Boston Beer Co Inc Q1 FY2022 Earnings Call

Greetings and welcome to The Boston Beer Company's First Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. 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 2022 first-quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Dave Burwick, our CEO; and Frank Smalla, our CFO. Before we discuss our business, I’ll start with our disclaimer. As we stated 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 the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. I will now pass it over to Jim for some introductory comments.

Thanks Mike. I’ll begin my remarks this afternoon with a few introductory comments and then I’ll hand it over to Dave, who will provide an overview of our business. Dave will then turn the call over to Frank, who will focus on the financial details of our first-quarter results as well as our outlook for the remainder of 2022. Immediately following Frank’s comments, we’ll open the line for questions. As you may recall, our first quarter 2021 depletions growth was 48% and shipments growth was 60%. So as we anticipated during our last earnings call, our first quarter 2022 volume performance faced a heavy comparative challenge. Our first quarter depletions decline was 7%. This was the first quarter in the last 16 quarters that we did not grow our volume double digits over the corresponding prior year quarter. This reflects both our own slow 2022 start and a decline in the overall beer market. More particularly, the decline reflects our internal supply chain issues that continued into 2022, but also the continuing broad scale supply chain issues and inflation that are affecting consumer purchases and the weakness of hard sell-through demand as the category lapped 62% growth from the first quarter in 2021. We continue to work through challenges with our supply chain and the impacts of the slowdown in hard seltzer as we invest broadly across our portfolio, while adding new innovation. The out-of-stock issues that negatively affected our first-quarter performance and which we discussed at our last earnings call have improved during the quarter and wholesaler service and inventory levels are gradually returning to more normal levels. Despite our depletions decline, we gained dollar share in measured off-premise channels from 4.9% to 5.1% in the first quarter, the second largest share gain among the larger brewers. We are thankful to our outstanding coworkers, our distributors, and our retailers, who continue to support our business. We have a strong ability to innovate in a broad portfolio of healthy brands and we continue to expect that our business will recover and grow volume between 4% and 10% for the full year in 2022. I will now pass it over to Dave for a more detailed overview of our business.

Thanks, Jim, and good evening everybody. Our 7% Q1 depletions decline that headlines our earnings release has to be seen against our exceptional performance in the first quarter of 2021, but it masks the fact that our Q1 performance was in line with our internal targets for depletions, shipments, and financials. As Jim mentioned, despite our depletions declines, we still gained dollar share of total beer. While our first quarter declines were not unexpected, they are not reflective of the trends we see for the full year. We expect depletion and shipment volumes to improve both in absolute terms and against less difficult prior year volume comparisons, and we also expect margins to increase as our supply chain performance slowly improves. We continue to see the year delivering as we expected in February and are maintaining our full year guidance. As we look towards the remainder of 2022 and beyond, our aim is to get back to company-wide mid-single digit to double-digit depletions growth driven by broad-based growth across our entire portfolio of brands, especially as consumers drink more Beyond Beer products. We continue to hold our number two position in Beyond Beer with a 24.5 share driven by the number one FMB and Twisted Tea, the strong number two hard seltzer in Truly, and the number one hard cider in Angry Orchard. Prior to 2022, Truly outgrew the hard seltzer category for 17 straight months ending in December 2021. It grew depletions by 27% for the full year 2021 and gained almost four volume share points. However, in the first quarter 2022, Truly declined 15% in volume and 10% in dollar sales in measured off-premise channels and lost share. These negative results were due to the early out of stocks we discussed at our last earnings call and the comparisons with Truly's significant volume growth of 109% in measured off-premise channels in the first quarter of 2021. While Truly lost about two share points versus a year ago in the first quarter of 2022, its week-to-week sequential share has held steady since early January at around 26 points. Also, based on current feedback from our off-premise customers, we believe that Truly's share of space will increase in 2022 from about 23% to 26% of the hard seltzer category. Despite hard seltzer dollar sales declining by 3% in the first quarter of 2022 in measured off-premise channels, we believe hard seltzers will remain an important beer industry category in the future. They maintain a large consumer base with 29% household penetration over the last 52 weeks and they were 9.3% of total beer dollars in the first quarter of 2022, equal to a year ago. According to Numerator, hard seltzers are still net-sourcing volume from 19 of the top 20 beverage alcohol categories with only a slight loss to RTD canned cocktails. Numerator data also shows that only 2% of lapsed hard seltzer shoppers’ purchase RTD canned cocktails in Q1, indicating that RTD spirits are not taking much share from hard seltzers. Lastly, we see consumer attitudes remaining quite positive. Overall consumer sentiment as measured by online organic conversation is strong as the volume of positive conversations was two times that of negative ones in the first quarter of 2022. As we look at our forecast for hard seltzer category growth for the year, we’re holding to the scenario previously discussed that puts category volume growth between flat to plus 10%. Remember we’re lapping 62% category volume growth in measured channels from the first quarter of 2021, and as overlaps ease hard seltzer grew only 5% in the last three quarters of 2021. We expect to see hard seltzer growth rebound to positive. However, full clarity will probably not increase until we start to lap July 2021 when the category growth started to decelerate rapidly, especially in the two-year volumes stack. Regardless of where the category growth settles in 2022, our goal is to outgrow the category for the full year, driven by innovation, continued brand building, and superior distributor support and retail execution. Our confidence that we can outgrow the category is supported by our ability to innovate. Our new Truly Margarita is the most successful new product launch thus far in 2022, as it’s the number one new SKU in all of beer with a 4.6 volume share and a $4.40 share of hard seltzer in measured off-premise channels year-to-date. Truly Margarita also has the highest repeat rate after its first 13 weeks of any new entrant ever in hard seltzer according to Numerator. Truly remains a healthy brand and our trends will improve later in the year as innovations take hold and overlaps get much easier. We’re excited about the Truly Poolside variety pack which is launching next month, as well as our plan promotional activity around the Dua Lipa tour in our new Truly media campaign, 'Do it for the Flavor,' which launched late in the first quarter. In addition to Truly Margarita and the Truly Poolside summer offering, we’re announcing today that later in the summer we’ll launch Truly Vodka Seltzer, a new ready-to-drink seltzer with 110 calories and 5% ABV, which we believe will effectively compete in the high end of the hard seltzer category. Also, Truly Flavored Vodka, a bottle vodka that recently launched via our Beam Suntory partnership, is generating strong marketplace excitement and social media buzz. We believe this validates our decision to offer the Truly Vodka Seltzer RTD as a complementary companion to our Truly hard seltzer business. Having a broad-based platform as a traditional spirits brand via Beam’s distribution network and as an RTD that rolls through our own beer distributors, provides the brand broad reach and a competitive advantage. Despite service level issues that continued into the first quarter, Twisted Tea expanded its position as the number one FMB and grew double digits in measured off-premise channels. It’s the fastest growing brand among the top 20 brands in the first quarter at 15% volume growth and 20% dollar growth. In fact, Twisted Tea has been the fastest growing brand among the top 20 in all of beer for the past seven straight months. This is despite many competitive offerings entering the market and is a testament to the brand's strong following and the upside that remains as we close distribution gaps across the country. Based on this performance and historical under spacing we expect that Twisted Tea in 2022 will be increasing its space by approximately 13% in both large and small format stores and increasing its points of distribution by approximately 19% in large format and 67% in small format.

All right, thank you, Dave. Good afternoon, everyone. For the first quarter, we reported a net loss of $2 million or $0.16 per diluted share compared to a net income of $65.6 million or $5.26 per diluted share in the first quarter of 2021. This change between periods was primarily driven by lower net revenue and lower gross margins. Our operating expenses of $175.1 million in the first quarter of 2022 increased 1.2% from the prior year. Depletions for the quarter decreased 7% from the prior year, reflecting decreases in our Truly Hard Seltzer, Angry Orchard, and Dogfish Head brands, partially offset by increases in our Twisted Tea brand. Our Samuel Adams brand depletion volume was roughly equal in both periods. Shipment volume for the quarter was approximately 1.7 million barrels, a 25.1% decrease from the prior year, due to lower depletions, continued inventory level normalization, and the lapping of the 2021 inventory pre-build reflecting decreases in our Truly Hard Seltzer, Twisted Tea, Angry Orchard, and Dogfish Head brands, partially offset by increases in our Samuel Adams brand. We believe distributor inventory as of March 26, 2022 averaged approximately five weeks on hand and was at an appropriate level for each of our brands. We expect distributors will keep inventory levels below 2021 levels in terms of weeks on hand, as the need for peak season inventory prebuilds has greatly reduced due to our increased production capacity. Our first quarter, 2022 gross margin of 40.2% decreased from the 45.8% margin realized in the first quarter of 2021, primarily due to higher supply chain costs and higher materials cost partially offset by price increases. Advertising, promotional and selling expenses for the first quarter of 2022 decreased $10.2 million or 7.3% from the first quarter of 2021, primarily due to a net decrease in brand investments of $9.4 million, mainly driven by lower media costs, partially offset by high investments in local marketing and decreased freight to distributors of $0.8 million. Primarily due to lower volumes, they were partially offset by higher rates. General and administrative expenses increased by $7.8 million or 24.3% from the first quarter of 2021, primarily due to increased salaries and benefits costs and increases in services provided by third parties. We recorded an expense of $4.8 million in contract termination costs in the first quarter of 2022, resulting from further negotiations with suppliers that eliminated future shortfall fees. Based on information of which we are currently aware, we continue to target full-year 2022 earnings per diluted share between $11 and $16. However, actual results could vary significantly from this target. This projection excludes the impact of ASU 2016-09, and is highly sensitive to changes in volume projections, particularly related to the hard seltzer category and supply chain performance, as well as inflationary impacts that have accelerated since we provided our last guidance. The 2022 fiscal year includes 53 weeks compared to the 2021 fiscal year, which included only 52 weeks. Full-year 2022 depletions and shipments growth is estimated to be between 4% and 10%. In the first quarter, total depletions declined 7% compared to the first quarter of 2021 and increased 38% compared to the first quarter of 2020. In order to achieve the midpoint of our depletions range, we’re estimating depletions for the remainder of the year will increase 10% compared to the last nine months of 2021 and increase 29% compared to the last nine months of 2020. We project increases in revenue per barrel of between 3% and 5%. Full-year 2022 gross margins are expected to be between 45% and 48%. Our full-year 2022 investments in advertising, promotional and selling expenses are expected to increase between $0 and $20 million. This does not include any increases in freight costs for the shipment of products to our distributors. We estimate our full-year 2022 non-GAAP effective tax rate to be approximately 26%, excluding the impact of ASU 2016-09. We’re not able to provide forward guidance on the impact that ASU 2016-09 will have on our 2022 financial statements and full-year effective tax rate as this will mainly depend on unpredictable future events, including the timing and value realized upon the exercise of stock options versus the fair value when those options were granted. We are continuing to evaluate 2022 capital expenditures and currently estimate investments of between $140 million and $190 million. The capital will be mostly spent on continued investments in our breweries and could be higher if deemed necessary to meet future growth. We expect that our cash balance of $15.8 million as of March 26, 2022, along with our future operating cash flow and unused line of credit of $135 million will be sufficient to fund future cash requirements. We will now open up the call for questions.

At this time, we’ll be conducting a question-and-answer session. Our first question comes from the line of Nadine Sarwat with Bernstein. You may proceed with your question.

Hi everybody. Thank you for taking my question. I’d like to zoom in on the gross margins. So can you provide some color on the higher supply chain costs that you faced in Q1? And then thinking longer term, what gives you confidence that the supply chain performance will improve enough during the year to meet your gross margin guidance?

Okay, hi, Nadine. This is Frank. Let me speak to the gross margin. Clearly, the gross margin at just over 40% in the first quarter was lower than what we had as a target of 45 to 48. There are very clear drivers with indicated Q1 will be a difficult quarter because we still have some hangover from the 2021 events where we had a really, really high stock level as the category slowed down. And that manifested itself in lower absorption. We have lower volume going through the breweries, scrap that is higher because the supply chain is still a little clogged up. We’re making progress and bringing this all down and then higher warehousing costs. And then we had an unfavorable mix also between products. So yes, when you look at our inventory, we had a high level of inventory but there was a combination of SKUs where we had too much and other SKUs where we didn’t have enough. You combine that with our supply chain difficulties that we had and that just resulted in higher costs. We also had some and that’s temporary, some higher freight costs for some material deliveries that we had to bring in, in the first quarter. That will subside in the remaining quarters. And then also the structural supply chain cost improvements that we’re working on have been a little bit delayed because we’re focused on the cleanup of the events from 2021. So they’re coming, but they’re coming little slow. Our West Coast facility was also relatively close to our internal costs. The variety pack costs that we will incur going forward will be, on average, significantly lower than what we had incurred in the first quarter. We will have further supply chain cost initiatives that are driving costs down during the remainder of the year. So that’s a little bit the imbalance between Q1 and the remainder of the year.

Understood. So would it be fair to say that you still believe you can hit guidance based purely on initiatives that are in your control as opposed to more favorable input costs later in the year?

Yes, that is fair. I mean, we will – as everybody else, we have higher input costs clearly compared to what we had in the last earnings call. But we are managing those and that should not significantly – at least at this point, we don’t see that this is significantly impacting our margin. So yes, it’s the activities that are under our control that should improve the supply chain costs and as such the gross margin.

Understood. Thank you. I’ll pass it over.

Our next question comes from the line of Kevin Grundy with Jefferies. You may proceed with your question.

Thanks. Good evening, everyone. Two questions for me, if I could, the first for Dave, just on the on-premise, maybe talk a little bit about how that channel is recovering. Maybe you can sort of give us some guideposts for where your on-premise business is currently versus pre-pandemic levels and then maybe something we haven’t talked about, but was certainly an area of a lot of interest. I would say, last year was the development of hard seltzers in the on-premise channel and what that opportunity was. Maybe you could just spend a moment on that and how much time the organization is focusing on that development. Then I have a follow up for Frank. Thanks.

Sure thing. Hey, Kevin. To start, I mean, the first quarter was a very good quarter for on-premise, so I’m not sure we don’t break it out specifically, but it was if you look at, what the Beer Institute says, it was like in the 30s across the industry where I say we’re north of that. So remember this first quarter was the last kind of free pass for on-premise where the overlaps were pretty good from a year ago, but it’s come back. As I mentioned earlier, if you look at the off-premise trends for Sam Adams or Angry Orchard, it’s very different when you look at the total volume, and certainly on-premise is contributing significantly. So if this is coming back, if you look at the on-premise share, and again, I’ll quote the BI, if you look at the on-premise share of total, traditionally pre-COVID was around 16%, and right now it’s hovering around 13%. So this share has shifted down. And the question is, whether we’ll know this summer, if it really comes back to the historical level, but we’re definitely seeing growth in on-premise across the board, pretty strongly in the first quarter, as it relates to Truly, Truly is hanging in there. I mean, we’ve got – first of all, we have about – let’s talk draft first. We have about 4,200 placements for Truly Draft. The sales per point in the first quarter was up 35%. It’s pulling the same rate as Boston Lager. So we’re seeing a nice like a day or nice activity there. That’s still only about 12% of the total on-premise. The rest are for cans. And so it’s in about 1,250 Buffalo Wild Wings. It’s in there through – they’re committed through the end of the year. So we’ll have to wait and see how it goes, but there’s no question our sales organization is selling and we’re selling draft placements. We’re selling cans. We in fact I think we’re only the real – we’re like the most legitimate national provider of draft for hard seltzer. And again, the volume is there. So we’re going to look at that. And it’s just its one component of the total growth for Truly; it’s certainly something that we’re – we haven’t put a cast aside. We think there’s opportunity there.

Okay. And just quick on the guidance, your expectation Dave before if I recall was flat to up 10% for the seltzer category. Is that still your working expectation for the year?

Yes. That is the expectation we’re saying is zero to 10% for the category and think of it this way. Think of it as probably low-single – maybe low-single digits on the volume side, high-single digits on the dollar side, but we still think it’s fair to say it’s in that range. Remember the – I mean the couple reasons why the overlap for the Q1 a year ago was 62% for the category. It’s only 5% for the balance of the year. So obviously, we talked about it before. The overlaps are pretty extreme. The penetration base is still very high. So we’ve seen the penetration rates have fallen off a bit in the first quarter, but it’s still higher than craft beer, and about the same as FMB. So there’s a large base of consumers that are still interested in this in buying the category and still hard seltzer provides sort of the sustainability, the low calories, the flavor variety that consumers are looking for that other categories aren’t providing. The last thing I’d say is that the space is from what we know now, the space for the category is pretty much held. It’s pretty much held maybe up just slightly. I think the number of SKUs is probably not decreasing right away, but the number of brands is, so you’re going to have fewer brands, same number of SKUs, and about the same amount of space. You have bigger brands, some innovation coming in across the board, and people investing. So we think for now given these overlaps and given the auditing of Q1 sticking to zero to 10% makes sense to us.

Got it. Thanks, Dave. I’ve just one more if I can then I’ll pass it on. So for Frank, my question is on the cost structure, so it’s not just cost of goods, but OpEx included, and it’s just – is the company appropriately sized now for what’s materially lower growth than what you experience when you were really chasing seltzers? So we’ve seen this with other businesses and staples understandably, where the fixed cost structure just may not be appropriate for what’s sort of a new normal level of growth. So you’ve talked about the opportunity for this to be a low to mid-50 sort of gross margin business. I’m assuming there’s some level of productivity savings and cost-cutting involved there, but even across the other lines in SG&A, do you feel comfortable with where the current cost structure is for the new growth outlook for the business? If not, where those opportunities and when would investors expect to see those benefits and I’ll pass it on. Thank you.

Yes. So Kevin, clearly we’ve talked about the cost structure. Operating expenses is a focus for us. And we have added quite a few people in as we have grown and our operating expenses have grown; our APNS investments and also our G&A expenses. I think we are broadly at the right level. Yes. We have staffed up the functions that we needed to staff up. We were lagging a little bit I think we at the right level. We do expect to get leverage as we keep on growing the company. And we have seen leverage, yes, it’s hard to compare versus 2021 or 2020 I think the last really somewhat normally it was 2019. But we clearly got leverage there. We expect to that leverage to continue. There’s also as we are working on supply chain transformation, which actually we’re looking at it as a bigger business transformation that will help us run the company also more efficiently, more effectively. That will also support getting leverage out of the cost, so and that you should see in the EBIT margin.

Okay. Thanks for all the time, guys.

All right.

Our next question comes from the line of Vivien Azer with Cowen. You may proceed with your question.

Hi, yes. Good afternoon. So my first question...

Hey, Vivien.

Hey, Vivien.

Hey guys. Around the shelf space expansion, I mean totally makes sense that, that your shelf space should go from 23% to 26%. I’m just wondering how much of a contributor is that to your full-year top line guidance?

Well, I mean, it’s certainly an enabler to get our innovation on the shelf and get – and be where we need to be. It’s hard to quantify going from 23% to 26% and putting that to what the volume is, will be for growth for Truly relative to the total – to total portfolio. But it’s certainly important because one thing I will say is that we have – we finished the year with the second highest penetration rate of any brand in beer next to Bud Light, which means we have a large willing group of Truly consumers who are looking for innovation from us and having the extra shelf space is really important to get it out there permanently on the shelf so they can find it. So it’s also I would argue a result of our past performance that retailers are rewarding us with more space because not everybody is getting more space. Just at the category, hard seltzer categories relative – it’s basically flat versus a year ago and we’re one of the few gainers in space.

Absolutely. That makes sense. On penetration, but household penetration now, you cited the 29% household penetration metric, which remains encouraging and to your point, the comps are going to get a lot easier as we get through 2022. But I’m curious, have you been monitoring that household penetration with a fair amount of regularity? Like and if so, do you – can you – do you have any observations on kind of the longitudinal trend that you’ve seen there? How would that 29% compare to a year ago? Any incremental color would be helpful? Thank you.

Sure thing. I mean we look at it, we use numerator data generally because it’s available pretty frequently to us. So that 29% that I quoted is the latest 52 weeks so that would be Q2 of 2021 through Q1 of 2022. Last year – for the calendar year last year was also 29%. If you want to look at it, as I recall, half of the numbers in front of me, but for the first three quarters of last year grew about 8%. It did start to slow in the fourth quarter of last year. I think it was minus 2%. The first quarter this year probably more like minus is 8% for just for that quarter, there was a lot of things going on in that quarter. And but it has – it’s not going in the right direction. But again, we think I think it’s a little early to call it on where that’s going to end up. We got to see where things come in the next quarter import. In particular also, by the way, the buy rates are going up and the repeat rates are still going up. So it’s generally holding ground. If also Vivien we look at in addition to the household penetration, we look at sort of consumer sentiment. I think I reference it in the – in my script, but if you look at it, I mean, people are still out there. Organic mentions are positive two to one to negative comments. So if you add all up, there’s still interest there. It’s a large base again we said the same size as FMB, and it is – we’ll see where it goes over the next few quarters.

Understood. I’ll just squeeze in one last quick one. I apologize if I missed it in the prepared remarks but the vodka launch that, that you guys just announced today, how is that different from the Beam Suntory partnership?

Yes, sure thing. I see. So the Beam Suntory one is basically full bottled vodka in bottles, like one liter bottles, et cetera, that they are selling through their distribution network. So through their distributors, it launched about a month or so ago, and we call it, it’s called Truly flavored vodka. It’s in three different flavors and that, that’s sort of it their domain and they’re basically selling that product. We’re going to create an RTD. So it’s going to be basically think of it as slim cans, what you would expect slim can RTD Vodka Seltzer product under the Truly name that was in a way, think of it as a companion to that vodka product. Similar – probably similar consumer of different occasions, I’d say than the vodka, the bottle vodka product and definitely different consumer than the Truly Seltzer drinker. It’s going to be – if you look at brands like High Noon, which arguably is not as more of a hard seltzer than it is a traditional RTD canned cocktail. The consumer tends to be over half of the consumers are 45 plus per perspective, female SKU, African-American SKU, higher income. You look at hard seltzer, half of the consumers are 21 to 34. So we see there’s a window here and there’s a place to go with Truly Vodka Seltzer at the high end of hard seltzer with a different consumer. We have traditional truly hard seltzer and then we have the bottled vodka out there as well and we think together that works going well.

So the Truly Vodka Seltzer will have vodka.

I’m sorry. Will have what?

Vodka.

Yes. I’m sorry. I’m very sorry. I don’t know. So the Truly Vodka Seltzer will be with vodka. Yes. And that’s where we’re going to launch late this summer. Yes.

Understood. Thank you.

Sure.

Our next question comes from the line of Kaumil Gajrawala with Credit Suisse. You may proceed with your question.

Hi. Can we – maybe if you can drill down a little bit more on your confidence that things will kind of turnaround from where you are year-to-date, allowing you to kind of confirm your guidance and maybe it’s the exit rate on the quarter itself. I know you gave a year-to-date April number. Maybe you can give us just April itself. Maybe it’s just comps, but just maybe a little bit more color there on why you expect for many things to sort of turn around.

Yes. Kaumil, let me – this is Frank. Let me just start with pure numbers. If we look at depletions and shipments and the way I think you have to look at the quarter and as Dave indicated in his remarks, is you have to see that in light of last year’s Q1 where shipments grew 60%, depletions 48%, everybody was fully behind the hard seltzer growth across all channels and across all parts of the channel. So the retailers were building, the wholesalers were building, so there was a lot of pipeline building, if you will. So against that, we are down 7% and we need to grow going forward, we need to grow like 10%, 11% to hit like the mid-point of our range. If you compare that to 2020, so if you look at the two-year stack, which we use quite a bit. We’ve grown versus Q1 in 2020, we’ve grown 38% and the year goal would only be – have to grow 29%. So that kind of gives you a little perspective just from the pure numbers, if you look at the two-year stack. Shipments is a very similar story because you also had prebuilt and it’s a little bit more pronounced, because we are pre-building the number, we’re pre-building a lot of inventory in the first half of the year. As I said, Q1 shipments were up 60%. If you look at the first half, they were up 41%. And so we produced significantly more the first half, we had more inventory, the category slowed down happened in the middle of the year. We were left with the inventory and we basically didn’t ship a lot anymore and didn’t produce a lot anymore. Q4 was down 25% versus the previous year. So if you just look at – we were going from a year, we were prebuilt first and then we’re reducing our inventory to a more normalized flow. That’s why Q1 was a little bit of inauguration, but those are purely the numbers, but that’s one side of it. And Dave will talk a little bit more like to the programs that we have and that we feel give us confidence from a business perspective.

Sure. Let’s pick it up. Just to add what Frank said, Kaumil. Let’s just look at, we’ve got a lot of innovation, a lot of activity coming starting right now. So Truly Margarita is out there. We referenced it from what we can tell it’s about 60% incremental. The repeat rates, as I mentioned – they haven’t been repeat rates in the first quarter for any brand and hard seltzer as high as Margarita. It’s higher than lemonade. It’s higher than fruit punch. So that’s – we think that’s on a good trajectory. Then we’re coming in with Poolside, which will take us through the summer, which is an LTO for the summer that we feel good about. Based on what we’ve seen, we think we’re going to have better execution than we did for fruit punch last summer. Then as I referenced, we’ve got – still on the Truly front, we have Vodka Seltzer coming in late summer. And likely, more news in the fall all supported by more space gains that we’re getting behind the brand. Then you have the brand overlay, we do a leap and all day advertising the investment. So there’s a lot ahead of us for Truly that we’ll be facing the lower, the smaller overlaps, but also just a lot of absolute activity behind Truly. Then you have Twisted Tea, which I know we don’t talk very much about. Twisted Tea is also a big gainer, as I mentioned in my opening remarks. And from the space perspective, Twisted Tea is always – it’s always been in people’s mind, kind of this regional brand. Well, now it’s having – it’s day in the sun and we have – we’re driving distribution on – particularly on 12 packs. We now have national footprint for 12 packs for Twisted Tea. So we can start getting national retailer support and promotions behind it, which we’ve never had before. We also got – we’ve launched Twisted Tea Light is out there. We’ve got a huge campaign around convenience stores. We have a joint promotion with Doritos as part of our PepsiCo relationship. So there’s a lot of activity behind Truly that hasn’t even really begun yet. That’s going to start hitting in the summer, then there’s Hard Dew. As I mentioned, there’s only it’s in three states, Iowa, well, really for about a month. Iowa, Tennessee, and Florida and it’s a 27 share of F&Bs in turning about seven or eight times the size of the next largest F&B in those states. So I’ll say this with confidence, it’s the highest trial I’ve ever seen, ever, ever. And anything that I’ve ever been involved in personally now that repeat is obviously the key part of it and we’re going to roll. So we’re going to roll from those. We’re now – we added that Arkansas and Oklahoma, Minnesota’s coming next in a week. So we’re going to gradually roll to about 15 states before the end of the summer. So just the three – the big three have Truly, Twisted Tea, and Hard Dew have really not even begun to impact our business. And I’ll also add to that, Dogfish Head canned cocktails. We talked about canned cocktails; it’s a very – it’s obviously an ascending category still pretty small by one-sixth, maybe one-seventh of hard seltzer, but it’s growing as we all know. And Dogfish Head has a terrific lineup of flavors and products. We’re making a big push on that this summer. That’s just beginning right now. And the last thing I’ll say, hey, if you look at Angry Orchard and Sam Adams have always kind of been a drag on the total, you’ve seen enough momentum in those two businesses over the last 12 plus months that we feel pretty confident. They won’t be a drag. It might even be contributors, Sam Adams will – Angry Orchard TBD. So you added up over the next four or five months, there’s a lot of coming. We’re just in really the year, as far as I’m concerned, is just getting going right now. And I think – and I know Jim might have something to say on top of what Frank and I just said just maybe more about the goal, we live in an unusual world right now. I’ll let Jim kind of maybe comment on that.

Yes, sure. I think I would – and you’ve got three different voices. I would support Dave’s optimism. But I think one has to be realistic on a couple of dimensions. One is just the headwinds that are facing all consumer products companies, there’s obviously the geopolitical problems, the economy is kind of wobbling now, and inflation is at extraordinarily high levels. So those are just unpredictable things. But they are things that are more negative now than they were when we did our last earnings call. And more negative than we set our guidance of 4% to 10%. So, that does – we still believe that’s the right range, but maybe a little less optimistic about hitting the very top of it just because of these headwinds. And we certainly are encouraged by some very strong trends in distribution for Truly and in Hard Mountain Dew, but that’s – again, that’s – it’s got really strong numbers. But we’re talking about three states a couple of months into a rollout of a very strong and powerful brand that I think we all were pretty comfortable would get a lot of trial. And the jury is still out about what the demand is going to look like three, six months into the rollout when we’re beyond the trial curve. So, there’s – I think what we’re probably saying is we still very strongly believe that that range of 4% to 10% is the right range. If we were at the midpoint of that in February, we’re maybe still in that range, but maybe not quite as high just because of the very broad-based geopolitical and economic trends. It’s a little bit more unstable world than it was in the 20th of February.

That’s useful. Thank you. And if I could follow-up on Sam Adams specifically. Dave it was towards the end of your comments. I can’t quite remember the last time it was flat or up. Obviously it’s flat in this juncture. I know you talked about the marketing and such, but can you maybe talk about what you’re seeing in craft as an industry? I believe some of the struggles for Sam over the years has been the fragmentation, the increased competition, a mix of other sorts of things. Are we potentially on the other side of it after almost eight years a decade? Or do you point to more perhaps just the success of marketing?

Yes. I say there’s no better person in the world than Jim to talk about that. So go ahead, Jim.

Yes. I mean, I think your formulation of we’re at – and the fragmentation is kind of done. It’s not getting more fragmented. So that headwind is kind of abated. I mean, it is where it is. We have some 9,000 breweries in the United States. So you have an extremely competitive market. Innovation is much harder in craft when you have 9,000 people looking for the next big thing; any successful innovation immediately has 1,000 duplicates out there. I think what is contributing to we’re pretty much stable in a declining craft market. I mean, craft is now a mature industry. It’s a sizable piece of the beer business here in the United States. And it appears to have roughly found its level. And so in that kind of situation, it begins to be sort of grinded out battle where the competitors that have the most and best resources and talent and products can slowly begin to gain share in this more mature, stable maybe slightly growing, maybe not over the last few years. We have all of the benefits of being the largest player in terms of scale, retailer appreciation, wholesaler support and we can do things that are not available to many of our craft colleagues like have a Super Bowl ad that gets 2 billion impressions or like have national presence and be able to go to the national chains and get draft distribution all across the country. So my sense of what’s behind us beginning to gain share at least is just these advantages of 30 some years of doing this, having grown to leading craft brewer and the scale that we bring with that in the broad-based consumer, retailer, and wholesaler acceptance and support.

Awesome. Thank you.

Our next question comes from the line of Rob Ottenstein with Evercore. You may proceed with your question.

Great. Thank you very much. A couple of questions. First, you talked a bit earlier on about the on-premise coming back, but that was more in terms of the overall market. Can you talk – can you give us any metrics in terms of how your on-premise business is doing? Maybe the number of tap handles versus 2019 or whatever metrics you think are relevant as you assess your recovery in that channel? And then maybe perhaps tied to that any changes in strategy approaching that channel that you’re putting in this year that may be different than the past?

Sure. Thank you, Rob. Jim, do you want to jump on that? Do you want me to start it?

Why don’t you go ahead with it, Dave?

Yes, let me do it. Because I think first of all, we’re seeing across the board trend improvements for all of our core brands in Q1. So I referenced that the Beer Institute had 31% growth in on-premise. For the first quarter for the industry were like 50% more than that. So, well we’re high 40s. So we’re seeing that, we’re seeing points – obviously points of distribution being regained. We’re also seeing sales per point increasing as well. So it’s particularly for brands like, Angry Orchard where that’s – Angry Orchard crisp on draft is a really important one for us. Sam seasonal, Boston Lager, et cetera. So Q1 has been a very good start for us. I think and as I mentioned for Truly, we’re just not quite sure where Truly on draft goes, but it seems to be doing – it’s kind of ebbing and flowing, but it’s on the uptick right now, particularly sales per point, which I mentioned before, and obviously Truly cans are doing well. I think it’s just we do have, and Jim could speak to it because he created it. We do have a terrific sales – on-premise sales organization. They’ve been in hibernation a little bit against their will during COVID and we’re out selling. Aggressively we’re outselling and we have a really good line-up. I think another – the next frontier might also be beyond beer in on-premise, so we talked about Seltzer, Twisted Tea, I think only maybe 3% or 4% of Twisted Tea’s volume is in on-premise, but that’s an opportunity for us as well to pursue that. There are a lot of customers interested in that. So we’re – we have our selling shoes on and we’re pushing that channel hard. And so far this year, remember the overlaps to be fair, the overlaps are I don’t know exactly what they were a year ago, but they’re probably kind to us given that things really didn’t start to open up on-premise last year, I shall say, May or June. And Robert, I don’t know if that answers the question fully enough or may be…

Well, your share right now is great. How does your business or your share, or however you measure it, compare to what it would have been in 2019? Did you lose more than average during COVID? I'm just trying to get a sense of where you are versus 2019.

In terms of our percentage mix, it's still lower than it was in 2019. We are below where we were back then, which seems to be the situation for the industry as well. The industry's mix was 16% pre-COVID, and now it's around 13%. We're still beneath our mix from before. The real question is about the changes and what the new normal will be. We've been trying to understand the new normal for everything from hard seltzer to on-premise over the last two years. I think this summer will give us clarity on where we end up. We're encouraged by the trend we see as we work to return to our previous performance, but we don't know where it will ultimately lead. Inflation is likely to affect the on-premise segment, impacting people's decisions on dining out. We’re uncertain about the final outcome but remain hopeful that the on-premise channel, which is crucial for us, continues to recover. Jim, do you have any additional insights on the on-premise situation since you've been observing it from the outset?

I guess I’d say my guess is that the COVID has changed habits probably permanently, I think. I don’t think the on-premise is going to come back to the same levels that it was in 2019, partly because consumers change habits and partly because there are bars and restaurants that went out of business. And they closed and they’re probably not going to be all replaced. So and we’ve been seeing that in the data for a little while that the throughput per account is back to where it was even above it, but there’s maybe 20% fewer accounts. So, I don’t think all of that 20% of lost accounts is going to come back. And as a result, I’m going to guess that we’re not going to get to the 2019 percent of the business in on-premise. Most of the lost accounts will be the smaller independent accounts. Those are generally favorable for craft beer. For Sam Adams, we’re a little stronger in the bigger national accounts, the multi-store accounts. So for us, we may gain a little bit of draft share because of that mix shift within the account base.

Great. And then one other question, and that is in the non-alcoholic beer space, and call it non-alcoholic adult beverages, if you will, in general. That does seem to be one sector of the industry that is growing. There are some good products out there. The technology seems to be better than 10 years ago, five years ago, you’ve got an entry. Love to get your thoughts on how big that business can be, what your research is telling you in terms of bringing in new drinkers into your space? Or is it pretty much the same drinkers, but instead of having three or x number of alcoholic drinks, they end off with an NA. I just love to get your thoughts, Jim, on that sector.

One aspect that I think works in our favor and is also beneficial for the entire beer industry is the growing popularity of non-alcoholic versions of traditional alcoholic beverages. This shift drives more volume towards non-alcoholic beer, which offers a taste similar to regular beer and has a valid reason for being on the market. In contrast, it’s hard to see the appeal of non-alcoholic vodka or similar products, as they don't have the same consumer interest. Generally, non-alcoholic wines and spirits struggle to find success in the market. If consumers are looking for a non-alcoholic alternative to traditional alcoholic beverages, it's likely non-alcoholic beer that they are seeking. Currently, this market is relatively small, probably accounting for less than 1% of total beer consumption, though I haven't checked the latest statistics. However, it's gradually becoming more mainstream, especially among younger drinkers. A few years ago, non-alcoholic options garnered little attention and were primarily targeted at older individuals or those in recovery who didn’t want to consume traditional beer. The demographic has shifted, and younger drinkers are driving premium growth within this segment, with high-quality options available now. For example, Heineken 0.0 is a great-tasting product, and our own offerings, such as Sam Adams and Dogfish Head Lemon Quest, receive ratings comparable to their alcoholic counterparts in blind tastings. They’re priced similarly to craft beers or imports, making them appealing for higher-end occasions. The previous non-alcoholic beer drinkers have been replaced by a younger demographic that values moderation and still desires social interactions. This new approach is changing the landscape for non-alcoholic beer. Though I can't predict how large this market will become in the U.S., we do know that in certain developed countries, non-alcoholic beers constitute a significant part of the volume, reaching up to 10% in some regions of Europe and around 3% to 5% in places like Germany. Whether the U.S. will reach those numbers remains uncertain. What I can say is that we believe we have one of the best-tasting non-alcoholic options available, and consumer feedback suggests that it accurately mimics the flavor of an alcoholic New England IPA. It's challenging to forecast the future growth of this sector since brewers are now offering consumers higher-quality non-alcoholic options and brands that were previously unavailable. Therefore, it's tough to gauge potential growth and speed in this new segment.

Great. Thank you very much.

Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I would like to turn this call back over to Mr. Jim Koch for closing remarks.

Well, thanks everybody for hanging with us through this whole hour and a half. Hope we’ve answered your questions and looking forward to doing this again in three months. Cheers.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.