Monster Beverage Corporation (MNST) Earnings Call Transcript & Summary

Happy New Year. I'm Roger Pondel from Monster Beverage Corp., and welcome to the 2020 Investor Update Meeting. Before we begin the meeting, I need to tell you that certain statements made in today's presentation may constitute forward-looking statements within the meaning of the U.S. federal securities laws, as amended, regarding the expectations of management with respect to the company's future operating results and other future events, including revenues and profitability. The company cautions that these statements are based on management's current knowledge and expectations and are subject to certain risk and uncertainties, many of which are outside the control of the company that could cause actual results and events to differ materially from the statements made herein. For a detailed discussion of risks that could affect the company's operating results, see the company's reports filed with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2018, and subsequently filed quarterly reports on Form 10-Q. The company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. We are webcasting today from the Harvard Club in chilly New York City. And it is now my pleasure to turn the webcast over to Rodney Sacks. Rodney?

Thanks very much. Good afternoon, ladies and gentlemen. Thanks very much for attending this call with Hilton and myself. We'll go through some of these slides. Some of them we'll try and get through quite quickly, and others, we will spend a little more time on in detail. And obviously then, we'll be able to answer some questions later on. The first slide I'd like to just put up is the beverage landscape as we see it. And I think that what's important is that, if you look at the actual numbers, the total beverage category is up 2.8%, while the energy category is leading the increase in growth at 7.9%. And that, in dollars, this is also leading the category as well. So I think that is a relevant slide, particularly you look at some of the growth in dollars and percentages of sports drinks, coffee, juice drinks, tea and other general products, even water today in the industry, and when you look at and look to what shelves will look like possibly as we go forward into 2020.

Yes. Our retailers examine this data pretty actively in deciding what space to allocate to various categories. And that's why, historically, we've seen a growth in the energy category space, and we're expecting to see that continuing in 2020 as well.

There's some problem with our screen here on in front me. Okay. Thanks. All right. We've tried to update the Nielsen numbers as closely to current as possible. So we've got information for the Nielsen period, and the first slide is the 13 weeks -- all measured channels, 13 weeks ended 28th of December. And from this slide, you'll see the category is up 7.4%. Monster, as a company, is up 3.4% in volume change. Monster, on its own, is 3.9% down; NOS, 3.6% down; and Reign is $98 million in sales in the period. Red Bull is up 5.4%. Rockstar is down 7%. Bang is at 130 -- sorry, $261 million during this period. Some other products that are sort of newish on the -- in the performance category like CELSIUS is at $16 million, just to put it in perspective. We've given you the same slide in units -- sorry on the -- not sure we're in sync with the...

Way back?

Way back.

So I think the one thing we wanted to highlight from these slides was the fact that, while Monster as a brand is down, the company is up, and we've got to appreciate that we launched a very strong performance energy brand called Reign, and that Reign has captured -- together with its competitor, has captured a sizable portion of the energy space. And therefore, most of the brands are down. Red Bull has grown. We took a price increase, as all of you know. We have not dealt significantly back on the price increase. We believe that price increase has stuck. And if you also examine what happened with NOS and Full Throttle, the sales team took those products up to the pricing in the energy category of the Monsters and the Red Bulls and -- above that in some cases, which that is now being reversed. So you will see that, as a company, we are still growing. Some -- maybe some decisions we've taken with NOS and Full Throttle that were too aggressive. But the Monster price increase is, in fact, sticking.

The only other thing I'd like to just point out regarding the sales during the year and the positioning of Monster is that, during the year, there was some execution issues with the challenges we faced. While we obviously would have liked and planned to get incremental shelf space for Reign due to its launch sort of out of cycle and after some of the sets had already been made by many of the convenience retailers, we didn't have an option but to cut some of -- cut in Reign into some of the Monster space. So that I think also had an effect on the number of facings we had in stores of Monster and also didn't let us get Reign out perhaps as fully as we had liked, though, we did get good distribution. The question was the depth of the execution on the Reign product. Also, in some areas, we had some challenges in California and Midwest with some of the bottlers on their business models, trying to rationalize the business model to obviously optimize profitability and that -- we found that some of the frequency and core frequencies suffered as a result. And we've addressed that with some of the bottlers, and some of that has been addressed. It's an ongoing challenge to obviously have a bottler balance his profitability and core rates. But we have addressed that, and we have seen some improvement, and we believe this will improve going forward.

Yes. To be precise, it's the California, the West and the Midwest as well.

So moving on to this graph, it really just shows you what we've just shown in the other 2 slides but in a graph from over the period of the last 24 months and shows we're -- ultimately, we're -- we've ended up where Reign has ended up and we, as a company, are positioned at the moment.

Yes. I think what's also important from this particular graph is the fact that this performance energy is a very real category. And you could see the launch of Reign, which we prepared for some time, really arrested the performance of the competitor and that the -- we've seen this performance energy category as indeed where our retailers had something to say.

That being said though, I do want to give my point of view on this, that -- and I agree that it is a category that is clearly going to be bad for us. But again, I think some of the expectations earlier on in the year were far too optimistic. And this wasn't going to be the new panacea and take over everything. If you look at the category, there is a very substantial difference between Monster and Red Bull at the top who have -- together have almost 70% share, and the rest of the industry. So while I think that this category is going to have a positioning and is going to be important as a component, contribute to the growth of the category going forward, you've got to put it into perspective and balance. We've still got Monster with a lot of innovation, and that will continue to grow, we believe, continue to be the leader in the category. I will flip now, if I may, to the convenience channel. It's sort of reasonably similar to the all measure channels, the results. So we don't need to spend too much time. And this has been published. You guys can go through it and go to the last 5 weeks on the convenience channel. In the last 5 weeks, again, you will see the sales of Monster, as a company, are up $14 million, which was very similar to the increase in sales of Red Bull, but it's made up obviously of Monster, NOS and Reign together. Again, just to bring into -- take into account the size of some of the competitive products in this category, the -- one of the products that compete in the performance category is CELSIUS, and their sales are at $3.3 million out of $1 billion. So again, just putting some of the competition and some of the newer players who try to compete in this category in perspective, in size, units and in dollar share to give you guys the graphs and the equivalent. I'd like to just move on through the distribution map -- sorry, before that, I'll just stop at the energy coffee category. We do have a slide up of the energy coffee category, which we define as the old Monster energy drinks with coffee. And in the case of the main competitor, Starbucks who have Double Shot, recently introduced a Triple Shot Energy Coffee. We are about to launch a new Monster 300 in response to the Triple Shot entry. And this is just to give you a picture of the category. What happened, if you remember, some time ago, we had some production problems, and those we've worked through, and you could see where the category is continuing to grow. We're continuing to make progress. We've just recently launched a plant-based coffee drink, which is our oat milk Java Monster. And we do have some additional innovation planned for the Java line later this year.

Again, for those of you guys who weren't involved in the company at the time of the production issues, they were not production issues, per se. They were capacity issues. There was not enough capacity in the market in the U.S. to sustain the volume where the category was going. So it wasn't an issue of bad quality or anything of that nature. It was just production capacity. And we brought product from Europe, in fact, to address our capacity needs. And I was asked earlier this evening whether our capacity problems in the coffee category are over. And the question is, yes, the answer is yes. We have adequate capacity now to ensure our needs.

Thanks. I'll flip through the distribution maps. The first one is of North America. The second map that we have is the distribution we have around the world with at least one company-owned brand following the KO transaction. The next slide is to just show, in the distribution around the world, there are a few independent markets for Monster still around the world, really primarily Japan, Afghanistan, Finland. And just in summary, Monster is now distributed in 139 countries and territories. Strategic brands are now distributed in 93 countries and territories. Affordable energy, primarily Predator, is now distributed in 16 countries worldwide. And one or more of the company's energy drinks are distributed in a total of 153 countries.

So if you look at it and stand back, there's a shout out to the Coca-Cola Company. The transaction that was done with them that we finalized in 2015 has been extremely successful for us and for the company and for their bottlers. So just to shout out to the company.

The next slide is sort of an interesting slide that we haven't put up before, but we thought it was relevant. It's always a challenge to measure how is your brand perceived? How do social media treat brands? And how do you actually understand what your brand is being seen as from a -- on a social media point of view? And so we do have a slide of -- that we've been able to get information. And it is quite illustrative. We've had some issues in the category over the years, and so I'll just run through it. On purchase intent, the image of the brand is positive. It's gone up by 10%. Consideration off of the images, plus 6%. The negative brand image that existed before, to the extent there was a negative brand image that existed, is down, which is positive for us, is down 22%, the negative comments. Positive mentions of Monster on social media has increased 10%. Chatter, just general chatter about Monster on social, is up 16%. Negative mentions on Monster on social media is down. The negative mentions are down 18%. And on ingredients, negative comments on ingredients and et cetera on social media is also down 25%. So we think that, that is quite useful for the image of the brand and the category as a whole as to -- just looking at the comments that people make and people have from time to time, particularly with the introduction last year of the performance category, which was perceived to be or positioned to be in a -- healthier than other energy drinks, which really, there's no basis or substance for that statement. They are simply energy drinks like all the others are. Just moving on to try and give you a set of slides. Again, we don't need to spend a lot of time on them. These slides just give you the energy portfolio as to what drinks we have in what countries, different brands. So it's a convenient form to try and look at the brand and the company, different products in U.S., Europe, Asia Pacific.

So I think what's important is the affordable energy brand, which we have called Predator in most countries. And as you look through these distribution maps, you'll see how Predator's starting to gain distribution in a number of countries. And the Predator gain is on a concentrate model. So you'll see that included in the -- what we call the strategic brands in our financials.

Moving forward, we've -- last year, we had given a number of countries just some selected information. In the interest of trying to reduce the length of the presentation, we've reduced it to the top-10 markets, not in any order of -- but it's purely alphabetical.

Alphabetical.

And we'll just go through some of these markets to highlight some of the statistics and information that we are seeing in our top-10 markets outside of the U.S. The first market we'll deal with is Brazil. Brazil. And so, I just want to make one point in some of the markets. We'll come to some of the slides later. In some markets, whilst the market or our market share may be reasonably flat, what has happened generally is Monster has continued to gain share, and some of the other brands or strategic brands have, in fact, lost some share. So in many markets, while the overall market is -- would appear flat, we are still making some good progress in increasing Monster's share of the category. In Brazil, the category is up in the last 3 months 17%. Monster's value growth is 73% up. Our share is now 27.3%. Burn's value is down 16%, and its value share is 2.6%. So as a portfolio, we're at 29.9%. In the last month, the category has accelerated in growth to 20.8%. Monster's value growth is -- increased to 79.8%. Our value share has increased to 28.4%. Burn's value is down 12.4%, and its share is at 6 -- 2.6%. And our total portfolio share in Brazil is now 31% share of the category. In Canada, the category has grown in the last 3 months 8.9%. Monster grew 10.9%. And our share is now 35.7%. NOS down 2.4%, and its share is 2.1%. Full Throttle is down 9% and has a 1% share. So our total portfolio share is 38.8%. In the latest month, the category grew 9.7%. Monster grew 14.1%. Our share is up to 36.7%. NOS value growth, we're back at growth of 4.5% and its share at 2.2%. Full Throttle was minus 2.3% with a 1% share. And our share of the category grew to 39.9%. In France, the value growth of the category in the last few months is 17%. Monster grew 29%, and we have -- our share is 27.7%. In the last month, the category grew 14.8%, a little slower, but our growth stayed at 29%, and our portfolio is now 28%. In Germany, the category grew 2.9% in the last 3 months. Monster grew 10.9%, and our portfolio share is 16.2%. In the last month, the category grew 2.3%. We grew 11.8%, and our share is at 16.5%. Germany is the second -- or is the largest market in Europe, after Britain, which may or may not be part of Europe for much longer. Great Britain, which is the largest market in the EC, the latest 3 months, the category is up 3.9%. Value growth is 12.4%. And our value share is -- Monster's share is 22%. We have the Relentless brand in that market. It's up 5.5%; value share at 3.8%; and our total share of the energy market is 25.8%. In the latest month, our share is 5-point -- up -- the category is up 5.2%. Monster's growth 12.6%. Monster's value share is 22%. Relentless' value growth is minus 0.9%. And Relentless' value share is 3.6%. Our total portfolio share is 25.6%. Just in regard to the U.K., I just want to mention that one of the largest portions of this category is really in Lucozade, which we classify as an energy drink as part of the category. But it's a lot of volume and a lot of sales, but it's arguably, whether it's sort of a, more of what I'll call a traditional, old-fashioned energy drink. So if you took Lucozade out, you would see that our share is probably almost a 50 share of the, what I'll call, the modern energy category in the U.K. today. Japan, which is a market that has been growing really well for us, the energy category is up 14.7% in the last 3 months. Monster's share is up 31.8%. And our share has now reached 54.2% in Japan. In the last month, the category grew 15.9%. Our value growth was 35%. And our value share was 54.5%, which has been a really successful market for us. Mexico, one of our oldest markets internationally, the energy category grew 16.3%. I just wanted to make the point here that a large portion of that growth was fueled by what we call very low-cost energy drinks in the market. Monster grew 10.4%, and our share is 28.7%. Burn decreased by 55.8% and has a 0.7% share. And our portfolio value share is 29.4%. In the last month, the category grew 15.5%. Monster grew 4.7%. It has a 27.4% share. Burn is minus 65.5%, and Burn value is 0.5%. The portfolio value share is 27.8%. And this is a market where -- which we are going to address and plan to launch a product in the affordable energy category. Next market I would like to discuss is Poland. This has started to grow quite significantly in the last year. The category is up 12%. Monster's growth is 52.8%. Our value share is 14.9%. Burn's value growth is 4.6%, and it has a 3.2% share, so we have a total 18% share of the market. In the last month, the category grew 14.9%. Monster grew 50.6%. Monster's value share is 14.3%. Burn's value growth is 9.3% and Burn's value share is 3.1%, so we have a 17.4% share in the last month. South Africa, we actually have 4 brands in the market now. The value of the category grew 23.1%. Monster grew 34.7%. And our value share for Monster is 17.3%. Play grew 12%, and its value share is 15%. Affordable energy, which is Predator and, in that market, Burn, the value growth was up 26%, and their share of the affordable was 6.6%. In the last month, the latest month, the category grew 23.8%. Monster grew 36.7%, and its value share is at 17.3%. Play grew 7.5%. Value share is at 14.4%. And the affordable energy grew 19.6%, and our share of that is 6.5%, giving us a total of 38.3% share of the energy category in South Africa. And then finally, Spain. The category grew 20.8% in the last 3 months. Monster grew 38.6%. Value share grew 35-point -- sorry, our value share is 35.4% for Monster in Spain. Burn grew 8.3% but then has a value share of 7.5%, having -- giving our total portfolio value share of 42.9%. In the latest month, the category grew 21.4%. Monster value growth was 33.3%. Our share is 35.1%. Burn's value growth was 11%, having a 7.7% share and having the total portfolio at 42.8%. These markets are summarized on the next slide. For these markets, and which if you look at the Monster value growth and the category growth, you can see, generally, that Monster is continuing to grow ahead of the category and continuing to take share. The next slide, we've had a lot of discussion and inquiries, both internationally and more recently addressing the imminent launch of Coca-Cola Energy in the U.S. And so we -- to address the questions we've been getting from analysts and shareholders and investors around the world, we have put up a slide which shows just 15 markets that have been chosen at random for where Coca-Cola Energy has already launched. And if you look at the Monster slide, I want to make the point that it's not Monster on its own. It's MEC brands. So we've taken a market where, for example, if you take Great Britain, we've got -- you've got both Monster, which is continuing to grow, and Relentless, which is -- where the growth has tailed it off a little or flat. So when you look at an actual market, you've got to look at the fact that it's more than one brand put together than just simply showing Red Bull, Monster as a portfolio and then looking at the Coca-Cola Energy brand. The Coca-Cola Energy brand, obviously, just been launched. It's new. And -- but it really -- I think the reason we're putting this up is to illustrate that, at the end of the day, we don't believe that the Coca-Cola Energy brand is something that is affecting the Monster brand or how we go to market or the market share. It's being positioned differently by the Coca-Cola Company. I think the main concern we've had and expressed recently is more a question of dilution of focus of bottler and of some shelf space. But that again is part of what we're addressing together with Coca-Cola and the bottlers in the market. So Coca-Cola Energy will be what it will be. And the important point for us is that I don't think that it has -- it's something that we -- that affects us -- that will affect us as a company. Obviously, we are dealing with it, but I think everybody didn't know of the uncertainty that consumers were faced with -- and analysts and investors was what is it going to do. What is it going to do with the category? What is it going to do to Monster? How's Monster going to participate together with Coke with conflicting direction to bottlers or conflicting interests? And so the point of this is really to give you the fact of your position and basically to say this is how it is. We don't think it's affected our company. We're both going to continue. Coke will continue to market their energy brand, and obviously, they will try and grow it and get growth from their brand. And we will continue to focus and get growth from Monster, and we will continue to function in conjunction and cooperation with Coke and the Coke bottlers. And I think this shows that, that is possible, and it is what has happened internationally. I don't know if you want to add anything on that?

No. I think my reasoning for putting this up and looking at the markets where Coca-Cola Energy had launched was really for our audience here to be able to make up their own minds because there has been a lot of concern, and we just want to address those concerns, show the facts, and you guys make up your minds. Yes, there will be issues with the bottlers, issues of focus. And we've got to maintain our focus on our brands, and Coke will maintain to focus on their brands. And Nik Modi came out with a report this morning, which was pretty accurate as regards -- as we see the distribution of the Coca-Cola Energy product in the United States. So I think we're putting it up for you guys to make up your own minds.

These are some markets that we've just given you some indication of where we're -- are planned to be launched or transitioned in 2020. Some may have been put off from 2019, but we're getting there on then slowly but surely. We have the main markets addressed, and we are continuing to address these markets. Just to give you the next slide on China. China is still, as we would say, a work in progress. We're continuing to focus and build the brand in China. Our volume growth this year in the year-to-date up to the end of the third quarter was up 192%, so we believe the brand is solidifying and sticking. We are, obviously, got a long way to go, particularly in our distribution in the traditional channel. Most of our distribution at the moment is focused on the modern trade. And we are doing a lot of promotions in the country. We are looking at how to make the brand more relevant and to be better known because that is one of the challenges we've had in China because most of the social media and Internet and sports we do around the world are not -- don't translate into China. But we have been continuing to spend money on additional sporting events and strategies to increase our exposure in China, which includes -- we're going on with the English Premier League. We take a lot of advertising space on the English Premier League on the -- during matches, which has messages and has the illustrations of products, both in English and in Chinese, and explaining that it's available in China. We think that's been an important source for us to communicate to Chinese consumers who watch football, English football quite extensively. We've done things with some athletes, NBA athletes who are very popular in China, like Klay Thompson. So we are addressing gaming and a lot of things that way in order to increase the awareness and make our brand more relevant in China. So we are planning an additional product launch in China shortly in the early part of 2020, and we'll continue to put effort and focus on China going forward.

I think also, and we've said this on previous calls, it's also important that the bottlers remain absolutely committed and excited about the brand. So that's really positive.

Just flip to some of what we achieved in 2019. We had some very good achievements with our athletes and in sporting events and our marketing, including Lewis Hamilton, Kyle Busch, Fabio Quartararo, Tiger Woods, Eli Tomac, Nyjah Huston, Jon Jones and Chloe Kim. In X Games, we've continued to dominate the X Games and get a lot of exposure in many, many countries around the world that show X Games on television, both winter and summer. We've continued to sponsor a number of major series, including NASCAR, UFC, Supercross, Professional Bull Riding, X Games, Monster Jam, MotoGP, rallycross and MotoGP. We've continued to sponsor UFC, which -- sorry, I'm going to go back one. I skipped one. MotoGP still remains probably our most extensive worldwide sport that is most relevant to our consumer demographic. We continue to sponsor and have a very good relationship with Valentino Rossi. We're the main sponsor of the Yamaha team, and we have a number of additional riders who are young and up and coming and have been very -- starting to be very successful. We've continued our sponsorship of UFC, which has continued to expand around the world. And that's given us additional exposure around the world in many countries. eSports is another area that we've continued to support, and we've actually extended our coverage and reach in eSports. We are sponsoring additional tournaments and additional teams. We have a major push in the eSport area in e-gaming. We think this is relevant to us and to our consumers and to younger consumers around the world to bring them into the fold. And so we are adding our -- on our focus on eSports in 2020. Music still remains one of our main platforms. Again, we've also looked at some of the music genres that we've traditionally sponsored. And we've started to broaden that music consumer to really address and focus on music that is attractive to younger consumers. Moving to -- another platform of ours is social media. We have increased our spend and our focus on social media in 2019 and are planning to continue to increase our spend and focus on the social media area in 2020, including specifically allocating certain properties and activities to some of our supporting brand families as opposed to just focusing on the green claw on its own. For example, in this particular slide, as you can see on the Ultra line and focusing on the fact and communicating that it is a Zero Sugar line, and it's a whole line that would appeal to people who do want an energy drink but do want 0 sugar. These are the national promotions that we used in 2019, next slide, to support our brands in the United States. We have a new program that we're planning to introduce nationally the first trimester of 2020 is an F9 program to win a -- and second trimester is a music festival. And third trimester is back to a gaming tie in -- with Halo.

So the marketing group for 2020, you've got 4 key initiatives. The first is fewer, bigger, better. And you'll see that our promotions are fewer. Traditionally, we've done either 3 or 4. In 2020, we're doing 3. We're managing our world-class athletes for maximum impact. We're grabbing generation Z, which is the next generation of consumers and leading in digital first. So you'll see a lot of that coming through here with the concept of fewer, bigger, better, managing our athletes. We have a stable of over 550 athletes now. And we have great sponsorship that drive the rebel of energy positioning. And we saw reference to gaming. We're going to continue with that. There'll be a shift in our music strategy towards more electronic dance music and hip-hop and using influences. And a digital-first approach means more discussion and more interaction on digital media, mainly mobile. It's a huge priority.

Our next slide is just some of the marketing we do, inclusive marketing in the U.S. during 2019. And I'm just going to move on because we're going to have -- run out of time. We -- as I indicated earlier, we are addressing some of our brand families, focusing individually on them to address consumers who are more focused on those product families, and we believe the -- we need to communicate that we have these families. We've got a lot of products. And the challenge is actually communicating to consumers that we have this product availability and this broad range of products available to them. We have signed an ambassador agreement with the Bella Twins social media to obviously look at how to -- influencing people in the Zero Sugar for the Ultra line. Java Monster, obviously, we're doing the same thing now, focusing on Java Monster. Muscle Monster. And this goes through the theme of all the brand families that we have. The Hydro line, again, we're looking at specific properties to promote and to promote Hydro in different areas, beach volleyball, cycling and a number of others that we think are more focused on the Hydro drinker and its positioning. Innovation. The next slide shows us innovation that we -- pretty much a summary of the innovation that we introduced during 2019. The teas, Swiss Chocolate. There was Ultra Paradise, Monster Mule. The oatmilk, they're on display here today, so you can taste them and take home samples. Two new MAXX. We've repositioned the MAXX line. The Ultra Dry, the -- extra dry has been very successful as a full calorie product, but we believe there is a consumer that wants 0 calorie with a higher efficacy, extra caffeine. And so we've positioned the 2 new products in the MAXX line, which are being -- which have just recently been launched, and we're going to put an emphasis on and focus on in 2020. Our innovation for 2020, we have -- 2 line extensions in the Ultra line to build on the successful launch that we had of Ultra Paradise last year. It's Ultra Fiesta, which is sort of a mango-flavored product, and Ultra Rosa, which is more of a cranberry-, raspberry-, lemonade-type flavor. We're going to introduce 2 new Java Monsters. We call it Java 300, which is a Java Monster with increased caffeine. Each of them will have 300 milligrams of caffeine. The traditional Java has about 200. We are going to introduce additional Java, Juice Monster and other Monster products this year. But for competitive reasons, we're -- and some of them are in the process of development. We're just putting placeholders in the slide to tell you that we do have plans to have additional products launched this year. But at this point, we're not -- don't think it's appropriate to disclose more detail and go into them in any more detail. The last innovation that I do want to refer you to though is a product that we're launching, which is Hydro, which we have the normal Hydro refreshment product, where we're introducing Hydro Super Sport, Super Sport in 2 flavors, which is -- has advanced hydration. It has increased electrolytes. But it also has BCAAs as well as increased caffeine. So it's very much -- it's very similar to Reign in some ways in the performance category by having increased caffeine and BCAAs, but it is in a noncarbonated version, which we think is actually more appropriate for working out in sports to have during or before -- during sports or after, and it is in a resealable bottle. So we believe that this will be a great addition to the Hydro line this year going forward in 2020. If we move to some of the supported products, I'll try and run through them reasonably quickly. Reign. This is the positioning for Reign on the next slide. You know that we launched with 6 products. Within 6 months, we launched another 3 products, and we now have ready to launch 3 Inferno products. So the Reign line has moved to a total of 12 products in less than 12 months.

So we believe that this is an innovation game. Consumers want to try new flavors. And so that's part of the strategy that we embarked on 6 plus 3 plus the new Inferno line.

So moving to the new Inferno line. A lot people were intrigued by the -- some of the new flavors, particularly the Jalapeno Strawberry. I think people were pretty surprised and buy it, and it's people drinking -- it's one of those drinks products that you take, and then you actually come back and drink more and more. So it's -- we think it's going to be quite successful. It's somebody doing something different. Again, you can't just follow everything all the time. So we believe this is a great line with some thermogenic properties. It's a nice innovation, we think, to the main Reign line, where again, we've got some placeholders. We do believe we will have some additional innovation, both in the regular body fuel line and in the Inferno line later in 2020. So I would encourage you guys to sample some of the products that are here and take them and try them with you. Strategic brands innovation. Just to give you a slide on what we introduced in strategic brands in 2019 and then what we are planning for strategic brands in 2020. We have a new Epic Swell product in Australia. The NOS line is going to get a Turbo version, which is -- has higher caffeine and BCAAs, which is really a performance energy drink, but we're going to do that in the -- to supplement and add to the NOS line and do something different in that line. Nalu, we're doing a sparkling tea product. The brand is doing really nicely in Belgium. So we -- and there is a demand for sparkling tea there. So we have 2 flavors in sparkling tea to extend the Nalu line. We're looking at the Burn line, extending that. That's doing really nicely, particularly in Russia. And so this first product that we're looking at is slated for Russia, and then we will introduce it elsewhere. We do have also some additional innovation, which we will disclose later in the year.

So we have a focus and retain a focus on the strategic brands that we acquired from Coke. A lot of people ask questions about the future of those brands. We've worked on them. You've seen the new labeling that we've done. We're introducing new flavors, and we remain committed to them. Some smaller brands have been discontinued or will be discontinued, but the main brands that you see here today will continue and grow.

I'm just going to flip very quickly, because we're about out of time, on NOS. And these slides that we have up, people can go through them at their leisure. Really just showing the positioning of each of the brands that we have in the strategic portfolio. And so I'm just flipping through them, get through to it. Hopefully, we get to you guys. Predator is the one brand that is sort of different and new that you may not have seen. As we said earlier, we've now launched Predator in 16 countries. We're planning quite a lot of additional countries rollout of Predator as an affordable energy brand this year. And the positioning is -- it's Rule Your Kingdom. It's sport, and we have a whole line of these products. We have a number of flavors. And in certain countries, we're actually introducing certain different products that we don't have anywhere else that are particular to the local markets. Particularly in Africa, there are 2 products. Again, I think it's not -- I just don't want to deal with the flavors at this point in time, but there will be -- probably, we'll release the information on them when we release our first quarter results for Predator in East Africa and in Nigeria. Just in summary, we've had 27 consecutive years of increased sales since the acquisition of the beverage business in 1992. We've achieved $3.8 billion in net sales in 2018, up 13% over net sales of $3.4 billion in 2017. For the 9 months ended September 30, we achieved $3.2 billion in net sales, up 10.4% over net sales of $2.9 billion for the same period in 2018. Net sales for the third quarter of 2019 increased to $1.1 billion, up 11.6% from the same quarter last year. And net income for the third quarter of 2019 increased to $299 million, up 11.6% from the same quarter last year. On the share repurchase side, we have repurchased, as you can see, a number of shares in the third and fourth quarters. The total, we purchased 11,022,559 shares in 2019 at an average price of $56.51 for a total purchase cost of $622,840,848. The next slides are simply showing our financial performance. I'm going to try and get through quickly. We have shown 26.7% compound annual growth to December 2018. Reported income has continued to improve. On an adjusted operating income basis, we've shown a 38.5% compound annual growth to December 2018. We've shown continued reported increases in earnings per share. On the balance sheet side, just to show that we've continued to improve the balance sheet. Total cash as at September 30, was $1.3 million, up from $958 million, up 38%. Current ratio, if anybody is interested, is...

It's actually billion, okay, that's not million.

Billion, billion, billion, sorry. Current ratio is at 3.3 as of September, up from 3, which is up 10%. And then the next 2 slides are just quarterly results for the 9 months and -- 3 months and 9 months. So I think you guys can go through that on your own once they've been...

Yes. They've been published. It's in...

They've been published. Thank you. All right. Thanks very much.

Thanks, Rodney. And thanks, Hilton.

Sure.

The presentation is available, by the way, for those who would like a copy of it on the company's website. So you can have it there. We're going to take some time first for questions. Please limit your questions to one so we could spread it out a little bit. State your name and your company. And we'll begin with the first question.

It's Mark Astrachan from Stifel. Two quick questions. Shelf space in the U.S. in 2020, you touched on getting more space. Is that how we should be thinking about it? And then quickly, you had Reign on the EMEA slide in terms of the launch. Is that something we should anticipate in 2020? How do you think about performance energy competing in that market?

Let's take the second one first, quickly. We've launched in 3 markets in EMEA. We are planning a number of additional markets in the first half of this year, and we will continue. We are sort of feeling our way. We're not quite sure about how -- what the reception will be in Europe to a performance product. We know that there are some BCAA products. There's a brand called NOCCO in -- which started in Sweden. And they're trying to expand into a number of additional U.S. markets. They've sort of entered the U.S. in a very small way. But there is -- we know some markets do have -- are receptive to performance brands. So we think there will be a receptive market, but it won't perhaps be quite as extensive. I'm not sure you'll be able to sort of launch this everywhere just -- but obviously, as the category grows and becomes more relevant and people become more aware of it, we think there will be sort of more acceptance for it. But you want to be careful that you don't grow it too quickly or you go in places where there are not -- it's not -- they aren't ready for it yet. But there is some potential for this brand in other countries internationally as well. Just at the moment, I just don't want to go into the actual names, but we do have a few other countries on our radar. And so we are looking to see how do we grow the brand and where we use the brand to support Monster and our organization in some of the countries internationally, where we already have -- in many cases, we have multibrands. On the shelf space, as Hilton indicated, there have been some -- a lot of theories about shelf space. But at the end of the day, when you look at the sales, as I did -- go back to the first slide. The energy category is still the large -- growing the largest, both in percentage and in dollar terms. And so we believe that the retailers will allocate space according to the sales. There is also a debate about whether it's store versus CSD. That may be, but there are many other shelves on -- in convenience stores. And the shelves of convenience stores, there's water. There's juice products. There's milk products that all have lower velocities than perhaps CSDs and other products. So all these things are going to wash out as we go through the year. We've also, as you know, we've tried to create additional brand families. And the reason we've done that is to be able to address different use occasions and different consumers. So we believe that we will continue to utilize that strategy. We believe that performance energy will permit or command additional space. We think retailers will allocate additional space to performance -- and they're creating a subcategory for performance energy. We believe that will relieve some pressure where we've had to eat into some of our existing space in order to make -- to accommodate the launch of Reign in 2019. So we do believe we still have an ability to grow. The other thing is that if you look at that, that's convenience. And while that has been the largest category for energy, certainly, you don't think there's been any overspacing of energy in the grocery. We think it's, in fact, underspaced in grocery, in drug, mass merchandisers. And so we do have unmeasured channels. So there's a lot of opportunities to still grow energy outside of the constraints that you have, where you have a certain amount of coolers and space in the convenience category.

We still believe that we're underspaced in convenience relative to the total category and that there are opportunities for retailers to optimize the profitability by allocating additional space, both to the energy products and to the performance energy products. So it's really across the board.

Robert Ottenstein, Evercore ISI. Given the significant strength of the franchise, the incredible cash flows which, I think, are mostly hard currency, can you just kind of update us on your thoughts on capital allocation, the balance sheet? Why not be more aggressive in terms of share buybacks?

As a company, I'm embarrassed I'll tell you that we are conservative, and we don't really believe in going to borrowings to fund share repurchases. And we just -- as long as I'm there, we just won't do that. We're continuing to buy shares back in an orderly fashion, and we'll continue to do so through 2020. Our cash generation, as you can see, is pretty healthy. And we don't see any reason why that should change. So the strategy has always been to buy back shares in an orderly manner, and we'll continue to do that.

On the -- just talking about the overall energy category. Sorry, Amit Sharma, BMO Capital Markets. Pre- the performance category, it was growing 6%, 7%, 8%, right? If you exclude the performance category and just look excluding that, it's now down to 1%, 2% growth on a unit basis. As we lap the launch of Bang and Reign, do you think that goes back up to normal? How do you think about the new consumers that are coming into the category? Where are they going?

We can't predict. I can't predict. I don't think any of us sitting here can predict what will happen with the category. But if we've looked at the category, traditionally in Europe, for example, just going back historically, the category grew 10 levels for a period of time. It then grew again. There was new innovation. One of the things was Monster entered in the market and expanded the category when there was -- we had very limited shelf space and allocated more space to it and brought more consumers in. We did that on a much more aggressive, more accelerated basis in the U.S., and the category has been around since 1996. So I think that we've got to try and find a balance of shelf space. We've had great new products. Some of the products didn't get out on shelf as they should have. We think that could [ summon ] the sales. We had this interruption in the moment, disruption of the performance category, where people got refocused. We think that's settling down, and it's going to settle down at the levels that are reasonably close to where we think they are now, but there may be some growth. But we think that things will start normalizing. Where they normalize, we don't know, but we've got some really good innovation. I think the innovation will continue to drive some growth. I think it's important that we can try and communicate to consumers. And that's maybe one of the things that maybe we didn't do as well as we maybe could have, was that we have a very broad range of products that appeal to a lot of consumers. And we think that we're going to take steps this year to focus and allocate these marketing dollars to the individual family that we've got, the Hydro family, the Ultra family, the Java family, and get, I think, more consumers into the category and into our franchise. So we think we will be able to drive increased sales. But we don't know. But we're quite positive with the performance, the portfolio we've got, the new innovation we've got and our marketing plans for this year that we will be -- we will have a successful year.

So I just want to comment that I don't think you can say what is the category without the performance energy category. I think it's all one category. And this is where a lot of us sometimes make an error because performance energy is nothing more than products that participate in the energy category. Sure, they've got more caffeine. Sure, they've got branch chain amino acids, which are not in traditional energy drinks. But at the end of the day, they are energy drinks, and they're very much part of the category. And that's what I tried to say earlier, is you've got these burgeoning performance energy drinks that will remain part of the category. What percentage of the category, I don't know. They may stabilize where they are. They may grow a bit, but they're very much part of this category that we call the energy category. And we're talking earlier today, for example, about the alcoholic seltzers. What share of alcoholic seltzers going to command of the beer space? Nobody knows. But they, too, will settle down in some form and some percentage. So I think it's wrong to look at these products as something separate. They're very much part of the energy category. That's why we launched them within our space. They're energy products, and they shouldn't be disregarded as something that are a part of the category. They are very much a part of the category.

Andrea Teixeira from JPMorgan. I was hoping if you can -- back in June, you talked about like the overlaps between Reign -- the distribution of Reign and where Monster is. So where do you think you were -- I mean we can see in the Nielsen data, but the Nielsen data might not reflect everything. And where do you think you can go? I mean this new negotiation after you've done -- after the product was successful, how do you think you can negotiate with the c-stores to kind of correct that overlap?

I think -- as I mentioned earlier, I think the problem is, when we launched Reign, we were really out of cycle because the sets had already been done by almost all of the convenience chains before we launched Reign in February and March. And so we really had to, in some cases, improvise and find space. As we went through the launch of Reign, there were some resets later in the year. But the major resets take place at the beginning of the year, this year. And in those sets, in some cases, the retailers have wanted to keep Reign within the energy category space, the energy door. And in other cases, they've seen the opportunity to increase and create a performance energy category space outside or incremental to the energy category in a separate door. And so we do think it's going to improve, and we do think we'll be able to have additional space for all of the products that are going into the performance category, which is -- basically it's Bang. It's Reign. It's CELSIUS and C4, just to list those last 2 to a much lesser degree. And -- but there is -- there are other products. Rockstar has some products in this category. There are a lot of other products that are -- will make up the category. And so we think there will be separate and incremental space to it. And we think that Reign will be able to hopefully command basically a full shelf this time. We have a total of 9 products, and you have -- sorry, 12 products. You have 9 on the shelf. So between some products and giving flexibility to retailers, we think that we will be able to have additional space, which we think will also help us retrieve some of these SKU facings we lost when we worked it into the Monster sets to get back existing products and also for other innovation in the Monster line itself.

Steve Powers from Deutsche Bank. Maybe to build a little bit about -- on that. You talked a lot about the risk of bottler distractions as we think about Coke Energy. Given those execution issues and the struggle to get Reign in the right spot alongside Monster, what's -- can you elaborate on what you're doing to proactively guard against that distraction and maybe even help the Coke system think about a total portfolio offering, optimizing Coke Energy plus Monster plus Reign? It seems like there's an opportunity there to -- of a sales pitch that's actually beneficial beyond just guarding against internal system cannibalization.

Yes. I think one of the big issues why I think the U.S. will be different from other countries is that a number of the retailers have mandated that the Coca-Cola Energy product be placed in CSD, in that section, as Walmart has, in sections adjacent to CSD and between energy. And to our knowledge, the only big retailer that is agreed for the Coca-Cola Energy product to go on the energy set is Kroger. Having said that, The Coca-Cola Company has a very specific objective, which we are advised, and that is that they want to see themselves positioned next to Red Bull and not next to Monster because they see the product as being incremental to the category and not something that will take space away and share away from Monster. They see it as incremental, and what they would like to do is position themselves against Red Bull. So in terms of what we faced within -- in other countries, I think we dealt with it and dealt with it effectively. I think the U.S. will be somewhat easier because of where the retailers are mandating that the Coca-Cola Energy product be placed.

With that being said, I think the other point is that I think it's not for us to manage the Coke portfolio. They're going to manage their own brands and their own portfolio. And we need to protect our own space. I mean -- so you can't end up with some sort of a joint approach. But clearly, there is a recognition by us of where they're going to go, and we're working with the bottlers, and there's a recognition by them of where we are. So they're going to, logical sway, try and find additional shelf space. It's not the same as we're trying to add to our own shelf space, and we launched Reign out of sequence, and we said we've got to find space and bottle it all up and put it on the shelf. This is much more -- it's a planned launch by Coke. They've obviously got their own business plans, which they don't share with us, and they're going to go out and get whatever shelf space they want and get. And they'll respect our shelf by channel, and we'll do likewise to them. So the dilution is not that dilution. The dilution is maybe in coolers where you have a limited amount of shelf space, and the bottlers needs to have an allocation. Everybody is fighting. There's only so many -- as I said, the coolers aren't rubber. They can't expand. So there's only so many SKUs you can get in. So if you put one in, something's got to go out. And that's where you find there is some compression and some competition to say, if you're going to put Coke Energy in, what comes out? Is it a reduction of Monster? Was it a reduction of another brand? We would look to the portfolio, and obviously, we are trying to justify and say if there's another brand that's in there that's selling substantially, then that should be the replacement, or you've got to try and rationalize. But that's the squeeze we have. We have it overseas, and it will be here as well.

And we're working with the bottlers to ensure that there's not the significant overlap that could cause angst to any one side of the equation.

Yes. But there is -- there are 2 compares -- parts on that. We just have to address it. And so -- and that is what we're trying to do earlier to show that we've been able to manage our way through it. And we dealt with the odd cases or odd countries where there've been some issues. We've addressed it, and Coke has been supportive, and we've been able to get through it.

A question -- this is Kaumil Gajrawala from Credit Suisse. A question on margins. Last year, you took a price increase partially linked to the hedges you had on aluminum, and spot didn't really move in the same way where your hedges were maybe. Can you talk a bit about how you're positioned for this year? And then also related to margins internationally, you've recently bought some hard assets, such as the concentrate facility from Coke. Can you talk a bit about what that means for your margins outside the United States?

Okay. So firstly, on hedges, I think we're well placed in 2020. We have a number of hedges in place. As you can see, aluminum's now starting to move up. And we have a certain amount of hedges in place for 2020. We did not hedge the Midwest Premium, which was a decision we took. And you could see the Midwest Premium has come down from $0.21 a ton to -- yesterday was -- so today, it was $0.145. So we made a good decision on that. So as far as aluminum is concerned, I think we are in relatively good shape in 2020. With regard to margins internationally, I think I've spoken at length over the years about the differences in margin between the U.S. and out international margins where we have different models with the bottlers. Here, it was a really different issue where the bottlers historically received a 25% margin. And we, as the brand owner, we were able to retain the balance of the value chain over and above what was given to the bottlers. Internationally, it's been a very different situation because we've had to negotiate various models that the bottler has been used to operating within their own framework with The Coca-Cola Company. And so I don't anticipate -- and I've mentioned this on a number of occasions, both because of our cost -- basis of cost internationally, also based on the fact that we have these different models that -- and distribution costs that the U.S. margins will always be higher than international margins. So I think we've been pretty specific on that. The one thing we can say, which is really positive, is that we spent a lot of time this last year in ensuring that our operations in Europe are able to cope with the demand. I think the demand, as you guys know, last year, up to the third quarter, caught us a little bit by surprise. And we were not able to -- operations group did not have sufficient capacity to be able to meet the demand in Europe, which has now been fixed. And new equipment has gotten in, in a number of countries in Europe to be able to satisfy that. So that's another thing that -- I think that we worked hard at this year that has been achieved. As regards the concentrate facility that we bought from The Coca-Cola Company, we have our own facility, AFF, in the United States, which has the secret formula to a number of our flavors. And we acquired AFF because we wanted to get those flavors as part of the organization, which was a very, very successful move. We will now be able to produce those flavors in time in Athy in Ireland. It's going to take some time. We still -- the plant was closed down. We will be reopening the plant when we're ready to do so, which will take some months to get together. And that will -- what that will alleviate is the shipping issues from the U.S. and the delays we experienced, getting flavors over to the European markets to meet demand. So we're really positive about that move.

Laurent Grandet, Guggenheim. I've got a question. For those who were attending kind of your Investor Day in June -- back in June in Corona, you had division going into alcoholic beverages at the time and also cannabis as soon as the noncompete agreement is done, which is kind of in June. Could you update us about those more medium-term or long-term innovation that you're envisaging?

I think that we talked about it, and we -- the covenant that we have not to compete with the Coke company has already expired in Europe. It expires in June in the U.S. So we are obviously cognizant of that, and we've looked at plans. That only obviously applies to nonalcoholic beverages. We always had the option to do alcoholic beverages, and we've always had the option to do beer and spirits and cannabis if we -- or CBD if we've chosen to do so. I think our position on that latter side hasn't really changed. We think there's still -- there's too much uncertainty. There's a lot of issues with CBD and the things. So we're obviously keeping our eye on it, but at this point in time, we don't have any plans to do anything in that area. When and if it becomes clearer, the actual legalities and the federal laws about it, we will be able to address it pretty quickly. Obviously, we have a flavor company, as Hilton just addressed, so we -- this is what they do. This is their expertise. We don't need a CBD company to tell us how to put CBD, which is an oil in the liquid. That's exactly what these guys have done for the last 20, 30 years. So they're a lot more experienced. And we'll be in a good position to do that when and if we see the right time comes. With regard to other products, we have an open mind. We're looking at other opportunities, both in the alcoholic, nonalcoholic spaces. We just want to be concerned -- we are just concerned that we obviously don't want to take our eye off the ball and lose focus on what we're doing. We've had some really good -- interesting opportunities. We still have opportunities under consideration, but at this point in time, we don't have anything that's imminent. But we are receptive to it, whether it's expanding into another nonalcoholic line of product and developing maybe a secondary system to go to market or to do the same thing with a beer or whatever it may be, a flavored hard sell. So there's lots of opportunities. And even the spirits has had some unique niche products. So we're going to continue to evaluate those. And we're entrepreneurial. Hilton and I really are there. We focus together. We'll make a decision reasonably quickly, and it may change depending on the opportunity. We have the cash, as Hilton said earlier. We've made sure we have enough cash in reserve to do what we need to do if we want to do it at a very, very short notice. And so we are open to it. But at the moment, we're putting our heads down. And we're focusing on Monster. We're focusing on Reign. We've got a lot of strategic brands. We've got Predator. So we have a lot of runway still. And as you can see from the Super Sport and the Hydro, there's a lot of products out there that give us a lot of room to expand here. And internationally as well, we're launching some of the Hydro and the Super Sport Hydro as well in Europe as well now.

Yes. The company is growing, and the brands that the company operates is growing. The opportunity is growing. And we've got to be very careful not to deflect our attention and the attention of our sales team. And we've looked at some opportunities that may or may not have made sense. But at the end of the day, we have to stay focused on what we're good at. And we believe we're really good in this space, and we want to continue doing that.

Great. We'll take -- we have time for one more question, which we'll take from the back of the room.

Perfect. It's Wendy Nicholson with Citigroup. My question circles back on the international margin subject, and I guess, the 2 questions or the 2 concerns I have. You've obviously made huge progress in your international margins, which is terrific. But with China growing so rapidly, and I assume China's still operating at a loss and will continue to for the foreseeable future, is there a chance that international margins actually take a step back and you become less profitable overseas in totality? And the second part of that question is with regard to Predator, if you're in 16 markets now, it sounds like that's a big priority for 2020. How many new markets are we talking about? Is it another 5 or 10 or 15? And in the markets where you've launched Predator, has it ended up being margin dilutive given its lower price point?

Okay. Predator is a -- operating on a concentrate model. So no, it is not margin dilutive, okay? With regard to the first part of your question, we don't give guidance. I really don't see international margins falling. But who knows? Honestly, I don't see a reason why they should fall from where they are. But yes, China is a big chunk and -- or will become a big chunk. We are losing money in China, which is correct, but we're not losing money to the same extent we were losing a year or 2 ago.

Yes. I would just add a little bit on the Predator side. While we're going to 16 markets, the affordable energy category, by its very definition, is really making a lot of success in countries that don't have the buying power for the Monster brand. And those markets are quite big because you may take a market like Vietnam or Cambodia, which maybe justify or support a couple hundred thousand cases of Monster at a $2 or $3 price point. But really, you've got tens of millions of cases of opportunity in a affordable product. But it's a market we've not been into before. So we're -- we've launched in 16 markets. Some of them are smaller countries. And some of them, we're not sure what the opportunity is. We -- obviously, by selling on a concentrate model, you have a lower revenue-per-case model. But as Hilton said, your margin is not necessarily dilutive. It's -- we think it will be positive. And we just see -- we're just not sure how big that opportunity will be. If we were as focused on that as our primary focus is probably a lot of volume you could -- to be had in some of these markets. But again, we're trying to balance that but still trying to grow the main part of the business. So it's a balance. So we are looking to expand Predator. But I don't think you should assume that Predator is going to be in every country in the next 6 months. We need to plan it. We need to work it through, see how it takes in these markets. And again, nothing is built in a day. I mean in some of these markets, which are big affordable markets, they do have local brands that are there now and have been there for some years. So we're going to have to get into these markets and establish the product. So just steady as she goes, and we're going to -- we do think that there is a place for us in these markets. But it's -- we're going to work our way through it. We just don't want to give you any further indication or guidance in that area.

And to be clear, when you talk about margins, you're talking about gross margins, not net margins?

Great. Thank you, Hilton, and thank you, Rodney.

That was a question.

Okay. Thanks, everyone, for joining us, both in the audience here and on the webcast. And that will -- have a healthy new year, everyone. That will conclude the webcast.