filings.toolsMonster Beverage 10-Q 2023-09-30
Filed 2023-11-06. 8 sections, 229K 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, 2023 | 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 1,040,441,348 shares of common stock, par value $0.005 per share, outstanding as of October 31, 2023.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2023
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, 2023 AND DECEMBER 31, 2022
(In Thousands, Except Par Value) (Unaudited)
| | | | | | | |
|---|---|---|---|---|---|---|
| | | September 30, | | December 31, | ||
| | 2023 | 2022 | ||||
| ASSETS | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | | $ | 1,773,849 | | $ | 1,307,141 |
| Short-term investments | | 1,236,752 | 1,362,314 | |||
| Accounts receivable, net | | 1,231,188 | 1,016,203 | |||
| Inventories | | 883,582 | 935,631 | |||
| Prepaid expenses and other current assets | | 162,676 | 109,823 | |||
| Prepaid income taxes | | 23,468 | 33,785 | |||
| Total current assets | | 5,311,515 | 4,764,897 | |||
| | | | | | | |
| INVESTMENTS | | 52,636 | 61,443 | |||
| PROPERTY AND EQUIPMENT, net | | 731,208 | 516,897 | |||
| DEFERRED INCOME TAXES, net | | 176,724 | 177,039 | |||
| GOODWILL | | 1,417,941 | 1,417,941 | |||
| OTHER INTANGIBLE ASSETS, net | | 1,459,447 | 1,220,410 | |||
| OTHER ASSETS | | 164,867 | 134,478 | |||
| Total Assets | | $ | 9,314,338 | $ | 8,293,105 | |
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| CURRENT LIABILITIES: | | | | | | |
| Accounts payable | | $ | 539,892 | $ | 444,265 | |
| Accrued liabilities | | 207,727 | 172,991 | |||
| Accrued promotional allowances | | 296,577 | 255,631 | |||
| Deferred revenue | | 40,127 | 43,311 | |||
| Accrued compensation | | 76,835 | 72,463 | |||
| Income taxes payable | | 17,644 | 13,317 | |||
| Total current liabilities | | 1,178,802 | 1,001,978 | |||
| | | | | | | |
| DEFERRED REVENUE | | 209,136 | 223,800 | |||
| | | | | | | |
| OTHER LIABILITIES | | | 53,251 | | | 42,286 |
| | | | | | | |
| COMMITMENTS AND CONTINGENCIES (Note 12) | | | | | | |
| | | | | | | |
| STOCKHOLDERS’ EQUITY1: | | | | | | |
| Common stock - $0.005 par value; 5,000,000 shares authorized; 1,118,498 shares issued and 1,040,420 shares outstanding as of September 30, 2023; 1,283,688 shares issued and 1,044,600 shares outstanding as of December 31, 2022 | | | 5,592 | | | 6,418 |
| Additional paid-in capital | | 4,893,289 | 4,776,804 | |||
| Retained earnings | | 5,572,757 | 9,001,173 | |||
| Accumulated other comprehensive loss | | (198,033) | (159,073) | |||
| Common stock in treasury, at cost; 78,078 shares and 239,088 shares as of September 30, 2023 and December 31, 2022, respectively | | (2,400,456) | (6,600,281) | |||
| Total stockholders’ equity | | 7,873,149 | 7,025,041 | |||
| Total Liabilities and Stockholders’ Equity | | $ | 9,314,338 | $ | 8,293,105 |
1 Stock Split - On February 28, 2023, the Company announced a two-for-one stock split of its common stock to be effected in the form of a 100% stock dividend. The stock dividend was issued on March 27, 2023 (the “Stock Split”). The accompanying condensed consolidated financial statements and notes thereto have been retroactively updated to reflect the Stock Split. See Note 1 for additional information.
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, 2023 AND 2022
(In Thousands, Except Per Share Amounts) (Unaudited)
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three-Months Ended | | Nine-Months Ended | ||||||||
| | | September 30, | | September 30, | ||||||||
| | 2023 | 2022 | 2023 | 2022 | ||||||||
| | | | | | | | | | | | | |
| NET SALES | | $ | 1,856,028 | | $ | 1,624,286 | | $ | 5,409,919 | | $ | 4,798,119 |
| | | | | | | | | | | | | |
| COST OF SALES | | 872,265 | | 790,561 | | 2,554,086 | | 2,407,867 | ||||
| | | | | | | | | | | | | |
| GROSS PROFIT | | 983,763 | | 833,725 | | 2,855,833 | | 2,390,252 | ||||
| | | | | | | | | | | | | |
| OPERATING EXPENSES | | 473,236 | | 415,795 | | 1,336,437 | | 1,199,883 | ||||
| | | | | | | | | | | | | |
| OPERATING INCOME | | 510,527 | | 417,930 | | | 1,519,396 | | 1,190,369 | |||
| | | | | | | | | | | | | |
| INTEREST and OTHER INCOME (EXPENSE), net | | 71,357 | | 2,149 | | 99,010 | | (11,932) | ||||
| | | | | | | | | | | | | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | | 581,884 | | 420,079 | | | 1,618,406 | | 1,178,437 | |||
| | | | | | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | 129,190 | | | 97,692 | | | 354,397 | | | 288,487 |
| | | | | | | | | | | | | |
| NET INCOME | | $ | 452,694 | | $ | 322,387 | | $ | 1,264,009 | | $ | 889,950 |
| | | | | | | | | | | | | |
| NET INCOME PER COMMON SHARE1: | | | | | | | | | | | | |
| Basic | | $ | 0.43 | | $ | 0.31 | | $ | 1.21 | | $ | 0.84 |
| Diluted | | $ | 0.43 | | $ | 0.30 | | $ | 1.19 | | $ | 0.83 |
| | | | | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS1: | | | | | | | | | | | | |
| Basic | | 1,047,015 | | 1,053,594 | | 1,046,337 | | 1,056,526 | ||||
| Diluted | | 1,059,966 | | 1,066,600 | | | 1,059,809 | | 1,069,198 |
1 Stock Split - The accompanying condensed consolidated financial statements and notes thereto have been retroactively updated to reflect the Stock Split. See Note 1 for additional information.
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, 2023 AND 2022
(In Thousands) (Unaudited)
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three-Months Ended | Nine-Months Ended | |||||||||
| | | September 30, | | September 30, | ||||||||
| | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net income, as reported | | $ | 452,694 | | $ | 322,387 | | $ | 1,264,009 | | $ | 889,950 |
| Other comprehensive income (loss): | | | | | | | | | | | | |
| Change in foreign currency translation adjustment | | (48,280) | | (68,822) | | (46,074) | | (147,450) | ||||
| Available-for-sale investments: | | | | | | | | | | | | |
| Change in net unrealized gains (losses) | | 1,272 | | (2,675) | | 3,680 | | (7,840) | ||||
| Net gains on commodity derivatives | | 4,700 | | — | | 3,434 | | — | ||||
| Other comprehensive income (loss) | | (42,308) | | (71,497) | | (38,960) | | (155,290) | ||||
| Comprehensive income | | $ | 410,386 | | $ | 250,890 | | $ | 1,225,049 | | $ | 734,660 |
See accompanying notes to condensed consolidated financial
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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, and to a lesser extent, craft beers, hard seltzers and flavored malt beverages (“FMBs”).
Bang Energy®
On July 31, 2023, we completed our acquisition of substantially all of the assets of Vital Pharmaceuticals, Inc. and its debtor affiliates (collectively, “Bang Energy”) (the “Bang Transaction”). The acquired assets primarily include Bang Energy® drinks and a beverage production facility in Phoenix, AZ.
Inventory purchased as part of the Bang Transaction was recorded at fair value. Certain of the purchased inventory was subsequently sold in the three-months ended September 30, 2023 and was recognized through cost of sales at fair value (the “Bang Inventory Step-Up”). Gross profit was negatively impacted by approximately $7.8 million during the three-months ended September 30, 2023 as a result.
During the three-months ended September 30, 2023, in connection with the Bang Transaction, we recorded a gain of $45.4 million in interest and other income (expense), net within the condensed consolidated statements of income and reported within the Corporate and Unallocated segment (the “Bang Transaction Gain”).
During the three- and nine-months ended September 30, 2023, we incurred approximately $8.0 million and $15.1 million, respectively, of acquisition costs related to the Bang Transaction (the “Bang Transaction Expenses”).
Stock Split
On February 28, 2023, we announced a two-for-one stock split of our common stock to be effected in the form of a 100% stock dividend (the “Stock Split”). The common stock dividend was issued on March 27, 2023 and our common stock began trading at the split adjusted price on March 28, 2023. Accordingly, all per share amounts, average common stock outstanding, common stock outstanding, common stock repurchased and equity-based compensation presented in this Form 10-Q have been adjusted retroactively, where applicable, to reflect the Stock Split.
Pricing Actions
We implemented a price increase effective September 1, 2022 in the United States and implemented price increases at various times in certain international markets during 2022 and the first, second and third quarters of 2023 (the “Pricing Actions”), all of which positively impacted gross profit margins in the third quarter of 2023.
Gross Profit Margins
Gross profit as a percentage of net sales for the three-months ended September 30, 2023 improved to 53.0% (53.4% exclusive of the Bang Inventory Step-Up) from 51.3% for the comparative three-months ended September 30, 2022. This improvement was primarily attributable to (i) Pricing Actions, (ii) a reduction in certain freight-in costs and (iii) decreased aluminum can costs.
Overview
We develop, market, sell and distribute energy drink beverages and concentrates for energy drink beverages, primarily under the following brand names:
| ● Monster Energy® | ● NOS® |
|---|---|
| ● Monster Energy Ultra® | ● Full Throttle® |
| ● Monster Rehab® | ● Burn® |
| ● Monster Energy® Nitro | ● Mother® |
| ● Java Monster® | ● Nalu® |
| ● Punch Monster® | ● Ultra Energy® |
| ● Juice Monster® | ● Play® and Power Play® (stylized) |
| ● Monster Hydro® Energy Water | ● Relentless® |
| ● Monster Hydro® Super Sport | ● BPM® |
| ● Monster Super Fuel® | ● BU® |
| ● Monster Dragon Tea® | ● Gladiator® |
| ● Reign® Total Body Fuel | ● Samurai® |
| ● Reign Inferno® Thermogenic Fuel | ● Live+® |
| ● Reign StormTM | ● Predator® |
| ● True North® | ● Fury® |
| ● Burn® | ● Bang Energy® |
We also develop, market, sell and distribute craft beers, FMBs and hard seltzers under a number of brands, including Jai Alai® IPA, Florida ManTM IPA, Dale’s Pale Ale®, Wild Basin® Hard Seltzers, Dallas Blonde®, Deep EllumTM IPA, Perrin Brewing CompanyTM Black Ale, Hop Rising® Double IPA, Wasatch® Apricot Hefeweizen, The Beast UnleashedTM and a host of other brands.
We also develop, market, sell and distribute still and sparkling waters under the Monster Tour Water® brand name.
We have four operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of our Monster Energy® drinks, Reign StormTM total wellness energy drinks, Reign® Total Body Fuel high performance energy drinks, Bang Energy® drinks and Monster Tour Water® (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 our 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 our acquisition of CANarchy Craft Brewery Collective LLC (“CANarchy”) on February 17, 2022 (the “CANarchy Transaction”) as well as The Beast UnleashedTM FMBs and (iv) Other segment (“Other”), which is primarily comprised of certain products sold by American Fruits and Flavors LLC (“AFF”), a wholly-owned subsidiary of the Company, to independent third-party customers (the “AFF Third-Party Products”).
During the three-months ended September 30, 2023, we continued to expand our existing 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, 2023, we sold the following new products to our customers:
| ● | Bang Energy® Black Cherry Vanilla |
|---|
| ● | Bang Energy® Blue Razz® |
|---|
| ● | Bang Energy® Candy Apple Crisp® |
|---|
| ● | Bang Energy® Cotton Candy |
|---|
| ● | Bang Energy® Delish Strawberry KissTM |
|---|
| ● | Bang Energy® Peach Mango |
|---|
| ● | Bang Energy® Purple HazeTM |
|---|
| ● | Bang Energy® Radical Skadattle® |
|---|
| ● | Bang Energy® Rainbow Unicorn® |
|---|
| ● | Bang Energy® Sour Heads® |
|---|
| ● | Bang Energy® Star Blast® |
|---|
| ● | Bang Energy® Wyldin’ WatermelonTM |
|---|
| ● | Mother® Rainbow Sherbet |
|---|
| ● | NOS® Zero Sugar |
|---|
In the normal course of business, we discontinue certain products and/or product lines. Those products or product lines discontinued in the three- and nine-months ended September 30, 2023, 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 $1.86 billion for the three-months ended September 30, 2023 represented record sales for our third fiscal quarter. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $29.2 million for the three-months ended September 30, 2023.
The vast majority of our net sales are derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were $1.71 billion for the three-months ended September 30, 2023. Net sales of our Strategic Brands segment were $98.8 million for the three-months ended September 30, 2023. Net sales of our Alcohol Brands segment were $42.3 million for the three-months ended September 30, 2023. Net sales of our Other segment were $6.7 million for the three-months ended September 30, 2023.
Our Monster Energy® Drinks segment represented 92.0% and 92.5% of our net sales for the three-months ended September 30, 2023 and 2022, respectively. Our Strategic Brands segment represented 5.3% and 5.5% of our net
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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, 2023 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, 2023, 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. If any of these risks occur or continue to occur, our business, reputation, financial condition and/or operating results could be materially adversely affected. We also note that the risk factors described in this report and our Form 10-K are not the only risks facing our Company, and such additional risks or uncertainties that we currently deem to be immaterial or are unknown to us could negatively impact our business, operations, or financial results.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|---|
On June 14, 2022, 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 “June 2022 Repurchase Plan”). During the three-months ended September 30, 2023, the Company purchased approximately 3.3 million shares of common stock at an average purchase price of $55.52 per share for a total amount of approximately $182.8 million (excluding broker commissions), which exhausted the availability under the June 2022 Repurchase Plan.
On November 2, 2022, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to an additional $500.0 million of the Company’s outstanding common stock (the “November 2022 Repurchase Plan”). During the three-months ended September 30, 2023, the Company purchased approximately 4.0 million shares of common stock at an average purchase price of $54.26 per share, for a total amount of approximately $217.1 million (excluding broker commissions), under the November 2022 Repurchase Plan. As of November 6, 2023, $282.8 million remained available for repurchase under the November 2022 Repurchase Plan.
The aggregate amount of the Company’s outstanding common stock that remains available for repurchase under all previously authorized repurchase plans is $282.8 million as of November 6, 2023.
The following tabular summary reflects the Company’s repurchase activity during the quarter ended September 30, 2023:
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | Maximum Number (or | ||||
| | | | | | | | | | Approximate Dollar | |
| | | | | | | | Total Number of | | Value) of Shares that | |
| | | | | | | | Shares Purchased | | May Yet Be Purchased | |
| | | Total Number | | | | | as Part of Publicly | | Under the Plans or | |
| | | of Shares | | Average Price | | Announced Plans | | Programs (In | ||
| Period | Purchased | per Share¹ | or Programs | thousands)² | ||||||
| Jul 1 – Jul 31, 2023 | — | | $ | — | — | | $ | 682,838 | ||
| Aug 1 – Aug 31, 2023 | — | | $ | — | — | | $ | 682,838 | ||
| Sep 1 – Sep 30, 2023 | 7,293,834 | | $ | 54.83 | 7,293,834 | | $ | 282,838 |
¹Excluding broker commissions paid.
²Net of broker commissions paid.
During the three-months ended September 30, 2023, 135 shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $7,688. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company’s authorized share repurchase programs. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at September 30, 2023.
**ITEM 3.**DEFAULTS UPON SENIOR SECURITIES
None.
**ITEM 4.**MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
During the three-months ended September 30, 2023, none of the Company’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).
Item 6. EXHIBITS
- 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 6, 2023 | /s/ RODNEY C. SACKS |
| | Rodney C. Sacks |
| | Chairman of the Board of Directors |
| | and Co-Chief Executive Officer |
| | |
| Date: November 6, 2023 | /s/ HILTON H. SCHLOSBERG |
| | Hilton H. Schlosberg |
| | Vice Chairman of the Board of Directors |
| | and Co-Chief Executive Officer |