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Good day, and welcome to the Monster Beverage Corporation Second Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I'd like to turn the conference over to Mr. Rodney Sacks and Hilton Schlosberg, Co-CEOs of Monster Beverage. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and Co-Chief Executive Officer, is on the call; as is Tom Kelly, our Chief Financial Officer. Tom Kelly will now read our cautionary statement.

Before we begin, I would like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from the forward-looking statements made during this call. Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on March 1, 2023, and quarterly report on Form-Q including the sections contained therein entitled Risk Factors and Forward-Looking Statements, for a discussion on specific risk and uncertainties that may affect our performance. The company assumes no obligations to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to hand the call over to Rodney Sacks.

Thanks Tom. The company achieved record second quarter net sales of $1.85 billion in the 2023 second quarter, 12.1% higher than net sales of $1.66 billion in the 2022 comparable period, and 14.4% higher on a foreign currency adjusted basis. Gross profit as a percentage of net sales for the 2023 second quarter was 52.5% compared with 47.1% in the comparative 2022 second quarter. The increase in gross profit as a percentage of net sales for the 2023 second quarter as compared to the 2022 second quarter was primarily the result of pricing actions, decreased operating costs and increased aluminum can costs. The increase was partially offset by lower gross margins in the alcohol segment and in which our sales had quite a nice bump as you seen from the release. As expected, promotional allowances for the 2023 second quarter were marginally higher than the comparable 2022 second quarter, as well as 2023 first quarter. Operating expenses for the 2023 second quarter were $450.4 million, compared with $406.9 million in the 2022 second quarter, as a percentage of net sales operating expenses for the 2023 second quarter were 24.3% compared to 24.6% in the 2022 second quarter. Distribution expenses for the 2023 second quarter decreased to $82 million, or 4.4% of net sales compared to $87.9 million or 5.3% of net sales in the 2022 second quarter. The $5.8 million decrease in distribution expenses was primarily due to decreased freight out expenses of $11.8 million partially offset by higher warehouse expenses of $4.8 million as a result of higher raw materials and finished product inventories in the United States and EMEA. The increase in other operating expenses was primarily due to increased payroll expenses. We are purchasing aluminum cans from local sources globally. We have returned to our orbit strategy of producing in closer proximity to our customers. The costs of repositioning finished products to distribution centers are included in freight-in costs. The company continues to address certain challenges in its supply chain as it navigates the current global supply chain environment. Operating income for the 2023 second quarter increased 14.4% to $523.8 from $373 million in the 2022 comparative quarter. The effective tax rate for the 2023 second quarter was 23.2% compared with 25.3% in the 2022 second quarter, the decrease in the effective tax rate was primarily attributable to an increase in deductible interest expense, a decrease in the effective state income tax rate, as well as an increase in net income in certain foreign jurisdictions, which have lower tax rates compared to the United States. Net income increased 51.4% to $413.9 million, as compared to $273.4 million in the 2022 comparable quarter. Diluted earnings per share for the 2023 second quarter increased 52.8% to $0.39 from $0.26 in the second quarter of 2022. Due to continued cost pressures, the company implemented pricing actions in the United States in 2022, as well as in many other international markets in 2022, and in the first half of 2023. The company plans to implement additional price increases in a number of other international markets during the remainder of the 2023 year. In the United States, the company implemented an additional price increase on its 18.6 ounce and 24 ounce lines effective April 1, 2023. We will continue to review further opportunities for pricing actions in order to mitigate inflationary pressures. According to the Nielsen reports, for the 13 weeks through July 22, 2023 for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including Energy Shots increased by 13.6% versus the same period a year ago. Sales of the company's energy brands, including Reign were up 12.2% in the 13 week period, sales of Monster were up 10.5%, Sales of Reign were up 43.7%, sales of NOS increased 11.2% and sales a Full Throttle increased 14.7%. Sale of Red Bull increased 10.2%. The company continues to have market leaders share leadership in the energy drink category for all outlets combined in the United States in both the 13 week and four week periods ended July 22, 2023. According to Nielsen for the four weeks ended July 22, 2023, sales in dollars in the energy drink category in the convenience and gas channel, including Energy Shots in dollars increased 13.7% over the same period, the previous year. Sales of the company energy brands which include Reign increased 13.8% in the four week period in the convenience and gas channel, sales of Monster increased by 11.1%over the same period versus the previous year. Reign sales increased 54.9%, NOS was up 13.2%, Full Throttle was up 23.2% sales of Red Bull were up 8.8%. According to Nielsen for the four weeks ended July 22, 2023, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars increase from 36% to 36.1%. Monster share decreased from 30.4% a year ago to 29.8%, Reign sharing increased to 0.8 of share point to 3.1%, NOS’s share remain at 2.5% and Full Throttle share remained at 0.7%. Red Bull’s share decreased 1.6 points from 36.3% a year ago to 34.7%, VPX Bang’s share decreased 4.2 points to 1.8%. Five Hour share was lower by 0.7 point at 3.5%. Rockstar share was down 0.2 over point to 3.4%, Celsius’ share is 6.6%, C Four’s share is 3% and Ghosts share is 2.8%. Please note that VPX Bank was in bankruptcy during this period, and we will address our acquisition of Bang later in this call. According to Nielsen for the four weeks ended July 22 2023, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel decreased 3% over the same period the previous year. Sales of Java Monster including Java Monster 300 and Java Monster Nitro Cold Brew was 3.3% higher in the same period versus the previous year. Sales of Starbucks Energy was 7% lower, Java Monster share of the coffee plus energy drink category for the four weeks ended July 22, 2023 was 54.1%, up 3.3 points, while Starbucks Energy's share was 45.6% down two points. According to Nielsen in all major channels in Canada for the 12 weeks ended June 17, 2023, the energy drink category increased 14.8% in dollars. Sales of the company's energy drink brands increased 21.6% versus a year ago. The market share of the company's energy drink brands was 42.4%, up 2.4 points, Monster sales increased 25.6% and its market sharing increased 3.3 points to 38.1% NOS’s sales decreased to 5.8% and its market share decreased 0.3 over point to 1.3%. Full Throttle sales decreased 43.2% and its market share decrease 0.3 over point to 0.3%. According to Nielsen for all outlets combined in Mexico, the energy drink category increased 23.7% for the month of June 2023. Monster sales increased 25.3%. Monster’s market sharing value increased 0.4 points to 28.8% against the comparable period the previous year. Sales of Predator increased 75.3% and its market sharing increased 1.7 points to 5.6%. The Nielsen's statistics from Mexico cover single months, which is a short period that may often be materially influenced positively and or negatively by sales in the OXA convenience chain, which dominates the market sales in the OXA convenience chain in turn, can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico. According to Nielsen for the month of June 2023 compared to June 2022, Monster’s retail market sharing value increased in Argentina from 50.5% to 55.5%, in Chile from 38.1% to 40.8%. And in Brazil from 41.6% to 44.4%. Monster Energy is the leading energy brand in value in Argentina, Brazil and Chile. I would like to point out that the Nielsen numbers in EMEA should only be used as a guide. Because the channels read by Nielsen in EMEA vary from country to country and are reported on varying dates within the month referred to from country to country. According to Nielsen in a 13 week period until June 18, 2023. Monster’s retail market sharing value as compared to the same period the previous year grew from 16.2% to 16.6% in Belgium, from 32.7% 33.1% in France, from 29.8% to 31.1%, in Great Britain, from 31.8% to 35.2% in Norway, from 28.1% to 30.3% in the Republic of Ireland, from 39.4% to 41.6% in Spain, and from 15.6% to 15.9% in Sweden. Monster’s retail market sharing value as compared to the same period the previous year declined from 6.6% to 5.5% in the Netherlands, according to Nielsen in the 13 week period ended until the end of June 2023, Monster’s retail market sharing values as compared to the same period the previous year declined from 19.3% to 17.7% in South Africa. According to Nielsen as 13 week period until the end of May 2023, Monster’s retail market value as compared to the same period the previous year grew from 18% to 22.1% in the Czech Republic, from 27.4% to 28%, in Denmark, from 15% to 16.4% in Germany, and from 28% to 29.9% in Italy. Monster’s retail market sharing value as compared to the same period the previous year, declined from 38.7% to 37.5% in Greece, and from 20.6% to 18.7% in Poland. According to Nielsen in the 13 week period until the end of May 2023, Predator’s retail market sharing value as compared to the same period the previous year grew from 26.3% to 31.5% in Kenya, and from 15.4% to 19.8% in Nigeria. According to IRI in Australia, Monster’s market sharing value for the four weeks ending July 9, 2023, increased from 14.1% to 16.9% as compared to the same period the previous year. Mother's market sharing value decreased from 10.4% to 10.3%. According to IRI in New

[Operator Instructions] Our first question comes from Peter Grom at UBS.

Thanks, operator and good afternoon, guys. Hope you're doing well. So I wanted to pick up on the gross margin commentary and just get a sense for how the quarter kind of came in versus your expectations. This is the first time we haven't really seen the sequential improvement on gross margin in about a year. And I know you mentioned promotion, I think you've talked about other costs, back at the shareholder meeting. But can you maybe just talk about how you see the drivers of gross margin evolving through the balance of the year, should we still expect to see sequential progression from here? And then maybe bigger picture, can you help frame where we are on the long term margin recovery journey. Thanks.

Peter, the difficult answers your question is that we really don't give guidance. So if we look at this quarter that we just reporting, we spoke about some of the drivers behind the improvement in gross margin. But against that, we did have continued increases, and I've said this in previous quarters in certain ingredients and other input costs, as well as co-packing. So that's the fact that will stay with us. And then we have another obviously, issue that we spoke about, and that is geographical sales mix. So as we sell more product overseas, so the margin reduces overall, the percentage gross margin reduces overall. And then, as you look at the alcohol business building, the gross margins from that side of the business are less than the gross margins that we enjoy in the energy drink sector. So you've got pluses and minuses, the alcohol brands, you'll see in the Q that will be released in a day or so that the alcohol brands were $60 million of sales, and that margin is lower, and we've reported it as being lower than in the rest of the business. So, overall, there's really is a mix, and then with a Bang product coming in, we expect that the Bang product will have the same margins as the kind of Ultra products in our own portfolio, the Reign products and Ultra products, and that will improve margins. So overall, there's a -- we've got a mix of positive items that are benefiting gross margins and those items that are detracting from gross margins.

Our next question comes from Andrea Teixeira with JPMorgan.

Thank you, and good afternoon. Can you comment on where you're seeing the energy category demand perspective, from a consumer standpoint? And then related to that, obviously, congrats on the acquisition of Bang. How are you planning to lean even more into this wellness energy category, with the organic growth through the House Renovation, Rainstorm, in particular continues to grow fast, but now Bang adds more presence into that sub segment. So what are you – what you can share at this point, I know you're going to share more in the next earnings call. But can you talk about how you can participate even more in that category? And if I can squeeze just a clarification about Brazil and Latin America, I think x, Mexico continues to do well. But I was surprised to see a deceleration. I know, it's tough comparison, when you gain a lot of shares in Brazil, but just to make sure that we get those points in. Thank you.

So if I talk about the energy category as such, and we started looking at the one week data because the community looks at the one week data, and the energy category is still growing in good double digits 13% in the last week, so we're seeing a good increase in the energy category. And as we look at, traditional energy and wellness energy and performance energy, obviously, you've seen kind of differences within those segments. Interesting, the Bang started off life as a very much performance energy. And today, if you look at the brand, and you analyze what it stands for, really stands for a different segment, which is really lost on energy. So you've got all these different brands that are filling different needs within the energy space. But traditionally, energy is still growing, I did a quick analysis and the traditional energy is still growing and the number I'm looking at is around 10%. You've got this other wellness energy and obviously we are participating in that segment with Rainstorm, yes, which we are really excited about. And then performance energy where we have Reign which is doing very well. The difficulty in, really going deep in -- deep dive into performance energy is that the Bang brand has suffered, because it's lost so much distribution. And that's a factor that obviously is driving that segment of the market. And then quickly, just turning to Brazil, and Chile, the energy category in those countries really grew very rapidly. And we grew extensively within those two countries, but there has been, we've seen a little bit of a slowdown in growth in both Brazil and in Chile. And as you can see, from the numbers that we reported, we are still market leaders. So it's something that is part of doing business within Brazil and in Chile, and we maintaining a market share. And we had a product issue in Chile, which have now been sorted, we bring in product from Mexico, we now are able to produce locally in Chile. But the market has taken somewhat of slowing growth. And, we've been as a market leader, we've been part of that as well.

The next question comes from Filippo Falorni with Citi.

Hey, good afternoon, everyone. Two clarifications on the Bang acquisition. So first, can you provide us with like, the last 12 months sales for the brand? And then bigger picture like how are you guys planning to position the brand in the US? What consumers are you going after? And then internationally, you mentioned the transition to the coke system in the US, you plan that also to transition international? And if you can give us any timeline on that. Thank you.

Maybe I just comment a little bit just, pretty much Hilton, I think covered most of in his last answer. But we are able to look at the brands if you've seen what how the Bank brand has, in fact developed. It was originally in the black can focused, sort of focus on competing with Monster and it then went to a color can and then more recently it went to a white can. And then that white cat has gone through a transition as well. So you then got Reign which is in a black can, and you've got Rainstorm, which is in a 12 ounce white can. And so we see a different way of separating the brands, marketing them differently, and positioning and we think they can all basically fit within our broader portfolio completely separate to NOS which is very much a Motors sort of brand Full Throttle and Monster. So if you look at that packaging, that's how we do it, we're going to probably change the packaging slightly of the Bang brand, but it will remain principally a white can and in a 16 ounce. And so we feel that there is a way which we do -- all these brands can play quite with each other within our portfolio.

The next question comes from Peter Galbo with Bank of America.

Hey, guys, good afternoon. Thanks for taking the question. I guess if I can just to follow back up on Peter Grom’s question and understanding you don’t give guidance around gross margin. I guess as we looked at it on a gross profit per case basis. You were actually kind of flattish sequentially. So ignoring the percentage but looking at the dollars, is that at all a better way to think about the go forward as just as you're managing gross profit per case on dollar basis relative to the margin. Thanks very much.

So we always look at gross profit per case. When we launch a product that's very much part of the way that this company has always examined new product introductions. So know your costs that phrase has been something that we preached for any number of years. So as we go forward with new products with new innovation, even for example, with a Bang acquisition, knowing the cost is vital to really being able to position a product within our portfolio. Now, obviously, some products have lower gross profits per case, like, for example, the coffee products, but they are an important part of our portfolio. So as we examine products, and we examine where we are, we always have to look at what we are delivering to consumers to meet to their needs, within the overall ambit of a product portfolio. Now, when we went into energy, into alcohol, I'm sorry, we went into alcohol with our eyes wide open, we knew the margins that were in alcohol would be lower than the margins in the energy drink category. So we look at margin, I've always said this on calls, I say we bank dollars, we don't bank percentages. And I've always encouraged analysts to just think, likewise, that we don't bank percentages, we bank dollars.

The next question comes from Chris Carey with Wells Fargo Securities.

Hey, good afternoon. How you doing? So just one quick follow up there. And then just kind of like a capital allocation question. But would you mind providing the Latin America gross margin on the quarter? I probably missed it or I'm not sure you gave it. But that would be helpful, and just a Latin America in general. So is there a temporary disruption that we're working through? Or is what we're seeing underlying demand? So just those two follow ups? And then I realized this is a multi-part question, I'm probably going to get in trouble. But just from a capital allocation standpoint, when can you start buying back stock again, so thanks so much.

So let's talk a little bit about Latin America, remember, we sell to the distributors, and the distributors sell to the retailers. And as the demand is somewhat reduced at retail, the distributors cut back their inventory. So they over inventorize, they cut back. And, unfortunately, we are the recipient of what happens in the distribution channel. So as I said, all of these issues will resolve themselves, because you have these cutbacks, but then we go to a more orderly situation, where we should go to more lean situation in future quarters. And that's where we are in Latin America. The brand is so as I said, very strong. We market leaders in Argentina, we market leaders in Brazil, we market leaders in Chile as very big markets and market leaders in other countries as well. So that's an answer to that. And then, what I would ask you to do is, listen to the conference call, because I don't want to repeat numbers that we've already said, we're already running out of time, the Q will be out in in two days, and that should answer your questions on Latin America.

Our next question comes from Bonnie Herzog with Goldman Sachs.

All right. Thank you. Hi, guys. I just wanted to quickly circle back on gross margins and see if you could share what impacted out of orbit issue that you highlighted during your shareholder meeting, maybe head off margin and whether this issue is now resolved, essentially. And I just want to confirm that you guys are now back working within your orbit.

Yes, Bonnie, there always will be anomalies. And we're in the middle of summer, as you know, and it's been pretty hot out there. And we're doing our very best to stay within orbits, but there are anomalies from time to time and our mission in this company has always been to satisfy our customers. So yes, there will be, we maintaining within our orbits, but there are times when we will and we do stray from that. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Rodney Sacks for any closing remarks.

Thanks very much. On behalf of the company, I'd like to thank everyone for their continued interest. We continue to believe in the company and our growth strategy and remain committed to continuing to innovate, develop and differentiate our brands and to expand the company both at home and abroad. And in particular capitalizing on our relationship with the Coca Cola Bottler system. We believe that we are well positioned in the beverage industry and continue to be optimistic about the future of our company. We hope that you will remain safe and healthy and have enjoyable summer. Thank you very much for your attendance.