Bulletin
Investor Alert

May 6, 2022, 4:49 p.m. EDT

10-Q: MONSTER BEVERAGE CORP

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business

When this report uses the words "the Company", "we", "us", and "our", these words refer to Monster Beverage Corporation and its subsidiaries, unless the context otherwise requires. Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company's subsidiaries primarily develop and market energy drinks, and to a lesser extent, craft beers and hard seltzers.

CANarchy Acquisition

On February 17, 2022, we completed our acquisition of CANarchy Craft Brewery Collective LLC ("CANarchy"), a craft beer and hard seltzer company, for $330.4 million in cash, subject to adjustments. The transaction allows us to enter the alcohol beverage sector and brings the Cigar City family of brands including Jai Alai IPA and Florida Man IPA, the Oskar Blues family of brands including Dale's Pale Ale and Wild Basin Hard Seltzers, the Deep Ellum family of brands including Dallas Blonde and Deep Ellum IPA, the Perrin Brewing family of brands including Black Ale, the Squatters family of brands including Hop Rising Double IPA and Juicy IPA and the Wasatch family of brands including Apricot Hefeweizen to our beverage portfolio. The transaction does not include CANarchy's stand-alone restaurants. Our organizational structure for our existing energy beverage business will remain unchanged. CANarchy will function independently, retaining its own organizational structure and team.

Russia-Ukraine Conflict

During the first quarter of fiscal 2022, the Russia-Ukraine conflict did not have a material impact on our financial position, results of operations and liquidity. Net sales in Russia and Ukraine combined were approximately 1.1% of our total net sales for the twelve months ended December 31, 2021.We will continue to monitor future developments relative to this conflict and its potential impacts.

The COVID - 19 Pandemic

The COVID-19 pandemic has directly and indirectly impacted our business. The duration and severity of this impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information regarding the COVID-19 pandemic, as well as the emergence of new variants, the actions taken to limit its spread and the economic impact on local, regional, national and international markets. See "Part I, Item 1A - Risk Factors" in our Form 10-K.

We continue to address the COVID-19 pandemic with a global task force team working to mitigate the potential impacts on our people and business.

We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers/distributors around the world who are endeavoring to maintain the integrity of our supply chain. Despite the ongoing impact of the COVID-19 pandemic, we achieved record first quarter net sales in 2022.

As countries continue to combat the COVID-19 pandemic, and as governments and/or local authorities impose regulations regarding COVID-19 testing, vaccine mandates and related workplace restrictions, there remains a risk that the COVID-19 pandemic may continue to impact our business and supply chain, including our ability to recruit and/or retain our employees as well as impact our co-packers, bottlers/distributors and/or suppliers.

A reduction in demand for our products or changes in consumer purchasing and consumption patterns, as well as continued economic uncertainty as a result of the COVID-19 pandemic, could adversely affect the financial conditions of retailers and consumers, resulting in reduced or canceled orders for our products, purchase returns and closings of retail or wholesale establishments or other locations in which our products are sold.

Table of Contents

Distribution and Supply Chain

In the first quarter of 2022, we experienced a significant increase in cost of sales relative to the comparative 2021 first quarter, primarily due to increased freight rates and fuel costs, including cost relating to the importation of aluminum cans, as well as aluminum can costs attributable to higher aluminum commodity pricing. We also experienced a significant increase in ingredient and other input costs, including secondary packaging materials, co-packing fees and production inefficiencies, which adversely impacted costs of sales. Furthermore, we experienced significant increases in distribution expenses including increased fuel, freight and warehousing costs which adversely impacted operating costs.

We continue to address the controllable challenges in our supply chain and are focused on increasing our finished product inventory levels in proximity to our customers, where possible, to reduce the excessive cost of freight to satisfy consumer demand.

We continue to implement measures to mitigate our increased product and distribution costs through pricing actions and reductions in promotions.

Liquidity and Capital Resources

As of the date of this filing, we expect to maintain substantial liquidity as we manage through the current environment as described in the "Liquidity and Capital Resources" section below.







        Overview
        We develop, market, sell and distribute energy drink beverages and concentrates
        for energy drink beverages, primarily under the following brand names:
        ?  Monster Energy�                 ?  NOS�
        ?  Monster Energy Ultra�           ?  Full Throttle�
        ?  Monster Rehab�                  ?  Burn�
        ?  Monster Energy � Nitro          ?  Mother�
        ?  Java Monster�                   ?  Nalu�
        ?  Muscle Monster�                 ?  Ultra Energy�
        ?  Espresso Monster�               ?  Play� and Power Play� (stylized)
        ?  Punch Monster�                  ?  Relentless�
        ?  Juice Monster�                  ?  BPM�
        ?  Monster Hydro� Energy Water     ?  BU�
        ?  Monster Hydro� Super Sport      ?  Gladiator�
        ?  Monster HydroSport Super Fuel�  ?  Samurai�
        ?  Monster Super Fuel�             ?  Live+�
        ?  Monster Dragon Tea�             ?  Predator�
        ?  Reign Total Body Fuel�          ?  Fury�
        


We also develop, market, sell and distribute craft beers and hard seltzers under a number of brands, including, Jai Alai IPA, Florida Man IPA, Dale's Pale Ale, Wild Basin Hard Seltzers, Dallas Blonde, Deep Ellum IPA, Black Ale, Hop Rising Double IPA, Juicy IPA, Apricot Hefeweizen and a host of other brands.

We have four operating and reportable segments: (i) Monster Energy(R) Drinks segment ("Monster Energy(R) Drinks"), which is primarily comprised of the Company's Monster Energy(R) drinks, Reign Total Body Fuel(R) high performance energy drinks and True North(R) Pure Energy Seltzers, (ii) Strategic Brands segment ("Strategic Brands"), which is primarily comprised of the various energy drink brands acquired from The Coca-Cola Company ("TCCC") in 2015 as well as the Company's affordable energy brands, (iii) Alcohol Brands segment ("Alcohol Brands"), which is primarily comprised of the various craft beers and hard seltzers purchased as part of the CANarchy Transaction on February 17, 2022 and

Table of Contents

During the three-months ended March 31, 2022, we continued to expand our existing energy drink portfolio by adding additional products to our portfolio in a number of countries and further developed our distribution markets. During the three-months ended March 31, 2022, we sold the following new products to our customers:

? Java Monster(R) Cold Brew Latte

? Java Monster(R) Cold Brew Sweet Black

? Juice Monster(R) Aussie Style LemonadeTM

? Monster Energy(R) Ultra Peachy Keen(R)

? Rehab(R) Monster(R) Watermelon

? Reign Total Body Fuel(R) Reignbow Sherbet

? Live+(R) Watermelon

? Mother(R) Kiwi Sublime

? Play(R) Peach

? Predator(R) Peach

? Predator(R) Red Apple

? Relentless(R) Peach

? Relentless(R) Raspberry

In the normal course of business, we discontinue certain products and/or product lines. Those products or product lines discontinued in the three-months ended March 31, 2022, either individually or in aggregate, did not have a material adverse impact on our financial position, results of operations or liquidity.

Our net sales of $1.52 billion for the three-months ended March 31, 2022 represented record sales for our first fiscal quarter. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $32.9 million for the three-months ended March 31, 2022.

The vast majority of our net sales are derived from our Monster Energy(R) Drinks segment. Net sales of our Monster Energy(R) Drinks segment were $1.40 billion for the three-months ended March 31, 2022. Net sales of our Strategic Brands segment were $92.6 million for the three-months ended March 31, 2022. Net sales of our Alcohol Brands segment were $15.2 million for the three-months ended March 31, 2022. Net sales of our Other segment were $5.9 million for the three-months ended March 31, 2022. Our Monster Energy(R) Drinks segment represented 92.5% and 94.1% of our net sales for the three-months ended March 31, 2022 and 2021, respectively. Our Strategic Brands segment represented 6.1% and 5.5% of our net sales for the three-months ended March 31, 2022 and 2021, respectively. Our Alcohol Segment represented 1.0% of our net sales for the three-months ended March 31, 2022 (effectively from February 17 to March 31, 2022). Our Other segment represented 0.4% of our net sales for both the three-months ended March 31, 2022 and 2021.

Our growth strategy includes expanding our international business and expanding our business in new sectors, such as the alcohol beverage sector. Net sales to customers outside the United States were $553.4 million for the three-months ended March 31, 2022, an increase of approximately $94.0 million, or 20.4% higher than net sales to customers outside of the United States of $459.4 million for the three-months ended March 31, 2021. Such sales were approximately 36% and 37% of net sales for the three-months ended March 31, 2022 and 2021, respectively. On February 17, 2022, the Company completed the CANarchy Transaction which allowed the Company to enter the alcohol beverage sector.

Table of Contents

Our customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, value stores, e-commerce retailers and the military. Percentages of our gross billings to our various customer types for the three-months ended March 31, 2022 and 2021 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage bottlers/distributors in the United States. Such full service beverage bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our







        full service bottlers/distributors without reference to such
        bottlers/distributors' sales to their own customers.
                                                                       Three-Months Ended
                                                                           March 31,
                                                                       2022          2021
        U.S. full service bottlers/distributors                            49 %          50 %
        International full service bottlers/distributors                   39 %          38 %
        Club stores and e-commerce retailers                                9 %          10 %
        Retail grocery, direct convenience, specialty chains and
        wholesalers                                                         2 %           1 %
        Direct value stores and other                                       1 %           1 %
        


Our customers include Coca-Cola Canada Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company United, Inc., Reyes Coca-Cola Bottling, LLC, Coca-Cola Southwest Beverages LLC, The Coca-Cola Bottling Company of Northern New England, Inc., Swire Pacific Holdings, Inc. (USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola Europacific Partners (formerly Coca-Cola European Partners and Coca-Cola Amatil), Coca-Cola Hellenic, Coca-Cola FEMSA, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola ?�ecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Wal-Mart, Inc. (including Sam's Club), Costco Wholesale Corporation and Amazon.com, Inc. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material adverse effect on our financial condition and results of operations.

Coca-Cola Europacific Partners accounted for approximately 12% and 11% of our net sales for the three-months ended March 31, 2022 and 2021, respectively.

Coca-Cola Consolidated, Inc. accounted for approximately 9% and 12% of our net sales for the three-months ended March 31, 2022 and 2021, respectively.

Reyes Coca-Cola Bottling, LLC accounted for approximately 10% and 9% of our net sales for the three-months ended March 31, 2022 and 2021, respectively.

Table of Contents







        Results of Operations
        The following table sets forth key statistics for the three-months ended March
        31, 2022 and 2021.
                                                           Three-Months Ended        Percentage
        (In thousands, except per share amounts)               March 31,               Change
                                                          2022           2021        22 vs. 21
        Net sales1                                     $ 1,518,574    $ 1,243,816          22.1 %
        Cost of sales                                      741,907        528,881          40.3 %
        Gross profit*1                                     776,667        714,935           8.6 %
        Gross profit as a percentage of net sales             51.1 %         57.5 %
        Operating expenses                                 377,178        300,789          25.4 %
        Operating expenses as a percentage of net
        sales                                                 24.8 %         24.2 %
        Operating income1                                  399,489        414,146         (3.5) %
        Operating income as a percentage of net
        sales                                                 26.3 %         33.3 %
        Interest and other expense, net                      7,300            759         861.8 %
        Income before provision for income taxes1          392,189        413,387         (5.1) %
        Provision for income taxes                          97,986         98,193         (0.2) %
        Income taxes as a percentage of income
        before taxes                                          25.0 %         23.8 %
        Net income                                     $   294,203    $   315,194         (6.7) %
        Net income as a percentage of net sales               19.4 %         25.3 %
        Net income per common share:
        Basic                                          $      0.56    $      0.60         (6.9) %
        Diluted                                        $      0.55    $      0.59         (6.8) %
        Case sales (in thousands) (in 192�ounce
        case equivalents)                                  168,793        138,566          21.8 %
        


1Includes $10.0 million and $10.4 million for the three-months ended March 31, 2022 and 2021, respectively, related to the recognition of deferred revenue.

*Gross profit may not be comparable to that of other entities since some entities include all costs associated with their distribution process in cost of sales, whereas others exclude certain costs and instead include such costs within another line item such as operating expenses. We include out-bound freight and warehouse costs in operating expenses rather than in cost of sales.

Net Sales

Net Sales. Net sales were $1.52 billion for the three-months ended March 31, 2022, an increase of approximately $274.8 million, or 22.1% higher than net sales of $1.24 billion for the three-months ended March 31, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $32.9 million for the three-months ended March 31, 2022.

Net sales for the Monster Energy(R) Drinks segment were $1.40 billion for the three-months ended March 31, 2022, an increase of approximately $234.6 million, or 20.0% higher than net sales of $1.17 billion for the three-months ended March 31, 2021. Net sales for the Monster Energy(R) Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy(R) brand energy drinks as a result of increased consumer demand, as well as sales of our True North(R) Pure Energy Seltzers (introduced in August 2021). Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy(R) Drinks segment of approximately $29.6 million for the three-months ended March 31, 2022.

Table of Contents

Net sales for the Strategic Brands segment were $92.6 million for the three-months ended March 31, 2022, an increase of approximately $24.8 million, or 36.6% higher than net sales of $67.8 million for the three-months ended March 31, 2021. Net sales for the Strategic Brands segment increased primarily due to increased worldwide sales by volume of our NOS(R) and Predator(R) brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $3.3 million for the Strategic Brands segment for the three-months ended March 31, 2022.

Net sales for the Alcohol Brands segment were $15.2 million for the three-months ended March 31, 2022 (effectively from February 17 to March 31, 2022).

Net sales for the Other segment were $5.9 million for the three-months ended March 31, 2022, an increase of approximately $0.2 million, or 3.5% higher than net sales of $5.7 million for the three-months ended March 31, 2021.

Case sales for our energy drink products, in 192-ounce case equivalents, were 168.8 million cases for the three-months ended March 31, 2022, an increase of approximately 30.2 million cases or 21.8% higher than case sales of 138.6 million cases for the three-months ended March 31, 2021. The overall average net sales per case decreased to $8.87 for the three-months ended March 31, 2022, which was 0.7% lower than the average net sales per case of $8.94 for the three-months ended March 31, 2021.

Barrel sales for our craft beers and hard seltzers, in 31 US gallon equivalents, were 0.05 million barrels for the three-months ended March 31, 2022.

Gross Profit

Gross profit was $776.7 million for the three-months ended March 31, 2022, an increase of approximately $61.7 million, or 8.6% higher than the gross profit of $714.9 million for the three-months ended March 31, 2021. The increase in gross profit dollars was primarily the result of the $274.8 million increase in net sales for the three-months ended March 31, 2022.

Gross profit as a percentage of net sales decreased to 51.1% for the three-months ended March 31, 2022 from 57.5% for the three-months ended March 31, 2021. The decrease for the three-months ended March 31, 2022 was primarily the result of increased freight rates and fuel costs, including costs relating to the importation of aluminum cans, increased aluminum can costs attributable to higher aluminum commodity pricing, increased ingredient and other input costs, including secondary packaging materials, increased co-packing fees, production inefficiencies and geographical sales mix.

In addition, gross profit as a percentage of net sales for the three-months ended March 31, 2022 was adversely impacted by the CANarchy Transaction. Inventory purchased as part of the CANarchy Transaction was recorded at fair value. The purchased inventory was subsequently sold in the three-months ended March 31, 2022 and was recognized through cost of goods sold at fair value (purchased cost), resulting in no recognized gross profits on the associated sales. Gross profit was negatively impacted by approximately $3.8 million during the three-months ended March 31, 2022 as a result.

Operating Expenses

Total operating expenses were $377.2 million for the three-months ended March 31, 2022, an increase of approximately $76.4 million, or 25.4% higher than total operating expenses of $300.8 million for the three-months ended March 31, 2021.

The increase in operating expenses was primarily due to increased out-bound freight and warehouse costs of $27.0 million, increased expenditures of $12.6 million for travel and entertainment, increased payroll expenses of $10.0 million, increased expenditures of $6.3 million for professional service expenses, including accounting and legal costs ($3.6 million related to the CANarchy Transaction), increased expenditures of $5.6 million for commissions and increased expenditures of $5.3 million for sponsorships and endorsements. Operating expenses as a percentage of net sales for the three-months ended March 31, 2022 were 24.8% as compared to 24.2% for the three-months ended March 31, 2021. Operating expenses as a percentage of net sales for the three-months ended March 31, 2019 (pre COVID-19) were 27.7%.

Table of Contents

Operating Income

Operating income was $399.5 million for the three-months ended March 31, 2022, a decrease of approximately $14.7 million, or 3.5% lower than operating income of $414.1 million for the three-months ended March 31, 2021. Operating income as a percentage of net sales decreased to 26.3% for the three-months ended March 31, 2022 from 33.3% for the three-months ended March 31, 2021. Operating income for the three-months ended March 31, 2022 decreased primarily as a result of the decrease in the gross profit as a percentage of net sales as well as the increase in operating expenses. Operating income was $71.5 million and $96.8 million for the three-months ended March 31, 2022 and 2021, respectively, for our operations in EMEA, Asia Pacific, Latin America and the Caribbean.

Operating income for the Monster Energy(R) Drinks segment, exclusive of corporate and unallocated expenses, was $454.6 million for the three-months ended March 31, 2022, a decrease of approximately $10.3 million, or 2.2% lower than operating income of $464.8 million for the three-months ended March 31, 2021. The decrease in operating income for the Monster Energy(R) Drinks segment was primarily the result of a decrease in gross profit as a percentage of net sales as well as an increase in operating expenses.

Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $57.2 million for the three-months ended March 31, 2022, an increase of approximately $12.1 million, or 26.7% higher than operating income of $45.1 million for the three-months ended March 31, 2021. The increase in operating income for the Strategic Brands segment was primarily the result of an increase in net sales.

Operating loss for the Alcohol Brands segment, exclusive of corporate and unallocated expenses, was $5.0 million for the three-months ended March 31, 2022. Inventory purchased as part of the CANarchy Transaction was recorded at fair value.The inventory acquired was subsequently sold in the three-months ended March 31, 2022 and was recognized through cost of goods sold at fair value (purchased cost), resulting in no recognized profits on the associated sales. Operating income was negatively impacted by approximately $3.8 million during the three-months ended March 31, 2022 as a result. As of March 31, 2022, all purchased inventory recorded at fair value had been sold.

Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $1.1 million for the three-months ended March 31, 2022, a decrease of approximately $0.7 million, or 37.5% lower than operating income of $1.8 million for the three-months ended March 31, 2021.

Interest and Other Expense, net

Interest and other non-operating expense, net, was $7.3 million for the three-months ended March 31, 2022, as compared to interest and other non-operating expense, net, of $0.8 million for the three-months ended March 31, 2021. Foreign currency transaction losses were $8.4 million and $0.8 million for the three-months ended March 31, 2022 and 2021, respectively. Interest income was $1.5 million and $1.1 million for the three-months ended March 31, 2022 and 2021, respectively.

Provision for Income Taxes

Provision for income taxes was $98.0 million for the three-months ended March 31, 2022, a decrease of $0.2 million, or 0.2% lower than the provision for income taxes of $98.2 million for the three-months ended March 31, 2021. The effective combined federal, state and foreign tax rate increased to 25.0% from 23.8% for the three-months ended March 31, 2022 and 2021, respectively. The increase in effective tax rate was primarily attributable to the increase in the net losses in certain foreign subsidiaries that have no related income tax benefits as a result of the prior establishment of valuation allowances on their deferred tax assets.

Net Income

Net income was $294.2 million for the three-months ended March 31, 2022, a decrease of $21.0 million, or 6.7% lower than net income of $315.2 million for the three-months ended March 31, 2021. The decrease in net income for the three-months ended March 31, 2022 was primarily due to the decrease in the gross profit percentage of net sales as well as the increase in operating expenses.

Table of Contents

Key Business Metrics

We use certain key metrics and financial measures not prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP") to evaluate and manage our business. For a further discussion of how we use key metrics and certain non-GAAP financial measures, see "Non-GAAP Financial Measures and Other Key Metrics".

Non-GAAP Financial Measures and Other Key Metrics

Gross Billings**

Gross billings were $1.74 billion for the three-months ended March 31, 2022, an increase of approximately $293.9 million, or 20.3% higher than gross billings of $1.45 billion for the three-months ended March 31, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $38.3 million for the three-months ended March 31, 2022.

Gross billings for the Monster Energy(R) Drinks segment were $1.62 billion for the three-months ended March 31, 2022, an increase of approximately $252.4 million, or 18.5% higher than gross billings of $1.37 billion for the three-months ended March 31, 2021. Gross billings for the Monster Energy(R) Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy(R) brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Monster Energy(R) Drinks segment of approximately $35.1 million for the three-months ended March 31, 2022.

Gross billings for the Strategic Brands segment were $104.3 million for the three-months ended March 31, 2022, an increase of $25.9 million, or 33.1% higher than gross billings of $78.4 million for the three-months ended March 31, 2021.

. . .

May 06, 2022

COMTEX_406804794/2041/2022-05-06T16:49:17

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2022 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.