DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Associate General Counsel and Corporate Secretary – Michael G. Andrews
• Chief Executive Officer, brewer, and founder – C. James Koch
• Interim Chief Financial Officer – Matthew Donal Murphy

TAKEAWAYS

• Net Revenue — $520.1 million in the third quarter, representing a 3.2% decrease due to lower volumes partially offset by favorable product mix and price increases.
• Depletions — 5% decline in the third quarter, trailing the broader beer and beyond beer market which fell approximately 3% in volume.
• Shipment Volume — 1.8 million barrels, falling 4.9% compared to the prior year third quarter.
• Gross Margin — 51.7% in the third quarter, increasing 90 basis points year over year to reach the highest quarterly rate for the company since 2017.
• Non-GAAP EPS — $4.37 in the third quarter, excluding $0.16 per share in nonrecurring litigation expenses related to a supplier dispute.
• Sun Cruiser Growth — 60% increase in tracked channels during the quarter, with the brand becoming a top four spirits ready-to-drink brand in approximately two years.
• Internal Production — 98% of domestic volume produced internally during the third quarter, increasing from 89% in the prior year period due to brewery efficiencies.
• Twisted Tea Market Share — 85% share of the malt-based hard tea market, while the nearest competitor maintains a low-single-digit share.
• Full Year Depletions Guidance — Down mid-single digits, which is the low end of the previous guidance range of down low-single digits to mid-single digits.
• Full Year Gross Margin Guidance — 49% to 50%, representing 50 to 150 basis points of expansion year over year despite higher freight and commodity costs.
• Full Year Non-GAAP EPS Guidance — $9.00 to $10.50, representing a raise from the previous low end of $8.50.
• Tariff Costs — $18 million to $22 million projected for the full year, a reduction from the prior estimate of $20 million to $30 million.
• Capital Expenditures — $55 million to $70 million for the full year, reduced from the previous estimate of $60 million to $80 million due to the timing of brewery projects.
• Advertising Spend — $9.0 million reduction in the third quarter, as management reallocated investment away from nonperforming Truly hard seltzer campaigns.
• Freight Costs — $9.5 million increase in the third quarter, as higher transportation rates offset the benefit of lower shipment volumes.
• Distributor Inventory — 4 weeks on hand at quarter end, compared to 4.5 weeks on hand at the end of the prior year third quarter.
• Share Repurchases — $79.5 million year to date through Oct. 16, 2026, leaving approximately $149 million remaining on the current authorization.
• Truly Performance — Remains the number two brand in the hard seltzer category despite volume pressure and a shift in retailer display focus toward spirits.
• Price Increases — 1% to 2% projected for the full year, consistent with the previous guidance range.
• Litigation Impact — $14.51 per share unfavorable impact on year-to-date GAAP earnings per share due to $200.3 million in litigation expenses and related legal fees.

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RISKS

• Koch reported that the overall beer market faces demand pressure reflecting “higher gas prices and the cumulative effect of inflation on our consumers,” leading to industry volume declines.
• Koch noted that “retailer display and feature focus” has shifted toward ready-to-drink spirits, creating a headwind for the 12-pack format of malt-based products like Twisted Tea.
• Murphy reported that higher freight rates resulted in “$9.5 million in higher freight costs” during the quarter, with rate inflation exceeding 50% year over year.

SUMMARY

The Boston Beer Company, Inc. (SAM +7.65%) reported third-quarter results characterized by gross margin expansion to 51.7% despite a 5% decline in depletions and a challenging macroeconomic environment. Management stated that strong growth in the Sun Cruiser brand and significant productivity improvements in the supply chain helped offset volume declines in the Truly and Samuel Adams brands. The company narrowed its full-year guidance, raising the low end for gross margin and non-GAAP EPS while lowering volume expectations to the bottom of the previous range. Strategic focus remains on stabilizing the Truly brand through reassessing all elements of its identity, expanding innovation in the vodka aid and high-ABV categories, and driving continued productivity through increased internal production.

• CEO Koch stated, “Sun Cruiser has become a top 4 spirits RTD in just over 2 years and continues to rank among the category’s fastest growing brands in combined measured on and off premise channels.”
• Management reported that 98% of domestic volume was produced internally during the quarter, helping the company absorb higher aluminum, energy, and tariff costs.
• The company plans to launch Rally Dog, a 5% ABV vodka aid product, and LYTT, a 15% ABV malt-based beverage, nationally in 2027.
• Interim CFO Murphy noted that full-year gross margin guidance of 49% to 50% reflects benefits from positive pricing, favorable product mix, and lower shortfall fees.
• Management reported that a $3 million tariff refund in the third quarter and lower-than-expected ingredient and packaging tariffs led to a reduction in projected full-year tariff expenses.
• CEO Koch noted that the Truly brand’s “packaging, the… all elements of the brand identity are basically being reassessed” following the appointment of Alison Stransky as Chief Marketing Officer.

INDUSTRY GLOSSARY

• Depletions: Sales from wholesalers to retailers, which the company uses as a primary measure of consumer demand.
• Beyond Beer: A category of alcoholic beverages including hard seltzers, hard teas, and hard ciders that fall outside traditional beer.
• RTD: Ready-to-drink beverages, which are pre-mixed cocktails or spirits-based drinks.
• FMB: Flavored malt beverages, a category of alcoholic drinks that includes brands like Twisted Tea.
• On-premise: Consumption locations where beverages are sold and consumed on-site, such as bars, restaurants, and stadiums.
• Off-premise: Retail locations where beverages are purchased for consumption elsewhere, such as grocery, liquor, and convenience stores.
• OEE: Overall Equipment Effectiveness, a standard manufacturing metric used to evaluate how effectively a production operation is utilized.
• Vodka Aid: An emerging category of vodka-based drinks typically featuring fruit flavors such as lemonade.

Full Conference Call Transcript

Operator: Greetings. And welcome to the Boston Beer Company Third Quarter 26 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, As a reminder, this conference is being recorded. it is now my pleasure to introduce Mike Andrews, associate general counsel and corporate secretary. Please go ahead.

Michael G. Andrews: Thank you. Good afternoon, and welcome. This is Mike Andrews Associate General Counsel and Corporate Secretary of the Boston Beer Company. I am pleased to kick off our 26 third quarter earnings call. Joining the call from Boston Beer are C. James Koch, CEO, brewer, and founder and Matthew Donal Murphy, our Interim CFO. Before we discuss our business, I will start with our disclaimer. As we stated 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 is 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 ks. 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 over to Jim for some introductory comments.

C. James Koch: Thanks, Mike. I will begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Matthew Donal Murphy, to discuss the third quarter financial results and our financial outlook for the remainder of 2026. After Matt’s comments, we will open the line for questions. Now let’s start with a look at industry trends. The overall beer market continues to face demand pressure reflecting a range of factors, particularly the impact of higher gas prices and the cumulative effect of inflation on our consumers.

We estimate that the combined total beer and beyond beer market declined approximately 3% in volume in the third quarter and approximately 2% year to date Beyond Beer continues to outperform traditional beer with volume growing approximately 1% year to date compared with an approximately 3% decline in traditional beer. We expect continued macroeconomic pressure on consumers to weigh on industry volumes throughout the balance of 2026. With respect to the Boston Beer portfolio, our volume trends trailed the broader category in the third quarter with mixed performance across our portfolio. Depletions and shipments declined approximately 5% in the quarter, with total hard tea and lemonade depletions up slightly and growth in cider.

Primarily offset by declines in beer and hard seltzer. On a more positive note, Sun Cruiser grew approximately 60% in tracked channels in the quarter, Angry Orchard grew for the 6th consecutive quarter, and on premise trends were up low-single digits across our portfolio. For the full year, we expect shipments to be slightly ahead of depletions. This reflects a prior year comparison to inventory reductions associated with our supply chain improvements that Matthew will discuss further in his remarks. Despite a soft industry volume environment, softer than we planned at the start of the year, we continue to make strong progress on our margin enhancement.

Third quarter gross margin of 51.7% was up 90-basis-points year over year and is our highest gross margin rate since 2017. Our savings agenda has enabled us to absorb higher aluminum energy and tariff costs and we are tracking ahead of our planned full year 2026 savings. The business is generating strong cash flow and we have repurchased $80 million in shares year to date through October 16, 2026. Today, we are narrowing our full year guidance ranges which reflect our performance through the first 3 quarters of the year and our view of the industry trends as I discussed earlier.

We now expect depletions and shipments to be down mid-single digits, which is the low end of our prior range. Based on our strong gross margin performance year to date, we are raising the low end of our gross margin and EPS guidance. This is particularly notable given continued elevated freight costs and reflects the productivity mindset we have built across the organization during the past several years. Our priority for the balance of the year remain. Improving market share trends, launching strong innovation, and driving gross margin expansion. We continue to support our brands through strong partnerships compelling programming, and effective local market activations in partnership with our wholesalers.

At retail, we have made modest progress on increasing total portfolio shelves space while display space remains an area of opportunity as it continues to over index to RTD spirits. Before I review our brand performance and upcoming plans, I would like to take a moment to welcome Alison Stransky, who joined Boston Beer earlier this month as our new chief marketing officer. Alison brings a unique blend of consumer brand building, and data driven digital marketing expertise. She has held prior positions at Google, Samsung, L’Oreal, and Johnson & Johnson. And she’s also a big fan of craft beer. We are excited to have her on the team as we continue to strengthen and evolve our marketing capabilities.

Now turning to our brands. In the hard tea and lemonade category, we are continuing our work to improve share trends and grow total combined volume of our 2 leading brands, Sun Cruiser and Twisted Tea. Sun Cruiser has become a top 4 spirits RTD in just over 2 years and continues to rank among the category’s fastest growing brands in combined measured on and off premise channels. It also continues to be the leading RTD spirits tea and lemonade brand in the measured on premise channel and has the highest growth in velocity among leading RTD spirits, tea, and lemonade brands in the off premise channel.

Sun Cruiser is building on its strong summer US Open golf championship activation as we reinforce its position as a year round brand that will grow in both existing and new markets and across channels. SunCruiser continues to increase its media presence in sports and other events, including the PGA, Major League Baseball, the world champion, New York Knicks, and sponsorship of numerous music concert series. Last month, the brand expanded its on premise sports presence through a partnership with MetLife Stadium, the New York Jets, and the New York Giants. Advertising support for SunCruiser includes content around the Let the Good Times Cruise media campaign, across television, paid social and digital advertising, and key influencers and creators.

SunCruiser is leaning into ski season with in market displays, retail, and on premise POS material, branded hard goods such as snow suits and snowboards, partnerships with major ski areas, and a winter themed media campaign that begins in December. We continue to see strong velocity and distribution opportunities for SunCruiser, giving us confidence in the brand’s continued growth potential. Twisted Tea continues to be the clear No. 1 brand in the malt based hard tea market with more than 85% market share while the next largest brand has only a low-single-digit share.

We believe the brand’s volume declines reflect a combination of factors, including some interaction with spirits based hard teas like Sun Cruiser, a shift in retailer display and feature focus towards RTD spirits and the brand’s higher exposure to value conscious consumers. The largest volume headwind for Twisted Tea continues to be on 12-packs, which have been impacted by reduced FMB displays and shifting consumer purchase behavior. From a share perspective, Twisted Tea singles, Twisted Tea Light, and Twisted Tea Extreme all continue to grow share of the FMB category year to date. This year, we have increased advertising investment for Twisted Tea while adding new partnerships launching new pack sizes, and expanding Twisted Tea Extreme.

We are continuing our disciplined test and learn approach to revenue management on the brand, including pricing. Targeted pricing adjustments and smaller pack size offerings. We will continue to assess their impact as we gather additional data. Twisted Tea has also launched a partnership with RealTree Camo, a popular brand of camouflage clothing and outdoor gear that helps us deepen the brand’s connections to outdoor drinking occasions and drive displays. There are 3 limited edition camo wrapped packs in the market now. We are backing this partnership with significant media as well as a Field and Stream sponsorship, creative creator partnerships, and shopper media support in C stores. To drive conversion on twisted tea single serve cans.

We are also capitalizing on football season which is 1 of the brand’s most important consumption occasions. We are running our high performing tea drop ads on marquee college football matchups, continuing our title sponsorship of Barstool’s Pardon My Take and investing in shopper media to drive party pack conversion at retail. While there is some interaction between Twisted Tea and SunCruiser, they each play a role in our portfolio, and we believe their differentiated positioning provides an opportunity to improve the combined performance of the 2 brands over time. As we have mentioned previously, to the extent Sun Cruiser sources some drinker demand away from Twisted Tea, it is still both revenue and margin accretive for us.

Turning to hard seltzer, while Truly continues to face challenging trends, it remains the No. 2 brand in the hard seltzer category. We continue to assess the brand strategy and are taking actions to improve its performance over time. In the near term, we are reprioritizing 12-packs. Around our core best selling flavors. We are rethinking our rotating variety packs, and we are expanding packages around our core style, truly WildBerry. In cider, angry orchard is seeing growth across both core flavors and seasonal packs, for the 2nd straight year. The fall seasonal the thriller variety pack, which launched in August, has grown triple digits in measured off premise channels.

The brand’s partnership with the iconic scream horror movie series includes Scream and angry orchard integration across all marketing programs limited edition Christopher Bapple and Christopher Imperial, single serve packaging, and celebrity media integration through Halloween. Turning to beer, our Samuel Adams brand, this fall, we launched 2 new remastered vintage ads from our independent since forever campaign. They have tested extremely well with our consumers, We saw a strong improvement in Boston lager velocity trends, over the summer driven by America 250 program. Oktoberfest season is underway. Featuring the launch of the new Samuel Adams nonalcoholic Oktoberfest. Support includes a national partnership with Snyder’s Pretzels on premise Stein hoisting events, and major Oktoberfest festival, activations.

For our Dogfish Head brand, we continue to expand our Grateful Dead Beer collaboration and be. Invest behind the Minute Series IPAs. We have also recently introduced a new partnership with Rolling Stone magazine to further bolster our connection with music. And turning to innovation, we have multiple brands in development that are aligned with our strategy to develop high growth margin accretive opportunities. Rally Dog Vodka is the newest ready to drink cocktail from our innovation incubator. Joining the emerging vodka aid space, it was launched last month in 4 states with unique packaging, easy to understand flavors, 100-calories-per-can, and 5% ABV.

Rally Dog is expanding to 7 additional states over the next month with plans to go national in 2027. As we expand, we are focused on building awareness deepening distributor engagement, and establishing a larger retail footprint as we head into next year. LYTT electric coolers, which initially launched in 5 states, has now expanded to an additional 18 states and will be available nationally in 2027. LYTT is 15% ABV, malt based, and offered in 6 flavors in a resealable and recyclable 6.8-ounce package. The. This concept targets the pre event occasion with potential to be largely incremental to our portfolio.

Additionally, LYTT took home the 2026 best new alcoholic beverage high ABV award at the annual National Association of Convenience Stores show earlier this month. Sinless Vodka cocktails continues in test as a zero-sugar, zero-carb, 100-calorie offering. These innovation brands are still in the early stages of development, and are not expected to have a significant impact on our results this year but we see an opportunity for innovation to become much more meaningful as we move into 2027. In closing, despite a challenging operating environment, we have made significant progress strengthening our operations and advancing our savings initiative.

That progress is helping us offset significant unplanned commodity and freight inflation while maintaining our brand support and bringing new accretive innovation to market. We remain disciplined in how we manage the business and we are working closely with our wholesaler partners to strengthen marketplace execution to drive sustainable long term growth. I would like to thank our Boston Beer team and our distributors and retailers for their continued support. I will now pass the call to Matthew Donal Murphy who has assumed the role of interim chief financial officer and brings a deep financial knowledge of Boston Beer.

The board and I appreciate Matthew stepping into this additional role while we conduct a comprehensive search to identify our next CFO.

Matthew Donal Murphy: Thank you, Jim. Good afternoon, everyone. I will begin with a discussion of our third quarter results followed by an update on our savings initiatives and then turn to our updated full year outlook. Depletions decreased 5%, and shipments decreased 4.9%, compared to the third quarter of last year. Driven by declines in Twisted Tea, Truly, and Samuel Adams, partially offset by growth in our Sun Cruiser and Angry Orchard brands. Distributor inventory at the end of the quarter was 4 weeks on hand, slightly below the 4.5 weeks on hand at the end of the prior year quarter.

Revenue decreased 3.2% with lower volumes being partially offset by favorable product mix and price increases, Product mix continues to benefit from strong growth in SunCruiser. Gross margin was 51.7%, our highest quarterly gross margin since 2017 and an increase of 90-basis-points year over year. The improvement was driven by higher brewery efficiencies, favorable product mix, procurement savings, and price increases. Partially offset by inflationary commodity, and tariff related costs. Advertising, promotional, and selling expenses were flat year over year. This reflected $9.5 million in higher freight costs with higher freight rates more than offsetting the benefit of lower shipment and a $9.1 million reduction in advertising spend.

General and administrative expenses decreased $2.1 million year over year, primarily due to lower salary and benefit costs. Current quarter expenses $400 thousand of legal fees associated with the previously disclosed supplier dispute litigation. Brewery asset impairment expenses were $2.9 million, an increase of $1.5 million from the comparable period of 2025. Reflecting higher noncash write offs of equipment at company owned breweries. Non GAAP operating profit declined 6% year-over-year as strong gross margin performance and disciplined advertising spend were offset by lower volumes, and freight rate inflation of over 50% year over year. The third quarter is supplier dispute litigation, expense of $1.8 million reflects post judgment interest expense.

Year to date pretax litigation expenses, related legal fees, totaled $200.3 million As previously announced, we intend to continue to pursue all post trial motions and appellate remedies that are available to us on the supplier dispute litigation. We cannot estimate when or if damages or interests will ultimately be paid or when this matter will ultimately be resolved. But we do not expect it to have a material impact on our operating plans. These litigation expenses and related legal fees represent a $16 unfavorable impact to our third quarter GAAP EPS, and a $14.51 unfavorable impact to our year to date GAAP EPS.

Excluding litigation related expenses, third quarter non GAAP EPS was $4.37 Now I will provide an update on our ongoing productivity initiatives. We continue to make steady progress and remain on track to deliver our 2026 saving targets across the 4 buckets that we have discussed previously. I will provide a few highlights on our initiatives within each bucket. In brewery performance, we continue to see improvements in OEEs, driven by process improvements, which has increased our internal production capacity. In the third quarter, we produced 98% of our domestic volume internally compared to 89% in the third quarter of last year.

For the full year 2026, we continue to expect domestic internal production to exceed 90% compared to 86% in 2025. In procurement savings, our third quarter results benefited from lower negotiated pricing on certain packaging and ingredients. While our procurement savings initiatives are further along than other work streams, we do expect continued savings into 2027. In waste network and optimization, we continue to enhance our customer ordering and inventory management processes. These efforts have helped us maintain high customer service levels while reducing inventory improving cash flow. Revenue management capabilities were added this year as part of our margin agenda. These efforts are in the early stages in 2026, with a more meaningful contribution expected in 2027.

Turning to our 2026 guidance. Given that 3 quarters of the year are behind us, and our fourth quarter is a seasonally small quarter, we are narrowing our full year guidance ranges. Our updated volume expectation of down mid-single digits is at the lower end of our previous guidance and reflects the category trends that Jim discussed in his remarks. Fiscal week depletion trends for the first 42 weeks of 2026 have declined 5% year over year, and our updated outlook assumes this trend largely continues in the fourth quarter. We expect shipments to be slightly ahead of depletions for the full year. With shipments meaningfully ahead of depletions in the fourth quarter.

As we discussed on our last call, we implemented supply chain improvements in 2025, that enabled more consistent distributor inventory levels. As a result of the impact of these changes on prior year shipment flows, together with the expected timing of orders, in 2026 we currently expect modest shipment growth in the fourth quarter We continue to expect price increases of between 1% to 2% and some additional benefit from mix. The strong productivity we have delivered year to date along with our updated projection of lower tariff costs enables us to raise the low end of our gross margin and EPS guidance despite softer volume trends and higher freight costs.

We do not hedge commodities and have updated our cost assumptions for freight and aluminum to reflect the current pricing environment. We will continue to monitor commodity markets although the impact of further cost volatility on our full year outlook is more limited with only 1 quarter remaining in the year. Our updated gross margin guidance of 49% to 50% represents 50- to 150-basis-points of margin expansion year over year. This reflects benefits from positive pricing, favorable product mix, productivity savings, and lower shortfall fees. These benefits are partially offset by headwinds from ongoing tariff costs commodity inflation and lower volumes. As a reminder, the majority of our freight expense is booked in advertising, promotional, and selling expenses.

Stronger productivity savings and lower tariff costs including the benefit of a $3 million tariff refund in the third quarter, are enabling us to raise the low end of our gross margin guidance even with lower than expected volumes. We now expect full year tariff costs of $18 million to $22 million compared with our previous guidance of $20 million to $30 million and a partial year $11 million in 2025. The lower outlook primarily reflects ingredient and packaging tariffs coming in below our previous estimate. Our guidance assumes the tariff rates currently being charged by our suppliers remain in place for the balance of the year.

From a phasing perspective, at the midpoint of our guidance, we expect year over year gross margin rate improvement to be the most pronounced in the fourth quarter. Reflecting lower shortfall fees and higher shipments year over year. We typically recognize the majority of our shortfall fees in the fourth quarter. The reduction in these fees combined with the fourth quarter being a seasonally smaller dollar quarter results in an outsized favorable impact to the gross margin rate. We remain disciplined in our approach to advertising investment. Closely monitoring returns and adjusting spending accordingly.

Based on this ongoing evaluation, we now expect advertising, promotional, and selling expenses to be approximately flat which is at the low end of our prior guidance range. Estimate does not include any changes in freight costs for the shipment of products to our distributors. Importantly, we continue to invest meaningfully behind our brands with advertising building on a strong base following $61 million in 2025 and $6.5 million in 2024. Fourth quarter advertising spend in 2026 is expected to decline year over year as we have reduced investment levels in Truly have difficult comparisons. As we mentioned previously, the fourth quarter of 25 included meaningful production costs associated with preparation for 2026.

Fourth quarter 26 spend is expected to be comparable to the spend in the fourth quarter of 24. We continue to estimate our full year 2026 non GAAP effective tax rate to be ~29% to 30%. We have raised the low end of our non GAAP EPS guidance and narrowed the range to $9 to $10.50. Compared to our prior range of $8.50 to $10.50. Turning to capital allocation. Ended the quarter with a $38 million cash balance and a $150 million available on our line of credit. These balances, together with our projected future operating cash flows, enable us to maintain operating investments in our business and cash returns to shareholders as well as the potential litigation related payment.

We expect capital expenditures of between $55 million and $70 million in 2026, a reduction from our previous estimate of between $60 million and $80 million. These investments will be primarily related to our owned breweries to build capabilities. Improve efficiencies, and support innovations. We will continue to be disciplined in our capital spending, we monitor the dynamic industry environment over the long term. During the 39 week period ended September 26, 26 and the period from September 27, 2026, through October 16, 2026, We have repurchased shares in the amounts of $73.5 million and $6 million respectively. As of October 16, 2026, we had approximately $149 million remaining on the $1.6 billion share repurchase authorization.

This concludes our prepared remarks. And now we will open the line for questions.

Operator: Thank you. And a confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. And due to the interest of time, we ask that each analyst limit themselves to 1 question and 1 follow-up. Thank you. Moment, please, while we poll for questions. And our first question comes from the line of Filippo Falorni with Citi. Please proceed.

Filippo Falorni: Hi. Good afternoon, everyone. Jim, are I wanted to go back to your initial comment on the category. Obviously, we started the year with some optimism in January, and February, and then we really see. Seen a material deceleration into the summer, You called out some of the macro impacts and gas prices. How are you seeing those impacts evolving as you exit the quarter? Have you seen any signs of slight improvement?

I know you are expecting still soft in Q4, but any sequential improvement that you are seeing And bigger picture, do you think, next year, we could see a bit of an improvement relative to this easier comparison on a 2 year basis, or how are you thinking about the category, evolving from here? Thank you.

C. James Koch: it is a really good question. I wish I had a crystal ball. But I will I will just give you my observations. I do not. Again, I am do not have any more expertise in some of the, my industry, colleagues and peers that have commented on it. What we have seen, as you alluded to, Filippo, is the year began reasonably, strong in the sense of a big improvement from last year when it was down on the order of ~4%. And it is deteriorated since then a little bit.

I mean, these are not huge numbers, but, and our definitions may be different from other people’s We sort of define it as our addressable market, which is both beer, as traditionally defined, and then this fourth category of beyond beer type products. And bottom line, they were you know, in the beginning of the year, improved. The numbers we are looking at is year to date, traditional beer down ~3%, Beyond Beer up 1%, which should advantage us since about 80 to 85% of our volume is in the beyond beer category depending on your definition. So we and 15%’s traditional beer, which is the opposite of the rest of the beer industry.

But in the third quarter, it looked like traditional beer which. Well, of being down ~3% is down 4%, and Beyond Beer is up the same ~1%. So much of the deterioration is in the traditional beer category. So we are, you know, we are looking at a situation where, Q3 is noticeably, worse than Q1. Whether that will continue to deteriorate, stabilize, I do not know. If I were to think about last year versus this year, a couple of things have gotten better. For example, you know, we are no longer reading about alcohol causes cancer. On a regular basis. So that idea is still stuck in a lot of people’s heads, luckily.

Doctor Oz, you know, in talking about the dietary guidelines, mentioned that, social isolation and loneliness are also, not good for your health. And beer plays a part in bringing people together. So there is a more complex discussion of the health effects, the pressure on the Hispanic population from, you know, from ICE and other agencies. You know, putting pressure on them has let up a little bit. On the other hand, the economy, got noticeably worse, especially for kind of the bottom 80% of the population. Which over indexes up in many ways on beer. And you know, and their wages did not keep up with inflation. So pressure on their discretionary income.

You know, GLP 1 drugs are still out there. Hemp is still out there. I do not know that those have changed that much, since last year. So, I guess, the bottom line is the year has gotten worse. Rather than better mainly due to something cyclical. Which is, you know, the price of gas and inflation being above wage growth. Does that help?

Filippo Falorni: Right. No. that is that is very helpful. And I guess, Jim, I love your perspective on the vodka aid category. We have seen, obviously, a lot of launches there. You have Rally Dog, How are you seeing this category evolve compared to prior ones that you have had strong success like ourselves or our teas. It seems like it is very competitive just very early in the development of the category, but just I love your perspective on the process for the category and the competition there. Thank you.

C. James Koch: Yeah. Again, I do not have a crystal ball, but my observation would be that this vodka aid category has exploded faster than, you know, than hard tea, hard seltzer, even RTDs like Neutral and Cutwater and High Noon. I mean, those all of those were around for years before they really hit everybody’s radar screen and caused a land grab. Vodka aid in a year is basically gone from this little curiosity primarily in New Jersey to, you know, the next big thing in people’s minds.

Now will it be like something that had a similar, you know, rocket ship curve, which was way back 10 years ago, hard root beer which was boom, splat, and disappeared all in a 24 month period. Hard to tell now. It feels like it is got more legs. It does not have the vulnerabilities that hard root beer had where it had 320 calories in 12 ounces. So I would. I do not know how big it can get. But it is certainly gotten a lot of support from retailers. And so the next 12 months, there will be a lot of activity in it.

I think I counted a dozen entrants, all of which have come in the last year or so. Pretty much everybody has an entrant except Molson Coors and ABI, and I would guess that they will probably throw something or buy somebody So I do not. You know, it is certainly gonna be where a lot of the action is. Both at the retailer level and the wholesaler level. As well as the supplier level over the next 12 months. How big is it gonna get? Hard to know. I doubt that it would get as big as hard seltzer. Or hard tea. If it did, that would make it a real player. So we will have to see.

I mean, we are very happy with our entrant it is called Rally Dog. We have gotten significant commitments from major chains. Who are, making it their number 2 or 3, bet in the vodka aid category. it is distinctive in terms of its brand presentation it is not a generic name. it is a personality. The flavor profile tests better than the competition. So we are confident in the quality of the liquid. And as opposed to just about anybody else, we have a track record of innovation with the retailer and the wholesalers, and we have you know, a very large sales force that can execute at retail.

So there is gonna be a lot of, you know, No. 4, 5, 6, 7, 8, 9, and 10 out there that I think will struggle to get the distribution and the prioritization at wholesale and retail. With, all these new entrants. So I think it will very quickly sort down to you know, maybe 4 players and maybe down to 2 or 3 from there. Great. Thanks so much. I will pass it on.

Operator: Next question comes from the line of Peter Grom with UBS. Please proceed.

Peter Grom: Great. Thank you. Good evening, guys. Hope you both are doing well. So I wanted you to shift to maybe profitability just in the context of the environment we have been in from a cost and volume standpoint the gross margin performance has been impressive. You both kind of touched on the productivity mindset. But you have benefited from mix, you know, brewer efficiencies and other factories as well. And I just asked this in the context that it does not really seem like the inflationary backdrop or the volume backdrop is really shifting.

So how much more room is there for you to push on these other drivers to kind of keep gross margin especially now that you have internal production kind of north of, I think you mentioned, north of 96%.

Matthew Donal Murphy: Yes. Thanks, Peter. Great question. We have been on a voyage here, started around a 42% margin. And over the last 3 years, we have taken it to where it is now, and we feel really good about being at or very near 50% on an annual run basis. We have absorbed some big headwinds particularly this year. When you look through to what we have provided, we have had aluminum just this year. Up, 30 plus million, and we have been able to offset that. That negative. We have had to offset some higher freight costs as well. Those typically do not show up in our margin. They are mostly in the AP and S as we present them.

So we have been able to continue to demonstrate some great efficiencies at our breweries Our supply chain has improved. Considerably, and we keep– we are not done for sure. We are gonna keep trying to grow our margins. We will see, you know, what the volume environment is. that is a big factor as we have talked about before. We will always have some level of co packing. it is part of our model and, you know, it makes a ton of sense when we are trying to provide product particularly in the West Coast. So we see opportunity. You know, we will we will come back to you in February with what we think will improve between 2026-2027.

But we do see opportunity. And, continued progress, you know, past 50%. Great.

Peter Grom: You know what? I will I will leave it there. Thank you so much. I will pass it on.

Operator: The next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed.

Eric Serotta: Great. Thanks for the question, and good afternoon, everyone. Just wanted to, Jim, get your impression and expectations for SunCruiser and the spirits based or vodka based tea category. As we look to next year and we are in year 3 of year 2.5, you seem to be cycling the national distribution. Very well, but can you talk about puts and takes? And what it will take to continue this growth in 27.

C. James Koch: Yeah. We think there is continued room for, you know, more. Well, for double digit growth in 2027. We believe we are gonna get more shelf space both from the chains and from independent liquor. We are, you know, we are seeing a growth rate. You know, it started as triple digits this year. I think in measured channels in the last 13 weeks, it is still close to 60%. Obviously, it is coming down and will continue to come down. But we continue to believe that there is significant growth next year both from expanded distribution and more of our SKUs in each store. So.

And we are probably the leader in the T part of this vodka tea and lemonade, and we believe there is growth and we are seeing it now stronger growth in the lemonade, piece of it. Great.

Eric Serotta: And then as you, just turning to the cost side, Matthew, I think that freight was something like a $9.5 million to $10 million year on year headwinds in your AT and S line in the third quarter. How are you thinking about that for the fourth quarter? Do you think this is a reasonable run rate based on where freight rates are today. I know forecasting for next year is, is anybody’s guess at this point. But if we mark to market with where rates are today is kind of a $10 million year on year impact reasonable for the next couple of quarters?

Matthew Donal Murphy: Yeah. We. We have we have projected out, you know, for the remainder of 2026 that it is gonna continue. We used the high rates that we experienced in Q3. And in Q3, it, you know, it grew $9 million. there is a little less volume in q so maybe it is a little lower than that. We are always working on our on freight optimization, so maybe we get a little benefit from that. But, you know, in general, we are just assuming we have that same, same level of increase.

Eric Serotta: Great. Thanks so much. I will pass it on.

Operator: The next question comes from the line of Kaumil Gajrawala with Jefferies. Please proceed.

Kaumil Gajrawala: Hey, everybody. Guess a couple of questions. The first is it was depletions down 5%, advertising flat. Know, I feel like the history of the company has often been to accelerate advertising, during sort of more difficult times. So I am just curious, maybe it is because of Alison’s arrival, better to sort of throttle back until there is enough time for her lay out her own plan or is there something else going on? With you know, what the right level of advertising should be to try to turn overall top line around?

Matthew Donal Murphy: Yeah. Hi. Hi, Kamal. Great question. Just I will start off and then hand it off to Jim. You know, just we had a big increase between 24 and 25. It was around $60 million and we have been. You know, we are projecting flat between 25 and 26. You know, we think we.

We are at the right level right now. there is a little timing involved with we sort of front loaded, the first half of the year and have because of the World Cup and other, you know, other timing items, So we were down in the third quarter and will likely be down in the fourth quarter, and that will work to flat for, for the full year. And, you know, as we have said, you know, we. We are trying to optimize the spend and reduce some spend that was nonperforming, particularly around Truly as we talked about in July. But, you know, we will we will continue to look at it, try to optimize.

Certainly, Alison has joined and we are really excited about that. And her skill set So, you know, we are gonna take a lot of time to think through what we need for 2027. Look at where our volume are and what we need to support our brands and invest as we see.

C. James Koch: Yeah. And I would add to that. If I may. The yeah. Our approach to advertising maybe is a little different in that we think less you know, in brand terms, like, okay. We all have these brands, and each 1 of them has an advertising budget. We may start to hear that way, but we will. We are pretty fluid among brands essentially depending on whether we believe the creative and the campaign is actually driving sales. And the effect of that approach is somewhat visible. And what you have seen this year basically, you know, we had what we thought was a good campaign behind Truly. Especially with our sponsorship of the US team.

In the World Cup, and we had special ads around that. And bottom line, they did not work. The depletions did not respond. So to the campaign that we have behind Truly. So we cut it significantly and reallocated that money, some to Twisted Tea, where the evidence we have is that, people exposed to the ads how. Will in fact increase their purchases of it. So in that sense, the advertising is working, though there is some, you know, category trends pushing things the other way. The advertising does seem to get a sales response. And we put some money behind Samuel Adams where we were also appearing to get a sales response. As well as, Angry Orchard.

So that is what you saw was essentially we cut advertising that was not working. And we reallocated it to where the advertising was working. Got it.

Kaumil Gajrawala: that is, that is very useful. If I could, also ask about. You mentioned something very interesting earlier on this display activity and maybe Twisted getting boxed-out with so much focus on the vodka based teas. How do we think about that in 2027 in the context of we are likely to have something similar happen with all the vodka aids, whether it is your own with Rally Dog or maybe some of the others probably going to be a big merchandising display feature category. And so how do you fit Twisted or try to turn Twisted in that environment?

C. James Koch: Yeah. It I think you are right. it is gonna happen. I do not know if it will be worse than this year because I do suspect that there is gonna be a slowdown in like, the Surfside Sun Cruiser market. And High Noon which a couple of years ago, was getting disproportionate in the big displays. High Noon appears actually to be in decline now. Neutral, sort of the same kind of thing. So I do not see it being worse for Twisted Tea in 2027 and 2026. It will just be a different cast of characters. That you know, the retailers are gonna be jumping on because it is growing.

And that it is it will be the vodka aids, but I think those will largely take away from, like, the High Noons, the neutrals, even the Surfside and the Sun Cruisers. So I do not I do not see it being worse for Twisted Tea, just a different set of competitors grabbing the display space. Got it. Thank you very much.

Operator: The next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed.

Bonnie Herzog: Alright. Thank you. Hi, everyone. I had a quick question on Truly. The brand continues to be quite pressured. So guess I would love to hear your strategy for the brand and maybe whether you are considering implementing big. Bigger changes. You know, you touched on this, Jen. You know, You are pulling back a fair amount on advertising on the brand, but you know, are there other things you could do, like SKU rationalization? On the brand? I guess I am ultimately you know, trying to understand, do you think Truly volume can stabilize? Or, you know, will you maybe manage the brand to optimize and cash flow? Thanks.

Operator: To answer your question directly, our approach would be to stabilize or even grow the brand.

C. James Koch: I mean, it is just it. it is too big to give up on it. I. You know, it we could not easily replace that volume if it. If we just liquidate it. That said, that essentially means that we are committed to do something. So doing nothing is not an option. And in that context, that sort of puts everything on the table beyond you know, SKU rationalization and new taglines and stuff like that. It puts the liquid on the table. It puts, you know, the positioning, the packaging, the. All elements of the brand identity are basically being reassessed in an effort to you know, we started right after the World Cup.

And Allison is it was her first week, but it is 1 of her top priorities is what is let’s just open it up to any change in Truly that would stabilize the brand and provide a longer term basis to grow from there. In my point of view, you know, it is unnaturally low in market share. You generally you know, we have. We are what, a fourth or a fifth of white claws. it is a Usually, things stabilize at a liter, and then the second biggest brand is roughly half of that size, and we are not seeing that kind of stability here. So we basically have said we are willing to do.

We are willing to look at everything. To. And looking. We are looking at turnarounds of other brands and what they have entailed. And you gotta put even the liquid itself on the table. And so that is what we are asking ourselves. The 10-year-old category, it may be time it is kinda has not been a lot of news. So our question is, is there a next generation of heart seltzer?

Bonnie Herzog: that is interesting. No. that is helpful. And maybe just a quick follow on that. You know, in thinking about the guidance and CapEx, you did lower it again. So just would love to hear from you how we should think about that decision and maybe what it suggests about either the growth outlook or the health of your business? Thanks.

Matthew Donal Murphy: Yeah, Bonnie. I will take that. it is just timing. We have a number of projects in flight, and you know, there is there is details really. Related to suppliers and availability of equipment, and we just pushed out some spend into in from 2026 to 2027. there is no, we spend, to optimize our breweries. To spend on innovation. We feel like we have been at this you know, $50 million to $70 million range for a few years. We do not expect that to change, dramatically, but there will be, you know, different points within that range each year. As the projects come.

We have a particularly large wastewater project in our Pennsylvania brewery, and I think you know, some of that has been pushed out and, is the major factor for the for the for the call down. This year.

Bonnie Herzog: Alright. Thanks for that. I will pass it on.

Operator: Thank you. The next question comes from the line of Robert Ottenstein with Evercore ISI.

Robert Ottenstein: Great. Thank you very much. Jim, scoping out to total beverage alcohol, are you surprised that there has not been more consolidation among suppliers over the last few years. And if so, what do you think the reason is And looking forward, do you think that is gonna change I. E, more consolidation? Thank you.

C. James Koch: I think the lack of consolidation has come from the growth opportunities being taken by new entrants, smaller entrance, or entrance from outside the beer category. So, you know, you have got people who are big players in Beyond Beer who are not in the traditional beer category. That would be like a Sazerac or a Gallo or a Stateside or even a Boston beer company. So those would those would be hard to consolidate. And, you know, ABI is not going to buy Gallo. Molson Coors is not gonna merge with Sazerac, for example. I think you will see going forward some of these new players being bought.

I mean, many of them as you saw with Spiked Ice, that followed a pattern you see in you know, carb. In the nonalcoholic beverage business where the entrepreneurs build the brands and grow them, but they grow them to sell them. And there are great synergies when it goes to a Pepsi or a Coke. So I suspect. Well, it is gonna happen what you saw with Spiked Ice, where that. The brand you know, was sold for a very attractive return. On the initial capital, and it consolidated You saw that with JuiceBox. You know, that was built And they. You knew it was eventually gonna be sold.

It was not gonna be, you know, a legacy brand that they were gonna pass down to their grandchildren or anything. When the they were gonna sell it at what they felt like was the peak. So I think you will get more. You are you are gonna see brands built to do that long drink, same thing. So bunches of examples of consolidation, and in this case, it looks like you know, the high growth emerging companies being sold to the people who have the long term synergies. I think that is what consolidation will be I think the bear industry is pretty consolidated. Okay. Thank you.

Operator: The next question comes from the line of Nadine Sarwat with Bernstein. Please proceed.

Nadine Sarwat: Thank you for taking my question. I have 2 please. First, Jim, you always provide a really thoughtful diagnosis on which driving the trends in the market. And at the start of the call, you called out gas prices and inflation being a key factor. Could you share specifics on how you are seeing this manifest in your different markets? Whether that is channel, pack dynamics, or other consumer behaviors And then my second question is with regards to pricing. You guys have maintained your guidance for 1% to 2% for the full year. As you look out over the next 12 months, various costs are from inflationary pressures.

What are your early expectations for pricing whether for you or even just more broadly for the market in the next 12 months? Thank you.

C. James Koch: Yep. Me go after the first question. I mean, some of the things that we have seen that reflect the pressures on the beer consumer would be, for example, in Twisted Tea, in the convenience channel, you know, the singles are becoming a bigger part of our volume because the consumer might not have the money for a 12-pack. So we are second example would be, dollar stores where we got, I think, 4 thousand points-of-distribution for a $9.99 4-pack of 16-ounce cans. So another sort of price pack architecture. So we are seeing. that is that is how it is manifesting, itself. We are seeing with twisted t, again, some.

A reasonable amount of spread in the shelf price, you know, range from $22.99 to $19.99, and $19.99 seems to be a price point So, we have had good responses from going. From, you know, the over $20 price point to the $19.99 price point. So not universally. So that is would be how I am and I am seeing it man. Those manifest itself in just in terms of raw consumer behavior. What we are seeing is you know, real wages are going down. Inflation is higher. Than real. Than wages. So people’s. And as a result, that just disproportionately strikes discretionary income So 1 of the things that people cut out, they just buy less alcohol in general.

And this pressure is strongest on the bottom 80% of the income strata, and that is where a lot of our drinkers are. So that just pushes overall consumption down. In terms of pricing, I mean, we are seeing something interesting. Have not seen for a while, which is significant drop in the real cost of beer. I mean, if inflation is up 3.5%, and beer prices are up 1.5%, that is basically in real dollars. Coming down 2%. And long-term, it is probably been 75-basis-points. Of real price decline in beer, which can be absorbed through productivity. The. I think long term, brewers are not gonna be able to take 2% of their cost structure out. Every year.

And the you are not gonna see 200-basis-points in real price decline on beer. When that will happen, you know, I do not know. I mean, we are roughly 4% of the market. So we do not have any pricing power. it is a very competitive market. And if, you know, we have to eat cost increases and camp them on because it is such a competitive market, We. there is nothing we can do about it. We eat them. But I do believe that cannot go on for the next 5 years. Eventually, prices are gonna have to reflect all of the cost inflation that we are seeing. Very helpful. Thank you.

Operator: As a reminder, everyone, And the next question comes from the line of Michael Lavery with Piper Sandler. Please proceed.

Michael Lavery: Thank you. Good evening. Just wanted to come back to some of the innovation you talked about the vodka aids a good bit earlier. But late at the convenience store show was very prominent, and it got a lot of attention. It just in showing off how it can be displayed and banners and everything. And I guess just curious maybe I would imagine some of that is just that it is a bit in market a little further already. So maybe it is it is a it is a timing.

You know, a good moment to amplify its kinda message a little more, but how should we think about maybe that or Rally Dog and how big they could be You touched on how important Truly is just because of its size. You know, the how would these fit into your thinking for how much it can offset other declines? Or what the. You know, how those pieces come together and how big of a push you will put behind either 1 or both of those?

C. James Koch: Sure. You know, basically we are gonna push what moves. So if we see you know? And we cannot predict, is something gonna catch fire? it is just I have been doing this 42 years, and I have been wrong as much as I am right. In terms of, you know, looking out a year. But, you know, you can look out 3 weeks, and if something’s moving, you know it. I would not you know, for 2026, negligible. So you probably do not even need to put it in your model.

For 2027, know, I do not see, you know, them getting to, you know, the place where Truly is now, for several years, even if they are wildly successful. You know, LYTT is kind of a unicorn. it is probably why it got so much excitement. It is a extremely innovative product in multiple ways. it is not just a, you know, a different liquid or anything like that. You know, it is it is strikingly. You just have to look at it and you go, wow. that is pretty interesting. It puts a smile on your face. Wow. You know, booze in a light bulb. Where did you think of that?

And it is you know, it sort of has some moats around it for that reason. You cannot make it. In a normal production facility. There we had to create the capacity. There was not contract capacity out there to do this. Nobody makes, you know, conveyor belts to move little light bulbs. Along. They are set for, you know, things with so. Various kinds of cylinders, and having a round bottom is weird. Of course, you know, having a screw top is not common among the normal set of contract producers. And it has to be merchandised differently. You cannot put it on the shelves. So.

And it is– so we take advantage of the fact that it is in the sweet spot for retailers. It is an incremental purchase. You know, people do not go to the liquor store to buy 3 light bulbs of lit. They see it and they put 3 of them in their basket, but they did not go there to buy LYTT. So it is an incremental purchase and it is extremely high margin. You know, the margins per case are extraordinary, both for the retailer and for the wholesaler. It might be, you know, the margin per case equivalent might be 5x what a normal beer is. So. And similar margin for the retailer.

So again, they do not need to sell tons of it. 1 ball maybe is much margin as they make on a 6-pack of a low end beer. Just 1 of those bulbs, and there are 24 of them in a case. And 40-something in a case equivalent. So it is it is a very out of the box product. That has to be made differently, and distributed differently. The distributors gotta put up, you know, suction cups. We have a variety of racks and dump bins and countertop displays. That will support this instinctual buying. We ask for 3 points of interruption in an account that carries it rather than just 1 spot on the shelf.

So I do not know. Is there a lot that is new and interesting? For it? And so we are gonna find out. But it has a lot of potential. And like I said, the margins are, you know, are multiples of everything else in our in our, product mix. And, you know, the vodka aid category is a little more traditional, know, it is kinda priced at r t. Vodka RTDs, like, Sun Cruiser. It fits on the shelf. You can merchandise it the same way. But it has, you know, gotten out of the gates faster than anything I have seen. Okay. that is really helpful.

Michael Lavery: 1 slightly related follow-up. Just talking about the color on how some of the setup for Q4 you think shipments will be up. How much of that might be pipeline fill related just given Rally Dog and LYTT going national next year?

Matthew Donal Murphy: Yeah. Thanks. Just very little is the simple answer. The impact of the higher inventory in Q3 25 at wholesaler we. We have given the improvements in our supply chain, we reduced the levels So we had less shipments in Q4 last year. We were. I think we are down 7%. So we are up against an easy comp, and we have had a consistent level of inventory at wholesalers. So I. there is some impact of load in, probably more for Rally Dog than LYTT, but you know, it. it is mostly that you know, just the timing of shipments given to. Given our supply chain improvements Okay. Thanks.

Michael Lavery: I will pass it on.

Operator: Thank you. This concludes the question and answer session, and I would like turn the call back to C. James Koch for closing remarks.

C. James Koch: Thank you all for very thoughtful questions. Today, and I look forward to speaking to all of you in February when we are gonna have wrapped up 2026, and we will have guidance for 2027. Cheers.

Matthew Donal Murphy: Cheers. Everyone.

Operator: This concludes today’s conference. You may disconnect your lines at this time. And enjoy the rest of your day.