Boston Beer Company, Inc.

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 2023 third quarter earnings call. Joining the call from Boston Beer are Jim Cook, Founder and Chairman, Dave Berwick, our CEO, and Diego Reynoso, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. 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 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 other I will now pass it over to Jim for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Dave, who will provide an overview of our business. Dave will then turn the call over to Diego, who will focus on the financial details of our third quarter results, as well as our outlook for the remainder of 2023. Immediately following Diego's comments, we will open a line for questions. Our third quarter depletion decrease of 6% on a fiscal calendar basis and 3% on a comparable week's basis was in line with our expectations and improved from a decrease of 7% on a comparable week basis in the second quarter. We saw strong performance in our largest brand, Twisted Tea, and we expect its continued success to have a continued impact on our overall growth rates. for the remainder of the year. In measured off-premise channels, Twisted Tea continued its strong dollar growth, up 34%, which was offset primarily by continued declines in Truly Hard Seltzer. We continue to make progress on operational plans to enhance our margin and have delivered gross margin improvement for the last two quarters. Our multi-year initiatives drive execution across more complex business and align our cost structures more closely to volume expectations are progressing well. We continue to believe that the beyond beer category will grow faster than the traditional beer market over the next several years. We plan to continue to invest behind Twisted Tea and Truly Brands while also developing innovation and cross beyond beer categories to drive long-term growth. The operational changes we've made this year will help us continue to drive improvement in our margins, but the pace of that improvement will depend on how the consumer environment plays out and how fast we are able to grow into our capacity. We continue to have a highly cash-generated business with a strong balance sheet which has enabled us to fund incremental investments in our brands and repurchase over $69 million in stock thus far in 2023. Finally, we are thankful to our outstanding coworkers, distributors, and retailers who continue to support our business. I will now pass it over to Dave for a more detailed overview of our business.

Thanks, Chairman. Good afternoon, everyone. As Jim mentioned, our third quarter volumes were in line with our expectations. For the second quarter in a row, we had a gross margin of over 45%. We also generated approximately $250 million in operating cash flow over the last two quarters combined. Diego will discuss the financial results in his remarks, while I'll focus my commentary on our overall performance. Our strategic priorities remain unchanged. We're focusing our resources on sustaining Twisted T's industry-leading growth and turning Trulie's volume trends while improving our supply chain performance to enhance our gross margin and provide more funds to invest in our brands and our top-ranked industry sales force. I'll now provide some color on our brands. Twisted Tea in the third quarter had 34% dollar sales growth while adding 3.2 dollar share points and expanded its overall share with a 29% of total FMV dollar sales and measured on-premise channels. This robust demand is a result of balanced efforts at growing both physical availability via improved geographic channel and package distribution and mental availability via a highly effective brand building campaign, increased media investment, and expanded college football tailgating platform and optimized packaging design that highlights the brand's distinctive assets. Twisted Tea Party Pack is now the third largest and the fastest growing SKU among all FMBs. and our wholesaler service levels are in a good position to support further growth. We remain confident that Twisted Tea will sustain a strong double-digit growth for the remainder of 2023 for many reasons. First, there's upside in growing brand awareness and household penetration, and our ad campaign is working. Second, the brand is underdeveloped with Black and Hispanic and Latino consumers, and we're seeing increased household penetration within these demographics as a result of our marketing efforts. Third, There's still ample room to expand distribution through shelf space gains and new channels. As I mentioned on our last call, Twisted Tea finished the spring space reset season with a 49% increase in shelf space, and those benefits will continue to fuel the business during the balance of the year into 2024. In the on-premise channel, Twisted Tea is under-penetrated for Southern FMB competitors. It has a 60 share and has driven 96% of the volume growth and beyond beer year-to-date. Fourth, there's opportunity to widen the brand's presence in underdeveloped markets, and we're making great progress in places like Texas and California. Fifth, we're still in the early stages of Twisted Tea Lite's national launch, and the sales per point is accelerating and exceeding our expectations. It's now approximately 85% incremental to the Twisted Tea portfolio. Lastly, in the third quarter, we began testing a higher ABV version of Twisted Tea in several markets. Called Twisted Tea Extreme, It has 8% ABV and is part of our efforts to find future pathways to growth by increasing occasions and adding new drinkers. Now on to Truly. We remain confident in the changes we made to the brand proposition starting late in the second quarter and have seen gradual improvements in our results in a challenging segment. In light of Twisted Tea's strong growth, Truly continues to become a smaller part of our portfolio mix, with Twisted Tea now 1.7 times larger than Truly, and measured channels in the third quarter. This impact is evident in our total company volume share, which when compared to the prior year quarter, was flat at 4.5% in the third quarter versus a loss of 0.2 points at 4.3% volume share in the second quarter. In the third quarter, Trulia's dollar sales declined 26% and lost $3 share points versus a 31% decline in dollar sales and a loss of $3.8 share points in the second quarter. Underlying this improved trend is much better performance in our lightly flavored variety packs and 24-ounce single-serve cans, which gained dollar share by 0.4 points and 0.7 points respectively in the third quarter. Our new packaging and refresh, merchandising focus on light flavors, push behind single-serve and the convenience channel, new ad campaign and higher media spend all have contributed to share growth in this lightly flavored part of the portfolio. We recently shared some innovations for the Truly brand launching early 2024 that include a new 8% APV Truly Unruly variety pack, which will replace our Truly Margarita pack, and a new Truly Party pack, which will replace our Truly Tropical pack. In addition, we'll improve the recipe of both Truly Lemonade and Fruit Punch to create a lighter, more refreshing finish, addressing a key issue with lapsed drinkers. We believe these innovations, along with the national launch of Chuli Tequila Soda ahead of the peak summer season, will better position the Chuli brand offering and set it up well for improved trends in 2024 and beyond. While we're not satisfied with Chuli's pace of improvement, we're confident we made the right changes to position the brand for success. We remain encouraged that in the third quarter, Chuli maintained the second highest sales per point in hard seltzer, 52% more productive than the concrete brand, and the third highest sales per point in all of the year, so there remains a strong consumer base to build upon. The moderating overlap of Margarita Watch and Truly Tea's discontinuation, which have contributed 75% of the brand's share loss to date, should lead to continued improved share trends through the balance of the year. As evidenced, our measured off-premise channels, Truly lost two volume share points in the latest four weeks, compared to losing 2.4 volume share points in the third quarter, and 3.5 volume share points in the second. While maintaining Twisted Tea's double-digit growth and improving Truie's trajectory are our top priorities for the year, we have a broad portfolio and will continue to support and build out our smaller brands. Sam Adams' total share across all channels was slightly up in the third quarter in a difficult craft beer category and will continue to invest behind our new remastered Boston Lager campaign and our seasonals in addition to our non-out portfolio including just the Hays and Gold Rush Pilsner, which grew 95% of dollars in the third quarter and measured off-premise channels. While currently a small part of our portfolio, we see incremental opportunities in spirits-based RTDs. Chuli Vaca Soda has strong repeat and continues to gain distribution, and Chuli Tequila Soda will launch nationally in 2024, ahead of the peak selling season, building on its success in test markets this year. Meanwhile, Dogfish Head's award-winning canned cocktails have gained a solid foothold in the traditional canned cocktail segment. Turning to our supply chain, we continue to modernize our supply chain through investments in equipment, capacity, and improved systems and processes. I'd like to broadly discuss the status of the three categories we've focused on to drive improved margins. The first is procurement savings. We've targeted savings initiatives across multiple areas, including raw materials and packaging, that have achieved some benefit during the second and third quarters. We continue to review our contracts with our raw pack suppliers for the aim of adjusting these to be more reactive to changing demand. The second area is brewery performance. While we expect to always have a mix of internal and external production, we're focused on moving volume back to our internal breweries where possible, given our production cost advantage. We're evaluating our mix in a disciplined manner, focusing on improving our internal wine stability and efficiencies, as well as adjusting contracts with our co-manufacturers as we adapt to changes in our volumes and product mix. Third is waste and network optimization. We have initiatives to attack waste and optimize our logistics, which will reduce freight and warehousing costs over time. These efforts helped us realize lower inventory ops and lessen costs in the third quarter, which benefited our gross margin. We're currently implementing systems to improve our forecasting and inventory management, which we expect to further reduce waste. We have multi-year savings plans across each of these categories, which we expect will generate significant long-term gross margin expansion. While we'll take time to realize the full benefit, we began to see some benefit in the second and third quarters, primarily related to procurement savings and lower inventory obsolescence costs, and we expect to see more in the remainder of the year. We're also closely managing our operating expenses. We expect to use the cost savings that these efforts generate to nurture new innovation and support increased brand spend, and within brand spend, both converting non-working to working dollars and shifting our mix from traditional to digital and social media. In summary, we're optimistic about the long-term outlook for our diversified beverage portfolio. Our company has exceptional innovation in brand building capabilities, the top sales organization to appear, and a cash-generative business model with an excellent balance sheet to support long-term growth. Now I'd like to welcome Diego Reynoso, our new CFO. Diego has significant financial and operational experience in the consumer industry, particularly in the alcoholic beverage category. I've worked closely with him since he started in early September, and I'm confident he brings the requisite leadership and financial expertise to help us attack our most important business challenges. I'll now hand it over to Diego to discuss third quarter financials and our full year guidance.