Monster Beverage Corporation (MNST) Earnings Call Transcript & Summary

Good day, and welcome to the Monster Beverage Corporation Annual Shareholders meeting. At this time, we will be playing an introductory video, after which, the meeting will be turned over to Mr. Paul Dechary at the company. [Presentation]

Good afternoon, everyone, and thank you for joining us today. I am Paul Dechary, Senior Vice President and Deputy General Counsel of Monster Energy Company. Before we begin, please take note of our cautionary statement posted on the meeting site. The virtual meeting today will include forward-looking statements within the meaning of U.S. federal securities laws and are based on currently available information. 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 virtual meeting. Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed February 28, 2020, as well as our most recent quarterly report on Form 10-Q filed May 11, 2020, including the sections contained therein entitled Risk Factors and forward-looking statements for discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. I will be turning the proceedings over to Mr. Rodney Sacks, Chairman of the Board of Directors and Chief Executive Officer of Monster Beverage Corporation, and Mr. Hilton Schlosberg, Chief Financial Officer, Chief Operating Officer, Secretary, President and Vice Chairman of the Board of Directors of Monster Beverage Corporation but first, wanted to discuss the format of today's virtual meeting. We've designed this virtual meeting to provide stockholders with the same rights and opportunities to participate as they normally would have at an in-person meeting. We will conduct the annual meeting portion of the meeting first, during which we will address the 4 items of business detailed in the company's proxy statement. After the 4 proposals have been presented, we will conduct a question-and-answer session, specifically relating to the proposals. Following the formal portion of the meeting, the company will provide a general business update that includes a question-and-answer session. The meeting agenda and the rules of conduct are available on the meeting website. We ask that you review these documents, and we appreciate your cooperation. Stockholders attending the virtual meeting can vote their shares online through the closing of the polls by logging into the meeting website as a stockholder and clicking the 'vote here' button on the screen. If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed and no further action is required. If you have logged into the meeting website, you may submit questions by typing them into the text box on your screen. If asking a question, please include your name and affiliation to the company. To ensure that we receive your questions before the Q&A session is closed, we encourage you to submit your questions early. Please note, we may not be able to answer every question during this meeting due to time constraints. Finally, please note that today's meeting is being recorded. It is my pleasure to hand the meeting over to Mr. Sacks and Mr. Schlosberg.

Thank you. Good afternoon, ladies and gentlemen. My name is Rodney Sacks, and I'm Chairman of the Board of Directors and Chief Executive Officer of Monster Beverage Corporation. It is our great pleasure to welcome you to this annual meeting of the stockholders of Monster Beverage Corporation. While I wish you could join us in person at our corporate headquarters for our annual meeting, due to the COVID-19 pandemic, we are holding the first virtual annual meeting in our company's history. Also joining Mr. Schlosberg and myself for the virtual meeting today are all of the other directors of the company: Benjamin Polk, Mark Vidergauz, Sydney Selati, Mark Hall, Gary Fayard, Kathleen Ciaramello, Jeanne Jackson and Steven Pizula. Thomas Kelly, Executive Vice President, Finance; and Paul Dechary, Senior Vice President and Deputy General Counsel of Monster Energy Company, are on the webcast as well. Mr. Dechary will act as secretary of this meeting. Also on this webcast are representatives of Deloitte & Touche LLP, the company's independent registered public accounting firm. Although Deloitte & Touche LLP has indicated that he does not wish to make a statement, its representatives are available to respond to appropriate questions from stockholders of the company during the question-and-answer period. The purpose of this meeting is to consider and act upon proposals to: one, elect 10 directors to the Board of Directors of the company; two, ratify the appointment of Deloitte & Touche LLP as independent registered public accounting firm of the company for the year ending December 31, 2020; three, approve on a nonbinding advisory basis, the compensation of the company's named executive officers; and four, approve the Monster Beverage Corporation 2020 Omnibus Incentive Plan. Mr. Dechary will now report on the proof of the due calling of this meeting.

Thank you. I have a copy of the notice of annual meeting of stockholders dated April 21, 2020, setting forth the time, place and purpose of this meeting. I also have an affidavit of an employee of Broadridge Financial Solutions showing that on April 21, 2020, Broadridge caused to be mailed a copy of the notice of Internet availability of proxy materials to each stockholder of record of the company on the record date. In addition, I have a complete list compiled by American Stock Transfer and Trust Company, the company's transfer agent of the stockholders of the company as of the close of business on the record date April 13, 2020. The list is available for inspection during this meeting by any stockholder on the virtual meeting website.

Thank you. A copy of the notice of annual meeting of stockholders and affidavit of mailing will be placed with the records of the company as part of the minutes of the meeting and the list of stockholders will also be filed with the records of the company. Thomas Kelly has been appointed as inspector of election, with respect to the conduct of the voting at this meeting. He has executed his oath of office and given the oath to me. The oath will be filed with the minutes of the meeting. Mr. Kelly has informed me that a quorum is present, so I declare the meeting duly and lawfully convened, and the polls are now therefore open. We will close the polls after the proposals have been presented. The next item on the meeting's agenda is proposal 1, the election of directors. The nominees, as set forth in the proxy statement are: Hilton Schlosberg, Mark Hall, Kathleen Ciaramello, Gary Fayard, Jeanne Jackson, Steven Pizula, Benjamin Polk, Sydney Selati, Mark Vidergauz and me. Certain information regarding the nominees can be found in the proxy statement. The Board of Directors of the company recommends a vote for each of the nominees. The second item is proposal 2, the ratification of the selection of Deloitte & Touche LLP as independent registered public accounting firm of the company for the fiscal year ending December 31, 2020. The Board of Directors recommends a vote for ratification of the selection of Deloitte & Touche LLP as independent registered public accounting firm of the company for the fiscal year ending December 31, 2020. The third item is proposal 3, approval on a nonbinding advisory basis of the compensation of the company's named executive officers. The Board of Directors recommends a vote for, on a nonbinding advisory basis, the compensation of the company's named executive officers described in the compensation discussion and analysis, the summary compensation table and the related compensation tables and narrative in the proxy statement for the company's 2020 annual meeting of stockholders. The fourth and final item is proposal 4, approval of the Monster Beverage Corporation 2020 Omnibus Incentive Plan. The Board of Directors recommends a vote for approval of the Monster Beverage Corporation 2020 Omnibus Incentive Plan. We will now turn to the question-and-answer session for questions related to the 4 proposals we just reviewed. I remind you that there will be an opportunity for general questions not related to the 4 proposals after the formal portion of the meeting has concluded. If any stockholder has a question, on the 4 proposals for me or a member of the Board or the company's independent registered public accounting firm, we would be happy to try to answer them at this time. Mr. Dechary, can you please present the first question?

Thank you, Mr. Chairman. At this time, I don't see any questions pertaining to the 4 proxy proposals.

Okay. That will conclude this question-and-answer session for the items that you have been asked to vote on at today's meeting. For those stockholders who have not yet voted, we are preparing to close the polls and will wait only a few more moments to cast your vote using the vote here button on the virtual meeting website. If you have previously voted, you don't need to take any further action. Right now, we'll briefly pause to allow for any final votes. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls closed. I've received the preliminary voting results from the inspector of election. Please note, the following vote is preliminary. If you voted today, your vote will be tallied and included in our final vote results, which will be reported on a Form 8-K within 4 business days. The preliminary voting results show that with respect to proposal 1, the election of directors, all of the director nominees have been duly elected to serve until the 2021 annual meeting. With respect to proposal 2, the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020, has been ratified by the affirmative vote of approximately 97% of the votes cast. With respect to proposal 3, a nonbinding advisory vote on the compensation of the company's named executive officers has been approved on an advisory basis by the affirmative vote of approximately 95% of the votes cast. With respect to proposal 4, the Monster Beverage Corporation 2020 Omnibus Incentive Plan has been approved by the affirmative vote of approximately 96% of the votes cast. I hereby request that if you look -- preliminary report of the inspector of election be filed with the minutes of this meeting. We have now concluded those matters specified in the notice of annual meeting of stockholders. There being no further business to come before the meeting, I will entertain a motion to adjourn. Is there such a motion?

I move that the meeting be adjourned.

The formal portion of the meeting is now adjourned. I will now turn to our next agenda item, a business discussion. During the most recent conference call on May 7, 2020, which was less than a month ago, we discussed our first quarter results and provided a business update as well as the most current Nielsen information available to us. Hilton and I will now provide further updates and answer questions. Like many of you, we are deeply saddened by the pain and division occurring across this great country. Monster stands against injustice and police brutality, but also against hatred and discrimination of any kind. The issue of race and the experiences of too many people of color cannot be ignored, and the events of this past week are a reminder that tremendous change is still needed to address the persistent unequal treatment of the Black community. Our thoughts and prayers continue to be with all who have been impacted by the COVID-19 pandemic. From the beginning of the COVID-19 pandemic, our top priority has been the health, safety and well-being of our employees. Early in March 2020, we implemented global travel restrictions and work-from-home policies for employees who are able to work remotely. For those employees who are unable to work remotely, safety precautions have been instituted, which were developed and adopted in line with guidance from public health authorities and professional consultants. We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers and distributors around the world who are ensuring the integrity of our supply chain. Our supply chain in North America remains intact and distribution of our products by our bottlers and distributors is starting to expand as certain retail outlets start to reopen. We are in the process of partially reopening our offices in the United States. Our field sales teams are also now starting limited reengagement in the field with our bottlers and distributors and retailers. As we indicated on our first quarter conference call, our launches of new products in that quarter did not achieve planned distribution levels, in part due to certain retailers postponing implementation of their planned -- new plan schematics, which included our innovation products. One of our current priorities is to focus on developing plans to reprioritize these recent innovation launches. We have seen sequential improvements in sales trends on a weekly basis since mid-April. Since mid-March 2020, we have seen a shift in consumer behavior in channel preferences and package configurations. We have adapted to the changes in consumer behavior, particularly as consumers shop less frequently while purchasing larger multi-pack configurations. To date, the convenience and gas channel, which is our largest channel, has been more adversely impacted by lower foot traffic, while our business other than in convenience and gas and foodservice on-premise has increased. Our e-commerce business has increased significantly. As the U.S. continues to open up and vehicle traffic increases, we anticipate there will be a turnaround in the convenience and gas foot traffic. We're already seeing improvements in the energy category in the convenience and gas channels. We do not normally discuss weekly Nielsen numbers. However, given the impact of the COVID-19 pandemic, we felt it appropriate to share some of the most recent Nielsen data we have. We do not intend to do this in the future. We reiterate that sales over a short period such as a week or even a month or 2 should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. According to the Nielsen reports, for the 1 week through May 16, 2020, for all outlets combined, namely convenience, grocery, drug stores, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 2.9% versus the same week a year ago. Sales of the company's energy brands, including Reign, were up 2.3% in the 1-week period. Sales of Monster were up 1.4%. Sales of Reign increased 21.9%. Sales of NOS decreased 4% and sales of Full Throttle decreased 4%. Sales of Red Bull increased 10.6%. Sales of Rockstar decreased by 9.1%. Sales of 5-Hour decreased 16% and Sales of Amp decreased 13.6%. VPX Bang sales decreased 16.6%. According to Stackline, which reports sales on Amazon, our share of the energy drink category for the 4 weeks ending May 16, 2020, has continued to increase and has now achieved a 41.7% dollar share. Similar to the United States, the Oceania region is also in the process of reopening. We have reopened our office in Sydney, and our field sales teams are in the process of reengaging with retailers. According to IRI in Australia, for the 4-week period ended May 17, 2020, Monster's energy market share in value increased from 8.2% to 11.5% relative to the same period last year. Mother's market share in value decreased to 13% from 13.8% in the corresponding period. In LATAM, the impact of the COVID-19 pandemic has varied substantially from country to country. With Brazil and Mexico more severely impacted, our market shares continue to grow in many countries in Latin America. According to Nielsen, for the month of April 2020, Monster Energy surpassed Red Bull in market share in value in Chile and is now the leading energy drink brand in Chile. We are also encouraged by the results from the launch of Predator, our affordable energy drink in Mexico as well as Fury in Honduras. In EMEA, our supply chain has remained and remains intact and distribution of our products by our bottlers and distributors is expanding as well as certain retail outlets start to reopen. In May, our field sales force started to reengage with our bottlers and retailers in many EMEA markets. As indicated in our last conference call, similar to the United States, new product launches in the first quarter were negatively impacted by the COVID-19 pandemic, and we are now engaged in implementing plans with our bottlers and distributors and retailers to reprioritize such launches and expand the availability of our innovation products in retail stores. Our planned innovation launches for the second part of the year remain as planned. I would like to point out that the Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country and are reported on varying dates within the month referred to from country to country. Based on the 4-week Nielsen reports through April 2020, Monster Energy has continued to perform well in EMEA and achieved increased retail sales as well as increased market share in Denmark, Great Britain, Norway, Poland, Republic of Ireland, South Africa and Sweden. In Spain, Monster Energy continued to gain market share. Sales in Spain declined marginally. However, the category declined at a faster rate due to the impact of the COVID-19 pandemic. Many of the countries in Asia Pacific have started to reopen, although retail foot traffic generally remains significantly lower than before the COVID-19 pandemic. Our offices in Shanghai, Seoul and Tokyo are operating, and our field sales teams are in the process of starting to reengage with our bottlers and distributors and retailers in the field. India has begun to tentatively reopen with interstate transportation and some businesses operating. The federal government has put in a plan to start reopening slowly. Our market share in Japan has continued to hold above 60% through April 2020. We are planning the imminent launch of Ultra Paradise in Japan. In South Korea, Monster's market share for the month ended April 2020 is 51.7%, up 13 share points versus a year ago. The Monster brand is now the leading energy brand in South Korea. We are also preparing for the launch of Ultra Paradise in South Korea in the summer. As previously indicated in China, we began distribution of our new Monster Energy Dragon Tea, which is noncarbonated. We are continuing to receive positive feedback on this product. The launch is being followed up with a national on-pack promotion beginning June 2020 with one of China's top consumer ambassadors. Despite the COVID-19 pandemic, our innovation launch plans in Asia-Pacific markets generally remain on track through the remainder of 2020. I would like to now open the floor to any questions from shareholders. Mr. Dechary, could you please present the first question?

Thank you, Mr. Chairman. The first question comes from Mark Astrachan at Stifel. Mark would like to know whether inventory destocking seen in April that led to the 22% gross sales decline has reversed and resulted in bottlers ordering ahead of demand to prevent out-of-stocks.

So to address that question, we really look -- need to look at the U.S. versus EMEA versus LATAM and Asia Pacific. So as Rodney mentioned, Asia Pacific is very much on track. In the U.S., we're seeing a decline in shipments, but we are seeing an uptick in depletions, which is a more important factor for us because the bottlers have been destocking, and that situation will need to be reversed if it hasn't already been reversed. What we saw in EMEA in the month of April was that there was very little destocking. And I think I mentioned that on the call, in EMEA in the month of April. However, we are seeing some destocking taking place in May, although the ink is not even dry in May, it's barely the 3rd of June. So we are seeing destocking taking place in EMEA. And in LATAM, we have a situation that the COVID pandemic is getting significantly worse in Mexico City and in the rest of Mexico, in fact, and as well as in Brazil. So LATAM is a mixed bag as we move out of this pandemic situation.

Okay. The next question comes from -- one second, Peter Galbo at Bank of America. Scanner data in the U.S. has started to improve over the past few weeks. While Coke has noted that APAC is improving and that some markets in LATAM are still getting worse. Can you provide us with additional color or on-the-ground updates for what you've seen in non-U.S. markets from the consumer?

I think, Paul, we really answered that, right?

Yes.

We spoke about what was happening. Obviously, some countries in EMEA are opening up faster than others. And we still have countries that are in significant and serious lockdown, like South Africa, Turkey, Israel, that are still under heavy lockdown. But for the most part, EMEA is opening up. And so I think we largely addressed that.

All right. And the last question we have comes from Andrea Teixeira at JPMorgan. For the general Q&A portion post proxy vote, thank you. I am hoping if you can update us on the sales performance in the U.S. and abroad in places that have reopened and if you are seeing a fast recovery in sales. In previous shareholder meetings, you had given investors an update for the month of May, in particular, in C-stores in the U.S. Can you please provide -- give us a sales performance? If this question was already answered, has the performance from innovations improved at retail as schematics that were halted due to COVID-19, have finally installed? Is this material to the recovery in sales?

So it's Andrea, Paul.

I think -- I don't -- it's a little awkward when we are on different phone lines. But I'll take a little bit of this question and then Hilton can finish it off. But I think this largely is duplicative of what we've already said. I mean, this is obviously, everybody is looking to understand the trends and see what's happening. And I think, as Hilton indicated, particularly in the U.S., we are seeing improved depletions. We are seeing improved depletions as well in a number of countries overseas. But overseas, there are odd countries that are still having challenges. And some of them are in EMEA, some of them are now in South America. Our biggest market is the U.S. and there, we are seeing some improvements. But it's really too soon to tell. We're -- as I indicated in the opening remarks, we're in the process of reengaging with retailers to get store sets. And so we really don't have an update for you at this time. We're only now getting our guys out into the field and starting to reengage with bottlers and retailers. So it hasn't yet sort of been implemented. It's in the process of it. So we really -- it's not much we can really tell you at this time on that. And Hilton would you like to add some comments?

Sorry. So Andrea, to be fair, I think we gave many numbers once a long time ago. It's now the -- June 3, and we did what we could. We always give the most up-to-date Nielsen that we can. And we spoke about the last Nielsen that we received for the 1 week was through May 16. I know there's a lot of conjecture about what the convenience trade are doing because that was your question. And what we're seeing is that convenience stores are, in fact, growing and that our business in convenience stores is starting to grow as well. So I think that we are and will get through with the COVID situation, I mentioned where we were in LATAM. I mentioned where we were in Asia Pac, which really got through the COVID situation a lot earlier than us, but they started a lot earlier than us as well. We spoke about EMEA. And certainly, we are bullish on the U.S. and the impact of the U.S. opening up. And there was another question on innovation. Innovation is still getting to shelf, just to answer that question. Although not at the rate it should be, but it is still getting to shelf.

We did receive one more question, and I'm just going to go ahead and throw that one out there. It comes from Nik Modi at RBC Capital. Given people have been less active due to COVID-19, do you expect overall consumption of the energy drink category to be below normal trends for the near term or until normal activities resume post a vaccine?

I think that's a really -- it would be speculative for us. Obviously, we feel that there is a bigger impact on our sales during the period because the convenience and gas channel, which is our largest channel, seems to have been the most impacted by the COVID-19. And as we indicated, buying habits and people having -- not going into convenience, but rather going into grocery and buying multi packs or take-home packs are less frequently. We do believe that and we've seen that just in a couple of states, particularly like California, where we live. I mean you had some opening, you had them opening beaches and from deserted highways, I was on the road Friday last week. And it was pretty chockablock with traffic. It wasn't standstill, but it was really impacted. And that's first time I've seen that, that -- we don't go out that much. But it's -- from the reports I've got, the highways were deserted. So we're seeing that rebound. And we are confident that things will get back to normal. But what is normal and to what extent, none of us know. We're seeing a lot of turmoil at the moment in the country. And -- but the country is opening up. So we're pretty positive that things will get back to normal. But as and when, we don't know.

Thank you. With that, I'll turn it back to Rodney for his closing remarks.

Thank you, Paul. With -- on behalf of Monster, I would like to thank everyone for attending our first virtual annual meeting and for your 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, to expand distribution of our products through the Coca-Cola bottling system internationally. We are continuing to navigate through the challenges as a result of the COVID-19 pandemic and hope that this unfortunate situation will resolve itself in the not-too-distant future. We believe that we are well positioned in the energy drink category and continue to be optimistic about our total portfolio of energy drink products comprised of our Monster Energy brand, our strategic brands as well as Hydro, Predator and Reign. We hope that you will stay safe and healthy. Thank you very much for your attendance.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.