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 second quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Michael Spillane, our CEO; and Diego Reynoso, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or 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 his view of the business and the actions we are taking to position the company for a return to long term growth. Michael will then turn the call over to Diego, who will focus on the financial details of our second quarter results as well as our updated outlook for 2024. Immediately following Diego's comments, we will open the line for questions. I'll begin my remarks with an overview of the market environment. In the first quarter, we were pleased to see flat depletions and solid shipment growth, with shipments benefiting somewhat from shipping ahead of the implementation of our new customer order management system. As I mentioned at a recent investor conference, April depletions began to slow across the industry with Easter time shifting results and coming in soft. May and June depletions improved somewhat from April, but continue to decline compared to the prior year periods. Our current assessment is that demand appears to be improving from April lows and that April trends likely reflect the comparison against significant dislocations in the beer industry that began in April of last year. Our shipments for the second quarter reflect the impact of shipping ahead of depletions in the first quarter and not fully shipping into improving demand in the latter weeks of June. We are working in July and August to build inventories at our wholesalers back to target levels. I'm pleased to have Michael complete his first quarter as Boston Beer's CEO and he will discuss his assessment of the business and areas where we plan to focus to reach the full potential of our strong brands. We've also updated our guidance to reflect the first six months of results and our view of potential outcomes for the second half, which Michael and Diego will discuss. In summary, we saw soft volume trends early in the second quarter, which we have reflected in our revised volume guidance, but we're confident in our plans to grow our brands over time and have our brands reach their full potential. The commitment to invest and innovate across both our core brands and in new Beyond Beer categories remains unchanged. Our margin initiatives are taking hold, with gross margin expanding over 250 basis points year-to-date and potential for continued meaningful improvement in the coming years. The high cash generative nature of our business and strong balance sheet allow us to fund our strategic initiatives for the business while also returning significant cash to shareholders. Year-to-date, we've generated over $90 million in operating cash flow and repurchased $125 million worth of stock. I'd like to thank our Boston Beer team, our distributors, and our retailers for their continued support. And I'll now pass the call over to Michael.

Thanks Jim, and good afternoon, everyone. I've spent my first 90 days as CEO evaluating the business in detail. Boston Beer is a great company with great brands, a strong team, and a legacy of innovation and great service to our customers. We started as a craft beer company with a visionary founder and evolved into a $2 billion company with a diversified portfolio of brands across beer and Beyond Beer. Over the last few years, we've experienced more volatility, with shifts in consumer preferences away from beer to Beyond Beer categories, with an unprecedented surge in demand for our products during the pandemic, and navigating the macroeconomic impact of high inflation on consumers. Over the past few years, our focus has been on growing our portfolio of products, ensuring access to production capacity, and beginning to build the systems and infrastructure to support our diversified portfolio. Going forward, we'll be focused on improving end-to-end execution, which should unlock additional revenue as well as improving margins and lowering costs. Our status as a diversified Beyond Beer company requires being more precise in our execution from product development all the way to getting our products into the marketplace. We'll be focused on nurturing our core brands, developing margin accretive innovation, leveraging the capital investments we have made in our breweries and IT systems, and driving efficiency in operating expenses. To position ourselves for a return to volume growth, we'll be implementing plans to grow our core brands while developing a disciplined product roadmap of innovation. We continue to expect category growth to come from Beyond Beer and believe we have opportunities to improve execution across our portfolio. I'll now provide some color on our brands. In Beyond Beer, hard tea continues to be an attractive category, which we'll participate in through our category leader Twisted Tea and accretive innovations like Sun Cruiser. We continue to see potential in additional distribution, underpenetrated consumer demographics, variety packs for core Twisted Tea, as well as multiple areas of growth for Twisted Tea light and higher ABV Twisted Tea Extreme. Despite increased competitive activity year-to-date in measured off-premise channels, Twisted Tea has grown 15.1% in dollars and increased dollar share of FMBs by 1.6 share points while increasing shelf space approximately 30% over the prior year period. In the second quarter, the growth of Twisted Tea slowed in measured channels, which we believe is primarily due to difficult prior year comparisons and naturally slowing against a larger base. We continue to believe that Twisted Tea is a strong brand with many avenues towards growth and we will grow share in the FMB market and grow volume for the remainder of 2024 and beyond. We also see potential for our Vodka-based tea innovation Sun Cruiser, which expands our tea portfolio to bring new consumers to the category who prefer a spirits-based beverage. The initial feedback on the brand from wholesalers, retailers, and drinkers has been very positive. It's early in the launch with most of our focus on the New England and Atlantic regions, but we are encouraged by consistently improving weekly sales trends and distribution gains. Turning to Hard Seltzer. We are continuing to see declines in the overall Hard Seltzer category, as consumers have an increasing number of choices across Beyond Beer. In measured off-premise channels, Hard Seltzer is down 14.9% in volume with Truly declining 22.8% and losing 2.1 share points. However, within our Truly portfolio, there's a bifurcation between the performance of lighter core packages compared to the bolder flavors. With Truly lighter core package down mid-single digits year-over-year in measured channels. We're focusing our efforts on gaining share and additional shelf space for light flavors, optimizing our bold flavor assortment, innovating with higher alcohol offerings, and continuing our successful lighter flavored rotator pack strategy. We are also seeing good results from our launch of the higher ABV Truly Unruly with positive trends in depletions, distribution, and sales per point. The Truly Unruly variety pack has performed particularly well in grocery where it was the number one Truly SKU in one of our largest national chains. Overall, the efforts we are taking to reposition the portfolio towards lighter flavor offerings and higher ABV innovation are gaining traction and we expect these efforts to continue to improve Truly's volume trajectory over time. We've almost completed the transition of Hard Mountain Dew from Blue Cloud to our wholesaler network in existing states and are continuing to work through obtaining regulatory approval and distribution in additional states. There is opportunity for Hard Mountain Dew across expanded pack sizes and channels, including convenience stores, but these efforts will take time and have more of a positive impact in our 2025 results. In 2024, we expect Hard Mountain Dew to primarily benefit fourth quarter shipments given our expectation to launch in some larger states in the first quarter of 2025. For our Samuel Adams brand, we continue our efforts in seasonals, our award-winning non-alcohol styles, and have recently launched a distinctly American light craft lager we call Samuel Adams American Light. American Light launched in late May and is available in six and 12 pack cans in a small number of on-premise locations. The initial distribution began in New England independence and is further expanding to large format retailers as well as Florida and Texas. Early feedback is promising, and we expect sales per point to increase as distribution moves more fully into the large format channels. We're pursuing a measured launch strategy and will further expand distribution and increase marketing support as we have more data on consumer acceptance. With respect to other innovations, we plan to focus on line extensions for our core brands, including higher ABV and targeted seasonals and rotator pack offerings. We also continue to develop our new product pipeline and a disciplined, fewer things better approach. While we'll always need multiple ideas to find the next winning product, we will be thoughtful about the number of projects we take on to ensure that we provide sufficient resourcing across the organization to make new launches successful while also giving appropriate attention to all of our core brands. Additionally, we will be paying careful attention to product mix with all internally developed new products designed to be gross margin accretive, as Sun Cruiser and American Light are today. Turning to margins, we're modernizing our supply chain through investments in systems and processes and are continuing our productivity initiatives across three buckets of procurement savings, waste and network optimization, and brewery performance. We've achieved our savings target thus far in our ingredient purchasing, which you've seen positively impact our results over the last year, and we'll continue to focus on these efforts as this area continues to have significant opportunities for further savings in the near term. With respect to waste and network optimization, our investments in systems such as planning tools and automated customer ordering systems are helping us refine our inventory management. The fewer things better process that I mentioned earlier should also enable additional progress on lowering scrap and return levels. Our strategy to improve brewery performance and generate cost savings is unchanged. Line efficiencies in our breweries have been slightly improved but are not yet where we want them to be across all of our breweries. As we have previously communicated, our line efficiencies are a significant focus and these savings will take more time to achieve. We believe we have the capital in place but need more time to capture these savings and demonstrate that we can consistently and reliably improve performance, especially during the peak summer season. The timing and ultimate amount of the volume that we insource will be dependent on our progress in our own breweries as well as the product and geographic mix of our sales. In summary, we have the plans in place to generate cost of goods sold productivity, help offset near-term volume headwinds and expand margins over the next few years. There is also opportunity in the product mix as we make adjustments to our portfolio through new innovations. In the second quarter, these efforts allowed us to deliver 60 basis points of year-over-year gross margin expansion despite volume declines. Turning to operating expenses. We're committed to supporting our brands with the appropriate levels of advertising investment for both brand awareness and in-store marketing. Our 2024 investments will be across the portfolio, but will be particularly focused on supporting those brands that are driving growth, which include category leading, Twisted Tea, Sun Cruiser, and Hard Mountain Dew. Our advertising spend is more heavily weighted to the second half to position us well for the remainder of the summer selling season and into 2025. With respect to the non-advertising selling, and brand costs, we're continuing our efforts to better align internal costs with revenue. To summarize my comments, I've spent the last 90 days in deep dives with our team members across all functions, visiting our breweries and meeting with our distributors. I'm confident that there is a great deal of opportunity ahead for Boston Beer. During my time on the Board, I saw Boston Beer transform into a diversified alcoholic beverage company with $2 billion in revenue. The company modernized its brand and selling functions, built strong teams, made investments in production capacity and technology that sets us up with a good foundation for future success. We've also lived through changes in our consumer demand, a pandemic, and the impact of abnormally high inflation on the consumer environment. We now have the opportunity to turn our focus to optimizing all aspects of execution, from product development to manufacturing to how we allocate investment and sell in our product portfolio. These changes are beginning now and will continue through the second half of 2024. While the pace of improvement and our results is somewhat dependent on the volume environment, I believe there are multiple areas of opportunity and the changes we are implementing this year will set us up well for 2025 and a return to long-term growth. And most importantly, our strong operating cash flow provides us with the resources to fund investment in the business while returning cash to shareholders through share repurchases. I'll now pass the call to Diego for a detailed review of the second quarter and our updated 2024 guidance.

Thank you, Michael. Good afternoon, everyone. Completions in the second quarter decreased 4% and shipments decreased 6.4% from the prior year, primarily due to declines in Truly Hard Seltzer that were only partially offset by growth in our Twisted Tea and Sun Cruiser brands. We believe distributor inventories as of June 29, 2024, average approximately three and a half weeks on hand compared to our target wholesaler inventory levels of four to five weeks for our peak summer season. These lower than targeted wholesaler inventory levels were the result of the variability of demand across the months of the quarter and our inability to ship enough product in the last few weeks of the quarter that Jim mentioned earlier. Revenue for the quarter decreased 4% due to lower volumes partially offset by pricing and lower returns. Our underlying pricing for the first half was consistent with our full year guidance range and additional benefits from lower returns. Please note that we do not expect the benefit from returns in the first half to continue at the same rate for the balance of the year. Our second quarter gross margin of 46% increased 60 basis points from the 45.4% margin realized in the prior year. Gross margin primarily benefited from price increases, procurement savings, and lower returns, which more than offset higher brewery processing costs per barrel due to lower volumes and increased inflationary costs. Excluding shortfall fees and third-party production prepayments that we've discussed on prior calls, gross margin was 47.6%. Advertising, promotional, and selling expenses for the second quarter of 2024 decreased $5.1 million, or 3.4% from the second quarter of 2023, due to lower freight costs and a result of both lower rates and lower volumes as well as lower brand investments. General and administrative expenses increased $3.1 million, or 7% year-over-year, primarily due to inflation in salaries and benefits costs. We reported EPS of $4.39 per diluted share, which was $0.32 lower than the second quarter of 2023. The year-over-year decrease was driven by lower volumes, partially offset by higher gross margins. Our tax rate of 29.5% in the second quarter was slightly higher than our planned rate, which was driven by an increase in non-deductible stock compensation expenses related to CEO transition costs. Now I'll discuss our 2024 guidance. Our fiscal week depletion trends for the first 29 weeks of 2024 have decreased 2% from 2023. We are updating our 2024 volume guidance to reflect the first half performance and current outlook for the remainder of the year. Our volume outlook differs from our prior guidance due primarily to a softer second quarter and a slower than expected rollout of Hard Mountain Dew. We now expect 2024 depletions and shipments to range between a decrease of low-single digits to flat versus our prior guidance of a decrease of low-single digits to an increase of low-single digits. We continue to expect price increases of between 1% and 2%. We also continue to expect full year 2024 gross margins between 43% and 45%, commodity inflations in 2024, but at a lower rate than 2023, primarily driven by sweeteners and flavorings that we will cover commodity inflation dollars with pricing, and we will have higher labor costs in our breweries, where we land within our range of our margin guidance will be somewhat dependent on the mix of products sold during the remainder of the year. Contractual shortfall fees and production prepayments amortization that we've discussed on previous calls will have a negative impact on our full year 2024 gross margin of between 135 basis points to 185 basis points. As these contractual terms expire, we will reassess our capacity needs and commitments with our third-party production partners. Our investments in advertising, promotional, and selling expenses will range from a decrease of $5 million to an increase of $15 million. This does not include any changes in freight costs for the shipment of products to our distributors. Our estimated tax rate will be 28.5%, which is higher than the previous year's rate due to the CEO transition costs impact in the first half. We are continuing to target full year 2024 earnings per diluted share of between $7 and $11, as we expect our declines in volumes to be offset by slightly better margins and lower operating expenses. Please note that our EPS projection is highly sensitive to changes in volume projections, mix of owned versus partner brands, supply chain performance, and inflationary impacts on consumer spending. As you model out the year, please keep in mind the following factors. During the first half, shipment trends were below depletion trends and we currently estimate that they will rebalance, resulting in shipment trends being higher than depletion trends in the second half. As Michael mentioned earlier, our advertising spend is more weighted to the second half of the year. Also, please note that the fourth quarter is typically our lowest absolute gross margin rate of the year. Turning to capital allocation. We ended the quarter with a cash balance of $219.3 million and an unused credit line of $150 million, which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives, and return cash to shareholders through our share buyback program. For the full year 2024, we continue to 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. During the 26-week period ended June 29, 2024, in the period from July 1, 2024, through July 19, 2024, we repurchased shares in the amount of $113 million and $14 million. As of July 19, 2024, we had approximately $140 million remaining on the $1.2 billion share repurchase authorization. This concludes our prepared remarks and I will open the line for questions.

Thank you. We will now begin the question-and-answer session. The first question comes from Kaumil Gajrawala with Jefferies. Please go ahead with your question.

Hi. I'd like to dig in a little bit on your commentary, that sort of April was the trough and things are getting better. Just curious, what you're seeing specifically, is it related to some of your own launches in your own work, or is it sort of more macro and what you're seeing for the category overall?

Excellent. Hi. How are you? This is Diego. What I would say is, if you look at the overall industry, we had a really rough start to the quarter. And also, our brands within that had some challenges, as we've seen the rest of the quarter come back. We've seen both our brands, particularly in Twisted Tea and some of the overall category recover throughout the quarter. So we are expecting the back end of the year to look more like Q1, less like Q2.

Okay. Got it. When it comes to Mountain Dew or Hard Mountain Dew, was the transition just slower, or is there something happening with the brand and the marketing?

Thanks for that question. This is Michael. Yeah. It was a fairly complex transition, and so that was really it. It was more complex than we thought, and it took longer than we thought.

Okay. Got it. Thank you.

And the next question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

Great. Thank you. I was wondering if you could talk a little bit about how you see the development. I mean, any new thoughts in terms of how you see the development in Beyond Beer and specifically, Surfside has kind of been the star product this year by many accounts. Why do you think it's doing so well? What does that say about the category? Does it suggest any pivoting on your side? And then I have a follow-up.

I think, first and foremost, the Surfside product is a great product. It resonates with consumers, both taste and just a certain spot in the market. We've been very thoughtful about where we launched it. We've learned over the course of time to be very thoughtful and make sure that the launch is resourced correctly. So we think it's a new drinker and we're finding that it's not at the expense of Twisted Tea, but it's in addition to.

So again, to build on Michael's comments, we're talking about Sun Cruisers. So, you're correct. Surfside, I think, has been a good product this year. We've launched Sun Cruiser which we think is an even better product and it's doing well in the markets that we've launched to Michael's comment.

Yeah. Sorry, I apologize. We're so deep in Sun Cruiser here that I thought you were mentioning that because we just had a discussion about that. But we have a product that is right up against that, that is performing really well, and you'll be hearing more about that as we go along.

Great. And then, I was just wondering if we could just kind of touch on the beer side of the business, which we really haven't paid much attention to for a number of years. I mean, you've got phenomenal liquids, you've got the best sales force, arguably, out there. How are you thinking about this business? Because the volumes keep going down, and the levels of the decline are, at least in the scanner data, are not encouraging. And so, what can be done to stem that? Does the portfolio need to be pruned? What are you thinking is missing on the beer side of the business?

Jim, would you like to take that question? Okay. I think we're having some technical difficulty. Okay. So, great. I think we lost Jim there. But look, I think our American light is a good example of how we're approaching the category where we've got a profile of a younger drinker. We've done a very thoughtful launch, as I've mentioned before, like we have with Sun Cruiser, and we're getting it into the right place, and we plan to scale that at the right pace. There's a macro proposition here that just overall, beer is at a particular place. But we feel very strongly that with the right attention, a big part of our opportunity here is that through the disruption in seltzer, both the ride up and the ride down, and the steady increase in Twisted Tea, we probably could have given more attention to the rest of our portfolio. So when I talked last time about supporting and growing our core, the intent will be to do that through a balanced portfolio and supporting all our brands. And beer is a big part of that.

Thank you.

And yeah, I would add. Can you hear me okay on this?

Yes.

Yes.

Okay. I would add. We in particular, took our eye off of draft, along with our wholesalers. So we are making changes in the priorities for our salespeople to move some of the calls that they made with the explosion of Truly and now the rise of tea, those are off-premise brands. Michael kind of alluded. We neglected the on-premise, and so we are reorienting our sales force and expect to see more draft lines and more on-premise business for Sam Adams and for Angry Orchard.

Thank you.

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

Thank you. Just wanted to unpack the SG&A piece a little bit better. You've called out the higher marketing and push in the second half overall SG&A was kind of flat in the first half versus last year. And so just maybe trying to understand, are there some non-marketing savings that are meaningful enough that you are suggesting might still run flat? I know you gave the marketing guide on the year. Are we right to think that SG&A should be going up in the second half as well?

So just to clarify, we are down in marketing spend in the first half of the year, and that marketing spend that we're down in the first half of the year, some of that will come back in the second half of the year, where most of our spend is. So the second half of the year should be higher than the previous year. We think there's opportunities to support some of our key launches like Sun Cruiser and American Light, which we have high hopes for from a volume point of view. So that's where you will see the increase in marketing spend in the second half. Overall, as we said before, the savings that we're looking for on the operation piece partially is to increase the gross margin so that we can reinvest some of that back in our brands. So as we see the performance of the different brands, we'll reallocate accordingly.

Okay. That's helpful. And just back on Hard Mountain Dew you've got the transition sounds like mostly done, for any of the states that might have gone sooner than later. Have you seen some executional improvement or uptick? Just that would suggest that the brand is already in better hands even though it's still quite early?

I would say, it's still early. We're seeing fairly consistent results across all the territories. So we'd probably have a better handle on it after next quarter.

Okay. Great. Thanks so much.

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

Thanks, operator. Good evening, everyone. Hope you're doing well. So going back to Kaumil's question on just the sequential improvement, maybe just have you seen that sequential improvement continue as we move through the important summer selling season here, 4th of July. Just really curious to get your perspective both from a Boston Beer standpoint, but maybe just what you're seeing across the category?

So I would say through the quarter, we've seen the improvement and we've seen the improvement of the trends through 4th of July. We'll know more once we get past, I'd say the next three or four weeks. But especially, Sun Cruiser has been a great success so far from 4th of July till now. Twisted Tea has recovered a little bit of growth as we came out of Q2, and those are probably the two biggest turnarounds that I would say from the start of the quarter.

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

Hey. Good afternoon, everyone. Thanks for taking the question. I was hoping to get some color around your kind of mid-term outlook for Twisted. You obviously have a very impressive 20 year track record with low-double digit growth that's really massively accelerated since COVID. Even if we smooth out the first half for some of the noise, it does look like it slowed pretty significantly. What do you see as sort of the mid-term growth profile for the brand over the next few years? And I know Jim has spoken about other competitor offerings being over-spaced at retail. How long do you think that, Jim, do you think that process will take to clear out? Knowing that, I think the long tail and hard seltzer lasted a lot longer than a lot of people thought? Thanks.

So, thanks. Look, I think we're expecting another strong year of growth in Twisted Tea. And we still see a really bright future ahead for it. We think there's a lot of unrealized potential there. We remain the market leader and we still are expanding our space. We'll continue to expand our brand support and will offer more advertising, spend more sponsorships, more programs. We're bringing in new drinkers. We're increasing household penetration with Hispanics and African Americans. We'll continue to optimize our package designed to keep it fresh. Also, Twisted Tea Light, which has been introduced, is showing to be highly incremental in bringing in new drinkers. And so, as is Twisted Tea Extreme, which is the high ABV. So we know there's a lot of competition. Well noted that there is a lot of clutter out there, much like the Seltzer area. We've grown this brand in a cleaner way with fewer flavor extensions. And we feel very strong that the core of it will be there and continue to perform. So can't control the rest of it. The marketplace will behave as it does, but we like our positioning and we like our plan going ahead.

Okay.

I'd also add, I think retailers believe they hung on to the long tail and Seltzer too long and they're going to prune the hard tea category more quickly. And basically the numbers you're seeing is Twisted Tea has something like 85% plus of the volume, and depending on how you want to judge it, call it 65% to 70% of the space. And the number two hard tea after the 85% for Twisted Tea is 4% share, and it goes down from there. So that long tail on tea is much smaller share than the tail on Seltzer was the first year or two. So I'm going to bet that a lot of it will get cleared out next spring after a little over a year, because nothing's got the kind of traction a retailer would like to see. There may be a couple of those 4% brands left, but the hoots and the two hoots and happy dads and things like that, that are 1% share, they're not going to be on the shelves so much. And we believe we will get that shelf space back, that share of shelf-base.

Great. Thanks for that additional color, Jim. And then just a quick housekeeping one for Diego. Your inventories on the balance sheet were up pretty substantially, any color around what was that? What drove that? Was that tied to sort of the not being able to catch up to demand towards the end of the quarter? But your inventories are also up across raw materials and work in progress. So some color around that would be helpful.

I would say, as you know, we have a seasonal business, but the reason we have higher inventories right now is that we did not produce as much as we thought at the end of the year. Therefore, our raw materials and some of our finished goods and work in progress materials are higher for the month than we would have expected. So there's no significant change to what we think the full year will be. It's more about the two-week period of the quarter and the next quarter. There are no significant factors other than that.

Got it. Thank you.

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

All right. Thank you. Hi, everyone. I had a question on inventory. Hoping to hear if distributors started to build up their inventory levels of your brands in July? And then, I guess if not, curious to hear, what gives you the confidence that distributors will want to carry historical levels, inventory levels, of your brands? When thinking about the context, with your depletions being down 2% year-to-date through the end of July. I guess, is it realistic to think they might carry less going forward?

That's a very good question, Bonnie. I'd say yes. As we mentioned earlier, we typically maintain inventory levels of four to five weeks. Our wholesalers usually prefer us to hold even more, especially as we enter the high season. When we closed, our inventory was about 3.5%. It's important to note that when measuring in weeks, it's based on a variable rate rather than an absolute figure. We're aware of this, and our partners have indicated that inventory levels need to increase to meet their required service levels. Therefore, we are very confident that we can restore our stock levels to where they need to be for the year.

Okay. That's helpful. And then, Jim, you and I talked about this a couple of months ago, but, hoping to hear your updated thoughts on, I guess, opportunities for growth, 80% of your volume is in the Beyond Beer, fourth category. So, curious to hear what you believe is the long-term growth for that category, and then ultimately what you believe is the real long-term top line growth for your entire business. Thank you.

It's a great question. You can view it in two parts. There's the 80% that falls into what I call the fourth category, which others refer to as Beyond Beer, and then there's 20% in more traditional beer, including hard cider, which I consider part of that category. The fourth category, where 80% of our volume lies, likely accounts for a volume share of around 3% to 5%. That's been the historical average. Definitions may vary, resulting in different figures, but 3% to 5% is fairly representative of the various estimates. We believe we can maintain our share in that space, with potential for growth through innovation. I think this area resembles the Blue Ocean environment that craft beer enjoyed two decades ago. Our product Sun Cruiser has launched successfully, and Surfside is also performing well. Both represent a new methodology; Sun Cruiser is a vodka-based hard tea, and we are seeing positive results wherever we have fully introduced it in New England, where we are outperforming Surfside by a significant margin. Similar trends are noted in other markets like Ohio. We have even secured placement in MetLife Stadium, replacing Surfside, which signals strong support from retailers and wholesalers for Sun Cruiser. As Diego and Michael mentioned, it is still early days. We are fully operational in around six states, and we see potential for growth there, which I believe reflects the opportunities within this Blue Ocean category. The remaining 20% of our volume competes in segments that are stagnant. We acknowledge that we have missed some growth opportunities over the past five years while concentrating on Truly and Tea. However, we believe we can surpass the growth of that category on that side of the business, even though it won't replicate the explosive growth we've experienced in Beyond Beer over the last five years.

All right. Okay. Very helpful. I appreciate it. Thank you.

Our next question comes from Filippo Falorni with Citi. Please go ahead with your question.

Hey. Good afternoon, everyone. I wanted to ask you guys about innovation and where are you most excited in terms of as you think about not just this year, but over the next couple of years? Obviously, you have Sun Cruiser this year, but as you think about the next growth opportunities for Boston Beer, Jim, you clearly developed a very strong innovation track record. What are you guys thinking? Is it more in the ready-to-drink spirit space? Is it other areas of Beyond Beer? Maybe Non-Alc? Just curious of what you're thinking about the next legs of growth for the company.

Thank you for the question. I believe we have numerous opportunities ahead of us. One major focus is ensuring that our innovation efforts are well-supported. Currently, we are very enthusiastic about Twisted Tea Light and Extreme as we believe they will attract new consumers to our brand. Truly Unruly has shown strong performance, and we see it helping stabilize the Seltzer category quicker than anticipated. The Hard Mountain Dew expansion is also on track for 2025, and we consider Sun Cruiser an important addition to our beer lineup. Furthermore, we aim to drive growth in our core brands and revive franchises that have not reached their full potential. We take pride in having one of the best innovation engines in the industry, with a variety of projects underway that excite us. We are more disciplined than ever in ensuring these projects reach the market efficiently. In some instances, we will capitalize on already proven concepts to improve our offerings. At other times, we will introduce new ideas that consumers might not expect. Overall, we are confident in our innovation pipeline moving forward. Jim?

Yeah. The question was, what's next and my answer is, we don't know, if we knew we'd be introducing it next month. The innovation space, at least in our experience, has been quite unpredictable, very much littered with failures. I once started for a conference, they asked about our failures and I started writing the list and I got to 24 different brands that had failed. It was just too depressing and I stopped. So you need to just constantly be trying things, probing the market and innovating and then innovating on the innovation, which is the case with Angry Orchard. We had a cider, it failed, but we finally hit it. It was the case with Twisted Tea. It was originally BoDeans, and we finally hit it and we grew slowly. So it's a lot of trial and error. So I really can't tell you what is the next big thing. It's different than what Michael mentioned. Many products that are line extensions, those are more predictable. And we feel quite good about, American Light, Twisted Tea Light, Twisted Tea Extreme, Truly Unruly. Those are predictable. But our strength, I guess has been in totally new ideas.

Great. That's very helpful. And then maybe one for Diego on the gross margin expansion. I know you said on the release and in the call that Q4 is the lowest gross margin quarter in an absolute percent term, but how should we think about margin expansion on a year-over-year basis in the second half of the year? Is it more skewed towards Q3 versus Q4 on a year-over-year basis? Thank you.

Yeah. So if you look at our guidance, we are still guiding to 43% to 45%, which is a substantial improvement even in the Q2 quarter, where our volumes were down, our production volumes primarily, which drives that. Our gross margin was still up. So we're still confident that the plans we've put in place will get us, over the next few years, to high-40s. We'd like to get closer to 50, but right now we have a planned high-40s. So as you look through the year, you can get very bumpy results based on how the production volumes and the shipment volumes move between quarters. But you should expect the best margins to come up in high season, which is really kind of Q2, Q3, with Q4 really being the lowest one and Q1 being kind of in the middle. That's kind of the way we traditionally will work, but again, very sensitive to changes in production volumes within a couple of weeks of the quarter ends.

Great. Thank you, guys.

Thank you. Our next question comes from Steve Powers with Deutsche Bank. Please go ahead with your question.

Hey. Thanks, guys, and good evening. Jim, I normally wouldn't ask a question on this topic, but I feel compelled. The Wall Street Journal story a couple of months ago related to Boston Beer being talked to sell itself, to some stories generated a lot of investor discussion, which, to be honest, carries on through the current day. So, I guess, to the extent possible, I was hoping you could comment on whether there's been any change to your intention of maintaining Boston Beer as an independent public company and really an acquirer in its own right, or to what extent there's openness on your part or on the Board's part in any form to consider partnering with another player.

I'm afraid I might have to give you the answer that we always give, which is, we don't comment on rumors. You can make your own judgments based on what's happened in the, whatever month or two since that story came out. And I would reiterate we continue to be focused on growing our business as an independent company. I hope that helped.

It does. Thank you. Michael, I guess pivoting to running the company as an independent company, you talked in the opening, about working to optimize, really, across the board execution from product development, manufacturing, selling all the way through the allocation of capital. I know you had familiarity with a lot of those things from your time on the Board, but as you settled into the current role, I guess the question is, where do you think the organization has the most opportunity to improve? And is there a way to make those optimization efforts more tangible to those of us on the outside?

We all understand that the most critical thing for this company is to grow and increase revenue, which would improve everything else significantly. There are some macroeconomic factors contributing to the slowdown, along with disruptions caused by COVID and the challenges with Truly. We grew aggressively, but later we realized the implications of that growth and have been working to restructure. A significant part of this has involved enhancing our operational discipline. We lost our competitive edge due to that rapid expansion. I was fortunate that Diego joined the company shortly before I did and began implementing some needed operational improvements, along with other capable teammates. We have a clear path forward, as this company has achieved growth in the past. Our brand portfolio is strong, yet none of the brands are currently performing to their full potential. Many have lost market share and distribution points, and our goal is to reclaim those. We have the best sales team in the industry, and it's essential to provide them with the necessary support and clear guidance on what success entails. We've occasionally focused too much on single products, which has changed our approach. Ultimately, everyone will be more satisfied once we start to see growth. A significant part of that growth will involve addressing the challenges with Truly, and I understand how frustrating those numbers are for all of you. It's even more frustrating for us as we're working diligently to understand the situation quickly and responsibly to ensure the right products are available in the market and initiate this next growth phase. I hope that clarifies things for you.

It does. Thank you very much.

There are no further questions at this time. I would like to turn the floor back over to Jim for any closing comments.

Thank you, everybody, for joining us. And I look forward to talking to you again in three months. Cheers.

And ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.