Monster(MNST) - 2024 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This chapter presents the company's unaudited condensed consolidated financial statements and detailed notes on accounting policies, revenue, leases, investments, debt, and segment information Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (As of June 30, 2024 and December 31, 2023) | Metric (thousand US dollars) | June 30, 2024 | December 31, 2023 | | :--------------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $1,564,734 | $2,297,675 | | Short-term investments | — | $955,605 | | Accounts receivable, net | $1,362,398 | $1,193,964 | | Inventories | $834,404 | $971,406 | | Total current assets | $3,954,297 | $5,588,996 | | Property and equipment, net | $960,962 | $890,796 | | Goodwill | $1,417,941 | $1,417,941 | | Other intangible assets, net | $1,433,326 | $1,427,139 | | Total assets | $8,060,904 | $9,686,522 | | Liabilities and Stockholders' Equity | | | | Accounts payable | $511,137 | $564,379 | | Accrued liabilities | $213,905 | $183,988 | | Long-term debt | $748,740 | — | | Total current liabilities | $1,160,523 | $1,161,689 | | Total stockholders' equity | $5,866,323 | $8,228,744 | | Total liabilities and stockholders' equity | $8,060,904 | $9,686,522 | - As of June 30, 2024, total assets were $8.06 billion, a 16.89% decrease from $9.69 billion as of December 31, 2023[8] - Cash and cash equivalents decreased from $2.30 billion at year-end 2023 to $1.57 billion as of June 30, 2024, primarily due to liquidating investments for the modified 'Dutch Auction' tender offer to repurchase shares[8][62] - The company incurred $749 million in new long-term debt, with no long-term debt at year-end 2023[8][90] - Total stockholders' equity decreased by 28.71% from $8.23 billion at year-end 2023 to $5.87 billion as of June 30, 2024, primarily due to treasury stock repurchases[8][21] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (For the Three and Six Months Ended June 30, 2024) | Metric (thousand US dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,900,597 | $1,854,961 | $3,799,695 | $3,553,891 | | Cost of sales | $881,091 | $880,739 | $1,753,061 | $1,681,820 | | Gross profit | $1,019,506 | $974,222 | $2,046,634 | $1,872,071 | | Operating expenses | $492,343 | $450,417 | $977,480 | $863,201 | | Operating income | $527,163 | $523,805 | $1,069,154 | $1,008,870 | | Interest and other income, net | $24,376 | $15,159 | $60,131 | $27,653 | | Income before income taxes | $551,539 | $538,964 | $1,129,285 | $1,036,523 | | Provision for income taxes | $126,170 | $125,093 | $261,867 | $225,208 | | Net income | $425,369 | $413,871 | $867,418 | $811,315 | | Basic net income per share | $0.41 | $0.40 | $0.84 | $0.78 | | Diluted net income per share | $0.41 | $0.39 | $0.83 | $0.77 | - For the three months ended June 30, 2024, net sales increased by 2.5% to $1.90 billion, and net income increased by 2.8% to $425 million[11][15] - For the six months ended June 30, 2024, net sales increased by 6.9% to $3.80 billion, and net income increased by 6.9% to $867 million[11][15] - Gross margin increased from 52.5% to 53.6% for the three-month period and from 52.7% to 53.9% for the six-month period, driven by lower freight costs, pricing actions, and reduced aluminum can costs[190][212] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (For the Three and Six Months Ended June 30, 2024) | Metric (thousand US dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income reported | $425,369 | $413,871 | $867,418 | $811,315 | | Change in foreign currency translation adjustments | $(31,104) | $(5,775) | $(61,799) | $2,206 | | Change in unrealized gain (loss) on available-for-sale investments | $535 | $(773) | $758 | $2,408 | | Change in net gain (loss) on commodity derivatives | $6,205 | $(1,266) | $4,074 | $(1,266) | | Other comprehensive income (loss) | $(24,364) | $(7,814) | $(56,967) | $3,348 | | Comprehensive income | $401,005 | $406,057 | $810,451 | $814,663 | - For the six months ended June 30, 2024, comprehensive income was $810 million, a slight decrease from $815 million in the prior-year period[19] - Foreign currency translation adjustments resulted in a $61.8 million loss for the six months ended June 30, 2024, compared to a $2.2 million gain in the prior-year period[19] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (As of June 30, 2024) | Metric (thousand US dollars) | Balance December 31, 2023 | Balance June 30, 2024 | | :--------------------------- | :------------------------ | :-------------------- | | Common stock | $5,613 | $5,627 | | Additional paid-in capital | $4,975,115 | $5,068,291 | | Retained earnings | $5,939,736 | $6,807,154 | | Accumulated other comprehensive income (loss) | $(125,337) | $(182,304) | | Treasury stock, common | $(2,566,383) | $(5,832,445) | | Total stockholders' equity | $8,228,744 | $5,866,323 | - As of June 30, 2024, total stockholders' equity was $5.87 billion, a significant decrease from $8.23 billion as of December 31, 2023, primarily due to treasury stock repurchases[21] - Treasury stock, common, increased from $2.57 billion at year-end 2023 to $5.83 billion as of June 30, 2024, reflecting substantial share repurchase activities, including a $3 billion 'Dutch Auction' tender offer[21][107] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (For the Six Months Ended June 30, 2024) | Cash Flow Activity (thousand US dollars) | 2024 | 2023 | | :--------------------------------------- | :------------ | :----------- | | Net cash provided by operating activities | $848,433 | $763,162 | | Net cash provided by (used in) investing activities | $903,304 | $(158,209) | | Net cash used in financing activities | $(2,440,475) | $(37,820) | | Effect of exchange rate changes | $(44,203) | $(4,500) | | Net (decrease) increase in cash and cash equivalents | $(732,941) | $562,633 | | Cash and cash equivalents at beginning of period | $2,297,675 | $1,307,141 | | Cash and cash equivalents at end of period | $1,564,734 | $1,869,774 | - For the six months ended June 30, 2024, cash flow from operating activities increased to $848 million from $763 million in the prior-year period[25][244] - Investing activities provided $903 million in cash for the six months ended June 30, 2024, compared to a use of $158 million in the prior-year period, primarily due to the sale of available-for-sale investments[25][247][248] - Financing activities used $2.44 billion in cash for the six months ended June 30, 2024, compared to $37.8 million in the prior-year period, mainly due to substantial common stock repurchases and new borrowings[26][249] Notes to Condensed Consolidated Financial Statements 1. BASIS OF PRESENTATION - The company's condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and SEC rules for interim financial reporting[31] - The FASB issued ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Tax Disclosures), which the company is evaluating for impact on its consolidated financial statements[33][34] 2. REVENUE RECOGNITION - The company has four reportable segments: Monster Energy® Drinks, Strategic Brands, Alcohol Brands, and Other[35] - Revenue is primarily recognized when control of products transfers to customers, typically upon shipment or delivery[40] Net Sales by Segment and Geographic Area (For the Three Months Ended June 30, 2024) | Segment/Region (thousand US dollars) | United States and Canada | Europe, Middle East and Africa | Asia Pacific (including Oceania) | Latin America and Caribbean | Total | | :----------------------------------- | :----------------------- | :----------------------------- | :------------------------------- | :-------------------------- | :--------- | | Monster Energy® Drinks | $1,100,063 | $351,985 | $132,078 | $158,682 | $1,742,808 | | Strategic Brands | $49,579 | $41,938 | $13,010 | $4,695 | $109,222 | | Alcohol Brands | $41,564 | — | — | — | $41,564 | | Other | $7,003 | — | — | — | $7,003 | | Total Net Sales | $1,198,209 | $393,923 | $145,088 | $163,377 | $1,900,597 | Net Sales by Segment and Geographic Area (For the Six Months Ended June 30, 2024) | Segment/Region (thousand US dollars) | United States and Canada | Europe, Middle East and Africa | Asia Pacific (including Oceania) | Latin America and Caribbean | Total | | :----------------------------------- | :----------------------- | :----------------------------- | :------------------------------- | :-------------------------- | :--------- | | Monster Energy® Drinks | $2,194,909 | $704,214 | $254,096 | $318,640 | $3,471,859 | | Strategic Brands | $99,221 | $85,275 | $22,207 | $10,963 | $217,666 | | Alcohol Brands | $97,634 | — | — | — | $97,634 | | Other | $12,536 | — | — | — | $12,536 | | Total Net Sales | $2,404,300 | $789,489 | $276,303 | $329,603 | $3,799,695 | 3. LEASES - The company leases office and warehouse space, warehouse equipment, and vehicles, with lease terms ranging from less than one year to ten years[52] Lease Costs (For the Three and Six Months Ended June 30, 2024) | Lease Cost (thousand US dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $3,888 | $2,616 | $7,690 | $5,083 | | Short-term lease cost | $2,151 | $1,070 | $4,821 | $2,049 | | Variable lease cost | $228 | $226 | $441 | $441 | | Finance lease cost | $546 | $246 | $1,232 | $383 | | Total Lease Cost | $6,813 | $4,158 | $14,184 | $7,956 | - As of June 30, 2024, the weighted-average remaining lease term for operating leases was 6.0 years, with a weighted-average discount rate of 4.7%[56][57] 4. INVESTMENTS - As of June 30, 2024, the company held no short-term or long-term investments, as all investments were liquidated during the three months ended June 30, 2024, to fund the modified 'Dutch Auction' tender offer[62] Investment Portfolio (As of December 31, 2023) | Investment Type (thousand US dollars) | Amortized Cost | Fair Value | | :------------------------------------ | :------------- | :--------- | | Short-term: | | | | Commercial paper | $163,775 | $163,774 | | Certificates of deposit | $15,590 | $15,590 | | Municipal securities | $361 | $361 | | U.S. government agency securities | $116,524 | $116,548 | | U.S. Treasury securities | $412,936 | $412,057 | | Corporate bonds | $247,340 | $247,275 | | Long-term: | | | | U.S. government agency securities | $23,485 | $23,531 | | U.S. Treasury securities | $35,896 | $35,967 | | Corporate bonds | $16,903 | $16,933 | | Total | $1,032,810 | $1,032,036 | 5. FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES - The company measures the fair value of financial assets and liabilities using the ASC 820 (Fair Value Measurement) framework, employing a three-level fair value hierarchy[67] Fair Value of Financial Assets and Liabilities (As of June 30, 2024) | Asset/Liability (thousand US dollars) | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------ | :------------- | :------------- | :------ | :------------- | | Cash | $948,105 | — | — | $948,105 | | Money market funds | $576,964 | — | — | $576,964 | | Certificates of deposit | — | $39,665 | — | $39,665 | | Foreign currency derivatives | — | $(214) | — | $(214) | | Commodity derivatives | — | $5,600 | — | $5,600 | | Total | $1,525,069 | $45,051 | — | $1,570,120 | - As of June 30, 2024, the company held no investments, as all were liquidated in the first half of 2024[70] 6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The company uses cash flow hedges to mitigate the impact of commodity price fluctuations on anticipated transaction cash flows, primarily through commodity hedge contracts for aluminum purchase price risk[74][75] - As of June 30, 2024, the total notional value of commodity hedge contracts was $143.8 million, up from $98.3 million as of December 31, 2023[75] - The company also uses forward foreign exchange contracts for economic (non-designated) hedging to manage foreign currency exchange rate risk but does not designate them as hedging instruments[80][81] Non-Designated Hedging Derivative Gains and Losses (For the Three and Six Months Ended June 30, 2024) | Derivative Type | Gain (Loss) Recognized in | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------- | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Foreign currency exchange contracts | Interest and other income, net | $(2,633) | $(1,924) | $2,711 | $(9,775) | 7. INVENTORIES Inventory Composition (As of June 30, 2024 and December 31, 2023) | Inventory Type (thousand US dollars) | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :---------------- | | Raw materials | $271,341 | $330,021 | | Work-in-process | $1,526 | $1,403 | | Finished goods | $561,537 | $639,982 | | Total | $834,404 | $971,406 | - As of June 30, 2024, total inventories were $834 million, a 14.0% decrease from $971 million as of December 31, 2023[85] 8. PROPERTY AND EQUIPMENT, NET Property and Equipment, Net Composition (As of June 30, 2024 and December 31, 2023) | Asset Type (thousand US dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------- | :------------ | :---------------- | | Land | $158,505 | $152,253 | | Leasehold improvements | $33,264 | $37,946 | | Furniture and fixtures | $11,390 | $11,422 | | Office and computer equipment | $26,833 | $25,560 | | Computer software | $6,636 | $5,344 | | Equipment | $462,428 | $426,466 | | Buildings | $217,214 | $211,951 | | Vehicles | $69,902 | $69,527 | | Construction in progress | $261,279 | $211,562 | | Accumulated depreciation and amortization | $(286,489) | $(261,235) | | Total | $960,962 | $890,796 | - As of June 30, 2024, property and equipment, net, was $961 million, an 7.88% increase from $891 million as of December 31, 2023[85] - For the six months ended June 30, 2024, total depreciation and amortization expense was $36.9 million, an increase from $29.5 million in the prior-year period[87] 9. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill by Reportable Segment (As of June 30, 2024) | Segment (thousand US dollars) | Balance December 31, 2023 | Balance June 30, 2024 | | :---------------------------- | :------------------------ | :-------------------- | | Monster Energy® Drinks | $693,644 | $693,644 | | Strategic Brands | $637,999 | $637,999 | | Alcohol Brands | $86,298 | $86,298 | | Total | $1,417,941 | $1,417,941 | Intangible Assets Composition (As of June 30, 2024 and December 31, 2023) | Intangible Asset Type (thousand US dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------------------ | :------------ | :---------------- | | Amortizable intangible assets | $144,577 | $144,582 | | Accumulated amortization | $(77,668) | $(74,699) | | Non-amortizable intangible assets | $1,366,417 | $1,357,256 | | Total | $1,433,326 | $1,427,139 | - As of June 30, 2024, total goodwill was $1.42 billion, consistent with December 31, 2023[88] - As of June 30, 2024, other intangible assets, net, were $1.43 billion, a slight increase from $1.43 billion as of December 31, 2023[88] 10. DISTRIBUTION AGREEMENTS - Payments received from distribution agreements are recognized as deferred revenue and amortized into income proportionally over the expected life of the agreements, typically 20 years[92] - For the three and six months ended June 30, 2024, $10 million and $19.9 million of deferred revenue were recognized, respectively[92] 11. DEBT Long-Term Debt Composition (As of June 30, 2024 and December 31, 2023) | Debt Type (thousand US dollars) | June 30, 2024 | December 31, 2023 | | :------------------------------ | :------------ | :---------------- | | Term loan | $750,000 | — | | Revolving credit facility | — | — | | Less: Unamortized debt issuance costs | $(1,260) | — | | Long-term debt, net | $748,740 | — | - In May 2024, the company entered into a $1.5 billion senior unsecured credit agreement, comprising a $750 million term loan and a $750 million revolving credit facility[93] - As of June 30, 2024, the term loan carried an interest rate of 6.30%, with no outstanding borrowings under the revolving credit facility[94] 12. COMMITMENTS AND CONTINGENCIES - As of June 30, 2024, the company had approximately $262.5 million in purchase commitments and $432.1 million in contractual obligations, primarily related to sponsorships and other marketing activities[96] - The company faces litigation, but management believes these lawsuits will not, in the aggregate, have a material adverse effect on the company's financial position or results of operations[98] 13. ACCUMULATED OTHER COMPREHENSIVE LOSS Changes in Accumulated Other Comprehensive Loss (As of June 30, 2024) | Component (thousand US dollars) | Balance December 31, 2023 | Balance June 30, 2024 | | :------------------------------ | :------------------------ | :-------------------- | | Net gain (loss) on commodity derivatives | $4,410 | $8,484 | | Foreign currency translation adjustments | $(128,989) | $(190,788) | | Unrealized gain (loss) on available-for-sale securities | $(758) | — | | Total | $(125,337) | $(182,304) | - As of June 30, 2024, accumulated other comprehensive loss increased to $182.3 million, primarily due to increased foreign currency translation losses[100] 14. TREASURY STOCK - For the three months ended June 30, 2024, the company repurchased approximately 2.2 million shares of common stock for approximately $107.7 million under its November 2022 repurchase program[101] - In May 2024, the Board authorized a modified 'Dutch Auction' tender offer to repurchase approximately 56.6 million shares of common stock for approximately $3 billion, funded by $2.25 billion in cash and $750 million in borrowings[107] - As of August 6, 2024, $342.4 million remained available for repurchase under the November 2023 repurchase program[106] 15. STOCK-BASED COMPENSATION - For the three and six months ended June 30, 2024, the company recorded $18.8 million and $41.3 million in stock-based compensation expense, respectively[109] - As of June 30, 2024, total unrecognized compensation cost related to unvested options was $162.4 million, expected to be recognized over a weighted-average period of 3.4 years[114] - As of June 30, 2024, total unrecognized compensation cost related to unvested restricted stock units and performance stock units was $43.9 million, expected to be recognized over a weighted-average period of 1.6 years[119] 16. INCOME TAXES Changes in Total Unrecognized Tax Benefits (As of June 30, 2024) | Metric (thousand US dollars) | Amount | | :--------------------------- | :----- | | Balance December 31, 2023 | $3,109 | | Balance June 30, 2024 | $3,109 | - As of June 30, 2024, the company had approximately $0.7 million in accrued interest and penalties related to unrecognized tax benefits[125] - The company's U.S. federal income tax returns for 2020 through 2023, and state and certain foreign jurisdiction income tax returns for 2019 through 2023, remain subject to examination[126] 17. EARNINGS PER SHARE Weighted-Average Shares Outstanding for Basic and Diluted Earnings Per Common Share (thousand shares) | Share Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 1,029,268 | 1,047,065 | 1,035,175 | 1,045,993 | | Dilutive | 8,110 | 13,028 | 9,188 | 13,674 | | Diluted | 1,037,378 | 1,060,093 | 1,044,363 | 1,059,667 | - For the three months ended June 30, 2024, basic net income per share was $0.41, and diluted net income per share was $0.41[15] - For the six months ended June 30, 2024, basic net income per share was $0.84, and diluted net income per share was $0.83[15] 18. SEGMENT INFORMATION - The company has four reportable segments: Monster Energy® Drinks, Strategic Brands, Alcohol Brands, and Other[128] Net Sales by Segment (For the Three and Six Months Ended June 30, 2024) | Segment (thousand US dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Monster Energy® Drinks | $1,742,808 | $1,686,887 | $3,471,859 | $3,248,555 | | Strategic Brands | $109,222 | $99,690 | $217,666 | $186,048 | | Alcohol Brands | $41,564 | $61,076 | $97,634 | $107,366 | | Other | $7,003 | $7,308 | $12,536 | $11,922 | | Total | $1,900,597 | $1,854,961 | $3,799,695 | $3,553,891 | Operating Income by Segment (For the Three and Six Months Ended June 30, 2024) | Segment (thousand US dollars) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Monster Energy® Drinks | $612,255 | $597,922 | $1,240,377 | $1,158,740 | | Strategic Brands | $61,659 | $55,137 | $123,677 | $106,909 | | Alcohol Brands | $(22,561) | $(6,577) | $(28,577) | $(13,460) | | Other | $1,418 | $1,651 | $2,419 | $1,358 | | Corporate and unallocated | $(125,608) | $(124,328) | $(268,742) | $(244,677) | | Total | $527,163 | $523,805 | $1,069,154 | $1,008,870 | - The Monster Energy® Drinks segment accounted for 91.7% of net sales in Q2 2024 and 91.4% for the first half of 2024[166] - The Alcohol Brands segment's net sales decreased by 31.9% year-over-year in Q2 2024 and 9.1% in the first half of 2024, continuing to record operating losses[187][207][136] 19. RELATED PARTY TRANSACTIONS - The Coca-Cola Company (TCCC) controls approximately 20.9% of the company's voting interest and serves as a distributor for the company's products in domestic and certain international markets[147] - For the three and six months ended June 30, 2024, TCCC commissions (recorded as a reduction of net sales) were $19.8 million and $42.3 million, respectively[147] - For the three and six months ended June 30, 2024, net sales to TCCC subsidiaries were $55.5 million and $97.2 million, respectively[148] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter discusses the company's financial condition and operating results for the three and six months ended June 30, 2024, highlighting growth in net sales and income, a $3 billion stock repurchase, and ongoing challenges Our Business - Monster Beverage Corporation is a holding company primarily engaged in developing and marketing energy drinks through its subsidiaries, along with a small portfolio of craft beers, hard seltzers, and flavored malt beverages[157] Stock Repurchase - On May 1, 2024, the company authorized a modified 'Dutch Auction' tender offer to repurchase approximately 56.6 million shares of common stock at $53.00 per share, totaling approximately $3 billion[158] - This repurchase was funded by approximately $2.25 billion of available cash and approximately $750 million of borrowings[158] Pricing Actions - The company implemented price increases in certain international markets during Q3 and Q4 2023, and Q1 and Q2 2024, which positively impacted Q2 2024 net sales and gross profit margin[159] - The company anticipates implementing price increases on certain Monster Energy® brand energy drinks in the United States during Q4 2024[159] Overview - The company primarily develops, markets, sells, and distributes energy drinks and concentrates under brands including Monster Energy®, Reign Total Body Fuel®, and Bang Energy®[160] - The company also sells craft beers, flavored malt beverages, hard seltzers, and Monster Tour Water® branded still and sparkling waters[160][161] - Q2 2024 net sales reached $1.90 billion, marking a record high for the company's second fiscal quarter[165] - Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $67.7 million on Q2 2024 net sales, with $34 million related to Argentina[165] - The Monster Energy® Drinks segment accounted for 91.7% of Q2 2024 net sales, Strategic Brands for 5.7%, and Alcohol Brands for 2.2%[166] - The company plans to launch new products in Q3 2024, including Monster Energy® Ultra Vice Guava™ and The Beast Unleashed® Gnarly Grape™[164] Results of Operations Key Financial Data (For the Three and Six Months Ended June 30, 2024) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change Rate | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change Rate | | :------------------------- | :------------------------------- | :------------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | Net sales | $1,900,597 | $1,854,961 | 2.5% | $3,799,695 | $3,553,891 | 6.9% | | Cost of sales | $881,091 | $880,739 | 0.0% | $1,753,061 | $1,681,820 | 4.2% | | Gross profit | $1,019,506 | $974,222 | 4.6% | $2,046,634 | $1,872,071 | 9.3% | | Operating expenses | $492,343 | $450,417 | 9.3% | $977,480 | $863,201 | 13.2% | | Operating income | $527,163 | $523,805 | 0.6% | $1,069,154 | $1,008,870 | 6.0% | | Net income | $425,369 | $413,871 | 2.8% | $867,418 | $811,315 | 6.9% | | Diluted net income per share | $0.41 | $0.39 | 5.0% | $0.83 | $0.77 | 8.5% | | Energy drink case sales (thousand cases) | 212,194 | 198,406 | 6.9% | 423,624 | 380,850 | 11.2% | - Q2 2024 net sales increased by 2.5% year-over-year, driven by higher Monster Energy® brand energy drink case sales and pricing actions, despite an unfavorable foreign exchange impact of $67.7 million[182] - Q2 2024 gross margin increased from 52.5% to 53.6%, primarily due to lower freight costs, pricing actions, and reduced aluminum can costs[190] - Q2 2024 operating expenses increased by 9.3% year-over-year, mainly due to a $19.6 million increase in selling and marketing expenses (sponsorships and endorsements) and a $12 million increase in payroll expenses[191][193] - The Alcohol Brands segment reported an operating loss of $22.6 million in Q2 2024, a 243.0% increase year-over-year, primarily due to decreased net sales and $8.1 million in asset impairment and disposal losses[196] - For the first half of 2024, energy drink case sales increased by 11.2% to 423.6 million cases[208] - For the first half of 2024, the provision for income taxes increased by 16.3% year-over-year, with the effective tax rate rising from 21.7% to 23.2%, mainly due to reduced stock-based compensation deductions[219] Liquidity and Capital Resources - As of June 30, 2024, the company had $1.56 billion in cash and cash equivalents, with $954.9 million held by foreign subsidiaries[241] - In May 2024, the company secured a $1.5 billion senior unsecured credit facility, including a $750 million term loan and a $750 million revolving credit facility, with the latter remaining fully available[242] - The company expects cash flows from operations, existing cash resources, and the credit facility to be sufficient to meet working capital needs, capital expenditures, and stock repurchases over the next 12 months[243] Cash Flow Summary (For the Six Months Ended June 30, 2024) | Cash Flow Activity (thousand US dollars) | 2024 | 2023 | | :--------------------------------------- | :------------ | :----------- | | Net cash provided by operating activities | $848,433 | $763,162 | | Net cash provided by (used in) investing activities | $903,304 | $(158,209) | | Net cash used in financing activities | $(2,440,475) | $(37,820) | - For the first half of 2024, cash provided by operating activities benefited from net income and non-cash expense adjustments, as well as decreases in inventories and increases in accrued promotional allowances[245] - For the first half of 2024, financing activities used $2.44 billion in cash, primarily for stock repurchases, partially offset by borrowings under the credit facility and common stock issuances[249] Critical Accounting Policies and Estimates - The company's financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions, with no significant changes to critical accounting policies or estimates during this reporting period[256] Recent Accounting Pronouncements - Information on recent accounting pronouncements is disclosed in Note 1 to the condensed consolidated financial statements[257] Inflation - Inflation impacted operating results for Q2 and the first half of 2024, primarily through increased local currency pricing in certain international markets[258] Forward-Looking Statements - The report contains forward-looking statements regarding revenue, profitability, and working capital sufficiency, but actual results may differ materially due to various risks and uncertainties[259][260] - Key risk factors include: Bang Energy® business integration, Alcohol Brands segment profitability, rising costs, economic slowdowns, geopolitical conflicts, market demand fluctuations, supply chain disruptions, relationship with TCCC, regulatory changes, foreign exchange risks, litigation, intellectual property protection, and management succession[261][262][263][264][265][266] Item 3. Quantitative and Qualitative Disclosures About Market Risk For the three months ended June 30, 2024, the company's market risk remained consistent with disclosures in Form 10-K - For the three months ended June 30, 2024, the company's market risk did not significantly change compared to the information disclosed in Form 10-K[268] Item 4. Controls and Procedures Management assessed disclosure controls and procedures as effective at period-end, with no significant changes to internal controls during the quarter - Company management assessed the effectiveness of disclosure controls and procedures, concluding they were adequate and effective at the end of the reporting period[269] - For the quarter ended June 30, 2024, no significant changes occurred in the company's internal control over financial reporting[270] Part II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings information is referenced in Note 12 to the condensed consolidated financial statements - Legal proceedings information is disclosed in Note 12, "Commitments and Contingencies: Litigation," to the condensed consolidated financial statements[272] Item 1A. Risk Factors Investors should carefully consider the risk factors disclosed in Form 10-K, noting that the listed risks are not exhaustive - Investors should carefully consider the risk factors disclosed in Form 10-K, as these risks could materially and adversely affect the company's business, reputation, financial condition, and/or results of operations[273] - The risk factors described in this report and Form 10-K are not exhaustive of all risks the company faces, and other unknown or currently immaterial risks could also negatively impact the company[273] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This chapter details the company's stock repurchase activities, including common stock repurchases under existing plans and a $3 billion 'Dutch Auction' tender offer - For the three months ended June 30, 2024, the company repurchased approximately 2.2 million shares of common stock for approximately $107.7 million under its November 2022 repurchase program[274] - As of August 6, 2024, no remaining amount was available for repurchase under the November 2022 repurchase program[274] - In May 2024, the company executed a $3 billion 'Dutch Auction' tender offer, repurchasing approximately 56.6 million shares of common stock at $53.00 per share[276] - As of August 6, 2024, $342.4 million remained available for repurchase under the November 2023 repurchase program[275] Summary of Stock Repurchase Activity for Q2 2024 | Period | Total Number of Shares Purchased | Average Price Paid Per Share¹ | Total Number of Shares Purchased Under Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs² | | :------------------- | :------------------------------- | :---------------------------- | :-------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------- | | April 1 - April 30, 2024 | — | $— | — | $642,400 | | May 1, 2024 Authorized | — | — | — | $3,000,000 | | May 1 - May 31, 2024 | — | $— | — | $3,642,400 | | June 1 - June 30, 2024 | 58,777,129 | $52.87 | 58,777,129 | $534,687 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the reporting period - The company had no defaults upon senior securities during the reporting period[278] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's business - Mine safety disclosures are not applicable to the company's business[278] Item 5. Other Information No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter - During the three months ended June 30, 2024, no Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the company's directors or officers[279] Item 6. Exhibits This chapter lists exhibits filed with the Form 10-Q, including corporate documents, agreements, executive certifications, and iXBRL financial information - Exhibits include the company's Second Amended and Restated Bylaws, Third Amended and Restated Bylaws, Credit Agreement dated May 22, 2024, and Employment Agreement for Emilie Tirre dated June 13, 2024[281] - Exhibits also include certifications by the Co-Chief Executive Officers and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[281] - Financial information is furnished in iXBRL format, including the Condensed Consolidated Balance Sheets, Statements of Income, Statements of Comprehensive Income, Statements of Stockholders' Equity, Statements of Cash Flows, and Notes to Financial Statements[281] Signatures This chapter includes the signatures of the Co-Chief Executive Officers, confirming the report's submission - The report was signed by Rodney C. Sacks, Co-Chief Executive Officer and Chairman of the Board, and Hilton H. Schlosberg, Vice Chairman and Co-Chief Executive Officer, on August 8, 2024[284][285]