filings.toolsMonster Beverage 10-Q 2021-09-30
Filed 2021-11-05. 8 sections, 196K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
| For the quarterly period ended September 30, 2021 | Commission File Number 001-18761 | |
|---|
MONSTER BEVERAGE CORPORATION
(Exact name of registrant as specified in its charter)
| | ||
|---|---|---|
| | Delaware | 47-1809393 |
| | (State or other jurisdiction of | (I.R.S. Employer |
| | incorporation or organization) | Identification No.) |
1 Monster Way
Corona, California 92879
(Address of principal executive offices) (Zip code)
(951) 739 - 6200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | |||
|---|---|---|---|---|
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock | | MNST | | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No__
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes X No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
|---|---|---|---|
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes __ No X
The registrant had 529,139,115 shares of common stock, par value $0.005 per share, outstanding as of October 29, 2021.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2021
INDEX
PART I – FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
(In Thousands, Except Par Value) (Unaudited)
| | | | | | | |
|---|---|---|---|---|---|---|
| | | September 30, | | December 31, | ||
| | 2021 | 2020 | ||||
| ASSETS | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | | $ | 1,712,671 | | $ | 1,180,413 |
| Short-term investments | | 1,224,066 | 881,354 | |||
| Accounts receivable, net | | 849,157 | 666,012 | |||
| Inventories | | 471,553 | 333,085 | |||
| Prepaid expenses and other current assets | | 95,607 | 55,358 | |||
| Prepaid income taxes | | 30,619 | 24,733 | |||
| Total current assets | | 4,383,673 | 3,140,955 | |||
| | | | | | | |
| INVESTMENTS | | 28,255 | 44,291 | |||
| PROPERTY AND EQUIPMENT, net | | 309,574 | 314,656 | |||
| DEFERRED INCOME TAXES, net | | 241,297 | 241,650 | |||
| GOODWILL | | 1,331,643 | 1,331,643 | |||
| OTHER INTANGIBLE ASSETS, net | | 1,066,083 | 1,059,046 | |||
| OTHER ASSETS | | 88,883 | 70,475 | |||
| Total Assets | | $ | 7,449,408 | $ | 6,202,716 | |
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| CURRENT LIABILITIES: | | | | | | |
| Accounts payable | | $ | 396,229 | $ | 296,800 | |
| Accrued liabilities | | 180,719 | 142,653 | |||
| Accrued promotional allowances | | 232,394 | 186,658 | |||
| Deferred revenue | | 45,278 | 45,429 | |||
| Accrued compensation | | 54,507 | 55,015 | |||
| Income taxes payable | | 23,113 | 23,433 | |||
| Total current liabilities | | 932,240 | 749,988 | |||
| | | | | | | |
| DEFERRED REVENUE | | 245,621 | 264,436 | |||
| | | | | | | |
| OTHER LIABILITIES | | | 26,550 | | | 27,432 |
| | | | | | | |
| COMMITMENTS AND CONTINGENCIES (Note 12) | | | | | | |
| | | | | | | |
| STOCKHOLDERS’ EQUITY: | | | | | | |
| Common stock - $0.005 par value; 1,250,000 shares authorized; 639,851 shares issued and 529,132 shares outstanding as of September 30, 2021; 638,662 shares issued and 528,097 shares outstanding as of December 31, 2020 | | | 3,199 | | | 3,193 |
| Additional paid-in capital | | 4,626,299 | 4,537,982 | |||
| Retained earnings | | 7,488,235 | 6,432,074 | |||
| Accumulated other comprehensive (loss) income | | (43,495) | 3,034 | |||
| Common stock in treasury, at cost; 110,719 shares and 110,565 shares as of September 30, 2021 and December 31, 2020, respectively | | (5,829,241) | (5,815,423) | |||
| Total stockholders’ equity | | 6,244,997 | 5,160,860 | |||
| Total Liabilities and Stockholders’ Equity | | $ | 7,449,408 | $ | 6,202,716 |
See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(In Thousands, Except Per Share Amounts) (Unaudited)
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three-Months Ended | | Nine-Months Ended | ||||||||
| | | September 30, | | September 30, | ||||||||
| | 2021 | 2020 | 2021 | 2020 | ||||||||
| | | | | | | | | | | | | |
| NET SALES | | $ | 1,410,557 | | $ | 1,246,362 | | $ | 4,116,308 | | $ | 3,402,355 |
| | | | | | | | | | | | | |
| COST OF SALES | | 621,399 | | 509,831 | | 1,775,375 | | 1,369,160 | ||||
| | | | | | | | | | | | | |
| GROSS PROFIT | | 789,158 | | 736,531 | | 2,340,933 | | 2,033,195 | ||||
| | | | | | | | | | | | | |
| OPERATING EXPENSES | | 344,694 | | 277,930 | | 956,346 | | 802,343 | ||||
| | | | | | | | | | | | | |
| OPERATING INCOME | | 444,464 | | 458,601 | | | 1,384,587 | | 1,230,852 | |||
| | | | | | | | | | | | | |
| INTEREST and OTHER EXPENSE, net | | 2,290 | | 4,568 | | 2,179 | | 5,491 | ||||
| | | | | | | | | | | | | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | | 442,174 | | 454,033 | | | 1,382,408 | | 1,225,361 | |||
| | | | | | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | 104,969 | | | 106,379 | | | 326,247 | | | 287,503 |
| | | | | | | | | | | | | |
| NET INCOME | | $ | 337,205 | | $ | 347,654 | | $ | 1,056,161 | | $ | 937,858 |
| | | | | | | | | | | | | |
| NET INCOME PER COMMON SHARE: | | | | | | | | | | | | |
| Basic | | $ | 0.64 | | $ | 0.66 | | $ | 2.00 | | $ | 1.77 |
| Diluted | | $ | 0.63 | | $ | 0.65 | | $ | 1.97 | | $ | 1.75 |
| | | | | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: | | | | | | | | | | | | |
| Basic | | 528,997 | | 527,637 | | 528,618 | | 530,194 | ||||
| Diluted | | 535,915 | | 533,263 | | 535,554 | | 535,011 |
See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(In Thousands) (Unaudited)
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three-Months Ended | Nine-Months Ended | |||||||||
| | | September 30, | | September 30, | ||||||||
| | 2021 | 2020 | 2021 | | 2020 | |||||||
| Net income, as reported | | $ | 337,205 | | $ | 347,654 | | $ | 1,056,161 | | $ | 937,858 |
| Other comprehensive income (loss): | | | | | | | | | | | | |
| Change in foreign currency translation adjustment | | (26,716) | | 21,217 | | (46,412) | | (338) | ||||
| Available-for-sale investments: | | | | | | | | | | | | |
| Change in net unrealized (losses) gains | | 43 | | (308) | | (117) | | 196 | ||||
| Reclassification adjustment for net gains included in net income | | — | | — | | — | | — | ||||
| Net change in available-for-sale investments | | 43 | | (308) | | (117) | | 196 | ||||
| Other comprehensive income (loss) | | (26,673) | | 20,909 | | (46,529) | | (142) | ||||
| Comprehensive income | | $ | 310,532 | | $ | 368,563 | | $ | 1,009,632 | | $ | 937,716 |
See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(In Thousands) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | ** |
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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.
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. “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 third quarter net sales.
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 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.
As of the date of this filing, we do not foresee a material impact on the ability of our co-packers to manufacture and our bottlers/distributors to distribute our products as a result of the COVID-19 pandemic. Depending on the duration of any COVID-19 pandemic related issues, we may experience material disruptions in our supply chain as the pandemic continues.
The consequences of the COVID-19 pandemic, including those on human capital, have resulted in cost increases, labor shortages and general input shortages, which have significantly impacted our cost base and our ability to meet increased demand.
During the three-months ended September 30, 2021, we procured additional quantities of aluminum cans from suppliers in the United States, South America and Asia in response to increased consumer demand. However, we continued to experience shortages in our aluminum can requirements in the United States and EMEA.
In addition, we continued to experience additional supply chain challenges, including, freight inefficiencies, trucking availability, shortages of shipping containers, port of entry congestion, insufficient co-packing capacity and delays in the receipt of certain ingredients, in the United States and EMEA. As a result, we were not able to fully satisfy increased demand for our products in these regions during the three-months ended September 30, 2021.
During the three-months ended September 30, 2021, we continued to experience increased aluminum can costs, attributable to higher aluminum commodity pricing as well as the costs of importing aluminum cans. In addition, we experienced increased ingredient and other input costs, including shipping and freight, labor, trucking, fuel, co-packing fees, secondary packaging materials and increased outbound freight costs, which resulted in increased costs of sales and increased operating costs. We continue to address the increased costs, some of which are likely to be transitory, through reductions in promotions and other pricing actions.
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 MAXX® | ● 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® |
| ● Reign Inferno® Thermogenic Fuel | ● True NorthTM |
We have three operating and reportable segments, (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of our Monster Energy® drinks, Reign Total Body Fuel® high performance energy drinks and True NorthTM Pure Energy Seltzers, (ii) Strategic Brands segment (“Strategic Brands”), which is comprised primarily of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015 as well as our affordable energy brands, and (iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors LLC, a wholly-owned subsidiary, to independent third-party customers (the “AFF Third-Party Products”).
During the three-months ended September 30, 2021, 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 September 30, 2021, we sold the following new products to our customers:
| ● | Monster® (stylized) Reserve Watermelon |
|---|
| ● | Monster® (stylized) Reserve White Pineapple |
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| ● | True NorthTM Pure Energy Seltzer Black Cherry |
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| ● | True NorthTM Pure Energy Seltzer Cucumber Lime |
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| ● | True NorthTM Pure Energy Seltzer Grapefruit Lemonade |
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| ● | True NorthTM Pure Energy Seltzer Mandarin Yuzu |
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| ● | True NorthTM Pure Energy Seltzer Watermelon Mist |
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| ● | True NorthTM Pure Energy Seltzer White Peach Pear |
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| ● | Mother® Zero Sugar Razzle Berry |
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| ● | Predator® Malt Smash |
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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 September 30, 2021, 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 $1.41 billion for the three-months ended September 30, 2021 represented record sales for our third fiscal quarter. Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $16.4 million for the three-months ended September 30, 2021.
The vast majority of our net sales are derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were $1.33 billion for the three-months ended September 30, 2021. Net sales of our Strategic Brands segment were $74.4 million for the thre
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risks during the three-months ended September 30, 2021 compared with the disclosures in Part II, Item 7A of our Form 10-K.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures – Under the supervision and with the participation of the Company’s management, including our Co-Chief Executive Officers and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, the Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures are adequate and effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and (2) accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting – There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
**ITEM 1.**LEGAL PROCEEDINGS
The information required by this Item is incorporated herein by reference to the Notes to Condensed Consolidated Financial Statements - Note 12. Commitments and Contingencies: Litigation in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Item 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and the condensed consolidated financial statements and related notes, you should carefully consider the risks discussed in “Part I, Item 1A – Risk Factors” in our Form 10-K. There have been no material changes with respect to the risk factors disclosed in our Form 10-K.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|---|
During the three-months ended September 30, 2021, no shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due.
On March 13, 2020, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “March 2020 Repurchase Plan”). During the three-months ended September 30, 2021, no shares were purchased by the Company under the March 2020 Repurchase Plan. As of November 5, 2021, $441.5 million remained available for repurchase under the March 2020 Repurchase Plan.
**ITEM 3.**DEFAULTS UPON SENIOR SECURITIES
None.
**ITEM 4.**MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
| 31.1* | Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|---|---|---|
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| 31.2* | | Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| 31.3* | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| 32.1* | | Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 32.2* | | Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 32.3* | | Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted |
| | | |
| 101* | | The following financial information from Monster Beverage Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Condensed Consolidated Statements of Income for the three- and nine-months ended September 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three- and nine-months ended September 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three- and nine-months ended September 30, 2021 and 2020, (v) Condensed Consolidated Statements of Cash Flows for the nine-months ended September 30, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements. |
| | | |
| 104* | | The cover page from Monster Beverage Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. |
- Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | MONSTER BEVERAGE CORPORATION |
|---|---|
| | Registrant |
| | |
| | |
| Date: November 5, 2021 | /s/ RODNEY C. SACKS |
| | Rodney C. Sacks |
| | Chairman of the Board of Directors |
| | and Co-Chief Executive Officer |
| | |
| Date: November 5, 2021 | /s/ HILTON H. SCHLOSBERG |
| | Hilton H. Schlosberg |
| | Vice Chairman of the Board of Directors |
| | and Co-Chief Executive Officer |