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 facilitates our entry into the alcohol beverage sector and brings the Cigar CityTM family of brands including Jai Alai® IPA and Florida ManTM IPA, the Oskar BluesTM family of brands including Dale’s Pale Ale® and Wild BasinTM Hard Seltzers, the Deep EllumTM family of brands including Dallas Blonde® and Deep EllumTM IPA, the Perrin BrewingTM family of brands including Black Ale, the Squatters® family of brands including Hop Rising® Double IPA and Juicy IPA, 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 second 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 second 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.

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.

Distribution and Supply Chain

Since the beginning of the COVID-19 pandemic and the subsequent increased demand for our energy drinks, we prioritized ensuring product availability for our customers and consumers. This strategic direction has remained in place throughout the global supply chain challenges and disruptions, despite adversely impacting our profitability. We continue to stand by our strategy to ensure product availability and solidify the continued long-term growth of our brands.

In the second quarter of 2022, we experienced a significant increase in cost of sales, resulting in a material decrease in both gross profit and gross profit as a percentage of net sales, relative to the comparative 2021 second quarter. The increase in cost of sales was primarily due to (i) increased freight rates and fuel costs, including costs relating to the importation of aluminum cans, (ii) increased ingredient and other input costs, including secondary packaging materials and increased co-packing fees, (iii) increased aluminum can costs attributable to higher aluminum commodity pricing, (iv) geographical and product sales mix and (v) production inefficiencies. 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.

We continue to implement measures to mitigate our increased product and distribution costs through pricing actions and reductions in promotions. In addition, we are implementing a price increase effective September 1, 2022 in the United States and are planning price increases in certain international markets in the second half of 2022.

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:

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● 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®
● Reign Inferno® Thermogenic Fuel	● True North®

​

We also develop, market, sell and distribute craft beers and hard seltzers under a number of brands, including Jai Alai® IPA, Florida ManTM IPA, Dale’s Pale Ale®, Wild BasinTM Hard Seltzers, Dallas Blonde®, Deep EllumTM IPA, Perrin BrewingTM Black Ale, Hop Rising® Double IPA, Juicy IPA, Wasatch® Apricot Hefeweizen and a host of other brands.

We have four operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks, Reign Total Body Fuel® high performance energy drinks and True North® 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 (iv) Other segment (“Other”), which is comprised of the AFF Third-Party Products.

During the three-months ended June 30, 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 June 30, 2022, we sold the following new products to our customers:

	●	Mother® Lava Guava

	●	Nalu® Melon Splash

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 June 30, 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 $1.66 billion for the three-months ended June 30, 2022 represented record sales for our second fiscal quarter. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $53.4 million for the three-months ended June 30, 2022.

The vast majority of our net sales are derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were $1.54 billion for the three-months ended June 30, 2022. Net sales of our Strategic Brands segment were $79.1 million for the three-months ended June 30, 2022. Net sales of our Alcohol Brands segment were $32.4 million for the three-months ended June 30, 2022. Net sales of our Other segment were $6.0 million for the three-months ended June 30, 2022. Our Monster Energy® Drinks segment represented 92.9% and 93.5% of our net sales for the three-months ended June 30, 2022 and 2021, respectively. Our Strategic Brands segment represented 4.8% and 5.9% of our net sales for the three-months ended June 30, 2022 and 2021, respectively. Our Alcohol Segment represented 2.0% of our net sales for the three-months ended June 30, 2022. Our Other segment represented 0.3% and 0.6% of our net sales for the three-months ended June 30, 2022 and 2021, respectively.

Our growth strategy includes further developing our domestic markets, expanding our international business and growing our business into new sectors, such as the alcohol beverage sector. Net sales to customers outside the United States were $649.0 million for the three-months ended June 30, 2022, an increase of approximately $102.7 million, or 18.8% higher than net sales to customers outside of the United States of $546.3 million for the three-months ended June 30, 2021. Such sales were approximately 39% and 37% of net sales for the three-months ended June 30, 2022 and 2021, respectively. Net changes in foreign currency exchange rates had an unfavorable impact on net sales to customers outside of the United States of approximately $53.4 million for the three-months ended June 30, 2022. Net sales to customers outside the United States, on a foreign currency adjusted basis, increased 28.6% for the three-months ended June 30, 2022. On February 17, 2022, the Company completed the CANarchy Transaction which facilitates the Company’s entry into the alcohol beverage sector.

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 June 30, 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.

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​	​	​	​	​	​	​	​	​	​
​	​	Three-Months Ended			​	Six-Months Ended			​
​	​	June 30,			​	June 30,			​
​		2022	​	2021		2022		2021	​
U.S. full service bottlers/distributors		46	%	51	%	47	%	51	%
International full service bottlers/distributors		41	%	39	%	40	%	39	%
Club stores and e-commerce retailers		9	%	8	%	9	%	8	%
Retail grocery, direct convenience, specialty chains and wholesalers		2	%	1	%	2	%	1	%
Direct value stores and other		2	%	1	%	2	%	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 İçecek 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 (formerly Coca-Cola European Partners) accounted for approximately 14% and 12% of our net sales for the three-months ended June 30, 2022 and 2021, respectively. Coca-Cola Europacific Partners accounted for approximately 13% and 12% of our net sales for the six-months ended June 30, 2022 and 2021, respectively.

Coca-Cola Consolidated, Inc. accounted for approximately 11% of our net sales for the both the three-months ended June 30, 2022 and 2021. Coca-Cola Consolidated, Inc. accounted for approximately 10% and 11% of our net sales for the six-months ended June 30, 2022 and 2021, respectively.

Reyes Coca-Cola Bottling, LLC accounted for approximately 9% and 11% of our net sales for the three-months ended June 30, 2022 and 2021, respectively. Reyes Coca-Cola Bottling, LLC accounted for approximately 9% and 10% of our net sales for the six-months ended June 30, 2022 and 2021, respectively.

Results of Operations

The following table sets forth key statistics for the three- and six-months ended June 30, 2022 and 2021.

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​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Three-Months Ended						Percentage	​	Six-Months Ended					​	Percentage	​
(In thousands, except per share amounts)	​	June 30,					​	Change	​	June 30,					​	Change	​
​		2022			2021			22 vs. 21		2022			2021			22 vs. 21	​
Net sales1	​	$	1,655,260	​	$	1,461,934	​	13.2	%	$	3,173,833	​	$	2,705,751	​	17.3	%
Cost of sales	​		875,399	​		625,096	​	40.0	%		1,617,306	​		1,153,976	​	40.2	%
Gross profit*1	​		779,861	​		836,838	​	(6.8)	%		1,556,527	​		1,551,775	​	0.3	%
Gross profit as a percentage of net sales	​		47.1	%		57.2	%		​		49.0	%		57.4	%		​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses	​		406,910	​		310,863	​	30.9	%		784,088	​		611,652	​	28.2	%
Operating expenses as a percentage of net sales	​		24.6	%		21.3	%		​		24.7	%		22.6	%		​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating income1	​		372,951	​		525,975	​	(29.1)	%		772,439	​		940,123	​	(17.8)	%
Operating income as a percentage of net sales	​		22.5	%		36.0	%	​	​		24.3	%		34.7	%	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Interest and other (expense) income, net	​		(6,781)	​		872	​	(877.6)	%		(14,080)	​		111	​	(12,784.7)	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before provision for income taxes1	​		366,170	​		526,847	​	(30.5)	%		758,359	​		940,234	​	(19.3)	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Provision for income taxes	​		92,810	​		123,085	​	(24.6)	%		190,796	​		221,278	​	(13.8)	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income taxes as a percentage of income before taxes	​		25.3	%		23.4	%		​		25.2	%		23.5	%		​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income	​	$	273,360	​	$	403,762	​	(32.3)	%	$	567,563	​	$	718,956	​	(21.1)	%
Net income as a percentage of net sales	​		16.5	%		27.6	%		​		17.9	%		26.6	%		​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income per common share:	​			​			​		​			​			​		​
Basic	​	$	0.52	​	$	0.76	​	(32.3)	%	$	1.07	​	$	1.36	​	(21.1)	%
Diluted	​	$	0.51	​	$	0.75	​	(32.2)	%	$	1.06	​	$	1.34	​	(21.0)	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Case sales (in thousands) (in 192‑ounce case equivalents)	​		184,197	​		161,450	​	14.1	%		352,990	​		300,017	​	17.7	%

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¹Includes $10.1 million and $10.4 million for the three-months ended June 30, 2022 and 2021, respectively, related to the recognition of deferred revenue. Includes $20.1 million and $20.9 million for the six-months ended June 30, 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.

Three-Months Ended June 30, 2022 Compared to the Three-Months Ended June 30, 2021**.**

Net Sales

Net Sales. Net sales were $1.66 billion for the three-months ended June 30, 2022, an increase of approximately $193.3 million, or 13.2% higher than net sales of $1.46 billion for the three-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $53.4 million for the three-months ended June 30, 2022. Net sales on a foreign currency adjusted basis increased 16.9% for the three-months ended June 30, 2022.

Net sales for the Monster Energy® Drinks segment were $1.54 billion for the three-months ended June 30, 2022, an increase of approximately $170.6 million, or 12.5% higher than net sales of $1.37 billion for the three-months ended June 30, 2021. Net sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand. To a lesser extent, net sales for the Monster Energy® Drinks segment increased due to pricing actions and reductions in promotions in certain markets. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately $49.4 million for the three-months ended June 30, 2022. Net sales for the Monster Energy® Drinks segment on a foreign currency adjusted basis increased 16.1% for the three-months ended June 30, 2022.

Net sales for the Strategic Brands segment were $79.1 million for the three-months ended June 30, 2022, a decrease of approximately $7.8 million, or 9.0% lower than net sales of $86.9 million for the three-months ended June 30, 2021. Net sales for the Strategic Brands segment decreased primarily due to decreased sales by volume of our NOS® and Full Throttle® brand energy drinks. The decrease was partially offset by increased sales by volume of our Predator® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $4.0 million for the Strategic Brands segment for the three-months ended June 30, 2022. Net sales for the Strategic Brands segment on a foreign currency adjusted basis decreased 4.3% for the three-months ended June 30, 2022.

Net sales for the Alcohol Brands segment were $32.4 million for the three-months ended June 30, 2022. There were no comparative 2021 net sales for the Alcohol Brands segment as the Company completed its acquisition of CANarchy in February 2022.

Net sales for the Other segment were $6.0 million for the three-months ended June 30, 2022, a decrease of approximately $1.9 million, or 24.4% lower than net sales of $7.9 million for the three-months ended June 30, 2021.

Case sales for our energy drink products, in 192-ounce case equivalents, were 184.2 million cases for the three-months ended June 30, 2022, an increase of approximately 22.7 million cases or 14.1% higher than case sales of 161.5 million cases for the three-months ended June 30, 2021. The overall average net sales per case decreased to $8.78 for the three-months ended June 30, 2022, which was 2.5% lower than the average net sales per case of $9.01 for the three-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on the overall average net sales per case for the three-months ended June 30, 2022.

Barrel sales for our craft beers and hard seltzers, in 31 US gallon equivalents, were 0.1 million barrels for the three-months ended June 30, 2022.

Gross Profit

Gross profit was $779.9 million for the three-months ended June 30, 2022, a decrease of approximately $57.0 million, or 6.8% lower than the gross profit of $836.8 million for the three-months ended June 30, 2021. The decrease in gross profit dollars was primarily the result of the $250.3 million increase in cost of sales for the three-months ended June 30, 2022.

Gross profit as a percentage of net sales decreased to 47.1% for the three-months ended June 30, 2022 from 57.2% for the three-months ended June 30, 2021. The decrease for the three-months ended June 30, 2022 was primarily the result of increased freight rates and fuel costs, including costs relating to the importation of aluminum cans, increased ingredient and other input costs, including secondary packaging materials, as well as increased co-packing fees, increased aluminum can costs attributable to higher aluminum commodity pricing, geographical and product sales mix, and production inefficiencies.

Operating Expenses

Total operating expenses were $406.9 million for the three-months ended June 30, 2022, an increase of approximately $96.0 million, or 30.9% higher than total operating expenses of $310.9 million for the three-months ended June 30, 2021.

The comparative operating expenses for the three-months ended June 30, 2021 included a $16.9 million reversal of amounts previously accrued in connection with an intellectual property claim. In addition, the increase in operating expenses was primarily due to increased out-bound fuel, freight and warehouse costs of $23.2 million, increased payroll expenses of $18.5 million (of which $6.5 million was related to CANarchy), increased expenditures of $10.6 million for sponsorships and endorsements, increased expenditures of $10.1 million for travel and entertainment, as well as increased expenditures of $8.5 million for other marketing expenses, including social media and digital marketing, point of sale and sampling programs during the three-months ended June 30, 2022. In addition, CANarchy related depreciation and amortization was $2.4 million for the three-months ended June 30, 2022. Operating expenses as a percentage of net sales for the three-months ended June 30, 2022 were 24.6% as compared to 21.3% for the three-months ended June 30, 2021. Operating expenses as a percentage of net sales for the three-months ended June 30, 2019 (pre COVID-19) were 25.6%.

Operating Income

Operating income was $373.0 million for the three-months ended June 30, 2022, a decrease of approximately $153.0 million, or 29.1% lower than operating income of $526.0 million for the three-months ended June 30, 2021. Operating income as a percentage of net sales decreased to 22.5% for the three-months ended June 30, 2022 from 36.0% for the three-months ended June 30, 2021. Operating income for the three-months ended June 30, 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 $82.8 million and $123.1 million for the three-months ended June 30, 2022 and 2021, respectively, for our operations in EMEA, Asia Pacific, Latin America and the Caribbean.

Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $441.7 million for the three-months ended June 30, 2022, a decrease of approximately $105.5 million, or 19.3% lower than operating income of $547.3 million for the three-months ended June 30, 2021. The decrease in operating income for the Monster Energy® 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 $41.5 million for the three-months ended June 30, 2022, a decrease of approximately $12.6 million, or 23.3% lower than operating income of $54.1 million for the three-months ended June 30, 2021. The decrease in operating income for the Strategic Brands segment was primarily the result of a decrease in net sales as well as a decrease in gross profit as a percentage of net sales.

Operating loss for the Alcohol Brands segment, exclusive of corporate and unallocated expenses, was $4.7 million for the three-months ended June 30, 2022.

Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $1.0 million for the three-months ended June 30, 2022, a decrease of approximately $1.3 million, or 55.5% lower than operating income of $2.2 million for the three-months ended June 30, 2021.

Interest and Other (Expense) Income, net

Interest and other non-operating (expense) income, net, was ($6.8) million for the three-months ended June 30, 2022, as compared to interest and other non-operating (expense) income, net, of $0.9 million for the three-months ended June 30, 2021. Foreign currency transaction losses were $8.3 million and $1.8 million for the three-months ended June 30, 2022 and 2021, respectively. Interest income was $3.8 million and $1.1 million for the three-months ended June 30, 2022 and 2021, respectively.

Provision for Income Taxes

Provision for income taxes was $92.8 million for the three-months ended June 30, 2022, a decrease of $30.3 million, or 24.6% lower than the provision for income taxes of $123.1 million for the three-months ended June 30, 2021. The effective combined federal, state and foreign tax rate increased to 25.3% from 23.4% for the three-months ended June 30, 2022 and 2021, respectively. The increase in the effective tax rate was primarily attributable to an increase in the effective state income tax rate as well as an increase in the net losses in certain foreign jurisdictions which have lower tax rates compared to the United States.

Net Income

Net income was $273.4 million for the three-months ended June 30, 2022, a decrease of $130.4 million, or 32.3% lower than net income of $403.8 million for the three-months ended June 30, 2021. The decrease in net income for the three-months ended June 30, 2022 was primarily due to the decrease in the gross profit percentage of net sales as well as the increase in operating expenses.

Six-Months Ended June 30, 2022 Compared to the Six-Months Ended June 30, 2021**.**

Net Sales

Net Sales. Net sales were $3.17 billion for the six-months ended June 30, 2022, an increase of approximately $468.1 million, or 17.3% higher than net sales of $2.71 billion for the six-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $86.3 million for the six-months ended June 30, 2022. Net sales on a foreign currency adjusted basis increased 20.5% for the six-months ended June 30, 2022.

Net sales for the Monster Energy® Drinks segment were $2.94 billion for the six-months ended June 30, 2022, an increase of approximately $405.2 million, or 16.0% higher than net sales of $2.54 billion for the six-months ended June 30, 2021. Net sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand, as well as sales of our True North® 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® Drinks segment of approximately $79.0 million for the six-months ended June 30, 2022. Net sales for the Monster Energy® Drinks segment on a foreign currency adjusted basis increased 19.1% for the six-months ended June 30, 2022.

Net sales for the Strategic Brands segment were $171.7 million for the six-months ended June 30, 2022, an increase of approximately $17.0 million, or 11.0% higher than net sales of $154.7 million for the six-months ended June 30, 2021. Net sales for the Strategic Brands segment increased primarily due to increased worldwide sales by volume of our Predator® 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 $7.3 million for the Strategic Brands segment for the six-months ended June 30, 2022. Net sales for the Strategic Brands segment on a foreign currency adjusted basis increased 15.7% for the six-months ended June 30, 2022.

Net sales for the Alcohol Brands segment were $47.7 million for the six-months ended June 30, 2022 (effectively from February 17 to June 30, 2022).

Net sales for the Other segment were $11.9 million for the six-months ended June 30, 2022, a decrease of approximately $1.7 million, or 12.7% lower than net sales of $13.6 million for the six-months ended June 30, 2021.

Case sales for our energy drink products, in 192-ounce case equivalents, were 353.0 million cases for the six-months ended June 30, 2022, an increase of approximately 53.0 million cases or 17.7% higher than case sales of 300.0 million cases for the six-months ended June 30, 2021. The overall average net sales per case decreased to $8.82 for the six-months ended June 30, 2022, which was 1.7% lower than the average net sales per case of $8.97 for the six-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on the overall average net sales per case for the six-months ended June 30, 2022.

Barrel sales for our craft beers and hard seltzers, in 31 US gallon equivalents, were 0.15 million barrels for the six-months ended June 30, 2022.

Gross Profit

Gross profit was $1.56 billion for the six-months ended June 30, 2022, an increase of approximately $0.01 billion, or 0.3% higher than gross profit of $1.55 billion for the six-months ended June 30, 2021.

Gross profit as a percentage of net sales decreased to 49.0% for the six-months ended June 30, 2022 from 57.4% for the six-months ended June 30, 2021. The decrease for the six-months ended June 30, 2022 was primarily the result of increased freight rates and fuel costs, including costs relating to the importation of aluminum cans, increased ingredient and other input costs, including secondary packaging materials, increased aluminum can costs attributable to higher aluminum commodity pricing, increased co-packing fees, production inefficiencies and geographical sales mix.

Operating Expenses

Total operating expenses were $784.1 million for the six-months ended June 30, 2022, an increase of approximately $172.4 million, or 28.2% higher than total operating expenses of $611.7 million for the six-months ended June 30, 2021.

The comparative operating expenses for the six-months ended June 30, 2021 included a $16.9 million reversal of amounts previously accrued in connection with an intellectual property claim. In addition, the increase in operating expenses was primarily due to increased out-bound freight and warehouse costs of $50.3 million, increased payroll expenses of $28.5 million (of which $9.3 million was related to CANarchy), increased expenditures of $22.7 million for travel and entertainment, increased expenditures of $15.9 million for sponsorships and endorsements as well as increased expenditures of $19.1 million for other marketing expenses, including social media and digital marketing, commissions, point of sale and sampling during the six-months ended June 30, 2022. In addition, CANarchy related depreciation and amortization was $3.9 million for the six-months ended June 30, 2022. Operating expenses as a percentage of net sales for the six-months ended June 30, 2022 were 24.7% as compared to 22.6% for the six-months ended June 30, 2021. Operating expenses as a percentage of net sales for the six-months ended June 30, 2019 (pre COVID-19) were 22.6%.

Operating Income

Operating income was $772.4 million for the six-months ended June 30, 2022, a decrease of approximately $167.7 million, or 17.8% lower than operating income of $940.1 million for the six-months ended June 30, 2021. Operating income as a percentage of net sales decreased to 24.3% for the six-months ended June 30, 2022 from 34.7% for the six-months ended June 30, 2021. Operating income for the six-months ended June 30, 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 $154.4 million and $219.9 million for the six-months ended June 30, 2022 and 2021, respectively, for our operations in EMEA, Asia Pacific, Latin America and the Caribbean.

Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $896.3 million for the six-months ended June 30, 2022, a decrease of approximately $115.7 million, or 11.4% lower than operating income of $1.01 billion for the six-months ended June 30, 2021. The decrease in operating income for the Monster Energy® 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 $98.7 million for the six-months ended June 30, 2022, a decrease of approximately $0.5 million, or 0.5% lower than operating income of $99.2 million for the six-months ended June 30, 2021. The decrease in operating income for the Strategic Brands 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 loss for the Alcohol Brands segment, exclusive of corporate and unallocated expenses, was $9.6 million for the six-months ended June 30, 2022. Inventory purchased as part of the CANarchy Transaction was recorded at fair value. The inventory acquired was subsequently sold in the six-months ended June 30, 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 $4.0 million during the six-months ended June 30, 2022 as a result. As of June 30, 2022, all purchased inventory recorded at fair value had been sold.

Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $2.2 million for the six-months ended June 30, 2022, a decrease of approximately $2.0 million, or 47.5% lower than operating income of $4.0 million for the six-months ended June 30, 2021.

Interest and Other (Expense) Income, net

Interest and other non-operating (expense) income, net, was ($14.1) million for the six-months ended June 30, 2022, as compared to interest and other non-operating (expense) income, net, of $0.1 million for the six-months ended June 30, 2021. Foreign currency transaction losses were $16.7 million and $2.6 million for the six-months ended June 30, 2022 and 2021, respectively. Interest income was $5.3 million and $2.2 million for the six-months ended June 30, 2022 and 2021, respectively.

Provision for Income Taxes

Provision for income taxes was $190.8 million for the six-months ended June 30, 2022, a decrease of $30.5 million, or 13.8% lower than the provision for income taxes of $221.3 million for the six-months ended June 30, 2021. The effective combined federal, state and foreign tax rate increased to 25.2% from 23.5% for the six-months ended June 30, 2022 and 2021, respectively. The increase in the effective tax rate was primarily attributable to an increase in the effective state income tax rate as well as an increase in the net losses in certain foreign jurisdictions which have lower tax rates compared to the United States.

Net Income

Net income was $567.6 million for the six-months ended June 30, 2022, a decrease of $151.4 million, or 21.1% lower than net income of $719.0 million for the six-months ended June 30, 2021. The decrease in net income for the six-months ended June 30, 2022 was primarily due to the decrease in the gross profit percentage of net sales as well as the increase in operating expenses.

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 $1.91 billion for the three-months ended June 30, 2022, an increase of approximately $210.5 million, or 12.4% higher than gross billings of $1.69 billion for the three-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $63.9 million for the three-months ended June 30, 2022.

Gross billings for the Monster Energy® Drinks segment were $1.78 billion for the three-months ended June 30, 2022, an increase of approximately $188.3 million, or 11.9% higher than gross billings of $1.59 billion for the three-months ended June 30, 2021. Gross billings for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® 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® Drinks segment of approximately $59.9 million for the three-months ended June 30, 2022.

Gross billings for the Strategic Brands segment were $89.9 million for the three-months ended June 30, 2022, a decrease of $8.8 million, or 8.9% lower than gross billings of $98.7 million for the three-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings in the Strategic Brands segment of approximately $4.0 million for the three-months ended June 30, 2022.

Gross billings for the Alcohol Brands segment were $32.9 million for the three-months ended June 30, 2022.

Gross billings for the Other segment were $6.0 million for the three-months ended June 30, 2022, a decrease of $1.9 million, or 24.4% lower than gross billings of $7.9 million for the three-months ended June 30, 2021.

Promotional allowances, commissions and other expenses, as described in the footnote below, were $259.9 million for the three-months ended June 30, 2022, an increase of $16.8 million, or 6.9% higher than promotional allowances, commissions and other expenses of $243.1 million for the three-months ended June 30, 2021. Promotional allowances, commissions and other expenses as a percentage of gross billings decreased to 13.6% from 14.3% for the three-months ended June 30, 2022 and 2021, respectively.

Gross billings were $3.65 billion for the six-months ended June 30, 2022, an increase of approximately $504.4 million, or 16.0% higher than gross billings of $3.14 billion for the six-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $102.2 million for the six-months ended June 30, 2022.

Gross billings for the Monster Energy® Drinks segment were $3.39 billion for the six-months ended June 30, 2022, an increase of approximately $440.7 million, or 14.9% higher than gross billings of $2.95 billion for the six-months ended June 30, 2021. Gross billings for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® 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® Drinks segment of approximately $94.9 million for the six-months ended June 30, 2022.

Gross billings for the Strategic Brands segment were $194.1 million for the six-months ended June 30, 2022, an increase of $17.1 million, or 9.7% higher than gross billings of $177.0 million for the six-months ended June 30, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings in the Strategic Brands segment of approximately $7.3 million for the six-months ended June 30, 2022.

Gross billings for the Alcohol Brands segment were $48.4 million for the six-months ended June 30, 2022.

Gross billings for the Other segment were $11.9 million for the six-months ended June 30, 2022, a decrease of $1.7 million, or 12.7% lower than gross billings of $13.6 million for the six-months ended June 30, 2021.

Promotional allowances, commissions and other expenses, as described in the footnote below, were $495.3 million for the six-months ended June 30, 2022, an increase of $35.5 million, or 7.7% higher than promotional allowances, commissions and other expenses of $459.8 million for the six-months ended June 30, 2021. Promotional allowances, commissions and other expenses as a percentage of gross billings decreased to 13.6% from 14.6% for the six-months ended June 30, 2022 and 2021, respectively.

**Gross Billings represent amounts invoiced to customers net of cash discounts and returns. Gross billings are used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and is useful to investors in evaluating overall Company performance. The use of gross billings allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross billings provides a useful measure of our operating performance. The use of gross billings is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross billings may not be comparable to similarly titled measures used by other companies, as gross billings has been defined by our internal reporting practices. In addition, gross billings may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers_._

The following table reconciles the non-GAAP financial measure of gross billings with the most directly comparable GAAP financial measure of net sales:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Three-Months Ended						Percentage		​	Six-Months Ended					Percentage	​
​	​	June 30,					​	Change	​	June 30,						Change	​
(In thousands)		2022			2021			22 vs. 21	​	2022			2021			22 vs. 21	​
Gross Billings	​	$	1,905,150	​	$	1,694,644	​	12.4	%	$	3,649,077	​	$	3,144,680		16.0	%
Deferred Revenue	​	​	10,051	​	​	10,439	​	(3.7)	%	​	20,071	​	​	20,879	​	(3.9)	%
Less: Promotional allowances, commissions and other expenses***	​		259,941	​		243,149	​	6.9	%		495,315	​		459,808		7.7	%
Net Sales	​	$	1,655,260	​	$	1,461,934	​	13.2	%	$	3,173,833	​	$	2,705,751		17.3	%

​

*** Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the presentation thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances for our energy drink products primarily include consideration given to our non-alcohol bottlers/distributors or retail customers including, but not limited to the following: (i) discounts granted off list prices to support price promotions to end-consumers by retailers; (ii) reimbursements given to our bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (iii) our agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; (iv) our agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; (v) incentives given to our bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to our bottlers/distributors related to sales made by us direct to certain customers that fall within the bottlers’/distributors’ sales territories; and (viii) certain commissions based on sales to our bottlers/distributors. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances for our energy drink products constitute a material portion of our marketing activities. Our promotional allowance programs for our energy drink products with our

numerous bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The primary drivers of our promotional and other allowance activities for our energy drink products for the three- and six-months ended June 30, 2022 and 2021 were (i) to increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail. Promotional and other allowances for our Alcohol Brands segment primarily include price promotions where permitted.

Sales

The table below discloses selected quarterly data regarding sales for the three- and six-months ended June 30, 2022 and 2021, respectively. Data from any one or more quarters or periods is not necessarily indicative of annual results or continuing trends.

Sales of our energy drinks are expressed in unit case volume. A “unit case” means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings). Unit case volume means the number of unit cases (or unit case equivalents) of finished products or concentrates as if converted into finished products sold by us.

Our quarterly results of operations reflect seasonal trends that are primarily the result of increased demand in the warmer months of the year. It has been our experience that beverage sales tend to be lower during the first and fourth quarters of each calendar year. However, our experience with our energy drink products suggests they may be less seasonal than the seasonality of traditional beverages. In addition, our continued growth internationally may further reduce the impact of seasonality on our business. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets where temperature fluctuations are more pronounced, the addition of new bottlers/distributors, changes in the sales mix of our products and changes in advertising and promotional expenses. The COVID-19 pandemic, including new variants, may also have an impact on consumer behavior and change the seasonal fluctuation of our business.

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three-Months Ended					​	Six-Months Ended
​	​	June 30,					​	June 30,
(In thousands, except average net sales per case)		2022			2021			2022			2021
Net sales	​	$	1,655,260	​	$	1,461,934	​	$	3,173,833	​	$	2,705,751
Less: Alcohol Brands segment sales	​	​	(32,447)	​	​	—	​	​	(47,654)	​	​	—
Less: Other segment sales	​		(5,981)	​		(7,905)	​		(11,908)	​		(13,633)
Adjusted net sales1	​	$	1,616,832	​	$	1,454,029	​	$	3,114,271	​	$	2,692,118
​	​	​	​	​	​	​	​	​	​	​	​	​
Case sales by segment:1	​		​	​		​	​		​	​
Monster Energy® Drinks	​		156,146	​		137,102	​		296,272	​		255,038
Strategic Brands	​		28,051	​		24,348	​		56,718	​		44,979
Total case sales	​		184,197	​		161,450	​		352,990	​		300,017
Average net sales per case - Energy Drinks	​	$	8.78	​	$	9.01	​	$	8.82	​	$	8.97

​

1_Excludes Alcohol Brands segment (effectively from February 17, 2022 to June 30, 2022) and Other segment net sales, as these sales do not have unit case equivalents._

Net changes in foreign currency exchange rates had an unfavorable impact on the overall average net sales per case for the three- and six-months ended June 30, 2022.

Sales of our Alcohol products are expressed in barrel volume. A “Barrel” means a unit of measurement equal to 31 US gallons. Barrel sales were 0.1 million and 0.15 million for the three- and six-months ended June 30, 2022, respectively.

See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” for additional information related to the increase in sales.

Liquidity and Capital Resources

Cash and cash equivalents, short-term and long-term investments. At June 30, 2022, we had $1.13 billion in cash and cash equivalents, $1.34 billion in short-term investments and $64.1 million in long-term investments, including certificates of deposit, commercial paper, U.S. government agency securities, municipal securities and U.S. treasuries. We maintain our investments for cash

management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical organizations) in selecting and maintaining our investments. We regularly assess market risk of our investments and believe our current policies and investment practices adequately limit those risks. However, certain of these investments are subject to general credit, liquidity, market and interest rate risks. These market risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.

Of our $1.13 billion of cash and cash equivalents held at June 30, 2022, $537.2 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at June 30, 2022.

We believe that cash available from operations, including our cash resources and access to credit, will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable, payments of tax liabilities, expansion and development needs, purchases of capital assets, purchases of equipment, purchases of real property and purchases of shares of our common stock, through at least the next 12 months. Based on our current plans, at this time we estimate that capital expenditures (exclusive of common stock repurchases) are likely to be less than $200.0 million through June 30, 2023. However, future business opportunities may cause a change in this estimate.

Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash.

The following summarizes our cash flows for the six-months ended June 30, 2022 and 2021 (in thousands):

​

​	​	​	​	​	​	​
Net cash provided by (used in):		​	​		​	​
​		2022			2021
Operating activities	​	$	130,663	​	$	586,586
Investing activities	​	$	(5,738)	​	$	(180,162)
Financing activities	​	$	(268,953)	​	$	14,292

​

Cash flows provided by operating activities. Cash provided by operating activities was $130.7 million for the six-months ended June 30, 2022, as compared with cash provided by operating activities of $586.6 million for the six-months ended June 30, 2021.

For the six-months ended June 30, 2022, cash provided by operating activities was primarily attributable to net income earned of $567.6 million and adjustments for certain non-cash expenses, consisting of $32.6 million of stock-based compensation and $30.4 million of depreciation and amortization. For the six-months ended June 30, 2022, cash provided by operating activities also increased due to an $85.5 million increase in accounts payable, a $77.7 million increase in accrued promotional allowances and a $21.9 million decrease in deferred income taxes. For the six-months ended June 30, 2022, cash used in operating activities was primarily attributable to a $299.1 million increase in inventories, a $289.2 million increase in accounts receivable, a $15.3 million decrease in accrued compensation, a $55.7 million increase in prepaid expenses and other assets, a $14.7 million decrease in income taxes payable, a $9.1 million decrease in deferred revenue, a $3.2 million decrease in other liabilities and a $1.2 million increase in prepaid income taxes.

For the six-months ended June 30, 2021, cash provided by operating activities was primarily attributable to net income earned of $719.0 million and adjustments for certain non-cash expenses, consisting of $35.7 million of stock-based compensation and $25.5 million of depreciation and amortization. For the six-months ended June 30, 2021, cash provided by operating activities also increased due to a $63.6 million increase in accounts payable, a $42.7 million increase in accrued promotional allowances, a $29.9 million increase in accrued liabilities, a $7.7 million increase in income taxes payable and a $2.5 million decrease in prepaid income taxes. For the six-months ended June 30, 2021, cash used in operating activities was primarily attributable to a $239.5 million increase in accounts receivable, a $52.5 million increase in inventories, a $28.2 million increase in prepaid expenses and other assets, a $10.9 million decrease in deferred revenue and a $10.8 million decrease in accrued compensation.

Cash flows used in investing activities. Cash used in investing activities was $5.7 million for the six-months ended June 30, 2022 as compared to cash used in investing activities of $180.2 million for the six-months ended June 30, 2021.

For both the six-months ended June 30, 2022 and 2021, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For the six-months ended June 30, 2022, cash used in investing activities included $329.5 million

related to the CANarchy Transaction. For both the six-months ended June 30, 2022 and 2021, cash used in investing activities was attributable to purchases of available-for-sale investments. To a lesser extent, for both the six-months ended June 30, 2022 and 2021, cash used in investing activities also included the acquisitions of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, computer software, equipment used for sales and administrative activities, certain leasehold improvements, as well as acquisitions of and/or improvements to real property. We expect to continue to use a portion of our cash in excess of our requirements for operations for purchasing short-term and long-term investments, leasehold improvements, the acquisition of capital equipment (specifically, vans, trucks and promotional vehicles, coolers, other promotional equipment, merchandise displays, warehousing racks as well as items of production equipment required to produce certain of our existing and/or new products) to develop our brand in international markets and for other corporate purposes. From time to time, we may also use cash to purchase additional real property related to our beverage business and/or acquire compatible businesses.

Cash flow (used in) provided by financing activities. Cash used in financing activities was $269.0 million for the six-months ended June 30, 2022 as compared to cash provided by financing activities of $14.3 million for the six-months ended June 30, 2021. The cash used in financing activities for both the six-months ended June 30, 2022 and 2021 was primarily the result of the repurchases of our common stock. The cash provided by financing activities for both the six-months ended June 30, 2022, and 2021 was primarily attributable to the issuance of our common stock under our stock-based compensation plans and borrowings on debt.

The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of June 30, 2022:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Payments due by period (in thousands)
​		​	​		Less than			1‑3			3‑5			More than
Obligations	​	Total		​	1 year			years			years			5 years
Contractual Obligations1	​	$	332,240	​	$	261,886	​	$	70,354	​	$	—	​	$	—
Finance Leases	​		1,399	​		1,342	​		48	​		9	​		—
Operating Leases	​		41,399	​		7,978	​		11,886	​		7,663	​		13,872
Purchase Commitments2	​		339,061	​		320,678	​		15,059	​		3,324	​		—
​	​	$	714,099	​	$	591,884	​	$	97,347	​	$	10,996	​	$	13,872

​

1_Contractual obligations include our obligations related to sponsorships and other commitments._

2_Purchase commitments include obligations made by us and our subsidiaries to various suppliers for raw materials used in the production of our products. These obligations vary in terms, but are generally satisfied within one year._

In addition, approximately $2.0 million of unrecognized tax benefits have been recorded as liabilities as of June 30, 2022. It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months. As of June 30, 2021, we had $0.1 million of accrued interest and penalties related to unrecognized tax benefits.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions. There have been no material changes to our critical accounting policies or estimates from the information provided in “Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 – Organization and Summary of Significant Accounting Policies”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“Form 10-K”).

Recent Accounting Pronouncements

There have been no changes in recently issued or adopted accounting pronouncements that would materially impact the Company from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Inflation

Inflation had a negative impact on our results of operations for the three- and six-months ended June 30, 2022, leading to increased cost of sales and operating expenses. To mitigate the impact of inflation, we are implementing a price increase effective September 1, 2022 in the United States and are planning price increases in certain international markets in the second half of 2022.

Forward-Looking Statements

Certain statements made in this report may constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) (the “Exchange Act”) regarding the expectations of management with respect to revenues, profitability, adequacy of funds from operations and our existing credit facility, among other things. All statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items, a statement of management’s plans and objectives for future operations, or a statement of future economic performance contained in management’s discussion and analysis of financial condition and results of operations, including statements related to new products, volume growth and statements encompassing general optimism about future operating results and non-historical information, are forward-looking statements within the meaning of the Exchange Act. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements.

Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside our control, and involve a number of risks, uncertainties and other factors, that could cause actual results and events to differ materially from the statements made including, but not limited to, the following:

	●	Our ability to absorb, mitigate or pass on to our bottlers/distributors and/or consumers increases in commodity, fuel, freight and other costs;

	●	The impact of rising costs and inflation on the discretionary income of our consumers, particularly the rising cost of gasoline;

	●	The impact of the military conflict in Ukraine, including supply chain disruptions, volatility in commodity prices, increased economic uncertainty and escalating geopolitical tensions;

	●	The human and economic consequences of the COVID-19 pandemic, including new variants, as well as the measures taken or that may be taken in the future by governments, and consequently, businesses (including the Company and its suppliers, bottlers/distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic;

	●	Fluctuations in growth and/or growth rates and/or declining sales in the domestic and international energy drink and alcohol beverage categories generally, including in the convenience and gas channel (which is our largest channel) and the impact on demand for our products resulting from deteriorating economic conditions and/or financial uncertainties due to the COVID-19 pandemic;

	●	The impact of temporary plant closures, production slowdowns and disruptions in operations experienced by our suppliers, bottlers/distributors and/or co-packers as a result of the COVID-19 pandemic, including any material disruptions on the production and distribution of our products;

	●	The impact of potential future reductions of our sponsorship and endorsement activities as well as our sampling activities as a result of COVID-19 or other pandemics on our future sales and market share;

	●	The impact of countries being in lockdown due to the COVID-19 pandemic at various times;

	●	The impact of vaccine mandates on our business and supply chain, including our ability to recruit and/or retain employees, and disruptions in the business of our co-packers, bottlers/distributors and/or suppliers;

	●	Closures of, and continued restrictions on, on-premise retailers and other establishments which sell our products as the result of the COVID-19 pandemic;

	●	The limitation or reduction by our suppliers, bottlers/distributors and/or co-packers of their activities and/or operations during the COVID-19 pandemic;

	●	The impact of the COVID-19 pandemic on our product sampling programs;

	●	Our ability to introduce new products and the impact of the COVID-19 pandemic on our innovation activities;

	●	Our ability to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic;

	●	Other effects of the COVID-19 pandemic on our employees, such as mental health challenges that employees may face;

	●	The impact of any reductions in productivity and disruptions to our business routines while most office-based employees of the Company are working remotely;

	●	The impact of logistical issues, including shortages of shipping containers, port of entry congestion and increased freight costs;

	●	We have extensive commercial arrangements with TCCC and, as a result, our future performance is substantially dependent on the success of our relationship with TCCC;

	●	The impact of TCCC’s bottlers/distributors distributing Coca-Cola brand energy drinks and possible reductions in the number of our SKUs carried by such bottlers/distributors and/or such bottlers/distributors imposing limitations on distributing new product SKUs;

	●	The effect of TCCC being one of our significant stockholders and the potential divergence of TCCC’s interests from those of our other stockholders;

	●	Our ability to maintain relationships with TCCC system bottlers/distributors and manage their ongoing commitment to focus on our products;

	●	Disruption in distribution channels and/or decline in sales due to the termination and/or insolvency of existing and/or new domestic and/or international bottlers/distributors;

	●	Lack of anticipated demand for our products in domestic and/or international markets;

	●	Fluctuations in the inventory levels of our bottlers/distributors, planned or otherwise, and the resultant impact on our revenues;

	●	Unfavorable regulations, including taxation requirements, age restrictions imposed on the sale, purchase, or consumption of our products, marketing restrictions, product registration requirements, tariffs, trade restrictions, container size limitations and/or ingredient restrictions;

	●	The effect of inquiries from, and/or actions by, state attorneys general, the Federal Trade Commission (the “FTC”), the Food and Drug Administration (the “FDA”), municipalities, city attorneys, other government agencies, quasi-government agencies, government officials (including members of U.S. Congress) and/or analogous central and local agencies and other authorities in the foreign countries in which our products are manufactured and/or distributed, into the advertising, marketing, promotion, ingredients, sale and/or consumption of our energy drink products, including voluntary and/or required changes to our business practices;

	●	Our ability to comply with laws, regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation and the California Consumer Privacy Act of 2018;

	●	Our ability to achieve profitability and/or repatriate cash from certain of our operations outside the United States;

	●	Our ability to manage legal and regulatory requirements in foreign jurisdictions, potential difficulties in staffing and managing foreign operations and potentially higher incidence of fraud or corruption and credit risk of foreign customers and/or bottlers/distributors;

	●	Changes in U.S. tax laws as a result of any legislation proposed by the new U.S. Presidential Administration or U.S. Congress, which may include efforts to change or repeal the 2017 Tax Cuts and Jobs Act and the federal corporate income tax rate reduction;

	●	Our ability to produce our products in international markets in which they are sold, thereby reducing freight costs and/or product damages;

	●	Our ability to effectively manage our inventories and/or our accounts receivables;

	●	Our foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar, which will continue to increase as foreign sales increase;

	●	The long-term impact of the United Kingdom’s departure from the European Union (or “Brexit”);

	●	Changes in accounting standards may affect our reported profitability;

	●	Implications of the Organization for Economic Cooperation and Development’s base erosion and profit shifting project;

	●	Any proceedings which may be brought against us by the Securities and Exchange Commission (the “SEC”), the FDA, the FTC or other governmental agencies or bodies;

	●	The outcome and/or possibility of future shareholder derivative actions or shareholder securities litigation that may be filed against us and/or against certain of our officers and directors, and the possibility of other private shareholder litigation;

	●	The outcome of product liability or consumer fraud litigation and/or class action litigation (or its analog in foreign jurisdictions) regarding the safety of our products and/or the ingredients in and/or claims made in connection with our products and/or alleging false advertising, marketing and/or promotion, and the possibility of future product liability and/or class action lawsuits;

	●	Exposure to significant liabilities due to litigation, legal or regulatory proceedings;

	●	Intellectual property injunctions;

	●	Unfavorable resolution of tax matters;

	●	Uncertainty and volatility in the domestic and global economies, including risk of counterparty default or failure;

	●	Our ability to address any significant deficiencies or material weakness in our internal controls over financial reporting;

	●	Our ability to continue to generate sufficient cash flows to support our expansion plans and general operating activities;

	●	Decreased demand for our products resulting from changes in consumer preferences, including changes in demand for different packages, sizes and configurations, obesity and other perceived health concerns, including concerns relating to certain ingredients in our products or packaging, product safety concerns and/or from decreased consumer discretionary spending power;

	●	Adverse publicity surrounding obesity and health concerns related to our products, product safety and quality, water usage, environmental impact and sustainability, human rights, our culture, workforce and labor and workplace laws;

	●	Changes in demand that are weather related and/or for other reasons, including changes in product category and/or package consumption and changes in cost and availability of certain key ingredients including aluminum cans, as well as disruptions to the supply chain, as a result of climate change and extreme weather conditions;

	●	The impact of unstable political conditions, civil unrest, large scale terrorist acts, the outbreak or escalation of armed hostilities, major natural disasters and extreme weather conditions, or widespread outbreaks of infectious diseases (such as the COVID-19 pandemic);

	●	The impact on our business of competitive products and pricing pressures and our ability to gain or maintain our share of sales in the marketplace as a result of actions by competitors, including unsubstantiated and/or misleading claims, false advertising claims and tortious interference, as well as competitors selling misbranded products;

	●	The impact on our business of trademark and trade dress infringement proceedings brought against us relating to our brands, which could result in an injunction barring us from selling certain of our products and/or require changes to be made to our current trade dress;

	●	Our ability to implement and/or maintain price increases, including through reductions in promotional allowances;

	●	An inability to achieve volume growth through product and packaging initiatives;

	●	Our ability to sustain the current level of sales and/or achieve growth for our Monster Energy® brand energy drinks and/or our other products, including our Strategic Brands and Alcohol Brands;

	●	Our ability to implement our growth strategy, including expanding our business in existing and new sectors, such as the alcoholic beverage sector;

	●	The inherent operational risks presented by the alcoholic beverage industry that may not be adequately covered by insurance or lead to litigation relating to the abuse or misuse of our products;

	●	Our ability to successfully integrate CANarchy and other acquired businesses or assets;

	●	The impact of criticism of our energy drink products and/or the energy drink market generally and/or legislation enacted (whether as a result of such criticism or otherwise) that restricts the marketing or sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limits caffeine content in beverages, requires certain product labeling disclosures and/or warnings, imposes excise and/or sales taxes, limits product sizes and/or imposes age restrictions for the sale of energy drinks;

	●	Our ability to comply with and/or resulting lower consumer demand and/or lower profit margins for energy drinks and/or alcohol beverages due to proposed and/or future U.S. federal, state and local laws and regulations and/or proposed or existing laws and regulations in certain foreign jurisdictions and/or any changes therein, including changes in taxation requirements (including tax rate changes, new tax laws, new and/or increased excise, sales and/or other taxes on our products and revised tax law interpretations) and environmental laws, as well as the Federal Food, Drug, and Cosmetic Act and regulations or rules made thereunder or in connection therewith by the FDA, as well as changes in any other food, drug or similar laws in the United States and internationally, especially those changes that may restrict the sale of energy and/or alcohol drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit caffeine or alcohol content in beverages, require certain product labeling disclosures and/or warnings, impose excise taxes, impose sugar taxes, limit product sizes, or impose age restrictions for the sale of energy and/or alcohol drinks, as well as laws and regulations or rules made or enforced by the Bureau of Alcohol, Tobacco, Firearms and Explosives and/or the FTC or their foreign counterparts;

	●	Disruptions in the timely import or export of our products and/or ingredients including flavors, flavor ingredients and supplement ingredients due to port congestion, strikes and related labor issues or otherwise;

	●	Our ability to satisfy all criteria set forth in any model energy drink guidelines, including, without limitation, those adopted by the American Beverage Association, of which we are a member, and/or any international beverage associations and the impact of our failure to satisfy such guidelines may have on our business;

	●	The effect of unfavorable or adverse public relations, press, articles, comments and/or media attention;

	●	Changes in the cost, quality and availability of containers, packaging materials, aluminum cans, the Midwest and other premiums, raw materials, including flavors and flavor ingredients, and other ingredients and juice concentrates, and our ability to obtain and/or maintain favorable supply arrangements and relationships and procure timely and/or sufficient production of all or any of our products to meet customer demand;

	●	Any shortages that may be experienced in the procurement of containers and/or other raw materials including, without limitation, flavors, flavor ingredients, supplement ingredients, aluminum cans generally, PET containers used for our Monster Hydro® energy drinks, 24-ounce aluminum cap cans and 550ml BRE aluminum cans with resealable ends;

	●	Limitations in securing the supply of sufficient quantities of aluminum cans may cause us to focus on producing higher volume products. As a result, certain of our lower volume products may be temporarily discontinued by our bottlers/distributors and/or their retail customers, and we may not be able to reinstate all, or any, of such lower volume products in the future;

	●	In order to secure sufficient quantities of aluminum cans and sufficient co-packing availability in the future, we may be required to commit to minimum purchase volumes and/or minimum co-packing volumes. In the event that we over-estimate future demand for our products and therefore may not purchase such minimum quantities in full, or utilize such minimum co-packing volumes in full, we may incur claims and/or costs or losses in respect of such shortfalls;

	●	The impact on our cost of sales of corporate activity among the limited number of suppliers from whom we purchase certain raw materials;

	●	Our ability to pass on to our customers all or a portion of any increases in the costs of raw materials, ingredients, commodities and/or other cost inputs affecting our business;

	●	Our ability to achieve both internal domestic and international forecasts, which may be based on projected volumes and sales of many product types and/or new products, certain of which are more profitable than others; there can be no assurance that we will achieve projected levels of sales as well as forecasted product and/or geographic mixes;

	●	Our ability to penetrate new domestic and/or international markets and/or gain approval or mitigate the delay in securing approval for the sale of our products in various countries;

	●	The effectiveness of sales and/or marketing efforts by us and/or by the bottlers/distributors of our products, most of whom distribute products that may be regarded as competitive with our products;

	●	Unilateral decisions by bottlers/distributors, buying groups, convenience chains, grocery chains, mass merchandisers, specialty chain stores, e-commerce retailers, e-commerce websites, club stores and other customers to discontinue carrying all or any of our products that they are carrying at any time, restrict the range of our products they carry, impose restrictions or limitations on the sale of our products and/or the sizes of containers of our products and/or devote less resources to the sale of our products;

	●	The impact of certain activities by competitors and others to persuade regulators and/or retailers and/or customers in certain countries to reduce the permitted or maximum container sizes for our products from those currently being sold and marketed by us;

	●	The impact of possible trading disputes between our bottler/distributors and their customers and/or one or more buying groups which may result in the delisting of certain of the Company products, temporarily or otherwise;

	●	The effects of retailer consolidation on our business and our ability to successfully adapt to the rapidly changing retail landscape;

	●	Our ability to adapt to the changing retail landscape with the rapid growth in e-commerce retailers;

	●	The effects of bottler/distributor consolidation on our business;

	●	The costs and/or effectiveness, now or in the future, of our advertising, marketing and promotional strategies;

	●	The success of our sports marketing, social media and other general marketing endeavors both domestically and internationally;

	●	Unforeseen economic and political changes and local or international catastrophic events;

	●	Possible product recalls and/or reformulations of certain of our products and/or market withdrawals of certain of our products due to defective and/or non-compliant formulas or production in one or more jurisdictions;

	●	Our ability to make suitable arrangements and/or procure sufficient capacity for the co-packing of any of our products both domestically and internationally, the timely replacement of discontinued co-packing arrangements and/or limitations on co-packing availability, including for retort production;

	●	Our ability to make suitable arrangements for the timely procurement of non-defective raw materials;

	●	Our inability to protect and/or the loss of our intellectual property rights and/or our inability to use our trademarks, trade names or designs and/or trade dress in certain countries;

	●	Volatility of stock prices which may restrict stock sales, stock purchases or other opportunities as well as negatively impact the motivation of equity award grantees;

	●	Provisions in our organizational documents and/or control by insiders which may prevent changes in control even if such changes would be beneficial to other stockholders;

	●	The failure of our bottlers and/or co-packers to manufacture our products on a timely basis or at all;

	●	Any disruption in and/or lack of effectiveness of our information technology systems, including a breach of cyber security, that disrupts our business or negatively impacts customer relationships, as well as cybersecurity incidents involving data shared with third parties; and

	●	Recruitment and retention of senior management, other key employees and our employee base in general.

The foregoing list of important factors and other risks detailed from time to time in our reports filed with the SEC is not exhaustive. See the section entitled “Risk Factors” in our Form 10-K and in Item 1A of this Quarterly Report for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, our actual results could be materially different from the results described or anticipated by our forward-looking statements, due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.

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