Boston Beer Company, Inc.

Greetings and welcome to the Boston Beer Company fourth quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. And if anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, sir. You may begin.

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 fourth quarter earnings call. Joining the call for Boston Beer are Jim Cook, Founder and Chairman, Michael Spillane, our CEO, and Diego Reynoso, our CFO. Before we discuss our business, I'll start without a disclaimer. As we state in our earnings release, some of the information we discuss and that may come up in 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 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. 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 Michael, who will provide an overview of our business. Michael will then discern the call over to Diego, who will focus on the financial details of our fourth quarter results, as well as our outlook for 2025. Immediately following Diego's comments, we will open the line for questions. As I look back on 2024 our depletion trends continue to improve and our multi year margin enhancement plans delivered 200 basis points of gross margin expansion, which supported our non gap EPS growth of 31%. We achieved this EPS growth, while increasing advertising investments in our brands. Our business continues to be highly cash generative with 2024 free cash flow of $173 million or $14.70 per share, which allowed us to repurchase $239 million in shares in 2024. The improvements in our operational and financial performance occurred in a dynamic environment with inflation impacting near-term consumer behavior. We've also experienced greater competition in the fourth category, sometimes called beyond beer, as consumers seek variety and more players enter the category. Over the long term, we expect the beer category to remain highly relevant to our consumers with significant growth opportunities in the fourth category as lines continue to blur between beer, wine, and liquor. There are some factors such as health and wellness and cannabis that are somewhat impacting the total alcoholic beverage category. But as I previously said, the beer industry is best positioned to take advantage of the growth in the fourth category. These products are typically sold in a can, need to be in the cold box, and beer companies have the production capabilities to produce them, and beer wholesalers have the infrastructure to service them. The Boston Beer Company is well-positioned, given our proven track record of innovation and our manufacturing infrastructure and our best-in-class sales force and strong wholesaler relationships. Our priority for 2025 are to support our category-leading brands to improve their market shares, launch strong innovation, and continue to expand our gross margins. As we've worked through our plans, we decided to step up our level of advertising investment across the portfolio to improve our market share trends, ensure the successful national launch of SunCruiser, and return to long-term volume growth. As Diego will discuss further in his remarks, we're continuing to execute our multi-year productivity plans across our three focus areas of procurement savings, network optimization, and brewery performance. These efforts ensure that we have fuel for investment in our brands and allow us to enhance our gross margin despite potential volatility in the volume environment. In summary, we made solid progress in 2024, but are not yet where we want to be. I'm confident that we have the right strategy and team in place and that the additional investments we are making this year position as well to improve market share. As Michael will discuss, we're focused on end-to-end execution and being strong operators to deliver long-term, sustainable growth. Our 2025 financial guidance provides a range of outcomes to incorporate the dynamic consumer demand environment and our intention to lean further into investments in our brand when we see faster returns on volume. To close, I'd like to thank the Boston Beer team, our distributors, and our retailers for their efforts and support that enabled our progress in 2024. And now I'll pass the call to Michael.

Thanks, Jim. Good afternoon, everyone. As I reflect on 2024, I'm pleased with the progress our team has made to become better operators. When I joined as CEO, I saw multiple areas of opportunity to improve trends across our entire portfolio of core brands while continuing to drive best-in-class innovation. We spent the last few quarters improving our processes and systems and have indications that our efforts are beginning to impact our results positively, despite the challenging macroeconomic environment. Depletion trends have improved in the fourth quarter and year-to-date 2025 as we focus on all of our brands. For example, the increased focus on our Angry Orchard brand in both on- and off-premise channels have seen the brand significantly improve depletion trends over the last 13 weeks while gaining market share in measured off-premise channels. We remain committed to driving top-line growth and margin expansion through the power of our innovation engine and improving our end-to-end execution to get our products in the hands of drinkers. As we work through our 2025 and long-term plans, we've determined that more advertising investment is needed for our portfolio to reach its potential and return to volume growth. We expect these investments to have good returns over time and are fortunate enough to have a strong balance sheet which provides flexibility to fully support our brands and innovation pipeline. Our strategic priorities continue to be nurturing our core brands, developing margin accretive innovation, and modernizing our supply chain while driving efficiency and operating expenses, all while investing in our brands. As a diversified beyond beer company, we are continuing to focus on achieving the potential of all our brands in a disciplined, fewer things better strategy. Consistent with this strategy in 2025, while we would continue to support our core brands, Our 2025 innovation efforts will be focused on vodka-based hard tea SunCruiser, the continuing expansion of Samuel Adams American Light, and high ABV offerings in hard tea and hard seltzer. The high ABV offerings we launched last year have been incremental to our brands, and we believe that they are bringing new drinkers by sourcing demand from spirits. Our planned advertising investment will be across all our core brands, and we will also support the national expansion of SunCruiser. We've also made some changes to our compensation programs to move away from having a total volume target to incentivizing selling across our families of brands and channels. I'll now provide an overview of the plans for our brand portfolio in 2025, beginning with our core brands. Twisted Tea continues to grow share of the FMBs in total beer market while it remains the clear leader in the hard tea category with an 84% market share and over 50% of the dollar growth of the category in 2024. New entrants to the hard tea category remain at low single digit market share levels. The category remains attractive and we see multiple growth opportunities, but do expect volume to naturally decelerate to single digits as the brand grows off a much larger base. Our lead styles, Twisted Tea Original and Twisted Tea Half and Half, along with Twisted Tea Variety Packs, drove our growth in all game distribution in 2024. We expect that to continue in 2025. Twisted Tea brand support started this year strong with its sponsorship of college football and the college football playoffs. We also added a new retail program to drive display activity leading into the Super Bowl, including recently activated sponsorship of DraftKings and our continued sponsorship of Bussin' with the Boys podcast to further drive awareness during the year We are sponsoring top rate boxing and producing content and in-store advertising designed for Hispanic audience where the brand is under-penetrated. Twisted Tea Lite continues to be highly incremental and grew 43% in measured off-premise channels in 2024, while having less than a quarter of the points of distribution of Twisted Tea Original. High ABV Twisted Tea Extreme had strong performance in trial markets in 2024 and is now adding more states during 2025 to complete its national expansion. Turning to hard seltzer, the hard seltzer category continues to face headwinds with category dollars down 4% in the fourth quarter. The repossessioning of our Truly portfolio to focus on light flavors is now mostly complete. Our higher ABV Truly Unruly offering has performed above our expectations And we expect it to be a key contributor in improving the trajectory of Truly. Unruly is the number one growth driver among high ABV brands in the US beer market. And as I mentioned earlier, we believe it is bringing new drinkers to the category. In 2025, we're investing more in advertising behind Truly and Truly Unruly going into peak summer selling season. Brand messaging will shift from emphasizing functional attributes to a more compelling new brand message that will be fully in place ahead of our peak summer selling season. Truly will continue to sponsor U.S. soccer while expanding into new platforms via our recently announced partnership with Barstool Sports, which was activated earlier this month, and includes a sponsorship of Pardon My Take, the number one sports podcast in the country, and Chicks in the Office, a leading entertainment and pop culture podcast. The Barstool partnership is 360 degrees across podcasts, social and digital and retail activations. We believe this Barstool partnership and our other brand investments will bring the Trulie brand back to life in new culturally relevant ways and can be leveraged at retail with differentiated selling programs that better resonate with drinkers and are a great fit with Trulie and Rulie. While we continue to expect the majority of our growth to come from beyond beer, our traditional beer and cider brands are important parts of the portfolio. For Samuel Adams will support our industry leading seasonal offerings that are award winning non elk just the haze while focusing on our number one brand priority of the national launch of Sam Adams American light. American light is made with high quality American ingredients and earned the title of best light beer in America in the world beer awards. Our campaign, the most premium light beer in America will start with a focus around March Madness and and the on premise channel. Also in the first quarter, Dogfish Head is launching Grateful Dead Juicy Pale Ale, a musical collaboration beer with a legendary band with artwork featuring the iconic Steal Your Face label. This national launch, announced earlier this month, is the largest launch in Dogfish Head history and is supported by media and local marketing programs that we will expect drive awareness for this distinctive beer and the Dogfish Head brand. Turning to innovation. Our vodka iced tea innovation, SunCruiser, which was launched late in the 2024 summer season, is performing well and bringing new drinkers to our portfolio. Based on its strong performance in New England and Mid-Atlantic, SunCruiser distribution is expanding and is expected to be fully national in the first half of 2025. Sales per point continues to trend positively and SunCruiser is performing well in the image and trial driving on-premise channel. We're encouraged by the feedback from wholesalers, retailers, and drinkers. We'd point out that SunCruiser initially launched in markets that have large mix of independent retailers and has performed well in the on-premise channel, neither of which is reflected in measured channel data. In 2025, we are focused on driving awareness of this new brand by increasing marketing investments and expanding the product offering in a disciplined way. Our brand investments are focused on increasing our sales force and local marketing programs, as well as let the good times cruise television and digital campaign with media investment in key sports moments such as the Super Bowl, AFC Conference Championship, MLB Opening Day and the PGA Tour Golf. Also for Suncruiser, we have added several new packs and SKUs to meet the growing demand, including a new lemonade variety pack and 24 ounce offerings for our most popular styles. We expect SunCruiser to be an important growth driver for our portfolio, particularly as we move out of the lower seasonality month and into the spring shelf resets. We are targeting that our points of distribution will more than triple between the end of 2024 and the peak summer selling season. With respect to hard Mountain Dew, we are encouraged to see depletion trends turn positive in the second half of 2024, although off of small volume base. We'll also be extending the product line with Hard Mountain Dew Code Red launching in March. We expect growth for Hard Mountain Dew in 2025, but it'll be a multi-year effort for this product to become a meaningful part of our volume mix. In summary, our company has a long history of innovation. We're excited about the national expansion of SunCruiser and continuing to develop additional new products, which we will trial in 2025 to see the innovation pipeline for 26 and beyond. Turning to profitability, we've made good progress in our productivity initiatives for 2024 and have multi-year plans to continue to transform our supply chain. The capital investments we've made in our breweries and systems will allow us to continue to make progress on productivity and gross margin expansion in 2025 and beyond, which Diego will discuss in more detail in his remarks. With respect to the non-advertising selling and brand costs, we're continuing our efforts to better align internal costs and revenues. The investments we are making in increased advertising this year will dampen our 2025 operating income growth, but are an intentional strategy to strengthen brand equities and end market activation, which we believe will pay back with volume improvements over time. In summary, I'd like to thank our team for the solid finish to the year and partnership in driving strong operating plans for 2025. I'm encouraged with the progress we're making to be a more focused organization. Although we still have work to do to be sharper in our execution, there are multiple areas of opportunity ahead for Boston Beer and I look forward to sharing our progress with you as we go through the year. I am confident that there are multiple levers to support value creation through a combination of higher revenue growth and greater profitability over the long term and 2025 will provide a stronger foundation to leverage the differentiated innovation Salesforce, and culture that are the hallmarks of Boston Beer's competitive advantage. I'll now pass the call to Diego for a detailed review of the fourth quarter in our 2025 guidance.

Thank you, Michael. Good afternoon, everyone. Before I discuss the fourth quarter results in detail, I'd like to give an overview of the full year 2024 performance. Revenue was up slightly year over year, driven by shipments down 2% at the midpoint of our guidance, two points of price realization, and solid progress on lowering product returns. We delivered 200 basis points on gross margin expansion, with gross margin reaching 44.4 percent, excluding contractual prepayments and shortfall fees. The gross margin was 46.1 percent. Non-GAAP EPS of $9.43 was up 31 percent year over year and above the midpoint of our guidance range. EPS growth was driven by stabilizing our revenues, strong delivery on our productivity plans, and lower share count while also increasing investment in our brands. Turning to the fourth quarter results, depletions in the fourth quarter were flat and shipments decreased 0.5% from the prior year, primarily due to declines in truly hard seltzer, that were partially offset by growth in our Twisted Tea, Sun Cruiser and Hard Mountain Dew brands. We believe distributor inventories as of December 28, 2024, average approximately four weeks on hand and was at an appropriate level for each of our brands compared to five and one half weeks on hand at the end of the third quarter. Revenues for the quarter increased 2.2% due to price increase the comparison against an international sales tax adjustment in the prior year and lower returns, partially offset by a slight decline in shipments and an increase in excise tax. Our fourth quarter gross margin of 39.9% increased 230 basis points year over year and is the highest fourth quarter gross margin delivery since 2020. As we mentioned on our last earnings call, the majority of our shortfall fees are booked in the fourth quarter. Excluding shortfall fees and third-party production prepayments, gross margin was 42.9%. Advertising, promotional, and selling expenses for the fourth quarter of 2024 increased 10.9 million, or 8.5% year-over-year. Due to increased brand and selling costs, partially offset by decreased freights to distributors from improved efficiencies and lower volumes. Brand and selling costs increased 12.2 million due to higher media and higher salaries and benefits. Our increased media and production investments in the fourth quarter were across our brand portfolio, but with a particular focus on Suncruiser and Twisted Tea. We expect these investments will increase awareness and help drive volume in 2025. General and administrative expenses increased $4 million or 9.1% year over year, primarily due to increased indirect taxes and professional fees. In the fourth quarter, as previously announced, we recorded 26 million or $1.70 per share in contract settlement costs due to the amendment of a supplier contract. This amendment provides increased production, flexibility, and more favorable termination rights. We reported non gap loss per diluted share of $1.68 per diluted share, which excludes the contract settlement costs I just discussed. The year-over-year increase in our loss per diluted share was primarily driven by lower share count and higher investment in advertising, promotional, and selling expenses, partially offset by higher revenues and gross margin expansion. Now, I'd like to further discuss the on our gross margin initiatives we've discussed on previous calls. The key operational drivers of our gross margin are volume, commodities, labor costs, and our productivity efforts around procurement savings, brewery performance, and waste and network optimization. We've made strong progress on our productivity initiatives, particularly in procurement savings and more disciplined inventory management that resulted in significantly lower returns. In 2025 and beyond, we expect more equal contribution from all three saving buckets for which I'll provide some code. We continue to see opportunities for procurement savings on packaging and ingredients, primarily due to price negotiations and recipe optimization. As an example, we will benefit from lower negotiated pricing on cans and certain ingredients beginning in 2025. Brewery performance and absolute volume, as well as the mix of internal versus external third party production, impacts our ability to leverage fixed costs at our breweries. Our 2025 plan embeds expected improvements in OEEs driven by process improvements at our breweries, including faster changeover times between products. We had a 74% internal and 26% external domestic volume mix in 2024, and we plan to make meaningful progress in increasing volumes at our internal breweries during 2025, while balancing relationships using external productions in geographies where it's most efficient and to support key selling seasons. With more consistent and predictable volumes and improved supply chain processes and systems, we have more savings opportunities in waste and network optimization. In 2024, we implemented an automated customer ordering and inventory management system that, along with other improvements in our supply chain processes, we believe will help further reduce waste and optimize our net. In addition, as I previously discussed, we have contractual agreements to access third-party production capacity, which impact our gross margin through shortfall fees and production prepayments that are expensed over the estimated life of the related agreements. together these contractual items negatively impacted gross margin by 165 basis points in 2024 and are expected to have 100 to 140 basis points negative impact in 2025. excluding these two items the midpoint of our gross margin guidance for 2025 would be approximately 47.2 percent as i discussed earlier we recently amended the terms of one of our contracts and we will continue to reassess our capacity needs and commitments with partners as contract terms expire. The multi-year operational improvements we are making in our business, together with the diminishing impacts of the contractual items, give us the confidence that we have a strong pathway to improve our gross margin over time to high 40s to 50% dependent on volume, product mix, and commodity inflation. Now, I'll discuss our 2025 guidance in detail. Our fiscal week depletion trends for the first eight weeks of 2025 are flat from 2024. We're currently planning 2025 depletions and shipments to be between a decrease of low single digits to an increase of low single digits year over year. Where we land within this range will be impacted by the pace of improvement in the overall consumer environment, and the time it takes our marketing initiatives to drive market share improvements. We expect price increases of between 1 and 2%. Full year 2025 reported gross margins are expected to be between 45% and 47%. We expect to cover commodity and inflationary impacts with price. As Jim and Michael discussed earlier, we expect to increase our advertising levels to support our brands. The investments in advertising, promotional, and selling expenses are expected to increase between $30 million and $50 million. We expect most of these increases to occur in the first half of the year. This does not include any changes in freight costs for the shipment of products to our distributors. We estimate our full year 2025 effective tax rate to be approximately 29 to 30%. We're currently targeting full year 2025 earnings per diluted share of between $8 and $10.50. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes, with the first quarter and the fourth quarter being the lower volume quarters. And the fourth quarter typically our lowest absolute gross margin rate of the year. We expect the first half of 2025 shipments to be at the high end of our full year guidance range due to the timing, estimated demand, and wholesale inventory levels for certain brands and styles, primarily driven by SunCruiser, HeartMundu, and Truly Unrolled. As I mentioned earlier, advertising investments will be more heavily weighted to the first half of the year, with a significant step up in the first quarter. The benefits of lapping CEO transition costs incurred in 2024 is offset by an increase in estimated incentive compensation at target for 2025 compared to 2024 achievement. Turning to capital allocation, we ended the quarter with a cash balance of $212 million and an unused credit line of $150 million, which provides us with ample flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to our shareholders through a share buyback. For the full year of 2025, we expect capital expenditures of between $90 million and $110 million. These investments will be primarily related to our own breweries to build capabilities and improve efficiencies. The increase in 2025 estimated capital expenditures compared to 2024 is driven by an investment in our Pennsylvania brewery infrastructure for wastewater treatment. During the 52-week period ended December 28, 2024, and the period from December 30, 2024 through February 21, 2025, we repurchased shares in the amounts of $239 million and $29 million, respectively, for a total of $268 million of repurchases since January 2024. As of February 21, 2025, we had approximately $398 million remaining on the $1.6 billion repurchasing authorization. This concludes our prepared remarks, and now we'll open the line for questions.

Thank you. 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. And the first question comes from the line of Kamil Gajrawala with Jefferies. Please proceed with your question.

Hey, guys. A couple of questions, I guess. One of the maybe most important ones is you mentioned a new compensation plan focusing or shifting maybe focus from volume, but no details after that. Can you maybe just talk about what that change was and how you're compensating now versus where you were before and what sort of behaviors and intentions you are looking to encourage?

Sure. Thanks for the question. This is Michael. What we wanted to do, and we've talked about it on the last couple of calls, but we want to align our incentives with our business objectives. And as we talked about a few times in the past, we want to make sure that all of our brands reach their potential. And so our new incentive plans will drive the behavior that our team will bring equal effort to all of our brands and drive sales across the portfolio, which we see as a much more sustainable revenue stream.

Got it. Meaning, I guess, people get paid for groups of brands within the portfolio, the whole thing, pieces of it, or maybe beyond beer versus beer?

Yes, so within the portfolio.

uh for instance angry orchard or twisted tea or sun cruiser or our bear bear families would have incentives uh against those okay versus uh the case right i think i think i get it um and then diego thanks for all the details on um gross margin some of this um the new negotiations on procurement um the re-amended contract is this all complete or it's the sort of intention to do some of these things over the course of 25?

No, we, as we mentioned before, I think we have a plan. We had a plan over five years, obviously, when we're starting the third year of that plan. So we still have work to do. There's some of the buckets like procurement savings that I think we've done a lot, but we still think we can improve. But there's other areas like our distribution footprint that we're just

starting right now so there's there's more work to come and that's going to be the basis of our gross margin improvement okay got it thank you and the next question comes from the line of rob ottenstein with evercore isi please proceed with your question good a couple of questions um first i was wondering if you could talk about um you know how the beer demand, how the year has started in terms of beer demand. The numbers we see in the scanner look pretty bad. I know it's been a very cold winter, historically speaking. So I'd love to understand how you're thinking of the start of the year. You mentioned your depletions are running flat, which is not what we see in the scanner data. Wondering is that sort of retailers buying ahead of price increase, kind of why there's a disconnect between the two? And then I have one other question, which I'll follow up afterwards.

Well, part of it is the coverage of each one of the data points, right? So that's why we try to consistently look at our depletion. So I'd say over the last, say, six months, it's been a little bit bumpy overall in the market, right? Small periods that have been good. Some periods have been bad. I think overall, we're happy with where we're starting because we're starting from a flat depletion point of view. And we think that that will continue as we go to the back end of the quarter. That's one. Now, within that, as you just mentioned, beer is not as strong as beyond beer. Uh, and the good news for us is in cases, like, uh, twisted key, some cruiser, that's a positive start to where we are in the year. We do have some challenges. Obviously, when we have beers, like Sam in the beer category, but overall, if you put them all together, we're starting from where we thought we would be starting the year. If that answers your question.

Um, yeah, but we, we are seeing at least in the scanner day that we have, which is sir. And maybe it's wrong, maybe maybe we have the wrong numbers, whatever, but we are seeing negative volumes for twisted tea. So I'm trying to get my head around that a little bit.

Well, again, I go back to the coverage. There's a significant part of our business. It's not covered by. That's why we look at our overall depletions as a better forecast. That being said, we'll see it in the next couple of months and we'll see where it comes out for the next quarter.

Great. And then in a very different vein, you know, super excited about SunCruiser. So wondering if you kind of step back and look at that brand versus Surfside, and you look at kind of the trajectory of SunCruiser, you know, how you've been getting distribution and the velocity, how it's building. Do you think it can be as big as Surfside, bigger? I mean, how do you kind of benchmark the two, you know, based on the data that you're seeing?

Thank you. So, we have great confidence that when we like the way it's tracking, we had tremendous success in New England and outperformed anyone else that was in the space. and we're now rolling those that kind of those learnings across the country. They started way before us. You know, they had probably a year and a half, two years of an earlier launch. So we're focusing on reaching our potential with the brand. As we did discuss, we'll probably be three times the points of distribution by the time we get into the the middle of selling season here or the beginning of selling season for 25. So we're very comfortable. And again, we've mentioned increased marketing dollars. We have a great marketing plan, and that's done within the region. So we're confident that we're going to have great success with SunCrisp.

Terrific. Thank you very much.

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

Thank you. Good evening. We've heard some of the category stress factors you've cited, and I guess cannabis is one that still feels mostly anecdotal, even if reasonable, especially for beverages. It would seem maybe like a more natural substitution. There's some states, Minnesota, Louisiana, a couple others in particular, where the Delta 9 THC beverages are much more developed. Have you seen those states have particular pressure on your categories and brands, or is there anything you can point to to substantiate how that's a driver, you know, and really what's, you know, shaping the consumer substitution or tradeoff there?

I'll answer that in two forms. One is, you know, we've spent a fair amount of time developing great product in Canada, and we have a great brand up there, Teapot, that's Canada-based, and we are ready with a Delta 9 product if we chose to bring it to market. We haven't necessarily seen any outlying impact against the rest of our portfolio in those markets. And we are assessing it. If we saw that the opportunity was there where we felt we could scale a profitable business in that space in the United States, we are prepared to do so. We just haven't seen that at this time.

And I would just add to that, that also we follow very closely the legalities across the U.S. and we will always put that in front as part of our biggest part of our decision. So as that evolves, we will continue to look at it. And as Michael says, whenever it's available from a legal point of view, we're ready with a product in Canada.

And I guess I was curious, maybe not as much from an opportunity standpoint, but a risk, and maybe just thinking of those states as where there's a bit of an in-market example. When you think of some of the category headwinds on alcohol, how much evidence is there that cannabis is a driver from market data, or is it really hard to pinpoint it?

Jim, do you want to comment on that?

Yeah. You know, the traditional, if I can call it that, you know, channel to market for marijuana has been through dispensaries. And they are not particularly friendly to beverages for a bunch of reasons. You know, you have to lock stuff up at night. Beverages take up a lot of space. It's easier to sell, but it's easier to sell gummies. Delta 9 is a different animal in the states where you mentioned, and this is all state by state. So it's kind of wild west out there. You've got Minnesota where you can basically sell a can with 70 milligrams of THC in a Toys R Us. It's just completely regulated though. And then you've got California where it has to go through dispensaries and maybe even is totally outlawed. Massachusetts has to go through dispensaries. So there's a huge spectrum of access to market for hemp based THC beverages. There's been a lot of movement on it in even the last three or four months. And I've seen you know, attitudes of, for example, beer wholesalers shift to, hey, if it's coming, I want it. And six months ago, they were, I don't want to touch this. It's illegal. And it could jeopardize, you know, my permits, my banking relationships, stuff like that. So it's too early to see an impact on beer consumption in the, you know, the avatar states that you mentioned. uh, Louisiana and Minnesota, but it's a much bigger threat than weed was, um, because, you know, you've got it in, uh, you know, in total wine, you've got it in, in liquor stores in Louisiana, it's in grocery stores. Uh, it's, it's there next to beer and that's the first time that's happened. So, uh, it's just too early to tell, but it, to me, It is a more serious challenge to beer and beer occasions. And, of course, the Farm Bill only got reauthorized for a year. That could all get wiped out if they just take the legalization of hemp-based THC out of it. And it was certainly never meant to uh provide a precursor to you know taking the thc molecule isomerizing it uh from its relatively harmless or or almost no psychoactive impact and hemmed to something that's the exact same molecule as you're getting from cannabis that's super super helpful can i just have a quick follow-up on aluminum too you mentioned

renegotiating some some purchasing contracts there that's favorable could that change with tariffs or or would that or would that would that even protect you despite what happens with any tariff changes no specifically we have a pass through of aluminum so uh if you raise the tariffs our cans the aluminum in our can would cost more money but

Tariffs at the level that people are discussing at this point are a very small part of our cost structure. So if there's a 20% tariff on raw aluminum, it's really not that relevant. So far, we don't see tariffs as having a significant impact. So we're not There's lots of other stuff out there, but we don't hedge, and so we absorb the pass-through.

Okay, great.

Thank you so much.

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

Great. Thanks, guys. first question on twisted I think there was a comment maybe for the first time or maybe I had it last quarter about that twisted growth should naturally flow to the single digits now that it's off of a much larger base it seems new to me perfectly logical but I I remember in the past you guys would talk about twisted long-term low double-digit growth rate over 20 plus years. Wondering has anything changed other than the much larger base? Are you thinking of in the context of competition or shelf space? And the second question is really for Jim. In light of the health and wellness concerns that you highlighted and in light of, you know, what's going on politically and from a regulatory environment, do you think that the company and the industry are doing enough to advocate in Washington and in the states? And do you think that the company and industry are doing enough from an innovation standpoint to adapt to what's potentially a shift in the consumer environment.

Jim, why don't you take that one first, and then we'll come back to twist the tea.

Okay, great. You know, I do have concerns about the, you know, the health and wellness issues. There's certainly been, over the last four or five years, it began with the WHO, and it's now come to the United States. in terms of the nutritional guidelines that have to be updated every five years. The consensus that moderate consumption of alcohol follows a J curve. So if you consume it in moderation, that's healthy, particularly, with respect to cardio benefits, that consensus has come apart and you've really got the National Academy of Sciences, which is the primary, you know, recommender within the federal government for nutritional guidelines. continuing to support the fact that moderate consumption of alcohol is healthy and it becomes unhealthy when you go beyond a drink or two a day, maybe a little less for women. So the alcohol industry is now having to counter a bunch of people who basically taken existing research and rejiggered the numbers and come to a different conclusion. I'd say we have very strong advocacy from the Beer Institute and from the big brewers. I think the same thing is true with the discus and the distilled spirits industry and certainly the wine industry. They're advocating very strongly, not just publicly, but going to Congress people and questioning this introduction of an underage drinking group, putting in their evidence to say that there's no safe level of alcohol. So far, I think we've been good advocates. we will see, but it's a challenge we didn't face in the last five years.

Great. And then I'll just, I'll grab the, um, the twisted tea, uh, question. So we, we think it's the right number to, to plan for that, uh, business to grow and in the single digits. Uh, but we are leaning into it. You know, we're keep in mind where the market leader, there's no clear number two, um, emerging after, a great onslaught of competition last year. Nobody got more than low single digits. We're increasing our investment. Twisted Tea Lite is highly incremental and has a significant opportunity for more points of distribution. It has less than a quarter of the points of Twisted Tea Original. We're targeting new drinkers in under-penetrated demographics, specifically Hispanics and African Americans. And then we're leaning in on brand support, which we talked about, which is new sponsorship deal with DraftKings, Bustin' with the Boys, Top Ring Box, and other retail activations. And the high ABV Twisted Tea Extreme is tracking really well. So we know it's a really important part of our business. We're not taking anything for granted. We would be thrilled if it's higher than single digits, but we're planning in our guidance for single digits.

Great. And just one last question. What's the latest you guys are seeing in terms of interaction between spirits-based hard teas and Twisted?

We're seeing it as a new, like between SunCruiser and Twisted Tea, we see very minimal to no cannibalization, and we see it as a new drinker.

And same with Surfside and Twisted?

Yes.

Okay, I'll pass it on.

Frankly, there has to be some interaction. We're not really seeing it because what Michael alluded to, they're positioned differently, they're priced differently, the packages look and feel different, but it can't be zero. So, yeah, there's going to be some. I don't have a good estimate, but There has to be some interaction between them. And that's both Surfside and Sun Cruiser.

Makes sense.

Thank you.

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

Thank you. Two for me. The first one, sticking to the Twisted Tea conversation, we've spoken about that deceleration. You've given us the commentary on single-digit growth. But that's still, you know, growth versus some of the weak data we're seeing today. What gives you confidence that the brand has more room to grow and, you know, in particular, any particular consumer insights that you're able to share would be helpful? And then maybe one for Jim, you know, lots of questions on the call on these long-term structural issues, cannabis moderation. I know there are questions on cyclical factors and pressure on the consumer. But, you know, Jim, if you were to look five years out, what would you expect per capita alcohol consumption to look like in the U.S. versus today, balancing all of these factors that we're trying to parse out? Thank you.

So, Jim, why don't you take those just Probably smoother.

Okay. Let me start with the second one, and then I'll get back to Twisted Tea. You know, I don't have a crystal ball, but you asked a specific question, so I'll try to give you a specific answer. My sense is that we've got a number of new factors that didn't exist. call it three years ago, because for a long, long, long time, decades, you know, almost going back to post-prohibition, per capita alcohol consumption in the United States has been pretty steady. Haven't been big swings. And so the total alcohol consumption has kind of grown with the population. I'm not sure that will continue, but it's not going to be dramatically disrupted. It's something where if per capita alcohol consumption goes down 2%, that's like cataclysmic. And there's no single major factor, but you've got a bunch of stuff that's well under 1%. in terms of its effect on per capita consumption. And I would list those as, you know, a trend towards moderation, particularly among Gen Zs. There are, you know, new health concerns that have cropped up in the last year, and they're in the mainstream press. They even showed up on my aura ring not to drink alcohol because it would disturb my sleep. um so it's it's getting uh diffused through the population uh at a level that hasn't been there before there is um weed weed's been around for a long time and it's been legal for a long time and in the the states where it was first legalized like colorado and washington it really didn't affect beer so but you know the hemp derived thc beverages are a new animal and they bear watching and then there's the the gop drugs that are reducing everybody's you know caloric consumption um so you add all those together and you know it could be uh you know instead of the total alcohol consumption um instead of growing you know one percent a year it could be down one percent a year it's something like that it's not you know, sudden or catastrophic, but there could be, you know, an erosion. And then you're talking about tea and how are we going to grow it? Is that to recap what you were asking?

Yes, but just, you know, the single-digit growth that you guys are talking about, what gives you confidence that it has more room to grow, especially some of the scanner data that we've seen today? Any consumer insights that you could share that gives you that confidence?

Yeah. Well, I mean, I'll start with a background. It's grown double digits for over 20 years, which, of course, does not, you know, past performance is not an indicator of future performance. And we're basically saying that time period is over, and it's a big brand. It's one of the top 10 brands in all of beer. Maybe it's 11, depending on the data you look at. But it is mature. And our growth efforts are around, you know, increasing the advertising and other marketing support with, you know, sponsorships and podcasts and things like Top Rank Bank, boxing, plus more advertising support. And then introducing products at the higher and lower alcohol You know, for all these years, it's everything's been 5% and now we have twisted T light. And twisted the extreme, so those will bring in new drinkers. And so those are our primary stimulus stimuli. To basically turn around the scanner trends that you're seeing.

Yeah, and just let me reiterate that the light product is less than a quarter of the distribution points of. put it to the original and the high ABV is similar. So we see this opportunity there to drive further distribution. And last year was a tough year for competition. There were a number of of young brands that came into the space and we held them off and we expect us to expect to grab some of that space back this year.

Understood. Thank you very much.

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

Thank you. Hi, everyone. I actually wanted to ask about advertising. I'd love to hear a little bit more color on the step up of advertising that you're going to be doing this year and really, you know, ultimately what informed your decision. I think you mentioned some tests that you did, so just any color on that. Any more color on, you know, if there are certain channels this advertising is going to be focused on. And then finally, you're not guiding much acceleration on your top line this year, despite the stepped up advertising. And then, you know, thinking about the significant increase in advertising expected in the first quarter, I guess I'm trying to understand, you know, timing expectations or, you know, when you expect to see sort of some lift from the stepped up spend.

Thanks for the question, Bonnie. Okay, go ahead, Jim.

I think, let's see, I think the reason we haven't incorporated top line growth out of the advertising is we're being cautious. And our approach to the stepped up advertising is that we will fund advertising that works. you know, instead of saying we're going to spend this money no matter what, we're saying we're going to spend it, especially in the first quarter, and then we are going to evaluate are we getting additional revenue from it that shows some promise to get a payback on the advertising. And if we don't think we're getting a payback from the advertising, we will stop running it. And we believe We've gotten a better handle on tracking whether the advertising is stimulating sales, which is always the big question with advertising. Going back to John Wanamaker who said half my advertising doesn't work. I don't know which half. I think we've gotten better on that through mixed media modeling and use of single source data at scale, which is something you can do. Now there's just a lot more accountability around advertising. So we're saying we're going to – we believe all of our brands, as Michael keeps saying, have potential that we're not realizing. So we're going to see where we realize that potential and support those brands. And channel-wise, there is a migration for all of us off of the traditional – You know, TV, cable TV, and the things that look like cable TV, you know, over the top and all the different acronyms to social and digital. So, we're migrating to that. I think this year they will be the majority of our spend. And then there's also spend in there. That's not totally it's not technically advertising. So you've got some of the things that we've always done, like not just media, but sponsorships, local marketing, point of sale, distribution incentive, brand ambassadors, podcasts. So there's a much broader, you could think of it as market support or brand support that we hope will drive the top line, but we're not factoring much of that in yet.

Okay.

So, sorry. Bonnie, I just want to add a couple more things just in terms of specifics and wrapping that up. So, it's really a balance of big properties and local activation. We've got, you know, some really specific local plans. We have the top 30 markets for our brands mapped out and specific plans against those. So, I think what Jim was trying to talk about really is saying, We're trying to improve the hit rate and the efficiency of our advertising as well as we're definitely getting deep and regional and we have activation that's both big and national and local and relevant that's tied to boots on the ground.

Okay, that's how fun this may be a quick follow up on this then because it's already the end of February and you did call out that you're going to really do significant spend in Q1. I mean, have you already done that? And the reason I'm asking is because you've also told us that your depletions are basically flat through February 21. So I'm just trying to think through, or is a lot of this spend coming in March?

So I'd start with three points. First of all, our depletions have been consistently improving. I think that's part of the reason we're doing this investment. Second of all, I think Michael and Jim both reference a series of activations you can already start seeing now. So we had really good presence at the Super Bowl with some of our new partnerships with pardon our interruption and a couple of the other new podcasts that we're using. We had really good activations across that weekend. with Twisted Tea and especially Suncruiser. Hopefully you saw some of our advertising for Suncruiser in the Kansas City Philadelphia game. So there are a lot of things that you can already see over the next last few weeks. Now, as you well know, advertising is not an immediate action into the purchasing. We're building brands for a long term. So we're comfortable that the investments that we're putting in now are going to drive to where we are guiding for the year.

okay that's helpful and then just maybe one final question for me on truly can you guys give us a sense of maybe how much truly volume was down last year i know it's shrinking in your portfolio just kind of want to get a a sense of where volume you know came in at you know for the full year and then maybe what's implied in your guidance this year for truly i mean does your guidance you know imply declines or are you expecting you know maybe just more flat volume for TRULY. I know you've got some initiatives still behind TRULY, so just curious how to think about that. Thank you.

Yeah, so look, we don't usually go into that much detail by Brad, but what we can say is We were not happy with the volume performance of truly last year. We are, we are being conservative in our forecast for 2025. so we're not in our guidance, not assuming it's necessarily going to grow, but we think we have the plans to improve the trend significantly. So, right now, we're just being a little bit conservative as we see some of the results of our investments. So we're not planning flat. We're planning to still be low, but we think we have the plans to turn that around during the year. But the trends are improving.

That's great. Thank you so much. I'll pass it on.

And the next question comes from the line of Filippo Filorni with Citi. Please proceed with your question.

Hey, good afternoon, everyone. So first on distribution, you mentioned you're planning to triple the TDPs for SunCruiser. Is this incremental distribution or is it part of the distribution you're getting on Sun Cruise coming off TwistaT or Trulia?

Incremental.

Okay. Thank you. That's helpful. And then a follow-up on the margins and the aluminum comments. I know you mentioned it's not a significant part, but in considering the negotiation that you're doing, Is an expectation of higher aluminum costs in your gross margin guidance? How should we think about the puts and takes just for aluminum, but also for commodities more broadly?

Yeah, so let me clarify part of that statement. I think as we're talking about our renegotiations, the contract we renegotiated was not for suppliers this quarter. That was more for a co-packer. We are looking at our materials. Within that, aluminum is always a commodity that For us, and every company will have a component that moves as you can currently see today. We don't know what the tariffs are going to be. So, as we've indicated, we haven't built in any specific impact on tariffs. because we don't know what they are. They're not in place yet. Now, the comment that Jim was making is compared to maybe other companies, we do have some exposure in aluminum and some exposure in flavors and ingredients, but it's significantly below most of our competitors, just given that our footprint is U.S., most of the rest of our raw materials, All our distribution costs are U.S. So, again, there is some exposure, but it's not as big as you would think. How much it is, it depends on what the reality of those tariffs happen during the year, which I don't think any of us know at this point.

Got it. Thank you.

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

Good afternoon. I wanted to keep going on Bonnie's increased advertising question, but maybe an industry-wide perspective. So industry-wide, do shifting consumer habits, maybe increased competition, do those things necessitate more industry marketing spend to sell roughly the same number of industry cases each year? Like where are we at of how much marketing industry-wide is required to support the volume?

I wouldn't speak to an industry-wide general statement. I'd say we've addressed our own portfolio, and we see great opportunity to maximize the potential of our brands. And especially at a moment like this where some others may be retrenching, we see opportunity.

Okay. And then you touched on Suncruiser. Go ahead, Jim.

Sorry. I would just say, you know, historically, I mean, we overspend on advertising. We view ourselves as a growth company, so we're willing to invest in our brands to grow them, maybe at the expense of, you know, EPS in the short run. So from our point of view, I don't see this as having changed in the last five years. We're going to continue to overspend. and overinvest in our brands. Industry-wide, I mean, you know, we're 4.5% of the industry, so that's really a question to ask, you know, Constellation and ABI and Molson Coors since they're the bulk of the spending.

Okay. And then on Sam Adams, we didn't really talk much about the brand family on the call. What are the plans to reinvigorate that brand? What can get the excitement back around some of the craft beer movement and styles? And what do you expect for spring resets for craft beer and Sam Adams?

We are, you know, we're really excited around the potential for Sam Light. And as we mentioned before, that we have a, we won a gold medal at the World Beer Fest. We're leaning in on the quality and the premium position, which is a little different for SAM, but we have some new marketing coming that we think will bring to light the benefits of the entire portfolio based on the care we put into the product.

And I would say we see maybe a long-term unmet need for Samuel Adams American Light, which wholesalers and retailers are starting to get behind. And the issue is, for the beer industry, there's really no trade-up from light beer. There's no high-end light beer. Years ago, there was Amstel Light, but that sort of got deprioritized by Heineken in favor of Heineken Light. That didn't really provide the trade-up opportunities for whatever reason. So we're thinking that there is a market need for there to be a trade-up from Bud Light, Miller Light, and Coors Light. And Michelob Light isn't that much of a trade-up. It's often sold at the same price. From regular strength beer, you could trade up to a craft or an import. and many, many people did. Long term, we're thinking that behavior can be replicated with light beer. And Sam Adams American Light has these premium characteristics. It's got awards. It's the best light beer in America. The ingredients, the barley comes from the best place we believe that Barley is grown in the US, which is in Montana. The hops are a new hop from Washington state. So it's all American ingredients award winning and the most premium light beer out there.

And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two to remove yourself from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for any additional questions. And the next question comes from the line of Gerald Pascarelli with Needham and Company. Please proceed with your question.

Great, thanks very much for the question. Just one follow up from me on Sun Cruiser. So, it looks like you're obviously making a big push into the market here right between the stepped up investment spending, the increased points of distribution. So, Can you talk about the longer-term runway that you see for this brand, maybe how initial repeat rates look thus far? And just broadly, I guess what I'm trying to get at is how you think about ultimately needing to cycle or your confidence in cycling what looks like a pretty aggressive rollout this year. So any color there would be great. Thank you.

Yeah. I think we've learned a lot of great lessons in terms of the way the truly brand was built and it's taken us some time to kind of. Get that back to a level where it's it's got a good run rate and we're still working on that. So we're being really careful about how we build Sun Cruiser. We're being really thoughtful about what markets we go into. We're having the appropriate marketing ready and activations. launching Lemonade alongside it, which will come in the peak selling season here in March. It's already actually out in the marketplace. So we're not anniversaring any numbers right now. So it is rolling in. And actually, we got a late start, as I think Jim said earlier. We didn't really get going on this until May of this year. So it's been a really solid rollout plan. And we like the results. We won't share any specifics in terms of repay rates at this point, but we like the ramp of the business, and we feel strongly that this is going to be a long-term part of our portfolio.

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

Thanks, operator. Good evening, everyone. So just maybe following up on the gross margin, another, you know, or the gross margin guidance specifically, you know, another year of pretty solid expansion expected. Can you just walk through the puts and takes as we think about the bridges the next year? What kind of needs to happen at the high end versus the low end? And then just, you offered a lot of color on phasing of marketing, and I totally get that one cue. for Q2C different levels in terms of absolute margin levels. But just any thoughts in terms of how we should be thinking about the phasing and margin expansion as we look at the 25?

Yes. So, two things. Again, as I mentioned before, this is a multi-year approach. So, what you're seeing is just the continuation of the programs. So, from that point of view, the basis of the improvement kind of is the same. Now, what changes is two things. As I mentioned before, Where what of the three buckets, which ones are the buckets that we're advancing each year? But the second one is also what we really need to do from a gross profit point of view is optimize our facilities. Make sure that we're leveraging our co packers geographically to optimize our mix. And make sure that we are getting the best cost we can for our products and raw materials. Right? So, those 3 things are continued to be the basis of what we do now. What needs to happen to move the range? There's 2 things. There's some of the programs that we have in our roadmap. We're trying to accelerate. So it could be optimizing warehouses that we're looking into. It can be getting the most out of our can access new. ordering system that we reference in our comments. So trying to accelerate the savings is part of the way that we can get from the lower end and the higher end. The second one is, obviously, although volume is not necessarily critical to get to our lower end, it will help us accelerate the savings and get to our higher end. So those are two things that need to happen from the bottom to the high end. Then to your second question, The phasing usually is simple. The worst quarter for gross margin is always Q4 because we have low production. And therefore, even with total production, our facilities are not full or remotely full, even if we bring in most of the third-party production. Q1 tends to be the second smallest one. Although this year, we think it'll be a little bit better, just given that we're producing some of our SunCrew and some other products into the middle of the year. So I would say in the first quarter, you're probably going to have a little bit better absorption. But in the first half of the year, you'll have a little bit more investment. And then the back end should look similar from an absorption point of view as last year. And the investment will depend on how we're seeing the reaction to our investment in the first half. So that's Those were the only differences I would see from a gross margin phasing approach.

That's super helpful. And then just maybe to close it out, just on Bonnie's question, just on the phasing of marketing. So it sounds like when you look at the release and it sounds like you're expecting the 30 to 50 million increase year on year to be entirely in the first half. Maybe, is that right? And if so, like how much are you actually anticipating spending in the first quarter Obviously, it has implications from an earnings perspective, so just trying to make sure we kind of get the phasing right.

Look, we are still, as we said, we have a base plan that we're investing against, but we're going to be moving that plan. And that's why we're not giving very specific guidance on a quarter by quarter investment basis because There's a certain part of the marketing plan that we have based, but there's a very flexible piece that we're investing in the geographies and the brands and the opportunities that we're seeing in the short term. So can't really give you a very exact point at this point. I think we're going to have a much better view of that range and the phasing of that range by the end of Q1.

Great. Thanks so much. I'll pass it on.

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

Thanks to all of you for joining us for recapping 2024 and the start of 2025. And we will talk to you all in two months after the first quarter closes.

And thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.