Monster Beverage Corporation

Good day and welcome to the Monster Beverage Corporation third 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 your touch-tone phone. To withdraw your question, please press star then two. I would like to turn the conference over to Mr. Rodney Sachs, Chairman and CEO. Please go ahead.

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 the 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 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, 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 August 6, 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. The 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 November 5, 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.

Thank you, Tom. Let me begin by stating that our thoughts and prayers are with all of those who have been impacted by the COVID-19 pandemic. Despite the ongoing impact of the COVID-19 pandemic, we achieved record third quarter net sales and the highest quarterly net sales in the company's history. While our performance in EMEA was solid in the third quarter, EMEA remained adversely affected by the COVID-19 pandemic. Since mid-March 2020, we have seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in food service on-premise consumption. Our sales in the 2020 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 from the latter half of the 2022nd quarter and throughout the 2023rd quarter. Our e-commerce, club store, mass merchandiser, and grocery-related business continue to increase in the quarter, while our food service on-premise business, which is a small channel for the company, remained 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 significant raw material or finished product shortages and our supply chain remains intact. We are continually addressing our aluminum can requirements given our volume growth and the current supply constraints in the aluminum can industry. With certain countries, particularly in EMEA, returning to lockdowns and other restrictions, consumer demand could be impacted, and we are unsure of what impact this may have, if any, on our future performance. Monster Energy Cares, our philanthropic arm, continues to be actively engaged in a number of philanthropic efforts, including donating products to individuals working on the front lines of the COVID-19 pandemic, as well as those involved with the recent natural disasters in the U.S., Based on currently available information, we do not expect the COVID-19 pandemic to have a material impact on our liquidity. In the third quarter of 2020, net sales were $1.25 billion as compared with $1.13 billion in the third quarter of 2019. Adjusting for foreign currency movements, net sales for the 2023 quarter would have been up 11.1%, Gross profit as a percentage of net sales for the 2020 third quarter was 59.1% compared with 59.4% in the 2019 third quarter. Decrease for the 2020 third quarter was primarily the result of geographical sales mix and higher allowances as a percentage of net sales partially offset by favorable aluminum can pricing. Operating expenses for the 2020 third quarter were $277.9 million, compared with $277.6 million in the 2019 third quarter. As a percentage of net sales, operating expenses for the 2020 third quarter were 22.3%, compared with 24.5% in the 2019 third quarter, primarily the result of decreased expenditures for sponsorships and endorsements of $14.1 million and decreased expenditures of $9.3 million for travel and entertainment expenses each largely as a consequence of the COVID-19 pandemic. 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, the company is unable to estimate in which future periods, if any, such deferred sponsorship and endorsement costs will be recognized. The decrease in operating expenses as a percentage of net sales was partially offset by increased payroll expenses of 14.5 million, increased expenditures of 7.4 million for social media and digital marketing, and increased outbound freight and warehouse costs of 6 million. Operating income was 458.6 million, up from 395.4 million in the third quarter of 2019. Net income increased 16.3% to 347.7 million, as compared to $298.9 million in the 2019 comparable quarter. Diluted earnings per share for the 2020 third quarter increased 19.6% to $0.65 from $0.55 in the third quarter of 2019. According to the Nielsen reports for the 13 weeks through October 24, 2020, for all outlets combined, namely convenience, grocery, drug, mass merchandisers, Sales in dollars in the energy drink category, including energy shots, increased by 10.6% versus the same period a year ago. Sales of the company's energy brands, including rain, were up 7.7% in the 13-week period. Sales of Monster were up 7.6%. Sales of rain were up 18.6%. Sales of NOS increased 1.7%. And sales of Full Throttle increased 2.4%. Sales of Red Bull increased 19.4%. Sales of Rockstar decreased by 10.4%. Sales of Five Hour decreased 1.9%. And sales of Amp decreased 11.1%. VPX Bank sales decreased 2%. According to Nielsen, for the four weeks ended October 24, 2020, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots, in dollars increased 9.3% over the same period the previous year. Sales of the company's energy brands, which include Rain, increased 7.3% in the four-week period in the convenience and gas channel. Sales of Monster increased by 7.6% over the same period versus the previous year. Rain sales increased 14.6%. NAS was up 0.4% and Full Throttle was up 3.9%. Sales of Red Bull were up 19.4%. Rockstar was down 18.2%. Five Hour was down 1.5%. AMP was down 12.5%, and VPX Bank sales decreased 4.5%. According to Nielsen, in the four weeks ended October 24, 2020, the company's market share in the energy drink category in the convenience and gas channel, including energy shots, in dollars decreased by 0.7 of a point over the same period the previous year to 38.2%. Monster Share decreased half a share point to 31.4%, Reins increased 0.1 of a share point to 2.8%. Nozzer share decreased 0.3 points to 3.2. And Full Throttle share remained at 0.8 of a percent. Red Bull share increased 3.1 points to 36.4%. Rockstar share was down 1.5 points to 4.5%. Five Hour share was lower by 0.5 of a point at 4.7%. And Amp share decreased 0.1 of a point to 0.4%. VPX bank share decreased 1.1 points to 7.5%. According to Nielsen, for the four weeks ended October 24, 2020, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line in the convenience and gas channel, increased 14.8% over the same period the previous year. Sales of Java Monster, including Java Monster 300, were 24.6% higher in the same period versus the previous year. Sales of Starbucks Energy were 17.1% higher. Java Monster share, including Java Monster 300 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 October 24, 2020, was 49.9%, up 3.9 points, while Starbucks Energy share was 47.3%, up 0.9 of a point. According to Stackline, which tracks energy drink sales by Amazon in the United States, for the four-week period ending October 17, 2020, sales in dollars in the energy category by Amazon, including energy shots, increased 157.5% over the same period the previous year. Sales of Monster increased 156%, and its share was 31.2% down 0.2 of a share point versus the same period a year ago. Red Bull sales increased 179%, and its share was 15.8%, up 1.2 points. Celsius sales increased 190.3%, and its share increased 1.6 points to 13.9%. Five-hour sales increased 45%, and its share declined 3.4 points to 4.4%. BPX Bank sales increased 101.8% and its share declined 1.2 share points to 4.3%. Rains share increased 3.2 share points to 5.5% and Rockstar share increased 0.8 of a share point to 4%. According to Nielsen, in all measure channels in Canada, for the 12 weeks ended October 3, 2020, the energy drink category increased increased 15.9% in dollars. Sales of the company's energy drink brands increased 19.7% versus a year ago. The market share of the company's energy drink brands was 39.7%, up 1.3 points. Monster's market share decreased 0.6 of a point to 34.8%. Nosner's sales increased 3%, and its market share decreased 0.2 of a point to 1.9%. Bull Throttle's sales decreased 19% and its market share decreased 0.3 of a point to 2.7%. Red Bull's sales increased 22.6% and its market share increased 2.1 points to 38.8%. Rockstar's sales decreased 9.3% and its market share decreased 3.8 points to 13.6%. Guru's sales increased 37.2% and its share increased 0.5 of a share point to 3.4%. According to Nielsen, for all outlets combined in Mexico, the energy drink category declined 3.7% for the month of September 2020. Monster sales decreased 7.4%. Our market share in value decreased 1.1 points to 28.1% against the comparable period the previous year. Red Bull sales decreased 19% and its market share decreased by 1.2 points to 6.6%. Viva 100 sales decreased 19.2%. and its market share decreased by 4.4 points to 22.7%. Vault's sales increased 0.4 of a percent, and its market share increased 0.8 of a share point to 18.5%, while Boost's sales decreased 13.5%, and its market share decreased 0.7 of a point to 6.2%. Amper's sales increased 63.8%, and its market share increased 6.1 points to 14.8%, Coca-Cola Energy sales decreased 46.9% and its market share decreased 0.5% to 0.6%. Predator, which was launched in March 2020, achieved a market share of 1.8%. The Nielsen statistics for Mexico cover single month, which is the 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 September 2020, compared to September 2019, Monster's retail market sharing value increased in Argentina from 27.9% to 44.1%, in Brazil from 26.1% to 33.3%, and in Chile from 38% to 45.6%. Since the launch of Monster Energy in Argentina in the first quarter of 2018, Monster Energy is now the leading energy brand in value in both Argentina and Chile. 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 to the end of September and beginning of October 2020, Monster's retail market sharing value as compared to the same period the previous year grew from 12.9% to 13.4% in Belgium, from 21.5% to 25.3% in Great Britain, from 20.7% to 21.4% in Italy, from 14.9% to 20% in Poland, from 33.3% to 35.5% in Spain, but declined from 27.6% to 25.4% in France, from 15.7% to 14.1% in Germany, and from 7.2% to 7.1% in the Netherlands. According to Nielsen, in the 13-week period to the end of August, At the beginning of September, Monster's retail market sharing value, as compared to the same period the previous year, grew from 23.6% to 25.2% in Denmark, from 23.9% to 28.6% in Norway, from 23% to 26.2% in the Republic of Ireland, from 17.4% to 20.2% in South Africa, and from 13% to 13.3% in Sweden, while it remained flat at 36.6% in Greece and and declined from 13.4% to 13% in the Czech Republic. 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 ending October 11, 2020 increased from 9.8% to 12.7% as compared to the same period the previous year. Mother's market share in value decreased from 12.7% to 11.9%, During the same period, the market share of the company's brands in Australia for the four weeks ended October 11, 2020, increased from 22.5% to 24.6%. According to IRI New Zealand, Monster's market share in value for the four weeks ended October 11, 2020, increased from 8.4% to 11.5% as compared to the same period the previous year. Live Plus market share in value decreased from 7.9% to 7.3%, and Mother's market share in value increased from 5.9% to 6.1%. The market share of the company's brands in New Zealand for the four weeks ended October 11, 2020, increased from 22.2% to 24.9%. According to Nielsen in South Korea, Monster's market share in value in all outlets combined for the third quarter of 2020 grew from 41.5% to 54.8% as compared to the same period in the previous year. According to Intage in Japan, Monster's market share in value in the convenience store channel for the third quarter of 2020 increased from 51.2% to 55% 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 these periods. Net sales to customers outside the U.S., with 444.5 million, 35.7% of total net sales in the 2020 third quarter compared to 379.8 million, or 33.5% of total net sales in the corresponding quarter in 2019. Foreign currency exchange rates had the effect of decreasing net sales in U.S. dollars by approximately 12.5 million in the 2020 third quarter. included in reported geographic sales or 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, net sales in the third quarter increased 15.8% in dollars and increased 15.7% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales for the quarter was 39.5% compared to 39.3% in the same quarter in 2019. Gross profit percentage for the region was impacted by foreign exchange rates. It would have been slightly higher at 40.1 in local currencies. We're also pleased that in the third quarter, Monster gained market share in Belgium, Denmark, Great Britain, Italy, Norway, Poland, the Republic of Ireland, South Africa, Spain, and Sweden. In Asia Pacific, net sales in the third quarter increased 23.1% in dollars, and 22.8% in local currencies over the same period in 2019. Gross profit in this region as percentage of net sales was 43.2% versus 40.5% over the same period in 2019. In Japan, net sales in the quarter increased 4.6% in dollars and 3.9% in local currency. In South Korea, net sales increased 170.7% in dollars and 174.3% in local currency. as compared to the same quarter in 2019. In China, net sales increased 20.6% in dollars in the quarter and 22.7% 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 increased 38.1% in dollars and 35% in local currencies. Sales of the Monster brand in Oceania increased 54.7% in dollars and 50.3% in local currency as compared to the same quarter in 2019. In Latin America, including Mexico and the Caribbean, net sales in the third quarter increased 6.1% in dollars and 31.9% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales was 42.9%, compared to 44% over the same period in 2019. In Brazil, net sales in the quarter increased by 38.5% in dollars and 90.3% in local currency. Net sales in Chile decreased 21.1% in dollars and 11.8% 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 BPX, including claims for false advertising and trademark and trade dress infringement brought by the company against BPX and by BPX against the company. The company's lawsuit for unfair competition, false advertising and misappropriation of trade secrets is scheduled for trial in September 2021. In BPX's lawsuit against the company pertaining to its allegation that RAIN infringes the bank trade dress, BPX's trade... address infringement claims were tried in the Southern District of California in late August and early September, and the companies awaiting a final judgment on these claims.

Sorry, it's the Southern District of Florida.

Of Florida, sorry, of Florida. I beg your pardon. As this litigation and other pending proceedings with BPX are subjudicated, we will not be answering any questions on this matter on today's call. In the United States, we launched Rain Total Body Fuel in August 2020. And in early October, we launched Ultra Watermelon, Juice Monster Papillon, and Juice Monster Chaotic to the retail trade. In Canada, during the third quarter of 2020, Ultra Rosa was launched in July, followed by the launch of Rain Energy in August in four flavors. In El Salvador, we launched Fury Gold Strike as our first entry in the country. in the affordable energy category during July, which is performing well. In August 2020, we launched Ultra Paradise in Brazil, now our largest LATAM market. Additionally, in September 2020 in Brazil, we launched Rain Total Body Fuel in two flavors. June 2020, we launched Ultra Paradise in Argentina, and in August 2020, we launched Ultra Paradise in Chile. As markets eased restrictions after lockdowns, we were able to introduce a number of new products across EMEA in the third quarter. Unfortunately, a number of EMEA markets, including some of our largest markets, have recently reintroduced lockdowns, which may adversely impact these and future product introductions. Juice Monster Pacific Punch was launched in Norway and Poland in September 2020 and is now available in 12 markets across EMEA. Juice Monster Pipeline Punch was launched in the Czech Republic and Slovakia in August 2020 and is now available in 23 markets across EMEA. We are planning to launch Juice Monster Pacific Punch in an additional five markets later in 2020. Juice Monster Mangaloka was launched in Namibia in July 2020 and Mozambique and Mayotte in August 2020 and is now available in 38 markets across EMEA. We are planning to launch Juice Monster Mangaloka in an additional seven markets in 2020. Monster Ultra Paradise was launched in Iceland, Poland and South Africa in August 2020 and in Malta in September 2020 and is now available in 18 EMEA markets. We are planning to launch Monster Ultra in an additional three markets in 2020. Monster Mule was launched in Poland in July 2020 and in Germany, Sweden and South Africa in September 2020. We are planning to launch Monster Mule in an additional five markets in 2020. Expresso, Monster, Milk and Vanilla variants were launched in Hungary in September and are now available in 21 markets in EMEA. Rain Total Body Fuel was launched in Norway and Iceland in September and is now available in 8 markets in EMEA. We are planning to launch Rain Total Body Fuel in an additional 4 markets in 2020. We launched Predator, our primary affordable energy brand, in Ethiopia in August 2020 and and we have also introduced Predator Purple Rain in South Africa in September 2020. We launched Burn Gold Spark in Turkey in August 2020, and we launched Burn Peach Zero in Hungary and Ukraine in August 2020. In Japan in the third quarter of 2020, we launched Ultra Paradise in approximately 90% of the country. We are continuing to build on our number one country share position in value. In South Korea in the third quarter of 2020, Monster Energy increased its number one share position in value. We launched Ultra Paradise in late June. In China, in May 2020, we began distribution of our new non-carbonated Monster Energy Dragon Tea, which has received early positive consumer feedback. During the 2020 third quarter, we saw additional distribution gains for Monster Energy Dragon Tea, along with Monster Green and Ultra White. Large parts of India still remain in national lockdown, due to the COVID-19 pandemic. During the 2023 quarter, no shares were repurchased under the previously authorized repurchase program. As of November 5, 2020, approximately $441.5 million remained available for repurchase under the previously authorized share repurchase program. We estimate October 2020 gross sales to be approximately 14.8% higher than in October 2019. On a foreign currency adjusted basis, October 2020 gross sales would have been approximately 14.9% higher than comparable October 2019 gross sales. October 2020 had one less selling day than October 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, 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 our sales, including our new product innovation launches, could be prolonged and may become more severe. In conclusion, I'd like to summarize some recent positive points. The company's priority has been and remains the health and safety of our employees. Currently, the company's flavor manufacturing facilities, its co-packers, warehouses and shipment facilities, and bottlers and distributors are all operating. We are continually addressing our aluminum can requirements given our volume growth and the current supply constraints in the aluminum can industry. We are pleased with the new additions to the Monster Energy portfolio. 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. 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. Despite the obstacles of the COVID-19 pandemic, we are pleased with our performance for the quarter and for the nine-month period ended September 30, 2020. I would like to open the floor to questions about the quarter. Thank you.

And at this time, we will now begin the question and answer session. To ask a question, you may press stars and one 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 stars and 2. In the interest of time, we kindly ask to please limit yourself to one question only. And at this time, we'll pause momentarily to assemble the roster. And our first question today will come from Dara Mosanian with Morgan Stanley. Please go ahead.

Hey, good afternoon, guys.

Hey, Dora.

So, we've seen category growth come back at pretty healthy levels, looking at the U.S. and Europe. You mentioned the sequential improvement within Q2. Obviously, October seems solid. So, I was just hoping you could give us a bit of your perspective on category growth here post-COVID. Are you seeing more of a sustained pickup? Perhaps people are substituting energy drinks for coffee, shop consumption, or... You know, should we still expect sort of below pre-COVID growth levels with the consumer not back to full mobility? Just really wanted to get some perspective on category growth. And I'm thinking more longer-term X restrictions. But while you're on the subject, perhaps you could touch on the short-term risk from a second round of restrictions also. Thanks.

All right, I'll take it. I think that we're in an area of uncertainty. I think everybody is guessing as to whether people are going to be switching from coffee to energy. I think what we do know is that there are substantial channel switches from the convenience channel to larger packages and take-home packages. I think that's obviously also impacted... The same is impacted, for example... On-premise, I think some of our competitors have substantial on-premise businesses. I think those businesses have been impacted more severely than we have because we have smaller on-premise, but I think that's resulted in some channel switching. So how this mix is all going to pan out at the end of the day, I think it's just speculative for us to anticipate. But what we do know is obviously we've seen the trends. We're seeing the higher sale rates for the category. We're seeing our own numbers through Nielsen and obviously our own numbers internally in the company continuing to strengthen. We've had good momentum and we've got good innovation. I think the innovation this year has been very disrupted all over the world. We launched some products just before COVID hit, some products during COVID, some products we've tried to get out late in summer. And I think a lot of those things are still disrupting our sales, and we obviously feel that as we go forward, I think things will settle down more. But again, we just don't know. You're having Europe sort of going backwards again. A number of their countries are now starting to impose restrictions. So we don't know how this will all turn out, Dora. It's just too speculative for us to give you any real guidance. I just don't think anybody really knows.

Maybe I can just add a little color, if you wouldn't mind. So, Dora, what we're seeing is that caffeine is a need state for consumers. And we're also seeing that energy drinks are an affordable luxury. So even though people are at home in greater quantities than they've been before, they're drinking more energy drinks, and they could very much... as well drink coffee, which they're doing, which is obviously the cup is cheaper than an energy drink. So I think we're not going to go back to where we were before. We're going to go back to somewhere that's kind of in the middle of where we were and where we are now. So my color is, and I don't give guidance, we never give guidance, but if one's thinking about the category and the category growth that has been sustained in this time of COVID. You know, you can enjoy your own conclusions, but that's the kind of color that I've been thinking of.

And our next question will come from Andrea Taxiera with J.P. Morgan. Please go ahead.

Hi, good afternoon, and hope all is well. Can you help us with the sales cadence in the quarter? Was there any reason, like, retail is leaving inventory ahead of any potential pricing to explain this lumpiness? In a certain amount of regions, I guess from the strong July that you quoted in the last call, implied acceleration in August and September to high single digits, but then sharply reaccelerated now in October. And just a follow-up comment about EMEA, what is your view of the impact of the lockdowns now and the current mobility as well? Thank you.

I didn't hear that very much of what you were saying. It was very unclear. I don't know if you heard it, Hilton.

Yeah, I think Andrea was talking about Red Bull. Is that correct?

No, yeah, sorry for the technical issues, but I was just asking about the sales cadence in the quarter. Was there any reason why you saw July and then, yeah.

Okay, you're talking about our cadence.

Yes, your cadence.

Yeah, so what happened, and, you know, we can go through the history on that, but what happened was that our bottler's decreased inventories, and we spoke about that. And then there comes a time when they have to order to get the inventories back to where they should be, bearing in mind the depletions. So there's been a steady percentage growth in depletions, which were not sort of matched by orders. And so what you've seen in the quarter is a steady increase rebuild of inventories in the distribution system in order to support the growth at retail. And also what happened in the quarter was that many of our botters were back, particularly in the U.S., in more full force, so they were covering the stores in a better frequency than they had in the past. So that's where we saw that acceleration. And then your second question was about EMEA. And I would refer you to what happened in the first and second quarters in EMEA. The third quarter, particularly in EMEA, was really strong. But the EMEA guys felt there was still a lot of runway. So we know what October is. We've spoken about October. In November and December... You know, as again, we don't give guidance, but we don't know what the impact of, you know, the lockdowns are going to be. But, you know, we've got some sense for what happened earlier this year.

And our next question will come from Mark Asterton with Stifel. Please go ahead.

Hey, guys. Afternoon. Hope all is well. I guess just building on one of the earlier questions on U.S., not that it's not improving as pandemic lessons and mobility increases. I'm more curious your thoughts about the still disconnect that we're seeing in the data between your business and Red Bull or even Red Bull share gains versus the categories. So you mentioned that you're doing a better job. You talked about that last earnings call about the coach system being back in the market, I think, right around July or so. But Red Bull is now growing close to 20%. So, you know, what do you think is really contributing to their outperformance? And how do you think that will change if it does as we go into next year? And they, in particular, have to laugh that, And can you guys cut the lap easier compared to this?

I think, you know, Red Bull is probably going to start having a tougher time on comparisons. But I think what you can see is they've got a lot of impetus in their 12-ounce. We think there's been some increased consumption because a lot of Red Bull's business was done in the bars. And I think people who are just not going to bars but are still using Red Bull as mixes are probably buying them in the off-premise channels. And that's, I think, we think it could be contributing to some of their increase. As I think we said on the last call, I think that the Red Bull has a very dedicated and focused distribution system. And they, you know, I think stayed in the field and had focus much, much better than not only Coke, but the Pepsis and all of the bigger companies. I think we're still seeing the effects of that. Their execution has been good, and you can see that in comparison to some of the other competitors who are negative, even though one would have expected some of them to have started going into positive territory. And so that's an issue which we are addressing. They had some good innovation, but their innovation has now sort of leveled off a little bit. But you're seeing... large gains particularly as I said in the 12 months right across their whole line including some of their original products and I think that we're getting back we've got new products introduced now I think we've got to get a little more focus and what we've done is we're now stepping up we have basically created a new division with a street team we've appointed a chief field execution officer with a a large dedicated group of people under him to really focus. I think we've probably been underperforming and we've had not enough attention in the independence where you get trial and variation, particularly trial for your innovation. So we are gearing up with what we're calling our street team. That's something new and that we're going to implement. We're in the throes of it right now. and it will start being fully operational in the next month or two. And then as we get it going, we're going to expand it. We think that will address a lot of the independent channel where we think that we perhaps have fallen a little behind. That being said, we are still obviously growing very nicely, and it's a question of the disparate proportion between us and Red Bull. But if you look at the rest of the category, We're doing well. If you look at rain, it's growing at about the same rate as Red Bull. And we think that for some of our new innovation that we've just launched that's been really well received, the Ultra Watermelon and the two juice products, we have some good innovation coming next year. Once things settle down, we think that we will be in a good position to attack that differential.

And our next question will come from Peter Galbo with Bank of America. Please go ahead.

Hey, guys. Thanks very much for taking the question. And maybe just to piggyback on Mark's question and talk a little bit about the innovation, I guess just with the introduction of Watermelon, A has not shipped at this point. And maybe just talk to us a little bit about you know, what you've observed with seasonality with that product and help us understand, I guess, in your own internal planning, you know, how you're thinking about how big that line could be, you know, relative to, say, an Ultra Paradise or a Fiesta or a Rosa. Thanks very much.

It has shipped. It shipped at the beginning of October, and it's had a very good reception both from our bottlers and from retailers. very initial indications of sales per point in some of the retail chains are showing that it's really doing well. It's ahead of some of the others. I mean, the Ultra Fiesta was a really good launch earlier this year, and it's continuing. Those are still new products, and that's continuing to grow. But this is actually starting to outpace those ones. After three to four weeks, we're actually seeing a higher trend. a higher rate of sale. But we've launched it now. I think that, like everything, it does get affected by the winter months, but we think that being a zero-calorie product, it will help the product, and we're quite optimistic for watermelon as a really good opportunity. It's a really good product, and the whole ultra line is continuing to perform really well. I don't know if you'd like to add any color on that, Hilton.

Yeah, the only thing I would add is that, you know, the energy drink category is not as seasonal as, for example, sodas and other soft drinks and beer. And, you know, it is zero calorie. It's on trend. We're seeing higher rates of sales in some of our major retailers. So, you know, as we transition into, you know, the January's and the better for you months, it's really very much on trend.

This will conclude our question and answer session. I'd like to turn the conference back over to Mr. Rodney Sachs for any closing remarks.

Thanks. 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 Coca-Cola bottling 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.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.