Welcome to the Boston Beer Company second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin. Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick off our 2024 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 by 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 continued 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're 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 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 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 on 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 actions 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 MTN DEW from Blue Cloud to our wholesaler network in existing states and are continuing to work through obtaining regulatory approvals and distribution in additional states. There is opportunity for Hard MTN 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 MTN 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 in our award-winning non-alc styles and have recently launched a distinctly American light craft lager we call Samuel Adams American Light. American Light launched late May and is available in 6- and 12-pack cans in a small number of on-premise locations. The initial distribution began in New England independents and is further expanding to New England 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 large format channels. We're pursuing a measured launch strategy and will further expand distribution and increase market support as we have more data on the 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 in 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, our savings target thus far in our ingredient purchasing, which you've seen positively impact our results over the last year, and will 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 is 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 MTN 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 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 in our results is somewhat dependent on the volume environment, I believe there are multiple areas of opportunity, and I believe that the changes we are implementing this year will set us up well for 2025 and a return to long-term growth. 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. Depletions 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, averaged approximately 3.5 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 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 benefit from price increase, 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 and 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 nondeductible 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 MTN 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 inflation 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 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-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 cost 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 own 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, and 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 now we'll open the line for questions. Thank you, sir. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two if you'd like to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Kaumil Gajrawala with Jefferies. Please proceed 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, you know, 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 on 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, 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. And then, when it came to Mountain Dew or Hard MTN DEW, is it just the transition that was slower, or is it the something going on with sort of 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. 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, the development. I mean, any new thoughts in terms of how you see the development, in Beyond Beer, and specifically, you know, Surfside has kind of been, you know, 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. Oh, so again, to build on Michael's- Yeah ... comments, we're talking about Sun Cruiser. Yeah. So you're correct that Surfside, I think, has been a good product this year. We've launched Sun Cruiser, which we think it's an even better product, and it's doing well in the markets that we've launched, to Michael's comment. Yep. Sorry, apologize. That we're so deep in Sun Cruiser here that I thought you were mentioning that 'cause 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, you know, arguably out there. How are you thinking about this business? 'Cause the volumes keep going down, and the levels of the decline are, you know, at least in the scanner data, are not encouraging. And so, you know, what can be done to stem that? Does the portfolio need to be, you know, pruned? You know, what are you thinking is missing on the beer side of the business? Jim, would you like to take that question? Yeah, I think we're having some technical- 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'd 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. You know, 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. Yeah, I would add... Can you hear me okay on this? Yes. Yes. Yes. Okay. I would add, you know, we in particularly 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, you know, the, the explosion of Truly and now the rise of tea. Those are off-premise brands. We, as 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. 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 first half versus last year. And so just maybe trying to understand, you know, 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 could be going up in the second half as well? So, just to clarify, we're down in marketing spend in the first half of the year. 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, that's helpful. And just back on Hard MTN 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, or uptick, just that would, you know, 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. The next question comes from the line of Peter Grom with UBS. Please proceed with your question. Thanks, operator. Good evening, everyone. I hope you're doing well. So going back to Kamil's question on just the sequential improvement, maybe just have you seen that sequential improvement continue as we move through, you know, the important summer selling season here, Fourth 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 Fourth 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 Fourth 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. 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. Was hoping to get some color around your kinda midterm outlook for Twisted. You obviously have a, you know, very impressive, 20, 30 year or 20-year track record with low double-digit growth that's that really massively accelerated since COVID. You know, 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 midterm growth profile for the brand over the next few years? And I know Jim has spoken about other competitor offerings being overspaced at retail. How long do you think that, Jim, do you think that process will take to clear out, knowing that, you know, I think the long tail in the hard seltzer lasted a lot longer than a lot of people thought? Thanks. So thanks, 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 we'll 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 design to keep it fresh. Also, Twisted Tea Light, which has been introduced, is showing to be highly incremental and 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 at the core of it, and we'll 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 mean, the- I'll go ahead, I think retailers believe they hung on to the long tail in seltzer too long. And they're gonna prune the hard tea category more quickly. And basically, the numbers you're seeing is, you know, Twisted Tea has something like 85%+ of the volume, and depending on how you wanna, you know, judge it, call it 65%-70% of the space. And that's 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- Mm-hmm ... year or two. So I'm gonna bet that a lot of it will get cleared out, next spring, after a little over a year, 'cause nothing's gotten, you know, the kind of traction that a retailer would like to see. There may be a couple of those 4% brands left, but the Hoops and the 2 Hoots and the Happy Dads and, things like that, that are 1% share, they're not gonna be on the shelves so much. And we'll get... We believe we will get that shelf space back, that share of shelf space. 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. Yeah, I would say, as you know, we have a seasonal business, but the reason—and part of the reason we have higher inventories right now is, as we mentioned before, we did not produce as much as we thought at the back end of the year, and therefore, our raw materials and some of our finished goods and working, 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 of a, within the two-week period of the close of the quarter and the next quarter. So no, no significant driver other than that. Got it. Thank you. 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 inventories. You know, hoping to hear, you know, 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, you know, will want to carry historical levels, you know, inventory levels of your brands when... You know, I'm thinking about in the context with your, you know, depletions being down 2% year to date through the end of July. I guess, you know, is it realistic to think they might carry less, you know, going forward? That's a very good question, Bonnie. I'd say yes, and as we said before, we traditionally have carried four to five weeks. Our wholesalers usually want us to carry even a little bit more, especially going into a high season. If you look at where we closed, we closed about three and a half, and when you measure in weeks, you're measuring in a variable rate, not in absolute. So we definitely feel. And our partners are telling us that those inventory levels need to recover so that they can have the service levels that they require. So we're very confident that we can go back to where we need our stock levels to be for the year. Okay, that's helpful. And then, Jim, you and I talked about this a couple of months ago, but, you know, hoping to hear your updated thoughts on, I guess, opportunities for growth. You know, 80% of your, your volume is in the Beyond Beer fourth category. So curious to hear what, you know, you believe is the, the long-term growth for that category, and then ultimately, what, you know, you believe is the real long-term top-line growth, you know, for your entire business. Thank you. Yeah, it's a good question. You could think of it in two pieces. You know, there's the 80% that is in what I call the fourth category, other people call Beyond Beer, and then there's 20% in more traditional beer, including I, I'd put hard cider probably in that category. And the fourth category, where 80% of our volume is, my guess is 3%-5% in volume. It's. That's been about the historical rate. You know, everybody defines it differently, so you'll get different numbers. But, 3%-5% is pretty much in the middle of the different calculations. So, you know, our belief is we should be able to hold our share there, and then there is upside from innovation. I do see it as kind of a more blue ocean sort of environment, the way, you know, things were within craft beer 20 years ago. Mm-hmm. And we will see, you know, Sun Cruiser has come out of the gates pretty strong, I think, you know, and the Surfside is doing really well. They're both, you know, a new approach. It's a, you know, vodka-based hard tea. And we're seeing very good results where we have fully launched it. In New England, you know, we're outselling Surfside, like 2-to-1. In some of the other markets like Ohio, we're seeing similar numbers. We just got put into MetLife Stadium and replaced Surfside. So we're getting great support from retail and wholesalers for Sun Cruiser. As Diego and Michael said, it's still early. We're fully launched in, you know, maybe six or so states. But we see upside there that is, I believe, indicative of the opportunity in this blue ocean category. And then the other 20% of our volume is probably, you know, it's competing in categories that are not growing. And, you know, we think we missed some growth there over the last five years as we focused on Truly and then tea, so we believe we can outgrow the category on that side of the business, but it's not gonna have the kind of explosive growth that we've seen in Beyond Beer in the last five years. Right. Okay. Very helpful. I appreciate it. Thank you. The next question comes from the line of Filippo Falorni with Citi. Please proceed with your question. Hey, good afternoon, everyone. I wanted to ask you guys about innovation and what are you most excited in terms of as you think about not just this year, but, like, 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? Like, is it more in the ready-to-drink spirit space? Is it other areas of Beyond Beer, maybe non-alc? Like, just curious of what you're thinking about the next legs of growth for the company. Yep. So, I'll take it. You know, I think there's... I'll start, Jim, and then, if it's okay, I'll pass on. Mm-hmm. Please do. One, I think it's all of the above, and I think, you know, one of the things, we have great opportunity here. I've mentioned a few times to be really focused and make sure that what we are launching in terms of innovation is well-resourced. So you know, right now, again, just to reiterate, Twisted Tea Light and Extreme, we're very excited about. We think that's bringing in new drinkers to the space. Truly Unruly has performed really well, and we think that will help us stabilize the seltzer category for us faster than it would have. The Hard MTN DEW expansion is ready to go, and we see that helping us in 2025, and again, Sun Cruiser. American Light is an important part of our beer family, and we feel like we have a great platform there. And then, you know, in addition to the innovation, again, just driving the core and waking up our other franchises that we probably stepped away from, that are nowhere near their potential. So, but all of those categories that you mentioned, we have arguably the best innovation engine in the industry, and we have a number of projects that we're very excited about, and we're probably more disciplined than we've ever been in terms of the rigor to get those to market. So, we will, in some cases, identify space that has already been proven out, and we will fast follow and, try to make a, do a better job with it. And then there are other times where we will have a concept that no one could have imagined, and we'll bring that to consumers. So we feel very good about our innovation pipeline going forward. Yeah, and I- Anything to add, Jim? I mean, yeah, you know, you, 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. You know, I once got, for a conference, they asked about our failures, and I started writing a list, and I got to 24 different brands that had failed. It was just too depressing, and I stopped. So, you know, you need, to just constantly be trying things, probing the market, and, you know, innovating and then innovating on the innovation, which was 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. You know, many products that are line extensions, those are more predictable, and we feel quite good about, you know, American Light, Twisted Tea Light, Twisted Tea Extreme, you know, Truly Unruly. Those are predictable, but our strength, I guess, has been in, you know, totally new ideas. Great, that, that's very helpful. And then maybe one for Diego. On the gross margin expansion, I know you said on the, 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, in the second half of the year? Is it more skewed towards Q3 versus Q4? Or like, on a, on a more of a, on a year-over-year basis? Thank you. Yeah, so, so if you, if you look at our guidance, we are still guiding to 43%-45%, which is a substantial improvement. Even, even in the Q2 quarter, where our volumes were down, our production volumes primarily, which is what 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, a planned high 40s. 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. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question. Hey, thanks, guys, and good evening. Jim, you know, 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 in talks to sell itself to some suitor. It generated a lot of investor discussion, which, to be honest, you know, 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'm gonna have to give you the answer that we always give, which is, you know, we don't comment on rumors. You can make your own judgments based on, you know, what's happened in the whatever month or two since that story came out. You know, I would reiterate, we continue to be focused on growing our business as an independent company. Hope that helped. It does. Thank you. Thank you. You know, Michael, I guess pivoting to running the company as an independent company, you know, you talked in the opening about working to optimize, you know, really across the board execution from product development, manufacturing, selling, all the way through the allocation of capital. And I know you had familiarity with a lot of those things from your time on the board, but as you settled in to 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? Yeah. So look, I think we all recognize that the number one thing this company needs to do is grow and grow the top line, and then everything else looks a whole lot better. There are, you know, there are some macro reasons for the slowdown, and then there are some that are just... Again, I go back to the disruption of COVID and the disruption of Truly, and I describe it as we grew at all costs, and then the trailer was we found out what all those costs were, and we've been putting ourselves back together. A lot of that was operating discipline, and we just- the things and the principles that Jim built this company on, we were always so sharp, and because of that sort of explosion, we lost our edge. So, I was fortunate that Diego joined the company a while before me and already started implementing some of the operating discipline as well as a couple of other great teammates that are here and following up. So I think we know what to do. This company's done it before. But the power that this company has is it has a fantastic portfolio of brands, and none of them are reaching their potential at the moment. Most have given back market share, most have given back points of distribution, and we're in the business of taking that back. We have the best sales force in the industry, and I think it's just a matter of making sure that they have what they need, and we're giving them clear direction on what success looks like. And that has shifted, because we have at times been guilty of having a single product focus. So in the end, you will all feel better when we start to grow, and I know a big part of that growth is going to be getting to the bottom of Truly. And trust, I know it's frustrating for all of you to look at those numbers. It's more frustrating for us. We're trying to get to the bottom as fast as we can, responsibly, to put the right product in the marketplace and sort of get this next leg of growth going. So I hope that answers your question. 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. Well, thank you, everybody, for joining us, and-