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Good afternoon. And welcome to the Monster Beverage Company Third Quarter 2023 Conference call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rodney Sacks and Hilton Schlosberg, Co-CEOs. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I am Rodney Sacks. Hilton Schlosberg, our Vice Chairman and my 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 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 reports on Form 10-Q, including the sections contained therein entitled Risk Factors and Forward-Looking Statements for a discussion on specific risks 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.

Thank you, Tom. On July 31, 2023, the company completed its acquisition of Bang Energy, which is the Bang Transaction. The acquired assets primarily include Bang Energy Drinks and a beverage production facility in Phoenix, Arizona. Inventory purchased as part of the Bang Transaction was recorded at fair value. Certain of the purchased inventory was subsequently sold in the 2023 third quarter and was recognized through cost of sales at fair value, which we define as the Bang Inventory Step-Up hereafter in the call. As a result of the Bang Inventory Step-Up, gross profit was adversely impacted by approximately $7.8 million during the 2023 third quarter. During the 2023 third quarter, in connection with the Bang Transaction, the company recorded a gain of $45.4 million, which will be referred to hereinafter as the Bang Transaction Gain, in interest and other income and expense net within the condensed consolidated statement of income. During the 2023 third quarter, the company incurred approximately $8 million of acquisition expenses related to the Bang Transaction and those are referred to also later in this call as the Bang Transaction Expenses. The company achieved record third quarter net sales of $1.86 billion in the 2023 third quarter, 14.3% higher than net sales of $1.62 billion in the 2022 comparable period and 16.1% higher on a foreign currency adjusted basis. Gross profit as a percentage of net sales for the 2023 third quarter was 53%, compared with 51.3% in the comparative 2022 third quarter. Gross profit as a percentage of net sales was 53.4% for the 2023 third quarter, excluding the Bang Inventory Step-Up. The increase in gross profit as a percentage of net sales for the 2023 third quarter as compared to the 2022 third quarter was primarily the result of pricing actions, decreased freight-in costs and decreased aluminum can costs. Promotional allowances for the 2023 third quarter were higher than in the comparable 2022 third quarter, as well as the 2023 second quarter. Operating expenses for the 2023 third quarter were $473.2 million, compared with $415.8 million in the 2022 third quarter. As a percentage of net sales, operating expenses for the 2023 third quarter were 25.5%, compared with 25.6% in the 2022 third quarter. Operating expenses for the 2023 third quarter included approximately $8 million of Bang Transaction-related expenses. Distribution expenses for the 2023 third quarter were $85.7 million or 4.6% of net sales, compared to $83 million or 5.1% of net sales in the 2022 third quarter. Operating income for the 2023 third quarter increased to 22.2% to $510.5 million from $417.9 million in the 2022 comparative quarter. Interest and other income expense net for the 2023 third quarter increased to $71.4 million from $2.1 million in the 2022 comparative quarter. The increase was due to $39.3 million of interest income and a gain of $45.4 million related to the Bang Transaction. Such amounts were partially offset by foreign currency transaction losses of $13.2 million. The effective tax rate for the 2023 third quarter was 22.2%, compared with 23.3% in the 2022 third quarter. The decrease in the effective tax rate was primarily attributable to an increase in deductible interest expense. Net income increased 40.4% to $452.7 million, as compared to the $322.4 million in the 2022 comparable quarter. Diluted earnings per share for the 2023 third quarter increased 41.3% to $0.43 from $0.30 in the third quarter of 2022. Diluted earnings per share adjusted for the Bang Transaction Gain, the Bang Inventory Step-Up and the Bang Transaction Expenses net of tax was $0.41 for the 2023 third quarter, an increase of 34.1%. The company plans to implement additional price increases in certain international markets during the remainder of the 2023 year. 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 October 21, 2023, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including energy shots increased by 9.2% versus the same period a year ago. Sales of the company’s energy brands excluding Bang were up 6.7% in the 13-week period, sales of Monster were up 4.8%, sales of Reign were up 36.3%, sales of NOS increased 10% and sales of Full Throttle increased 7.6%. Sales of Red Bull increased 3%. The company continues to have market 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 October 21, 2023. According to Nielsen, for the four weeks ended October 21, 2023, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots in dollars increased 6.7% over the same period the previous year. Sales of the company’s energy brands, excluding Bang, increased 4.5% in the four-week period in the convenience and gas channel. Sales of Monster increased by 1.9% over the same period versus the previous year. Reign sales increased 35.2%, NOS was up 9.7% and Full Throttle was up 7.8%. Sales of Red Bull were up 1.8%. According to Nielsen, for the four weeks ended October 21, 2023, the company’s market share of the energy drink category in the convenience and gas channel including energy shots in dollars decreased from 36.8% to 36.1%, excluding Bang. Monster share decreased from 31.1% a year ago to 29.7%. Reign share increased 0.6 of a share point to 3%, NOS share increased share increased 0.1% of a share point to 2.6% and Full Throttle share remained at 0.7 of a percent. Bang share was 1.4%. Red Bull share decreased 1.7 points to 34.5, Five Hour share was lower by half a point at 3.5%, Rockstar share was down 0.4 of a point to 3.4%, Celsius’ share is 7.4%, C Four’s share is 3.3% and Ghosts’ share is 2.7%. According to Nielsen, for the four weeks ended October 21, 2023, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel increased 8.9% over the same period the previous year. Sales of Java Monster including Java Monster 300 and Java Monster Nitro Cold Brew were 2% lower in the same period versus the previous year. Sales of Starbucks Energy was 14.9% lower. Java Monster share of the coffee plus energy drink category for the four weeks ended October 21, 2023, was 55.9%, up 3.9 points, while Starbucks Energy’s share was 43.8%, down 3.1 points. According to Nielsen, in all major channels in Canada for the 12 weeks ended October 7, 2023, the energy drink category increased 8.6% in dollars. Sales of the company’s energy drink brands increased 6.5% versus a year ago. The market share of the company’s energy drink brands was 40%, down 0.8 of a point. Monster sales increased 7.7% and its market share decreased 0.3 of a point to 36.2%. NOS sales decreased half a point and its market share decreased by 0.1 of a point to 1.2%, sorry, the sales decreased 5 point -- 0.5%. Full Throttle sales increased 12.8% and its market share remained at 0.5%. According to Nielsen, for all outlets combined in Mexico, the energy drink category increased 20% for the month of September 2023, Monster sales increased 22.7%, Monster’s market share in value increased 0.7 points to 29.3% against the comparable period the previous year. Sales of Predator increased 60.3% and its market share increased 1.5 share points to 6.1%. The Nielsen statistics for 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 September 2023 compared to September 2022, Monster’s retail market share in value increased in Argentina from 52.8% to 56.8%, in Brazil from 43% to 45.1% and decreased in Chile from 41.7% to 39.9%. Monster Energy is the leading energy brand in value in Argentina, Brazil, and Chile. I would like to point out, 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 the 13-week period until October 8, 2023, Monster’s retail market share in value as compared to the same period the previous year grew from 30.5% to 31.3% in France, from 29.9% to 32.4% in Great Britain, from 5.4% to 5.6% in the Netherlands, from 31.6% to 34.7% in Norway and from 40.3% to 40.5% in Spain. According to Nielsen, in the 13-week period until the end of September 2023, Monster’s retail market share in value as compared to the same period the previous year grew from 15.6% to 18.4% in Germany, Monster’s retail market share in value as compared to the same period of the previous year remained flat at 31.6% in Italy, Monster’s retail market share value as compared to the same period the previous year declined from 19% to 18.4% in Poland and from 19.8% to 17.9% in South Africa. According to Nielsen, in the 13-week period ended September 10, 2023, Monster’s retail market share in value as compared to the same period the previous year grew from 15.4% to 16.8% in Belgium, from 19.3% to 21.3% in the Czech Republic, from 28% to 30% in the Republic of Ireland and from 15.4% to 16% in Sweden. According to Nielsen, in the 13-week period until the end of August 2023, Monster’s retail market share in value as compared to the same period the previous year declined from 38.8% to 38.2% in Greece. According to Nielsen, in the 13-week period until the middle of August 2023, Monster’s retail market share in value as compared to the same period the previous year grew from 27.5% to 28% in Denmark. According to Nielsen, in the 13-week period until the end of August 2023, Predators retail market share in value as compared to the same period the previous year, grew from 29.8% to 32.8% in Kenya and from 17% to 20.3% in Nigeria. According to IRI in Australia, Monster’s market sharing value for the four weeks ending October 15, 2023, increased from 14.8% to 16.4% as compared to the same period the previous year. Mother’s market sharing value decreased from 11.7% to 10.1%. Going to IRI in New

[Operator Instructions] Our first question is from Peter Grom with UBS. Please go ahead.

Thanks, Operator. Good afternoon, guys. Hope you are doing well. So maybe one housekeeping question…

Good afternoon.

… and then one real question here. I guess, on just the Bang Transaction, I apologize if I missed this, but did you mention how much of a contribution the transaction was to sales in the quarter? And then, I guess, just my real question here is, I would love to get some more color on the quarter-to-date trends you just mentioned. I think it was 25% or so, much better than what we can see in the track data. So can you maybe unpack the drivers of that? Is that simply just much stronger growth in international markets or is there any sort of sales pull-forward or timing impacts that we need to take into consideration? Just any color there I think would be really helpful. Thanks.

Okay. Firstly, with regard to the Bang Transaction and the Bang sales numbers, we do not separately give those numbers. They are all included within the Monster Energy Drinks segment. We launched Bang Energy in September through the Coke bottling system and it was not an immediate launch on September 1, some bottlers took a little bit earlier in August and many that rolled out in September, rolled out through the month of September. So this is not a real fair quarter for the capability of what Bang can bring to the portfolio. And then, on your second point, it was very difficult to hear you, Peter. I think you are referring to the October sales, were you not?

Yeah. I was just trying to understand, I think you mentioned 25% or so, it’s just a lot different or stronger than what we can see in track data even after backing out kind of the Bang drag. So I just was trying to get some color in terms of what were the drivers of that, is it simply stronger growth outside the U.S. or is it -- is there any sort of timing contributions or pull-forward in sales, just any color you can provide I think would be really helpful.

Well, I think, it’s important to understand that we have large unmeasured channels. And when one looks at Nielsen or IRI numbers, one doesn’t really appreciate that the company operates through -- customers that do not participate in Nielsen or are not measured by Nielsen. And in addition a number of chain stores that allow pickup of products or ordering online, those numbers are not included within the all major channels that we see on the Nielsen. They included in the stores data, but they are not included in the all measured channels. Why? I really cannot answer that question. So there are a number of factors. The business was strong. We had a good October and those are the numbers. So, I really cannot comment anymore.

The next question is from Andrea Teixeira with JPMorgan. Please go ahead.

Hey. Good afternoon. This is Drew Levine on for Andrea. Thank you for taking our question. So just wanted to circle back on the Bang acquisition and the transition to the Coke bottling system. Just any high level thoughts on improving distribution and sort of timeline to regaining shelf space for the brand would be helpful. And then, secondarily, within the Nielsen and IRI channels, it does appear that, sequentially, some of these more sort of emerging brands aren’t really gaining as much market share sequentially. So just any high level thoughts on the category dynamics if you think those emerging brands might be hitting on a sort of ceiling and Monster’s position within there, that would be helpful? Thank you.

Yeah. So, remember, that number of both convenience and chain and other large stores discontinued the Bang brand during a period where there was a litigation and also with the products were questionable as regards to labeling. So there was a lot of discontinuation of Bang throughout the system. What we are doing and what our Coke bottlers are doing is regaining the distribution that is out there for Bang and also we are as a company making presentations to the large and smaller retailers, both convenience, grocery, mass, and obviously, the club channel to ensure that Bang is restocked in their sets. So that will take a little bit of time, it doesn’t happen overnight and we are hopeful that we will be able to achieve really very much extended distribution in the new sets as they come out. And then on your second question regarding the smaller brands, already we have a mission that’s focused on our brands and our brand families, and I really don’t want to comment on the competition. Other than to say that we have a very comprehensive portfolio here and we believe that we are in a good position to focus and build upon our own sales, while recognizing the achievements of the competitors and the positioning of the competitors.

The next question is from Vivien Azer with TD Cowen. Please go ahead.

Hi. Good evening. Thank you. I wanted to follow up on your commentary, just now in terms of the conversations that you are having with retailers, recognizing that it might be a little bit early days in terms of driving for extended shelf reset and increased placement on Bang, but operationally, kind of how are you thinking about that? Is it kind of a one-for-one for every market share point of improvement you think you can drive for Bang that’s incremental square footage? Are you willing to sacrifice some linear square footage on tertiary, SKUs within your own portfolio to revitalize that brand, any incremental color would be helpful? Thank you.

Yeah. We have set our sales team an objective and that is they are not compromise any of our existing shelf space to incorporate the Bang brand. The Bang brand has emerged as a lifestyle brand and we believe it should be positioned in a -- hopefully in a separate cooler away from the energy beverages that includes the wellness beverages and the performance beverages and that’s the mission that we are focusing on with our sales teams.

The next question is from Charlie Higgs with Redburn Atlantic. Please go ahead.

Hey, Hilton and Rodney. I hope you are both well fine. I got a question on China, please, and the good 28% growth you posted there. Just wondering if you could give any color on that number. It’s a lot stronger than competitors seem to be posting in China. And then, just how the portfolio shaping up there, and then, you -- have you launched Predator there? Thanks.

Perhaps, I will just take that. The brand, we have sort of looked at realigning the brand and focusing on the main SKUs and we are gaining additional sales and traction with the brands. So the brands, particularly, Green and Ultra, are doing very well in China and continuing to grow and getting solid sales per SKU -- per point of distribution. With regard to Predator, we are proceeding with our plans to launch Predator and that will happen towards the middle of next year, probably, the second quarter as presently planned. So that will go ahead in a PET bottle. So we are also pretty hopeful that we will have two offerings at different price points to attack the Chinese market. Thanks.

The next question is from Mark Astrachan with Stifel. Please go ahead.

Yeah. Hey, guys. Good afternoon.

Hi.

Just one follow-up on one other question. So if you look at the scanner data, we look at total distribution points for Bang, I show it’s up something like 22% at current levels or kind of a week or two ago relative to where it was even in September. So you had mentioned helping that, I think, the rollout in September was a bit more measured. So I suppose why shouldn’t we get a little more excited about what you can do from shelf space in terms of where it was? I guess it’s never going to be what it was a few years ago, but certainly seems like it’s on a good starting level there. And then, the main question, we are getting lots of questions and I am sure you are about how to think about pricing and what Red Bull is going to do in the market. I guess, how long does it take for you to figure out how much pricing Red Bull is going to pass-through and how quickly or when you have to tell the retail establishments that you are planning on following them if you decide to do that? Thanks.

Well, generally when you have a price increase in our industry, it takes 60 days to 90 days to get pricing adjusted in the U.S. market. I think where we are is, we are evaluating the competition, and obviously, we are reevaluating Red Bull and their pricing and we will see where it goes. They took -- because of promotions they took a lot less in 2022 than was originally expected. So I think we just watching for what happens with demand and the elasticity of demand and we are in a really difficult consumer environment, not necessarily for energy drinks as you have heard on this call. But I think we have to be very wary and watch and see and we will evaluate what makes sense for us and time we will make a decision. I mean we have always said that if there is an opportunity to take price, we will, but we are also very cognizant of the fact that, we don’t want to lose a bunch of market share in the process. And then, Mark, you referred earlier to Bang, and yes, the Coke bottlers during the month of September got Bang back in as many shelves as they were authorized to get product back. And yes, of course, there was an increase in September, but -- and October, and we will continue seeing the development of Bang as we get more and more shelf space authorized to -- for the brand. But as always, we don’t give guidance on these calls and but I will just say that, we are all optimistic here about the future and the potential of the brand otherwise we wouldn’t have done the acquisition.

The next question is from Michael Lavery with Piper Sandler. Please go ahead.

Thank you. Good afternoon.

Hi. Just was wondering if you could give a sense of strategically how you think about the portfolio. In the US, you have got the share headwinds are greater for the Monster brand versus some others. Maybe just how do you think about resource allocation or trying to push to protect and strengthen that brand, what kind of margin mix implications are there or is it just anything under the total corporate umbrella is -- if it it’s got momentum is great. Just give us good a little sense of how you think about the portfolio, strategy and how much -- how important it is for Monster to take the lead or not?

I think Monster has always been our lead brand and will continue to be the lead brand. So, ultimately, we focus on Monster itself. And then, we look at the broader portfolio, we look at the category. The category has got grown in the last couple of years and it’s much, much broader than it was and so we think that Monster’s positioning should stay as it is, it’s got -- its positioning, it’s got its authenticity and credibility for what it stands for and it can’t be everything to all consumers. And that’s why these other brands play a really important role for the company and enable us to actually attack other parts of the category, other consumers who have different values and have different need states, whether it’s from NOS to Reign. You saw the results of Reign have increased and sales have really been very healthy. So that brand is doing very well with its positioning, which is different to the positioning we have got for Rainstorm. And then, the same thing that, as Hilton mentioned earlier, we have sort of -- we have taken the positioning of -- for Bang as sort of more of a lifestyle brand. Again, it has its own positioning. The cans, as you know, in the last few years has changed from being a black can, more performance orientated to be a white can, more lifestyle orientated. So there are different positionings, different price points, we think that we will get incremental space for these other brands in joining coolers or additional coolers space, where you are having the -- where you are finding more space being allocated to the clean energy or natural or sort of healthier perception energy brands. As you -- also look at sizes, Rainstorm is in a 12-ounce cans versus our traditional Reign brand in a 60-ounce black can. So these are ways that we are able to distinguish these different products and find a place for each of them on the shelf and to attract different consumers. And so, if you look at the whole portfolio, we think it actually fits together quite nicely and we see growth coming from all of these different levels, but still 100% our main brand remains and our focus is obviously Monster, which is the driver for the company and will continue to be so.

Rodney, I think, one other point for Michael is that, if -- Mike, you need to look at the numbers, because, I think, Red Bull is suffering far worse than Monster and the -- I think that’s something you need to look at. That’s number one. And number two, a number of our analysts are -- and we have noticed this as of late, are taking the Bang numbers and putting the Bang numbers into Monster, both this year and last year. And obviously, that’s not a great exercise, because Bang has -- Bang share and Bang sales have fallen off dramatically over the last year, particularly through all this litigation and with the removal from shelves and the discontinuations as I mentioned earlier. So that’s not a good exercise to put the Bang brand into Monster this year and last year. So what we did on this call, we actually separated Bang separately and the rest of the portfolio so one could get a feel of the performance of the Monster portfolio separately from what’s happening with Bang. Hopefully, sometime down the line we will be able to roll the two into one another and then it will make better sense of growth or otherwise.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Sacks for any closing remarks.

Thanks. On behalf of the company, I’d like to thank everyone for their continued interest in the company. 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 remain safe and healthy. Thank you very much for your attendance.