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).
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
Page No.
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
3
Condensed Consolidated Statements of Income for the Three- and Nine-months ended September 30, 2023 and 2022
4
Condensed Consolidated Statements of Comprehensive Income for the Three- and Nine-months ended September 30, 2023 and 2022
5
Condensed Consolidated Statements of Stockholders’ Equity for the Three- and Nine-months ended September 30, 2023 and 2022
6
Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2023 and 2022
8
Notes to Condensed Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
35
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
54
Item 4.
Controls and Procedures
55
Part II.
OTHER INFORMATION
Legal Proceedings
56
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
57
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
58
Signatures
59
2
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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
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
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.
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
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
0.30
1.19
0.83
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS1:
1,047,015
1,053,594
1,046,337
1,056,526
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.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands) (Unaudited)
Net income, as reported
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
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated Other
Total
Common stock
Additional
Retained
Comprehensive
Treasury stock
Stockholders’
Shares
Amount
Paid-in Capital
Earnings
(Loss) Income
Equity
Balance, December 31, 2022
1,283,688
(239,088)
Stock-based compensation
15,743
Stock options/awards
3,704
19
36,329
36,348
Unrealized gain (loss), net on available-for-sale securities
3,181
Repurchase of common stock
(1,688)
(90,378)
Retirement of treasury stock
(170,000)
(850)
425
(4,692,425)
170,000
4,692,850
Foreign currency translation
7,981
Net income
397,444
Balance, March 31, 2023
1,117,392
5,587
4,829,301
4,706,192
(147,911)
(70,776)
(1,997,809)
7,395,360
17,176
877
23,314
23,318
(773)
(8)
(447)
(5,775)
Net losses on commodity derivatives
(1,266)
413,871
Balance, June 30, 2023
1,118,269
5,591
4,869,791
5,120,063
(155,725)
(70,784)
(1,998,256)
7,841,464
17,605
229
1
5,893
5,894
(7,294)
(402,200)
Balance, September 30, 2023
1,118,498
(78,078)
(In Thousands) (Unaudited) (Continued)
Comprehensive (Loss)
Income
Balance, December 31, 2021
1,280,086
6,400
4,649,420
7,809,549
(69,165)
(221,440)
(5,829,253)
6,566,951
16,175
970
4,504
4,510
(4,059)
(332)
(12,187)
1,079
294,203
Balance, March 31, 2022
1,281,056
6,406
4,670,099
8,103,752
(72,145)
(221,772)
(5,841,440)
6,866,672
16,157
832
18,108
18,112
(1,105)
(6,572)
(284,311)
(79,707)
273,360
Balance, June 30, 2022
1,281,888
6,410
4,704,364
8,377,112
(152,957)
(228,344)
(6,125,751)
6,809,178
16,436
602
12,133
12,136
(6,216)
(272,880)
Balance, September 30, 2022
1,282,490
6,413
4,732,933
8,699,499
(224,454)
(234,560)
(6,398,631)
6,815,760
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
50,364
46,040
Non-cash lease expense
6,471
5,180
Gain on disposal of property and equipment
(686)
(253)
Gain on Bang Transaction
(45,382)
Loss on impairment of intangibles
2,800
52,465
49,167
Deferred income taxes
29,710
Effect on cash of changes in operating assets and liabilities net of acquisition:
Accounts receivable
(218,804)
(202,447)
69,796
(297,140)
Prepaid expenses and other assets
(67,368)
(39,204)
8,032
7,867
52,663
24,697
(2,572)
42,425
89,236
3,523
(6,636)
4,217
(12,823)
Other liabilities
(3,636)
(3,492)
(19,320)
(16,060)
Net cash provided by operating activities
1,283,426
589,186
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of available-for-sale investments
1,546,038
1,823,943
Purchases of available-for-sale investments
(1,405,233)
(1,393,910)
Acquisition of Bang Energy
(363,385)
Acquisition of CANarchy, net of cash
(329,472)
Purchases of property and equipment
(110,224)
(136,158)
Proceeds from sale of property and equipment
1,753
603
Additions to intangibles
(9,110)
(3,578)
Increase in other assets
(19,862)
(19,171)
Net cash used in investing activities
(360,023)
(57,743)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on debt
(11,273)
(719)
Issuance of common stock
65,560
34,759
Purchases of common stock held in treasury
(488,080)
(493,315)
Net cash used in financing activities
(433,793)
(459,275)
Effect of exchange rate changes on cash and cash equivalents
(22,902)
(95,582)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
466,708
(23,414)
CASH AND CASH EQUIVALENTS, beginning of period
1,326,462
CASH AND CASH EQUIVALENTS, end of period
1,303,048
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest
254
359
Income taxes
348,948
297,526
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS
Included in accrued liabilities as of September 30, 2023 and 2022 were $14.3 million and $14.4 million, respectively, related to net additions to other intangible assets.
Included in accounts payable as of September 30, 2023 and 2022 were available-for-sale short-term investment purchases of $8.7 million and $7.9 million, respectively.
Included in accounts payable as of September 30, 2023 and 2022 were $2.0 million and $2.6 million, respectively, related to equipment purchases.
Included in accounts payable as of September 30, 2023 and 2022, respectively, were purchases of common stock held in treasury of $2.6 million and $76.1 million.
Included in accounts receivable as of September 30, 2023 were available-for-sale short-term investment sales of $5.9 million.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
1.
BASIS OF PRESENTATION
Reference is made to the Notes to Consolidated Financial Statements, in Monster Beverage Corporation and Subsidiaries (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2022 for a summary of significant accounting policies utilized by the Company and its consolidated subsidiaries and other disclosures, which should be read in conjunction with this Quarterly Report on Form 10-Q (“Form 10-Q”).
The Company’s condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP. The information set forth in these interim condensed consolidated financial statements for the three- and nine-months ended September 30, 2023 and 2022, respectively, is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading. Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.
The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Treasury Stock Retirement – On March 10, 2023, the Company retired 170.0 million shares (stock split adjusted) of treasury stock owned by the Company. The retired treasury stock had a carrying value of approximately $4.69 billion. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct its par value from common stock and to reflect any excess of cost over par as a deduction from retained earnings.
Stock Split – On February 28, 2023, the Company announced a two-for-one stock split of the Company’s common stock to be effected in the form of a 100% stock dividend. The common stock dividend was issued on March 27, 2023 (the “Stock Split”) and the Company’s 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 the condensed consolidated financial statements and notes have been adjusted retroactively, where applicable, to reflect the Stock Split. Stockholders’ equity has been retroactively adjusted, where applicable, to give effect to the Stock Split for all periods presented by reclassifying the par value of the additional shares issued in connection with the Stock Split to Common Stock from Retained Earnings and Additional Paid-in Capital.
Derivative Financial Instruments – The Company uses derivative financial instruments for the purpose of hedging risk exposures to fluctuations in foreign currency exchange rates and aluminum commodity prices. The Company’s derivative instruments are recorded in the consolidated balance sheets at fair value. The Company values each derivative financial instrument by obtaining valuation information from a reliable and observable market source. For a derivative designated as a cash flow hedge, the derivative’s mark to fair value is initially recorded as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged item affects earnings, unless it is probable that the forecasted transaction will not occur. Derivatives that do not qualify for hedge accounting are marked to fair value with gains and losses immediately recorded in earnings. In the consolidated statements of cash flows, derivative activities are classified based on the cash flows of the items being hedged. Upon the dedesignation of an effective derivative contract, the gains or losses are deferred in accumulated other comprehensive income (loss) until the originally hedged item affects earnings, unless it is probable the hedged item will not occur, at which time it is recognized immediately. Any gains or losses incurred after the dedesignation date are recorded in earnings immediately.
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, 2022.
2.
ACQUISITIONS
On July 31, 2023, a subsidiary of the Company, Blast Asset Acquisition LLC, completed its 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.
The Company accounted for the Bang Transaction in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. During the three-months ended September 30, 2023, in connection with the Bang Transaction, the Company 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, the Company incurred approximately $8.0 million and $15.1 million, respectively, of acquisition costs related to the Bang Transaction.
The following table summarizes the preliminary fair value allocations of the Bang Transaction:
Identifiable
Assets Acquired
and (Liabilities)
Consideration
Assumed
Transferred
Intangibles - trademarks (non-amortizing)
209,000
Intangibles - customer relationships (amortizing)
23,000
Property and equipment, net
143,200
Inventory
30,496
Right-of -use assets
12,523
Operating lease liabilities
(12,523)
Working capital (excluding inventory)
2,871
Other
200
Cash
363,385
Bang Transaction Gain
45,382
408,767
The fair value analysis has yet to progress to a stage where there is sufficient information for a definitive measurement of the respective fair values. Accordingly, the respective fair value allocations are preliminary and are based on valuations derived from estimated fair value assumptions used by management. The Company expects to complete its fair value analysis at a level of detail necessary to finalize the underlying fair value allocations as soon as practicable, but no later than twelve months from the closing of the Bang Transaction. Any differences between the final respective fair value allocations and the preliminary management estimates may have an impact on the Company’s financial position and results of operations.
The Company determined the fair values as follows:
11
The book value of the working capital (excluding inventory) approximates fair value due to the short-term nature of the accounts.
For tax purposes, the Bang Transaction was recorded as an asset purchase.
In accordance with Regulation S-X, pro forma unaudited condensed financial information for the Bang Transaction has not been provided as the impact of the transaction on the Company’s financial position, results of operations and liquidity was not material.
3.
REVENUE RECOGNITION
Revenues are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Consumers”. The Company has 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 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 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 acquisition of CANarchy Craft Brewery Collective LLC (“CANarchy”) on February 17, 2022 (the “CANarchy Transaction”) as well as The Beast UnleashedTM flavored malt beverages (“FMBs”) and (iv) Other segment (“Other”), which is primarily comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary of the Company, to independent third-party customers (the “AFF Third-Party Products”).
The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage bottlers/distributors (“bottlers/distributors”). In some cases, the Company sells ready-to-drink packaged energy drinks directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience and gas chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.
The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers/distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience and gas chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military. To a lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.
The Company’s Alcohol Brands segment primarily generates operating revenues by selling kegged and ready-to-drink canned beers, hard seltzers and FMBs primarily to beer distributors in the United States.
The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred the relevant portion of the Company’s finished goods. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of September 30, 2023 and December 31, 2022.
The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.
12
Promotional and other allowances (variable consideration) recorded as a reduction to net sales for the Company’s energy drink products primarily include consideration given to the Company’s non-alcohol bottlers/distributors or retail customers including, but not limited to, the following:
The Company’s promotional allowance programs for its energy drink products 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, typically ranging from one week to one year. The Company’s promotional and other allowances for its energy drink products are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or bottler/distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined. Promotional and other allowances for our Alcohol Brands segment primarily include price promotions where permitted.
Amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors relating to the costs associated with terminating the Company’s prior distributors, are accounted for as deferred revenue and recognized as revenue ratably over the anticipated life of the respective distribution agreements, generally over 20 years.
The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing the Company’s trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and automotive wheels.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
13
Disaggregation of Revenue
The following tables disaggregate the Company’s revenue by geographical markets and reportable segments:
Three-Months Ended September 30, 2023
Latin
Asia Pacific
America
U.S. and
(including
and
Net Sales
Canada
EMEA1
Oceania)
Caribbean
Monster Energy® Drinks
1,069,856
355,898
118,869
163,618
1,708,241
Strategic Brands
50,084
35,985
8,398
4,296
98,763
Alcohol Brands
42,326
6,698
Total Net Sales
1,168,964
391,883
127,267
167,914
Three-Months Ended September 30, 2022
982,952
288,077
100,288
130,902
1,502,219
44,025
32,565
8,805
3,407
88,802
26,818
6,447
1,060,242
320,642
109,093
134,309
1Europe, Middle East and Africa (“EMEA”)
Nine-Months Ended September 30, 2023
3,160,071
972,531
379,342
444,854
4,956,798
140,353
108,986
25,209
10,263
284,811
149,692
18,618
3,468,734
1,081,517
404,551
455,117
Nine-Months Ended September 30, 2022
2,882,306
857,805
327,632
377,012
4,444,755
135,445
91,912
22,943
10,236
260,536
Alcohol Brands2
74,472
18,356
3,110,579
949,717
350,575
387,248
2Effectively from February 17, 2022 to September 30, 2022
14
Contract Liabilities
Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue. As of September 30, 2023, the Company had $249.3 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. As of December 31, 2022, the Company had $267.1 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. During both the three-months ended September 30, 2023 and 2022, $10.0 million of deferred revenue was recognized in net sales. See Note 11. During both the nine-months ended September 30, 2023 and 2022, $30.0 million of deferred revenue was recognized in net sales. See Note 11.
4.
LEASES
The Company leases identified assets consisting primarily of office and warehouse space, warehouse equipment and vehicles. Leases are classified as either finance leases or operating leases based on criteria in ASC 842, “Leases”. The Company’s leases have remaining lease terms of less than one year to 11 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.
The components of lease cost were as follows:
Three-Months Ended September 30,
Nine-Months Ended September 30,
Operating lease cost
2,968
2,306
8,051
6,238
Short-term lease cost
2,209
1,001
4,258
2,870
Variable lease cost
295
189
736
567
Finance leases:
Amortization of right-of-use assets
383
140
708
415
Interest on lease liabilities
88
146
18
Finance lease cost
471
148
854
433
Total lease cost
5,943
3,644
13,899
10,108
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
7,600
5,859
Operating cash outflows from finance leases
Financing cash outflows from finance leases
3,660
1,678
Right-of-use assets obtained in exchange for lease obligations:
Finance leases
10,120
1,654
Operating leases
15,944
20,093
15
Supplemental balance sheet information related to leases was as follows:
Balance Sheet Location
Operating leases:
Right-of-use assets
Other assets
47,160
38,012
Current lease liabilities
9,119
7,747
Noncurrent lease liabilities
38,111
29,586
Total operating lease liabilities
47,230
37,333
9,824
1,598
7,232
757
24
41
Total finance lease liabilities
7,256
798
Weighted-average remaining lease term and weighted-average discount rate for the Company’s leases were as follows:
September 30, 2023
December 31, 2022
Weighted-average remaining lease term in years:
6.5
6.7
0.8
Weighted-average discount rate:
4.0
%
3.4
6.2
3.6
The following table outlines maturities of the Company’s lease liabilities as of September 30, 2023:
Operating Leases
Finance Leases
2023 (from October 1, 2023 to December 31, 2023)
2,512
2,619
2024
10,271
4,814
2025
8,183
17
2026
6,978
2027
6,754
2028 and thereafter
19,254
Total lease payments
53,952
7,452
Less imputed interest
(6,722)
(196)
As of September 30, 2023, the Company did not have any significant additional leases that had not yet commenced.
16
5.
The following table summarizes the Company’s investments at:
Continuous
Gross
Unrealized
Loss Position
Amortized
Holding
Fair
less than 12
greater than 12
Cost
Gains
Losses
Value
Months
Available-for-sale
Short-term:
Commercial paper
270,002
270,000
Certificates of deposit
15,366
Municipal securities
29,862
29
29,833
U.S. government agency securities
153,356
311
153,053
U.S. treasuries
536,966
1,234
535,741
Corporate bonds
233,328
574
232,759
Long-term:
11,489
11,477
30,364
30,338
10,845
10,821
1,291,578
25
2,215
1,289,388
197,712
197,709
10,078
211,791
60
612
211,239
109,697
715
108,985
838,825
4,539
834,303
2,016
2,013
53,215
20
71
53,164
Variable rate demand notes
6,266
1,429,600
101
5,944
1,423,757
During the three- and nine-months ended September 30, 2023 and 2022, realized gains or losses recognized on the sale of investments were not significant.
The Company’s investments at September 30, 2023 and December 31, 2022 carried investment grade credit ratings.
The following table summarizes the underlying contractual maturities of the Company’s investments at:
Amortized Cost
Fair Value
Less than 1 year:
197,710
834,302
Due 1 - 10 years:
4,862
Due 11 - 20 years:
1,404
6.
FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES
ASC 820, “Fair Value Measurement”, provides a framework for measuring fair value and requires disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.
ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.
The following tables present the fair value of the Company’s financial assets and liabilities that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:
Level 1
Level 2
Level 3
983,999
Money market funds
588,799
53,784
243,580
190,712
702,530
Foreign currency derivatives
695
Commodity derivatives
1,572,798
1,494,568
3,067,366
Amounts included in:
201,051
4,887
371
Investments
(1,129)
1,132,509
121,444
225,067
213,798
113,357
908,379
(3,733)
1,253,953
1,473,212
2,727,165
53,188
965
(4,698)
All of the Company’s short-term and long-term investments are classified within Level 1 or Level 2 of the fair value hierarchy. The Company’s valuation of its Level 1 investments is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign currency exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no transfers between Level 1 and Level 2 measurements during the three- and nine-months ended September 30, 2023, or during the year-ended December 31, 2022, and there were no changes in the Company’s valuation techniques.
7.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company accounts for its derivative instruments and hedging activities under ASC 815, “Derivatives and Hedging.” The following table presents the fair values of the Company’s derivative instruments:
Fair value
Derivatives designated as hedging instruments
Balance Sheet location
Assets:
Commodity contracts
3,273
Liabilities:
(210)
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
1,614
(919)
Cash Flow Hedging Strategy
The Company uses cash flow hedges to minimize the variability in cash flows of forecasted transactions caused by fluctuations in commodity prices. The changes in the fair values of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into the line item in our condensed consolidated statement of income in which the hedged items are recorded in the same period that the hedged items affect earnings. The changes in the fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is currently less than two years.
The Company has entered into commodity hedge contracts to mitigate the price risk associated with a portion of its forecasted aluminum purchases. These derivative instruments were designated as part of the Company’s commodity cash flow hedging program. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of aluminum. The total notional values of derivatives that were designated and qualified for this program were $83.8 million as of September 30, 2023. Transactions under the commodity cash flow hedging program were executed beginning in May 2023.
The following table presents the impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCI and earnings:
Three-months ended September 30, 2023
Derivatives
Gain (loss)
designated as
Gain (loss) recognized
Location of gain (loss)
reclassified from
hedging instruments
in AOCI
recognized in income
AOCI into income
Cost of sales
Nine-months ended September 30, 2023
As of September 30, 2023, the Company estimates that it will reclassify into earnings net gains (losses) of $3.1 million from the amount recorded in AOCI as the anticipated cash flows occur during the next 12 months.
Economic (Non-Designated) Hedging Strategy
The Company is exposed to foreign currency exchange rate risks related primarily to its foreign business operations. During the nine-months ended September 30, 2023 and the year-ended December 31, 2022, the Company entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. All foreign currency exchange contracts of the Company that were outstanding as of September 30, 2023 have terms of one month or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.
The Company has not designated its foreign currency exchange contracts as hedge transactions. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in interest and other income (expense), net, in the condensed consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item. The total notional values of derivatives related to our foreign currency economic hedges were $310.3 million and $299.8 million as of September 30, 2023 and December 31, 2022, respectively.
The net gains (losses) on derivatives not designated as hedging instruments in the condensed consolidated statements of income were as follows:
recognized in income on
derivatives
Three-months ended
Derivatives not designated as
recognized in income on derivatives
Interest and other income (expense), net
5,080
4,631
Nine-months ended
(4,695)
1,355
Certain of the Company’s counterparty agreements contain provisions that require the Company to post collateral on derivative instruments in a net liability position. As of September 30, 2023, no amounts were posted as collateral.
8.
INVENTORIES
Inventories consist of the following at:
Raw materials
355,557
467,392
Work in process
1,768
1,688
Finished goods
526,257
466,551
21
9.
PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following at:
Land
151,963
139,798
Leasehold improvements
35,531
31,327
Furniture and fixtures
9,814
9,286
Office and computer equipment
23,657
22,386
Computer software
3,693
5,906
Equipment
360,775
244,739
Buildings
210,996
163,885
Vehicles
66,297
49,175
Assets under construction
138,328
83,553
1,001,054
750,055
Less: accumulated depreciation and amortization
(269,846)
(233,158)
Total depreciation and amortization expense was $16.7 million and $13.6 million for the three-months ended September 30, 2023 and 2022, respectively. Total depreciation and amortization expense was $46.1 million and $40.5 million for the nine-months ended September 30, 2023 and 2022, respectively.
10.GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a roll-forward of goodwill for the nine-months ended September 30, 2023 and 2022 by reportable segment:
Monster
Energy®
Strategic
Alcohol
Drinks
Brands
Balance at December 31, 2022
693,644
637,999
86,298
Acquisitions
Balance at September 30, 2023
Balance at December 31, 2021
1,331,643
81,298
Balance at September 30, 2022
1,412,941
Intangible assets consist of the following at:
Amortizing intangibles
144,378
121,378
Accumulated amortization
(73,007)
(68,790)
71,371
52,588
Non-amortizing intangibles
1,388,076
1,167,822
22
Amortizing intangibles primarily consist of customer relationships. All amortizing intangibles have been assigned an estimated finite useful life and such intangibles are amortized on a straight-line basis over the number of years that approximate their respective useful lives, generally five to fifteen years. Total amortization expense was $1.3 million and $2.0 million for the three-months ended September 30, 2023 and 2022, respectively. Total amortization expense was $4.2 million and $5.6 million for the nine-months ended September 30, 2023 and 2022, respectively. For the three-months ended September 30, 2023, no intangible impairments were recorded. For the nine-months ended September 30, 2023, impairment charges of $2.8 million were recorded to non-amortizing intangibles. For the three- and nine-months ended September 30, 2022, no intangible impairments were recorded.
The following is the future estimated amortization expense related to amortizing intangibles as of September 30, 2023:
1,487
5,948
5,947
5,946
46,096
11.
DISTRIBUTION AGREEMENTS
In the normal course of business, amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, or at the inception of certain sales/marketing programs are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective agreement, generally 20 years or program duration, as the case may be. Revenue recognized was $10.0 million for both the three-months ended September 30, 2023 and 2022. Revenue recognized was $30.0 million for both the nine-months ended September 30, 2023 and 2022.
12.
COMMITMENTS AND CONTINGENCIES
The Company had purchase commitments aggregating approximately $269.9 million at September 30, 2023, which represented commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products. These obligations vary in terms, but are generally satisfied within one year.
The Company had contractual obligations aggregating approximately $451.3 million at September 30, 2023, which related primarily to sponsorships and other marketing activities.
The Company has a credit facility with HSBC Bank (China) Company Limited, Shanghai Branch, of $15.0 million. At September 30, 2023, the interest rate on borrowings under the line of credit was 5.5%. As of September 30, 2023, no amounts were outstanding on this line of credit.
Litigation — From time to time in the normal course of business, the Company is named in litigation, including labor and employment matters, personal injury matters, consumer class actions, intellectual property matters and claims from prior distributors. Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.
The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, and any related insurance reimbursements. As of September 30, 2023, $0.3 million of loss contingencies were included in the Company’s accompanying consolidated balance sheet. As of December 31, 2022, no loss contingencies were included in the Company’s accompanying consolidated balance sheet.
23
On September 29, 2022, a jury in the U.S. District Court for the Central District of California (the “District Court”) awarded Monster Energy Company (“MEC”) approximately $293 million in damages in its false advertising and trade secrets case (the “Jury Award”) against Vital Pharmaceuticals, Inc. (“VPX”), the maker of Bang Energy. The jury found VPX and its former chief executive officer John H. Owoc to have falsely advertised the “Super Creatine” ingredient of Bang Energy and to have acted willfully and deliberately in violating the federal Lanham Act. The jury also found that VPX stole trade secrets and interfered with MEC’s contracts over shelf space with certain key vendors. On April 12, 2023, the District Court granted Monster’s motion for a permanent injunction which, among other things, enjoined VPX, Mr. Owoc, and others working in concert with them from falsely or deceptively claiming that BANG or any other beverages contain creatine or a form of creatine, requires them to remove all such advertising within 60 days, and required VPX and Mr. Owoc to issue corrective statements to consumers and non-consumer partners, including retailers and distributors.
In April 2022, MEC and Orange Bang, Inc. (“Orange Bang”) filed a joint motion in a separate District Court action to confirm a final arbitration award against VPX that awarded MEC and Orange Bang $175.0 million and a 5% royalty on all future sales of VPX’s Bang Energy drink and other Bang-branded products as well as certain fees and costs (the “Arbitration Award”). The arbitration arose from a settlement agreement that VPX entered into in 2010 with Orange Bang, a family-owned beverage business. Pursuant to the terms of that agreement, VPX is only permitted to use the Bang mark on “creatine-based” products or on Bang products that are marketed and sold only in the vitamin and dietary supplement sections of stores. On September 29, 2022, the District Court entered final judgment confirming the Arbitration Award. On October 28, 2022, VPX filed a notice of appeal of the District Court’s final judgment confirming the Arbitration award.
On October 10, 2022, VPX, along with certain of its domestic subsidiaries and affiliates, filed for protection under Chapter 11 of the Bankruptcy Code in the Southern District of Florida. Due to such ongoing proceedings, VPX’s appeal of the District Court’s final judgment confirming the Arbitration Award was stayed. While reserving all rights to appeal, VPX made its first royalty payment of $3.6 million on February 14, 2023, which is for sales of Bang Energy drink and other Bang-branded products from October 10, 2022 through December 31, 2022. On May 25, 2023, VPX made an additional royalty payment in the amount of approximately $3.7 million for sales of Bang-branded products from January 1, 2023 through March 31, 2023. Per ASC 450 “Contingencies”, the Company will not recognize the royalty payments until they are realized or realizable.
On June 28, 2023, VPX and certain of its affiliates (“Bang Energy”) entered into an Asset Purchase Agreement (the “APA”) with the Company (“Buyer”), which among other things, provided for the Buyer’s acquisition of substantially all of Bang Energy’s assets. The transactions contemplated by the APA were approved by the U.S. Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) on July 14, 2023 and closed on July 31, 2023, at which time Monster was deemed to have allowed general unsecured claims in VPX’s bankruptcy case relating to the Jury Award (subject to the potential modification of the Jury Award in light of pending post-verdict motions filed by MEC and VPX) and the Arbitration Award. Pursuant to the APA, Bang Energy and the Company have mutually released each other from all claims and liabilities related to the Jury Award and the Arbitration Award, except (i) any claims that the Company might have against Mr. Owoc in relation to the Jury Award and (ii) the Bankruptcy Court’s allowance of the Company’s unsecured claims in an amount of approximately $422.0 million. Per ASC 450 “Contingencies”, the Company will not recognize the allowed general unsecured claims as it relates to VPX and its affiliates, or the Jury Award as it relates to Mr. Owoc, until they are realized or realizable.
In June 2023, the Company entered into an agreement with Orange Bang regarding the Company’s use and registration of certain Bang® trademarks and trade names. Under this agreement, the Company paid Orange Bang a one-time payment of approximately $12.5 million and will pay a 2.5% royalty on the Company’s sales of products bearing the tradename Bang®.
On October 31, 2023, the Bankruptcy Court overseeing the chapter 11 cases of VPX and its affiliates confirmed the VPX and affiliates Plan of Reorganization that, among other things, made no modification to Monster’s allowed unsecured claims. As part of the Plan of Reorganization, a Liquidating Trust is formed to pursue all claims not released under the Plan of Reorganization, and to liquidate any assets still owned by VPX and its affiliates. The Company has one of three seats on the Oversight Board that oversees the appointed Liquidating Trustee’s efforts to pursue litigation and otherwise liquidate any remaining assets. As provided herein, per ASC 450 “Contingencies”, the Company will not recognize the allowed unsecured claims until they are realized or realizable.
13.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, after tax, for the nine-months ended September 30, 2023 and 2022 are as follows:
Accumulated
Net Gains on
Currency
Gains (Losses)
Commodity
Translation
on Available-for-
Sale Securities
(153,230)
(5,843)
Other comprehensive income before reclassifications
Net current-period other comprehensive (loss) gain
(199,304)
(2,163)
(68,209)
(956)
Other comprehensive loss before reclassifications
Net current-period other comprehensive loss
(215,659)
(8,796)
(224,455)
14.
TREASURY STOCK
On March 10, 2023, the Company retired 170.0 million shares (stock split adjusted) of treasury stock owned by the Company. The retired stock had a carrying value of approximately$4.69 billion. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct its par value from common stock and to reflect any excess of cost over par as a deduction from retained earnings.
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.
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.
15.
STOCK-BASED COMPENSATION
The Company has two stock-based compensation plans under which shares were available for grant at September 30, 2023: (i) the Monster Beverage Corporation 2020 Omnibus Incentive Plan, including the Monster Beverage Corporation Deferred Compensation Plan as a sub-plan thereunder, and (ii) the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors as Amended and Restated on February 23, 2022, including the Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors as a sub-plan thereunder.
The Company recorded $17.9 million and $16.6 million of compensation expense relating to outstanding options, restricted stock units, performance share units and other share-based awards during the three-months ended September 30, 2023 and 2022, respectively. The Company recorded $52.5 million and $49.2 million of compensation expense relating to outstanding options, restricted stock units, performance share units and other share-based awards during the nine-months ended September 30, 2023 and 2022, respectively.
The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and performance share units for the three-months ended September 30, 2023 and 2022 was ($0.2) million and $2.0 million, respectively. The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and performance share units for the nine-months ended September 30, 2023 and 2022 was $29.9 million and $4.6 million, respectively.
Stock Options
Under the Company’s stock-based compensation plans, all stock options granted as of September 30, 2023 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.
The following weighted-average assumptions were used to estimate the fair value of options granted during:
Dividend yield
0.0
Expected volatility
27.0
27.6
27.7
Risk-free interest rate
4.2
2.8
3.7
2.1
Expected term
6.3
years
6.1
Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option.
Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.
26
The following table summarizes the Company’s activities with respect to its stock option plans as follows:
Weighted-
Average
Remaining
Number of
Exercise
Contractual
Shares (in
Price Per
Term (in
Aggregate
Options
thousands)
Share
years)
Intrinsic Value
Outstanding at January 1, 2023
26.38
5.0
724,651
Granted 01/01/23 - 03/31/23
3,962
50.82
Granted 04/01/23 - 06/30/23
31
59.36
Granted 07/01/23 - 09/30/23
57.71
Exercised
(4,218)
15.54
Cancelled or forfeited
(306)
40.05
Outstanding at September 30, 2023
29,204
31.17
5.3
636,250
Vested and expected to vest in the future at September 30, 2023
28,330
30.77
5.2
628,547
Exercisable at September 30, 2023
18,467
24.70
3.5
521,638
The weighted-average grant-date fair value of options granted during the three-months ended September 30, 2023 and 2022 was $21.01 per share and $15.97 per share, respectively. The weighted-average grant-date fair value of options granted during the nine-months ended September 30, 2023 and 2022 was $18.27 per share and $11.68 per share, respectively.
The total intrinsic value of options exercised during the three-months ended September 30, 2023 and 2022 was $7.1 million and $15.3 million, respectively. The total intrinsic value of options exercised during the nine-months ended September 30, 2023 and 2022 was $164.9 million and $38.2 million, respectively.
Cash received from option exercises under all plans for the three-months ended September 30, 2023 and 2022 was $5.9 million and $12.1 million, respectively. Cash received from option exercises under all plans for the nine-months ended September 30, 2023 and 2022 was $65.6 million and $34.8 million, respectively.
At September 30, 2023, there was $106.2 million of total unrecognized compensation expense related to non-vested options granted to employees under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of 3.2 years.
Restricted Stock Units and Performance Share Units
The cost of stock-based compensation for restricted stock units and performance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit or performance share unit in cash, the award is classified as a liability and revalued at each balance sheet date.
27
The following table summarizes the Company’s activities with respect to non-vested restricted stock units and performance share units as follows:
Weighted
Grant-Date
Non-vested at January 1, 2023
2,026
36.27
Granted 01/01/23 - 03/31/231
523
48.49
59.70
56.38
Vested
(593)
32.82
Forfeited/cancelled
(12)
32.71
Non-vested at September 30, 2023
1,968
40.86
1The grant activity for performance share units is recorded based on the target performance level earning 100% of target performance share units. The actual number of performance share units earned could range from 0% to 200% of target depending on the achievement of pre-established performance goals.
The weighted-average grant-date fair value of restricted stock units and/or performance share units granted during the three-months ended September 30, 2023 and 2022 was $56.38 and $47.59 per share, respectively. The weighted-average grant-date fair value of restricted stock units and/or performance share units granted during the nine-months ended September 30, 2023 and 2022 was $51.22 and $37.12 per share, respectively.
As of September 30, 2023, 1.9 million of restricted stock units and performance share units are expected to vest over their respective terms.
At September 30, 2023, total unrecognized compensation expense relating to non-vested restricted stock units and performance share units was $39.5 million, which is expected to be recognized over a weighted-average period of 1.4 years.
Other Share-Based Awards
The Company has granted other share-based awards to certain employees that are payable in cash. These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement, with compensation expense being recognized in proportion to the completed requisite service period up until date of settlement. At September 30, 2023, other share-based awards outstanding included grants that vest over three years payable in the first quarters of 2024, 2025 and 2026.
At September 30, 2023, there was $1.2 million of total unrecognized compensation expense related to nonvested other share-based awards granted to employees under the Company’s stock-based compensation plans. That expense is expected to be recognized over a weighted-average period of 1.6 years.
28
16.
INCOME TAXES
The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the nine-months ended September 30, 2023:
Gross Unrecognized
Tax Benefits
3,020
Additions for tax positions related to the current year
Additions for tax positions related to the prior years
738
Decreases for tax positions related to the prior years
3,758
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s condensed consolidated financial statements. As of September 30, 2023, the Company had approximately $0.7 million in accrued interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions, the resultant impact on the Company’s effective tax rate would not be significant. It is expected that any change in the amount of unrecognized tax benefits within the next 12 months will not be significant.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.
The Company is in various stages of examination with certain states and certain foreign jurisdictions. The Company’s 2019 through 2022 U.S. federal income tax returns are subject to examination by the IRS. The Company’s state income tax returns are subject to examination for the 2018 through 2022 tax years.
17.
EARNINGS PER SHARE
A reconciliation of the weighted-average shares used in the basic and diluted earnings per common share computations is presented below (in thousands):
Weighted-average shares outstanding:
Dilutive
12,951
13,006
13,472
12,672
For the three-months ended September 30, 2023 and 2022, options and awards outstanding totaling 4.1 million shares and 7.0 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive. For the nine-months ended September 30, 2023 and 2022, options and awards outstanding totaling 3.1 million shares and 5.8 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive.
18.
SEGMENT INFORMATION
The Company has four operating and reportable segments: (i) Monster Energy® Drinks segment, which is primarily comprised of the Company’s 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, which is primarily comprised of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, (iii) Alcohol Brands segment, which is primarily comprised of the various craft beers and hard seltzers purchased as part of the CANarchy Transaction on February 17, 2022 as well as The Beast UnleashedTM FMBs and (iv) Other segment, which is primarily comprised of the AFF Third-Party Products.
The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged drinks primarily to bottlers/distributors. In some cases, the Company sells ready-to-drink packaged drinks directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience and gas chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.
Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit margin percentages than the Strategic Brands segment.
Generally, the Alcohol Brands segment has lower gross profit margin percentages than the Monster Energy® Drinks segment.
Corporate and unallocated amounts that do not relate to a reportable segment have been allocated to “Corporate & Unallocated.” No asset information, other than goodwill and other intangible assets, has been provided in the Company’s reportable segments, as management does not measure or allocate such assets on a segment basis.
30
The net revenues derived from the Company’s reportable segments and other financial information related thereto for the three- and nine-months ended September 30, 2023 and 2022 were as follows:
Net sales:
Monster Energy® Drinks1
1,708,242
4,956,797
284,810
6,697
18,620
Corporate and unallocated
Operating Income:
603,670
492,534
1,762,410
1,388,815
52,730
47,282
159,639
145,977
(11,734)
(10,262)
(25,193)
(19,873)
1,296
977
2,654
3,138
(135,435)
(112,601)
(380,114)
(327,688)
Income before tax:
604,688
493,486
1,765,018
1,391,026
52,746
47,319
159,683
146,082
(11,757)
(10,124)
(25,208)
(19,620)
1,315
2,679
3,139
(65,108)
(111,579)
(283,766)
(342,190)
Depreciation and amortization:
10,023
7,773
27,830
24,035
199
234
616
709
3,816
3,713
11,973
9,679
50
1,121
1,224
3,345
3,891
2,768
8,721
8,272
17,979
15,609
Corporate and unallocated expenses for the three-months ended September 30, 2023 include $82.7 million of payroll costs, of which $17.4 million was attributable to stock-based compensation expenses (see Note 15 “Stock-Based Compensation”), as well as $27.3 million attributable to professional service expenses, including accounting and legal costs, and $25.4 million of other operating expenses.
Corporate and unallocated expenses for the three-months ended September 30, 2022 include $69.4 million of payroll costs, of which $16.2 million was attributable to stock-based compensation expenses (see Note 15 “Stock-Based Compensation”), as well as $26.0 million attributable to professional service expenses, including accounting and legal costs, and $17.2 million of other operating expenses.
Corporate and unallocated expenses for the nine-months ended September 30, 2023 include $245.5 million of payroll costs, of which $51.1 million was attributable to stock-based compensation expenses (see Note 15 “Stock-Based Compensation”), as well as $74.7 million attributable to professional service expenses, including accounting and legal costs, and $59.9 million of other operating expenses.
Corporate and unallocated expenses for the nine-months ended September 30, 2022 include $207.6 million of payroll costs, of which $48.5 million was attributable to stock-based compensation expenses (see Note 15 “Stock-Based Compensation”), as well as $69.3 million attributable to professional service expenses, including accounting and legal costs, and $50.8 million of other operating expenses.
Coca-Cola Europacific Partners accounted for approximately 14% and 12% of the Company’s net sales for the three-months ended September 30, 2023 and 2022, respectively. Coca-Cola Europacific Partners accounted for approximately 13% of the Company’s net sales for both the nine-months ended September 30, 2023 and 2022.
Coca-Cola Consolidated, Inc. accounted for approximately 10% and 11% of the Company’s net sales for the three-months ended September 30, 2023 and 2022, respectively. Coca-Cola Consolidated, Inc. accounted for approximately 10% of the Company’s net sales for both the nine-months ended September 30, 2023 and 2022.
Reyes Holdings, LLC accounted for approximately 9% and 10% of the Company’s net sales for the three-months ended September 30, 2023 and 2022, respectively. Reyes Holdings, LLC accounted for approximately 9% and 10% of the Company’s net sales for the nine-months ended September 30, 2023 and 2022, respectively.
Net sales to customers outside the United States amounted to $733.7 million and $610.6 million for the three-months ended September 30, 2023 and 2022, respectively. Such sales were approximately 40% and 38% of net sales for the three-months ended September 30, 2023 and 2022, respectively. Net sales to customers outside the United States amounted to $2.07 billion and $1.81 billion for the nine-months ended September 30, 2023 and 2022, respectively. Such sales were approximately 38% of net sales for both the nine-months ended September 30, 2023 and 2022.
Goodwill and other intangible assets for the Company’s reportable segments as of September 30, 2023 and December 31, 2022 were as follows:
Goodwill and other intangible assets:
1,667,462
1,424,212
982,311
979,896
227,615
233,140
1,103
2,877,388
2,638,351
32
19.
RELATED PARTY TRANSACTIONS
TCCC controls approximately 19.6% of the voting interests of the Company. The TCCC Subsidiaries, the TCCC Related Parties and certain TCCC independent bottlers/distributors purchase and distribute the Company’s products in domestic and certain international markets. The Company also pays TCCC a commission based on certain sales within the TCCC distribution network.
TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, were $21.4 million and $12.8 million for the three-months ended September 30, 2023 and 2022, respectively, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, were $55.2 million and $41.3 million for the nine-months ended September 30, 2023 and 2022, respectively, and are included as a reduction to net sales.
TCCC commissions, based on sales to TCCC independent bottlers/distributors, were $8.8 million and $5.5 million for the three-months ended September 30, 2023 and 2022, respectively, and are included in operating expenses. TCCC commissions, based on sales to TCCC independent bottlers/distributors, were $25.7 million and $24.4 million for the nine-months ended September 30, 2023 and 2022, respectively, and are included in operating expenses.
Net sales to the TCCC Subsidiaries for the three-months ended September 30, 2023 and 2022 were $40.2 million and $36.6 million, respectively. Net sales to the TCCC Subsidiaries for the nine-months ended September 30, 2023 and 2022 were $108.4 million and $95.0 million, respectively.
The Company also purchases concentrates from TCCC, which are then sold to certain of the Company’s bottlers/distributors. Concentrate purchases from TCCC were $7.8 million and $6.5 million for the three-months ended September 30, 2023 and 2022, respectively. Concentrate purchases from TCCC were $22.5 million and $21.5 million for the nine-months ended September 30, 2023 and 2022, respectively.
Certain TCCC Subsidiaries also contract manufacture certain of the Company’s energy drinks. Such contract manufacturing expenses were $10.1 million and $9.1 million for the three-months ended September 30, 2023 and 2022, respectively. Such contract manufacturing expenses were $25.1 million and $23.1 million for the nine-months ended September 30, 2023 and 2022, respectively.
Accounts receivable, accounts payable, accrued promotional allowances and accrued liabilities related to the TCCC Subsidiaries were as follows at:
138,987
88,169
(49,937)
(35,467)
(13,256)
(11,222)
(21,789)
(14,733)
One director of the Company through certain trusts, and a family member of one director are the principal owners of a company that provides promotional materials to the Company. Expenses incurred with such company in connection with promotional materials purchased during the three-months ended September 30, 2023 and 2022 were $0.9 million and $1.3 million, respectively. Expenses incurred with such company in connection with promotional materials purchased during the nine-months ended September 30, 2023 and 2022 were $3.0 million and $4.7 million, respectively.
33
The Company occasionally charters a private aircraft that is indirectly owned by Mr. Rodney C. Sacks, Co-Chief Executive Officer and Chairman of the Board of Directors. On certain occasions, Mr. Sacks is accompanied by guests and other Company personnel when using such aircraft for business travel. During the three-months ended September 30, 2023, the Company incurred costs of $0.10 million, amounts the Company believes is commensurate with market rates for comparable travel. No amounts were incurred during the three-months ended September 30, 2022. During the nine-months ended September 30, 2023 and 2022, the Company incurred costs of $0.13 million and $0.08 million, respectively, amounts the Company believes is commensurate with market rates for comparable travel.
In December 2018, the Company and a director of the Company entered into a 50-50 partnership that purchased land, and real property thereon, in Kona, Hawaii for the purpose of producing coffee products. This partnership meets the definition of a Variable Interest Entity (“VIE”) for which the Company has determined that it is the primary beneficiary. Therefore, the Company consolidates the VIE in the accompanying condensed consolidated financial statements. The aggregate carrying values of the VIE’s assets and liabilities, after elimination of any intercompany transactions and balances, as well as the results of operations for all periods presented, are not material to the Company’s condensed consolidated financial statements.
34
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®
● 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:
36
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 sales for the three-months ended September 30, 2023 and 2022, respectively. Our Alcohol Brands segment represented 2.3% and 1.7% of our net sales for the three-months ended September 30, 2023 and 2022, respectively. Our Other segment represented 0.4% and 0.3% of our net sales for the three-months ended September 30, 2023 and 2022, 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 $733.7 million for the three-months ended September 30, 2023, an increase of approximately $123.1 million, or 20.2% higher than net sales to customers outside of the United States of $610.6 million for the three-months ended September 30, 2022. Such sales were approximately 40% and 38% of net sales for the three-months ended September 30, 2023 and 2022, respectively. Net changes in foreign currency exchange rates had an unfavorable impact on net sales to customers outside of the United States of approximately $29.2 million for the three-months ended September 30, 2023. Net sales to customers outside the United States, on a foreign currency adjusted basis, increased 24.9% for the three-months ended September 30, 2023.
Our non-alcohol customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience and gas chains, foodservice customers, value stores, e-commerce retailers and the military. Our alcohol customers are primarily beer distributors who in turn sell to retailers within the alcohol distribution system. Percentages of our gross billings to our various customer types for the three- and nine-months ended September 30, 2023 and 2022 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.
U.S. full service bottlers/distributors
46
48
47
International full service bottlers/distributors
39
40
Club stores and e-commerce retailers
Retail grocery, direct convenience, specialty chains and wholesalers
Alcohol, value stores and other
Our non-alcohol 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),
37
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.
Our alcohol customers include Reyes Beverage Group, Ben E. Keith Company, J.J. Taylor Distributing and Sheehan Family Companies.
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 consolidated results of operations.
Coca-Cola Europacific Partners accounted for approximately 14% and 12% of our net sales for the three-months ended September 30, 2023 and 2022, respectively. Coca-Cola Europacific Partners accounted for approximately 13% of our net sales for both the nine-months ended September 30, 2023 and 2022.
Coca-Cola Consolidated, Inc. accounted for approximately 10% and 11% of our net sales for the three-months ended September 30, 2023 and 2022, respectively. Coca-Cola Consolidated, Inc. accounted for approximately 10% of our net sales for both the nine-months ended September 30, 2023 and 2022.
Reyes Holdings, LLC accounted for approximately 9% and 10% of our net sales for the three-months ended September 30, 2023 and 2022, respectively. Reyes Holdings, LLC accounted for approximately 9% and 10% of our net sales for the nine-months ended September 30, 2023 and 2022, respectively.
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Results of Operations
The following table sets forth key statistics for the three- and nine-months ended September 30, 2023 and 2022.
Percentage
(In thousands, except per share amounts)
Change
23 vs. 22
Net sales1
14.3
12.8
10.3
Gross profit*1
18.0
19.5
Gross profit as a percentage of net sales
53.0
51.3
52.8
49.8
Operating expenses
13.8
11.4
Operating expenses as a percentage of net sales
25.5
25.6
24.7
25.0
Operating income1
22.2
Operating income as a percentage of net sales
27.5
25.7
28.1
24.8
3,220.5
929.8
Income before provision for income taxes1
38.5
37.3
Provision for income taxes
32.2
22.8
Income taxes as a percentage of income before taxes
23.3
21.9
24.5
40.4
42.0
Net income as a percentage of net sales
24.4
19.8
23.4
18.5
Net income per common share:
41.3
43.4
43.3
Energy drink case sales (in thousands) (in 192‑ounce equivalents)
203,087
182,460
11.3
583,937
535,451
9.1
1Includes $10.0 million for both the three-months ended September 30, 2023 and 2022 related to the recognition of deferred revenue. Includes $30.0 million for both the nine-months ended September 30, 2023 and 2022 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 September 30, 2023 Compared to the Three-Months Ended September 30, 2022.
Net Sales. Net sales were $1.86 billion for the three-months ended September 30, 2023, an increase of approximately $231.7 million, or 14.3% higher than net sales of $1.62 billion for the three-months ended September 30, 2022. Net sales 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 due to Pricing Actions in certain markets. 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. Net sales on a foreign currency adjusted basis increased 16.1% for the three-months ended September 30, 2023.
Net sales in EMEA, Asia Pacific (including Oceania), Latin America and the Caribbean were $687.1 million for the three-months ended September 30, 2023, an increase of approximately $123.1 million, or 21.8% higher than net sales in EMEA, Asia Pacific, Latin America and the Caribbean of $564.0 million for the three-months ended September 30, 2022.
Net sales for the Monster Energy® Drinks segment were $1.71 billion for the three-months ended September 30, 2023, an increase of approximately $206.0 million, or 13.7% higher than net sales of $1.50 billion for the three-months ended September 30, 2022. 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 due to Pricing Actions 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 $20.2 million for the three-months ended September 30, 2023. Net sales for the Monster Energy® Drinks segment on a foreign currency adjusted basis increased 15.1% for the three-months ended September 30, 2023.
Net sales for the Strategic Brands segment were $98.8 million for the three-months ended September 30, 2023, an increase of approximately $10.0 million, or 11.2% higher than net sales of $88.8 million for the three-months ended September 30, 2022. Net sales for the Strategic Brands segment increased primarily due to increased sales by volume of our NOS® and Burn® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $9.0 million for the Strategic Brands segment for the three-months ended September 30, 2023. Net sales for the Strategic Brands segment on a foreign currency adjusted basis increased 21.3% for the three-months ended September 30, 2023. Net sales of concentrates within the Strategic Brands segment tend to have more pronounced fluctuations from period to period as compared to net sales of our finished goods within the Monster Energy Drinks® segment.
Net sales for the Alcohol Brands segment were $42.3 million for the three-months ended September 30, 2023, an increase of approximately $15.5 million, or 57.8% higher than net sales of $26.8 million for the three-months ended September 30, 2022. Net sales of The Beast UnleashedTM FMBs, which launched during the 2023 first quarter in the United States on a rolling state basis, were $19.0 million for the three-months ended September 30, 2023.
Net sales for the Other segment were $6.7 million for the three-months ended September 30, 2023, an increase of approximately $0.3 million, or 3.9% higher than net sales of $6.4 million for the three-months ended September 30, 2022.
Case sales for our energy drink products, in 192-ounce case equivalents, were 203.1 million cases for the three-months ended September 30, 2023, an increase of approximately 20.6 million cases or 11.3% higher than case sales of 182.5 million cases for the three-months ended September 30, 2022. The overall average net sales per case increased to $8.90 for the three-months ended September 30, 2023, which was 2.0% higher than the average net sales per case of $8.72 for the three-months ended September 30, 2022.
Case sales for our craft beers, hard seltzers and FMBs, in 192-ounce equivalents, were 3.0 million cases for the three-months ended September 30, 2023, an increase of approximately 1.3 million cases or 78.9% higher than case sales of 1.7 million cases for the three-months ended September 30, 2022. Barrel sales for our craft beers, hard seltzers and FMBs, in 31 U.S. gallon equivalents, were 0.15 million barrels for the three-months ended September 30, 2023, an increase of approximately 0.07 million barrels or 78.9% higher than barrel sales of 0.08 million barrels for the three-months ended September 30, 2022.
Gross Profit
Gross profit was $983.8 million for the three-months ended September 30, 2023, an increase of approximately $150.0 million, or 18.0% higher than the gross profit of $833.7 million for the three-months ended September 30, 2022. The increase in gross profit dollars was primarily the result of the $231.8 million increase in net sales for the three-months ended September 30, 2023.
Gross profit as a percentage of net sales increased to 53.0% for the three-months ended September 30, 2023 from 51.3% for the three-months ended September 30, 2022. The increase in gross profit as a percentage of net sales for the three-months ended September 30, 2023 was primarily the result of Pricing Actions in certain markets, decreased freight-in costs as well as decreased aluminum can costs. Gross profit as a percentage of gross sales was 53.4% for the three-months ended September 30, 2023, exclusive of the Bang Inventory Step-Up.
Operating Expenses
Total operating expenses were $473.2 million for the three-months ended September 30, 2023, an increase of approximately $57.4 million, or 13.8% higher than total operating expenses of $415.8 million for the three-months ended September 30, 2022.
The increase in operating expenses was primarily due to increased selling and marketing expenses of $19.9 million, increased payroll expenses of $19.3 million (of which $2.1 million was related to the Alcohol Brands segment) and increased travel and entertainment expenses of $8.9 million. Operating expenses as a percentage of net sales for the three-months ended September 30, 2023 were 25.5% as compared to 25.6% for the three-months ended September 30, 2022. Operating expenses for the three-months ended September 30, 2023 included approximately $8.0 million acquisition costs related to the Bang Transaction.
Operating Income
Operating income was $510.5 million for the three-months ended September 30, 2023, an increase of approximately $92.6 million, or 22.2% higher than operating income of $417.9 million for the three-months ended September 30, 2022. Operating income as a percentage of net sales increased to 27.5% for the three-months ended September 30, 2023 from 25.7% for the three-months ended September 30, 2022. The increase in operating income was primarily the result of an increase in net sales, as well as an increase in gross profit as a percentage of net sales.
Operating income was $114.1 million and $89.9 million for the three-months ended September 30, 2023 and 2022, respectively, for our operations in EMEA, Asia Pacific (including Oceania), Latin America and the Caribbean.
Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $603.7 million for the three-months ended September 30, 2023, an increase of approximately $111.1 million, or 22.6% higher than operating income of $492.5 million for the three-months ended September 30, 2022. The increase in operating income for the Monster Energy® Drinks segment was primarily the result of an increase in net sales as well as an increase in gross profit as a percentage of net sales.
Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $52.7 million for the three-months ended September 30, 2023, an increase of approximately $5.4 million, or 11.5% higher than operating income of $47.3 million for the three-months ended September 30, 2022. The increase in operating income for the Strategic Brands segment was primarily the result of an increase in net sales.
Operating loss for the Alcohol Brands segment, exclusive of corporate and unallocated expenses, was $11.7 million for the three-months ended September 30, 2023, an increase of approximately $1.5 million, or 14.3% higher than the operating loss of $10.3 million for the three-months ended September 30, 2022. The operating losses for the three-months ended September 30, 2023 were primarily due to expenses and infrastructure investments for the expansion of the Alcohol Brands segment.
Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $1.3 million for the three-months ended September 30, 2023, as compared to operating income of $1.0 million for the three-months ended September 30, 2022.
Interest and Other Income (expense), net
Interest and other non-operating income (expense), net, was $71.4 million for the three-months ended September 30, 2023, as compared to interest and other non-operating income (expense), net, of $2.1 million for the three-months ended September 30, 2022. Foreign currency transaction losses were $13.2 million and $6.2 million for the three-months ended September 30, 2023 and 2022, respectively. Interest income was $39.3 million and $9.6 million for the three-months ended September 30, 2023 and 2022, respectively. Interest and other income (expense), net, for the three-months ended September 30, 2023 included the Bang Transaction Gain.
Provision for Income Taxes
Provision for income taxes was $129.2 million for the three-months ended September 30, 2023, an increase of $31.5 million, or 32.2% higher than the provision for income taxes of $97.7 million for the three-months ended September 30, 2022. The effective combined federal, state and foreign tax rate decreased to 22.2% from 23.3% for the three-months ended September 30, 2023 and 2022, respectively. The decrease in the effective tax rate was primarily attributable to an increase in deductible interest expense.
Net Income
Net income was $452.7 million for the three-months ended September 30, 2023, an increase of $130.3 million, or 40.4% higher than net income of $322.4 million for the three-months ended September 30, 2022. The increase in net income for the three-months ended September 30, 2023 was primarily due to the increase in net sales, the increase in the gross profit percentage of net sales, the decrease in the effective combined federal, state and foreign tax rate as well as the Bang Transaction Gain. The increase in net income for the three-months ended September 30, 2023 was partially offset by the Bang Inventory Step-Up and the Bang Transaction Expenses.
Nine-Months Ended September 30, 2023 Compared to the Nine-Months Ended September 30, 2022.
Net Sales. Net sales were $5.41 billion for the nine-months ended September 30, 2023, an increase of approximately $611.8 million, or 12.8% higher than net sales of $4.80 billion for the nine-months ended September 30, 2022. Net sales 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 due to Pricing Actions in certain markets. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $119.6 million for the nine-months ended September 30, 2023. Net sales on a foreign currency adjusted basis increased 15.2% for the nine-months ended September 30, 2023.
Net sales in EMEA, Asia Pacific (including Oceania), Latin America and the Caribbean for the nine-months ended September 30, 2023 were $1.94 billion, an increase of approximately $253.7 million, or 15.0% higher than net sales in EMEA, Asia Pacific, Latin America and the Caribbean of $1.69 billion for the nine-months ended September 30, 2022.
Net sales for the Monster Energy® Drinks segment were $4.96 billion for the nine-months ended September 30, 2023, an increase of approximately $512.0 million, or 11.5% higher than net sales of $4.44 billion for the nine-months ended September 30, 2022. 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 due to Pricing Actions 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 $105.4 million for the nine-months ended September 30, 2023. Net sales for the Monster Energy® Drinks segment on a foreign currency adjusted basis increased 13.9% for the nine-months ended September 30, 2023.
Net sales for the Strategic Brands segment were $284.8 million for the nine-months ended September 30, 2023, an increase of approximately $24.3 million, or 9.3% higher than net sales of $260.5 million for the nine-months ended September 30, 2022. Net sales for the Strategic Brands segment increased primarily due to increased sales by volume of our Burn®, NOS®, Fury® and Predator® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $14.1 million for the Strategic Brands segment for the nine-months ended September 30, 2023. Net sales for the Strategic Brands segment on a foreign currency adjusted basis increased 14.7% for the nine-months ended September 30, 2023. Net sales of concentrates within the Strategic Brands segment tend to have more pronounced fluctuations from period to period as compared to net sales of our finished goods within the Monster Energy Drinks® segment.
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Net sales for the Alcohol Brands segment were $149.7 million for the nine-months ended September 30, 2023, an increase of approximately $75.2 million, or 101.0% higher than net sales of $74.5 million for the nine-months ended September 30, 2022. The comparative 2022 net sales for the Alcohol Brands segment were effectively from February 17, 2022 to September 30, 2022, as we completed the CANarchy Transaction on February 17, 2022. Net sales of The Beast UnleashedTM FMBs, which launched during the 2023 first quarter in the United States on a rolling state basis, were $73.0 million for the nine-months ended September 30, 2023.
Net sales for the Other segment were $18.6 million for the nine-months ended September 30, 2023, an increase of approximately $0.3 million, or 1.4% higher than net sales of $18.4 million for the nine-months ended September 30, 2022.
Case sales for our energy drink products, in 192-ounce case equivalents, were 583.9 million cases for the nine-months ended September 30, 2023, an increase of approximately 48.5 million cases or 9.1% higher than case sales of 535.5 million cases for the nine-months ended September 30, 2022. The overall average net sales per case increased to $8.98 for the nine-months ended September 30, 2023, which was 2.2% higher than the average net sales per case of $8.79 for the nine-months ended September 30, 2022.
Case sales for our craft beers, hard seltzers and FMBs, in 192-ounce equivalents, were 10.6 million cases for the nine-months ended September 30, 2023, an increase of approximately 5.8 million cases or 120.1% higher than case sales of 4.8 million cases for the nine-months ended September 30, 2022. Barrel sales for our craft beers, hard seltzers and FMBs, in 31 U.S. gallon equivalents, were 0.5 million barrels for the nine-months ended September 30, 2023, an increase of approximately 0.3 million barrels or 120.1% higher than barrel sales of 0.2 million barrels for the nine-months ended September 30, 2022.
Gross profit was $2.86 billion for the nine-months ended September 30, 2023, an increase of approximately $465.6 million, or 19.5% higher than the gross profit of $2.39 billion for the nine-months ended September 30, 2022. The increase in gross profit dollars was primarily the result of the $611.8 million increase in net sales for the nine-months ended September 30, 2023.
Gross profit as a percentage of net sales increased to 52.8% for the nine-months ended September 30, 2023 from 49.8% for the nine-months ended September 30, 2022. The increase in gross profit as a percentage of net sales for the nine-months ended September 30, 2023 was primarily the result of Pricing Actions in certain markets, decreased freight-in costs as well as decreased aluminum can costs.
Total operating expenses were $1.34 billion for the nine-months ended September 30, 2023, an increase of approximately $136.6 million, or 11.4% higher than total operating expenses of $1.20 billion for the nine-months ended September 30, 2022.
The increase in operating expenses was primarily due to increased selling and marketing expenses of $60.7 million, increased warehouse expenses of $15.3 million, increased travel and entertainment expenses of $9.5 million as well as increased payroll expenses of $59.7 million (of which $10.0 million was related to the Alcohol Brands segment). The increase in operating expenses was partially offset by a decrease in out-bound fuel and freight expenses of $26.6 million for the nine-months ended September 30, 2023. Operating expenses as a percentage of net sales for the nine-months ended September 30, 2023 were 24.7% as compared to 25.0% for the nine-months ended September 30, 2022. Operating expenses for the nine-months ended September 30, 2023, included approximately $15.1 million acquisition costs related to the Bang Transaction.
Operating income was $1.52 billion for the nine-months ended September 30, 2023, an increase of approximately $329.0 million, or 27.6% higher than operating income of $1.19 billion for the nine-months ended September 30, 2022. Operating income as a percentage of net sales increased to 28.1% for the nine-months ended September 30, 2023 from 24.8% for the nine-months ended September 30, 2022. The increase in operating income was primarily the result of an increase in net sales, as well as an increase in gross profit as a percentage of net sales.
Operating income was $322.0 million and $244.3 million for the nine-months ended September 30, 2023 and 2022, respectively, for our operations in EMEA, Asia Pacific (including Oceania), Latin America and the Caribbean.
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Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1.76 billion for the nine-months ended September 30, 2023, an increase of approximately $373.6 million, or 26.9% higher than operating income of $1.39 billion for the nine-months ended September 30, 2022. The increase in operating income for the Monster Energy® Drinks segment was primarily the result of an increase in net sales as well as an increase in gross profit as a percentage of net sales.
Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $159.6 million for the nine-months ended September 30, 2023, an increase of approximately $13.7 million, or 9.4% higher than operating income of $146.0 million for the nine-months ended September 30, 2022. The increase in operating income for the Strategic Brands segment was primarily the result of an increase in net sales.
Operating loss for the Alcohol Brands segment, exclusive of corporate and unallocated expenses, was $25.2 million for the nine-months ended September 30, 2023, an increase of approximately $5.3 million, or 26.8% higher than operating loss of $19.9 million for the nine-months ended September 30, 2022 (effectively from February 17, 2022 to September 30, 2022). The operating losses for the nine-months ended September 30, 2023 were primarily due to expenses and infrastructure investments for the expansion of the Alcohol Brands segment.
Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $2.7 million for the nine-months ended September 30, 2023, as compared to operating income of $3.1 million for the nine-months ended September 30, 2022.
Interest and Other Income (Expense), net
Interest and other non-operating income (expense), net, was $99.0 million for the nine-months ended September 30, 2023, as compared to interest and other non-operating income (expense), net, of ($11.9) million for the nine-months ended September 30, 2022. Foreign currency transaction losses were $38.6 million and $22.9 million for the nine-months ended September 30, 2023 and 2022, respectively. Interest income was $92.1 million and $14.8 million for the nine-months ended September 30, 2023 and 2022, respectively. Interest and other income (expense), net, for the nine-months ended September 30, 2023 included the Bang Transaction Gain.
Provision for income taxes was $354.4 million for the nine-months ended September 30, 2023, an increase of $65.9 million, or 22.8% higher than the provision for income taxes of $288.5 million for the nine-months ended September 30, 2022. The effective combined federal, state and foreign tax rate decreased to 21.9% from 24.5% for the nine-months ended September 30, 2023 and 2022, respectively. The decrease in the effective tax rate was primarily attributable to the increase in the stock compensation deduction and the increase in deductible interest expense in the nine-months ended September 30, 2023.
Net income was $1.26 billion for the nine-months ended September 30, 2023, an increase of $374.1 million, or 42.0% higher than net income of $890.0 million for the nine-months ended September 30, 2022. The increase in net income for the nine-months ended September 30, 2023 was primarily due to the increase in net sales, the increase in the gross profit percentage of net sales as well as the decrease in the effective combined federal, state and foreign tax rate.
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.”
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Non-GAAP Financial Measures and Other Key Metrics
Gross Billings**
Gross billings were $2.15 billion for the three-months ended September 30, 2023, an increase of approximately $281.9 million, or 15.1% higher than gross billings of $1.87 billion for the three-months ended September 30, 2022. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $24.3 million for the three-months ended September 30, 2023.
Gross billings for the Monster Energy® Drinks segment were $1.99 billion for the three-months ended September 30, 2023, an increase of approximately $252.9 million, or 14.6% higher than gross billings of $1.73 billion for the three-months ended September 30, 2022. 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 as well as due to Pricing Actions in certain markets. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Monster Energy® Drinks segment of approximately $15.5 million for the three-months ended September 30, 2023.
Gross billings for the Strategic Brands segment were $112.5 million for the three-months ended September 30, 2023, an increase of $12.9 million, or 13.0% higher than gross billings of $99.6 million for the three-months ended September 30, 2022. Gross Billings for the Strategic Brands segment increased primarily due to increased sales by volume of our Burn® and NOS® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings in the Strategic Brands segment of approximately $8.8 million for the three-months ended September 30, 2023.
Gross billings for the Alcohol Brands segment were $43.1 million for the three-months ended September 30, 2023, an increase of approximately $15.9 million, or 58.2% higher than gross billings of $27.3 million for the three-months ended September 30, 2022. Gross Billings of The Beast UnleashedTM FMBs, which launched during the 2023 first quarter in the United States on a rolling state basis, were $19.3 million for the three-months ended September 30, 2023.
Gross billings for the Other segment were $6.7 million for the three-months ended September 30, 2023, an increase of $0.2 million, or 3.8% higher than gross billings of $6.4 million for the three-months ended September 30, 2022.
Promotional allowances, commissions and other expenses, as described in the footnote below, were $302.8 million for the three-months ended September 30, 2023, an increase of $50.3 million, or 19.9% higher than promotional allowances, commissions and other expenses of $252.6 million for the three-months ended September 30, 2022. Promotional allowances, commissions and other expenses as a percentage of gross billings increased to 14.1% from 13.5% for the three-months ended September 30, 2023 and 2022, respectively.
Gross billings were $6.25 billion for the nine-months ended September 30, 2023, an increase of approximately $730.0 million, or 13.2% higher than gross billings of $5.52 billion for the nine-months ended September 30, 2022. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $127.3 million for the nine-months ended September 30, 2023.
Gross billings for the Monster Energy® Drinks segment were $5.75 billion for the nine-months ended September 30, 2023, an increase of approximately $623.9 million, or 12.2% higher than gross billings of $5.13 billion for the nine-months ended September 30, 2022. 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 as well as due to Pricing Actions in certain markets. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Monster Energy® Drinks segment of approximately $113.5 million for the nine-months ended September 30, 2023.
Gross billings for the Strategic Brands segment were $322.8 million for the nine-months ended September 30, 2023, an increase of $29.1 million, or 9.9% higher than gross billings of $293.7 million for the nine-months ended September 30, 2022. Gross Billings for the Strategic Brands segment increased primarily due to increased sales by volume of our Burn®, NOS®, Fury® and Predator® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings in the Strategic Brands segment of approximately $13.8 million for the nine-months ended September 30, 2023.
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Gross billings for the Alcohol Brands segment were $152.3 million for the nine-months ended September 30, 2023, an increase of approximately $76.7 million, or 101.5% higher than gross billings of $75.6 million for the nine-months ended September 30, 2022. The comparative 2022 gross billings for the Alcohol Brands segment were effectively from February 17, 2022 to September 30, 2022 as we completed the CANarchy Transaction on February 17, 2022. Gross billings of The Beast UnleashedTM FMBs, which launched during the 2023 first quarter on the United States on a rolling state basis, were $74.2 million for the nine-months ended September 30, 2023.
Gross billings for the Other segment were $18.6 million for the nine-months ended September 30, 2023, as compared to gross billings of $18.4 million for the nine-months ended September 30, 2022.
Promotional allowances, commissions and other expenses, as described in the footnote below, were $866.0 million for the nine-months ended September 30, 2023, an increase of $118.2 million, or 15.8% higher than promotional allowances, commissions and other expenses of $747.9 million for the nine-months ended September 30, 2022. Promotional allowances, commissions and other expenses as a percentage of gross billings increased to 13.9% from 13.6% for the nine-months ended September 30, 2023 and 2022, respectively.
**Gross Billings represent amounts invoiced to customers net of cash discounts, returns and excise taxes. 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:
(In thousands)
Gross Billings
2,148,834
1,866,888
15.1
6,245,968
5,515,964
13.2
Deferred Revenue
10,043
9,955
0.9
29,974
30,026
(0.2)
Less: Promotional allowances, commissions and other expenses***
302,849
252,557
19.9
866,023
747,871
15.8
***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 paid 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. 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 nine-months ended September 30, 2023 and 2022, respectively. Data from any one or more quarters or periods is not necessarily indicative of annual results or continuing trends.
Sales of our products 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. 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 are less seasonal than the seasonality expected from 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 marketing and promotional expenses.
Energy Drinks:
(In thousands, except average net sales per case)
Net sales
Less: Alcohol Brands segment sales
(42,326)
(26,818)
(149,692)
(74,472)
Less: Other segment sales
(6,698)
(6,447)
(18,620)
(18,355)
Adjusted net sales1
1,807,004
1,591,021
5,241,607
4,705,292
Case sales by segment:1
165,504
150,961
479,964
447,233
37,584
31,499
103,973
88,218
Total case sales
203,088
Average net sales per case - Energy Drinks
8.90
8.72
8.98
8.79
1Excludes Alcohol Brands segment and Other segment net sales.
Net changes in foreign currency exchange rates had an unfavorable impact on the overall average net sales per case for the three- and nine-months ended September 30, 2023.
Craft Beers, Hard Seltzers and FMBs:
Alcohol Brands segment net sales
Case sales
3,034
1,696
10,581
4,807
Average net sales per case - Alcohol Brands
13.95
15.81
14.15
15.49
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 September 30, 2023, we had $1.77 billion in cash and cash equivalents, $1.24 billion in short-term investments and $52.6 million in long-term investments, including certificates of deposit, commercial paper, U.S. government agency securities, municipal securities, U.S. treasuries and corporate bonds. 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 $1.77 billion of cash and cash equivalents held at September 30, 2023, $924.7 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at September 30, 2023.
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, acquisitions 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 $500 million through September 30, 2024. 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, plant and manufacturing equipment, 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 nine-months ended September 30, 2023 and 2022 (in thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Cash flows provided by operating activities. Cash provided by operating activities was $1.28 billion for the nine-months ended September 30, 2023, as compared with cash provided by operating activities of $589.2 million for the nine-months ended September 30, 2022.
For the nine-months ended September 30, 2023, cash provided by operating activities was primarily attributable to net income earned of $1.26 billion and adjustments for certain non-cash expenses, consisting of $50.4 million of depreciation and amortization, $52.5 million of stock-based compensation, $6.5 million of non-cash lease expense and $2.8 million loss on impairment of intangibles, partially offset by the $45.4 million Bang Transaction Gain. For the nine-months ended September 30, 2023, cash provided by operating activities also increased due to a $109.8 million increase in accounts payable, a $69.8 million decrease in inventories, a $42.4 million increase in accrued promotional allowances, a $24.7 million increase in accrued liabilities, a $8.0 million decrease in prepaid income taxes, a $4.2 million increase in income taxes payable and a $3.5 million increase in accrued compensation. For the nine-months ended September 30, 2023, cash used in operating activities was primarily attributable to a $218.8 million increase in accounts receivable, a $67.4 million increase in prepaid expenses and other assets, a $19.3 million decrease in deferred revenue and a $3.6 million decrease in other liabilities.
For the nine-months ended September 30, 2022, cash provided by operating activities was primarily attributable to net income earned of $890.0 million and adjustments for certain non-cash expenses, consisting of $49.2 million of stock-based compensation and $51.2 million of depreciation and amortization and non-cash lease expense. For the nine-months ended September 30, 2022, cash provided by operating activities also increased due to a $52.7 million increase in accounts payable, an $89.2 million increase in accrued promotional allowances, a $29.7 million decrease in deferred income taxes and a $7.9 million decrease in prepaid income taxes. For the nine-months ended September 30, 2022, cash used in operating activities was primarily attributable to a $297.1 million increase in inventories, a $202.4 million increase in accounts receivable, a $39.2 million increase in prepaid expenses and other assets, a $16.1 million decrease in deferred revenue, a $12.8 million decrease in income taxes payable, a $2.6 million decrease in accrued liabilities, a $6.6 million decrease in accrued compensation and a $3.5 million decrease in other liabilities.
Cash flows used in investing activities. Cash used in investing activities was $360.0 million for the nine-months ended September 30, 2023 as compared to cash used in investing activities of $57.7 million for nine-months ended September 30, 2022.
For both the nine-months ended September 30, 2023 and 2022, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For the nine-months ended September 30, 2023, cash used in investing activities included $363.4 million related to the Bang Transaction. For the nine-months ended September 30, 2022, cash used in investing activities included $329.5 million net of cash acquired, related to the CANarchy Transaction. For both the nine-months ended September 30, 2023 and 2022, cash used in investing activities was primarily attributable to purchases of available-for-sale investments. To a lesser extent, for both the nine-months ended September 30, 2023 and 2022, 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 construction 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 plant and production equipment required to produce certain of our existing and/or new products) to develop our brand in international markets, acquisitions 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 financing activities. Cash used in financing activities was $433.8 million for the nine-months ended September 30, 2023 as compared to cash used in financing activities of $459.3 million for the nine-months ended September 30, 2022. Cash used in financing activities for both the nine-months ended September 30, 2023 and 2022 was primarily the result of the repurchases of our common stock. Cash provided by financing activities for both the nine-months ended September 30, 2023 and 2022 was primarily attributable to the issuance of our common stock under our stock-based compensation plans.
The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of September 30, 2023:
Payments due by period (in thousands)
Less than
1‑3
3‑5
More than
Obligations
1 year
5 years
Contractual Obligations1
451,257
357,971
86,632
6,573
81
7,427
10,586
15,683
12,398
15,285
Purchase Commitments2
269,941
180,921
88,511
509
782,602
556,905
190,851
19,480
1Contractual obligations include our obligations related to sponsorships and other commitments.
2Purchase 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 $3.8 million of unrecognized tax benefits have been recorded as liabilities as of September 30, 2023. It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months. As of September 30, 2023, we had $0.7 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, 2022 (“Form 10-K”).
49
Inflation
We believe inflation did not have a significant impact on our results of operations for the three- and nine-months ended September 30,2023.
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,” “estimates” 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:
51
52
53
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.
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.
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
Sep 1 – Sep 30, 2023
7,293,834
54.83
282,838
¹Excluding broker commissions paid.
²Net of broker commissions paid.
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
3.1
Second Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Form 8-K dated June 27, 2023).
3.2
Third Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to our Form 8-K dated June 27, 2023).
31.1*
Certification by Co-Chief Executive Officer pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
31.3*
Certification by Chief Financial Officer pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification by Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
32.3*
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*
The following financial information from Monster Beverage Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Income for the three- and nine-months ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three- and nine-months ended September 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three- and nine-months ended September 30, 2023 and 2022, (v) Condensed Consolidated Statements of Cash Flows for the nine-months ended September 30, 2023 and 2022, and (vi) the Notes to Condensed Consolidated Financial Statements.
104*
The cover page from Monster Beverage Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant
Date: November 6, 2023
/s/ RODNEY C. SACKS
Rodney C. Sacks
Chairman of the Board of Directors
and Co-Chief Executive Officer
/s/ HILTON H. SCHLOSBERG
Hilton H. Schlosberg
Vice Chairman of the Board of Directors