Monster Beverage Corporation

Good day and welcome to the Monster Beverage Company second quarter 2020 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 a touch-tone phone. To withdraw your question, please press star then two. Due to time constraints, we ask that you limit yourselves to one question, and you may rejoin the queue if you have a second. I would now like to turn the conference over to Mr. Rodney Sachs, Chairman and CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sachs, Hilton Schlossberg. Our Vice Chairman and President is on the call, as is Tom Kelly, our Executive Vice President of Finance. Tom Kelly will now read our cautionary announcement.

Before we begin, I would 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 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, as well as the future impact of the COVID-19 pandemic on the company's business and operations. 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, 2020, and our most recent quarterly report on Form 10-Q filed on May 11, 2020, including the sections contained therein entitled Risk Factors and Forward-Looking Statements for discussion on specific risks and uncertainties that may affect our performance. A company assumes no obligations to update any forward-looking statements, whether as a result of new information, future events, or otherwise. An explanation of the non-GAAP 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 August 4, 2020. A copy of this information is also available on our website, www.monsterbevcorp.com, in the financial information section. I would now like to hand the call over to Rodney Sachs.

Let me begin by stating that our thoughts and prayers are with all who have been impacted by the COVID-19 pandemic. From the beginning of the COVID-19 pandemic, our top priority has been the health, safety and well-being of our employees. As mentioned on our previous call, in early March 2020, we implemented global travel restrictions and work from home policies for employees who are able to work remotely. For those employees who are unable to work remotely, safety precautions have been instituted, which were developed and adopted in line with guidance from public health authorities and professional consultants. Our offices have partially reopened in the United States and in certain countries, and our field sales teams are operating in the field with our bottlers, distributors and retailers subject to safety protocols. We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers and distributors around the world who are ensuring the integrity of our supply chain. Our flavour manufacturing facilities, our co-packers, warehouses and shipment facilities are all operating. Certain of our bottlers and distributors have implemented modifications to their core points and service levels, but generally our products remain available to consumers. In limited countries, the operations of our bottlers and distributors have been more affected. The COVID-19 pandemic had an adverse impact on our net and gross sales for the 2022nd quarter, in part due to certain of our bottlers and distributors reducing their inventory levels. However, we did see a sequential improvement in sales in the latter half of the quarter as certain countries and states began to gradually reopen. Since mid-March 2020, the company has seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in immediate consumption. Our sales in the second quarter were initially adversely affected as a result of a decrease in foot traffic in the convenience and gas channel, which is our largest channel, but improved sequentially throughout the quarter. Our e-commerce, club store, mass merchandiser, and grocery and related business continue to increase in the quarter, while our food service on-premise business, which is a small channel for us, remains challenged. Currently, we do not foresee a material impact on the ability of our co-packers to manufacture and our bottlers and distributors to distribute our products as a result of the COVID-19 pandemic. In addition, we are not experiencing raw material or finished product shortages in our supply chain. Monster Energy Cares, a philanthropic arm, continues to be actively engaged in a number of philanthropic efforts, including donating products to individuals working on the front lines, such as first responders, healthcare workers, hospitals and the National Guard. Based on currently available information, we do not expect the COVID-19 pandemic to have a material impact on our liquidity. In the second quarter of 2020, net sales were $1.09 billion compared with $1.1 billion in the second quarter of 2019. Adjusting for foreign currency movements, net sales for the 2020 second quarter would have been up approximately 1%. The COVID-19 pandemic's impact was more pronounced in EMEA during the quarter. In particular, the reduction in revenue from our strategic brands segment was significant as our larger revenue generating countries in EMEA experienced extended lockdowns. Operating income was $407.3 million up from $379 million in the second quarter of 2019 due in part to lower sponsorship and endorsement costs of $19.8 million as well as lower travel and entertainment expenses of $10.1 million. The costs for certain postponed or rescheduled events have been or may be deferred to future periods. Due to the uncertainty surrounding the COVID-19 pandemic, we are unable to estimate in which future periods, if any, such deferred sponsorship and endorsement costs will be recognised. Net income increased 6.5% to $311.4 million as compared to $292.5 million in the 2019 comparable quarter. Diluted earnings per share for the 2020 second quarter increased 9.9% to 59 cents from 53 cents in the second quarter of 2019. According to the Nielsen reports, for the 13 weeks through July 18, 2020, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, Sales in dollars in the energy drink category, including energy shots, increased by 7.6% versus the same period a year ago. Sales of the company's energy brands, including rain, were up 5.8% in the 13-week period. Sales of Monster were up 4.8%, sales of rain were up 26.8%, sales of NAS increased 1.6%, and sales of Full Throttle decreased 0.9%. Sales of Red Bull increased 17.3%. Sales of Rockstar decreased by 7.5%. Sales of Five Hour decreased 9.1%. And sales of AMP decreased 10.8%. VPX Bank sales decreased 11.6%. According to Nielsen, for the four weeks ended July 18, 2020, sales in the convenience and gas channel, including energy shots in dollars, increased 9.2% over the same period the previous year. Sales of the company's energy brands, which include rain, increased 5% in the four-week period in the convenience and gas channel. Sales of Monster increased by 5.6% over the same period versus the previous year. Rain sales increased 2.5%. NAS was up 2.7%. Full throttle was down 1.4%. Sales of Red Bull were up 21.1%. Rockstar was down 6.9%, Five Hour was down 4.1%, and Amp was down 5.8%. VPX bank sales decreased 7.2%. According to Nielsen, in the four weeks ended July 18, 2020, the company's market share of the energy drink category in the convenience and gas channel, including energy shots in dollars, decreased by 1.5 points over the same period the previous year to 37.8%. Monster's share decreased 1.1 share points to 31.1%. Rain's share was 2.8%. Nozzer's share decreased 0.2 points to 3.3%. And Full Throttle's share decreased 0.1 of a point to 0.7%. Red Bull's share increased 3.7 points to 37.3%. Rockstar's share was down 0.8 points to 4.9%. Five Hours' share was lower by 0.6 points at 4.6%. and AM share decreased 0.1 of a point to 0.4%. Bank share decreased 1.3 points to 7.2%. According to Nielsen, for the four weeks into July 18, 2020, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel, increased 10.2% over the same period the previous year. Sales of Java Monster were 24.6% higher in the same period versus the previous year. Sales of Starbucks Energy were 12.3% higher. Java Monster's share of the coffee plus energy category, which primarily includes Java Monster, Java Monster 300, Starbucks Double Shot and Triple Shot, Rockstar Roasted and Bankito Coffee, for the four weeks ended July 18, 2020, was 51.1%, up 5.9 points, while Starbucks' energy share was 47%, up 0.8 points. Cafe Monster and Espresso Monster have been discontinued in the United States. According to Stackline, which tracks energy drink sales by Amazon in the United States, for the four-week period ending July 18, 2020, Sales in dollars in the energy category by Amazon, including energy shots, increased 190% over the same period the previous year. Sales of Monster increased 269.4%, and its share was 39.5%, up 8.5 share points versus the same period a year ago. Red Bull's sales increased 172.4%, and its share was 14.5%, down 0.9 of a point. Celsius' sales increased 213%, and its share increased 0.8 of a point to 11.3%. Five Hours' sales increased 50.5%, and its share declined 3.8 points to 4.2%. VPX Bank's sales increased 66.1%, and its share declined 2.7 share points to 3.7%. Rain's share was 5.5%, and Rockstar's share was 1.7%. According to Nielsen, in all measure channels in Canada, for the 12 weeks ended June 13, 2020, the energy drink category increased 6.8% in dollars. Sales of the company's energy drink brands increased 6.9% versus a year ago. The market share of the company's energy drink brands was 37.8%, the same as in the previous year. Monster's market share increased 0.2 of a point to 34.9%. Nasdaq's sales increased 7.6%, and its market share remained the same at 2.1%. Full throttle sales decreased 21.2%, and its market share decreased 0.3 of a point to 2.7%. Red Bull's sales increased 11.1%, and its market share increased 1.5 points to 38.1%. Rockstar's sales decreased 5.2%, and its market share decreased 2.1 points to 16%. Guru's sales increased 35.7% and its share increased 0.7 of a share point to 3.2%. According to Nielsen, for all outlets combined in Mexico, the energy drink category declined 11.8% for the month of June 2020. Monster's sales decreased 18.9%. Our market share in value decreased 2.4 points to 27.8% against the comparable period the previous year. Burn has been discontinued in Mexico. Red Bull's sales decreased 30.3% and its market share decreased by 1.8 points to 6.8%. Vive 100's sales decreased 32.6% and its market share decreased by 7 points to 22.5%. Valt's sales increased 0.2% and its market share increased 2.2 share points to 18.8%. while Boost's sales decreased 10.7%, and its market share increased 0.1 of a point to 7.4%. Amper's sales increased 269%, and its market share increased 7.5 points to 13.6%. Coca-Cola Energy's market share was 0.9 of a percentage point. Predator, which was launched in March 2020, achieved a market share of 1.4%. 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 June 2020 compared to June 2019, Monster's retail market share in value increased in Argentina from 25.4% to 39.4%, in Brazil from 21.1% to 30.4%, and in Chile from 37.4% to 44.9%. Since the launch of Monster Energy in Argentina in the first quarter of 2018, Monster is now the leading energy brand in volume in Argentina. 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 and are reported on varying dates within the month referred to from country to country. According to Nielsen, in the 13-week period ended mid-June 2020, Monster's retail market share in value, as compared to the same period the previous year, grew from 22.1% to 25.6% in Denmark, grew from 20.8% to 24.8% in Great Britain, grew from 24.2% to 28.4% in Norway, grew from 21.9% to 24.9% in the Republic of Ireland. grew from 32.2% to 34.8% in Spain, and grew from 12.8% to 13.8% in Sweden, but declined from 13.1% to 12.5% in Belgium, from 27% to 25.9% in France, and from 7.4% to 6.3% in the Netherlands. According to Nielsen, in the 13-week period to the end of May 2020, Monster's retail market share in value, as compared to the same period the previous year, grew from 34.7% to 35.2% in Greece, from 13.7% to 17.7% in Poland, from 16.4% to 17.7% in South Africa, while it remained flat at 13.3% in the Czech Republic and declined from 16% to 15.1% in Germany. and from 18.5% to 16.8% in Italy. 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 IRI in Australia, Monster's market share in value for the four weeks ended July 5, 2020, increased from 9.4% to 11.9% as compared to the same period the previous year. Mother's market share in value decreased from 13.9% to 13.3% during the same period. Market share of the company's brands in Australia for the four weeks ended July 5, 2020, increased from 23.3% to 25.2%. According to IRI in New Zealand, Monster's market share in value for the four weeks ended June 21, 2020, increased from 7.8% to 10.4%, as compared to the same period the previous year. Live Plus market share in value decreased from 8.3% to 7.1%, and Mother's market share in value decreased from 6.5% to 6.4%. Market share of the company's brands in New Zealand for the four weeks ended June 21, 2020, increased from 22.6% to 23.8%. According to Nielsen in South Korea, Monster's market share in value In all outlets combined for the month ending June 2020 grew from 39.4% to 53.3% as compared to the same period in the previous year. According to Intage in Japan, Monster's market sharing value in the convenience store channel for the month of June 2020 declined from 52.5% to 51.1% 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 328.3 million, 30% of total net sales in the 2020 second quarter, compared to 343.3 million or 31.1% of total net sales in the corresponding quarter in 2019. The decrease was largely due to the reduction of sales in EMEA during the quarter. Foreign currency exchange rates had the effect of decreasing net sales in US dollars by approximately 18.2 million in the 2022nd quarter. Included in reported geographic sales are our sales to the company's military customers, which are delivered in the US and transhipped to the military and their customers overseas. In EMEA, net sales in the second quarter decreased 20.4% in dollars and decreased 15.9% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales for the quarter was 38.1% compared to 39.5% in the same quarter in 2019. Gross profit percentage for the region was adversely impacted by foreign exchange rates country and product mix. In local currencies, gross profit as a percentage of net sales for the quarter was 39.4%. The COVID-19 pandemic's adverse impact on net sales was more pronounced in EMEA for the three months into June 30, 2020, particularly in the strategic brands segment. Net sales in EMEA were also adversely impacted by the reduction in inventories by certain of our bottlers and distributors. In addition, To a lesser extent, the trading dispute between Coca-Cola bottlers and the European buying group, primarily in Western Europe, resulted in the temporary delisting of some Coca-Cola and Monster products, which had an adverse impact on net sales in EMEA for the three months ended June 30, 2020. We are pleased that in the second quarter, Monster gained market share in Denmark, Great Britain, Greece, Norway, Poland, Republic of Ireland, South Africa, Spain, and Sweden. In Asia Pacific, net sales in the second quarter increased 30.4% in dollars and 30.9% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales was 43.3% versus 43.6% over the same period in 2019. In Japan, net sales in the quarter increased 41.8% in dollars and 37.5% in local currency. In South Korea, net sales increased 46.9% in dollars and 55.7% in local currency as compared to the same quarter in 2019. In China, net sales increased 66.9% in dollars in the quarter and 74.4% in local currency as compared to the same quarter in 2019. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea and Guam, net sales decreased 32.3% in dollars and 24.9% in local currencies. Sales of the Monster brand decreased 25.6% in dollars and 17.9% in local currency as compared to the same quarter in 2019, while the strategic brands in this region decreased at a faster rate. Net sales in this region were adversely affected as a result of our bottler's distributors reducing their inventory levels. In Latin America, which includes Mexico and the Caribbean, net sales in the second quarter decreased 9.7% in dollars and increased 10.8% in local currencies. Growth profit over the same period in 2019. Growth profit in this region as a percentage of net sales was 41.2% compared to 43.3% over the same period in 2019. In Brazil, net sales in the quarter decreased by 1% in dollars, but increased 31.2% in local currency. Net sales in Chile increased 30.8% in dollars and 62.3% in local currency in the quarter. I will now briefly discuss our litigation with Vital Pharmaceuticals Inc., VPX, the maker of Bang Energy Drinks. Several proceedings are currently ongoing with VPX, including claims for false advertising and trademark and trade dress infringement brought by the company against VPX and by VPX against the company. The company's lawsuit for unfair competition, false advertising and misappropriation of trade secrets is scheduled for trial in April 2021. In VPX's lawsuit against the company in which VPX claimed trademark infringement of their newly acquired RAIN trademark and the company counterclaimed for cancellation of their trademark, the District Court judge ruled in the company's favour in respect of the trademark infringement claims, finding that the company had superior rights to the rain trademark in connection with energy drinks and cancelling the rain trademark that VPX had purchased. VPX remains enjoined from selling rain-branded energy drinks. VPX's trade dress infringement claims in these proceedings are scheduled for trial at the end of August 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 the United States, our bottle is focused on relaunching our first quarter product innovation, which launch plans were disrupted due to the COVID-19 pandemic. In Canada, we did not launch any new items within the second quarter of 2020, and continue to grow our distribution of all first quarter 2020 innovations. In Honduras, we launched Fury, Gold Strike in the affordable energy category during April 2020, and in Salvador in early July 2020. Initial results have been positive. In June 2020, we launched Ultra Paradise in Argentina and in Puerto Rico. Additionally, in June 2020, we launched Monster Mangaloco in Guatemala, El Salvador, and Honduras. In New Zealand, we launched Monster Energy Mule and Mother Tropical Blast during April 2020. Despite a lockdown in the majority of EMEA markets for most of the second quarter, we have still been able to introduce new products across EMEA. Juice Monster Pacific Punch was launched in Spain in June 2020 and is now available in 10 markets across EMEA, and we plan to launch Juice Monster Pacific Punch in an additional two markets in 2020. Juice Monster Pipeline Punch was launched in Romania in May 2020 and is now available in 21 markets across EMEA and we plan to launch Juice Monster Pipeline Punch in an additional eight markets in 2020. Juice Monster Mangaloka was launched in Switzerland in June 2020 and is now available in 35 markets across EMEA. We plan to launch Juice Monster Mangaloka in an additional 10 markets in 2020. Monster Ultra Paradise was launched in Austria the Baltics and Hungary in May 2020, in Denmark and Spain in June 2020, in Poland in July 2020, and is now available in 14 EMEA markets, and we plan to launch Monster Ultra Paradise in an additional seven markets in 2020. Espresso Monster Milk and Vanilla variants are now available in 20 markets in EMEA, and we plan to launch Espresso Monster Milk and Vanilla variants in an additional two markets in 2020. Monster Hydro Sport was launched in Spain in May 2020, and we plan to launch Monster Hydro Sport in an additional market in 2020. We're also pleased with the performance of Rain, and we plan to launch Rain in an additional six markets in 2020. We launched Monster Mule in Poland in July 2020, and plan to launch Monster Mule in an additional nine markets in 2020. We launched Predator, our primary affordable energy brand in Nigeria, in June 2020. Additionally, we are planning to launch Predator in Ethiopia in the third quarter of 2020. We are also planning to launch Predator in an additional six EMEA markets later in 2020, Bosnia, Croatia, Ghana, Romania, Russia, and Slovenia. Currently, innovation launches for all EMEA markets for the third and fourth quarters remain on track despite the ongoing COVID-19 pandemic. However, these launches will continue to be subject to developments in relation to the COVID-19 pandemic in individual countries. In Japan, we continued with the strong rollout of pipeline punch to 90% of the country, and in June launched Ultra Paradise with solid consumer acceptance. With strong innovation and continued growth of our core, we have further built on our number one country share position in value. In South Korea, Monster Energy retained its number one share position in value and in June began shipments for the summer 2020 launch of Ultra Paradise. In April 2020, we began distribution of our new Monster Energy Dragon Tea in China, which is non-carbonated. Early feedback from consumers has been positive. During this quarter, we began shipments for our summer on-pack promotion and we expect to further build momentum with consumers in the retail trade. India remains mostly in national lockdown due to the COVID-19 pandemic, which took effect on March 25, 2020. We have prepared a strong summer on-pack promotion, which should help re-establish momentum as the market aims to reopen in the third quarter of 2020. During the 2022nd quarter, we purchased approximately 0.3 million shares of our common stock at an average purchase price of $52.88 per share, for a total amount of $15.6 million excluding broker commissions. As of August 4, 2020, approximately $441.5 million remained available for repurchase under the previously authorized repurchase program. We estimate July 2020 gross sales to be approximately 15.8% higher than in July 2019. On a foreign currency adjusted basis, July 2020 gross sales would have been approximately 17.1% higher than comparable July 2019 gross sales. July 2020 had the same number of selling days as July 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 affect 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, should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. In addition, the COVID-19 pandemic remains a serious concern. If the COVID-19 pandemic and related unfavorable economic conditions continue to intensify, the negative impact on ourselves, including our new product innovation launches, could be prolonged and may become more severe. In conclusion, I would like to summarize some recent positive points. One, the company's priority has been and remains the health and safety of our employees. Two, currently the company's flavor manufacturing facilities, its co-packers, warehouses, and shipment facilities, and bottlers and distributors are all operating. Three, we are pleased with the new additions to the Monster Energy portfolio. Four, we are encouraged by the prospects for our Rain Total Body Fuel High Performance Energy Drinks and Rain Inferno Thermogenic Fuel High Performance Energy Drinks. We are planning for future launches of our rain total body fuel high-performance energy drinks in certain countries outside of the U.S. Five, we are pleased with the rollout of Predator and Fury and our affordable energy drink portfolio internationally. We are proceeding with plans for future launches of our affordable energy brands outside of the United States. Six, despite the obstacles of the COVID-19 pandemic, we are pleased with our performance for the quarter and for the first half of the year. I'd like to open the floor to questions about the quarter. Thank you.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Due to time constraints, we ask that you limit yourself to one question. And then you may rejoin the queue if you have a second. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Andrea Teixeira with JP Morgan. Please go ahead.

Thank you, and I hope you all well. Congrats on the results. So I remember you spoke to potentially enter the alcoholic segment the last time we were there at your headquarters in June last year. And since then, we have heard you're planning to launch a hard seltzer. So I understand that you have postponed some of these launches. So the question is if you are indeed looking to launch a hard seltzer, and then if so, when are you hoping to be able to share more news with us? Thank you.

Andrea, I think the issue is, you know, there's been a lot of speculation about what we are going to do both in the non-alcoholic and alcoholic spaces. We are looking at a number of alternatives and opportunities, and we may well do something in both of those spaces, and or one or the other, but we've not made any final decisions. We are actually analyzing it. We're looking at developing some products in both non-alcoholic and alcoholic spaces. We're testing products, but we haven't yet decided on which of those we're gonna go into. We have, for example, I know that some of the analysts have picked up that we've registered different names of products. Some of those names may be appropriate for one or more of these lines or may not be. We are looking, obviously, as part of our planning, we are looking at availability of names that we think may be appropriate for lines or line extensions outside of the energy category. And in some cases, some of those names may well be used by us for an alternative brand within the energy space. I mean, it's a very broad spectrum that we are currently investigating. We've got the right to do quite a lot. We are looking at how do we do it, what's best, what do we think will have the most impact for the company in the short term, both in the U.S. and as well as internationally. So there's been a lot of speculation, and we are – We are definitely looking at it and evaluating it, but we've not made any decisions. So at this point, it is premature for us to give any indication to the market of what our plans are because we have not firmed up our plans internally ourselves yet. There's been no definitive decision on when to launch, what to launch, and under what brand names. Obviously, we're getting there. We're quite close, but we haven't got to that decision yet. So I really can't give you an update other than to tell you that We are seriously looking at all those options. As I said, there's a lot of speculation about what we're going to do because of the trade marks we've applied to register and the different classes, but that is something that we are currently evaluating.

Andrea, the only thing I would add to that is that we have a very strong innovation pipeline with our existing business. Whatever we do in addition to that, please rest assured that the company has a very interesting and very strong innovation pipeline.

Thank you. Our next question today comes from Nick Moody with RBC Capital Markets. Please go ahead.

Yeah, good afternoon, everyone.

Hi.

Hey, how are you? So I guess kind of one and a half questions. One question is on innovation. Just given how the resets have been kind of thrown off kilter, and NAX is now canceled, I'm just curious on how you're thinking about communicating new product ideas and how you think that flow will work as we kind of work into the fall and into the spring of next year. So that's just kind of some general perspective. The real question is, on CBD, what's the company's stance right now on that? I mean, you don't have enough clarity, so... really don't want to enter that category, or do you feel more comfortable now? I mean, just any perspective around that would be helpful.

Okay, so on the first question, we have a sales organization who, in the U.S., call on every single major customer, and that's how we go about presenting new product ideas on a one-to-one basis. So rest assured that innovation can be handled within the framework of our existing organization. Outside and in particular in Europe and in other parts of the world, the Coca-Cola bottlers present to customers with our attendance and they're very capable and they do display new products and new product innovations. On your second point, you know, the The environment is actually not clear as to where we are and where we should be with CBD. So at this time, you know, we have products in development, but it's something that we're looking at from the sidelines. And if things clear up and there are opportunities that will present themselves, that's something that we definitely will look at going forward, but not right now.

Thank you. Our next question today comes from Peter Galbo at Bank of America. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the question. Just wanted to ask, on the July sales increase, Rodney, you mentioned that bottlers had taken down inventories pretty low in the second quarter. You know, how should we look at that July increase, I guess, from an organic demand improvement standpoint versus, you know, bottlers maybe refilling some of the pipeline after taking inventory down so low? Thanks.

I don't think we've really had a good read yet on whether bottlers have, you know, when they're going to sort of, you know, get their inventory levels back to previous or pre-COVID levels. If they do, I mean, people are obviously looking at managing their inventory levels as tightly as they can. And by taking things down, they may end up being a little more aggressive. Obviously, we would like them to take some inventory levels up so that they just have more ability to react in the market for lead time reasons. So I don't think that we've seen a major restocking in July. We've just, you know, again, I think people are still cautious and they're trying to manage inventories. And in some cases, they're trying to manage or reduce some of their focus on, a better way to put it, on their main SKUs. And so some of the smaller SKUs have perhaps suffered a little bit as well during this period. But we think those things will get back to normalizing. But I don't believe we've seen a substantial, you know, jump back in inventory levels in July. I think that's sort of reasonably normal trading for us. I don't know if you'd like to add something on that.

Yeah. What I'd like to add is that, you know, depletions are tracking positive through July. So, you know, sales that our botters make to retailers are tracking positively. And I'm sure there will come a time when bottlers will revert to their prior inventories. But remember, they look at forecasts. Some bottlers have cash issues. The bigger bottlers look at sales forecasts that are generated both by their own forecasts and by their computer forecasting models. So they order inventories in accordance with those models. So, you know, you remember when we spoke about, on the last call, we spoke about April was down, and we had a long and a robust discussion about that, and we spoke about depreciations. And, you know, looking at this quarter, we've had a strong July, which is consistent with what's happened in the sequential improvement through May. So April we had that dip that we spoke about on our call, and then May and June we've had a sequential improvement, and we're seeing that sequential improvement through July as well.

Thank you. And our next question today comes from Mark with Stiefel. Please go ahead.

Hey, guys. Good afternoon of all as well. Hi, Mark. Thank you. I guess I'm curious on U.S. I don't know how to diplomatically ask the question, but maybe if you could touch on the engagement of the Koch system, both in terms of selling your legacy product and the new product, the innovation, including the shelf space for those. Obviously, it was a little bit of a slower start, and we've seen Red Bull do very well. So maybe just touch on kind of where we are with reengagement, both in legacy as well as innovation, and how you think, that should play out if things get back from a blocking and tackling standpoint, that the share trends potentially improve and kind of how you think about that.

So, Mark, remember, you know, we're coming out of a 100-year pandemic. And, you know, there's been the bottlers have all been operating. And in some cases, the bottlers have been focused on selling the faster selling items. I think Rodney mentioned that earlier in the call. And they did not focus on the innovation and the SKUs that, you know, don't move as fast as the fastest selling items. So we've seen that. We've seen some of the bottlers being affected by the employees by COVID. Our people, remember, were out of the field until the last month. So they're now back in the field with the appropriate safety protocols. And our people are working, our field people are working with the bottlers and the retailers to restore the innovation that, you know, had not been taken place. So, you know, Red Bull, it's interesting, we've been watching the growth of Red Bull as well. And, you know, once it's going, you've seen the numbers, and we've spoken about the numbers today. I've heard about the numbers in Nielsen. We are growing much faster than than Red Bull in, for example, Amazon. You know, they have their own sales force and their own distribution network. They've been able to execute pretty well in the trade. They had a really good innovation this year called Watermelon, which is pretty popular. So, you know, on balance, I think they've probably, you know, out, you know, distributed us in terms of displays and, you other points of purchase on store shelves and on the floors of the stores. And that's something that we're working to pretty aggressively with our field people back in the stores to regain. So that's my kind of summary on where we are and the issue with Red Bull.

Perhaps I could just, you know, again, also just have a little bit of color to it because I think it's obviously, you know, you're focused on it and some people have been seeing the numbers. I think it comes down to during this period of time, Red Bull really managed their own distribution system and they have dedicated and very focused personnel. I think when most of the big companies took a step back, particularly with their personnel in the field and their core points and being active in the market, in the smaller markets, convenience and gas, et cetera, and independent, I think all of the bigger companies took their foot off the pedal and looked at protecting their employees and trying to handle the situation. Our belief is that Red Bull literally was probably the only company that didn't do that and actually had their teams in the fields merchandising and promoting. And when you combine that focus together and just their approach to the COVID pandemic, as well as together with the fact that they did have a flavor that resonated and was really well executed, the introduction of it, and it has really given them that boost. That's really what we think has been the real difference. But those are things that, you know, with a bigger company like the Koch system, I think they did step back as most other consumer product companies did. I think that will start, you know, reversing and that they're getting back into the field now. We're getting our team into the field. We also pulled some of our team out, as Hilton said. You know, we've got to really, you know, understand that. And that's what I think has been one of the big reasons. We've got some innovation lined up for the second half of this year. including something in response to their watermelon product, and we will be launching that within the next few weeks.

Thank you. Our next question today comes from Lauren Grant with Guggenheim. Please go ahead.

Hey, good morning, everyone, and thanks for the question. Last time we spoke, I mean, you mentioned that because of COVID-19, I mean, retailers, and specifically convenience store retailers, then reset for most part, I mean, their shelves for the summer. There was a clear focus for you, I mean, to make sure that you were able to implement your new innovation. So just curious, I mean, in all your retailers and convenience store retailers, I mean, are Are they all reset, I mean, their shelves? And did you gain shelf space for the energy category or the performance energy? Or is there, I mean, any additional, I mean, retailers that need to convert to larger shelves? I know it's late in the summer, but because of COVID-19, I mean, there was some delay. So I want to have your take on this. Thanks.

Yeah, a lot of the retailers are merchandised by the bottlers. So even though the space was allocated, they may not have got to merchandise the products at the start of the reset. So where we're at now, as I mentioned, Lauren, that our guys are back in the field and they're working with the bottlers to ensure that all of our innovation gets the space that we has been contractually allocated and just getting away from where we were in the early part of the pandemic, where it was hands-off. And if you look at how the convenience channel has grown and is continuing to grow, I think it's a far cry from where we were in March and April when all of this started.

But that being said, I think that it really is a work in progress. I don't think we've got to a point where we could say that everything that was planned is back in line and everything was achieved. I think because it's out of cycle and because of the difficulties just still being faced generally, it is a slower effort. It's being done. It's slow. But it is improving all the time. But I think it's still not where we would like to see it. but hopefully we will continue to improve as we go through the next few months.

Yeah, sets are done for the most part, but it's the distribution, actual physical distribution of the products on those sets, on those shelves, that our field teams are working on. Yeah. Okay.

And this concludes the question and answer session. I'd like to turn the call back over to Mr. Rodney Sachs for any final remarks.

Thank you. On behalf of Monstro, 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 Coca-Cola bottler system internationally. We believe that we will be able to navigate through the challenges ahead as a result of the COVID-19 pandemic, and hope that this unfortunate situation will resolve itself in the not-too-distant future. We believe that we are well-positioned in the energy drink category and continue to be optimistic about our total portfolio of energy drink brands. We hope that you will stay safe and healthy. Thank you very much for your attendance.

Thank you, sir. This concludes today's conference call. You may now disconnect your lines and have a wonderful day.