Monster Beverage Corporation

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Rodney Sachs, Chairman and CEO. Sarah, you may begin.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sachs, Hilton Schlossberg. Our Vice Chairman and President is with me today, as is Tom Kelly, our Executive Vice President of Finance. Before we begin, I'd like to remind listeners that certain statements made during this call may constitute forward-looking statements and in 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. and are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance, and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from forward-looking statements made during this call. Please refer to our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, filed on February 28, 2019, including the sections contained therein entitled Risk Factors and Forward-Looking Statements for discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. An explanation of the non-GOP measure of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes and designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated May 2, 2019. A copy of this information is also available on our website at monsterbevcorp.com in the financial information section. Consumer beverage preferences and tastes continue to evolve. and we are endeavoring to address them through our ongoing innovation of new products. In the first quarter of 2019, net sales were $946 million, up 11.2% from $850.9 million in the first quarter of 2018. Net sales in the first quarter were negatively impacted by approximately $22 million of foreign currency movements. Gross profit as a percentage of net sales was 60.6% for both the three months ended March 31, 2019, and March 31, 2018. For the quarter ended March 31, 2019, gross profit as a percentage of net sales was positively affected by increased sales prices of our products sold in North America and, to a lesser extent, product sales mix. Gross profit as a percentage of net sales was primarily negatively affected by geographical sales mix and increases in certain import costs. Distribution costs as a percentage of net sales were 3.8% for the 2019 first quarter as compared to 3.9% in the 2018 first quarter. Selling expenses as a percentage of net sales were 11% for the 2019 first quarter as compared to 11.5% in the same quarter in 2018. General and administrative costs as a percentage of net sales were 12.9% for the 2019 first quarter as compared to 12.3% in the same quarter in 2018. In the quarter, payroll expenses as a percentage of net sales were 7.7%, compared to 7.5% in the same period in 2018. Payroll costs increased $8.6 million, primarily due to headcount growth, both domestically and internationally, as well as an increase in payroll taxes. Stock-based compensation, which is a non-cash item, was $15.3 million in the first quarter of 2019, compared to $13.4 million in the same quarter in 2018. Our effective tax rate decreased from 23.3% in the 2018 first quarter to 16.8% in the 2019 first quarter. The decrease in the effective tax rate was primarily due to an increase in the deductions for equity compensation as well as the increase in profits earned by certain foreign subsidiaries in lower tax jurisdictions than the United States. Net income was $261.5 million in the 2019 first quarter compared to net income of $216.1 million in the 2018 first quarter, an increase of 21%. Diluted earnings per share for the 2019 first quarter increased 26.7% to $0.48 from $0.38 in the first quarter of 2018. We continue to make good progress on the implementation of our strategic alignment with Coca-Cola bottlers globally. In March 2019, we agreed to the assignment of the Khalil Bottling Group's distribution territories to Coca-Cola bottlers in the southwestern United States. We incurred no distributed termination costs and received no deferred revenue in connection with this assignment. We transitioned the distribution of Monster Energy drinks from Big Geyser's territory, which is located in the New York metro markets, to Liberty Coca-Cola in early April 2019. As of April 6, 2019, the United States has been fully transitioned to all Coca-Cola network bottlers. In the second quarter of 2019, Monster Energy will be launched in Azerbaijan and Saudi Arabia. We are planning further international launches later this year in EMEA. We launched Predator, our strategically preferred affordable energy brand, in Namibia and Mozambique in the first quarter of 2019. We are also planning launches of Predator in certain markets in Eastern Europe, in the second quarter of 2019, as well as in selected additional markets in Eastern Europe, Central Asia, the Middle East, and Africa throughout the second half of 2019. We launched Monster in Bolivia in the first quarter of 2019. We also launched Monster in Paraguay last week and anticipate launching in the Dominican Republic in the second quarter. In China, we completed the rollout of Monster Ultra in the first quarter. During the first quarter, we also began the launch of Monster Mango, which will continue throughout the second quarter of 2019. We have significantly expanded our shelf space for Monster with the three SKUs in our targeted top 40 cities and key accounts. We continue the rollout of Monster across India, and Monster is now available in approximately 90% of the country. We are planning additional SKU launches in India later in 2019. I will now provide a quick update on our arbitration with the Coca-Cola Company. As we have stated, our various agreements with the Coca-Cola Company restrict the Coca-Cola Company from competing in the energy drink category, with certain exceptions, including an exception relating to the Coca-Cola brand. Coca-Cola has developed three energy drink products that it believes it may market under an exception relating to the Coca-Cola brand. We believe that the exception does not apply. By mutual agreement, the issue was submitted to arbitration at the end of October 2018 for a determination of whether Coca-Cola is permitted to manufacture, market, sell or distribute these products. The arbitration proceedings are still ongoing. On the schedule, the parties agreed two months ago. Monster expects a decision from the arbitrators before the end of the second quarter. Although Coca-Cola has announced it is proceeding to launch its new energy drinks in certain countries... Without waiting for the arbitration panel to rule on the issue, Coca-Cola's entitlement to continue to sell such drinks will be governed by the outcome of the arbitration. We reiterate that whatever the outcome of the arbitration, we will continue to cooperate and work together as partners. I also wanted to take a moment to address a matter that has received some attention, Monster's litigation with Viper Pharmaceuticals, Inc., BPX, the maker of Bang Energy Drinks. Monster filed a lawsuit against BPX in September 2018 for false advertising, including false and unsupported claims that bank contains ingredients that it does not have and provides benefits that it does not generate. BPX has continually attempted to delay our lawsuit. In April, we filed a motion for a preliminary injunction, which is scheduled for hearing in June 2019. In March 2019, BPX filed a trademark lawsuit against Monster. I have two comments to make. Firstly, the lawsuit is meritless. Months after Monster publicly announced the launch of RAIN total body fuel beverages in mid-January 2019, a company related to VPX allegedly purchased an unrelated RAIN trademark for a different class of products, namely powdered dietary supplements. Monster holds trademark and use priority over VPX for its RAIN total body fuel beverages. in the clause that covers these beverages. We recently filed a reply to VPX's complaint, which sets forth our opposition in detail and asserts counterclaims against VPX for trademark infringement and unfair competition. Secondly, this lawsuit will not impede or slow the launch of rain total body fuel. As our litigation with VPX and the arbitration with Coca-Cola are subjudicated, we will not be answering questions on these matters on the call. According to the Nielsen reports, for the 13 weeks through April 20, 2019, all outlets combined, namely convenience, grocery, drug, mass, merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 9.8% versus the same period a year ago. Sales of Monster grew 1.9% in the 13-week period, while sales of Nas decreased 2.4%, and sales of Full Throttle decreased 8.6%. Sales of Red Bull increased 7.8%. Sales of Rockstar decreased by 8.6%. And sales of Five Hour decreased by 6.2%. Sales of Amp decreased 45.3%. According to Nielsen, for the four weeks ended April 20, 2019, sales in the convenience and gas channel, including energy shots in dollars, increased 9% over the same period the previous year. Sales of Monster decreased by 2.3% over the same period the previous year. while Nas was down 3.2% and Full Throttle was down 10.6%. Sales of Red Bull were up 6.7%, Rockstar was down 14.6%, Five Hour was down 8.1% and Amp was down 44.4%. According to Nielsen, for the four weeks ended April 20, 2019, Monster's market share of the energy drink category in the convenience and gas channel including energy shots in dollars, decreased by four points over the same period the previous year to 34.1%. Nasdaq share declined 0.5 share points to 3.7%, and full throttle share declined 0.2 points to 0.8%. Red Bull share decreased 0.7 of a point to 33.9%. Rockstar share was down 1.5 points to 5.5%. Five Hour share was lower by 1.1 points at 5.7%. and AmpShare decreased 0.4 of a point to 0.4%. BPX Bank's share is 8.3%, and Rain's share is 1.7%. In view of the recent launch of Rain, we are giving an update on its performance. According to Nielsen, for the one week ended April 20, 2019, in the convenience and gas channel, Rain's market share in dollars for the one week is already 2.5%, while Bangs market sharing dollars in that week is 8.3%. According to Nielsen, in the four weeks ended April 20, 2019, sales of coffee plus energy drinks, which now includes Cafe Monster and Espresso Monster in dollars, in the convenience and gas channel increased 7.8% over the same period the previous year. Sales of our Java Monster alone were 9.1% higher than in the same period the previous year. Sales of our coffee plus energy drinks were 1.3% higher than while sales of Starbucks Double Shot Energy were 9.3% higher. Our company's share of the coffee plus energy category, which includes Java Monster, Cafe Monster, Espresso Monster, Starbucks Double Shot, and Rockstar Roasted, for the four weeks ended April 20, 2019, was 53.5%, down 3.5 points. Java Monster's share on its own, for the four weeks ended April 20, 2019, was 47.3%, up 0.5 of a point, while Starbucks' double-shot energy share was 43.4%, up 0.6 of a point. According to Nielsen in the Communism Gas Channel in Canada, for the 12 weeks ended March 30, 2019, the energy drink category increased 4% in dollars. Monster sales increased 7% versus a year ago, Monster's market share increased 0.9 of a share point to 33.9%. Nozza's sales increased 2%, and its market share increased 0.1 share points to 3%. Full Throttle's sales decreased 7%, and its market share decreased 0.2 points to 1.4%. Red Bull's sales increased 4%, and its market share increased 0.3 points to 35.8%. Rockstar sales decreased 1% and its market share decreased 1.2 points to 16.4%. According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 11.5% during the month of March 2019. Monster sales increased 13%. Our market share in value increased 0.4 points to 29.1% against the comparable period of previous year. Sales of burn were down 30%. Burns' market share decreased 0.7 points to 1.2%. Red Bull's sales decreased 7.3%, and its market share decreased by 1.9 points to 9.4%. Rebay 100's sales increased 2.4%, and its market share decreased 3 points to 34.2%. Valt's sales increased 75.6%, and its market share increased 6.1 share points to 16.8%. while Boost's market share decreased 0.6 points to 7.7%. The Nielsen statistics for Mexico cover single months, which is a short period that may often be materially influenced, positively and or negatively, by sales in the OXO convenience chain, which dominates the market. Sales in the OXO convenience chain, in turn, can be materially influenced by promotions, that may be undertaken in that chain by one or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico. I would like to point out that the Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country. According to Nielsen, in the 13-week period ending March 2019, Monster's retail market share in value, as compared to the same period the previous year, grew from 11.5% to 13.2% in Belgium, from 25.6% to 26.4% in France, from 16% to 17.2% in Germany, from 18.7% to 20% in Great Britain, from 7% to 7.1% in the Netherlands, from 16.3% to 18.8% in Norway, from 8.3% to 12.4% in Poland, from 15.6% to 16.3% in South Africa, from 29.3% to 30.3% in Spain, and from 12% to 13.2% in Sweden. According to Nielsen, in the 13-week period ended February 2019, Monster's retail market share in value, as compared to the same period the previous year, grew from 11.7% to 12.9% in the Czech Republic, from 32.7% to 34.4% in Greece, from 13.7% to 15.3% in Ireland, and from 13.8% to 17.8% in Italy. According to Nielsen, for the month of March 2019 in Chile, Monster's retail market share in value increased from 34.4% to 35.9%, compared to the same period the previous year. According to Nielsen in Brazil, Monster's retail market share for the month of February increased from 13.5% to 20.2% as compared to the same period the previous year. We launched Monster Energy in Argentina in mid-February 2018. According to Nielsen, for the month of March 2019, Monster's retail market share in value increased from 4% to 23.6% compared to the same period the previous year. According to IRI in Australia, Monster's market share in value for the last four weeks ending April 7, 2019 increased from 8.5% to 8.8% as compared to the same period the previous year. Mother's market share in value increased from 12.3% to 12.9% during the same period. According to IRI in New Zealand, Monster's market share in value for the last four weeks ending March 24, 2019 increased from 6% to 7.9% as compared to the same period the previous year. Live Plus market share in value decreased from 9.8% to 9%, and Mother's market share in value increased from 6.4% to 7.5%. According to Nielsen in South Korea, Monster's market share in value in all outlets combined grew 11.4 points to 41.8% in the first eight weeks of 2019 versus the same period in 2018. According to Intage in Japan, Monster's market share in value in the convenience store channel grew from 47.9% in the 2018 first quarter to 49.3% in the first quarter of 2019. We again point out that in certain markets, statistics that cover single months may often be materially influenced positively and or negatively by promotions and or other trading factors during those months. Net sales for the Monster Energy Drink segment in the first quarter of 2019 increased 11.5% from 780.5 million to 870.4 million from the comparable period in 2018. Net sales for the Monster Energy Drink segment in the first quarter of 2019 were negatively impacted by approximately 18.2 million of foreign currency movements. Net sales for the Strategic Brand segment were 70.3 million for the first quarter as compared to 65.8 million in the same quarter in 2018. Net sales for the company's strategic brand segment in the first quarter of 2019 were negatively impacted by approximately 3.8 million of foreign currency movements. Net sales for the other segment, which includes third-party sales made by AFF, were 5.3 million in the first quarter, as compared to 4.7 million in the same quarter in 2018. Net sales to customers outside the U.S., with 284.1 million, 30% of total net sales in the 2019 first quarter, compared to 242.1 million, which was 28.5% of total net sales in the corresponding quarter in 2018. Foreign currency exchange rates had the effect of decreasing net sales in U.S. dollars by approximately 22 million. Included in reported geographic sales are ourselves to the company's military customers, which are delivered in the U.S. and front-shipped to the military and their customers overseas. In EMEA, we had another challenging quarter with supply chain and production issues, although less than in the 2018 fourth quarter, which not only affected our sales but also resulted in a number of out-of-stocks and cancellations of orders from the retail trade in certain countries in EMEA. As mentioned earlier, our Nielsen growth rates and market share continues to be strong in the territories. We are managing through these supply chain and production issues. Certain of our co-packers that contributed in part to these issues are back on track. Furthermore, we have secured and are securing additional production capacity. In EMEA, net sales in the first quarter increased 12.5% in dollars and increased 22.3% in local currencies over the same period in 2018. Gross profit in this region as a percentage of net sales for the quarter was 43.2%, compared to 44.5% in the same quarter in 2018. Growth properly in the region was also impacted by a higher percentage of Monster sales relative to sales of concentrates of our strategic brands in the region. We're also pleased that Monster continues to perform well and gain market share in Belgium, Czech Republic, France, Germany, Great Britain, Greece, Ireland, Italy, the Netherlands, Norway, Poland, South Africa, Spain, and Sweden. In Asia Pacific, net sales in the first quarter increased 29.6% in dollars and 34.2% in local currencies over the same period in 2018. Gross profit in this region as a percentage of net sales was 42.2% versus 42.8% over the same period in 2018. In Japan, net sales in the quarter increased 4.5% in both dollars and in local currencies. In South Korea, net sales increased 198.5% in dollars and 212.5% in local currency, as compared to the same quarter in 2018. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales increased 5.7% in dollars and 14.6% in local currencies, as compared to the same quarter in 2018. In Latin America, including Mexico and the Caribbean, net sales in the first quarter increased 18.4% in dollars and 34.6% in local currencies over the same period in 2018. Gross profit in this region as a percentage of net sales was 43.6% versus 46.5% over the same period in 2018. Net sales in Brazil were significantly impacted by foreign currency movements in the quarter. Net sales in the quarter decreased by 11.7% in dollars and increased 2.9% in local currency. Net sales in Chile increased 77.9% in dollars and 95.4% in local currency in the quarter. Turning to the balance sheet, cash and cash equivalents amounted to $618.3 million at March 31, 2019. compared to $637.5 million at December 31, 2018. Short-term investments were $263.7 million at March 31, 2019, compared to $320.7 million at December 31, 2018. Net accounts receivable increased to $596.7 million at March 31, 2019, from $484.6 million at December 31, 2018. Days after daily for accounts receivable were 49.9 days at March 31, 2019 compared to 41.4 days at December 31, 2018. Inventories increased to $300.8 million at March 31, 2019 from $277.7 million at December 31, 2018. Average days of inventory were 72.7 days at March 31, 2019, compared to 67.2 days at December 31, 2018. We have successfully launched Monster Energy Ultra Paradise, a line extension in our Monster Ultra family, in February 2019, as well as an additional two flavors of Hydro, Hydro Manic Melanin, and Hydro Mean Green in 25.4-ounce PET bottles. In addition, we built out the NOS family in the quarter with the launch process, of Noz Sonic Sour and a rebranding of Noz Rowdy Punch to Noz Power Punch. We also extended the Java Monster Swiss Chocolate lead launch from 2018 to all customers in February 2019 and added two flavors in our Dragon Tea line, Green Tea and Yerva Marty, which launched in March. We have repositioned our Monster Rehab White Dragon Tea to be included in the new Monster Dragon Tea line Finally, in March, we launched Rain Total Body Drill in six flavors. Initial results have been positive. During January 2019 in Canada, we launched two additional line extensions of Monster Hydra, namely Purple Passion and Zero Sugar, as well as Monster White Dragon Tea. In March, we launched our Cafe Monster line in 13.7-ounce receivable glass packages. In Mexico, we launched Mangaloka in April 2019. During the first quarter of 2019, we launched Pacific Punch in the Caribbean and extended our range in Puerto Rico. In Chile, during the first quarter of 2019, we launched Monster Absolutely Zero. In Argentina, we launched Monster Ultra. Initial results have been positive. In the first quarter of 2019, we launched Monster Mangaloka in Norway, the Netherlands, Poland, Italy, and the Baltics. Monster Mangaloka will be launched in another 12 EMEA markets in the second quarter of 2019. Monster Pipeline Punch was launched in Ireland. We also launched Espresso Monster and Espresso Monster Vanilla in Germany and Spain. We are planning to continue the rollout of our Espresso Monster line across Western Europe in the second quarter of 2019. We launched Black Monster Ultra in Russia in the first quarter of 2019 and and continued the rollout of additional SKUs in the Monster Ultra range in EMEA markets, specifically Monster Ultra Blue in Great Britain and Island and Monster Ultra Violet in the Baltics in the first quarter of 2019. Various SKUs in the Monster Ultra line are now sold in 39 EMEA markets. In Australia, we successfully launched a new Mother Flavor Tropical Blast in February with good initial results. We launched Monster Mango in China in March and continued with our rollout of Monster Ultra. We plan to launch a number of products in Asia Pacific later this year. As I mentioned earlier, we implemented a price increase of approximately 4% on our Monster Energy portfolio to our US customers effective November 1, 2018. We are satisfied with the initial results of the implementation of this price increase. Promotional expenses as a percentage of gross sales decreased in the first quarter of 2019. We increased the prices of our concentrate for NAS and full throttle, effective January 1, 2019, by approximately 1.5%. We also implemented a price increase of approximately 3% to our Canadian customers, effective February 1, 2019, for the Monster Energy NAS and full throttle lines. We estimate April 2019 gross sales to be approximately 15.6% higher than in April 2018. On a foreign currency adjusted basis, April 2019 gross sales would have been approximately 18.9% higher than comparable April 2018 gross sales. There was one more selling day in April 2019 than in April 2018. In this regard, we caution again that sales over a short period are often disproportionately impacted by various factors, such as, for example, selling days, days of the week in which holidays fall, timing of new product launches and the timing of price increases and promotions in retail stores, distributor incentives, as well as shifts in the timing of production, in some instances where our bottlers are responsible for production and unilaterally determine their production schedules. which affects the dates on which we invoice such bottlers as well as inventory levels maintained by our distribution partners, which they alter unilaterally for their own business reasons. We reiterate that sales over a short period, such as a single month or even two months, should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. During the 2019 first quarter, the company purchased approximately 2.6 million shares of common stock at an average purchase price of 54.18 per share for a total of 139 million, excluding broker commissions. As of May 2, 2019, approximately 520.6 million remains available for repurchase under our previously authorized repurchase program. In conclusion, I would like to summarize some recent positive points. One, Retail sales statistics from many countries around the world demonstrate that the energy category is continuing to grow and that Monster is generally growing ahead of the category in line with earlier periods. Two, new additions to the Monster family continue to add to the company's sales. Three, we are excited about the prospects for our brands and our new product launches. Four, in particular initial results for our rain total body fuel high performance energy drinks which launched in March, are positive and we are encouraged by the prospects for this line. Five, we are pleased with our performance in our international markets and reiterate the growth potential for us in China and India. Six, we are continuing with our plans to launch Monster Energy drinks with Coca-Cola bottlers in certain new markets. Seven, we are also proceeding with our plans for future launches of our affordable energy brands internationally and also evaluating the launch of RAIN total body fuel high performance energy drinks in countries outside of the USA in the second half of 2019. I would like to open the floor to questions about the quarter. Thank you.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then the number one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then one to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. In the interest of time, we ask that you refrain yourself from asking one question. And our first question comes from the line of Steve Powers with Deutsche Bank. Your line is now open.

Steve Powers Hey, guys. Thanks. I guess there's a lot to ask about, but I guess maybe we'll just start on your thoughts on U.S. pricing relative to competition. And now that you've got your innovation out in the marketplace, should we expect to see incremental promotional dollars allocated to those initiatives? And I guess how much do you think those initiatives will be allocated against Reign versus against the base Monster franchise? I guess what I'm really asking about is, you know, How much, if at all, do you think incremental promotional investment is likely to offset the list price increases you took late last year as you go forward throughout the balance of 19?

Okay, well, Steve, you'll see that in this quarter when you analyze the results that we actually had improved promotional allowances in this quarter. So the promotional allowances are reducing. However, in the next quarter, We're planning, and this is already planned, nothing to do with any sales or sales mixes, but we've already planned a BOGO, which is a buy one, get one, ready to get rain activated more intensively than it was with the launch. It was part of the launching plan, and you'll see that happen in the second quarter. Apart from anything else, We are watching the market. We're watching Red Bull's pricing very carefully, and we'll make adjustments if we think it will have a long-term impact. However, what we see, and you'll see that as well, is the majority of Red Bull's growth is actually coming from innovation.

Okay, great. So just to follow up quickly, The big incremental innovation is tied to the launch of RAIN, which I think makes sense. And then now you have Ultra Paradise and some of your newer monster SKUs in the marketplace. Any incremental promotion, it sounds like from what you just said, we should assume goes to those new innovations as opposed to against the base SKUs. Is that a fair way to think about it?

I'm not sure I've said that. When we promote monster, we promote the life. But what I did say was that with regard to rain, you will see a special promotion in the ensuing quarter, which will be due to a previously planned BOGO, which is buy one, get one, to really kickstart the launch of rain.

Perfect. Okay. I think the point is during the quarter, we had some timing differences on our promotions earlier, Last year in the first quarter where we didn't have the same depth of promotion as this year, but going into the second quarter, we will be promoting Monster Ring, you know, pretty much in accordance with the normal promotional schedule that we planned for summer.

Yeah, I think Steve's question was whether because of the pricing, the increased pricing, it will be more excessive, and the answer is no. Correct.

Yeah, okay, that's clear. Thanks, guys.

Okay. Thank you. And our next question comes from the line of Judy Hong with Goldman Sachs. Your line is now open.

Thank you. Hi, everyone. Hi, Judy. I guess I wanted to ask about RAINN more specifically whether or how much it contributed to 1Q sales as well as the April sales, because obviously there's a pretty big divergence in terms of the Nielsen numbers and your reported numbers. And then I guess more broadly on range, maybe just talk a little bit more about the performance of the brand so far. How much do you think is taking share away from Bang versus maybe expanding the category or how much is sort of cannibalizing your brand and how quickly do you think that we can get to full distribution? Thank you.

On the contribution of Rain contributed about $25.5 million of sales to the first quarter. Net sales. Net sales. We're not going to go into the number in April. We give the gross numbers as opposed to breaking that up. And I think, Judy, to answer the balance of your question, I think it's just too early for us to tell exactly what is taking from what. You can see the numbers from Nielsen. There has been some effect. Obviously, there is a new entrant and participant in the category that is taking share from all the products. But ultimately, we do believe that rain will continue to increase in sales and establish itself. That is the reason why we're actually looking at the first promotion we've got with rain. It hasn't been promoted until now. And so you're going to get the first promotion coming through in the second quarter on rain. and we will continue to build out. We did get some pretty good distribution initially from the Coke bottlers, but it will continue to build out as we go into the second quarter.

Thank you. Just to add to that, Judy, it's really the launch has exceeded our expectations.

Thank you. And our next question comes from the line of Mark Atherton with Spiegel. Your line is now open.

Hey, afternoon, guys. I wanted to ask a question on white space and opportunity for products. So you commented on Altra being available in, I think, 38 EMEA markets. It got me thinking. So how do you think about U.S. innovation in terms of what the white space would be for existing franchises as well as just new franchises? Where are you putting this stuff on shelves, meaning it seems like rain is getting on a new shelf? Is that fair? How do you think about the existing energy shelves? And then outside of the U.S., how do you think about taking successful innovation like hydro, Java, and taking it global? Where are you in the rollout of SKUs versus where it could be? Obviously, there's a lot to that, and so maybe just kind of broader strokes of how you think about what the opportunity can be. I think that would be helpful.

I think we mentioned this, Mark, on previous calls, where a determination is made together with the local management in each country about which SKUs we should launch, which SKUs are appropriate to the consumer needs in that country. And there's a rollout which is dependent on opportunities. And you've seen we've done that. I mean, on this call, we mentioned a number of countries where we have launched additional SKUs. and we will continue to do so. But the one thing we will not do is roll out all our SKUs in all our countries because that's not a good approach to addressing a market. In China, for example, we already have three SKUs. We have the original Monster, we have Ultra, and we have Mango. So we have three SKUs now in China. And if you look at other countries, we've successfully and successively done that. In the EMEA, we've done that, and we continue to do that.

But, you know, in most of these countries, we really are – there isn't a cookie-cutter sort of formula. We look at the countries. We obviously try and launch with Monster Green to establish the Monster brand because that's what it stands for. But from then on, we look at the individual countries, their flavor preferences, their And you'll find that our second and third SKU in many countries differ from country to country. And then depending on the response we get, in some cases we've had very good response to Ultra. We've then changed track and basically started to launch more of the Ultra product than perhaps some years ago we were launching more of the Juice product. And so the order has changed a little bit. Mango's got very well received. Pipeline has been very well received internationally. So we've really elevated those SKUs. basically looking in some countries. There are some countries where we're finding that actually there's a good reception to our rehab line. Now, rehab, it may not go into that form. It may go in the form of a T-line because rehab has less meaning in foreign countries than it has in the U.S. because of the origin of rehab. But there is some opportunities for T-lines in some countries, and we are looking at that into non-COVID. And as you've then seen, we have taken the step after some testing to look at COFI. In Europe, we think that market is, we're going to expand that market with Espresso, and we are also looking at some other potential coffee products into the UK market. Again, looking at shelves and keeping abreast of growth and innovation in those markets, we do see good opportunity for that. look at that and, again, reach the right progression in other countries, we will look at other growth opportunities. But we're going to follow a policy of looking at it country by country as we advance in the country, as the bottler is able to handle it and we feel it's right to continue to grow. That will continue to build out. Over years, our portfolio is going to continue to grow, continue to build out internationally. In the U.S., While we've launched and we believe there is, the energy shelf is pretty impacted at the moment. So we're looking to get new space for this high performance category incremental. In some cases, in order to, because of timing and because of reset, in order to get products on shelf, it has been put onto the energy shelf. But in many cases, we are achieving additional space and we also have, we believe most of the retailers or agreed that there should be additional space allocated to this high-performance category. It is a profitable category for the retailers. It's a higher ring. And so we believe we will see additional space being allocated to energy, basically to accommodate the new high-performance products. So we believe we will overall end up with increased shelf space.

And Mark, to reinforce that earlier comment, there's certain flavor profiles that do really well overseas and don't do well in the US. For example, one of my favorite Monster products was the Ultra Citron. And a decision was taken that we probably should discontinue it in favor of other Ultra products. And that Ultra Citron has been launched in a bunch of international countries, Japan, Korea, and a bunch of countries across Europe because of its less sweet profile. So each country will determine, obviously with directions from the center, the products that best suit the consumer needs in those countries.

I think it hasn't been launched yet in Japan. Korea.

Thank you.

I think it has.

I believe it has. The concept is that there may be products that will succeed in other countries that we may not even launch in the U.S., or they may launch and be discontinued in the U.S.

Agreed. Thank you. And our next question comes from the line of Amit Sharma with BMO Capital Markets. Your line is now open.

Hi, good afternoon, everyone.

Hi.

Rodney, if we take the rain out from Q1 sales and look at the rest of the U.S. portfolio, around 4.2%, 4.3% gross, right? And most of that coming from pricing. And you talked about that, like you will watch Red Bull prices. Like at what point do you get worried about the volume performance of the core monster brand in the U.S.? ? And adjust prices accordingly.

You know, I think we've got a whole beverage portfolio. And, you know, you've got to take the portfolio as a whole. And in time, I think that we did, you know, I mentioned, I think, earlier that For timing reasons, there were certain promotions that we had done last year that fell into earlier periods where we had some Nielsen updates that didn't get repeated this year. They're falling probably into the second quarter now. Overall, we're comfortable with the brand. There is a sort of change going on in the industry at the moment. There's a change in obviously finding shelf space. People are trying some of these new high-performance drinks. We think a lot of that will start. The noise will start settling down. We think there will be growth. Overall, we're comfortable with our innovation. Ultra Paradise has now got onto the shelves and is really doing well. Our innovation in coffee, the Swiss coffee is doing well. We have additional innovation planned in the Monster line later in the year. And so we are comfortable that overall we will continue to grow.

Yeah, I mean, just remember that our launches took place February the 25th for Hydro, for those two new flavors in 750, for Java, the Swiss chocolate, for Ultra Paradise, Nas, Sour Apple, that was all February the 25th. And in March the 25th, we had Rain and we had Dragon Tea. So the launches took place really towards the end of the quarter. But as I said earlier, we will be monitoring Red Bull, and we'll take whatever steps are necessary to ensure that the business continues to grow.

Thank you. And our next question comes from the line of Laurent Grandet with Guggenheim Partners. Your line is now open.

Yeah, good evening, Rodney and Hilton, and congrats on the strong quarter. I would try to have a second shot at grain. because we don't have so much, I mean, Nielsen reliable numbers for now. So I think you said rain was representing about 2.5% in the last week of April, and when bang was about 8.3%. I guess I'm correct. Yes, that's correct, yes.

So it seems like... Market share, yes, in market share.

So it seems like if you add up those two, I mean, it seems like, I mean, rain represents about 23% of the new category. That's a great result just after six weeks, especially as you are roughly in just half of the stores a bank is available by your account. So do you have any qualitative feedback, at least from retailers, in terms of sales, especially in stores that sell both bank and rain that you could share with us that would be helpful? Thank you.

Well, we've got some information from some of our major convenience retail partners on SKU, sort of comparative SKUs, and they are trending by and large at a higher percentage than is shown in the Nielsen numbers. But because of the fact that we buy it and it's not something that we generally go into and verify as carefully, we don't want to quote them on the on this call but you know we do the numbers we are seeing out of the top chains is showing a higher as i said a higher comparable number which is positive for us and we i think we've just got to be a bit patient and wait for the numbers to start coming through generally and then we'll start seeing the sales point as well as the distribution overall

Thank you. And ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Rodney for any closing remarks.

On behalf of Monster, I'd like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy and remain committed to continuing to innovate, develop, and differentiate our brands and to expand the company both at home and abroad, and in particular, expand distribution of our products through the Coastal Lobotla system internationally. We are also particularly excited about new opportunities that we have going forward with a portfolio of energy drink products throughout the world comprised of our Monster Energy brand together with our strategic brands as well as Hydro, Mutant, Predator and Rain. Thank you very much for your attention and attendance.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program and you may all