Good day, ladies and gentlemen, and welcome to the Second Quarter 2016 The Boston Beer Company Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jim Koch. You may begin. C. James Koch - Chairman & Founder: Thank you. Good afternoon and welcome. This is Jim Koch, Founder and Chairman, and I'm pleased to be here to kick off the 2016 second quarter earnings call for The Boston Beer Company. Joining the call from Boston Beer are Martin Roper, our CEO, and Frank Smalla, our CFO. I'll begin my remarks this afternoon with a few introductory comments, including some highlights of our results, and then hand over the microphone to Martin, who will provide an overview of the business. And then Martin will turn the call over to Frank, who will focus on the financial details for the second quarter as well as a review of our outlook for 2016. Immediately following Frank's comments, we'll open the line for questions. Our total company depletions declined in the second quarter at a rate consistent with the first quarter trends, even as the better beer and craft categories appear healthy. Our Samuel Adams brand lost share of craft due to the increased competition and continued growth of drinker interest in trying new styles. While the launches of our new beers, including the Samuel Adams Nitro project and Samuel Adams Rebel Grapefruit IPA, have been successful and well received, they have not offset declines in Samuel Adams Boston Lager and our Samuel Adams seasonal beers. Despite these declines, we continue to believe that we're well-positioned to…

And our first question comes from the line of Judy Hong from Goldman Sachs. Your line is now open. Judy E. Hong - Goldman Sachs & Co.: Thank you. Hi, everyone. Martin F. Roper - President, Chief Executive Officer & Director: Hi, Judy. Frank H. Smalla - Chief Financial Officer & Treasurer: Hey, Judy. Judy E. Hong - Goldman Sachs & Co.: So first on the depletion trends, it seems like and obviously you've commented on some improvement you're seeing since mid-June, and I think your year-to-date data would suggest that trends have certainly gotten better in the last two weeks or the first two weeks of July. So I just wanted to get a little bit of color just in terms of what do you think is driving that? Is there a meaningful difference in terms of where that improvement is coming from across beer versus cider versus maybe some of the new products like Truly? And then, as you think about the balance of the year, certainly the comparisons on the cider gets easier, but you're also going to lap the launch of Hard Root Beer last year, so how are you thinking about lapping that launch and kind of the contribution that you're expecting to get from some of the new products? Martin F. Roper - President, Chief Executive Officer & Director: Yeah. So, Judy, I would, first of all, drawing your attention to how we have historically always treated our depletions trends. We've always rounded, and we've reported in this case 5% year-to-date through the half year, 4% through the date we provided in July. So I would just comment that that's a rounded number in accordance with our historical practice. I think if you look at the publicly available data or the scan data, you…

Thank you. And our next question comes from the line of Caroline Levy of CLSA. Your line is now open.

Hi, everybody. Good afternoon. Martin F. Roper - President, Chief Executive Officer & Director: Hey, Caroline. C. James Koch - Chairman & Founder: Hi, Caroline.

Can you talk just a little broadly about the mandate for your new management, the CMO, as well as your new CFO, I was happy to meet recently. But how do you think they can help transform the company over the next several years? I'm sure there's been a huge amount of discussion around that as you've come through the interview process. Martin F. Roper - President, Chief Executive Officer & Director: Yes. Caroline, let me take that. I think, one, I'm just delighted with the quality of candidates that we've seen in our process over the last 12 months. We have, as members of my leadership team, added Frank, who you've met is the CFO; Quincy Troupe as Senior Vice President-Supply Chain coming out of Campbell's and Pepperidge Farms; and now Jonathan Potter, and just very excited that these individuals have wanted to join us. We've been impressed by the strength of the candidate pool and how attracted they are to the company. And the last time we sort of built the senior leadership team was almost 10 years ago, and obviously the company was very different and we had very different needs. We looked 10 years ago, 15 years ago for functional excellence that would help us go from a $200 million company to, I think at that time we were dreaming of $500 million. And obviously, we've come close to a $1 billion with that team who is now retiring off. And now we have the opportunity to hire and build the leadership team that has the capability to take us to $2 billion or beyond. And so that's an exciting opportunity, I think, as people look at us and also an exciting thing to try and build that team together. So we're obviously delighted with Quincy and Frank who are already on board. We've had some internal promotions, too, that we feel very good about. And we're building the leadership team to run the company for this next phase. And we're asking the new candidates who come in to bring their expertise from the companies they've worked for, for how the leadership team should work. And again, versus 10 years ago when the company was a single-branded company and Adams focused 100%, we're obviously a different company with different challenges ranging from the ownership of the breweries to the multi-brand faceted item of it. And we're, as a group, working how to do that, and we're trying to empower that team, together with our head of sales, John Geist, who's been with us 16 years, to basically drive the business for the next period of time.

Okay. Thank you for that. And where does acquisitions or international expansion fit into that discussion? Martin F. Roper - President, Chief Executive Officer & Director: Yes. Let me take that. On the acquisition side, we continue to look. We have obviously, over time, purchased the Cincinnati Brewery, the Pennsylvania Brewery, the Coney Island brand, and the Angel City brand. Both of those brand purchases were done where we could secure clean wholesaler footprints. We have been very reluctant to struggle with multiple wholesaler footprints, preferring to have a single wholesaler network that we can work and support and put people into the market, to support them and build on those relationships, great relationships over multiple years. We are certainly open to acquisitions, but I don't think we see it as a core part of our current strategy. I think it's fair to say that where we have seen in recent evaluations brands and/or companies where the wholesaler set was good, the price multiples were not ones we felt made sense. And obviously, that is likely to change over time where there are potentially less buyers and more sellers. And so we're open to it. But if you were thinking about our U.S. domestic strategy, our number one priority is growing Sam Adams, and our number two priority is returning the cider category and Angry Orchard to growth. And if we're able to accomplish both of those, we may not have too much time for acquisitions. But those are obviously big value drivers for us. And as it relates to international, we have a healthy international business, although it's obviously small and relatively doesn't contribute a huge amount per case to our P&L. We do not regard it as a major short-term value driver for the business given where American craft development is on the international stage and the economics and the difficulties of importing and/or distributing in many of these countries. So we have chosen to operate in countries where we can develop good partnerships that basically allow us not to get distracted from our U.S. focus. C. James Koch - Chairman & Founder: Yes. And...

I just have one last one on cider, which is that you mentioned you might be at the point where it should start to stabilize. Your shares are obviously very high. But why do you think it might stabilize when everything we're seeing is just this continuous fragmentation and more local, more choice? What would give you confidence that that has actually bottomed? Martin F. Roper - President, Chief Executive Officer & Director: Well, certainly, as we look at Angry Orchard trends, the biggest driver is the cider category volume trends. And then there are some little bit secondary drivers about fragmentation of the cider category and local ciders, but that's not the big impact on our total volumes. When we look and try and work out what happened to cider in the last 12 months, and the best that we can see and determine is that cider drinkers on the fringe of the cider category were attracted to other sweet beverages and/or other innovation. And the lapping of that should start to happen in Q3, Q4. Now, again, this is the best that we can do and is subject to significant variation in assumptions. And we just think that if you go back to 2014, in Q3, Q4, the category was still growing. In 2015, the category was probably down in Q3 and Q4, and we're obviously been down so far this year. So as we come up against Q3, Q4 next year the comparisons just get significantly easier. And ultimately, we have to make a gut call as to whether our trends are going to be, for arguments' sake, I think the category is down 10%, 12%. So 10% or 12% down for the rest of the year or because the comparisons are very easy, because the root beer wave hit in August, September, are we going to track closer to 2004 (sic) [2014] (28:20) numbers, which would imply that we actually could go flat to positive for part of the year. Now, we don't know and we're certainly not trying to communicate that we do, and we're just pointing out that this leads to a very wide range in potential volume outcomes.

Got it. Thank you so much. C. James Koch - Chairman & Founder: And I might add, Caroline, that in the cider category as opposed to craft beer, as it's grown it hasn't really fragmented very much. Angry Orchard continues to maintain share numbers over 50%, typically closer to 60% in IRI. So we view that as a cider category issue maybe more than a brand issue, because we seem to be pretty close to holding share and we're not seeing a tidal wave of new and local getting traction in cider the way it has in craft beer.

Thanks, Jim.

Thank you. And our next question comes from the line of Kevin Grundy of Jefferies. Your line is now open.

Thanks. Good evening, guys. Martin F. Roper - President, Chief Executive Officer & Director: Hey, Kevin. C. James Koch - Chairman & Founder: Good evening.

A couple questions for me, both on margins. So first on the gross margins, you edged down guidance 100 basis points since last quarter but were down 200 basis points from the initial guide. I was hoping you could frame the key drivers there. I know some of it's mix. Maybe some of it is a little bit of deleverage. So that's the first part of the gross margin question. Then longer-term, as I recall at your Analyst Day that you held up in Boston last year, there was some discussion about the potential to get back to 55% gross margins, which you had going back a few years ago or so, but it seems like in the current environment we're kind of headed the other direction. So the first question is just near-term pressure in potentially boxing some of the impact there. And then longer-term, where do you see the potential for the company? Frank H. Smalla - Chief Financial Officer & Treasurer: So, Kevin, this is Frank. Let me take the first part of the question, the decline that you have seen and also the downward guidance that we've given on the margin. And that very simply is really a function of the deleveraging as we have lower volumes and significantly lower volumes than we had planned for. There's just the fixed cost absorption impact that you can't adjust as quickly as we would like. So that's definitely one thing. That's the biggest driver. There's also a mix impact that's happening as we move to different styles, and that is partly offset by pricing. So the pricing is coming through, and it's really mostly volume driven. So as we see volumes improve, that should improve. And then for the other part, I'll hand over to Martin. Martin F.…

Martin, just to follow up on that, if you don't mind. Can you frame the number for us, understanding that the environment is challenging and there's a lot of uncertainty out there? I guess there's two parts to it. So there's what's the opportunity? Because this is going to be the second part to my question in terms of as we're looking out to next year, what could the margin implications be from the potential cost-cutting, not just next year but the following year as well? And how are you guys thinking about that today relative to where advertising and marketing levels are? I know you're bringing in a new CMO. There's a lot of uncertainty in terms of what you might need to spend behind the brand. How are you thinking about that today? What's the margin flow-through look like relative to what you feel like you may need to do from a reinvestment perspective to get the top line going again? Martin F. Roper - President, Chief Executive Officer & Director: Yes. In sizing the opportunity, I would just say that 55% does not seem like an unreasonable opportunity at our current – or maybe at last year's volume number. And you can back into what the impact of that might be. And that would come through pricing, probably some innovation and mix and then operational savings. As it relates to how we think about what to do with that, I think our desire is for long-term top line growth. It's in our mission, long-term growth. If we have opportunities to spend it on long-term growth, we will. That long-term growth is likely to come from Sam Adams, Angry Orchard and the other brands we have, plus further innovation. So we would definitely invest against that. When our business is growing, we obviously generate a fair amount of margin and everything sort of solves itself. So I would definitely say we would prioritize that money to basically returning the business to a growth model.

Okay. Thank you for your time.

Thank you. And our next question comes from Vivien Azer of Cowen & Co. Your line is now open. Vivien Azer - Cowen & Co. LLC: Hi. Good afternoon. Martin F. Roper - President, Chief Executive Officer & Director: Hey, Vivien. C. James Koch - Chairman & Founder: Hi, Vivien. Frank H. Smalla - Chief Financial Officer & Treasurer: Hi, Vivien. Vivien Azer - Cowen & Co. LLC: So my first question has to do with the retail landscape and your shelf space. Given some of the shifts that you're seeing in terms of category preference as well as some of the pressure that you're seeing in your own brand market share in the craft beer side, how are you seeing your shelf space evolve? Are you guys losing any shelf space? Are you able to retain it? And what do you think the appetite for retailers is to kind of be patient as you work to re-brand Sam Adams? C. James Koch - Chairman & Founder: I would say, overall, we're not really losing shelf space. We are losing slightly our share of shelf space because what's happening is that the retailers are expanding the amount of shelf space that they're opening up for craft beers because it's a growth category for them, it's high margin, it's kind of customers they want, and grocery stores don't have that many categories that are growing single-digits at good margins, bringing in the right kind of customers, so they're eager to devote more shelf space to craft beer. I believe that's slowing now, it has been. You're seeing a similar phenomenon on premise where retailers are adding tap handles. A retailer that you would have expected to have six tap handles two years or three years ago today has 12. We might…

Thank you. Our next question comes from Pablo Zuanic of SIG. Your line is now open.

Yeah. Thank you. Just two questions. So first, when you have a 5% drop in depletions in the first half and beers like MillerCoors and Anheuser-Busch actually do better than that, and of course, Constellation much, much better, what does that do to your relationship with your wholesalers? I mean is there a pushback from wholesalers? Is there a lot of concern? Does it become like a vicious cycle in which wholesalers push your products less than before? If you can comment on that? And then the second question, if you can give us more granularity at the channel level? I think the idea you're not losing share of space, off premise/on premise, that's useful. But when I look at the data, it seems to me that if your depletions are down 5%, you're down a lot more in, say, on premise and liquor stores than you are in the traditional supermarket and mass merchandisers. So if you can just give some color at the channel level that would help. Thanks. C. James Koch - Chairman & Founder: Yes. Pablo, I'd say, with respect to your first question and wholesalers, I don't think we've seen any flagging of interest at the wholesaler level in our brands. We are at this point an important enough, big enough volume brand that historically has generated growth in both volume and margin dollars, so our wholesalers remain fully committed to our brands. And it's just important for them, so. And our wholesalers have been in this business a long time, so they have seen kind of rhythms of brand growth where they often pause. I mean, even Corona, which is a very hot, successful brand, as you mentioned. They, as of the end of last year, have not yet gotten back to their 2008 peak. But everybody views it as they should, as a very, very strong and healthy brand. And the second question about the channel shift, your conclusions are right. You see the IRI numbers and they look better than our overall depletions that we're reporting here, in part because of what's going on in the on premise channel. You could just, again, do some arithmetic that I talked about on the last earnings call, but the best numbers out there says year-to-date, on premise beer sales are down like 4%, something like that, maybe even 5%, depending on the data source. And our information from our draft surveys and wholesalers, while it's sketchy and incomplete, leads us to believe that the number of draft handles is about 10% higher last year than – I'm sorry, higher this year than last year. So you put those two together, and the volume per draft handle is down 10% to 15%. So that puts more pressure on everybody's on-premise business.

All right. Thanks for that. That's very helpful. But can I ask you a follow-up? And maybe I don't know it's the right forum, but now that the DOJ has approved the transaction between Anheuser-Busch InBev and SABMiller, Jim, would you have any comments that you want to make in terms of how do you see that transaction affecting the U.S. beer industry in any way? Perhaps, not at all. C. James Koch - Chairman & Founder: Well, the Brewers Association, which represents America's small and independent brewers, the craft brewers like Sam Adams, they – and I support them, they expressed some positive reaction around some of the constraints on AB's ability to acquire more distributors, and therefore lock craft brewers out, and on AB's ability to put pressure and incentives on their wholesalers to prioritize at those independent wholesalers the ABI brands over craft breweries. And I think they also expressed a lot of disappointment that the DOJ did not use this as an opportunity to look harder at ABI's craft beer acquisitions. Though, apparently, there is a separate DOJ investigation going on around those acquisitions. So from a craft brewer's point of view, there is still another shoe to drop, potentially.

All right. Understood. That's very helpful. Thanks.

Thank you. Martin F. Roper - President, Chief Executive Officer & Director: Shane, are you showing any further questions?

I'm showing no further questions in the queue at this time. Martin F. Roper - President, Chief Executive Officer & Director: Okay. I'd like to thank everyone for participating. Hopefully, everyone has a beer in front of you, and we're going to go get one now. We look forward to talking to you after our third quarter, and thank you for your participation on the call. C. James Koch - Chairman & Founder: Cheers. Martin F. Roper - President, Chief Executive Officer & Director: Cheers. C. James Koch - Chairman & Founder: Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.