[Call Starts Abruptly] A reconciliation to the most directly comparable GAAP financial measures and the reasons management believes they provide useful information to investors regarding the Company's financial conditions and results of operations are contained in the press release and investor presentation. With that, I would like to turn the call over to Lawson.

Thank you, Leanne. I don't have to tell anyone on this call that 2020 has been a year that no one could have possibly predicted. And when we started fiscal '21 back on May 1st, I did not imagine that I'd be sharing such solid results with you today. Both Brown-Forman and the industry as a whole has been very resilient through what is a very challenging and volatile environment. First, let me start by thanking our employees. This has been a year of extreme turmoil in all areas of life, no matter who you are or where you live, and we could not deliver these results without your hard work, dedication and agility. I also want to thank our dedicated long-term shareholders, including all the Brown family members, and our outstanding Board of Directors for your leadership, encouragement, and most of all, your support. Before Jane and I get into the business discussion, I want to offer a few thoughts as we're less than a month away from closing out Brown-Forman’s 150th anniversary year. I find it interesting that milestones that our Company always seems to come about in turbulent and unforeseen times. Our 50th anniversary was back in 1920, the year prohibition began in the United States. Back then, we found a way to continue to sell whiskey through medicinal licenses and permits. Our 75th anniversary coincided with the end of World War II. And our 100th anniversary was in 1970, when bourbon began its period of decline and we reinvented ourselves as a consumer goods company and expanded beyond spirits. And now today, in our 150th year, amidst a global pandemic, we have again found a way to reach more consumers and delivering underlying top-line growth fiscal year-to-date. This year has reaffirmed my long held belief that…

Thank you, Lawson, and good morning, everyone. As Lawson said, this year has been full of surprises. Considering all the volatility and uncertainty in the world today, we believe that results we released today are strong. In the first half, both our underlying net sales and operating income are up relative to last year with an acceleration in our top-line growth registered in the quarter. Not surprisingly, many of the items that created noise in our first quarter continue to impact our second quarter, including product innovation launches, notably Jack Daniel’s Tennessee Apple; timing related items, both this year and last year; and of course, COVID-19, resulting impacts that include inventory fluctuations, customer buying pattern changes, and geographic channel size and portfolio mix shifts. Before I discuss our results in more detail, I would like to take you back a year ago. Specifically, as a reminder, in the second quarter of fiscal 2020, we launched Jack Daniel’s Tennessee Apple in the United States, and sustained our double-digit underlying net sales growth from our premium bourbon and tequila portfolios. While no one could have envisioned the world as it is today, and of course, COVID-19 has created challenges and uncertainty, but also opportunities. We believe this is evidenced by the continuation of our stronger than expected performance this second quarter. With that as a backdrop, let’s now turn our attention to the second quarter and first half performance where familiar trends continue to produce solid results. Starting with our top-line, compared to the first half of last year, reported net sales were down modestly, as a result of the decrease in distributor inventory levels that were built in the United States in April and the negative effect of a stronger U.S. dollar. Adjusting for these factors, our underlying net sales grew…

[Operator Instructions] And the first question will come from Steve Powers with Deutsche Bank. Please go ahead.

Yes, great. Thanks. Good morning. Hey. So, I guess, maybe we could start on the A&P, if I could. I’m curious as to -- with the lower spending in the first half, just what that implies about your share of voice year-to-date. And then, how you anticipate that share of voice to trend as you ramp the broad reach investments that you called out in second half.

Yes. I can start off. With the phasing of the spend, I mean, really what you saw -- and just as a reminder, we were down significantly in the first quarter, and it was really more driven by when the pandemic hit and us taking a pause in our spend, so that we can evaluate and reflect where we wanted to spend the type of spending that we wanted to have to take place. And so, that continued a bit into the second quarter, though, I will say that it’s always more important to step back and go back then and if you will and understand that we were spending and did increase our spending in places where the momentum was going. So, behind U.S. Woodford Reserve and Old Forester, behind our RTDs, behind our flavors, so all the things that you have seen drag on our growth in the quarter, we spent behind and have spent behind year-to-date. What we did though was pull back a bit, as I said in the first quarter, rightfully so for the COVID environment, because of the restrictions on the on-premise channel, which took activities out of that as well as sponsorship events and things. And we said, let’s take the money there and reallocate it to broad reach media and focus it when the news campaign that Lawson mentioned earlier, came out -- or comes out, and that’s really behind Jack Daniel’s and the Make it Count campaign. And it really just started in the October period, really late October. And so, you didn’t see a lot of that, but you’re going to see a heavy concentration, when we think about the phasing of it, we wanted to be there for the holidays, there are a lot of spendings focused in the holiday period where we think we’ll have nice share of voice. And from then on, when you compare our spend relative to our prior year, in the fourth quarter where we were down because again COVID related. So, I’ll let Lawson pick up on share of voice or anything you want to touch upon that?

Yes. The only thing to add to that is that share of voice, at least I think in our general opinion, it’s getting to be less and less relevant as a metric to use because the explosion in the spending in the world of digital and social media. So, while I do think our share of voice will be going up markedly over the next few months, I’d just be a little cautious on using that as a real strong metric because of the different ways that people are spending. And it seems that she’s right. We were - I know the teams were very excited to get these new campaigns out there, and there was just a bit of a bias to wait until we had that. And so, for the most part, Jack is ready now, Woodford has been out now for a few months, you’re going to see more from Old Forester and more on our tequilas in the very near future. And so, you’ll be seeing more of our brands on air, starting that.

Okay. That’s great. And maybe a follow-up on that question A&P, and then a different bucket of investments, I’m curious about. On the A&P, when I look back, it’s hard to guess -- to figure out what the right benchmark is. But, a decade ago, A&P was running about in mid teens as a percentage of sales. Clearly, first half, we’re down below 10%. I guess, when you think about the normal -- what normalization looks like as we emerge, how should investors be thinking about the right level of spending for your business as is currently scaled? And then -- that’s, I guess, the follow-up. And the second bucket is, it didn’t come up in your prepared remarks, but obviously ecommerce has been making great inroads across the market, but in your categories, specifically. I’m just curious as to how you’ve pivoted to step up your investments there, and whether you think you’re keeping pace with the change, you’re effectively ahead? Just what your level of readiness is for the ecommerce channel as it looks in the future?

Let me take the first part of the question and Lawson can build on that. But something that we tried to target each year, certainly at this point in time in the world, diverge from that. We try to target our spending in line with our revenue growth. And so, you wouldn’t see -- I think what you’re seeing in the first half is just what I explained earlier in my commentary, which was the timing, the phasing, how COVID hit, how events hit. But again, and that’s why it was so dramatic in the first half relative to our top-line growth just being, but it is something that we long-term want to spend in line with our sales growth. I hear what you’re saying, you’re looking back a decade ago, there’s a lot to put and takes in there. You got to look at pullout effects, brands that have come and gone and things of that nature. And we also look at the spending that we did, not just in the A&P line item. We’ve talked about this before, I know on calls. We look at all our line items in the P&L. So, our packaging costs will show up in cost of goods -- that shows up in cost of goods, our promotional activity, which are a net reduction to our sales price, and then, of course, our people who build the brands. And so, we look at it holistically like that as opposed to just one line item. But again, I would say, our ambitions are to, again, spend in line with our growth and revenues on an ongoing sustained basis.

Yes. But, 10% number you quoted from the first half, you can kind of throw that out. Because we will be building back up as we’ve said here in the second half of the year, pretty strongly. As far as the ecommerce, I mean, I think, we, like a lot of others, see the opportunity here. I mean, that’s -- everybody is seeing that. But, we have industry estimates that say that in the next three, four, five years, you’re going to see as much as 10% of global sales going through e-commerce. And it’s only a 2% today. So, you’re going to see an explosion there, and we’re obviously going to be a part of that. But, it is small. In the U.S., it’s sort of 1%, right now, 1%, 1.5%. But, we’ve added a lot of investment there and we will be adding more over the next say, six months or so. And so, we’ve got a number of ideas and things that we’re going to do there and we’re reallocating resources pretty much like you would expect we would to make sure that we’re there for that channel. But, it’s not only U.S., in fact, it’s bigger than in many markets outside of the U.S., I mean, China being the most well known, but UK, Germany, France, Australia, Brazil, Mexico, it’s all those markets are seeing exploding ecommerce growth, and we’re making sure that we’re going to be a part of it.

The next question will come from Sean King with UBS. Please go ahead.

I guess, I’d like to understand your outlook on tariffs, given the new administration. And within that, in the event that you saw some retaliatory tariff relief, when you pass that on to consumers in the form of pricing or potentially step up investment or even flow through to the bottom-line?

Okay, my favorite question. Look, tariffs, which now 2.5 years into it, none of us 2.5 years ago thought that we would still be in the situation that we’re in now. And we continue to work hard to try to find ways for the entire industry to get out of this mess. There are -- I mean, I think, compared to say last quarter, when we talked about this certainly some encouraging signs, certainly the new administration that seems to be putting people in place and important sort of economic roles or trade related roles that are more centrist and a little more free trade than what we have seen out of the Trump administration. And so, we have to be a little more optimistic there. And we’ll see. I mean, I do think also -- really both the U.S. and the EU together want more stability in these international relations. They don’t like the chaos either. And so, we don’t know what the Biden administration is going to do. But, we’re trying everything that we can do to influence to make sure that these trade disputes get resolved. And so, I hate to -- I am more optimistic I guess. I’ve been optimistic now for two and a half years and still haven’t solved this self. So optimism isn’t getting it done. But, there’s so many people that are getting hurt by these things. And I think, the entire industry is looking at this like, we need to solve both sides of the Atlantic. It’s tough to say at the same time, because they’re two different disputes, but both sides are working to eliminate or get rid of it all together. And then, there is Brexit, which is only, what, three weeks away or something like that. And so, I do think the U.S. and UK have been making progress there on trying to find free trade agreements. And so, that one may pop up sooner than that resolution with EU, but net-net getting more positive on the topic.

And answer to your second part -- just to build on what Lawson said, second part of your question. We don’t have a crystal ball, as he said. We are optimistic -- cautiously optimistic. But, if the tariffs would go away, you’re asking what would we do? Would we drop it to the bottom line? Would we spend? Would we take pricing? We’re evaluating all those things. I think, our bias would be certainly to take some and reinvest it back into the business, look at pricing and all the different variables. So, this is something we hope we can actually implement here if the tariffs go away soon.

Yes. Pricing decisions are largely separate from tariffs. It’s more of the how much are we going to reinvest in the business, and how much is going to drop to the bottom line. And I think, a lot of it depends on when this actually happens, how do you do the UK versus the EU, a lot of things like that. But, it’ll be a balance between the two.

Great, it was a very tough question. And I appreciate the answer. Thank you.

The next question will come from Lauren Lieberman with Barclays. Please go ahead.

Great, thanks. Good morning. You both spoke a lot about marketing and the new Jack Daniel’s campaign and TV. But, I was also curious about building brand equity sort of in the New World, assuming there’s a timeframe for on-premise to completely come back, even post vaccine. And that’s been such a core part of the spirits model, and especially for establishing some of your newer, more premium brands in new markets and new geographies. So, just curious how you’re thinking about that, the demand, brand awareness, creation model and what it looks like, again, with a more limited on-premise footprint, even post-pandemic.

Yes. I mean, look, that’s a tough question. Going forward, I do think, first of all, the restaurant business, while slow to come back, it will come back. And we will continue to use that as a nice channel to promote, particularly the smaller brands. And that’s what was working very, very well, pre-COVID, was the brands like Fords and the brands like Fords, and even our GlenDronach and our single malt scotches. So, that model really, really was working well. We’re having to pivot to spend a little bit more time and attention with those folks in the specialty on-premise channel, which is huge -- specialty off-premise channel, sorry, which is still very, very big. And it’s just a matter of focus that seems to be working. You can do that focus in the on-premise, you can do it in the off-premise, but you just need to put time and attention against these smaller brands. And that separating those people’s responsibilities from building a Jack Daniel’s or building a Woodford has worked very, very well in the U.S., and it’s something we’re going to do outside of the U.S. now too. We’re -- it would certainly -- it works better when the on-premise is more vibrant. But, these folks are able to do both channels at the same time and really build these brands. And I think we’ve got enough confidence that that model can work that we are going to continue to focus on it.

Yes. Just to build on what Lawson said. I think, our model part, as we said, has been in the on-premise. I think, we are also saying and saying is that we know that how brands grow is by awareness. And so, whether the traditional media, which has been going away for some time, in terms of the spend with cutters and so forth like that, and more towards streaming, video streaming online, social and things of that nature, these brands can get awareness through those mechanisms, food, or through those channels. And so, again, we want to be -- reach, we’re trying to reach more consumers regardless of what it is, which brands, whether they’re small or large. So, our brand building model is really focused on reach and being top of mind, if it’s small, and however we might do it. And like I said, I think these smaller brands can play well in the digital space.

The next question is from Peter Grom with JP Morgan. Please go ahead.

Hey. Good morning, everyone. So, I was hoping to get a little bit more color on the gross margin performance. And I fully understand how the Company is thinking about that line item moving forward. Jane, I know you mentioned that the pressure is expected to continue and visibility on channel and country mix is limited. But, could you maybe help us understand how we should think about raw material inflation in the back half where I would imagine you have a higher degree of visibility? And then, building on that specifically, there seems to be a view from some of your competitors that gather prices have stabilized? Is that something you were also seeing or is the expectation that relief there still doesn’t come until the end of calendar ‘21? Thanks.

Sure. Great question. I think maybe I’ll start off with just what -- where we are year-to-date, and then what we’re forecasting for the rest of the year or are expecting for the rest of the year, and then just pull ourselves back and say what does this look like over the longer term. So, as you heard me, and you saw in our earnings release this morning, we talked about the 350 basis points of margin erosion. About a third of that is really due to this channel size, portfolio shift mix, and the other two-thirds of it is really due to input costs and fixed costs absorption being less, because of volumes. Now, the input cost is driven by two components, agave and wood or the cost of making wood. It’s something that we haven’t spent a lot of time talking about in the past, as we’re managing all of us here that our wood costs were laid down four years ago when we were coming through today. And so, the reason why I’m mentioning that is because of some of the things we’re working on today, which will help improve our margins longer term. So, I’ll come back to that in just a moment. So, that’s where we are on a year-to-date basis. Hopefully that first makes sense. As you said, yes, we said we do still expect margins to be down for the year. We’re forecasting by the end of the year that we won’t -- we will improve from the 350 basis points drag of where we are today. It will improve from there. So, I think we’ve hit our peak, if you will. And so, we expect that to improve where we land, as you often pointed out, Peter, depends upon the mix, the…

Just a follow-on comment on the tequila category, just because it’s been fascinating to watch. We’ve said and even read a lot of different CPG categories, whatever trends were happening pre-COVID, just accelerated over the last eight or nine months. I don’t think there’s any category where that may be more apparent than Tequila, Cognac seeing a bit of it too, but -- in the U.S. Yes, in the U.S. And the super-premium and ultra-premium brands are on fire. I mean, they’re just growing at rates that are through the roof. And we all say, it’s people like to make a margarita at home. But, I don’t think that many people are buying $60 and $70 bottle of tequila and making margaritas with. I mean, that’s over ice with the lime, drinking it as a cocktail. And if you look at the Nielsen trends or NABCA trends or anything else, I mean vodka, which is a much larger category, for every dollar that tequila is growing, vodka is losing. And the two of them almost offset each other. But, it’s just been a dramatic change in the U.S. spirits business in terms of categories between those two. And as I say, it’s been interesting to watch and obviously is a good thing for us, because we’re very small on the vodka world and much bigger in tequila world, costs aside.

Peter, if you’re interested in a recipe, our CEO here, Lawson, he just won yesterday for margaritas. We’re trying tonight as this earnings period is over.

I appreciate that. If I just have -- I do have one quick follow-up, Jane, just based on some of those wood initiatives you mentioned. I guess, when can we expect those to begin to show up in the P&L? And I guess, you’d have a lot -- given the aging process here, I mean, when -- for how much longer do you expect wood to be inflationary, given what you laid down four years ago?

Yes. So, I think, what we’ve laid down in the barrel is already in the barrel. So, I think, you’re talking about four years down the road, before we start seeing some real benefits. We’re doing some things today that could come through a bit -- it can come through a [Indiscernible] don’t get too technical here, but we’ll get a little bit of that come through in current - in next year, let’s say.

The next question will come from Bonnie Herzog with Goldman Sachs. Please go ahead.

Thank you. Good morning. I wanted to touch on the divergence that you’re seeing between your volumes and price mix. Definitely understand there are several major drivers here both from a product mix and a channel mix standpoint. But, I guess, it would be helpful if you could provide a little bit more color on the drivers of this. And then, second, can you give us a sense as to when we might expect this divergence to narrow? I guess, I’m wondering, how big of a risk do you guys see that pricing ultimately reverts to lower levels over the long term? Thanks.

I assume what you’re referring to is that our volumes were up 15% year-to-date, and that’s really driven by our TV business where we’ve seen explosive growth on our Jack Daniel’s RTD sort of 36%. And our -- and our New Mix business, which is 100% Mexico is up quite nicely as well, benefiting from a first quarter beer disruption in that market. And so, something that we’d like to do is to equalize this on an equivalent basis, and so when you equalize drinks on a volumetric basis, full strength whiskies and full strength tequilas, you’re about at a 1% volumetric growth. Our mix -- and again is really again driven by the portfolio shift, meaning the acceleration in the RTD and the New Mix. We talked about this in our first quarter earnings call that something we’ve read about from time to time is this margin erosion from RTDs, but quite frankly, it’s pretty small in the grand scheme of the margin erosion that we’ve seen, and we want to be there for the consumer, which we are as you can tell by these volumetric trends. We’re meeting the convenience needs, the basic flavorful cocktails, and so forth with it. So, we have and will continue to believe that the small amount of margin erosion resulting from the RTD business is a good thing in this environment, particularly.

Yes. We’ve been having an internal debate quite honestly on how sustainable these growth rates in the RTD world, and are they just COVID driven? Because so many people are home, are they are they something bigger than that? And I do think we call megatrends. But I mean, convenience and flavor fits very well on those. And so, I don’t -- you’re not going to be seeing the triple digit growth rates that we’ve seen in some places, but we feel pretty good that it’s going to stay. The other big one that Jane mentioned in her prepared remarks, but as we all are saying, I mean, that’s obviously very big too, probably bigger than most folks realize as that leader size in the U.S. would be the example versus 175 is just much more profitable. And so, that’ll reverse and be a benefit to the gross margin at some point too. So, there’s just a lot going on in terms of mix that all add up, but there are lots and lots of small things. Did we answer your question?

Yes. That was helpful. But, I mean, if I may just circle back on the pricing lever. And I don’t know how comfortable you guys are talking about that, but I’d love to hear your views over the long term.

I mean, I think, we talked about tequila pricing, and that is inching up. It’s not growing by leaps and bounds. But, there’s certainly momentum to take the price up in that. Even our own brands, if you go SKU for SKU as the comparison or apples to apples, there is some small amount of pricing going up now, largely from reduced discounting and the off premise. But, I don’t sense in the industry or even in our own sentiments that when this is over, we’re going to get more aggressive on pricing, or anybody really wants that. And so, I would expect similar to what -- we haven’t had much pricing, it’s been very, very low single digit, but that’s a fair assumption, I think going forward to your long-term.

The next question is from Kevin Grundy with Jefferies. Please go ahead.

Great. Good morning, everyone. Happy holidays. And congrats on the continued progress in the quarter. A couple questions for me, if I may, one on the outlook and then just a follow-up for Jane on cash and capital deployment. So the first one probably for Lawson. Just sort of understanding that we have to get through some volatility here in the winter months, but the broad question, how has your planning changed internally, if at all, as you think about a post vaccine environment over the next 12 months? And then, maybe more immediate term with respect to the guidance, talk about the factors you’d like to see before reinstituting guidance. So, you mentioned some of the challenges in November, we understand there’s going to be some volatility. The flip side is you’re also seeing growth in 85% of your markets. I think collectively, you know the industry across total beverage alcohol has a little bit better sense of what changes in mobility may mean with respect to channel implications and in demand. So, maybe just comment on that. And then, I’ll follow-up on the cash and capital points? Thanks.

So, look, in terms of how we think about planning for the future and things like that, I wouldn’t -- I mean, I know the brand expense variation between the first half and the second half seems very, very COVID-driven, and it certainly was in Q1, but we’re not really changing our mentality here over the medium or long-term. As Jane said, having brand expense grow in line with sales is a pretty fair way to think about it. And so, even though we -- as I say, the first half hasn’t been that way, that is the sort of the near-term, medium and long-term direction that we look at. As far as different, the one thing in the planning world that we’ll see how the next 12 months go is what does the recession look like? I feel, I think we feel pretty good about the United States and sort of the bigger markets in Europe. But, boy, some of the emerging markets of the world, I think are still -- they’re going to be slower coming out of this. And so, how do we reallocate resources to make sure we’re keeping U.S. vibrant, the UK, Germanys of the world without walking away from the emerging markets. But, we’re certainly not going to be investing at the same levels in some of those that continue to struggle in a recessionary environment. And I -- not that I’m an economist, but if you -- certainly the economists that are out there are predicting a pretty rough return for places like India and Africa and pieces of South America, places like that, global travel retails and other one that is likely to be in a pretty subdued trends now for years.

Got it. That’s all fair. Jane, did you want to make a comment as well?

Yes. I mean, I could add just a couple of things on to what Lawson said. I guess, reallocation of them has been something we’ve been focusing on for a while in terms of -- to be more effective in our spend. And so, the COVID environment has really accelerated that. So, I don’t know that we’ll go back to pile on a bunch of more expensive spend in on-premise. Yes, we’ll have people there. So, I don’t know -- because you said post-COVID -- and again, it’s a crystal ball, I wish I had but consumer behaviors and what they may look like after that. But I think, our focus will still continue to be on reaching as many consumers we can, and our messaging, and continue with new creative and this new advertising agency. But, I kind of my take one point that I want to make sure. I haven’t really talked about this, a step and I alluded to it in the script but with the shutdowns in Europe and lockdowns in the Europe happened in late October. So, it really didn’t affect our results. I mentioned in my script that we did see a slowdown in November. Q3 is going to be our toughest quarter, and it was going to be anyhow, it was going to be our toughest quarter, the top-line and then the deleveraging, because we are spending during this ending period. And then, we just swing back with the fourth quarter as we go against easy comps, it’s a top-line and less spending there. So that’s under a little tactical, but I wanted to make sure that I explained that somewhere in this conversation.

We appreciate the color. Quick follow-up and then I’ll pass it on. Cash is growing on the balance sheet. You don’t have any debt coming due. How are you thinking about return of capital above and beyond the normal dividend? The stock is still near all time-highs. The Company does have a history of paying special dividends periodically. Is the thinking you’re going to sort of remain prudent here as long as the guidance is off the table, or do you return to share buybacks and potentially consider a special dividend, given where the balance sheet is and then when cash bounces? I’ll pass it on. Thanks.

Yes. So, I mean, what we were doing in the net cash position, it is a bit -- this year versus last year, it’s really all the uncertainty, and we did it purposefully. We do have the proceeds from the sale of Canadian, it’s early times in there. We are not planning -- as we always do, as I mentioned earlier, we want to fund our business. First and foremost, nothing’s changed. And we mentioned today $125 million investment we’re going to -- that just was approved by our Board of Directors to spend to expand our bourbon making capacity in Kentucky. So that is something that we’re doing. Our dividend just went up. But, we do not have any plans for this fiscal year, since there’s too much uncertainty and volatility. We got lots of things coming up. Who knows? While we’re cautiously optimistic the tariffs go away. If tariffs go the other way in June, we haven’t the cash on hand is pretty important to us. And we just really don’t know what’s happening. And so, again, that was purposeful what you’re seeing on our balance sheet, and really the mix of how we’re doing this between our short-term debt and cash. And so, that’s plan for this fiscal year.

Ladies and gentlemen, we’ve reached the end of the allotted time for the Q&A session. Are there any closing comments from management?

We would just like to thank you, and thank you, Lawson, Jane, and all of you for joining us today for Brown-Forman’s second quarter and first half fiscal of 2021 earnings call. If you have any additional questions, please contact us. And with that, we’d like to wish you all a safe and wonderful holiday season. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference call. You may now disconnect.