Monster Beverage Corporation

Good afternoon and welcome to the Monster Beverage Corporation fourth quarter and full year 2019 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then 2. I would now like to turn the conference over to Mr. Rodney Sachs, Chairman and CEO, and Mr. Hilton Schlossberg, Vice Chairman, President, and CFO. Please go ahead.

Hi. Thank you. Good afternoon, ladies and gentlemen. Thanks for attending this call. I'm Rodney Sachs, Hilton Schlossberg, Vice Chairman and President. He's with me 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 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 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 the 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. and our most recent quarterly report on Form 10Q, filed on November 7, 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 Our non-gov 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 February 27, 2020. A copy of this information is also available on our website at monsterbevcorp.com in the financial information section. We are planning to leave... some more time for questions on today's call and on subsequent calls. With that in mind, we will not repeat many of the numbers covered in our earnings release. Consumer beverage preferences and tastes continue to evolve at an increasing pace, and we are endeavouring to address them through our ongoing innovation of new products. In the fourth quarter of 2019, net sales were $1.02 billion, up 10.1%, from $924.2 million in the fourth quarter of 2018, adjusting the 2018 fourth quarter for advanced purchases made following our November 1, 2018 price increase in the U.S., as well as foreign currency movements, net sales for the 2019 fourth quarter would have been up 7.5%. Diluted earnings per share for the 2019 fourth quarter increased 9.7%, to 47 cents from 43 cents in the fourth quarter of 2018. According to the Nielsen report for the 13 weeks through January 25, 2020, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 7% versus the same period a year ago. Sales of the company's energy brands, including rain, grew 3.7% in the 13-week period. Sales of Monster were down 3.9%, sales of NAS decreased 4.3%, and sales of Full Throttle decreased 13%. Sales of Red Bull increased 5.5%, sales of Rockstar decreased by 7.4%, sales of Five Hour decreased 5.5%, and sales of AMP decreased 37.2%. As there were no comparable sales of our rain product last year, we have not referenced rain. According to Nielsen, for the four weeks ended January 25, 2020, sales in the convenience and gas channel, including energy shots in dollars, increased 5.7% over the same period the previous year. Sales of the company's energy brands, which include rain, grew 4.1% in the four-week period in the convenience and gas channel. Sales of monster decreased by 4.2% over the same period the previous year. Mars was down 4.9% and full throttle was down 13.3%. Sales of Red Bull were up 5.9%, Rockstar was down 8.6%, Five Hour was down 5.8% and Amp was down 31%. According to Nielsen, for the four weeks ended January 25, 2020, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased by 0.6 of a point over the same period the previous year to 40.8%. Monster's share decreased 3.4 share points to 33.2%. Rain's share was 3.4%. Nozzer's share declined 0.4 of a share point to 3.5%. And Full Throttle's share declined 0.2 points to 0.8%. Red Bull's share increased 0.1 points to 33.4%. Rockstar's share was down 0.9 points to 5.5%. Five-hour share was lower by 0.7 points at 5.6%, and amp share decreased 0.2 points to 0.4%. VPX bank share increased 2 points to 7.6%. According to Nielsen, for the four weeks ended January 25, 2020, sales of coffee plus energy drinks, which includes Cafe Monster and Espresso Monster in dollars in the convenience and gas channel increased 6.3% over the same period the previous year. Sales of our Java Monster alone were 5.5% higher than in the same period the previous year. Sales of our coffee plus energy drinks were 2.7% lower, while sales of Starbucks energy were 15.2% higher. Our company share of the coffee plus energy category, which includes Java Monster, Cafe Monster, Espresso Monster, Starbucks Double Shot and Triple Shot, Rockstar Roasted and Bank Keto Coffee for the four weeks ended January 25, 2020. with 52.6% down 4.9 points. Java Monster's share on its own for the four weeks ended January 25, 2020, was 49.2%, down 0.4 of a point, while Starbucks Energy's share was 45%, up 3.5 points. According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended January 4, 2020, the energy drink category increased 5% in dollars. Sales of the company's energy drink brands were flat versus a year ago. The market share of the company's energy drink brands was 37.1%, down 2.2 points. Monster's market share decreased 1.7 points to 33.2. NASA's sales decreased 2%, and its market share decreased 0.2 share points to 2.7%. Full Throttle's sales decreased 10%, and its market share decreased 0.3 points to 1.2%. Red Bull sales increased 7% and its market share increased 0.4 points to 36.2%. Rockstar sales increased 6% and its market share increased 0.2 points to 16%. According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 20.9% for the month of December 2019. Monster sales increased 11.9%. Our market share in value decreased 2.3 points to 29.3% against the comparable period the previous year. Sales of Byrne were down 77.5%. Byrne's market share decreased 1.2 points to 0.3%. Red Bull's sales decreased 8.1% and its market share decreased by 2.5 points to 7.8%. Vive 100's sales decreased 5.3% and its market share decreased by 6.7 points to 24%. Volf's sales increased 47.2% and its market share increased three share points to 16.8%, while Booth's sales decreased 5.5% and its market share decreased 2.2 points to 8%. AMPA, an affordable energy brand launched in March 2019, increased its market share to 9.4% in the month of December 2019. Coca-Cola energy market share was 3.5% in the month of December 2019. 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. According to Nielsen, for the month of December 2019 compared to December 2018, Monster's retail market chain value increased in Argentina from 16.9% to 33.5%, in Brazil from 19.6% to 27.4%, and in Chile from 34.9% to 39.8%. I'd 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 and are reported on varying dates within the month referred to from country to country. According to Nielsen, in the 13-week period ended January 25, 2020, Monster's retail market share in value, as compared to the same period the previous year, grew from 12.7 to 12.8% in Belgium, from 24.8% to 28.2% in France, from 16.4% to 17% in Germany, from 20.3% to 21.9% in Great Britain, from 17.8% to 24.9% in Norway, from 31.7% to 34.5% in Spain, but declined from 7.3% to 6.1% in the Netherlands and from 13.8% to 12.8% in Sweden. According to Nielsen, in the 13-week period ended in December 2019, Monster's retail market share in value as compared to the same period the previous year grew from 13.3% to 13.6% in the Czech Republic, from 33.6% to 34.7% in Greece, from 18.8% to 23% in the Republic of Ireland, from 18.1% to 20.6% in Italy, and from 10.9% to 14.5% in Poland, and from 15.8% to 17.4% in South Africa. According to IRI in Australia, Monster's market share value for the four weeks ended December 29, 2019, increased from 7.9% 7.5% to 9.3% as compared to the same period the previous year. Mother's market share in value decreased from 13.5% to 12.5% during the same period. According to IRI New Zealand, Monster's market share in value for the four weeks ended December 29, 2019 increased from 5.6% to 6.3% as compared to the same period the previous year. Live Plus market share in value decreased from 8.5% to 8.2%, and Mother's market share in value increased from 7.8% to 9.6%. According to Nielsen in South Korea, Monster's market share in value in all outlets combined for the quarter ended December 2019 grew from 37.6% to 50.6% as compared to the same period in the previous year. Monster is now the leading energy brand by market share in value in all outlets in South Korea. According to Intage in Japan, Monster's market share in value in the convenience store channel for the 13-week period ended December 30, 2019, grew from 46.7% to 54.2% as compared to the same period in the previous year. We again point out that certain market statistics that cover single months or four-week periods may often be materially influenced positively and or negatively by promotions or other trading factors during those periods. Net sales to customers outside the U.S. were $319.6 million, 31.4% of total net sales in the 2019 fourth quarter compared with 274.3 million or 29.7% 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 $9.1 million. Included in reported geographic sales are our sales to the company's military customers, which are delivered in the U.S. and transhipped to the military and their customers overseas. In EMEA, supply chain and production issues have largely been resolved. In EMEA, net sales in the fourth quarter increased 8.6% in dollars, and increased 12.8% in local currencies over the same period in 2018. Growth profit in this region as a percentage of net sales for the quarter was 38.7% compared to 42.1% in the same quarter in 2018. Growth profit percentage for the region was impacted by country and product mix. We are also pleased that Monster continues to perform well and gained market share in Belgium, Czech Republic, France, Germany, Great Britain, Greece, Italy, Norway, Poland, the Republic of Ireland, South Africa and Spain. In Asia-Pacific, net sales in the fourth quarter increased 49.9% in dollars and 47.9% in local currencies over the same period in 2018. Gross property in this region as a percentage of net sales was 40.2% versus 46.1% over the same period in 2018 as a result of country and product mix. In Japan, net sales in the quarter increased 84.2% in dollars and 76.8% in local currency. In South Korea, net sales increased 51.5% in dollars and 58.5% 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 decreased 4.1% in dollars and increased 0.8% in local currencies. I'd like to point out that sales of the Monster brand increased 18.4% in dollars and 24.5% in local currency as compared to the same quarter in 2018. In Latin America, including Mexico and the Caribbean, net sales in the fourth quarter increased 6.9% in dollars and 16.2% in local currencies. over the same period in 2018. Gross profit in this region as a percentage of net sales was 42.6% compared to 44.7% over the same period in 2018. In Brazil, net sales in the quarter increased by 35.8% in dollars and increased 44% in local currency. Net sales in Chile decreased 14.8% in dollars and 17.8% 7.6% in local currency in the quarter. In January 2020, Monster Energy was launched by the Coca-Cola bottler in Israel. We continued the rollout of Monster across India and began the launch of Mangaloka in December. We also continued Ultra White's expansion from September's launch to further provide a broad portfolio with strong taste experiences for Indian consumers. The monster range continued to build significant active distribution increases across China in the 2019 fourth quarter versus a year ago, but the situation in China is currently challenging. I wanted to provide an update regarding the recent coronavirus or COVID-19 outbreak. First of all, our number one priority is the safety of our employees in China. We are thinking of everyone who has been affected by coronavirus and we continue to monitor the situation closely. In addition to having employees in China, we and our suppliers currently globally source certain ingredients from third party manufacturers in Wuhan and other parts of China. We also manufacture finished goods through third party bottlers and co-packers in China. The coronavirus outbreak could adversely affect our business and cause disruptions internationally due to the closure or suspension of activities at such third party manufacturers. as well as within China at our co-packing facilities and our China office. Ingredient sourcing delays could also interfere with and will delay production of certain of our products internationally. In addition, the outbreak together with any accompanying special government measures could adversely affect the growth of our business in China and affect demand for our products. However, it's too early to determine what impact it will have on our global supply chain and our operations. As I said before, our first priority is employee safety and we are continuing to monitor the situation closely. I will now briefly discuss our litigation with Vital Pharmaceuticals Inc., VPX, the maker of Bang Energy Drinks. Monster filed a lawsuit against VPX in September 2018 for false advertising. VPX filed a trademark lawsuit in March 2019 against Monster in relation to our rain total body fuel high performance energy drinks. and another lawsuit in August 2019 against Monster alleging a host of legal challenges, including many similar to the claims Monster alleged against VPX. These proceedings are ongoing. In October 2019, the U.S. District Court denied VPX's motion for a preliminary injunction against our rain total body fuel high performance energy drinks in its trademark lawsuit. In its decision, the court ruled that VPX failed to meet any of the elements of a preliminary injunction and failed to establish that it is likely to succeed on the merits of its claims. In October 2019, VPX announced its intention to launch its own line of rain-branded energy drinks in 16-ounce cans to be sold in convenience stores. Later that month, we filed an expedited motion for a preliminary injunction asking the court to stop this product launch and prevent VPX from infringing Monster's trademark rights in this way. In November 2019, VPX stipulated that it would refrain from launching such products until the District Judge entered a final order on the preliminary injunction motion. In January 2020, the Magistrate Judge issued a report and recommendation that an injunction be granted in Monster's favour. Motions for summary judgment have been filed by Monster in this proceeding and which are currently pending. In the event that summary judgment is not granted, the matter is scheduled for trial in May 2020. As this litigation and other pending proceedings with VPX are subjudicated, we will not be answering any questions on this matter on today's call. In October, we launched Java Monster Farmer's Oats, which contains oat milk and is our first plant-based coffee product, being non-dairy and vegan, as well as two new flavors in the Rainbrand family, Strawberry Sublime and Mangomatic to supplement our Rain Orange Dreamsicle line extension, which was launched at the end of the third quarter. During the fourth quarter of 2019, we also extended Ultra Paradise, Rain Melanomania, and Rain Razzleberry in multipacks. In 2020 in the United States, we will be discontinuing our Cafe Monster line of products and repositioning our Espresso Monster line. We launched Rain Inferno Thermogenic Fuel in Jalapeno Strawberry, Red Dragon, and True Blue at the end of January 2020. We launched Mango Loco in Argentina during the fourth quarter of 2019. In Puerto Rico in January 2020, we launched Rain Strawberry Sublime and Mangomatic, as well as Muscle Monster Vanilla and Chocolate. We launched Monster Energy Monster Energy Absolutely Zero and Monster Energy Valentino Rossi in Israel in January 2020. Monster Pacific Punch was launched in Belgium, Great Britain, Northern Ireland, the Republic of Ireland in January 2020 and is planned to be launched to a further seven markets in 2020. Monster Pipeline Punch will be launched in the Baltics and Norway this year and will then be available in 17 markets across EMEA. Monster Ultra Paradise was launched in Great Britain, Northern Ireland and the Republic of Ireland in January 2020 and in Sweden in February 2020 and is planned to be launched into a further 18 markets throughout 2020. Espresso Monster was launched in Belgium, the Republic of Ireland and Poland in the fourth quarter of 2019 in both milk and vanilla variants. We also launched both variants in the Baltics, the Netherlands and Portugal in January 2020. and in Austria in February 2020. Espresso monster milk and vanilla variants are now available in 14 markets in EMEA. We are planning to roll out two flavors of Espresso Monster into a further nine markets throughout 2020. Additionally, we have launched Espresso Monster salted caramel in Germany and Great Britain in December 2019. We are planning to roll out our salted caramel espresso variants in a further five EMEA markets throughout 2020. Rhein was launched in Great Britain, Northern Ireland, and the Republic of Ireland in the fourth quarter of 2019, and we are planning to launch Rhein in Germany by the end of the first quarter of 2020. Additionally, we are planning to launch into a further seven markets throughout 2020. Monster Hydro Sport was launched in Germany, Great Britain, Northern Ireland and the Republic of Ireland in the fourth quarter of 2019 and in France in January 2020. We are planning to launch Hydro Sport in Norway and Sweden by the end of the first quarter of 2020. We launched Predator, our affordable energy brand, in Kenya and Uganda in the fourth quarter of 2019. Additionally, we launched Predator in Poland in January 2020 and are planning to launch Predator in Afghanistan, Czech Republic, Ghana, and Hungary in the first quarter of 2020. We're also planning to launch Predator into a further 11 EMEA markets throughout 2020, Azerbaijan, Belarus, Bosnia, Croatia, Ethiopia, Iraq, Russia, Slovenia, Nigeria, the Netherlands, and the UAE. We launched Mother Epic Swell in Australia during the fourth quarter of 2019, with a convenience customer before a national launch in January 2020. Monster Mule also launched in Australia in January 2020. In South Korea, we further expanded Pipeline Punch to 90% of convenience stores with initial positive results. We launched Mango Loka in India during December and completed Ultra White's rollout in India, Vietnam and Malaysia during the 2019 fourth quarter. We are planning to launch a number of products in Asia Pacific over the upcoming months including a full country relaunch of Pipeline Punch in Japan in March 2020 and Ultra Paradise in South Korea and Japan later this year. We estimate January 2020 gross sales to be approximately 15.3% higher than in January 2019. On a foreign currency adjusted basis, January 2020 gross sales would have been approximately 15.7% higher than comparable January 2019 gross sales. January 2020 had the same number of selling days than in January 2019. 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 products of results for a full quarter or any future period. In conclusion, I'd like to summarize some recent positive points. Retail sales statistics from many countries around the world demonstrate that the energy category is continuing to grow, that Monster is generally growing ahead of the category in line with earlier periods. New additions to the Monster family continue to add to the company's sales. We are excited about the prospects for our brands and our new product launches this year. as well as our innovation pipeline in 2020. We're encouraged by the prospects for our rain total body fuel, high-performance energy drinks, and rain inferno thermogenic fuel, high-performance energy drinks, not only within the US, but also internationally. We are pleased with our growth and performance in our international markets. Net sales in the fourth quarter in EMEA increased 12.8% in local currency in Asia Pacific increased 47.9% in local currency, and in Latin America and the Caribbean increased 16.2% in local currency. We reiterate the growth potential for us in China and India. We are proceeding with our plans for future launches of our affordable energy brands internationally. We are also proceeding with our plans for the launch of rain turtle body fuel high-performance energy drinks in certain countries outside of the USA. I would like to open the floor to questions about the quarter and the year.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Due to time constraints, we ask that you please limit yourself to one question. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. And our first question comes from Dara Mohsanan of Morgan Stanley. Please go ahead.

Hey, guys. Hi, Dara.

Hey, Dara.

Gross margins returned to year-over-year expansion in the quarter after fairly significant compression, generally the last couple of years. So can you just discuss some of the key factors that drove that sequential year-over-year improvement in Q4, and if you think those factors are more sustainable as we look out to 2020? And then just on the U.S. front, can you discuss your shelf space outlook and particularly with the Koch Energy launch, and if you think you've seen any market share impact from the Koch Energy launch so far. Thanks.

So maybe I can address the gross profit issue that you referred to. So if you look at worldwide, the positive factors worldwide were obviously the price increase in the U.S. and Canada, and then product mix growth. particularly with rain, which is a better gross margin than some of our juice and coffee products. We also had benefits in phase 10 because we were manufacturing our Java monsters domestically and we weren't importing from the US. And aluminum and other raw materials were a positive factor. So that was the positives. Against that, we continually to have, and you'll see the gross margins that we refer to on this call. Against that, you'll continually see a change in the strategic brands versus the monster products. And the strategic brands, because they are concentrates, they have higher margins than the finished goods products. So you'll continue to see that as an offset. You'll continually see geographic mix as an issue because, obviously, in the U.S., our margins are strong. They are less strong in other parts of the world for all the reasons we've spoken to in the past. And you'll see the same trend with regard to product mix. Internationally, as we sell more juice products and more coffee products, they have a lower margin than the traditional market. monster products and rain products. So that's in a nutshell where we are with margin.

Our next question comes from Andrea Taxiera of JPMorgan. Please go ahead.

Hi, thank you for taking my question. If you can comment on how the launches, in particular Rain Inferno, and how incremental it has been to your quarter-to-date And as a follow-up to your coronavirus commentary, obviously safety is the most important at this point, but what is your view on the monitoring in California and overall changes in mobility? Have you seen any greater impact in convenience stores so far against other channels? Thank you.

Perhaps I'll just take the – Inferno has been really well received. The initial, you know, it's really new to tell, but the sales have been good. The line extensions that we introduced into the rain line, including particular Orange Dreamsicle, have also been well received. So the numbers are looking really positive for Orange Dreamsicle and the other new products, as well as rain. So, anecdotally, we've had some good response, both to the concept of the thermogenic Inferno products, as well as to the actual flavors.

So Alex, if you look at, for example, what's happening in China, we're seeing, obviously, significant foot traffic decreasing in the biggest stores, and the convenience stores, they have and are suffering, but not to the same degree. So if you translate that back to California, We haven't seen any implications yet, but the whole idea of the situation in China is that they limit the number of shoppers in particular stores. So that's why you'll see reduced foot traffic in the bigger stores and more concentrated foot traffic in the convenience stores. But we haven't seen any implications of that at this time. And then, you know, if I could just talk about the coronavirus for one second. I've been asked, and I haven't really answered it because I was waiting to answer it on the call. And we don't normally give numbers, sales in various countries. But what I can tell you is that our sales in China in 2019 were less than 1% of our consolidated net sales for the company. So that puts a little bit in perspective because there was a little bit of nervousness, but it's less than 1%.

Our next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Yes, hey, thanks. So, Hilton, last month in New York you acknowledged some potential, I think you framed it as issues of focus as Coke bottlers were taking on Coke energy and bringing it to the market in the U.S., Just, I guess, some update there on how you're feeling about those bottlers' execution on your brands now that we're a couple of months into the year. The January numbers imply that you've had some good uptake of that innovation, but just any color around that and around the in-market execution that you're seeing would be great. And then just to give voice to a question Dara had asked that I think we might have lost sight of, Just, you know, just any additional color on the cooler and shelf set redesigns as they're shaping up in the U.S. Are you getting the positioning that you thought you would? Is Coke Energy getting the position that you thought it would relative to yourselves and Red Bull and others? That, too, would be great. Thank you.

Okay. So, you know, the situation with our bottlers is always going to be a challenge now, and we know that. And we're working hard. with all of our bottlers and our field teams and our guys in the street are working very closely to ensure that we get the right type of representation on shelves. The anecdotal information that I've seen is that Coca-Cola Energy took off and unfortunately or fortunately, there doesn't seem to be a very strong amount of repeat purchases. However, they will continue, we believe, to spend significant amounts of dollars on their products. And what we have to do is what I probably said in New York, and I'll say it again, we have to stay true to our last and ensure that our products get the right representation in the stores and that we don't suffer the issues of shelf space that, for example, we experienced in Australia. And we alluded to that in our presentation as well. But the news of today is that Coca-Cola Energy has been, in its current form, has been discontinued from the two major retailers in Australia.

If I could just perhaps just add a little bit on that, on color, we've looked at some of the schematics that have come out for this year in the U.S., which is obviously the place where Koch Energy has recently been launched. And if we look at the schematics for that, plus obviously the performance energy products, by and large, we are getting increased shelf space both for our general products as well as our rain products and Inferno, including our innovation. And perhaps if we look back on 19, some of the innovation that we introduced didn't quite get the real estate and distribution levels that we had hoped for, and that probably affected us a little bit in the 2019 year. But if you look at the new products, we have a really robust a pipeline of new products. We have new rain products, Inferno. We've got Ultra S and Ultra Rosa in the Ultra line that are two really good products. We have NAS Turbo, which is sort of a performance energy product to help boost the NAS line. We've got our new Hydra Sport SKUs. We have a new Java 300 line, which has a higher caffeine content to compete with the Starbucks Triple Shot line. So I'm looking at the SKUs and we're getting a lot of good listings for the innovation. So hopefully, you know, execution of our bottlers and distribution partners this year, particularly on innovation, will be better. And we are getting extra innovation. In many cases, we are getting the performance products onto an additional separate shelf. In some cases, it's simply an expansion of and within the energy set.

Our next question comes from Kevin Grundy of Jefferies. Please go ahead.

Thanks. Good evening, guys. Two very quick ones. First one for Hilton. The G&A in the quarter, this one's a bit granular, but I think it needs to be asked to sort of explain some of the profit margin pressure in the quarter. So gross margin better, but G&A was quite a bit higher, even excluding the intellectual property claim. Can you talk a little bit about some of the drivers there? And I know you don't like to guide, but should we expect sort of normalization on that line item looking out for the balance of the year? And then, Hilton, just on the performance segment, understanding your comments already in the shelf space reset, but can we get updated thoughts there? So Bang obviously made a lot of noise, but the market share on that product is down about a point sequentially from where it was around the time of the launch of Rain. and when we look at the combined market share of those two brands being Bang and Rain, it's kind of hanging around in this 11% sort of area. So your updated thoughts on the outlook for performance for the balance of 20 and sort of beyond that, are we sort of at a place where this 11% market share is kind of the right number, or do you think it goes beyond that, and if so, why? So thanks for all that, guys.

Okay, well, wow, that's quite a mouthful.

That's about 24 questions in one.

If we talk a little bit about G&A, I think we were satisfied with the G&A that was spent in the quarter. We were rolling off the NASCAR program, and we have a big push into social media, and that was one of the big factors that we kind of were duplicating some of the social media costs in the quarter as we roll off the NASCAR program. So you won't see that NASCAR program to the same degree in 2020. And then when I look at, you know, the rest of the GNA, payroll is obviously increasing higher than ordinarily we would like. But, you know, we're running an international business today that's growing and developing. And you can see from the sales figures and the number of countries we're in, that we have to support the organization. So quite apart from other small issues, or not small issues, but other issues which you'll pick up in the K, I don't want to go into them now, all I can tell you is that I think that apart from that litigation, which obviously we were really unhappy about, but it's a fact of doing business in the U.S., I always tell everyone, I'm not a lawyer, but, you know, I listen to these juries, and it's like, you know, it is what it is. But I'm satisfied that our GNA is under control. So, sorry, the next question you asked was about the percentage of the performance energy products in the U.S. Yeah, sorry. Yeah, sorry.

Yeah, I'm sorry. It was just basically broadly outlook for performance segment, which, of course, has made a lot of noise over the past year or two. But Bang's market share is now down about a point. Rain is three, three and a half. It's in that range. And when you look at a combined market share of those two brands, it's been sort of bouncing around this 11% sort of area. So where does that leave us? What's your outlook for performance energy and what's its role in the category going forward? Thank you, guys.

I think Rodney put up his hand, so I'm happy for him to take over.

Just looking at that section, I think the section that's – again, we call it the performance section, but really it's part of the energy category, and it's really energy. It's a question of whether we can carve out additional space with retailers to look at attracting increased buyers into the category. And so I think that we are seeing some increased buyers coming into the category. And the set is sort of starting to settle down now. You're getting space allocated to banks, space allocated to rain, including Inferno. We're seeing a little bit of space being allocated to some of the competitors. You've got Rockstar with their sort of line, and they've come out with a thermogenic line as well. And then you've got Adrenaline Shock, and then some of the smaller guys who are trying to get space but are don't have the distribution depth Celsius and C4. But we think it is panning out. So it's sort of starting to settle down. It may grow a little bit, but we certainly don't know. We think that there is an appetite. There is an increased consumer base through the different type of products that we've introduced now, for example, through Inferno. But we do, you know, we don't give, as I said, you know, guidance. I think you know that. And we certainly don't have a crystal ball. But we think that there is some positive growth that will be achieved in energy generally. And I think that this subset of types of products within the energy category will grow a little bit. And, you know, we are launching, for example, our hydro super sport. And that, again, is sort of an advanced hydration, but it does have BCAAs and higher caffeine. So a lot of products like that and turbo are starting to play into this area. It's just really just dividing up the attributes that consumers are looking for. Some consumers are looking for higher caffeine or BCAAs, and we think that that will help the whole category grow as well as these specific products within the category.

I can just add to that, Kevin. I'm a consumer of these products, and I honestly believe the category is here to stay, but where it will go, I don't think anybody knows. I think the main thing is that we have a number of SKUs that are addressing the category. We have some new product innovation that's coming in terms of flavors, and we're pretty excited about that whole performance energy part of the category. But it's one part. There's lots of other parts to it as well. Yeah. Thanks. I agree.

Our next question comes from Mark S. Tranthan of Stifel. Please go ahead.

Wow. That was a pronunciation. Hey, guys. How are you? All right.

And you?

I am good. I am good, other than the stock market. So Hilton, I wanted to go back to gross margin. I know I seem to ask this question a lot on calls, but international in particular, I guess, how should we think about that going forward? I'm not asking guidance, but I guess it seems like the pressure on the strategic brands is having an outsized impact on that number. So as you go to the back half of you start lapping these low-double digit declines that you had in 3Q and 4Q. You're obviously launching Predator now. I get that's not – you're launching Predator now. That's a concentrate model, so that should help. How should we be thinking about kind of those moving parts, meaning as you lap these, your comparisons, as you get the benefit from Predator, should that help stabilize international growth margins? Can they move a little bit higher if Predator works in these markets? Maybe just a bit more color there in terms of the puts and takes on thinking about international margins would be helpful.

Yeah, I think that as we look at the international business, we've spoken about the way the pricing structure works in those markets that we try and price ourselves close to where Red Bull is. and that we have different models with the butlers internationally that kind of force us into a different gross margin computation than we have in the U.S. Having said that, if I look, for example, at the EMEA margin, which we discussed earlier on the call, and the margins there fell from 42 percent to 38.7 percent, but There were a number of factors that went into that result. Firstly, and we've spoken about this before, we have country mix. We have brand mix. We have product mix. So we have a very extensive project now to reduce the juice content in a number of our juice products to enhance margins. We have other projects, and I just came back from the UK about two weeks ago, where the whole meeting was just focused on margin, focused on freight in, focused on co-packers, focused on we're best to allocate our resources to try and improve the gross margins. And we have this concentrate and monster progression that, of course, will be resolved in part when we're able to get predator up and running. There were a number of factors, and then you always have one-offs in the quarter. In the fourth quarter, we had about a one percentage hit to gross margin in EMEA through one-off costs. I think we're very well aware from this office of the need to improve margins, and we are working on improving the margins within the constraints of the strategic brands having higher margins than the monster brands and rain brands. Obviously, our objective is to sell more monster and sell more rain, and if that takes away from the strategic brands, then so be it, because this is the monster beverage corporation. This is what Our mission is to sell monster and rain products. So if the strategic brands will, in fact, over time, they may get hit. We're doing the best we can to keep them at their current levels and improve on them. But it's a mix, and it'll continue to be a mix. And I'm not sure there's anything more I can say. I've probably said too much.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Sachs and Mr. Schlossberg for any closing remarks.

Thank you. 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, to expand distribution of our products through the Coca-Cola bottler system internationally. We are particularly excited about the new opportunities we have going forward with a portfolio of energy drinks throughout the world comprised of our Monster Energy brand, together with the strategic brands, as well as Hydro, Predator, and Rain, and the pretty extensive new innovation that we have recently introduced and are planning to continue to introduce throughout the rest of 2020. Thank you very much for your attendance.