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Greetings and welcome to The Boston Beer Company Third Quarter 2023 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] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host 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 2023 third quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Dave Burwick, our CEO; and Diego Reynoso, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-K. The company does not undertake to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. I will now pass it over to Jim for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Dave, who will provide an overview of our business. Dave will then turn the call over to Diego, who will focus on the financial details of our third quarter results as well as our outlook for the remainder of 2023. Immediately following Diego's comments, we will open the line for questions. Our third quarter depletion decrease of 6% on a fiscal calendar basis and 3% on a comparable week's basis was in line with our expectations and improved from a decrease of 7% on a comparable week basis in the second quarter. We saw strong performance in our largest brand, Twisted Tea, and we expect its continued success to have a continued impact on our overall growth rates for the remainder of the year. In measured off-premise channels, Twisted Tea continued its strong dollar growth, up 34%, which was offset primarily by continued declines in Truly Hard Seltzer. We continue to make progress on operational plans to enhance our margin and have delivered gross margin improvement for the last two quarters. Our multiyear initiatives to drive execution across more complex business and align our cost structure more closely to volume expectations are progressing well. We continue to believe that the Beyond Beer category will grow faster than the traditional beer market over the next several years. We plan to continue to invest behind Twisted Tea and Truly brand, while also developing innovation across Beyond Beer categories to drive long-term growth. The operational changes we've made this year will help us continue to drive improvement in our margins. But the pace of that improvement will depend on how the consumer environment plays out and how fast we are able to grow into our capacity. We continue to have a highly cash-generative business with a strong balance sheet, which has enabled us to fund incremental investments in our brands and repurchased over $69 million of stock thus far in 2023. Finally, we are thankful to our outstanding co-workers, 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, and good afternoon, everyone. As Jim mentioned, our third quarter volumes were in line with our expectations. For the second quarter in a row, we had a gross margin of over 45%. We also generated approximately $250 million in operating cash flow over the last two quarters combined. Diego will discuss the financial results in his remarks, while I'll focus my commentary on our overall performance. Our strategic priorities remain unchanged. We're focusing our resources on sustaining Twisted Tea's industry-leading growth and turning Truly's volume trends while improving our supply chain performance to enhance our gross margins and provide more funds to invest in our brands and our top-ranked industry sales force. I'll now provide some color on our brands. Twisted Tea in the third quarter had 34% dollar sales growth while adding $3.2 share points and expanded its overall share rate to 29% of total FMB dollar sales in measured on-premise channels. This robust demand is a result of balanced efforts at growing both fiscal availability via improved geographic channel and package distribution and mental availability via a highly effective brand building campaign, increased media investment, an expanded college football tailgating platform, and optimized packaging design that highlights the brand's distinctive assets. Twisted Tea Party Pack is now the third largest and the fastest-growing SKU among all FMBs and our wholesaler service levels are in a good position to support further growth. We remain confident that Twisted Tea will sustain a strong double-digit growth for the remainder of 2023 for many reasons. First, there's upside in growing brand awareness and household penetration, and our ad campaign is working. Second, the brand is underdeveloped with Black and Hispanic and Latino consumers, and we're seeing increased household penetration in these demographics as a result of our marketing efforts. Third, there's still ample room to expand distribution through shelf space gains and new channels. As I mentioned on our last call, Twisted Tea finished the spring space resets season with a 49% increase in shelf space, and those benefits will continue to fuel the business during the balance of the year into 2024. In the on-premise channel, Twisted Tea is underpenetrated for other FMB competitors. It has a 60 share and has driven 96% of the volume growth in Beyond Beer year-to-date. Fourth, there's opportunity to widen the brand's presence in underdeveloped markets, and we're making great progress in places like Texas and California. Fifth, we're still in the early stage of Twisted Tea Light's national launch and the sales per point is accelerating and exceeding our expectations. It's now approximately 85% incremental to the Twisted Tea portfolio. Lastly, in the third quarter, we began testing a higher ABV version of Twisted Tea in several markets called Twisted Tea Extreme, it has 8% ABV and as part of our efforts to find future pathways to growth by increasing occasions and adding new drinkers. Now on to Truly. We remain confident in the changes we made to the brand proposition starting late in the second quarter and have seen gradual improvements in our results in a challenging segment. In light of Twisted Tea's strong growth, Truly continues to become a smaller part of our portfolio mix, with Twisted Tea now 1.7 times larger than Truly in measured channels in the third quarter. This impact is evident in our total company volume share, which when compared to the prior year quarter was flat at 4.5% in the third quarter versus a loss of 0.2 points at 4.3% volume share in the second quarter. In the third quarter, Truly's dollar sales declined 26% and lost $3 share points versus a 31% decline in dollar sales and a loss of $3.8 share points in the second quarter. Underlying this improved trend is much better performance in our lightly flavored variety packs and 24-ounce single-serve cans, which gained dollar share by 0.4 points and 0.7 points, respectively, in the third quarter. Our new packaging refresh merchandising focus on light flavors, push behind single serve in the convenience channel, new ad campaign and higher media spend, all have contributed to share growth in a slightly flavored part of the portfolio. We recently shared some innovations for the Truly brand launching in early 2024 that include a new 8% ABV Truly Unruly Variety Pack, which will replace our Truly Margarita Pack and a new Truly Party Pack, which will replace our Truly Tropical Pack. In addition, we'll improve the recipe of both Truly Lemonade and Fruit Punch to create a lighter, more refreshing finish, addressing a key issue with lapsed drinkers. We believe these innovations, along with the national launch of Truly Tequila Soda ahead of the peak summer season, will better position the Truly brand offering and set it up well for improved trends in 2024 and beyond. While we're not satisfied with Truly's pace of improvement, we're confident we made the right changes to position the brand for success. We remain encouraged that in the third quarter Truly maintained the second highest sales per point in Hard Seltzer, 52% more productive than the [indiscernible] brand and the third highest sales per point all Beyond Beer. So there remains a strong consumer base to build upon. The moderating overlap of Margarita launch and Truly's Tea's discontinuation, which have contributed 75% of the brand share loss to date should lead to continue to improve share trends through the balance of the year. As evidence in measured off-premise channels, Truly lost two volume share points in the latest four weeks compared to losing 2.4 volume share points in the third quarter and 3.5 volume share points in the second. While maintaining Twisted Tea's double-digit growth and improving Truly's trajectory are our top priorities for the year, we have a broad portfolio, and we'll continue to support and build out our smaller brands. Sam Adams total share across all channels was slightly up in the third quarter and a difficult craft beer category and we'll continue to invest behind our new Remastered Boston Lager campaign and our seasonals in addition to our non-alc portfolio, including Just The Haze and Gold Rush Pilsner, which grew 95% of dollars in the third quarter in measured off-premise channels. While currently a small part of our portfolio, we see incremental opportunities in spirits-based RTDs. Truly Vodka Soda has strong VP and continues to gain distribution and Truly Tequila Soda will launch nationally in 2024, ahead of the peak selling season, building on the success in test markets this year. Meanwhile, Dogfish has award-winning can cocktails have gained solid footfall in the traditional can cocktail segment. Turning to our supply chain. We continue to modernize our supply chain, investments in equipment, capacity and improve systems and processes. I'd like to broadly discuss the status of the three categories we focused on to drive improved margins. The first is procurement savings. We targeted savings initiatives across multiple areas, including raw materials and packaging that have achieved some benefit during the second and third quarters. We continue to review our contracts with our well-packed suppliers for the aim of adjusting these to be more reactive to changing demand. The second area is brewery performance. While we expect to always have a mix of internal and external production, we're focused on moving volume back to our internal breweries where possible given our production cost advantage. We're evaluating our mix in a disciplined manner, focusing on improving our internal line stability and efficiencies as well as adjusting contracts with our co-manufacturers as we adapt to changes in our volumes and product mix. Third is waste and network optimization. We have initiatives to attack waste and optimize our logistics with reduced rate and warehousing costs over time. These efforts helped us realize lower inventory obsolescence cost in the third quarter, which benefited our gross margin. We're currently implementing systems to improve our forecasting inventory management, which we expect to further reduce waste. We have multiyear savings plans across each of these categories, which we expect will generate significant long-term gross margin expansion. While it will take time to realize the full benefit, we began to see some benefit in the second and third quarters, primarily related to procurement savings and lower inventory obsolescence costs, and we expect to see more in the remainder of the year. We're also closely managing our operating expenses. We expect to use the cost savings that these efforts generate to nurture new innovation and support increased brand spend, and within brand spend, both converting nonworking to working dollars and shifting our mix from traditional to digital and social media. In summary, we're optimistic about the long-term outlook for our diversified beverage portfolio. Our company has exceptional innovation and brand-building capabilities to top sales organization of beer and a cash-generative business model with an excellent balance sheet to support long-term growth. Now I'd like to welcome Diego Reynoso, our new CFO. Diego has significant financial and operational experience in the consumer industry, particularly in the alcoholic beverage category. I've worked closely with him since he started in early September, and I'm confident he brings the requisite leadership and financial expertise to help us attack our most important business challenges. I'll now hand it over to Diego to discuss third quarter financials and our full year guidance.

Thank you, Dave. Good afternoon, everyone. I'm very excited to be part of the Boston Beer Company and have learned a lot in my first two months. It's exciting to return to the beer business, particularly as the category has expanded to provide more consumer choices with Beyond Beer and non-alcoholic offerings. Although it's early in my tenure, I'm very encouraged by our innovation and distribution expertise and the strength of our team and our unique culture. I'm looking forward to partnering across the company, particularly with our supply chain function, to drive long-term financial performance. Turning to our third quarter results. Fiscal calendar depletions for the quarter decreased 6% from the prior year, reflecting decreases mainly in Hard Seltzers, partially offset by increases in Twisted Tea, Truly Vodka Soda and some of our innovation. Shipment volume for the quarter was approximately 2.3 million barrels, a 2.5% decrease from the prior year. We believe distributor inventory as part of as of September 30th, 2023, averaged approximately five weeks on hand and was at an appropriate level for each of our brands. Our third quarter gross margin of 45.7% increased 250 basis points from the 43.2% margin realized in the third quarter of 2022. This was primarily due to strong price realization and lower obsolescence and procurement savings, which more than offset inflationary costs. Advertising, promotional and selling expenses for the third quarter of 2023 decreased $1.1 million or 0.7% from the third quarter of 2022, primarily due to decreased freight to distributors, partially offset by increased brand investment and higher selling costs. General and administrative expenses increased by $4.9 million or 13.2% from the third quarter of 2022, primarily due to higher salaries and benefit costs and increased consulting costs. In the third quarter, we recorded a $16.4 million noncash impairment charge, primarily for the Dogfish Head brand as a result of the company's annual impairment analysis. The impairment determination was primarily based on the latest forecast of brand performance, which were below our earlier projections. For the third quarter, we reported net income of $45.3 million or $3.70 per diluted share. The impairment I discussed earlier negatively impacted diluted earnings per share by $0.96. Year-over-year earnings growth was driven by revenue growth and higher gross margins as well as lower impairment charges versus the prior year. Turning to guidance. Our depletion trends for the first 42 weeks of 2023 have declined 5% from 2022 involves a fiscal and comparable week basis. Based on our year-to-date performance and current projections for the fourth quarter, we are narrowing our full year 2023 guidance range. As a reminder, the 2023 fiscal year includes 52 weeks compared to the 2022 fiscal year, which includes 53 weeks. As you are updating your models, please note that the impact of this one less selling week will be reflected entirely in our upcoming fourth quarter results. We now expect full year 2023 depletions and shipments to be down 5% to 7% versus our previous guidance of down 2% to 8%. This is inclusive of a one percentage point negative impact from the loss of the 53rd week. We project increases in revenue per barrel of between 2% and 3% versus our previous guidance of between 1% and 3%. Full year 2023 gross margins are expected to be between 42% and 43% versus our previous guidance of between 41% and 43%. Our full year investment in brand spend within advertising, promotional and selling expenses are expected to increase between $25 million and $35 million, which is a narrowing from our previous guidance range of $30 million to $40 million. This guidance does not include any changes in freight costs for the shipment products to our distributors. We have experienced lower-than-expected freight costs year-to-date, which, in addition to gross margin performance, allows us to support our brands further. We continue to estimate our full year effective tax rate to be approximately 28%. Our updated non-GAAP earnings per share guidance of $7 to $9 excludes the impact of the noncash impairment charge of $16.4 million or $0.96 per diluted share. This projection is highly sensitive to changes in volume protections and supply chain performance. As you model out your projections, please keep in mind these factors. The 53rd week overlap is expected to negatively impact fourth quarter volume trends by approximately six percentage points. In the fourth quarter, we expect price realization to be positive, but at a lower level due to third quarter price increases compared to the prior year. In the fourth quarter, which has seasonally lower volumes, gross margin is typically lower on an absolute basis relative to earlier quarters. We expect lower year-over-year gross margin improvements in the fourth quarter due to higher shortfall fees on our third-party breweries and the volume impact of lapping the 53rd week. Finally, as we have been disclosing in our 10-Q for some time, we do expect to incur shortfall fees in the coming years as we continue to work with our third-party breweries and grow into our capacity. Turning up to capital allocation. We ended the quarter with a cash balance of $311 million and an unused credit line of $150 million, which provides us with the flexibility to continue to invest in our base business on our future growth initiatives and return cash to our shareholders through our share buyback. For the full year, we expect capital expenditures of between $60 million and $90 million, a decrease from our previous guidance of between $100 million and $140 million, primarily due to changes in the timing of capital projects. These investments will be primarily related to our own breweries to build capabilities and improve efficiencies. During the period from January 3rd, 2023, through October 20, 2023, the company repurchased 280,000 shares at a cost of $69 million. As of October 20, 2023, we had approximately $290 million remaining on the $1.2 billion share repurchase authorization. This concludes our prepared remarks. I look forward to meeting many of you in the quarter ahead. And now we'll open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Vivien Azer with TD Cowen. Please proceed with your question.

Hi. Good evening. Thank you. I wanted to start on the innovation pipeline and kind of the swapping of SKUs. It seems like there's a lot of activity planned between the party packs on Truly and then also on Truly and Tequila. I think you guys noted last quarter that kind of visibility on spring resets would be more robust following Labor Day. So I was just wondering what is kind of the level of retail or dialogue around all this new innovation, your confidence on gaining incremental shelf space to support that? Thank you.

Hey, Vivien, this is Dave. I'll take a first shot at that. I think what we're trying to do is we're trying to replace both those SKUs, Margarita and Tropical. They may still exist in some markets if there's demand. But generally, they're going to disappear in most places. And we're going to replace them with two new SKUs that we think are more productive, both the high ABV Truly Unruly as well as what we're calling the party pack, which we think is sort of like an all-star assortment of flavors. So in a way, what we're doing is we're maintaining our shelf space by swapping one SKU in most cases for another. But we're doing it, importantly, we believe with SKUs that are going to be more productive and are going to turn better. So that's the thinking behind that. And again, I think one of the things we've learned with Truly is that we got in this innovation cycle where we were adding a lot of new variety pack SKUs. And at some point, you got to -- you just have to walk away from that and you have to find a way to do more with fewer, and that's part of the plan for next year.

Yes, for sure. And I probably could have done a better job of phrasing my question. Absolutely understood on the replacement cycle on those quarterly SKUs. But like what about the Twisted Extreme, those new and incremental with the franchises, right?

Yes. I'm sorry. I mean the other ones we've talked about, you said -- you're talking about Twisted Tea Extreme? Yes.

Are you doing a high -- I'm sorry.

Yes. So there's -- I may have confused. So I was referring Truly Unruly, there's a high ABV for Truly, which we're launching in early in the first quarter. We are testing right now Truly, I'm sorry, Twisted Tea Extreme, which is another 8% ABV version of Twisted Tea that's in convenience stores in about five states right now that we're testing. And if it performs the way we hope it will, then we could likely expand that next year. But that would be in addition to -- the innovation on Twisted actually is kind of light because we have so much to grow -- so many opportunities to grow the core business that we're being very careful on what we add new on Twisted. But Twisted Tea Extreme is a potential for broader distribution, we haven't decided though. Did that answer your question, Vivien?

It does. Thank you. Sorry about that. So many Ts, so many higher ABVs. If we could just turn to the gross margin. Obviously, a very nice second quarter of gross margin expansion, heard loud and clear on kind of the seasonality of margin. But I'm just curious, were margins in the third quarter in line with your expectations? Or did they exceed? And if so like what were the key drivers there? Thanks.

Hey, Vivien, this is Diego. I think margins are in line with our expectations. I think we laid out three key buckets that we wanted to go for efficiencies to improve our gross margins. And we're proceeding in all three of them, the way we expected. The biggest drivers we have in the quarter is the reduction of waste in our network optimization bucket. And the other piece that we also have is some of the procurement savings that we're advancing upon. So those were the two buckets that we thought would give us the faster benefits and we'll continue in our program for the next few quarters.

Thanks, Diego, and congratulations on the new role. We look forward to working with you. I'll get back in the queue. Thanks.

Thank you.

Thank you. Our next question is from Rob Ottenstein with Evercore ISI. Please proceed with your question.

Great. Thank you and congratulations, Diego. Two questions. Let me start with the first one. And that is just love to understand how you're looking at the current business environment and demand for beer? This is usually the season where you get a new round of pricing. Seems like it may be a little weaker than certainly the last couple of years, but maybe even weaker than pre-COVID. Is that your sense? So love to get a sense of your feeling about demand and pricing and how you're dealing with that situation. Then I have a follow-up.

Well, let me start with the pricing. So if you look at our pricing guidance, we're doing a little bit better than our previous guidance for 2023. But as we go into the fourth quarter, we are expecting it to be a little lighter because in Q3, price increases were lower than they were the previous year. So right now, we are currently planning our 2024 view, and we look forward to sharing it within the next call, but we're very -- being very prudent given what we're seeing in the current environment.

Would kind of 1% to 2% be about right for incremental pricing that you're putting in now?

We're currently making sure that we understand the dynamics, and we'll come back in the next call and be a lot clearer on what we expect for next year.

Okay. Great. And then -- and I know I'd love it if you could help us think through this. And that is the split between the third-party manufacturing and what you have inside. Can you give us any kind of round numbers or percentages of how much is third party, how much you do internal? Is it the same for Twisted Tea? Is it the same for Truly? How fungible are those brands? And what percentage of the gross margin gap between where you are now and 50% is bridged by getting that split right?

Yes. So we always try to maximize our internal capacity. I think we've said before, we try to keep it around 90% to 100%. We are actually increasing from 65% internal to about 70% internal from last year to this year. So we continue to move down that path so that we maximize our assets. And as we look forward, we're -- part of the optimization is geography. So it's not just about the assets, but also where they're located. So we will always have a split that helps us maximize our profitability. So as we look forward, we're trying to -- one of the buckets we mentioned is network optimization. That has a lot to do with where we have our different third-party manufacturers and ours and optimizing the financial performance of that.

And let's say, I mean, do you need to get to that 90% to get back to the 50% margin and that will be one of the biggest buckets to do that?

No. No. Again, because they're located in very different geographical areas that is not something we have to do to be able to achieve our gross margin road map.

Great. Thank you very much.

Thank you. Our next question is from Bonnie Herzog with Goldman Sachs. Please proceed with your question.

All right. Thank you. Hi, everyone. I had a question on your new FY'23 guidance. You narrowed your ranges but lowered them. And I guess it now implies Q4 shipments and depletions, I think, will be down, maybe 11.5% on shipments and down 9% at the midpoint. And I know you've highlighted the negative impact from lapping the 53rd week. But I just wanted to understand why you're expecting things to be so weak in the quarter? And maybe what's changed? And then also I did want to understand if the impairment charges you reported in the quarter were always factored into your guidance for the year?

Yes. I think -- hey, Bonnie, it's Dave. So I think first of all, we actually went to the higher -- we actually rounded up on gross margin. Slightly down on depletions more because we're just -- we're being cautious and prudent given the current economic environment. We're not quite sure. So we're just being cautious, but we don't see any change in trajectory than we had anticipated before actually. So pricing, we went a little bit to the higher end, gross margin a little bit to the higher end and depletions and shipments a little bit just a smidge towards the lower end. So it's not -- I'm not sure where you're seeing us go down on all of those.

Okay. So I guess I was just asking primarily on shipments and depletion like since you're expecting shipments and depletions to be down 5% to 7%, correct. So minus 6% at the midpoint?

That's right -- that's about right. Again I was --

So this is Diego. I think just we have one more quarter of results. So what we did is we reduced the range. So last time we said minus two to minus eight. We've now come back and said, well, given we have one more quarter of results, we're going to make that range a little smaller. So we went to minus seven to minus five, but it's simply just because we have one more quarter information, we really haven't changed our perspectives on the year. So that would be the first part. On the second part, the impairment was not factored into our guidance that we get last quarter. This is our regular time of the year when we're looking at our impairments through a regular process. So that was not included in our Q2 guidance.

Okay. That's helpful. And I think it's just -- as you think about you've got some visibility, there's only two months left in the year. So I get it that's great. You've narrowed the ranges and maybe there's some level of conservatism. But just also thinking about the comments that you added and you discussed that, that you're now expecting lower fixed cost absorption in the quarter based on what you're producing in-house. So that's a function of lower expectations on shipments in the quarter I imagine. And then just trying to think about in the context of your gross margin and what it implies for Q4, you're also sounding pretty conservative on your gross margin in and what that new full year guidance implies, correct?

Yes. So two points -- this is Diego. First one is, yes, although the midpoint is slightly lower, we are increasing our gross margin and holding EPS. So there's a piece there. The second piece is the impact of that weak in the quarter is about six points. So when you adjust the quarter for those six points, the trends are relatively holding when you look at the Q3 and Q4 numbers. So for me, that means that we're not significantly seeing a significant change in the performance of the business.

Okay. That's helpful. I was just trying to reconcile because I feel like we've known about the extra lapping next week. But it sounds like you're feeling pretty good and the improvement as you round out the year.

Yes. And I agree with you because we've always known -- I think we've narrowed the guidance, but we haven't significantly changed it.

All right. Thanks so much. I'll get back in queue. Appreciate it.

Thank you. Our next question is from Brett Cooper with Consumer Edge Research. Please proceed with your question.

Hi. Boston has always had success in creating new brands. So I was hoping to ask on the innovation program and specifically outside of brands. I think you changed the approach to how you innovate. And I was just hoping to get an update on what you're seeing from your innovation portfolio, how the new approach is working, expectations from innovation outside of your big brands? And whether innovation program can get enough attention from the company, distributors and retailers, given all of your other efforts? Thanks.

Brett, thanks, I'm going to let -- I'll let Jim jump in on that one on innovation.

Thanks. We have, I think, evolved our innovation program. We're probably making the same or a larger number of bets, but not rolling them out nationally. So what you're seeing from us is a fairly consistent flow of new products a couple of years of new brands. And -- but doing them in test markets and scaling them more cautiously and more slowly and discontinuing things when they don't work. So that's the change that we've made, that's on the new brand side. And Dave talked about lots of new innovation within existing brands, which continue to have shoulders that we can build out like with Twisted Tea. Last year, we brought out Twisted Tea Lights. This year, we're in test markets with Twisted Tea Extreme and the same thing with Truly Unruly. So we're approaching line extensions, if you will, with a little more comfort in rolling them out quicker and bigger. And then we won a pipeline of innovations that are new brands, and we're going to do that more slowly and build on success. I think our model is Twisted Tea, which is obviously a huge brand now for us, but it took 25 years to get there.

Thank you. Our next question is from Stephen Powers with Deutsche Bank. Please proceed with your question.

All right. Hey, thank you, and congrats and welcome from me as well, Diego. I got two questions. One on Twisted and one on Truly. Maybe we'll start with Twisted. I guess, Dave, you called out some success in building out those more underdeveloped markets. I think you called out California and Texas. You talked about Florida as well in the past. Maybe just give a little bit of an update there in terms of a little bit more detail on what you are seeing in terms of that progress? And any learnings that you've recruited best practices? Or any differences either across those markets or nuances versus where the brands are more established for longer?

Okay. Steve, I think both -- if you look at -- actually take those two states of Texas and California, they are two fastest-growing states right now for the brand. So we kind of went from low developed markets to like -- to upper mid developed markets pretty much in the year. And really, it was basic execution. It was driving all the things of things I went through in the opening remarks, it was just driving distribution initially, like starting small format in convenience stores, that's where the consumer goes. And then building that to a large format, building out our 12-pack distribution, building out our 24-ounce distribution. So a lot of it is really execution in the marketplace. On top of that, we did add some media targeting Latino consumers in both of those markets as well because that's obviously an important part of both of those markets. And it just -- and it's moving. So it's not like -- it's not something very complicated. It's basically executing the fundamentals of the business, and that's where it's been able to get growth there. And yet there are still obviously two large populated states, of course, but there are other geographies that we're deploying the same tactics and it's obviously working because the brand has been growing pretty consistently double digits.

Yes, that's perfect. I just wanted to validate that it was more execution and commonality of strategy as opposed to something more nuanced. And then flipping over to Truly. As you called out, the lighter flavors have performed better relative to the total portfolio, which I think is evident. I guess those brands are still trending down, at least in track, as we see it down low teens. So they're better, but there's still got a ways to go. I guess any thoughts on how you can kind of bend the trend in those light flavors specifically? And whether you think there's an element of more media investment there or more kind of promotional sampling strategies? Just anything you can articulate around how you improve that -- the trajectory in those light flavors specifically?

Yes, sure. I mean I think it's just doing more of the same of what we've been doing because we've been doing it since May or June. And you're right. I mean, on the three core light flavor variety packs, they are declining, but they're declining less than the rate of the category. So gaining share is Step 1, growing and outright to step 2. On a single-serve basis, so 24-ounce cans actually were growing. We're actually growing volume. If you look at those numbers, and of course, we're gaining share as well and doing that. It's really been a focus of everything we've been doing over the last, whatever, four, five months, which is focusing on our execution and making sure we have more white flavored variety packs on display. So we went from maybe, call it, 20%, 25% of the display being light flavors to now 40% to 50% of our typical displays being light flavors. It's been fixing the mix and convenience and making sure that we have single serves of life flavors available. It's a new ad campaign. We put a lot more weight behind it, as we talked about in the last call. It's actually spending more money in social and digital that much more than we had done before in [indiscernible] TV and just keep on running the play. The other thing I would say is that one other thing we changed is acknowledgment that the category is still 70-plus percent why we flavored was to change our LTO platform. So we have three LTOs per year. We're getting much better at executing those, and they're all Light flavors. So for example, last summer, we had Red White & True in the marketplace, which was lightly flavored and lapped a year ago what we call pull side, which was a bold flavor. We had 2x the repeat rate on Red and True Last Summer. So 20% repeat rate versus 10%. So this is an example of giving consumers what they want, giving them more lighter flavors. And we think -- so the momentum has begun and we have to keep going because we're obviously -- as I mentioned before, we're not happy unless we're growing. We're happy to -- we want to gain share and that at least we start we are in that part of the business. So there's nothing really, I'd say, up our sleeve that we haven't done that has to be unleashed in order to get there. I think the last thing I'll add on top of that is, obviously, it's about half of our portfolio. We have the both flavors that we have to improve. There's no question because we're not going to get total growth until we get Lemonade and Fruit Punch on a better trajectory. We have -- we did talk about it at NACS. I think we talked about it in my remarks, where reformulating both of those. We're taking Stevia out, and we have a much better tasting product, we believe that leads to more sort of repeatability. So that's a play for us to kind of to buoy that part of the business as we head into next year.

Okay. Great. Thank you very much.

Thank you. Our next question is from Eric Serotta with Morgan Stanley. Please proceed with your question.

Good afternoon, everyone, and welcome, Diego. I realize you guys aren't going to give 2024 guidance until February, which I think is a wise decision. But Jim has spoken lately about an approaching inflection point or tipping point where your overall volumes and revenue could turn into growth with Truly Twisted growth more than offsetting Truly declines. What's your degree of confidence in terms of reaching that tipping point in 2024? And what are some of the puts and takes from a big picture standpoint for getting there?

Thank you for the question. This is Diego, and thank you for the welcome. Although we -- to your point, we're not giving guidance right now for 2024. What we can say is that we've seen constant improvements and sequential improvements in Circana. So if you look at the numbers we've seen so far, I mean, we've gone from looking at a reduction of 5%, 6% -- sorry, 5% and improving all the way to the last numbers that we can see that you're looking at 2% reduction. So you're seeing sequential improvement in each one of the periods when you look at 52, 13 and 4 weeks, and we expect that to continue. What trajectory that will take? We will share a little bit more in the next conversation, but we're really happy with the performance and the trends so far.

And this is Dave. I'll just jump on top. I think what we're seeing is, obviously, Twisted Tea become -- as we mentioned, becoming bigger, growing, having a bigger impact on the total results. And again, actually look at our depletions that we talked about, Q2 minus 7 on a calendar basis, Q3 minus 3 on a calendar basis. So that's pointing us in the right direction. And we'll talk again -- we'll talk to your point, Eric, we'll talk more about it in February. But I mean, next year, I mean, the goal is to get growth for more than one place. So we have a great portfolio of brands. And we need to get growth in multiple places, and we think we're on the pathway to do that. So for example, non-alc beer is growing, can cocktails are growing. Truly Vodka Soda is growing. We have other innovation that we haven't announced yet that we think will have an impact on the business. So the momentum is there. We need to keep hitting it hard, and we need to move continue to grow Twisted, continue to find a way to get Truly back to where it needs to be at least gaining share and then ultimately growing. And then we have the rest of this portfolio that we think there's a lot of opportunities to get the growth from the other elements of it as well.

Great. And then just a quick follow-up in terms of Twisted Party Pack, at least in scanner data has been a huge incremental contributor beyond the overall portfolio, which is doing extremely well. Could you talk about how you're looking at further runway for Party Pack? Would you do additional variety packs for Twisted? Or is it more keeping it close to the core there?

Sure. I think on Twisted, we're being very deliberate and very disciplined in how we roll things out, and we don't want to over renovate. I think when you look at -- Party Pack has been terrific for us. It's still only has about 52% ACV distribution of originals like around 58% or 59%. So we still have a lot of runway just by driving distribution on Party Pack. We are announcing -- we have announced Twisted Tea Light Variety Pack next year that will be out there as well. So that's really for the more developed markets. So again, like when we go to market, we go to market and we think about it on a BDI basis -- on a brand development basis. By market, there's not one size fits all. But we're focused on original 12-pack first. If you get that right, then you move on to half and half. If you get that right, you move on to Part Pack. If you get that right, you move on to Twisted Tea Lights, then Twisted Tea Light Variety Pack, et cetera. I think by doing it that way, we're maximizing the growth from each SKU that we add, and it's not just a free for all, which the category -- the total beer category, as you know, has become. So I think there's a disciplined approach that we've deployed for many years that we're continuing to hold the line on. So that's why we feel pretty confident there's a lot of growth without adding a lot of new innovation other than just driving distribution of what we got. And again, I think the Party Pack -- last thing I'll say about is the Party Pack is just an example of what consumers are looking for today, and that's a variety -- flavor variety, number one. It did trumps everything else out there. And so that's what consumers want. We're going to make sure we give it to them, and we'll find ways to do it, but we'll do it in a way that's very orderly and smart.

Great. Thanks. I'll pass it on.

[Operator Instructions] Our next question is from Filippo Falorni with Citi. Please proceed with your question.

I was thinking about the growth of the flavored malt beverage category. I think that's an interesting analysis on in terms of understanding how much of the shelf space of the growth of FMB [Technical Difficulty]

Filippo, we're losing -- I think we lost -- we have a bad connection. We can't quite understand your question. I don't know if you want to try again or maybe move a few feet to either side.

You hear me now good?

Try it again.

Yes, try it again, Filippo, give another shot.

Yes. I was just thinking have you guys had any studies in terms of understanding how much of the shelf space in FMB is coming from Hard Seltzers? Thank you.

Okay. Got you. Okay. Yes. I think, I mean, if you look at the spring resets and then the fall resets, I mean, the hard seltzers are the net contributor to shelf space pretty much across the board. I think if you look at it now, like where we are in the fall, there have been some resets in the fall about 70% of customers that do resets in the fall in addition to the spring. And things are kind of settling out pretty much right out of to what you would expect from a space to sales perspective. So right now, I think in the last year, for example, hard seltzers has gone from maybe 11% to about 8%, which is about right in terms of space of sales. RTDs have gone up like one point to maybe 2.5 points. So they're gaining some of that. And FMBs have also gained a bit as well. So I think it seems to be a rational marketplace where retailers are essentially assigning space based on where the growth is, if not immediately, with some sort of a lag. So I'd say that's in terms of exactly where it came from, I think FMBs is probably coming from -- mostly from hard seltzers or maybe craft as well.

Great. Thank you guys.

Sure thing.

There are no further questions at this time. I would like to turn the floor back over to Jim Koch for closing comments.

Thanks, everybody, for joining us and we will be talking to you in February on the Q4 call, where we'll have more to say about our projections for 2024.