide on the year.

Speaker Change: I think the estimate can be going up in the second half as well.

Diego Reynoso: So, just to clarify, we are down in marketing spend in the first half of the year. That marketing spend that we're down on in the first half of the year, some of that will come back in the second half of the year, where most of our spend is. So, the second half of the year should be higher than the previous year.

So so just just to clarify just to clarify.

Speaker Change: We are down in marketing spend in the first half of the year that marketing spend that were down in the first half of the year. Some of that will come back in the second half of the year, where most of our spend this so the second half of the year should be higher than the previous year, we think theres opportunities to support some of our key launches like Sun cruiser.

Diego Reynoso: We think there are opportunities to support some of our key launches, like SunCruiser and American Light, which we have high hopes for from a volume point of view. So, that's where you will see the increase in marketing spend in the second half. Overall, as we've said before, the savings that we're looking for on the operation piece are partially to increase the gross margin so that we can reinvest some of that back in our brands. So, as we see the performance of the different brands, we'll reallocate accordingly. Okay, that's helpful.

Speaker Change: In American light, which we have high hopes for from a volume point of view, So thats, where you will see the increase in marketing spend in the second half.

Speaker Change: Overall, as we said before that.

Speaker Change: The savings that we're looking for on the operation police partially is to increase the gross margin. So that we can reinvest some of that back in our brands. So as we see the performance of the different brands, we'll reallocate accordingly.

Diego Reynoso: And just back on hard not to do, you've got the transition sounds like mostly done. For any of the states that might have gone sooner than later, have you seen any executional improvement or uptick, just that would, you know, suggest that the brand is already in better hands, even though it's still quite early? I would say it's still early. We're seeing fairly consistent results across all the territories, so we'll probably have a better handle on it after next quarter. Okay, great. Thanks so much.

Speaker Change: Okay.

Speaker Change: And just back on hard mountain Dew.

Speaker Change: You've got the transition it sounds like mostly done.

Speaker Change: Any of the states that might've gone sooner than later.

Speaker Change: Have you seen some execution improvement or uptick just that.

Speaker Change: Yes.

Speaker Change: The brand is already in better hands, even though it's still quite early.

Speaker Change: I would say it's still early.

Speaker Change: Fairly consistent results.

Speaker Change: All the territories so.

Speaker Change: We'd like we'd probably have a better handle on that after next quarter.

Okay, great. Thanks, so much.

Peter K. Grom: And the next question comes from the line of Peter Grom with UBS. Please proceed with your question. Thanks, operator. Good evening, everyone. I hope you're doing well.

Speaker Change: And the next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Diego Reynoso: So going back to Kaumil's question, have you seen that sequential improvement continue as we move through the important summer selling season here, 4th of July? Just really curious to get your perspective both from a Boston Beer standpoint, but maybe just what you're seeing across the category. So, I would say through the quarter, we've seen improvement, and we've seen the improvement of the trends through the 4th of July. We'll know more once we get past, I'd say, the next 3 or 4 weeks, but especially Suncruiser has been a great success so far from the 4th of July till now.

Peter K. Grom: Thanks, operator.

Speaker Change: Everyone, I hope youre doing well going back to Tom.

Peter K. Grom: No question.

Peter K. Grom: Just sequential improvement maybe just have you seen that sequential improvement continue as we move through the important summer selling season here fourth of July.

Speaker Change: Curious to get your perspective, both from a peer standpoint, but maybe just what youre seeing across the categories.

Tom: So I would say through the quarter with the improvement and we've seen the improvement of the trends through fourth of July we will know more once we got past.

The next three or four weeks, but especially some cruiser has been.

Tom: Great.

Tom: So far from fourth of July until now.

Diego Reynoso: Twisted Tea has recovered a little bit of growth as we came out of Q2, and those are probably the two biggest turnarounds that I would say from the start of the quarter. And the next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed with your question. Hey, good afternoon, everyone.

Speaker Change: He has recovered.

Little bit of growth as we came out of Q2 and those are probably the two biggest.

Speaker Change: Turnarounds that I would say from the start of the quarter.

Eric Adam Serotta: And the next question comes from the line of Eric <unk> with Morgan Stanley. Please proceed with your question.

Eric Adam Serotta: Thanks for taking the question. I was hoping to get some color around your kind of midterm outlook for Twisted. You obviously have a very impressive 20, 30-year, or 20-year track record with low double-digit growth that's really massively accelerated since COVID. But even if we smooth out the first half for some of the noise, it does look like it's slowed pretty significantly.

Hello, and good afternoon, everyone. Thanks for taking our question.

Was hoping to get some color around your kind of midterm outlook for twisted you obviously have a very.

Very impressive.

Speaker Change: 30 year.

Speaker Change: Many year track record with that low double digit growth.

Speaker Change: Really massively accelerated since COVID-19.

Speaker Change: Even if we smooth out that first half for some of the noise. It doesn't look like it slowed pretty significantly.

Jim Cook: What do you see as sort of the midterm growth profile for the brand over the next few years? And I know Jim has spoken about other competitor offerings being overspaced at retail. How long do you think that process will take to clear out, knowing that, you know, I think the long tail and the hard seltzer lasted a lot longer than a lot of people thought? Thanks.

Speaker Change: What do you what do you see as sort of the mid term growth profile for the brand over over the next few years and I know Jim has spoken about are there.

Jim: Hediger offerings being over space at retail how long do you think that Jim do you think that process will take.

Speaker Change: They're out knowing that.

Jim: Yeah, I think the long tail and hard seltzer lasted a lot longer than.

Speaker Change: <unk> done a lot of people thought.

Yeah.

Jim Cook: So, thanks, thanks. Look, I think we're expecting another strong year of growth for Twisted Tea, and we still see a really bright future for it. We think there's a lot of unrealized potential there. We remain the market leader, and we are still expanding our space. We'll continue to expand our brand support, and we'll offer more advertising, more sponsorships, and more programs. We're bringing in new drinkers. We're increasing household credit penetration among Hispanics and African Americans.

Speaker Change: So thanks, Thanks, I'd look I think we're expecting another strong year of growth and twisted tea and we still see a really bright future ahead for it we think there's a lot of.

Speaker Change: Unrealized potential there we remain the market leader and we still are expanding our space well.

Speaker Change: <unk> continued to expand our brand support and will offer more advertising spend more sponsorships more programs, we're bringing in new drinkers, we're increasing household penetration with Hispanic and African Americans.

Jim Cook: We'll continue to optimize our package design to keep it fresh. Also, Twisted Tea Light, which has been introduced, is showing to be highly incremental in bringing in new drinkers, and so is Twisted Tea Extreme, which is a high ABV. So, we know there's a lot of competition. It's well noted that there is a lot of clutter out there, much like the Seltzer area. We've grown this brand in a cleaner way with fewer flavor extensions, and we feel very strong that the core of it will be there and continue to perform. So, we can't control the rest of it.

We will continue to optimize our package.

Speaker Change: Designed to keep it fresh.

Speaker Change: Also twisted tea light, which has been introduced.

Speaker Change: <unk>.

Speaker Change: Showing to be highly incremental and bringing in new drinkers and so.

Speaker Change: As is twisted tea extreme which is the high ABV. So.

Speaker Change: We know Theres a lot of competition.

Speaker Change: Well noted that there is a lot of clutter out there much like the seltzer area. We've grown this brand in a cleaner way with fewer flavor extensions.

Speaker Change: And we feel very strong that the core of it.

Speaker Change: We will be there and continue to perform so can't control the rest of it.

Jim Cook: The marketplace will behave as it does, but we like our positioning, and we like our plan for going forward. Okay, I don't know. And I think retailers believe they hung on to the long tail and felt they were too long, and they're going to prune the hard tea category more quickly. And basically, the numbers you're seeing are, you know, twisted tea has something like 85 percent of the volume. And depending on how you want to, judges call it 65-70% of the space.

Speaker Change: Marketplace will will behave as it does but we like our positioning and we like our plan going ahead.

Speaker Change: Okay. I would also add I think retailers believe they hung onto the long tail and seltzer too long.

Speaker Change: And theyre going to prune.

Jim Cook: And the number 2 hard T after the 85% for twisted T is 4% share, and it goes down from there. So that long tail on tea is a much smaller share than the tail on seltzer was in the first year or two. So I'm gonna bet that a lot of it will get cleared out next spring after a little over a year because nothing's gotten, you know, the kind of traffic that a retailer would like to see.

Speaker Change: The hard tea category more quickly.

Basically the numbers Youre seeing is you know.

Speaker Change: Good City has something like 85 plus percent of the volume and depending on how you want to judge.

Speaker Change: Yes.

Speaker Change: At 65% to 70% of the space.

Speaker Change: And that's it and the number who are key to the 85% or twisted tea.

Speaker Change: Is 4% share.

Speaker Change: It goes down from there so that long tail on tea.

Speaker Change: A much smaller share than the tail on sell through was hersh.

Speaker Change: Two so I'm.

Speaker Change: I'm going to bet that a lot of it will get cleared out.

Speaker Change: Spring after a little over a year because nothing's gotten.

Speaker Change: The kind of attract and that a retailer would like to see there may be a couple of those 4% brand, but the who.

Jim Cook: There may be a couple of those 4% brands left, but the Hoops and the Two Hoots and the Happy Dads and things like that that are 1% share. They're not going to be on the shelves so much, and we believe we will get that shelf space back. Sheriff's Health Base. Great, thanks for that additional color, Jim. And then just a quick housekeeping one for Diego. Your inventories on the balance sheet were up pretty substantially. Any color around what was that?

Speaker Change: <unk>.

Speaker Change: Happy to ads in.

Speaker Change: Things like that.

Speaker Change: Is that a 1% share.

Speaker Change: They're not going to be on the shelf so much and we will get we believe we will get that shelf space back that share.

Speaker Change: So space.

Speaker Change: Great. Thanks for that additional color, Jim and then just a quick housekeeping one for Diego.

Diego: Inventories on the balance sheet were up.

Speaker Change: Pretty pretty substantially.

Speaker Change:

Speaker Change: Any color around what was that what drove that was that tied to sort of that.

Diego Reynoso: What drove that? Was that tied to sort of not being able to catch up to demand towards the end of the quarter, but your inventories are also up across raw materials and work in progress? So some color around that would be helpful. Yeah, I would say, as you know, we have a seasonal business. But the reason, part of the reason we have higher inventories right now is, as we mentioned before, we did not produce as much as we thought at the back end of the year.

Diego: Not being able to catch up to demand towards the end of the quarter.

Speaker Change: But your inventories are also up across.

Speaker Change: Raw materials and work in progress so some color around that would be helpful.

Speaker Change: Yeah, I would say as you know we have a seasonal business, but the reason part of the reason we have higher inventories right. Now is as we as we mentioned before we did not produce as much as we thought at the backend of the year and therefore, our raw materials in some of our finished goods and working.

Diego Reynoso: And therefore, our raw materials and some of our finished goods and work-in-progress materials were higher for the month than we would have expected. So there's no significant change to what we think the full year will be. It's more of a within the two-week period of the close of the quarter and the next quarter. So there's no significant driver other than that.

Work in progress and materials are higher for the month that we would've expected so theres no significant.

Speaker Change: Change to what we think the full year will be it's more of a within the two week period of the close of the quarter in the next quarter. So no significant driver other than that.

Speaker Change: Got it thank you.

Diego Reynoso: Got it. Thank you. And our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question. All right, thank you. Hi, everyone.

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

Bonnie Lee Herzog: I had a question on inventory, you know, hoping to hear whether distributors started to build up their inventory levels of your brands in July, and then, I guess, if not, curious to hear what gives you the confidence that distributors will want to carry historical levels of inventory levels of your brands when, you know, thinking about the context of your, you know, depletions being down year to date to the end of July, I guess, you know, is it That's a very good question, Bonnie.

Bonnie Lee Herzog: Alright, Thank you hi, everyone.

I had a question on inventory.

Speaker Change: Yeah, Yeah, sorry.

Brian: Sorry, I can build up their inventory levels have you Brian in July and then I guess, if not curious to hear what gives you the confidence that you.

Bonnie Lee Herzog: Wanted to carry historical levels inventory levels of your brands when I'm thinking about in the context with your depletions being down 2% year to date through the end of July I guess is it realistic to think they might carry lag going forward.

Bonnie Lee Herzog: I'd say yes, and as we said before, we traditionally have carried four to five weeks. But our wholesalers usually want us to carry even a little bit more, especially going into the high season. If you look at where we closed, we closed about three and a half, and when you measure in weeks, you're measuring at a variable rate, not an absolute rate. So we definitely feel, and our partners are telling us, that those inventory levels need to recover so that they can have the service levels that they require.

Brian: That's a very good question, Bonnie I would say yes.

Brian: As we as we said before we were we traditionally have carried four to five weeks. Our wholesaler is usually want us to carry even a little bit more.

Brian: Especially going into the high season, if you look at where we closed we closed about three and a half and when you measure in weeks youre measuring at a variable rate.

Brian: <unk> not an absolute so we definitely feel that our partners are telling us that those inventory levels need to recover so that they can have the service levels that they require so we're very confident that we can go back to where we need.

Bonnie Lee Herzog: So we're very confident that we can go back to where we need our stock levels to be for the year. Okay, that's helpful, and then... Jim, you and I talked about this a couple of months ago, but, you know, I was hoping to hear your updated thoughts on, I guess, opportunities for growth. You know, 80% of your volume is in the Beyond Beer, of course, category.

Brian: Our stock levels to be for the year.

Speaker Change: Okay. That's helpful and then.

Speaker Change: You and I talked about this a couple of months ago, but.

Speaker Change: Any update.

Speaker Change: Updated thoughts on I guess the opportunities for growth you know 80% of your.

Carrie: Your volume is in the beyond beer fourth category Carrie.

Jim Cook: I'd be curious to hear what, you know, you believe is the long-term growth for that category and, then ultimately, what, you know, you believe is the real long-term top-line growth for your entire business. Thank you. Yeah, it's a good question. You could think of it in two pieces.

Speaker Change: What you believe is the.

Carrie: Our long term growth for that category and then ultimately what.

Speaker Change: Do you believe in the long term topline growth.

Carrie: Our entire business.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Good question, you could think of it in two pieces.

Jim Cook: You know, there's the 80% that is in what I call the fourth category, which other people call Beyond Beer. And then there's 20% in more traditional beer, including I'd put hard cider probably in that category. And the fourth category, where 80% of our volume is, my guess is 3 to 5% by volume. That's been about the historical rate. You know, everybody defines it differently, so you'll get different numbers.

Speaker Change: The 80% that is in what I call a fourth category other people call beyond beer, and then theres, 20% and more traditional.

Speaker Change: Including.

Speaker Change: I'd put hard tighter.

Speaker Change: In that category.

Speaker Change: And the fourth category.

Speaker Change: 80% of our volume is Mike.

Speaker Change: My guess is 3% to 5% and volume.

Speaker Change: That's been about the historical rate everybody defines it differently, so youll get different numbers.

Jim Cook: But 3 to 5% is pretty much in the middle of the different calculations. So our belief is we should be able to hold our share there. And then there is upside from innovation. And I do see it as kind of a more blue ocean sort of environment, the way things were within craft beer 20 years ago. And we will see. Suncruiser has come out of the gates pretty strong, I think.

Speaker Change: But.

Speaker Change: 3% to 5%.

Speaker Change: Is pretty much in the middle of.

Speaker Change: The different calculations so.

Speaker Change: Our belief is we should be able to hold our share there.

Speaker Change: And then.

Speaker Change: Uh huh.

Speaker Change: And then there is upside from innovation.

Speaker Change: I do see it as kind of a.

Speaker Change: More blue Ocean are sort of.

Speaker Change: Environment the way things were.

Speaker Change: Within craft beer 20 years ago.

Speaker Change: We will see.

Speaker Change: <unk>.

Speaker Change: It has come out of the gate.

Speaker Change: <unk> I think.

Jim Cook: And the Surfside is doing really well. They're both new approaches. It's a vodka-based hard tea.

Speaker Change: The search.

Speaker Change: Search side is doing really well.

Speaker Change: With both a new approach.

Speaker Change: Vodka base.

Speaker Change: T.

Jim Cook: And we're seeing very good results where we have fully launched it. In New England, we're outselling Surfside by 2 to 1. In some of the other markets, like Ohio, we're seeing similar numbers. We just got put into MetLife Stadium and replaced Surfside.

Speaker Change: And.

Speaker Change: Where we're seeing very good results, where we have fully launched it in new England, We're outselling search side.

Speaker Change: Two to one.

Speaker Change: And some of the other markets like Ohio, we're seeing similar numbers.

Speaker Change: We just got put into Metlife stadium and replaced search side. So we're getting great support from retail and wholesalers for sudden crude here.

Jim Cook: So we're getting great support from retail and wholesalers for Suncruiser. But, as Diego and Michael said, it's still early. We're fully launched in maybe six or so states, but we see upside there that is, I believe, indicative of the opportunity in this blue ocean category. And then the other 20% of our volume is probably competing in categories that are not growing. You know, so we're not, we think we missed some growth there over the last five years as we focused on truly and then B, so we believe we can outgrow the category on that side of the business, but it's not going to have the kind of explosive growth that we've seen in Beyond Beer in the last five years. Right. Okay. Very helpful.

Speaker Change: Diego and Michael said, it's still early we're fully launched in May.

Speaker Change: Maybe.

Speaker Change: Those dates.

Speaker Change: But we see upside there that is I believe indicative of the opportunity in this blue Ocean category and then the other 20% of our volume is is probably competing in categories that are not growing.

Speaker Change: So we're not.

Speaker Change: We think we missed them growth there over the last five years as we focused on truly an E. So we believe we can outgrow the category over on that side of the business, but it's not going to.

Speaker Change: Kind of the kind of explosive growth that we've seen in beyond beer in the last five years.

Speaker Change: Alright, Okay very helpful. I appreciate it thank you.

Jim Cook: I appreciate it. Thank you. And the next question comes from the line of Filippo Falorni with City.

Speaker Change: And the next question comes from the line of Filippo full ornate with Citi. Please proceed with your question.

Filippo Falorni: Please proceed with my question. Hey, good afternoon, everyone. I wanted to ask you guys about innovation. And where are you most excited in terms of as you think about not just this year but the next couple of years? Obviously, you have Suncruiser this year.

Filippo Falorni: Hey, good afternoon, everyone.

Filippo Falorni: I wanted to ask you guys about innovation and.

Filippo: What are you most excited in terms of as you think about not just this year, but like over the next couple of years, obviously you have <unk>.

Filippo: Crews there this year, but as you think about the next growth opportunity is for Boston beer, Jim You're clearly developed a very strong innovation track record.

Speaker Change: What are you guys thinking like is it more in the ready to drink spirits space.

Michael Spillane: But as you think about the next growth opportunities for Boston Beer, Jim, you clearly have a very strong innovation track record. What are you guys thinking? Like, is it more in the ready-to-drink spirit space? Is it other areas of Beyond Beer? Maybe it's non-alcoholic?

Speaker Change: In the other areas of beyond beer, maybe non arc. They just just curious what are you thinking about the next legs of growth for the company.

Michael Spillane: Like, just curious about what you're thinking about the next legs of growth for the company. Yeah, so I'll take, you know, I think there are, I'll start, Jim, and then it's okay, I'll pass it on to you. One, I think it's all of the above.

Jim: Yes, so uptake.

Jim: I think I'll start Jim and then its account.

Michael Spillane: And I think, you know, one of the things we have a great opportunity here, I've mentioned a few times, to be really focused and make sure that what we are launching in terms of innovation is well resourced. So, you know, right now, again, just to reiterate, Twisted Tea, Light, and Extreme are all products we're very excited about. We think that's bringing in new drinkers to the space. Truly Unruly has performed really well, and we think that will help us stabilize the seltzer category for us faster than it would have otherwise. The Hard Mountain Dew expansion is ready to go, and we see that helping us in 2025. Again, Suncruiser.

One I think it's all of the above and I think one of the things.

Speaker Change: We have great opportunity here I've mentioned, a few times to be really focused and make sure that what we are.

Speaker Change: Launching in terms of innovation as well resource.

Speaker Change: So right now again, just to reiterate twisted tea light and extreme we're very excited about we think that's bringing in new drinkers to the space truly unruly has performed really well and we think that will help us.

Speaker Change: Table as the Seltzer category for us faster.

Speaker Change: And then it would have the hard mountain Dew expansion is ready to go and we see that helping us in 'twenty, five and again son cruiser.

Michael Spillane: American Light is an important part of our beer family, and we feel like we have a great platform there. And then, you know, in addition to the innovation, again, just driving the core and waking up our other franchises that we probably stepped away from that are nowhere near their potential, arguably the best innovation engine in the industry. And we have a number of projects that we're very excited about, and we're probably more disciplined than we've ever been in terms of the rigor to get those to market. So we will, in some cases, identify space that has already been proven, and we will fast follow and try to do a better job with it.

Speaker Change: American light.

Speaker Change: Is it an important part of our beer family and we feel like we have.

A great platform there and then in addition to the innovation again, just driving the core waking up our other franchises that we probably stepped away from that have that are nowhere near their potential so.

Speaker Change: But all of those categories that you mentioned.

Speaker Change: Yeah.

Speaker Change: Arguably the best innovation engine in the industry and we have a number of projects that we're very excited about and where we're probably more discipline than we've ever been in terms of the rigor to get those to market. So.

Speaker Change: We will.

Speaker Change: In some cases.

Speaker Change: Identify.

Speaker Change: Space that has already been proven out and we will fast follow and.

Speaker Change: Try to make us do a better job with it and then there are other times, where we will have a concept that no one could have imagined and we will bring that to consumers. So we feel very good about our innovation pipeline going forward.

Michael Spillane: And then there are other times where we will have a concept that no one could have imagined, and we will bring that to consumers. So we feel very good about our innovation pipeline going forward, and I'm the editor, Jim. Yeah, it's... You know, the question was, what's next? And my answer is, we don't know.

[laughter].

Speaker Change: And I'd add there Jim.

Speaker Change: Yes.

Speaker Change:

Speaker Change: The question was what's next and my answer is we.

Speaker Change: We don't know.

Jim Cook: If we knew, we'd be introducing it next month. The innovation space, at least in our experience, has been quite unpredictable, very much littered with failures. I once, for a conference, they asked about our failures. I started writing a list, and I got to 24 different brands that had failed. It was just too depressing, and I stopped.

Speaker Change: If we knew we'd be introducing it next month.

Speaker Change: <unk>.

Speaker Change: Innovation space at.

Speaker Change: At least in our experience has been quite unpredictable.

Speaker Change: Very much littered with failures.

Speaker Change: Yeah.

Got it for a conference.

Speaker Change: They asked about our failures and accelerating the list and I got to 'twenty four different brands that had failed.

Speaker Change: Depressing a nice job.

Jim Cook: So, you need to constantly be trying things, probing the market, and just innovating and then innovating on the innovation. Some things are more predictable, and we feel quite good about American Light, Twisted Tea Light, Twisted Tea Extreme, Ruly Unruly, those are predictable. But our strength, I guess, has been in, you know, totally new ideas. Right, that's very helpful. And then maybe one for Diego.

Speaker Change: So you need.

Speaker Change: To just constantly be trying things probing the market.

Speaker Change:

Speaker Change: And conditions.

Speaker Change: Innovating and innovating on the innovation.

Speaker Change: Okay.

Speaker Change: Angry Orchard, we had a salutary failed, but we finally hit it was the case with twisted tea. It was originally but again when we finally hit it and we grew slowly so.

Speaker Change: It's a lot of trial and error, so I really can't tell you what it is.

Speaker Change #100: The next big thing that's different than what Michael mentioned many products.

Speaker Change #100: Your line extension those are more predictable and we feel quite good about.

Speaker Change #100: Uh huh.

Speaker Change #100: American light because the deal.

Dream.

Speaker Change #101: Really unruly those are predictable, but our our strength I guess who's been in.

Speaker Change #101: Totally new ideas.

Speaker Change #101: Okay.

Diego Reynoso: On gross margin expansion, I know you said in the release and in the call that Q4 is the lowest gross margin quarter in an absolute percent term, but how should we think about margin expansion on a year-over-year basis in the second half of the year? Is it more skewed towards Q3 versus Q4, or on a more of a year-over-year basis? Thank you. Yeah, so if you look at our guidance, we are still guiding to 43 to 45, which is a substantial improvement.

Speaker Change #101: Great. That's very helpful. And then maybe one for Greg on the gross margin expansion on I know you said on the release and in the call that Q4 has the lowest gross margin.

Greg: Florida in an absolute percent term, but how should we think about margin expansion on a year over year basis in the second half of the year.

Speaker Change #105: Is it more skewed towards Q3 versus Q4.

Greg: More of on a year over year basis. Thank you.

Speaker Change #102: Yes, so if you look at our guidance.

Speaker Change #104: We are still guiding to 43% to 45, which is a substantial improvement EBIT, even in the Q2 quarter, where our volumes were down.

Diego Reynoso: Even in the Q2 quarter, when our volumes were down, our production volumes, primarily, which is what drives that, our growth margin was still up. So we're still confident that the plans we've put in place will get us over the next few years to the high 40s. We'd like to get closer to 50, but right now we have a plan for the high 40s.

Speaker Change #104: Our production volumes, primarily which is what drives that our gross margin was still up so we're still confident that the plans. We've put in place will get us over the next few years to high Forty's.

Speaker Change #104: We'd like to get closer to <unk>, but right now we have a plan to high forty's.

Diego Reynoso: So as you look through the year, you can get very bumpy results based on how the production volumes and the shipment volumes move between quarters. But you should expect the best margins to come up in the high season, which is really kind of Q2, Q3, with Q4 really being the lowest one and Q1 being kind of in the middle. That's kind of the way we traditionally will work, but again, very sensitive to changes in production volumes within a couple of weeks of the quarter end.

Speaker Change #104: So as you look through the year, you can get very bumpy.

Speaker Change #104: Results based on how the production volumes and the shipment volumes move between quarters, but you should expect.

Speaker Change #104: Best margins to come up and high season, which is really kind of Q2 Q3 with Q4 really being the lowest one in Q1 being kind of in the middle.

Speaker Change #104: Kind of the way, we traditionally will work, but again very sensitive to changes in production volumes within a couple of weeks of the quarter ends.

Diego Reynoso: Great. Thank you, guys. And as a reminder, if you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate that your line is in the. Our next question comes from the line of Steve Powers with Deutsche Bank.

Speaker Change #107: Great. Thank you guys.

Speaker Change #106: And 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.

Speaker Change #108: Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Stephen Robert R. Powers: Please proceed with your question. Hey, thanks, guys. And good evening.

Jim Cook: Jim, you know, I normally wouldn't ask a question on this topic, but I feel compelled. The Wall Street Journal story a couple of months ago related to Boston Beer being talked into selling itself to some story generated a lot of investor discussion, which, to be honest, you know, carries on through the current day. So, to the extent possible, I was hoping you could comment on whether there's been any change to your intention of maintaining Boston Beer as an independent public company and really an acquirer in its own right, or to what extent there's an openness on your part or on the board's part in any form to consider partnering with another player.

Stephen Robert R. Powers: Hey, Thanks, guys and good evening.

Stephen Robert R. Powers: Jim I normally wouldn't ask a question on this topic, but I feel compelled the wall Street Journal story, a couple of months ago related to Boston beer being talks to sell itself to some story it generated a lot of investor discussion, which to be honest carries on through the current day.

Speaker Change #112: I guess to the extent possible I was hoping you could comment on whether there's been any change to your intention.

Speaker Change #111: Maintaining Boston Beer's independent public company, and really an acquirer in its own right or what to what extent, there's openness on your part or on the board's part.

Speaker Change #110: Any form to consider partnering with another player.

Jim Cook: I'm afraid I'm going to have to give you the answer that we always give, which is that we don't comment on rumors. You can make your own judgments based on what's happened in the whatever month or two since that story came out.

Speaker Change #110: Okay.

Speaker Change #113: The framework to give you the answer we always give which is we don't comment on rumors.

You can make your own.

Speaker Change #114: <unk> based on.

Speaker Change #114: What's happened in the whatever month or two.

Speaker Change #115: Since that story came out and I would reiterate we continue to be focused on growing our business as an independent company.

Jim Cook: And I would reiterate, we continue to be focused on growing our business as an independent, Ben Hill It does. Thank you. Thank you.

Speaker Change #115: Hope that helps.

Speaker Change #116: It does thank you. Thank you.

Speaker Change #116: Michael I guess pivoting to running the company as an independent company you talked in the opening about working to optimize you know really across the board execution from product development manufacturing selling all the way through the allocation of capital and I know you had familiarity with a lot of those things from your time on the board, but as you settled in the current.

Michael Spillane: Michael, I guess pivoting to running the company as an independent company, you talked in the opening about working to optimize really across the board execution from product development, manufacturing, selling, all the way through the allocation of capital, and I know you had familiarity with a lot of those things from your time on the board, but as you settled in, where do you think the organization has the most opportunity to improve, and is there a way to make those optimization efforts more tangible to Yeah, so look, I think we all recognize that the number one thing this company needs to do is grow and grow its top line, and then everything else looks a whole lot better.

I guess the question is where do you think the organization has the most opportunity.

Speaker Change #117: To improve and is there a way to make those optimization efforts more tangible.

Those of us on the outside.

Speaker Change #118: Yes, So look I think we all recognize that the number one thing this company needs to do is grow and grow the top line and then.

Speaker Change #119: Everything else looks a whole lot better.

Michael Spillane: There are some macro reasons for the slowdown, and then there are some that are just, again, I go back to the disruption of COVID and the disruption of Truly, and I describe it as we grew at all costs, and then the trailer was that we found out what all those costs were, and we've been putting ourselves back together. A lot of that was operating discipline, and we just, the things and the principles that Jim built this company on, we were always so sharp, and because of that sort of explosion, we lost our edge.

Speaker Change #120: There there are some macro reasons for the slowdown and then there are some that had just again I go back to the disruption of Covid and the disruption of truly and I describe it is we we grew at all costs in the trailer was we found out what all those costs work and we've been putting ourselves back together.

Speaker Change #120: A lot of that was operating discipline and we just the things in the principle that Jim built this company on.

Speaker Change #120: We were always so sharp and because of that sort of explosion. We lobster edge. So I was fortunate that Diego joined the company.

Michael Spillane: So I was fortunate that Diego joined the company a while before me and had already started implementing some of the operating discipline, as well as a couple of other great teammates that are here and following up, so I think we know what to do. This company has done it before, but the power that this company has is that it has a fantastic portfolio of brands, and none of them are reaching their potential at the moment. Most have given back market share. Most have given back points of distribution.

While before me and already started implementing.

Speaker Change #120: Some of the operating discipline.

Speaker Change #120: As well as a couple of other great teammates that are here.

Speaker Change #120: And following up so I think we know what to do this company has done it before.

Speaker Change #120: But the power that this company has a it has a fantastic portfolio of brands and none of them are reaching their potential at the moment.

Speaker Change #120: Most have given back market share.

Speaker Change #120: Most have given back points of distribution.

Michael Spillane: And we're in the business of taking that back. We have the best sales force in the industry. And I think it's just a matter of making sure that they have what they need, and we're giving them clear direction on what success looks like. And that has shifted because we have at times been guilty of having a single product focus. So, in the end, you will all feel better when we start to grow, and I know a big part of that growth is going to be getting to the bottom of tooling, and trust me, I know it's frustrating for all of you to look at those numbers. It's more frustrating for us.

Speaker Change #120: We're in the business of taking that back.

Speaker Change #120: We have the best sales force in the industry.

Speaker Change #120: And I think it's just a matter of making sure that they have what they need.

Speaker Change #120: And we're giving them clear direction on what success looks like and that has shifted.

Speaker Change #120: Because we have.

Speaker Change #120: At times been guilty of of having a single product focus.

Speaker Change #120: In the end you will I'll feel better when we start to grow and I know a big part of that growth is going to be.

Speaker Change #120: Getting to the bottom of truly and trust I know, it's frustrating for all of you to look at those numbers.

Speaker Change #121: It's more frustrating for us.

Michael Spillane: We're trying to get to the bottom as fast as we can responsibly to put the right product in the marketplace and sort of get this next leg of growth going. So I hope that answers your question.

Speaker Change #121: We're trying to get to the bottom as fast as we can responsibly.

Speaker Change #121: To put the right product in the marketplace and sort of get this next leg of growth going so hope that answers. Your question. It does thank you very much.

Jim Cook: Thank you very much. If there are no further questions at this time, I would like to turn the floor back over to Jim for any closing comments. Thank you everybody for joining us and I look forward to talking to you again in three months. Cheers. And ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Jim <unk>: 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 <unk>: Well, thank you everybody for joining us.

Jim <unk>: Look forward to talking to you again in three months.

Jim <unk>: Cheers.

Speaker Change #123: And ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Speaker Change #123: [music].