Boston Beer Company, Inc.

Greetings. Welcome to the Boston Beer Company's second quarter 2020 earnings call. At this time, all participants will be in listen-only mode. A 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. Please note this conference is being recorded. At this time, I'll turn the conference over to Mr. Jim Cook. Mr. Cook, you may begin.

Thank you. Good afternoon and welcome. This is Jim Cook, founder and chairman, and I'm pleased to kick off the 2020 second quarter earnings call for the Boston Beer Company. Joining the call from Boston Beer are Dave Berwick, our CEO, and Frank Smola, our CFO. I'll begin my remarks this afternoon with a few introductory comments, including some discussion on the COVID-19 pandemic and the highlights of our results, and then hand over to Dave who will provide an overview of our business. Dave will then turn the call over to Frank, who will focus on the financial details of our second quarter results, as well as a review of our outlook for 2020. Immediately following Frank's comments, we'll open the line up for questions. As our world continues to grapple with this COVID-19 pandemic, our primary focus at Boston Beer Company continues to be on operating our breweries and our overall business safely and supporting our partners in the beer industry. Supporting the communities in which we work and live is one of our core values. And we're very happy that our Samuel Adams Restaurant Strong Fund has raised over $5.4 million so far to support bar and restaurant workers who are experiencing hardship in the wake of COVID-19. Working with the Greg Hill Foundation, this fund is committed to distributing 100% of its proceeds to grants to bar and restaurant workers across the country. While doing this, we also achieved depletions growth of 46% in the second quarter, of which 42% is from Boston Beer legacy brands, and 4% is from the addition of the Dogfish Head brands. I'm tremendously thankful for the effort of our coworkers in achieving our ninth consecutive quarter of double-digit growth while maintaining a focus on quality and innovation. We're also thankful to our outstanding distributors and retailers for their focus during COVID-19. Our business in the second quarter was strong, but uncertainties due to COVID-19 do remain. These uncertainties include our ability to continue to operate our breweries at a level of safety that meets our standards, the continued ability to distribute to off-premise retail locations and the timing of the reopening of on-premise retail locations. We will continue to work hard through the COVID-19 pandemic and prioritize safety above all else. I'm proud of the passion creativity, and commitment to community that our company and coworkers have demonstrated during this pandemic. We remain positive about the future growth of our brands and are happy that our diversified brand portfolio continues to fuel double-digit growth. I will now pass over to Dave for a more detailed overview of our business.

Okay, thanks, Jim. Hello, everyone. Before I review our business results, I'll start with the usual disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially From those of the forward-looking statements, it's contained in the company's most recent 10Q and 10K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Okay, now let me share a deeper look at our business performance. Our depreciation growth in the second quarter was a result of increases in our truly hard seltzer and twisted tea brands and the addition of the dogfish head brands that were only partially offset by decreases in our San Diego Adams in Angry Orchard brands. The growth of the Truly brand, led by Truly Hard Lemonade, has accelerated and continues to grow beyond our expectations. Since early January, Truly has significantly grown its velocity and has sequentially grown its market share, while many other hard seltzer brands have entered the category. Truly is the only hard seltzer not introduced earlier this year to grow its share during 2020. We'll continue to invest heavily in the Chuli brand and further improve our position in the hard seltzer category as competition continues to increase. We're excited about our new Chuli advertising campaign that showcases colors, variety, and joy to hard seltzer drinkers through four different ads. Because we delayed the premiere of this campaign to June, given the consumer environment surrounding COVID-19, it's too early to know if it will resonate with drinkers. Twisted Tea continues to generate double-digit volume growth rates that are well above full-year 2019 trends. We expect to increase our brand investments in the second half compared to the first half and see significant distribution and volume growth opportunities for our Truly, Twisted Tea, and Dogfish Head brands. Samuel Adams and Angry Orchards volumes continue to decline as they are more deeply impacted by the effect of COVID-19 on on-premise retailers. We're encouraged, however, that Samuel Adams Boston Lager and Indy Orchard Crisp Apple both have experienced double-digit growth in the measure of off-premise channels during the quarter. We continue to work on returning these brands to growth, but don't expect them to grow during 2020 because of on-premise closures. I'm pleased that our overall business has shown great momentum in depletion improvements during the first half of the year. Given our trends for the first half and our current view of the remainder of the year, We've adjusted our expectations for higher 2020 four-year earnings, depletions, and shipment growth, which is primarily driven by the strong performance of our Truly and Twisted Tea brands. We've adjusted our business to the COVID-19 environment and continue to work to control what we can control, with our primary focus being the safety of our coworkers, distributors, retailers, and drinkers. We've deployed many safety protocols across our business and in our breweries, including entrance screening and temperature checks, face mask requirements, reorganized workspacing to increase physical distancing between and among shifts, and adding more cleaning and sanitation time to each shift. We're slowly reopening our hospitality locations, which were closed since March, with a focus on outdoor service and takeout. Our accelerated depreciation growth has been challenging operationally. We've been experiencing out-of-stocks, and we expect wholesaler inventories to remain very tight for the rest of the summer. We've been operating at capacity for many months and have further increased our uses of third-party breweries in response to the growth. In particular, the additional chewy volumes have come at a higher incremental cost due to an increased uses of third-party breweries, which is negatively impacting our gross margin expectation for the year. We're investing significantly in our supply chain, but do not expect these pressures to be relieved in the second half of the year. We'll continue to invest to increase capacity as appropriate to meet the needs of our business and take full advantage of the fast-growing hard seltzer category. We're a very competitive business, but we're optimistic for continued growth of our current grant portfolio. We remain prepared to forsake short-term earnings as we invest to sustain long-term possible growth in line with the opportunities that we see. Based on information in hand, year-to-date depreciation is reported to the company in through the 28 weeks into July 11, 2020, are estimated to have increased approximately 42% from the comparable weeks in 2019. Excluding the dogfish head impact, depletion has increased 37%. Now I'm going to hand over to Frank, who will provide the financial details.