The operator welcomed participants to the Monster Beverage Corporation Second Quarter 2023 Financial Results Conference Call and turned the conference over to Rodney Sacks and Hilton Schlosberg, Co-CEOs of Monster Beverage. Tom Kelly, the Chief Financial Officer, then read a cautionary statement reminding listeners that certain statements made during the call may constitute forward-looking statements and that these statements are subject to certain risks and uncertainties.

In the 2023 second quarter, the company achieved record net sales of $1.85 billion, a 12.1% increase from the 2022 comparable period. Gross profit as a percentage of net sales increased to 52.5% due to pricing actions, decreased operating costs, and increased aluminum can costs. Operating expenses and distribution expenses decreased as a percentage of net sales, while other operating expenses increased due to increased payroll expenses.

The company has implemented pricing actions in the US and other international markets in 2022 and 2023 in order to mitigate inflationary pressures. Operating income for the 2023 second quarter increased 14.4% and net income increased 51.4%. According to Nielsen reports, sales of energy drinks, including energy shots, increased 13.6% for the 13 weeks through July 22, 2023.

In the 13 week and four week periods ended July 22, 2023, sales of the company's energy brands, including Reign, Monster, NOS, and Full Throttle, increased significantly compared to the same period the previous year. According to Nielsen, sales of the company's energy brands in the convenience and gas channel increased 13.8%, and the company's market share of the energy drink category in the convenience and gas channel increased from 36% to 36.1%. Monster's share decreased from 30.4% to 29.8%, Reign's share increased to 3.1%, and Red Bull's share decreased from 36.3% to 34.7%. VPX Bang's share decreased 4.2 points to 1.8%, while Five Hour and Rockstar's shares decreased 0.7 point and 0.2 point, respectively.

Nielsen reported that for the four weeks ended July 22, 2023, sales in the coffee plus energy drink category decreased 3% over the same period the previous year, with Java Monster's sales increasing 3.3%. Starbucks Energy's sales decreased 7%. In Canada, the energy drink category increased 14.8% in dollars and the company's energy drink brands had a 42.4% market share, up 2.4 points. In Mexico, the energy drink category increased 23.7% and Monster's market share increased 0.4 points to 28.8%. Predator's sales increased 75.3% and its market share increased 1.7 points to 5.6%. However, sales in the OXA convenience chain can be impacted by promotions.

Monster Energy is the leading energy brand in Argentina, Brazil, Chile, Belgium, France, Great Britain, Norway, Republic of Ireland, Spain, Sweden, Netherlands, South Africa, Czech Republic, Denmark, Germany, Italy, Greece, and Poland. According to Nielsen, in the 13 week period ending in June 2023, Monster's retail market sharing value increased in Argentina, Chile, and Brazil, but decreased in the Netherlands and South Africa. In the 13 week period ending in May 2023, Monster's retail market sharing value increased in the Czech Republic, Denmark, Germany, and Italy, but decreased in Greece and Poland. These statistics should be used as a guide, however, as the channels read by Nielsen vary from country to country.

In the 13 week period ending May 2023, Nielsen reported that Predator's retail market share value increased in Kenya and Nigeria, while Monster's retail market share value increased in Australia and New Zealand. INTAGE reported that Monster's market share value decreased in Japan in the month ending June 2023, and Nielsen reported that Monster's market share value decreased in South Korea in the month ending June 2023. In the 2023 second quarter, net sales to customers outside the US was 38.6% of total net sales, and foreign currency exchange rates had a negative impact on net sales in the US and US dollars by approximately $38.4 million. Sales to the company's military customers were delivered in the US and transshipped to the military and their customers overseas.

In the 2023 second quarter, Monster saw increased sales and market share in EMEA, Asia Pacific, Oceania, and Latin America. In EMEA, net sales increased 13% in dollars and 16.4% in local currencies, while gross profit as a percentage of net sales increased to 34%. In Asia Pacific, net sales increased 17.8% in dollars and 26.7% in local currencies, while gross profit as a percentage of net sales increased to 42.4%. In Japan and South Korea, Monster remained the market leader, with net sales increasing 11.9% and 50.3%, respectively, in dollars. In China, net sales increased 3.7% in dollars and 10.6% in local currency. In Oceania, net sales increased 26% in dollars and 36.4% in local currencies. In Latin America, net sales increased 0.1 of a percent in dollars and 9.4% in local currencies, while in Brazil and Mexico, net sales increased 2.5% and 23.3% in dollars, respectively.

In the 2023 second quarter, net sales in Chile decreased 23.8% in dollars and 26.6% in local currency, while net sales in Argentina decreased 19.5% in dollars but increased 54% in local currency. Monster Energy Company and Orange Bank have been awarded $175 million in damages, attorneys fees and costs and an ongoing 5% royalty on future sales of certain Bang Energy due to a trademark infringement arbitration case against Vital Pharmaceuticals Inc. (VPX). VPX and its CEO Jack Owoc were also found guilty of false advertising in the United States District Court for the Central District of California, resulting in a verdict awarding MEC $293 million in damages and a permanent injunction. VPX and certain of its domestic subsidiaries and affiliates filed for protection under Chapter 11 of the bankruptcy code and VPX and certain affiliates entered into an asset purchase agreement with the company.

On July 31, 2023, the company completed the acquisition of substantially all of the assets of Vital Pharmaceuticals, Inc. and certain of its affiliates, collectively known as Bang Energy, for a purchase price of approximately $362 million. This included Bang Energy beverages, and a beverage production facility in Phoenix, Arizona. The asset purchase agreement also included a mutual release between VPX and MEC, and an agreement with Orange Bank Inc. regarding the company's use and registration of certain bank trademarks and trade names, with a one-time payment of approximately $12.5 million and a 2.5% royalty on all future sales of products bearing the trade name Bang.

Monster successfully recruited former VPX employees to fill positions and integrate Bang Energy into its infrastructure. Bang Energy will be distributed through Coca Cola's bottlers network starting in the 2023 third quarter, with a temporary disruption of product supply. Monster also acquired a production facility in Phoenix and launched The Beast Unleashed in 28 states with plans to expand nationally. Nielsen scan data shows that The Beast Unleashed is one of the top new brands in the beer category. Monster plans to launch Nasty Beast Hardcore Tea with four flavors in the late 2023 or early 2024, with a goal of national distribution by the first half of 2024.

In the second quarter of 2023, the company launched a variety of new products in different parts of the world. This included Monster Energy Zero-Sugar, Java Monster 300 Triple Shot, Mocha, and Vanilla in Canada, Monster Reserve White Pineapple in Argentina, Java Monster Super Coffee, Mean Bean, and Loca Mocha in Australia and New Zealand, and Monster Reserve Watermelon and White Pineapple, Ultra Gold, Ultra Fiesta Mango, Ultra Paradise, Ultra Rosa, Ultra Watermelon, Used Ozzy Lemonade, Used Chaotic, BPM, Burn, Nalu, Predator, and Reign in EMEA countries. The company was pleased with the early results of these launches.

In June 2023, Monster Energy launched in Egypt and expanded distribution to 8 EMEA markets, while launching Monster Reserve Watermelon, Monster Ultra Sunrise, and Monster Reserve Pineapple in Japan, Korea, and Turkey, respectively. Predator was launched in additional regions in India and Iraq, and Monster Energy will be launched in the Philippines later this year. Sales in July 2023, including the alcohol brand segment, were estimated to be 13.7% higher than July 2022 and 12.1% higher than July 2022 excluding the alcohol brand segment. It is important to note that sales over a short period can be affected by various factors such as selling days, product launches, and promotions.

The energy category is continuing to grow globally, and pricing actions to mitigate inflation have not impacted consumer demand. The IFF labor facility in Ireland is providing a large number of flavors to the EMEA region. Monster Energy Zero-Sugar, Ultra Strawberry Dreams, Rainstorm, Tour Water, and Lewis Hamilton 44 Zero-Sugar are upcoming new product innovations in the US and EMEA respectively. The Beast Unleashed has been launched with a goal of national distribution by the end of the year. Nasty Beast Hardcore Tea will launch later this year or early next year with a goal of national distribution in the first half of 2024, and CANarchy acquisition presents additional alcohol opportunities. Rainstorm, a Total Wellness Energy drink, has been launched, and Prince and Fury, an affordable energy drink portfolio, is being rolled out internationally.

Hilton Schlosberg discussed the drivers behind the quarter's lower gross margin, which included increases in certain ingredients and other input costs, as well as co-packing, and a geographical sales mix that is more weighted towards overseas sales. He also noted that the gross margins from the alcohol business are lower than the energy drink sector.

Hilton Schlosberg discussed the performance of the energy category, which is still growing in double digits. He also discussed the acquisition of Bang and how it could help improve margins and increase presence in the wellness energy category. Lastly, he touched on the performance of Brazil and Latin America, which saw a deceleration in growth despite gaining market share.

This paragraph discusses the growth of the energy drink market and the various segments within it, such as traditional energy, wellness energy, and performance energy. It also provides insight into the Bang brand, which started off as a performance energy drink but now stands for "lost on energy". The paragraph further discusses the growth of energy drinks in Brazil and Chile, noting that there has been a slowdown in growth in both countries, but that Bang still maintains a market share as a market leader.

Hilton Schlosberg discussed the different ways that the Bank brand has been marketed, such as transitioning from a black can to a white can and then to Reign and Rainstorm in a black and 12 ounce white can, respectively. He also noted that the Bang brand will remain in a white can, but the packaging may be slightly changed. Peter Galbo followed up by asking about gross profit per case, which was flattish sequentially.

Hilton Schlosberg of Bang Energy discussed the importance of examining costs when launching a new product. He mentioned that some products have lower gross profits per case, such as coffee products, but they are still an important part of the portfolio. He also mentioned that when they entered the alcohol space, they knew the margins would be lower than the energy drink category. He encouraged analysts to think in terms of dollars when banking, not percentages. Chris Carey asked for the Latin America gross margin on the quarter, and if there was a temporary disruption or underlying demand.

Hilton Schlosberg explains that Latin America is an important market for the company, and that they are market leaders in Argentina, Brazil, Chile, and other countries. He advises the listener to listen to the upcoming conference call for more information on the Latin American market. He then addresses the issue of gross margin, noting that there are always anomalies, and that the company is now back working within its orbit.

The speaker thanked everyone for their interest in the company and for their attendance at the presentation. He expressed his optimism about the company's future and their relationship with the Coca Cola Bottler system. He also wished everyone a safe and healthy summer before concluding the conference.

This summary was generated with AI and may contain some inaccuracies.