Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick off our 2025 Fourth Quarter Earnings Call. Joining the call from Boston Beer are Jim Koch, Founder, CEO and Chairman; and Diego Reynoso, 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 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 to share his comments.

Thanks, Mike. I'll begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our supply chain, fourth quarter results and 2026 financial outlook. Immediately following Diego's comments, we'll open the line for questions. As I look back on 2025, I'm pleased with how our operational discipline enabled us to deliver on our financial commitments in a challenging industry volume environment. Our 2025 depletions were down 4%, in line with the overall beer industry. Our disciplined Fewer Things Better Innovation approach drove a successful national launch of Sun Cruiser, which is both revenue and margin accretive. Efficiency improvements across our breweries and our productivity agenda drove 410 basis points of gross margin expansion allowing us to increase brand investment meaningfully. Our business continued to be highly cash generative with 2025 free cash flow of $216 million or $19.72 per share, which allowed us to repurchase $200 million in shares in 2025. Looking ahead into 2026, we expect industry volume headwinds to continue. As I previously discussed, consumers are tightly managing their budgets given economic uncertainty and there is pressure on the Hispanic consumer. Moderation trends are also having an impact on demand. And in certain states, hemp-derived beverages are competing for shelf space and drinkers despite recent federal regulations, which restrict their availability after November 2026. We continue to see long-term growth opportunities in the Beyond Beer category, which is 85% of our total company volume and where we are the industry's second largest player. From 2019 to 2025, driven by growth in hard tea and hard seltzer, the Beyond Beer category has doubled in volume and now represents 9% of total U.S. alcohol consumption. We expect that Beyond Beer's volume and share of the category will continue to grow as the drinker is younger and more diverse than traditional beer. We believe beer companies are the best positioned to service the Beyond Beer category as they have the production capabilities to produce these beverages and beer wholesalers have the infrastructure to service them. The Boston Beer Company's innovation capabilities, manufacturing infrastructure, best-in-class sales force and strong wholesaler relations provide a meaningful competitive advantage. This is reflected in the performance of Sun Cruiser, which was among the top volume gainers in RTD spirits in 2025 and quickly scaled into a top 5 RTD spirits brand. However, we have seen greater competition in Beyond Beer as consumers seek variety and more players enter the category. Combined with economic uncertainty, this has been a headwind for our volume performance. We continue to believe that the macroeconomic environment is a significant driver of weaker alcohol consumption trends and the deceleration in our leading brand Twisted Tea's performance. Our 2026 volume outlook of flat to down mid-single digits assumes that macroeconomic headwinds persist. We are highly focused on controlling what we can, maintaining or growing market share and investing behind our brands to position us well for when the environment improves. Our priorities for the year will be supporting our full portfolio of brands through advertising and local in-market execution investments developing margin-accretive innovation and driving margin improvement through productivity. We continue to believe that sustained brand investment is the right strategy to drive volume improvement over time. Building on our initiatives we began in 2025, we will continue reinvesting in our brands with new creative, additional compelling partnerships, activation around key events, including the World Cup and investing alongside our wholesalers in local market activation. We are partnering with some of our wholesalers to increase local brand building capabilities and improve execution on the shelf. This includes shared development of grassroots marketing plans and on-premise promotions, sampling local radio and billboard advertising. With respect to innovation, we continue to prioritize high-growth, margin-accretive opportunities. In 2026, we are focused on scaling Sun Cruiser in its second year of national availability while expanding the distribution of Sinless vodka cocktails to additional states following a successful test launch in 2025. Sinless is a very lightly carbonated vodka-based RTD cocktail with 0 sugar, 0 carbs and less than 100 calories per can. It is positioned as guilt-free flavor without sugar and carbs and targets incremental consumer segments that complement our core brand portfolio. We've made strong progress across our margin enhancement initiatives, which Diego will discuss further in his remarks. This has been a multiyear effort across the organization, and I'm pleased that we delivered margin improvement faster than we expected in this difficult operating environment. In addition to margin improvement, these initiatives have enabled us to achieve record high customer service levels in 2025 and lower our inventory days on hand. Our efforts across procurement savings, brewery efficiency and waste and network optimization will continue in 2026, and we're also in the early stages of adding revenue management capabilities to provide further long-term margin benefit. I'll now provide an overview of our brand performance and plans for 2026. In terms of depletions, we're encouraged by the strong consumer reception to Sun Cruiser, a third consecutive quarter of growth in Angry Orchard and Dogfish Head and positive drinker reception to our higher ABV offerings. Our larger brands continue to be impacted by the headwinds I discussed earlier, particularly Twisted Tea that overindexes with lower-income households and Hispanic drinkers. After starting the 2025 year with growth, Twisted Tea was down 6% in dollar sales in measured off-premise channels for the full year 2025 in an F&B category that was down 4%. The brand gained distribution in 2025, but declined in velocities, driven by category headwinds, a decline in features and displays and some interaction with Sun Cruiser and its competitors. Single-serve continues to perform much better than large packs, which tells us that consumer interest in the brand remains strong. We are working hard to ensure Twisted Tea maintains its fair share of display space. Numerator data shows approximately 20% of the drop in Twisted Tea is due to the Vodka Tea category, which includes Sun Cruiser. To the extent that Sun Cruiser sources volume from Twisted Tea, this is revenue and margin accretive for us. Despite some headwinds, Twisted Tea is the #10 brand family in the overall beer market and remains the clear leader in malt-based hard tea with over 85% market share. We're encouraged by the performance of Twisted Tea Light and the high ABV Twisted Tea Extreme, which have seen growth in velocities and have room to gain additional shelf space. Our 2026 plans include increased advertising investment with strong creative and local activation, adding new partnerships and launching new pack sizes and Twisted Tea Extreme flavor innovation. Twisted Tea has a unique and clear brand voice and attitude, and our advertising plans include continuing to run our high-performing key drop national ads across many category entry points, including sports, ski slopes, beaches, lake and pool, complemented with in-store display programs. We'll also be adding always-on media for Twisted Tea Light and Twisted Tea Extreme. In 2026, we are expanding our partnerships that are most relevant to our drinkers such as Barstool's Pardon My Take, the #1 sports podcast, DraftKings, WWE Wrestling, country music's Chase Matthew, NASCAR, AMA Supercross and Motocross racing and Realtree Camo. Lastly, we continue to increase our investment in Hispanic and Spanish language brand content, including new media and digital content to widen the brand's appeal. With respect to pack sizes, we're expanding the rollout of our entry-level price point 4-pack, launching a 16-ounce can for C-stores to add a lower price point in addition to the current 24-ounce can and adding a 24-can value pack. Building on the success of our high ABV offerings, we've added a Twisted Tea Extreme variety pack that was launched in early 2026. Twisted Tea Extreme Lemon and Blue Raz are the #1 and #2 largest FMB growth SKUs in convenience, and to further capitalize on the high ABV trend, we'll be launching new extreme singles flavors, Long Island Iced Tea, Fruit Punch and Tropical Punch. Our goal for 2026 is to improve share and grow volume in the overall hard tea category by showing progress with Twisted Tea and growing Sun Cruiser. We're very excited about the outlook for Sun Cruiser, which grew volumes over 300% from 2024 to 2025 and is expected to make a strong contribution to our hard tea portfolio this year. Sun Cruiser is built in the on-premise channel, where in some markets, it represents over 40% of the brand's volume. We believe this is the right way to drive trial and build the brand and are pleased that Sun Cruiser is the leading RTD spirits and lemonade brand in on-premise bars and restaurants according to Nielsen. Bartenders have been and continue to be a very important influencer group for Sun Cruiser. Sun Cruiser continues to expand its off-premise distribution, but given its strong presence in on-premise and independents, measured off-premise data still only reflects a portion of the brand's total volume. Advertising support for Sun Cruiser includes building an organic following through social media as well as more traditional content around the Let the Good Times Cruise media campaign, which includes television, paid social and digital advertising and key influencers. We'll be present where Sun Cruiser fits into our drinkers' lifestyles across sports and music. Sun Cruiser will have committed media presence in MLB, the NFL and the sponsorship of the AEG music concert series. And in 2026, we'll add exciting golf and ski partnerships. Golf programming includes tournament activations, golf media influencers and experiential marketing programs as well as wholesaler incentives. Additionally, Sun Cruiser is a key sponsor of the Teton Gravity ski film festival along with ski resort sponsorships and samplings that help reinforce its position as a brand for all four seasons. From a product innovation perspective, we intend to keep a disciplined number of tea and lemonade styles while continuing to expand package options. In the first quarter of 2026, we added new single-serve 12.2-ounce packages and new tea and lemonade sampler 12-packs, which we expect will help expand drinker occasions and drive further growth in 2026. Turning to hard seltzer. The overall hard seltzer category declined 5% in dollars in measured off-premise channels for the full year 2025 as consumer preferences continue to shift towards more premium RTD spirits-based beverages. Our brand strategy for 2026 is to invest in new equity-building creative, capitalize on the World Cup, launch new pack sizes and varieties, and continue to expand Truly Unruly. Our advertising plans include leveraging our sponsorships of U.S. soccer as its Beyond Beer sponsor with targeted World Cup activation, along with our new creative platform that we recently launched called Make Your Dreams Come Truly. The 2026 World Cup, which will take place in North America for the first time in more than 3 decades, includes 11 cities, over 100 matches and 4 billion global viewers. Our Truly World Cup plans, which have been well received by major retailers include driving visibility and displays and launching a U.S. soccer collector set of singles along with the World Cup themed rotator variety 12 pack. In addition, we have significant local investments in the 11 host cities, including local media and retail programs. High ABV offerings continue to be a bright spot in hard seltzer and Truly Unruly has grown to a 3% volume share of hard seltzer. Based upon drinker demand, we added a new Truly Unruly variety 24-pack in 2026. In cider, Angry Orchard has returned to growth behind a combination of new positioning and creative and a strong Halloween program, which included Friday the 13th movie-themed advertising, promotions, packaging and displays. Importantly, Angry Orchard's success comes from driving growth of the core offering. Our beer brands, Samuel Adams and Dogfish Head have combined to hold share in a challenging craft beer category. During the first quarter, we are excited that Samuel Adams will begin programs and promotions as well as launch limited edition packaging to help celebrate America's 250th anniversary. For Dogfish Head, we're particularly pleased that Dogfish Head's Grateful Dead beer collaboration and the brand's Minute Series IPAs have helped fuel Dogfish Head's return to growth. In summary, I'd like to thank our Boston Beer team and our distributors and retailers for their continued support. I'm encouraged by the progress we made in 2025 amid a dynamic environment. While consumers remain cautious and the near-term outlook is still challenging, I'm confident in our operating plans for 2026. We're continuing to invest in our brands. We're building a strong innovation pipeline, and we're highly focused on our multiyear productivity initiatives. Importantly, we're focused on controlling what we can control. We're executing in the marketplace to improve share trends and expand our margins. These efforts, along with our innovation capabilities, strong sales force and unique culture position us well for a successful long-term future. I'll now pass the call to Diego for a detailed review of the fourth quarter and our 2026 guidance.

Thank you, Jim. Good afternoon, everyone. 2025 was a year of continued progress for Boston Beer in a dynamic industry environment. Disciplined execution and supply chain efficiencies enabled us to meet or exceed our financial commitments, including very strong gross margin outperformance. This margin upside enabled increased investment in advertising support for all our brands while still delivering EPS ahead of our guidance. Cash conversion was strong with $270 million in operating cash flow, and we ended the year with $223 million in cash and no debt. 2025 revenue was down 2.4% year-over-year, driven by shipments down 4.7% and 2.3 percentage points of positive price and mix. Price realization for the year was within our prior guidance of 1% to 2%, with the remainder being positive mix. We delivered 410 basis points of gross margin expansion with gross margin reaching 48.5%, inclusive of $10.1 million in tariff costs. Excluding contractual prepayments and shortfall fees, the gross margin was 50%. This is the highest full-year gross margin rate since 2019. EPS of $9.89 was up 4.7% year-over-year, excluding prior year impairment and one-time contract settlement charges. Turning to the fourth quarter results. Depletions decreased 6% and shipments decreased 7.5% year-over-year, primarily driven by declines in our Twisted Tea, Truly Hard Seltzer and Sam Adams brands that were partially offset by growth in the Sun Cruiser, Angry Orchard and Dogfish Head brands. As we expected, volumes slowed sequentially in the fourth quarter from the third quarter. Twisted Tea volumes continue to be soft and Sun Cruiser continues to show strength, but had a lower contribution in the fourth quarter due to seasonality. We believe distributor inventory of 4 weeks on hand as of December 27, 2025, is an appropriate level for each of our brands. Revenue for the quarter decreased 4.1% due to lower volumes, partially offset by increased pricing and favorable product mix. Gross margin of 43.5% increased 360 basis points year-over-year. Gross margin primarily benefited from improved brewery efficiencies, procurement savings, price increases and product mix as well as lower inventory obsolescence. These factors were partially offset by inflationary and tariff costs and increased shortfall fees. Advertising, promotional and selling expenses increased $8.4 million or 6.0% year-over-year, primarily due to incremental brand, media and local marketing investments of $8.0 million, with the remainder driven by higher freight costs. General and administrative expenses for the fourth quarter increased $4.5 million or 9.4% year-over-year, primarily due to increased salaries and benefits costs. We are continuing to execute on our 3 buckets of multiyear savings projects ahead of our initial timing expectations. We saw significant benefit in 2025 and have more savings to come in 2026, albeit at a lower rate. To be specific, in brewery performance, we continue to see improvements in OEE driven by process improvements, which helped to increase our internal production capacity. In the fourth quarter, we produced 99% of our domestic volumes internally compared to 85% in the fourth quarter of last year. Full-year 2025 domestic internal production increased to 86% of our volume compared to 74% last year. In 2026, we expect to continue increasing the rate of in-sourced production, but at a smaller year-over-year benefit due to achieving a high in-source percentage in 2025. In procurement savings, our fourth quarter results benefited from lower negotiated pricing on certain packaging and ingredients. As discussed previously, procurement savings initiatives are the area where we have made the most progress over the last 2 years. While we expect some continued benefits in 2026, the impact is expected to be moderate. In waste and network optimization, we're continuing to enhance the customer ordering and trade inventory management system that we implemented last year. These efforts helped us achieve record-high customer service levels that resulted in lower inventories internally and helped improve our cash flow. In addition, we reduced obsolete inventory by 71% in the fourth quarter and 48% for the full year. In addition to our 3 buckets of savings, we are beginning to add revenue management capabilities as part of our margin agenda. These efforts are in early stages in 2026 with a more meaningful contribution expected in 2027. Turning to our 2026 guidance. Our fiscal week depletion trends for the first 8 weeks of 2026 have declined 3% from 2025. We are currently planning 2026 depletions and shipments to be flat to down mid-single digits. Where we land within this range will be impacted by the pace of improvement in the overall consumer environment and the time it takes for our brand investment initiatives to drive market share improvement. We expect price increases of between 1% and 2% and some additional benefit from mix. Full-year 2026 reported gross margins are expected to be between 48% and 50%. Our outlook expects that we cover commodities and non-tariff-related inflation with pricing and that the lower shortfall fees and prepayment amortization broadly offset increased tariff costs. 2026 reflects a full-year tariff cost estimate of $20 million to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon tariffs in place prior to the February 2026 Supreme Court ruling. We will continue to drive our savings initiatives to help buffer any volume deleverage. Our long-term gross margin target continues to be in the high 40s with any individual year dependent upon volumes, commodity inflation and the tariff environment. As Jim discussed earlier, we expect to increase our advertising levels to support our brands. The investments in advertising, promotional and selling expenses are expected to increase between $20 million and $40 million. This does not include any changes in freight costs for the shipment of products to our distributors. We estimate our full-year 2026 effective tax rate to be approximately 29% to 30%. We are currently targeting a full-year 2026 earnings per diluted share of between $8.50 and $11. As you model out the year, please keep in mind the following factors. Our business is impacted by seasonal volume changes with the first quarter and the fourth quarter being lower absolute volume quarters and the fourth quarter typically has our lowest absolute gross margin rate of the year. We have difficult shipment comparisons in the first quarter and the first half of the year as we shipped ahead of depletions in 2025 to build wholesale inventory of our product innovation, which included Sun Cruiser and Truly Unruly. We currently expect the first quarter and first half shipments to be down towards the lower end of our full-year volume guidance, but with better shipment performance later in the year. During the full year 2026, we estimate shortfall fees and noncash expenses of third-party production prepayments in total will negatively impact our gross margins by 40 to 60 basis points. We expect year-over-year gross margin rate improvement to be most meaningful in the fourth quarter. We typically expense the majority of our shortfall fees in the fourth quarter. We expect lower shortfall fees in 2026, and the timing of this benefit, together with the fact that the fourth quarter is a smaller dollar quarter, has an outsized favorable impact on the gross margin rate. Incremental advertising investment is expected to be weighted to the second and third quarters to support the key summer selling season. Turning to capital allocation. We ended the quarter with a cash balance of $223 million and an unused credit line of $150 million, which provides us with ample flexibility to continue to invest in our base business, fund future growth initiatives and return cash to shareholders through our share buyback program. For the full year 2026, we expect capital expenditures of between $70 million and $90 million. These investments will be primarily related to our own breweries to build capabilities and improve efficiency. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term. During the 52-week period ended December 27, 2025, and the period from December 29, 2025, through February 20, 2026, we repurchased shares in the amount of $200 million and $14 million, respectively, for a total of $214 million of repurchase since January 2025. As of February 20, 2026, we had approximately $215 million remaining on the $1.6 billion share repurchase authorization. This concludes our prepared remarks. And now we'll open the line for questions.

And the first question comes from Peter Grom with UBS.

So 2 questions from my end. Maybe one on the gross margin outlook. I would love to understand what you're embedding or expecting as it relates to kind of underlying inflation. I'm sure you're aware of one of your competitors outlined as it relates to aluminum and the Midwest premium. So just curious what impact that may be having on your margin target looking ahead?

Yes. Thank you for the question. So as you probably know, we do not hedge aluminum. We've seen the aluminum Midwest premium continue to grow. So we are expecting a little bit of inflation, but not as much as we've had in the past. And that's kind of what we built into next year's margins.

Okay, great. I was hoping to get some perspective on the year-to-date performance, which is running better than what you delivered last year in terms of depletions, certainly better than what you saw in the fourth quarter. Based on what we've observed, do you have any insights on why the category appears to be performing better up to this point? Additionally, as we consider the future, what are your expectations for category growth moving forward?

Okay. So I'll start giving you our numbers, and then I'll hand it off for Jim for the category view. So in our case, the biggest difference at the beginning of the year is the improvement in trends for Twisted Tea. And we're continuing our support of the brand and our investments, and we feel pretty good about how we started the year. From a category point of view, I'll hand it over to Jim to give his perspective.

Thank you. Peter, the category has clearly improved over the past couple of months, possibly starting in December. We are observing beer category trends that are 2 or 3 points better than in 2025, which was a challenging year. No one anticipated beer sales to decline over 5%. We expected a decline of around 2%, which would have aligned with the fluctuations seen over the previous five years, particularly through COVID. Instead, the decline was significantly greater, with no clear explanations. The recent improvement is certainly welcome, though it's hard to pinpoint the reasons. There seems to be less focus on health concerns related to alcohol and cancer, especially with government guidelines reiterating that moderate drinking is acceptable. Additionally, the Hispanic community may have adapted to new circumstances by becoming more visible in stores. There might also be some impact from the hemp market's adjustments following the closure of the hemp loophole. While these factors may provide some clarification, the numbers speak for themselves. The category trends have improved by about 300 basis points. I wish I could say that our depletions have also improved by that amount due to our initiatives, but much of this improvement reflects an overall healthier category compared to three months ago.

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

Terrific. Two questions. One, can you talk a little bit about the improvement at Twisted Tea? It sounds like what you're seeing there may be a little bit more due to your own interventions rather than the category. So just love to understand why Twisted Tea is doing a little bit better and if those particular actions are things that you expect to see follow through for the rest of the year? And then second, if you could talk about what's going on with shelf space, both at the kind of category or macro level, given all the declines that the industry has had, is the overall industry holding shelf space? And then how are you doing on the shelf space side, particularly in terms of both beer as well as the Beyond Beer area and the key brands?

Jim, would you like to take the first part of that?

Absolutely. We feel positive about the actions we initiated towards the end of last year regarding Twisted Tea. After some analysis, we discovered that our pricing may have been too high in certain markets and channels, especially for 12 packs in supermarkets in about 20% to 25% of the markets, and we've collaborated with our wholesalers to address this. For example, we reduced prices from $22 for a 12-pack to a more competitive $19.95. We were previously at pricing levels similar to Stella Artois, and this adjustment has been beneficial. Additionally, we have increased our marketing efforts for Twisted Tea Extreme and Twisted Tea Light, both of which are showing strong growth. We’ve also been working to regain display space that we lost to ready-to-drink beverages, achieving moderate success in that effort. These direct actions will continue into 2026, alongside initiatives with our wholesalers to enhance local market support through our share the burden program, where for every $3 we invest in local marketing, they contribute $1. This strategy has been effective in terms of both financial investment and engaging wholesalers to ensure Twisted Tea remains a robust and potentially growing brand. Twisted Tea ranks as the #10 brand in beer, and for many wholesalers, it falls within their top 5 or 6 brands, making it significant to them. Regarding shelf space, while the industry has seen some loss, most beer shelf space has shifted to RTDs, which, despite being liquor-based, are marketed similarly to beer, occupying similar packaging and price points, and sold from the cold box. Even though beer has lost some shelf space to RTDs, from what I've observed, there hasn’t been a major decrease in cooler space for beer. The exception might be in states where hemp-based beverages have gained traction, such as Louisiana, Tennessee, South Carolina, and Minnesota, reaching 5% to 10% of beer sales and taking up some beer shelf space. While the situation is evolving, I suspect the federal restrictions regarding hemp will remain in place, potentially allowing us to reclaim some shelf space in 2026.

And the next question comes from the line of Filippo Falorni with Citi.

So maybe first, Jim, can you talk a bit about the plans for year 2 on Sun Cruiser and like what are the incremental distribution opportunities there? Obviously, you made a big push in 2025, but there's still quite a bit of white space. And then maybe some of the flavor innovation that you launched, what are the results, early results? And like is there potential to further expand into flavors?

Sun Cruiser had an outstanding year in 2025, achieving nearly 400% growth and firmly establishing itself in the ready-to-drink category, ranking around #5 when it was virtually unknown just 1.5 years ago. We are very pleased with Sun Cruiser's success, which occurred largely without chain authorizations. We really only began our push for Sun Cruiser in the last quarter of 2024, which meant we missed the chance to present it to many chains for shelf space. While we had strong support from Walmart, other chains had limited placements, often just one SKU or none at all. However, we expect changes in 2026 as we are gaining significant distribution support from major chains like Albertsons, Safeway, and Kroger, which will boost our visibility as a top RTD brand. Our commitment to Sun Cruiser will continue at a high level, including increased spending on national advertising, sponsorships, local promotions, and grassroots efforts. Approximately 40% of Sun Cruiser's sales come from on-premise consumption, which we believe is essential for building brand recognition. While we don’t anticipate growth rates of 300% or 400% moving forward, we expect it to be a significant contributor to our overall growth in 2026. Regarding flavor innovation, one of our new offerings from 2025, a lightly carbonated vodka cocktail called Sinless with 100 calories, has been successful enough for us to expand it into over 30 states, approaching a national rollout. Additionally, we have products like Hard Squeeze, which contains 10% juice, Social Pop, an alcohol-infused soda, and Wild Leaf, a premium version of Twisted Tea with fewer calories and sugar, still in limited test markets. I don’t have major updates on those yet, but Sinless represents a promising new launch from our 2025 pipeline.

Great. That's very helpful. And maybe a quick follow-up for Diego on Peter's question on the Midwest premium and aluminum. Can you give us a bit of sense of how you source aluminum, just given the big rise in the Midwest premium, it would imply that there's maybe a little bit more impact on the inflationary side in 2026, but maybe is there some sourcing, some hedging? Can you give us some sense of why it's not a big impact for you guys?

Yes. We have contracts with our suppliers that include a pass-through of the Midwest premium in the pricing. Since we do not hedge it, we will receive the pass-through as the premium fluctuates throughout the year. Our expectation is that there will be some inflation on the premium, but not significantly. If there are changes, you will see that reflected in our P&L since we do not have a hedge in place.

And the next question comes from the line of Kaumil Gajrawala with Jefferies.

Diego can I just follow up on that because I'm confused. If it's a pass-through, wouldn't that mean you get hit with fully of the big spike that we've had in the increase already?

Yes, we experience an impact from the pass-through, similar to last year, which contributed to the increase in our material costs. However, we were able to mitigate that with savings. Therefore, we do face the premium as the year progresses.

I think you raised a good point, but our experience suggests it's not a one-for-one trade-off. While we see disproportionate growth with Twisted Tea Extreme, we are also seeing growth in the lower ABV Twisted Tea Light. So that's part of the trade-off. People might drink more if they choose Twisted Tea Light at 4% ABV. On the other hand, they might drink less with Twisted Tea Stream at 8% ABV. Ultimately, I cannot provide an exact number, but these trade-offs are manageable. As we move towards vodka-based or liquor-based products, there's an expectation of slightly higher ABVs. Hopefully, we are drawing that volume from spirits. There may be some downward effects, but they are not significant compared to the overall numbers.

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

I just have a couple of quick follow-up questions to some earlier points. I guess, Jim, I've talked to you about this in the past just about the cost of growth, which is increasing. So I guess in the context of that, I did want to ask about gross margin improvements. They've been impressive so far. So congratulations on that. But how should we think about the sustainability of your margins going forward, I guess, in the context of no volume growth. I mean you're guiding at the high end flat. So I'm just trying to think through that. And should we just think about, I don't know, last year, maybe this year still just big investment years as you kind of really invest in your business with the goal of returning to volume growth. I'm curious if you have a timeline of when we could expect to see that.

I'll address the first part of the margin question and then hand it over to Jim for the volume aspect. As previously mentioned, we have three sources of savings, and two of them are significantly ahead of schedule. We still have opportunities to pursue this year and next related to our footprint. Additionally, we're implementing revenue management strategies. We believe these initiatives will help us improve our gross margin to the high 40s, close to 50%, regardless of volume changes. I've been clear that we can achieve this without relying solely on volume. However, to exceed that, volume will be crucial. We invested in our brands last year and are continuing that investment this year because we believe increasing our market share, as we did last year and plan to do in the current market, is the most effective way to ensure our future success and drive innovation. Now, I'll let Jim share his insights on future developments.

We are experiencing unexpected one-time savings on the cost of goods sold this year, and while our plans for next year are not as extensive, they remain quite ambitious. Eventually, we will exhaust these one-time savings, but I anticipate significant annual productivity savings of around 3%, which is typical in the manufacturing sector. Manufacturing productivity tends to improve at a faster rate than service productivity, making it reasonable to expect that we can continually reduce our manufacturing costs by 3%. These savings have provided us the ability to enhance our brand support this year and last year, translating to approximately $50 million in 2025 and $30 million in 2026, totaling around $80 million. This is part of the cost associated with pursuing growth, as our company is inherently focused on driving growth. While growth isn't inexpensive, experiencing decline is even more costly, which frames my perspective on this matter.

Sorry, I was going to add at the end, Bonnie, is obviously, as we go forward in the next few years, how we see that trend, we have the ability to change that strategy, either double down or back off. So I would say it's the right thing that we believe for right now, and that's why we're guiding to where we're guiding. But it doesn't mean that as we go forward based on where the industry is and we are a company, we have the ability to go one way or the other.

That's an important statement, actually, Bonnie, that Diego just made. If we came to believe that there was no possibility of growth in our category and our business, then a lot of costs come out.

Okay. And at this point, there are no further questions. So that concludes our question-and-answer session, and I would like to turn the floor back over to Jim for any closing comments.

Well, thank you to everybody for joining us this afternoon, and we look forward to talking to you in, I guess, it's about 2 more months. So thanks, and I hope everybody is dug out of the snow.

Ladies and gentlemen, that does conclude our conference today. Thank you for your participation. You may disconnect your lines at this time.