The Boston Beer Company, Inc. (SAM) Q2 2016 Earnings Report, Transcript and Summary

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 meet the longer-term challenges of this competitive environment because of the quality of our people, our beers, our innovation capability, our sales execution strength, all coupled with our strong financial position that enables us to invest in growing our brands and creating new growth opportunities. I will now pass over to Martin for a more detailed overview of our business. Martin F. Roper - President, Chief Executive Officer & Director: Thank you, Jim. Good afternoon, everyone. As we state in our earnings release, some of the information we discuss in the release and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions and the like are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such 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-K. You should also be advised that the company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. In the second quarter and first half of the year, our depletions volume was significantly below our expectations, primarily due to decreases in our Samuel Adams, Angry Orchard and Traveler brands that were only partially offset by increases in our Twisted Tea, Coney Island and Truly Spiked & Sparkling brands. We are encouraged by recent improvements in depletion trends that we have seen since the middle of June, but it is too early to determine if these improvements are sustainable. For the rest of the year, we should start to see more favorable hard cider comparisons and a greater impact from Truly Spiked & Sparkling, but the trends for larger craft beer brands and the hard cider category and the full impact of our new brand introductions remain difficult to predict. Accordingly, we have adjusted our expectations for full year depletions growth and our earnings guidance to reflect our first half trends. Our lower volume expectations have increased our focus and urgency on cost savings and driving efficiencies throughout the organization. We are evaluating all our opportunities to better fit the current volume environment while preserving our quality and service levels and our ability to support long-term growth. Some of these cost savings and efficiency improvements will benefit this year, but most will start delivering next year. We remain prepared to forsake short-term earnings, as we strive to return to long-term profitable growth. We are working hard to improve the Sam Adams brand trends, and in the second half of the year, we expect to introduce new packaging and advertising to support our planned promotional activity. We recently hired Jonathan Potter, who will start in August as our Chief Marketing Officer. We are excited about this important addition to our leadership team. We are focused on sales execution and a full review of our brand messaging and packaging on all our brands and on continued innovation for existing brands and new growth opportunities. We believe the recent Angry Orchard declines are not indicative of the long-term potential of hard cider category, and we are happy that Angry Orchard has maintained a very high share. We plan to invest to help return the hard cider category and Angry Orchard to growth while maintaining our category leadership. The national roll out of our Truly Spiked & Sparkling brand is currently in progress and has been well supported by distributors, retailers and drinkers. We are pleased with progress and volumes to-date. We plan to support this national roll-out with media during the third quarter and will increase investment above current planned levels if we see a positive response. It is too early to tell how successful the national roll-out of Truly Spiked & Sparkling will be. Based on information in hand, year-to-date depletions reported to the company through the 28 weeks ending July 9, 2016 are estimated to have decreased approximately 4% from the comparable period in 2015. Now, Frank will provide the financial details. Frank H. Smalla - Chief Financial Officer & Treasurer: Thank you, Jim and Martin. Good afternoon, everyone. For the second quarter, we reported net income of $26.6 million, or $2.06 per diluted share, representing a decrease of $3.3 million, or $0.12 per diluted share from the same period last year. This decrease was primarily due to decreases in net revenue, a decrease in gross margin, and increases in general and administrative expenses that were only partially offset by decreased advertising, promotional and selling expenses. Shipment volume was approximately 1.1 million barrels, a 4% decrease compared to the second quarter of 2015. We believe distributor inventory as of June 25, 2016 was at an appropriate level. Inventory at distributors participating in the Freshest Beer Program as of June 25, 2016 decreased slightly in terms of days of inventory on hand when compared to June 27, 2015. Approximately 75% of our volume is on the Freshest Beer Program. Our second quarter 2016 gross margin of 51.8% decreased from the 54% margin realized in the second quarter of last year, primarily due to increased brewery processing costs per barrel and product mix effects, partially offset by price increases. Second quarter advertising, promotional and selling expenses decreased $8.1 million compared to the second quarter of 2015, primarily due to lower media spending and decreases in freight to distributors due to lower volume and lower freight rates, partially offset by increases in point of sale spending. General and administrative expenses increased by $3.8 million from the second quarter of 2015, primarily due to increases in stock compensation, salaries and benefits, and facilities costs. Based on information of which we're currently aware, we are now targeting earnings per diluted share of between $6.40 and $7, a decrease and narrowing of the range from the previously communicated estimate of between $6.50 and $7.30. However, actual results could vary significantly from this target. The 2016 fiscal year includes 53 weeks compared to the 2015 fiscal year which included only 52 weeks. We are currently planning for a change in full year 2016 shipments and depletions of between minus 4% and 0%, a narrowing of the range from the previously communicated estimate of between minus 4% and plus 2%. We continue to project price increases per barrel of between 1% and 2%. Full year 2016 gross margins are expected to be between 50% and 52%, a decrease of the range from the previously communicated estimate of between 51% and 53%. We intend to keep full year 2016 investments in advertising, promotional and selling expenses in a range between a decrease of $5 million and an increase of $5 million versus 2015. Previously, we had communicated an estimated increase of between zero and $10 million. This estimate does not include any increases or decreases in freight cost for the shipment of products to our distributors. Our 2016 effective tax rate is projected at approximately 36.3%. We're continuing to evaluate 2016 capital expenditures and currently estimate investments of between $60 million and $70 million, a narrowing of the range from the previously communicated estimate of between $50 million to $70 million. The capital will be mostly spent in our breweries to support future growth and product innovation and to drive efficiencies and cost reductions. We expect that our cash balance of $27.6 million as of June 25, 2016, along with future operating cash flow and our unused line of credit of $150 million, will be sufficient to fund future cash requirements. During the 26-week period ended June 25, 2016 and the period from June 26, 2016 through July 16, 2016, the company repurchased approximately 743,000 shares of its Class A common stock for an aggregate purchase price of approximately $127.7 million. We have approximately $12.2 million remaining on the $586 million share buyback expenditure limit set by the Board of Directors. We will now open up the call for questions.

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 can at least see some signs of a change in trend over the last two week, three week time period since the middle of June. I would say that it is across all our brands, certainly across Sam Adams and Angry Orchard, it's very slight, but it doesn't take much for our numbers to move. And I'm not sure we know really what may have caused that. So as we look at it we are uncertain whether that impact will continue or really how to interpret it. And I think it's fair to say that as we try to do volume planning and obviously all the estimates and guidance, this is probably as sort of uncertain as we've been at this time of year for quite a while and certainly our ranges, as you will note, are quite wide. As to your comment about looking forward, I think we, again, do face the two issues that you point out. The Root Beer shipment and depletion wave in 2015 was in Q3 predominantly, so Q3 is a very tough number to lap. The Angry Orchard and the cider sort of was impact – the trend started to weaken significantly in Q3 and Q4 last year, probably related to the hard soda sort of wave that was happening. And as we look at the numbers, we're looking back to 2014 numbers and trying to work out what are we really tracking against and what's this other (15:16) impact and what's the underlying trend? And this very significant variance in sort of the cider number you could forecast for the year depending on whether you think you're going to continue to be down relative to last year or whether you think you're going to perform relative to 2014 or whether you're going to think you're going to average out to some sort of average of the two. So we have some very big variances in our estimation on cider looking forward. I think we believe the cider drinker is there. It remains loyal to the category, that we maybe have lost some peripheral drinkers to the sweetness of the soda category. And it doesn't feel to us that the soda category is that much bigger, on a weekly basis, than it was at peak last year. It just seems to be across more brands. So we're expecting that those comparisons will get easier, we just don't really know how it's going to play out. I think, in the back end of the year, those are the two big effects. We obviously have the potential impact of our roll-out of Truly. The roll-out is going well, but it's not exploding like root beer exploded last year. But it's very solid. And we're optimistic, but it's very hard to project what weekly volumes might do over the next 22 weeks. And so again, proving very difficult. On the Sam Adams side, we indicated we have new packaging and advertising. We certainly would like to see some improvement in trends, but we're hesitant to forecast them. And then, Twisted Tea sort of continues its solid performance within the category that it plays in. So with all of that, we end up with a huge range of likely outcomes and we've tried to provide some guidance as to our best guess, but as we've always said, we have no guarantee that we will hit that target. Judy E. Hong - Goldman Sachs & Co.: Okay. That's helpful. Martin F. Roper - President, Chief Executive Officer & Director: Both upside and downside, obviously. Judy E. Hong - Goldman Sachs & Co.: Right. Okay. That's helpful. And then on the selling expense side, obviously, in the second quarter, you did see an $8 million decline year-over-year. Can you perhaps help us understand how much was media versus the freight cost? And then, obviously, hiring a new CMO, and really focusing on improving top-line trends, seems to be a key focus. So number one, as you think about the new packaging and advertising for the Sam Adams brand, how much of a role would the new CMO have? Because it sounds like he's starting in August, then you may already have new packaging and advertising in place for Sam Adams. And then thinking about kind of the range of the selling expense guidance, how should we think about, kind of, maybe some of that getting delayed, as you have a new CMO working on the brand strategy a little bit more? Frank H. Smalla - Chief Financial Officer & Treasurer: Hi, Judy. This is Frank. Let me just take quickly the first part of the question, where you have the selling expense favorability, that you see of about $8 million. That's approximately 50/50, 50% is media, and 50%, about, is freight. And then the freight splits into volume and into weight. Martin F. Roper - President, Chief Executive Officer & Director: And I'll take the second part of your question, which is obviously a very – it's a great question. I think Jonathan is still currently employed at his former employer, and he's planning on taking a vacation, which we strongly encourage because we have lots of work for him. We think once he has left their employment, we can engage. And while he does not start formally until August, I'm certainly hopeful we will get his insights into the process earlier than that, but we're obviously respectful of his current situation. As we look forward, we obviously have spend against all the brands. We would prioritize spend against brands that are reacting to that spend. And so we have some flexibility to move money between things. Certainly, if we had very exciting Sam Adams results from early investment, we would obviously increase that investment. We would certainly consider how to allocate within the brands. And if that proved impossible, we would increase the investment as we've always historically said we would to drive volume growth. So I think we have some flexibility within our current sort of guidance to sort of basically support the volume numbers that we've talked about. And if we happen to see something very positive as a result of those level of investments, we would be inclined to increase investments from that. I think on the Sam Adams side, new media, packaging probably wouldn't be in market until middle of September at the earliest, so the impact is likely fourth quarter. On the Truly side, if we see lift, that impact could be a Q3 impact of that decision to up. And on the cider side obviously that could happen at any time if we saw the brand reacting to the activities that we're investing in. Judy E. Hong - Goldman Sachs & Co.: Got it. Okay. Thank 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. Roper - President, Chief Executive Officer & Director: Sure. I think as we look at the last two, three years, we haven't got the operational advantage of a growth on a cost per case basis. And we see opportunities there. We just did not get any scale curve effect, absolutely none. And some of that was obviously how fast the growth came, how quickly we needed to react. We basically focused on making sure we could deliver as many cases as we could. And that leaves us, we think, with significant savings in our supply chain, from both how we're operating it, how we're running it, and from optimizing that that are relatively significant. Now could those on their own get us to that gross margin? I don't think so. Maybe over two, three years, if we can execute fully and we have a healthy pricing environment. There are certainly some mix effects on a couple of our brands that pull the margin down. But I think, as we said last August, that potential is still there. And going back to the question about the team, one of the things the team is focusing on, and I sort of alluded to it in my comments, is the very significant opportunities to basically identify those savings, deliver those savings in an organized fashion over the next one, two, three years, and use those to both invest in the growth opportunities we have, and also – yes, and to use those to invest in the growth opportunities. So we think it's possible. And that can help us return the business to the growth model that we had a couple of years ago.

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 have the same two tap handles that we had when they had six. We might even have three now, but those three represent a quarter of the volume rather than a third of it. So that's really what we've seen is not us losing space, but rather retailers adding more space and with that, more craft beers and more choices for our drinkers. Vivien Azer - Cowen & Co. LLC: That's helpful. Thank you. And encouraging that you're not losing shelf space; that's good news. In terms of Sam and some of the packaging work that you guys are doing, I'm curious, and maybe this is kind of more of a philosophical question, but as you think about the changes, what is – I mean, the desired outcome, obviously, is to turn around your volume. But in terms of kind of your consumer targeting, and maybe this is a better question for John when he comes on board, but since you guys are doing the work, are you trying to reengage the core? Are you more focused on recruiting new drinkers? How do you strike that balance? C. James Koch - Chairman & Founder: I don't know that we would be willing to deemphasize either one of those. For us we have a strong core of drinkers. I mean Sam Adams is the best-known, largest volume craft brewer out there. And so maintaining that is really important, but we are also need to continue to bring in new drinkers from 20-somethings as they enter the craft beer market. So the focus is – you've got to do both. And that's kind of some of the challenges, the brand work will have to do both of those things: bring in 20-somethings while maintaining the high share that we have with Gen X and Baby Boomers, if you will. Vivien Azer - Cowen & Co. LLC: Yeah. That makes sense. Not an easy ask, but I'm sure you guys are up to the task. Last one on price realization, there's been a lot of commentary from some of your bigger competitors around somewhat anemic pricing. I think that's showing up in the revenue per barrel growth that we've seen in the first half. So can you just talk about the pricing environment a little bit and kind of the level of confidence that you have in terms of your ability to possibly hit the high end of that range? Or does it seem more likely that something at the lower end is more realistic given what's happening more broadly in beer? Thank you. Martin F. Roper - President, Chief Executive Officer & Director: Yeah. I think year-to-date we've seen that craft is relatively healthy from a pricing point of view. In the cider category, the predominant sort of price movement has been down from stellar on a competitive basis. But Angry Orchard has been able to hold – we've been able to hold our pricing. So again, I think we're relatively positive, but we're obviously watching the competitive activity. On the F&B side, again, pricing has been largely positive, so again we feel pretty comfortable. On the soda side, with the competitive set, we have seen a fair amount of sort of price positioning of brands below where Not Your Father's and Coney Island was. And that's resulted in some price moves that's puling our sort of price accomplishment down. And obviously, that's on a small brand, but it's still pretty significant. If you go back and look at the IRI data from a year ago, Not Your Father's and Coney were very healthy on the price side. But with the competitive activity that's been a little undercut. So that's pulling that number down a bit. But I would say on our core bigger brands, we feel pretty good. Vivien Azer - Cowen & Co. LLC: Terrific. Thank you very much.

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.