Boston Beer Company, Inc.

Greetings and welcome to the Boston Beer Company third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. And 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, Mr. Andrews. Please go ahead.

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 2025 third quarter earnings call. Joining the call from Boston Beer are Jim Cook, Founder, CEO, and Chairman, 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 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 over to Jim for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy, operating results, and brand updates, and then turn the call over to Diego, who will focus on our supply chain and the financial details of our third quarter results, as well as our updated financial outlook for 2025. Immediately following Diego's comments, we'll open the line for questions. I would like to start by thanking Michael Spillane for his service as CEO and for continuing to provide counsel to me as a member of our board of directors. While I've now stepped back into the CEO role, our company priorities remain unchanged. They continue to be innovation, supporting our full portfolio of brands with advertising investment and focused execution, and driving margin improvement. I'll personally be particularly focused on our high impact areas, including our innovation pipeline and ensuring that we are appropriately investing in our brands through both advertising and local in-market execution. We've made strong progress on our margin improvement initiatives and to help continue those efforts, Phil Hodges has been named Chief Operating Officer. Phil has 30 years of operations experience in consumer packaged goods at Carlsberg, Mondelez, and Kraft Foods, and he has led our supply chain efforts for the last three years. His team has delivered strong efficiency improvements in our breweries, which have positively impacted our gross margins. In his new role, Phil will continue to report to me and will focus on continuing to improve execution across all functions and implementing our previously announced margin enhancement initiatives. I'm excited to be back in the CEO seat and to partner with our highly experienced executive leadership team to execute our plans to improve volume trends and create long-term shareholder value. Now, turning to the current industry environment. I mentioned on our last call that we were experiencing a challenging macroeconomic environment. and those trends continued into the third quarter. Economic uncertainty that has consumers more tightly managing their budgets, as well as pressure on Hispanic consumers, continues to impact consumer demand negatively across the overall beer industry. Moderation trends are also having an impact on demand, and in certain states, hemp-derived beverages are competing for shelf space and drinkers. Despite these current industry headwinds, we continue to see long-term growth opportunities in the beyond beer category, also known as the fourth category. Beyond beer represents more than 85% of our volume. We believe that the beyond beer category share will grow as the drinker is younger and more diverse than traditional beer. Our brands are well positioned to participate in this growth. and our strong innovation culture allows us to move quickly to add to the portfolio as consumer trends evolve. The latest example is SunCruiser, which was one of the top volume gainers in RTD spirits so far this year. We're continuing to innovate and invest across our portfolio of brands to position as well for when the industry environment improves. As Diego will discuss in his remarks on our guidance, we are reinvesting some of our gross margin over delivery into additional advertising spend. This includes media spend as well as a new local market activation program. As part of this local activation, we're investing alongside our wholesalers to support local sponsorships, local radio, sampling teams, brand ambassadors, and grassroots events support. With respect to innovation, We're currently testing a number of brands and our goal is to further expand Suncruiser in 2026 and launch an additional innovation brand. With that as context, let's move on to our results and brand performance. In the first nine months, our depletions were down 3% compared to an overall beer industry that we estimate to be down over 4% in volume. In the third quarter, our depletions were down 3%, and as we expected, shipments were significantly below depletions at down 14%. As we mentioned in our last call, this was mostly driven by shipping ahead of depletions in the first half of the year due to the timing of wholesaler demand for SunCruiser, as well as lower than target wholesaler inventory levels last June. In terms of depletions, we're encouraged by the strong consumer reception to SunCruiser, a second consecutive quarter of growth in Angry Orchard and positive drinker reception to our higher ABV offerings. However, industry headwinds are impacting our larger brands, particularly Twisted Tea, which are likely to persist for some time. Despite a softer volume environment that we planned at the start of 2025, we have delivered strong margin expansion and grown our EPS for the first nine months of the year. This was primarily driven by continued progress on our profitability initiatives, which Diego will discuss in his remarks, and to a smaller extent, a positive product mix from our new product innovations. These efforts have allowed us to raise our gross margin guidance for the year while we continue to absorb tariff costs. We also hit record high consumer service levels and reached over 50% gross margin in the third quarter, which is our highest gross margin since 2018. Our business generated over $230 million in operating cash flow in the first nine months, which enables us to both invest in our brands and repurchase over $160 million in shares year to date. I'll now provide an update of our brand performance and plans. Twisted Tea had strong growth for many years and is the number 10 brand family in the overall beer market with over $1.2 billion in annual retail sales in measured off-premise channels. Going into the year, we planned the brand to growth consistent with an FMB market that grew 7% in dollar sales in measured off-premise channels during 2024. During 2025, the brand has gained distribution but has declined in velocity in retail displays and features. Year-to-date, in measured off-premise channels, Twisted Tea is down 5% in dollar sales and losing share in an F&B category that is down 3%. We continue to believe that the macroeconomic environment is a significant driver of weaker alcohol trends and the deceleration in twisted tea performance. Inflation and general economic uncertainty below the middle income consumers has resulted in lower traffic at retail and fewer social occasions. The twisted tea drinker profile is particularly sensitive to these impacts as they typically have less household income than drinkers of our other brands. Hispanic consumer buying rates remain challenged across the industry. Twisted tea is slightly over indexed with Hispanic shoppers compared to overall alcoholic beverage shoppers. They are a sizable portion of the twisted tea drinker base and have an impact on the brand's volume performance. In addition to these macro factors, we believe that TwistedT retail displays are being impacted negatively by retailers making additional space for RTD spirits, which are currently their key category growth driver. As I mentioned on our last call, according to numerator data, Approximately 20% of the drop in Twisted Tea is due to the vodka tea category of which Sun Cruiser is one of the brands. To the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and gross margin accretive for us. Twisted Tea brand equities remain strong with growing distribution of very large organic social following and the highest organic engagement among the top 10 beer brands. It is a clear leader in malt-based hard tea with over 85% market share in measured off-premise channels. So far this year, Single Serve is performing much better than large packs, which tells us that the consumer interest in the brand remains strong. We believe that softness in larger pack sizes is driven by its higher absolute price point, with more cost-conscious shoppers. To address this, we will refine our pricing in certain markets as necessary. In addition, in certain markets, we have recently added an under $10 per package 16-ounce 4-pack to help increase lower price points and drive demand. Twisted Tea Light and Twisted Tea Extreme are growing shelf space and velocities. Our packaging redesign has improved sales per point of Twisted Tea Lite. Twisted Tea Extreme Lemon and Blue Raz are still the top two growth SKUs in the convenience channel among all FMBs. To meet drinker demand, we're planning to add a Twisted Tea Extreme variety pack early in 2026. We expect Twisted Tea Lite. and Twisted Tea Extreme to be growth drivers for the brand for the remainder of 2025 and beyond. We have strong advertising plans for the rest of the year to position the brand for future growth. Key campaigns to drive awareness for the balance of the year include our high-performing tea drop ads along with our college football and ball fest programs with spends across ESPN, ABC, and CBS during key college football matchups. Our college football program includes in-game advertising, sponsorships with ESPN, and expanded retailer programs with team-specific packages in key markets. In the coming months, we're adding other promotions, key programs and partnerships, and media that resonate with our drinkers, including Country Music, NASCAR, and WWE wrestling, as well as NFL related promotions. And lastly, we're increasing our investment in Hispanic and Spanish language brand content, including new media and digital content to continue to widen the brand's appeal to more drinkers. In summary, Twisted Tea is our largest brand and we're continuing to support it with advertising investment and innovation. We continue to believe that despite near-term challenges, these actions coupled with an improvement in the macroeconomic environment will return the brand to growth in the long term. Moving to SunCruiser now, which launched last summer and went national in January of this year. SunCruiser has been very well received by wholesalers, retailers, and drinkers, particularly in the highly visible on-premise channel. Many consumers were introduced to SunCruiser in this channel, and we believe it is the right place to build the brand. According to Nielsen data, SunCruiser is the leading RTD spirits, tea, and lemonade brand in on-premise bars and restaurants. SunCruiser has quickly grown to become the fourth largest brand in the RTD spirits category, continues to increase distribution as it It has one of the highest velocities of the leading RTD Spirits brands. It is now on shelf in larger national chain retailers and has tripled its points of distribution compared to earlier in the year. This expanded presence is beginning to be reflected in measured off-premise channel data. However, given Sun Cruiser's strong presence in on-premise and independence, measured Off-premise data still only reflects a small portion of the brand's total volume. We believe SunCruiser will be the next iconic brand for our company and an important growth contributor for the Beyond Beer category. We are focused on building the brand's distribution, displays, and retail promotion while investing in media and key sponsorships that keep the brand relevant throughout the four seasons of the year. From a product innovation perspective, we intend to keep a disciplined number of tea and lemonade styles while continuing to expand package options. SunCruiser will be available in a 19.2 ounce can format in New England this month, which will be expanded nationally in early 2026. Advertising support for SunCruiser is built around the led the Good Times Cruise brand campaign, as well as sponsorships of sports and music venues, including NFL, BGA Golf, and MLB Media, and sponsorship of the AEG Music Concert Series. The media campaign also includes paid social and digital advertising and key influencers. Additionally, Suncruiser's presence in AVP Beach Volleyball and the World Surf League further reinforce its positioning as a brand for sun, sand, and fun. In summary, it is early, but we are very excited about the outlook for SunCruiser and its contribution to our hard tea portfolio. We will continue to increase investment in both SunCruiser and Twisted Tea with our goal being to increase our share and grow volume in the overall hard tea category. Turning to hard seltzer. The overall hard seltzer category declined 4% in dollars in measured off-premise channels in the third quarter as consumer preferences continue to shift towards more premium RTD spirits-based beverages. While Truly continues to be a top two hard seltzer brand, and top four beyond beer brand year to date were not satisfied with its performance. We are focused on improving Trulie's brand message and relevance, promoting our lead flavor wild berry, bringing variety through seasonal rotator packs, and building on the momentum of our high ABV innovation, Trulie Unruly. Our new creative platform we recently launched is built around Make your dreams come truly. This includes new creative content and a significant investment in regional media and key markets and new retailer campaigns. Truly will continue to leverage its relationship with U.S. soccer as its Beyond Beer sponsor and its recently announced sponsorship of the American Outlaws, the official fan club of U.S. soccer. Truly will launch a U.S. soccer collector set of singles to help promote the year-long lead-up to the 2026 World Cup, which will take place in North America for the first time in more than three decades and include 11 cities and over 100 matches. High ABV offerings continue to be a bright spot in hard seltzer. Truly Unruly has grown to a 3% volume share of hard seltzer. And the Truly Unruly Variety Pack is the number one dollar 12-pack share gainer in hard seltzer in the last 12 months. Our second variety pack, Truly Unruly Lemonade, launched in April and is helping Truly Unruly build momentum and gain shelf space. Insider, Angry Orchard has returned to growth behind the consumer trend back to more flavorful options. Depletions grew in the third quarter. and year-to-date, driven by a higher level of focus across the organization, including increased investment and new sponsorships. The new campaign, Don't Get Angry, Get Orchard, and our sponsorship of WWE Wrestling positively impacted results and helped the brand gain shelf space. The brand's current programming is focused on owning Halloween, and we are executing an exciting program. featuring Jason from Friday the 13th movie-themed advertising, promotions, packaging, and displays for Halloween and the peak fall cider season. Our beer brands, Samuel Adams and Dogfish Head, have combined to hold share in the challenging craft beer category. We are excited that in early 2026, Samuel Adams will begin programs and promotions as well as launch limited edition packaging to help celebrate America's 250th anniversary. For Dogfish Head, we are particularly pleased that Dogfish Head's Grateful Dead beer collaboration has helped fuel Dogfish Head's return to growth. In summary, I'm confident we have the right strategies and team in place. We're continuing to invest in our brands. We're building a strong innovation pipeline, and we're highly focused on our multi-year productivity initiatives. Importantly, we're focused on controlling what we can control. We're executing in the marketplace to improve share trends and to expand our margins. I'd like to thank our Boston Beer team, our distributors, and our retailers for their continued support and remaining agile in a dynamic operating environment. I will now pass the call over to Diego to review our third quarter financial results and 2025 guidance.