Greetings, and welcome to The Boston Beer Company Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin.

Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I'm pleased to kick-off our 2022 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Dave Burwick, our CEO; and Frank Smalla, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflect the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that, the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements whether as a result of new information, future events or otherwise. I will now pass it over to Jim for some introductory comments.

Thanks, Mike. I'll begin my remarks with a few introductory comments, and then hand over to Dave, who will provide an overview of our business. Dave will then turn the call over to Frank, who will focus on the financial details of our third quarter results, as well as our updated outlook for the remainder of 2022. Immediately following Frank's comments, we'll open up the line for questions. This quarter, our depletions declined 6%, which is slightly better than our year-to-date trend of down 7%. We grew revenue for the second quarter in a row, driven by the continuing growth of Twisted Tea, while improving our wholesaler service levels and reducing out of stocks. Towards the end of the third quarter, we reached our current target wholesaler levels and currently have the best wholesaler service levels since 2000. Declines in the Hard Seltzer category and Truly continue to negatively impact our business. The Hard Seltzer category in measured off-premise channels is down 15% on a volume basis through the first nine months of 2002, with Truly down 21%. We are working to improve Truly trends through a major product reformulation, including the addition of real fruit juice and sharpening our brand communication and increasing our media investment. Early in the fourth quarter, we launched Truly Vodka Seltzer, and early response from wholesalers, retailers and drinkers has been positive. With the launch of Truly Vodka Seltzer, along with our award-winning Dogfish Head canned cocktails, we believe we are positioned well in the emerging ready-to-drink spirits category, which has been growing 79% in measured off-premise channels through the first nine months of 2022. For the remainder of the year and into next year, our strategy is to gain market share in the Beyond Beer category, where we are currently a strong number 2. Beyond Beer is growing faster than the traditional beer market, and we believe that this trend will continue for the next several years. Our multi-brand strategy plus, our long history of innovation, have supported our growth over the long-term, and we will work hard to capitalize on these strengths going forward. We're thankful to our outstanding coworkers, distributors and retailers who continue to support our business. I will now pass it over to Dave for a more detailed overview of our business.

Thanks, Jim. Hello, everyone. Our long-term goal is to become the number one player in the fast-growing Beyond Beer segment by creating a broad relevant brand portfolio that enables many pathways to growth. We have the number one FMB in Twisted Tea, the number two hard seltzer in Truly and the number one hard cider in Angry Orchard. In the near-term, our priorities are continuing focus on fueling Twisted Tea, supporting the launch of Dogfish Head canned cocktails, and working to stabilize Truly trends. We're also experimenting and planting new seeds in our search to cultivate new contributors to our future growth. Our third quarter depletion trends reflected continuing growth in Twisted Tea, and positive contributions from HARD MTN DEW, offset by declines in other brands, primarily Truly Hard Seltzer. Excluding the declines in Truly, our depletion volumes increased 14% in the third quarter and 12% for the first nine months. I'll say more about Twisted Tea in a moment, but first, let's talk about Truly. Hard seltzer volume declined by 17% in the third quarter measured off-premise channels. We believe there are four primary drivers of the continued decline. First, Hard Seltzer has lost its novelty as consumers have been distracted by many new Beyond Beer products, entering a hyper-crowded marketplace. Second, the large amount of Hard Seltzer SKUs has caused consumer confusion and makes the segment hard to shop. Third, no one is communicating the core category benefits of refreshment, easy-to-drink and variety. Lastly, and partially tied to the macroeconomic environment, we're seeing a volume shift from hard seltzers back to premium light beers with their lower pricing, particularly among 45-plus year olds. Whether this continues into the future or reverts back is still to be determined. The Truly brand has not yet overcome these headwinds. Truly volume…

Thank you, Dave. Good afternoon, everyone. For the third quarter, we reported net income of $27.3 million or $2.21 per diluted share, compared to a net loss of $58.4 million or $4.76 per diluted share in the third quarter of 2021. This increase of $85.7 million was $6.97 per diluted share was due to lapping the 2021 combined direct/indirect costs related to the 2021 slowdown in Hard Seltzer category growth, as well as increased net revenue and lower advertising, promotional and selling expenses, partially offset by increased income taxes and noncash impairment charge in the current quarter and increased supply chain costs. In the third quarter, we recorded a $27.1 million noncash impairment charge for the Dogfish Head brand as a result of the company's annual impairment analysis. The impairment determination was primarily based on latest forecast of brand performance, which has been below our initial projections made at the time of the transaction. We believe there is strong potential for future brand growth, particularly in the canned cocktails category, which is in its early stages of development, and we remain committed to growing the Dogfish Head brand overall. The third quarter continued to show sequential shipment and revenue improvements and generated over $100 million in operating cash flow, following the strong second quarter cash flow performance. However, the volume performance primarily related to Truly and the corresponding inventory obsolescence continued to negatively impact gross margins. Shipment volume for the quarter was approximately 2.3 million barrels, a 1.4% increase from the prior year, reflecting increases in the company's Twisted Tea, Hard Mountain Dew and Samuel Adams brands, partially offset by decreases in our Truly Hard Seltzer, Angry Orchard and Dogfish Head brands. We believe distributor inventory as of September 24, 2022 averaged approximately five weeks on hand and was at…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Nik Modi with RBC. Please proceed with your question.

Yes. Thank you. Good evening everyone.

Hey, Nik.

Hey, how are you? I have two questions. One is on Twisted Tea. I appreciate some of the details you gave about 12-pack expansion and advertising more during the year all across the year. But there's still a lot of questions obviously from investors in terms of sustainability of this brand, especially given some of the situation that happened with Truly over the last couple of years. So maybe you could provide a little bit more details on why you guys are so comfortable that you can grow this brand going forward? And more importantly, what lessons can you learn from Truly to really apply to Twisted Tea to make sure that you could mitigate risk of category fatigue, especially as more competitors enter the fray? And I have one more question.

Great. Okay. Thanks, Nik. This is Dave. I'll take a shot at that. So I think when we think about building any brand, and particularly Twisted Tea, there's really two key levers that we think about. One is about driving physical availability, which is really about making the brand easy to find. And the second is really about mental availability, which is making it easy to think about as a brand. I think what's happened over the last 12 months with the brand is that we kind of hit a tipping point on both of those. From a physical availability perspective, we talked a little bit about this, I think, in the last call, but 12-pack distribution kind of got to that point, it's about 64% ACV right now. So a lot of our larger customers could then promote and support the brand much more aggressively than they had in the past. We also increased space by about 35% this year. So that increased physical availability kind of help vault the brand forward. From a mental availability perspective, we've essentially doubled that down on media last year and then we increased it again this year on a campaign that we know works based on our testing. And we also are on-air almost 52 weeks of the year, really driving for incremental reach. So, the two of those together have really helped generate this sort of accelerated growth off of a growing base. Now having said that, when you look deeper into where we are today, from a physical availability perspective, if you look at convenience stores as an example, which is the biggest channel for FMBs, Twist original 24-ounce, which I referenced in the script is about 69% of the ACV, and that's really well distributed. But there are other…

Very helpful. And the second question is just on Truly. I mean, looking at numerator data, it's pretty clear that the top four brands in the category, top four or five, are basically responsible for all the category penetration, and all the rest are not really helping the overall category, increased penetration is just more share shifting. So, as one of the category leaders, I'm just curious, as you engage retailers on this topic, I mean, what's the feedback, or how do you get this category moving in the right direction again in terms of household penetration?

Yes. That's a good one. I think, I mean, we're talking about -- obviously, we're talking to retailers for the last few months about next year. I think retailers finally understand that. Now, what's interesting is that, when the RTD space has now more brands than the hard seltzer space. So they're pivoting in that direction. And we would expect that next year that the bottom 5 or so brands would probably disappear in any given market. And likely hard seltzer share of space right now is 11%, which is probably appropriate. It might shrink, but the brands that are left, the top three or four brands or so will have a larger piece of that space. And I think the clutter will be removed next year. It is the time when that's going to happen. And I think our customers recognize that and they're planning to do that. Big question then becomes does RTD cocktails become what hard seltzer became in a big mess, and we think it is really hard to shop. But we're likely to see that. I think the other thing I would say is that, we're part of it. There are reasons why people came to hard seltzer in the first place. Like, it's the most refreshing, easy-to-drink fun variety-filled category or segment replacement for beer or for traditional beer and other alcoholic beverages. And those characteristics of refreshing, the easy-to-drink variety have been somehow lost and diluted through all the noise and all the things that have happened over the last year or two. And I think getting back to that, and we're trying to do that with our ad campaign now that's out there, and there'll be more evolutions of that. But we're trying to remind consumers of why they came in the first place to hopefully help with the category. And I think the last thing I'd say is that, proliferating SKUs is not the way to go probably because that will add to more confusion. So I think smarter innovation, what we're trying to do is focus back on the lighter flavors. We spend a lot of time focusing on our bold flavors this year with Margarita, which, as I mentioned, has been very successful, but it hasn't been nearly enough to impact the total business because we've probably taken our eye off the ball in light flavored seltzer, and that's where a lot of consumers have been gravitating toward lately, and we have great flavors. That's what we reformulated them again, and we need to remind people of what they are. So I think those are sort of the things that you look to see as we enter 2023.

Helpful. Thank you.

Thank you. And the next question comes from the line of Kaumil Gajrawala from Credit Suisse. Please proceed with your questions.

Hi. Can you talk about gross margins a little bit? And then maybe even if, Frank, you're able to give a read on how much of the launching of the automated that the new variety pack line impacted this particular quarter? And are you up and running now, we're no longer feeling the drag from that? A – Frank Smalla: Yeah. No, happy to do that. So gross margin, clearly, for the quarter came in below our own expectations. And I think the main reason, as I mentioned it in the prepared remarks, was higher obsolescence. That was mainly due to the changeover to the new Truly formulation. There was – one of the largest projects that we have done, if you look at the complexity of the portfolio, the number of variety packs that we have and the different flavors that are in there. So that was a big project. And I think you have to see that in conjunction with like the current supply chain situation that we're in, we've opted, as we've mentioned before, to run slightly higher inventories for 2 reasons. One is we want to make sure that we increase our service levels and we have enough inventory to service our wholesalers. The other one is, you look at the global supply chain situation and the disruptions that we're seeing. We wanted to make sure that we're not running out of packaging materials. So this is nothing new. What happened is that the volumes with Truly and with an unfavorable mix came down, and we were left with more stranded product than what we had originally expected. So this was impacting, that was the main reason why the gross margins were impacted and lower than our expectations. That's clearly not something that will happen all the time. That's more one-time in nature. We've seen some progress in the rest of the drivers. I mean, if you remember, when I lay out the drivers to get back to 50%, we're making progress, the variety pack lines. We've given a range, and we said, well, it's going to take some time to improve the efficiency. We have seen slight improvements, but there's still a lot of room left to get to the target efficiencies that we are seeing and that we are looking for to get back to 50%. So I'd say, overall, the overall building blocks have not changed. The target hasn't changed, but this quarter was clearly impacted by the additional obsolescence.

Got it. And it sounds like it's complete any additional obsolescence it's all done that you're operating under the new.

Well, we are now pretty much fully transitioned to the new formulation on all the products. So that should have been it.

Okay. Great. And then can you maybe just add a little more detail on the Dogfish Head impairment? Unlike seltzer, which came and turned so fast, Dogfish has been around for a while. So just maybe just some color on what happened there.

Yes. So this is a relatively straightforward accounting assessment. If you recall, the transaction happened in the middle of 2019, which was literally half a year before COVID, and we had our own business proposition, which was the basis for defining the brand value that we put on the balance sheet. So we had certain assumptions in there. Then you have to compare your revenue assumptions to what you're really achieving, and that's the annual impairment test that everybody is doing typically. The revenues are below what we had defined in the business proposition. And the main reasons, I would say, is like COVID came in the middle of the integration, it took a little longer, clearly, the craft beer market, if you look at the total beer category, the traditional beer side, the craft beer side has been suffering a little bit. So that contributed basically to the lower revenues versus what we had in the business position. From a business perspective, I want to be clear, we like the asset. We think Dogfish Head is a terrific brand. And I think what has changed since 2019 is that we have no Dogfish Head canned cocktails, which were not really part of our consideration in 2019. And the canned cocktails, as you know, they are playing in the growing segment of the beer category. In the Beyond Beer segment, they're getting tremendous traction, we have extremely high growth rates. So if I look at the profile of the Dogfish Head brand portfolio, I'm really happy with that. And I think it will provide a lot of growth and of a different quality, quite frankly, going forward than just having purely the craft beers, which we're kind of considering in 2019. So I think the structure is a healthier structure, but given the size of canned cocktails, it will take a little bit longer, and that's why we took the impairment.

Got it. Thank you.

All right.

Thank you. And our next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed with your question.

Great. Thanks for taking the question. Wondering if you could give us some more color around Truly performance since the reformulation. I realize it's still early, but it has been in the market for a couple of months now. Any green shoots? Any more specific data that you could point to? Because when we look at the overall data for the Truly lightly flavored packs, it looks like it's going in the wrong direction and it hasn't really improved. So, any help there would be appreciated.

Okay Eric, this is Dave. I think -- so we started -- it was a number -- a lot of like six variety packs that we switched over, the first was citrus that we started in early August, and we finished up probably at the end of September. So there's not a lot of impact. In terms of our Q3 results, you're not going to really see anything there. But of course, I know you're looking at IRI or Nielsen, wherever you're looking at, which is up to the like second. And I think it's still -- I would say still -- first of all, the anecdotally, what we're seeing on social media, what we're hearing from consumers from customers and from wholesalers is positive about the change in the product. So people -- we feel very good about the reformulation and the quality of product that we delivered. And it's going to take a while. I mean, this is a -- it's a very competitive market, as you know. And it's not something that would show up like immediately overnight. In terms of green shoots, I mean, I can tell I'm looking at -- we look at numerator data. For example, I'm seeing, again, this is -- but I wouldn't draw any big conclusions, but over the last four-plus weeks, we've seen buy rates increase. And actually, our buy rate have been going the other way on Truly. This year, we've seen an increase. We're not seeing that actually, as you're suggesting, I can share numbers on the volume numbers, but that's a good sign. There are other customers that where we've seen actually the brand is growing. I can't really name those customers, because we wouldn't be selling there tomorrow if I did. But we are seeing some…

Okay. And then as you look at the broader Truly portfolio, you kind of alluded to you guys being part of the problem in terms of the category confusion or consumer confusion. Are there plans to further rationalize the portfolio? I had picked up that you were discontinuing the Truly Iced Tea. But even with that, do you have too many variety packs out there given where you see the shelf space going? And are there plans to rationalize that?

I think that's – probably our decision and probably our customers decisions. But Truly Tea is going away. I think what you're going to see is more of a focus, a communication focus on the core brands, the core lighter flavor brands. Citrus Tropical Wild Berry, Margaritas performed really well. Lemonade and fruit punch will stay. And they're part of the reformulation as well. So we think we're probably not going to be adding permanent SKUs next year is unlikely. And I think what we're going to do is really double back down on the core lighter flavors. And we'll see where that, goes. But I think we've been increasing at a pretty good pace. You're not going to see that kind of pace continue.

Okay. Thanks. I'll pass it on.

Thanks. Thank you. And our next question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question.

Hey, great. Good evening, guys. Two for me, if I could. Just, look, understanding the 2023 and beyond is a lot more important. The guidance for this year implies a really wide range, I guess, given where we are and the fact that we're much of the way through October. So Frank, maybe just comment on that. Why such a wide range? Where are you within the range now? I think would be helpful to folks. And then a broader question for Jim and Dave, I'll just ask them both now if that's okay. I guess, given the impairment charge to Dogfish for the reasons that Frank talked about, I don't think it's lost on folks in terms of what's happened within the craft beer industry. But Jim, it would be great to kind of get your updated thoughts on sort of the state of the union here in terms of the outlook for beer category volumes within sort of the fourth category that's emerging here with ready-to-drink. And I think, sorry for being for both, but kind of the elephant in the room, here is I'd love to get your thoughts on why should investors be confident that multi-sell through don't go the way of mainstream beer? And we're potentially looking at low single-digit declines. I know, it's a lot worse than that. But as we – at least at the moment, but as we level off here, what gives you confidence that, that's going to return to growth. So a lot in there. I appreciate your thoughts. Thank you.

All right, Kevin, let me start with the guidance. So I mean, first off, we have narrowed the guidance based on what we've seen. It's still relatively volatile, to be honest. And I think maybe for the shipment guidance that we have, like we narrowed from minus 2 to minus 8, to minus 4 to minus 7 million. We narrowed the pricing range a little bit. So broadly, at the midpoint, we less net revenue largely unchanged. I think where we have a bit of volatility and we'll be seeing that, I guess, in the fourth quarter, if you look at last year, last year, we had significant shipment declines. The fourth quarter shipments were declining versus the prior year versus 2020 by roughly 25%, whereas depletions were going up 15%. And that is versus a quarter in Q3 that was growing 11%. So there will be some volatility, and we just wanted to make sure that we capture that in the guidance range. And then clearly, as you know, and we've mentioned that a number of times, you have the 53rd week that will add a little bit of growth. So year-to-date, we are roughly, as you know, between 6% and 7%. Well, we have, at the end of the quarter, 6% to 7% that has improved, trends have improved, which is a good sign. We hope that's going to continue. But then you add the 53rd week, and then the innovation that we have is a little bit back-end loaded primarily with Truly what's -- so that's coming mainly in the fourth quarter. That's kind of where we are on the top line. On the margin side, I think we have narrowed it down a little bit. And as you know, there's volatility in the supply chain, that's internal supply chain and external supply chain. I talked about the obsolescence, which was higher than what we had expected. But we've narrowed it down. We feel we have a good handle on it on the year ago, but it clearly depends also on the volumes. And then as we said before, how much progress we're also making on our efficiencies. And then on the EPS, I think that the midpoint hasn't really changed. We just haven't narrowed it to $3. So we feel fairly confident that we're going to come in within the range. But it's really the volatility on the top line that provides the -- or that drives the width of the range, if you will.

Okay.

And I’ll -- Kevin, I'll try to pick up the second part of your question, which had a bunch of different moving parts to it, if you will. As I interpreted it, your first question was kind of what's the state of the union in craft. And I would say, craft is a mature category at this point. It has become a mainstay in American beer with a substantial drinker base. And it's hard to go into a bar today that doesn't have the least one and often multiple craft beers. So it's a relatively stable and mature category, also quite competitive. There's still innovation driving it. As you can see from Boston Beer Company with the addition of Just The Haze, a non-alcoholic craft beer, that just got picked has the best non-alcoholic beer in America at The Great American Beer Festival. So we do still see opportunities to innovate at an extremely high industry-leading quality level in craft. But overall, the category is pretty stable and mature. And that's what we see with Dogfish Head. We believe that is a strong, in some ways unique brand, and we believe that it brings some special attributes to the RTD category, which as I mentioned, it's growing 79% so far this year. And Dogfish Head is now the number five or six RTD. It's got a reputation for great quality and for innovation and for culinary ingredients, and it has a unique positioning in some ways in this very crowded RTD space. It's a craft producer, bringing craft values of innovation, great ingredients, great taste and overall quality to -- and kind of off-centered thinking and off-centered consumers to this crowded RTD space. So, we feel very good about the strength of the Dogfish Head brand, both in the mature…

Okay. Very good. Thanks for all the time guys. I appreciate it. Good luck.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.

All right. Thank you. Hi everyone. I wanted to circle back on guidance with a follow-up. I guess, just thinking about your updated guidance ranges, you narrowed the ranges, but you took the midpoint of your depletions and shipment guidance down by 50 bps and the midpoint of your gross margin guidance down by 120 bps. But I guess you left the midpoint of your GAAP EPS guidance the same. So I guess I'm just trying to reconcile this. I mean, should we assume your full year EPS realistically, I guess, comes in toward the low end of your new range, or are you just maybe being conservative on some of the other ranges?

No, I think it's more of the latter, Bonnie. I don't – I wouldn't – we're not putting ranges out where we believe we're going to come in at the low end. I mean, we're adjusting the ranges accordingly. I wouldn't read too much into the shipments, the half percentage point, we narrowed it on pricing. So the way we're looking at it is really revenue is going to stay about the same. I mean, it's the volatility that we are seeing in the market. And I referred to also especially growth rates versus prior year, especially when you look at shipments, I don't think we have the precision of 0.5 point, quite frankly. So that's it on the gross – and on the gross margin, we had a few surprises. So I think it would be the latter. But I wouldn't expect that – I wouldn't interpret that that we would target the lower end of the EPS range. That's not the case.

Thank you. And our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Great. Thanks. I actually wanted to go back to Twisted, if I could. And two questions. The first one, I think, is pretty short. Just – I don't know, if you've got any updated thoughts as to how much, if at all, Twisted in the current environment is itself benefiting from consumers moving away from seltzer and experimenting in finding Twisted?

Yeah. I think on that – if we went back a year ago and looked at this where hard seltzer is sourcing volume. It really didn't impact Twisted Tea very much at all. I mean, it does sort of extend. Every brand, everybody drinks everything, but it didn't over index by any means with hard seltzer. So I don't think it's getting like a tailwind now as the hard seltzer goes down. But I'm sure there are some consumers that are switching, but it's not – I would say, it's not material to Twisted's current growth.

Okay.

And actually if you look at it – actually, if you look at it, you really – it goes back to really like – this thing started to really kind of tip, I would say, last summer, like last – maybe last year, maybe the first quarter of last year. So when this thing started to accelerate from sort of low 10%, 12%, so plus 20, it was really when hard seltzer we're still going strong.

Okay. Okay. And that kind of leads to my second question. And maybe part of the answer isn't what you just said. But I just – I kind of going back to how Nik started on the topic. You talked a lot about growing the brand double digits for 20 years, very patient, deliberate robust, but relatively deliberate growth. And so it feels like the brand has been sort of pulling demand kind of ahead of availability. And now I just – I guess I'm a little concerned, I think this is the root of kind of what Nik was asking about, too, that all of a sudden, as the brand has accelerated, there's a really big distribution push and a big advertising push, kind of almost getting ahead of the natural pull. And that maybe as consumers are out there exploring for the next kind of novel thing that they're kind of finding Twisted as part of that search. And that the experimentation is part of what's driving the growth right now. But then as we fast-forward a year, 18 months from now, after a big distribution push, just like you were talking about seltzer, the novelty had kind of worn off, that we look back and say the novelty on Twisted Tea has worn off. So I guess just any additional thoughts you might have on what I'm saying and how you're comfortable that that's not happening.

Yes. And I would say, I'll go back sort of where it was before, which is there's the depth of distribution still has a lot of runway. So it's not like we're not even close to the end in terms of whether you look at it by channel, whether it be small format convenience to a large format, single-serve SKUs, multi-pack SKUs, there's still significant runway to get -- to drive distribution. Then from a mental availability perspective, our -- I mean, we've increased our media. We've increased our awareness, household penetration, but it's still very, very low. I mean, it's so low. So it's not -- we don't think that we're coming close to sort of peaking. I mean, we're -- are we going to grow 30% every year? Probably not. It’s very unlikely. But we still see a lot of growth there. And I think some of the other things to look at, I mean, when I look at -- when I look at this brand is, I just look at convenience store. And I almost can stop right there because that is like that is -- think of that, that's our freedom of choice channel. That's where the consumer walks in. They're not tripping over displays. They're not seeing big price promotions. They're going in and they're making a choice. And this brand is by far and away the number one player in FMB. And in fact, like I said before, it's one of the top three or four brands in all of beer and convenience stores, and it's always been that way. But again, then you have the geographic disparity where you go -- you walk into Montana or Maine or Vermont, and you'll see a full shelf of Twisted Tea, walk into New York City or L.A. or Houston, you'll see maybe one or two cans. So this is a brand that clearly has a following. It's been quite narrow. And now it's starting to grow, but it's growing -- we're not -- I don't think we're forcing it on people. We're pushing it too hard. We do a lot of work on social media. We're not trying to feel like a big brand and people are finding it. So I guess, obviously, time will tell. But we feel like, again, when you could balance the physical availability, the mental availability and you have still upside in both of those, then that's a good -- that's a very rare place to be. And I would argue there's probably two or three brands in this entire category that are sitting in that position.

Yes. Okay. That's fair, and very helpful. Appreciate it. Thank you very much.

Sure. Thanks.

Thank you. And our next question comes from the line of Rob Ottenstein with Evercore. Please proceed with your question.

Great. Thank you very much. So Jim, I'd love to get your thoughts kind of standing back now on what you're learning about consumer behavior in beverage alcohol? And then how that informs your strategy and tactics, particularly on Truly? And so at least what we're seeing with spirits, Pernod today was kind of like growing mid single-digit, led by premiumization. So the spirit seems to be doing really well, mainstream beer is falling a couple of points or so, which is what it has been doing. And then in the middle there, there's seltzers, and obviously, we're in an adjustment period there. But my question kind of is, are seltzers priced right, particularly kind of going into a recession where seltzers are, I guess, $30 or so a case? BudLight is $20 a case. You did mention that some of the -- you were seeing some people trade down, particularly older demographics. But given that seltzer SKU younger going into recession, do you think the pricing is right for seltzers in general relative to spirits and mainstream beer? And is the pricing right for Truly? And do you need more promos or some sort of clever marketing to provide more perceived value? That would be my first question.

Here's my opinion on it. We are not really seeing a lot of trade down in alcoholic beverages as a whole. A little bit of bump for some sub-premiums. But the growing categories like Twisted Tea or Mexican imports, they are premium priced at about that kind of premium, not quite 50%, but that order of magnitude. And that's where the growth is in beer, and in alcoholic. Beverages in general, it's more towards the premium and then the cheap products. And we've seen this in recessions in the past. A craft beer or a Truly or Twisted Tea, things that are different, unique, they have sailed right through recessions. So I'm guessing that -- and it's partly because you're talking about a very affordable indulgence. You might not be able to go out for a steak dinner, but you can come home with a 12-pack of a premium product and feel good about yourself. So that would be my experience from the past. And I think, in general, my view of the world is that traditional beer is probably not going to grow, maybe not -- maybe not in our lifetime. Though I can't see that far out because I intend to live for a while. I believe the same thing is probably true about traditional wine as their demographics age out. In hard liquor, I think the growth is going to be in this fourth category. That is not traditional beer, not traditional wine, not traditional spirits. And my belief is that the beer industry is pretty well positioned there, because it generally looks like beer. It's in the cold box. It's the kind of ABVs of beer. It's in beer-type packaging, and it's heavy, and you need high-speed can lines to make it and distributors that can move tonnage. So, I see Boston Beer is well positioned in the growing segment of alcoholic beverages. We are the number two in this Beyond Bear category. It's a vast majority of our business, and we're organized around making that kind of products, both in the capital that we put in, with high-speed can lines and automated variety packing and then other capabilities like sensory and flavor, people and a wholesaler network that can get this stuff on the shelves very well in advantageous positions.

Great. No, that's terrific and certainly fair enough. Great. And then, just one follow-up on Frank maybe. Can you kind of update us on your latest thoughts in terms of capital allocation? The cash is building nicely on the -- I mean, you've got a fabulous balance sheet, which is great. Is it time to look at dividends, share buybacks? Are there strategic acquisitions that may make sense? Just trying to get just updated thoughts on those sorts of questions. Thank you.

Yes, sure. So, as you know, I think we haven't really changed our approach to like how we think about capital allocation. Clearly, the business comes for us. We're a growth company. We have our ups and downs, but long term, we're a growth company, that's where the investments go in terms of capital and other investments. And then we had, like the last few years, we're highly volatile and bumpy for -- globally for the world in which we are operating. So, typically, whatever is left over that is not needed for the business, we return to shareholders. And we have a preference for share repurchases at least in the past. And I don't see that changing in the near term over dividends. When the time is right, and to your point you look at the balance sheet that looks nicely. I think we feel more comfortable than a year ago. But when the time is right, we'll announce that.

Terrific. Thank you very much.

All right.

Thank you. And the next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question.

Thank you. All right. So two questions for me. First, providing guidance over the last 12 months, I mean, has been challenging for Boston Beer given what's been happening with the Hard Seltzer category, the uncertainty. So what's behind your decision to commit to providing fiscal 2023 guidance at your next results? And then secondly, coming back to Twisted Tea, there are many new entrants coming into the hard tea space, most notably Lipton with its alcoholic brand. How do you anticipate Twisted Tea performing in this increasingly competitive environment?

Yes, Nadine. So, clearly, on the 2023 guidance, I mean, yes, we've talked about it, there's quite a bit of volatility. And I think, we want to provide guidance when we feel more comfortable with the data. And I think it's -- typically it's an industry practice. You announce with our Q4 results, which is what the majority is doing. And that makes sense in an environment like this. So, we are -- the way we are planning, we have significantly better handle on where the categories are going, where the consumer is going, how we see the progress of our supply chain. So that's the reason why we said, okay, there's no point in giving preliminary guidance. Now, with the Q3 earnings call, we'd rather do that once with the Q4 earnings call. That's the reason why we decided to do that. And I think it's easier for you guys as well. It's going to be better guidance than what we'll be able to provide at this point.

And I'll pick up the Twisted Tea question. And it's a good question. There's a tidal wave of competitors coming into Tea because it's a large, sizable category that's growing extremely fast. And we live in a very competitive environment. I would say, historically, this isn't the first time we've had a bunch of competitors coming at it. Twisted Tea has been around over 20 years. And there literally have been dozens of Twisted Tea competitors launched from small start-up entrepreneurs to great breweries like Anheuser-Busch or Molson Coors. And the dust has settled over 20 years, and Twisted Tea is 90-plus percent of the category. There really is no significant number two in the category. Now, that being said, I don't want to dismiss both the quantity and the quality of the next wave of competition coming from, again, everybody from small entrepreneurs to a big multi-hundred-billion-dollar market cap company with a great track record of beverages like Pepsi. So, this is another level of competition, but we withstood it in the past because we have a very, very loyal, very strong drinker base. People have been drinking Twisted Tea for a decade or two. It's the only brand that really comes to mind when you think about hard tea. It kind of owns that category, as Dave was talking about, both in physical distribution where you walk into a store and there's a block of yellow and blue, and then there's other unknown things that are next to it that say tea on it, but they don't have the credibility or the longevity or the reputation. And it has the mental availability. If you think about hard tea, you think about Twisted Tea. There's really not much else that comes to mind. It's a very competitive business. And whenever you're successful, you're going to get a whole bunch of competitors, and we're going to amp up our investment. We have tremendous support from our wholesalers because this has now become a meaningful part of their business, and they're going to expand our shelf space, but that's all we can do. We can't keep people out and we can't keep them from trying to be successful. But certainly, it is a category where we dominated and have for 20 years, and the dust is kind of settled. I guess, the nearest analogy would be Mike's Hard Lemonade. And they've had a couple of dozen competitors, and they're 90% of the hard lemonade market and have been for over 20 years. So, it's not -- it would not be an exception to what goes on in this business for Twisted Tea to maintain its 90% share.

Got it. That's very helpful. And maybe just a clarifying point. I didn't mean why wouldn't you provide fiscal 2023 guidance today. I simply meant that some companies might elect to postpone providing guidance at the next results simply because of the lack of -- simply because of the uncertainty around hard seltzer or the macro environment. But you guys have committed to providing guidance. So I guess that's what I was asking.

Okay. Yes. At this point, we haven't made any decision to not provide guidance, we just provided in with our Q4 results. Yes.

Understood. Thank you very much. I’ll pass it over.

Okay. Thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Hi, good evening, everyone. I hope you're doing well. So maybe going back to that last point on guidance and recognizing that you're choosing not to provide it today. I was just hoping to get your view on whether you have visibility on kind of the gross margin trajectory. And I guess, specifically, how should we really think about the pace and magnitude of margin recovery as you look out to 2023, kind of lapping some one-time issues that hopefully shouldn't repeat here? And I guess, kind of the root of the question is, I'm really just trying to understand, based on what you know today, how quickly can you return to that long-term gross margin goal of kind of north of 50%? Thanks.

Yes. No, fair question. I will probably -- I'll try to answer it as best as I can without giving guidance to the back door. But clearly, as I think I've indicated before, we feel good about the building block store gross margin. So what we had this quarter, nothing has really changed that. We know exactly what it takes to get back to 50%. We've, I think, indicated also at the last earnings call, it will take some time, and we want to see kind of more proof to see it come through we have seen. We've started on that journey. For next year, we expect on those different streams. We expect progress. Clearly, the one-timers that we've talked about, the obsolescence charges, a lot of things that happened in the first half of the year, in the aftermath of what happened in 2021. We will take this all into consideration when providing guidance. And I think what I can tell you, fundamentally, when it comes to the gross margin, nothing has changed versus what we've really said in the July earnings call.

Thanks. I appreciate it. Best of luck.

Thank you.

At this time, there are no further questions. And I would like to turn the floor back over to Jim for any closing remarks. End of Q&A:

Thank you, everybody, and we look forward to speaking again in February.

Thank you, everyone. This does conclude today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.