Monster Beverage Corporation (MNST) Earnings Call Transcript & Summary

[Presentation] Good day, and welcome to the Monster Beverage Company Virtual Investor Meeting. All participants will be on listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Roger Pondel. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Monster Beverage Corporation's Virtual Investor Update Meeting. I'm Roger Pondel with PondelWilkinson, the company's Investor Relations representative. I hope this finds everyone healthy as we begin a new year. We miss seeing your faces and shaking hands. Before I introduce and turn the call over to Monster's Co-Chief Executive Officers, Hilton Schlosberg and Rodney Sacks, I want to remind everyone 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 risks and uncertainties, many of which are outside of the company's control that could cause actual results and events to differ materially from the statements made. For a detailed discussion of risks that could affect operating results, please 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, 2021 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. And with that, it is my pleasure to turn the call over to Rodney Sacks and Hilton Schlosberg. Gentlemen, please go ahead.

Good afternoon, ladies and gentlemen. Thank you very much, Roger. On the first slide, I'd like to just give everybody a snapshot on the all measured channels for the last 13 weeks. The category continues to be healthy and grow, what you've all heard from this slide is the effect of the increased prices that have been achieved generally in the beverage industry, including sparkling soft drinks and others who have continued to increase prices both last year and this year. I think the energy drink category has lagged a little. We've, as you know, increased prices on September 1, but the category has started to follow now. So we do think that we'll start seeing some increase in sales due to the increased pricing as we go forward in 2023. The performance of the category and of Monster in particular, in the last 13 weeks, you can see that Monster has continued to perform very well, is up 10.6%. Our 2 supporting brands, NOS, Reign or Full Throttle, basically also up. Full Throttles marginally down or flat, but that we've seen some good healthy growth for NOS and Reign. The next few slides are just graphics of the dollar share in measured channels over the past 13 weeks. In this case, goes back for 24 months. And then the next is a slide of the unit share over a similar period of 2 years in the category. If we turn to the convenience snapshot, you'll note that from some of the past quarters, the convenience channel tended to lag. The all measured channels, there seems to be some catch-up now, and Monster is continuing to grow. The company's growth is 10.4% in the last 13 weeks in that category, and Monster at 9.5%, and all of the other 3 supporting brands are in growth in the convenience category. On the 5-week short-term measure for convenience, we are seeing a slight decrease, but very marginal. The category is up 9% and Monster is up 9.2% as a company, and the brand is at 8.1% with continued growth in NOS and Reign. If we turn to Amazon, which is an emerging channel, it's continuing to grow at 36% over last year. Monster's growth is at 55% and is continuing to lead the category sales in the Amazon section. 4 weeks numbers are very similar with Monster's growth at 62% and continuing to still be the leading brand in Amazon. Distribution. This is a slide we've traditionally provided annually. It's very similar to -- no real change from last year. And just to give you a summary of where we are now, Monster is now distributed in 142 countries and territories. Strategic brands are now distributed in 63 countries and territories. Reign is now distributed in 25 countries and territories, and affordable energy, which Predator and Fury is now distributed in 34 countries. So that in the result, one or more of our brands are distributed in a total of 157 countries and territories worldwide. The next few slides, I'm not going to spend a lot of time on this. It's just the picture of where the different brands are distributed around the world. The first slide is of strategic brands, existing markets. This next slide is of Reign, which gives you an indication of where it's being sold. The next slide is the affordable energy, which is Predator and Fury in those countries where we have some issues with using the Predator trademark or we sell the brand under the Fury trademark in those countries. And the following slide now is the expansion markets for targeted launches, both for Monster and Predator that we anticipate over the next year. Again, you see that we recently launched Predator at the end of last year in Egypt, one of the bigger markets, and we are intending to launch Monster in Egypt within the next few months. I'll give you an updated snapshot on our brand positioning, our share. You can see from this snapshot. It's alphabetical. Our major markets and in almost every market, we've continued to gain share both for the Monster brand on its own and for our portfolio generally. So we've continued to see good growth, particularly in some of our larger international markets like Great Britain, and this has been very, very encouraging. We continue to be positive as to our future ability to continue to grow share in many of our international markets.

I think what's also interesting from the slide is that many of these markets, the energy category has been in existence longer than in the U.S. For example, in a number of markets, including Great Britain. And you can see that there still is momentum in these markets despite the energy category being in existence much longer than we see, yes.

Agreed. China, this has still been a challenge. They've continued to have challenging economic conditions and issues with facing COVID, with lockdowns still existing in many of the cities and regions. As they're starting to open them up now, we are obviously hopeful that we'll be able to continue to expand our distribution and secure better shelf space. But we are continuing to focus on our existing line. We probably will have 1 new SKU introduction this year. We've consolidated 1 or 2 other line extensions that we had in the past to try and consolidate and focus back on our core 4 products, the loss which we introduced was Ultra Sunrise in 2022, and we're looking to introduce Ultra Paradise in 2023. As we continue to -- this is a slide I think you've already seen in the...

Before you do that, Rodney, we should just mentioned that we're gearing up for a launch of Predator in China as well because there is quite a big market for the affordable energy side, which is products that are much cheaper than ours, Monster brand and also Red Bull's brand. So there are opportunities, and we're going to take those opportunities.

Yes, agreed. And that will probably be a launch just to let you know in a PET bottle with Predator and that will be later in the year as we gear up for that, as Hilton mentioned exactly. These are our continuing major sponsorships that we follow and support. Our ambassadors have been very successful. We have an unbelievably strong roster of people who we sponsor and who endorse our brand and speak for the brand. And we're very proud of the relationship we have with all of these ongoing athletes. In 2020...

We'll talk later about the loss of Ken Block who's really been part of this company and part of a whole affiliation. And it's really sad with his passing, but we'll have a tribute video later. We mentioned him on the slide on top ambassadors because in 2022, he certainly was. And his videos will continue. They're just pretty impressive, and he was a very impressive and a great friend of the company.

Thanks. In 2022, we had a number of our athletes win their championships in their respective sports, particularly important to us was Bagnaia, who won the MotoGP World Championship. Eli Tomac, who won Supercross and motocross and motocross of nations. We're very successful in surfing and skateboarding, snowboarding and skiing at the Olympics and Brittany Force, who also won a top fuel competition this year. And a very young athlete who is growing and will be -- you'll get to know him a lot more as we go forward. We think he's got a fantastic future ahead of them is Ty Gibbs, which is coach Gibbs' grandson. Who was racing in the Xfinity Series. And this year, we'll be going up to the cup series, the main NASCAR series, and we will continue to sponsor Ty in that series. MMA, as you know, we've put a lot of resources behind UFC and Bellator. The sports are growing around the world. It's very much in the Monster DNA and we are continuing to support these sports and the athletes as well, a number of athletes in the UFC. This is just a slide of MotoGP achievements because, in fact, in the last 3 years, we've -- our assets have won the World Championship 3 years in a row. Joan Mir in 2020 and Fabio Quartararo in 2021 and Francesco Bagnaia in 2022. Esports has continued to grow and become a more important part of our sporting and marketing platform. We continue to sponsor very major sporting events in eSports and gaming, such as DreamHack, and also have substantial support for individual gaming teams and individual gamers being -- and some of them that we've had relationships with for many, many years like Team Liquid and Evil Geniuses. Music continues to be one of our strong platforms. And you saw some of the reference to some of the bands in the video. Social media, just to give you a further sort of insight on Instagram, we have 8.2 million followers, on TikTok 1.7 million, we have over 3 million YouTube subscribers and over 25 million Facebook followers and over 3 million Twitter followers. So we continue to focus and be active in the social media space for the brand and all the brands on the effect of the company and for the company itself. Going back to sort of recap last year. Our main U.S. programs. In the first trimester, we focused on innovation. In the second trimester, we had a retail promotion for all access passes to certain key events that we sponsor. And in the last trimester, we had a retail promotion for Apex Legends, which is a very big and enormously well followed game internationally. Going to -- turning to this year. In the first trimester, we have a major launch of our near -- new Monster Energy Zero Sugar product. As you can see from the Zero Sugar product, it's very much an analog of our successful original Monster. It's -- we've decided to launch it in a black can with a green floor, but with some distinguishing features because the case profile of this product is almost indistinguishable from our regular Monster. We believe this will broaden our core consumer base that we've established over the last 20 years. But many of our consumers prefer, for whatever reason, to have a Zero Sugar product. In this way, we can -- we believe we can continue to solidify our franchise of the unique Monster flavor that is something that stands on its own and has stood the test of time and we can do so to provide consumers both with a full sugar and no sugar version of the product that taste the same. So we are very excited about the prospects for this brand in the U.S., and we will start to roll it out internationally as well thereafter. In the second trimester, we have a big promotion linked to the UFC. And we will have a gaming -- another gaming promotion, which was very successful at the end of last year, at the -- for our third quarter trimester. In Europe, which is our second largest continent, we really promote in quarters. And this slide will just give you some of the flavor of the promotions that we will do and implement in 2023. Again, you'll notice that we are relying on a lot of our international sponsorships to promote our brand internationally. So we're able to leverage a number of our sponsorships such as UFC, et cetera, Party in Miami and et cetera, with -- for Europe and our brand around the world.

So while we don't have a 2023 slide for the EMEA programs, they'll continue to -- or we will continue to operate in quarters. The first quarter will be a desert adventure with Lewis Hamilton, again, with one of our celebrities. Second quarter MotoGP experience. Third quarter will be a global UFC promotion and the fourth quarter will be a video gaming promotion. So we're using all of our properties, as Rodney mentioned, in our retail promotions.

Thanks. Java Monster, as you all know, is a very strong brand within the Monster family, and we're going to continue to promote that brand and put effort to following slides, I'll try and run through quickly. It's just showing the different marketing approaches that we are looking at implementing specifically with some of the brand families as opposed to just promoting Monster -- Green Monster original on its own. So we are looking at putting resources behind Java Monster Ultra to our juice sublime, Rehab sublime, which is also in our new packaging has seen a resurgence and continue to grow. So we're seeing some good growth in Rehab. And when we get to the new products, we'll show you the proposed line extensions that we have for innovation for Rehab as well. Reign has been -- continued to be a solid brand performer for us. We are going to innovate with a line extension. This just gives you some of the partnerships and the -- for the brand and the positioning. But the next slide will really show where our innovation is going for Reign. We are obviously introducing a new product, tropical storm in 16-ounce cans in 2023 as well as a whole line in 12-ounce cans. The positioning is a little different. We think it's a little more neutral and not quite as aggressive in personality as the main Reign brand. We think it will reach a broader demographic audience. We are launching this product line Reign Storm in 12-ounce cans in 4 flavors. And we think that this will enable us to compete more directly in some of the performance category or what they would call clean energy or healthier perceived energy sort of categories where you've got a number of new entrants that have entered this category over the past year or 2. Innovation, which is one of our -- the core pillars on which we continue to grow the brand and our sales. We have a terrific lineup of innovation in 2023. The first product of which is obviously the one we've just described, which is Zero Sugar. In the reserve line, we're going to come out with a new Kiwi Strawberry product. It's a flavor profile that was -- it hasn't really been bolt-on in the energy category. We believe there is a good consumer profile for this product, that product flavor line. We will continue to expand our Ultra line, which is continuing to achieve really good growth. We have a great flavor in the Strawberry Dreams product. Java Monster, we're going to continue to expand with the cafe latte, just trying to get to that more traditional regular consumer of coffee products. Nitro is a sort of a sleeper line. We converted that line, as you remember, from extra strength in a 12-ounce can into a 16-ounce, we've seen some good distribution gains and some good sales growth on a per point basis on our Nitro line. And -- but it was a single SKU, and it was tended to be a little lost on the shelf with 1 SKU. So we're going to launch an additional SKU this year. It will give the sort of sub-brand or subline 2 bigger presence on shelf and we are quite encouraged by the Nitro line. It gives us a point of difference. The texture of the liquid is different to regular energy drinks. And again, we always try and find a reason to have innovation and a different -- a point of difference to other products on the market. So we're quite excited about Cosmic Peach. And as I indicated earlier, Rehab we're going to expand the tea base for that product line with a wild berry tea. Strategic brands. I won't spend as much time on, but we have a really healthy innovation pipeline for our strategic brands around the world in 2023. This slide really just is a slide so that you can refer to in the future. You're going to reference to the active countries where affordable energy, we're actually already distributed under our Predator brand and the future launches that we are planning for Predator and Fury.

We should just mentioned at the bottom of the slide is referenced to a brand called [Indiscernible], which we have in our back pocket, if we cannot get registrations for either Predator or Fury in the markets in which we will be launching. So there will be markets that we potentially may not be able to use Predator and Fury and we have [Indiscernible] in our back pocket for that.

This is just the existing lineup for Predator. You can see that we have a lot of flavors. In many countries, we're only just at the beginnings of the brand, and there are only a few SKUs in those countries. So we have products already lined up and ready to be able to roll out in these countries as we continue to expand some of the existing markets and then start off with our original plus 1 or 2 SKUs in the newer markets. There is a mix. We don't have any specific requirement that you have to launch in a can before a bottle or a pit, some markets that have PET as they're affordable choice of package for the affordable category, we've gone straight into PET in those markets, again, but we have both packages available for the different markets to meet consumers' requirements. These slides are just of our supporting brands in the U.S., NOS, their positioning. Again, I don't think we should spend a lot of time drilling on them, Full Throttle. Relentless is one of our brands we have in the United Kingdom that's doing very well and -- but it's focused in the United Kingdom. Burn, as you know, is a brand we acquired from Coke. It still continues to be important in many countries in Europe. Mother is a -- is focused on Australia and New Zealand. The brand is continuing to perform very solidly in those markets. We continue to provide innovation for the brand. Live+ is really focused in on the healthcare energy in New Zealand, which is a leading product there. Power Play is one of the brands that we acquired from Coke that we utilize in South Africa. It's interesting in the South African market. We actually now have 4 brands. We have Monster, which is the leading brand in our portfolio, we have Play, we have Burn and we have Predator. So we have a very big portfolio -- a healthy portfolio in South Africa to address different consumers' needs in different markets, different positioning in that market. Nalu has been a really a niche brand, but it's been continue to be very strong in Belgium and we're looking at the moment at potentially other markets in which we can try and extend the Nalu brand to.

Yes. I think what's important, looking at the slides, is that each of our brands have their own identity and their own marketing targets and their own marketing strategy. So as we look at the world and we look at the various product offerings we have, it's important for us to take what we do with Monster and separate what we do with these other brands so that they are complementary and they're not duplicative of the strategy for Monster.

Thanks. The last slide is Predator, which we've sort of gone over before, but this is the positioning with the continued association with Liverpool, which we were able to leverage in many, many countries throughout the world. And now turning to some new innovation. We're introducing The Beast Unleashed, which is our entry into the alcoholic beverage sector. This is going to be a 6% alcohol product, and we are just starting to roll it out this month starting to make some deliveries. And then we will be rolling it out. It's not going to have an immediate national launch. We're going out in about half a dozen states. And then we have a second wave towards the end of March, April, and then we'll have a third wave a couple of months after that. We are launching this brand in 16-ounce single cans. There are 3 flavors initially, which will be focused on the convenience and single-serve channels. We are also launching The Beast in a 12-pack variety pack. There'll be 4 flavors. There's one additional flavor called Scary Berries in the variety pack. Depending on how we -- as we continue to develop the brand, we will probably launch the Scary Berries product in a 16-ounce as well. But we're just at the moment, focusing on getting shelf space for the 3 main SKU's and then a variety pack. And the variety pack will also be sold in convenience, but that would be more focused on the mainstream grocery and bigger box store channels. The sort of promotion and support, we're going to obviously put a lot of promotion and support behind The Beast. We're going to do so have some motor sports, we're going to have digital support, and we're going to have a number of key ambassadors and events to support the brand. Beast Unleashed is being managed separately from Monster. We're not utilizing the same sales team. It's completely separate. It's coming under the management of the CANarchy company. It's a separate -- completely separate division in CANarchy, and it will be managed. We have some certain our team from Monster have gone across and are heading up this division within CANarchy and we will continue to operate it individually and separately, the distribution system because it's alcohol, you will appreciate, we'll go through the beer distribution network. Many of the distributors are some of the existing distributors for the CANarchy brands and others are -- will be new beer distributors that we will be awarding the brand, the brand to. At the same time, in establishing this division, we are -- we want to have another way of going to market and to get different brands that may not fit into the Monster Energy brand portfolio, may not be suited while they're small and growing into the Coke system. It's a big system, and it's not really suited to taking on and developing and nursing small brands. So we are going to have a separate [ NA ] division in CANarchy under the CANarchy business division, which we are going to -- which is named Monarchy Beverage Company. And that company or that division will handle some of our brands that will go through an independent distributor network, principally of beer distributors. The first product that we've launched in the -- we are about to launch in that division. And again, we've just run some production, and we're starting to look at deliveries on a phased basis is our Tour Water product. We have Tour Water in a 19.2 ounce tall boy cans. We have it in a still and sparkling variant. And we are very excited. We have singles, and we also have a 16-ounce multipacks. So we're going to launch that in 2 different sizes depending on different markets. So the 19-ounce is clearly designed for single serve to go to the convenience channel and the multipack will be more targeted and focused on the grocery and bigger box stores.

Yes, what we should mention is that this strategy and plan really has the blessing of the Coca-Cola Company, it's not being done against their wishes, it's being done together with them. And with the objective of these brands grow to a particular dimension, a particular size that they will then move over into the Coca-Cola system.

The next slide is just really a summary of the main brands, the existing brands of the CANarchy Craft Brewery Collective, which is the company and business that we acquired early in 2022. This is a full lineup. We'll go through some of the individual brand families. This is the Jai Alai brand family in Cigar City. Shows you the brand family, from the sampling and programs that we have to support the brand, which includes supporting and marketing activities with the lightning in Tampa Bay. This is a brand that is based in Tampa through out of Tampa. The Dales brand, which has been around for a long time in the craft business is based in Colorado. We are -- we've realigned and repositioned the actual branding on the actual packaging. We think the brand is now sort of the family just looks better and stronger. We have a Pale Ale, a Double IPA, and we're also introducing a Light Lager now in this -- in the Dale's lineup, which has pretty extensive distribution also outside of Colorado. Wild Basin is the Hard Seltzer brand that we acquired with CANarchy. It has struggled a little bit, not different to but probably a little more than some of the other Seltzer brands, who've struggled over the last 12 to 18 months. But we have repositioned the brand. We've reformulated the flavors to -- we think we've got some good tasting product, better taking products now. And we've also redesigned the packaging and positioning. And so this is going to be a focus for the CANarchy Craft brand and company during 2023. Hilton?

So we've got Paul Dechary, who's back east. He's going to jump in now and talk to us about our 2021 sustainability report. He's going to talk about ESG initiatives, and he's also going to talk about our EDI initiatives. So Paul, I hope you're there and take it away.

Thank you, Hilton. In 2022, we continue to make great strides in our ESG journey. We published our second annual sustainability report, which as you can see from this slide, not only highlighted our increased ESG efforts throughout the year, but also included commitments for the coming year, such as setting Scope 1 and Scope 2 reduction targets and water-related goal in policy by the end of 2023. In addition, our ESG efforts are continuing to be recognized and have improved from just the last year with the company's CDP score for climate change, rising to a B- our subsidiary, AFF, earning a Silver EcoVadis Medal for its improved score. The company is also implementing a full solar project at certain of our locations. We have also continued to increase the opportunities for growth available through our equality, diversity and inclusion program. In particular, we have focused and continue to focus on conducting ongoing EDI assessments and analysis and providing EDI training to all company employees from company executives to new employees. In addition, I also note that our EEO-1 report is now available on our corporate website. I'd like to now hand the call back to Hilton to speak about our recent philanthropic efforts.

Yes. Thanks, Paul. So the company continues to address its social responsibility. We have a VP of philanthropy, and we heavily engaged in a number of initiatives and some of them on the slide, I'm going to ask you guys to read them and maybe now or after the presentation, I'm not going to go into them in great detail, but we have a focus on natural disaster support. We've always been a part of our support of the military and continue to support responses around the globe. We did in '21, we did in '20, and we continue to do those. And then through the USO, we provided support to troops stationed in NATO ally countries and supporting the ongoing activities and actions in their regions. We also provide scholarships and fund various other charities, and we work with our athlete ambassadors, a number of them have their own charities, and we work and support them as well. We have a cadre of charities that we support, covering the military, our athletes and their charities, as I mentioned, first responses -- first responders and education. So internationally, we became an official partner of the Invictus Games in 2022. And we provided support. In fact, we funded the Team Ukraine efforts in the Invictus Games. We also have a very strong focus on caring for our own when our own employees get into difficulties and experienced disasters and challenges that affect their lives. And we're continuing with our employee match program and offering volunteer time off for our teams to go out and do volunteer work. And now I'm going to ask Tom -- Tom Kelly, our Chief Financial Officer, to wrap up the presentation and talk about the solid financial results that the company has and is achieving. Tom?

Yes. This slide shows the company's solid financial results, including 30 consecutive years of increased sales since the acquisition of the Hansen beverage business in 1992. Achieved $5.5 billion in net sales in 2021, up 20.5% over net sales of $4.6 billion in 2020, achieved $1.4 billion in net income in 2021, down 2.3% from net income of $1.4 billion in 2020, achieved $2.57 in diluted earnings per share in 2021 down 2.4% from diluted earnings per share of $2.64 in 2020. For the 9 months ended September 30, 2022, achieved $4.8 billion in net sales, up 16.6% over net sales of $4.1 billion for the same period in 2021. For the 9 months ended September 30, 2022, achieved $890 million in net income, down 15.7% from net income of $1.1 billion for the same period in 2021. And for the 9 months ended September 30, 2022, achieved $1.66 and diluted earnings per share, down 15.6% from diluted earnings per share of $1.97 for the same period 2021.

Thanks, Tom. Rodney, I'm going to turn it back to you because you wanted to talk a little bit about Ken Block. And as you know, passed away in the last probably 2 weeks ago, through a ridiculous really sad accidents. So we're going to have also a short video, but Rodney, let me hand it back to you.

Thanks very much, Hilton. With Kim Blocks tragic recent passing, the world lost a great human being and Monster lost a great athlete, ambassador and friend. Kim was one of Monster's early premier athletes. For the past 15 years through his Gymkhana YouTube videos and other exploits, Monster was exposed to tens of millions of consumers annually in a credible and authentic manner as opposed to traditional advertising that is generally seen as commercial and not authentic to consumers. Kim was cool and his videos were cool. His amazing danger of feats will live on in the minds of consumers for many years to come. Kim was the gentleman and will be sorely missed by us all as well as the entire extreme sporting world. In Kim's memory, we would like to share an extract from one of his Gymkhana videos, which represents and epitomizes Kim and his achievements. Thank you.

There will now be a short break for those who wish to dial in for the question-and-answer session. [Operator Instructions] And while we wait for the roster to assemble, I will turn the call back briefly to Rodney, and we will then play the video. [Operator Instructions]. Rodney, please go ahead.

Thank you. All right. We'll just show the video if we can. Thanks. [Presentation]

[Operator Instructions] And the first question will come from Dara Mohsenian with Morgan Stanley.

On behalf of Dara. Good evening, everyone. First, you mentioned the slight slowdown in sales, particularly in the C-store channel for the 5 weeks versus the 13 weeks. Wondering if you have any color behind that? Are you seeing any increased elasticities. And then a bit longer term, can you discuss a little bit what you're seeing in terms of U.S. market share dynamics? To what extent do you think you're benefiting from some of the upheaval at Bang? And to what extent do you think the improved market share performance versus Red Bull is durable?

Yes, if you look at the 13-week numbers and you look at the category in convenience, the category was up 9.5%. And the company, all our brands were up 10.4%. If you go back to the 5-week numbers, the total category in convenience was up 9% and -- and the brand, the total company was up 9.2%. And Monster on its own was up 9.5% in the 13 weeks and up 8.1% in the 5 weeks. So I'm not sure that -- and while we do follow Nielsens and we're very cautious about looking at the stats, I'm not sure that this is telling us anything convincing about the category in the 5 weeks.