Monster(US:MNST)2024-11-08 01:57Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements present Monster Beverage Corporation's financial position as of September 30, 2024, and its results of operations and cash flows for the three and nine months then ended, showing a decrease in total assets from $9.7 billion to $8.1 billion due to stock repurchases, new long-term debt of $748.8 million, and a decline in net income to $370.9 million from $452.7 million in Q3 2024 despite slight net sales growth to $1.88 billion Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2024, shows a significant decrease in total assets to $8.05 billion from $9.69 billion at December 31, 2023, driven by a sharp reduction in cash and cash equivalents (from $2.30 billion to $1.63 billion) and the elimination of short-term investments ($956 million to $0), while the company took on new long-term debt of $748.8 million and stockholders' equity decreased from $8.23 billion to $5.78 billion largely due to a $3.8 billion increase in treasury stock from share repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $8,053,301 | $9,686,522 | ($1,633,221) | | Cash and cash equivalents | $1,625,339 | $2,297,675 | ($672,336) | | Short-term investments | $0 | $955,605 | ($955,605) | | Total current assets | $3,897,758 | $5,588,996 | ($1,691,238) | | Long-term debt | $748,842 | $0 | +$748,842 | | Total liabilities | $2,273,901 | $1,457,778 | +$816,123 | | Total stockholders' equity | $5,779,400 | $8,228,744 | ($2,449,344) | Condensed Consolidated Statements of Income For the third quarter of 2024, net sales increased by 1.3% year-over-year to $1.88 billion, while net income decreased by 18.1% to $370.9 million, resulting in diluted EPS of $0.38, down from $0.43, and for the nine-month period, net sales grew 5.0% to $5.68 billion, but net income decreased 2.0% to $1.24 billion, with diluted EPS slightly increasing to $1.21 from $1.19 Q3 2024 vs Q3 2023 Performance (in thousands, except EPS) | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,880,973 | $1,856,028 | +1.3% | | Gross Profit | $999,799 | $983,763 | +1.6% | | Operating Income | $479,916 | $510,527 | -6.0% | | Net Income | $370,919 | $452,694 | -18.1% | | Diluted EPS | $0.38 | $0.43 | -11.6% | Nine Months 2024 vs 2023 Performance (in thousands, except EPS) | Metric | 9M 2024 | 9M 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $5,680,668 | $5,409,919 | +5.0% | | Gross Profit | $3,046,433 | $2,855,833 | +6.7% | | Operating Income | $1,549,070 | $1,519,396 | +2.0% | | Net Income | $1,238,337 | $1,264,009 | -2.0% | | Diluted EPS | $1.21 | $1.19 | +1.7% | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash from operating activities increased to $1.47 billion from $1.28 billion in the prior year, while investing activities provided $843.0 million in cash, a significant shift from a $360.0 million use in 2023, mainly due to net sales of investments, and financing activities used a substantial $2.97 billion, primarily for stock repurchases, compared to a $433.8 million use in 2023, resulting in a net decrease in cash and cash equivalents of $672.3 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,466,832 | $1,283,426 | | Net cash provided by (used in) investing activities | $843,018 | ($360,023) | | Net cash used in financing activities | ($2,967,704) | ($433,793) | | Net (decrease) increase in cash | ($672,336) | $466,708 | - The company used $3.77 billion for treasury stock purchases in the first nine months of 2024, a sharp increase from $488.1 million in the same period of 202319 - The company borrowed $750.0 million from new credit facilities in the first nine months of 202419 Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies and provide further breakdown of financial statement items, including revenue disaggregation by segment and geography, the establishment of new debt facilities, extensive share repurchase activities, and segment performance, highlighting the Monster Energy® Drinks segment as the primary revenue driver, an operating loss in the Alcohol Brands segment, and the execution of a new $1.5 billion credit facility and a $3.0 billion tender offer for its common stock Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results, highlighting record third-quarter net sales of $1.88 billion, which were negatively impacted by $62.8 million in foreign currency changes, with the Monster Energy® Drinks segment remaining dominant, contributing 91.6% of net sales, and gross profit margin improving slightly due to pricing actions and lower input costs, but operating income declining due to higher operating expenses, including a legal provision, and details its share repurchase activities, including a $3.0 billion tender offer, and its new $1.5 billion credit facility, believing existing cash and credit will be sufficient for needs over the next 12 months Results of Operations In Q3 2024, net sales rose 1.3% to $1.88 billion, but operating income fell 6.0% to $479.9 million, and net income dropped 18.1% to $370.9 million, with the decline in profitability driven by a $46.6 million (9.9%) increase in operating expenses, including a $16.7 million legal provision, and a significant decrease in 'Interest and other income' which had included a $45.4 million gain in Q3 2023, while gross margin improved to 53.2% from 53.0%, and for the nine-month period, net sales grew 5.0% to $5.68 billion, while net income decreased 2.0% to $1.24 billion Q3 2024 vs Q3 2023 Segment Net Sales (in millions) | Segment | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Monster Energy® Drinks | $1,722.7 | $1,708.2 | +0.8% | | Strategic Brands | $112.6 | $98.8 | +14.0% | | Alcohol Brands | $39.8 | $42.3 | -6.0% | | Other | $5.9 | $6.7 | -11.5% | - Gross profit margin for Q3 2024 increased to 53.2% from 53.0% in Q3 2023, primarily due to lower input costs, pricing actions, and decreased freight-in costs, partially offset by higher promotional allowances and a $10.6 million inventory reserve in the Alcohol Brands segment183 - Q3 2024 operating expenses increased by $46.6 million (9.9%) YoY, driven by higher payroll ($20.7 million), increased marketing ($18.9 million), and a $16.7 million legal provision related to the Hubert Hansen name184185 - The decrease in Q3 2024 net income was significantly impacted by a drop in 'Interest and other income (expense), net' to a loss of ($5.8 million) from income of $71.4 million in Q3 2023, as the prior year period included a $45.4 million gain from the Bang Energy acquisition192150 Non-GAAP Financial Measures and Other Key Metrics The company uses gross billings, a non-GAAP measure, to monitor operating performance, with Q3 2024 gross billings at $2.21 billion, up 2.8% from Q3 2023, and increasing by 5.8% after adjusting for a $65.2 million unfavorable foreign currency impact, while promotional allowances, commissions, and other expenses increased by 11.6% to $338.1 million, representing 15.3% of gross billings, up from 14.1% in the prior year, and average net sales per case for energy drinks decreased from $8.90 to $8.36 due to higher promotions and sales mix Reconciliation of Gross Billings to Net Sales (Q3, in thousands) | Line Item | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Gross Billings | $2,209,023 | $2,148,834 | +2.8% | | Deferred Revenue | $10,044 | $10,043 | +0.0% | | Less: Promotional allowances, etc. | ($338,094) | ($302,849) | +11.6% | | Net Sales | $1,880,973 | $1,856,028 | +1.3% | - Energy drink case sales increased 8.0% to 219.4 million cases in Q3 2024, but the average net sales per case decreased by 6.0% to $8.36, primarily due to higher promotional allowances and geographical/product sales mix180 Liquidity and Capital Resources As of September 30, 2024, the company held $1.63 billion in cash and cash equivalents, having secured a $1.5 billion credit facility in May 2024, including a $750 million term loan which was drawn upon, with strong cash from operations for the first nine months at $1.47 billion, though a significant use of cash was $2.97 billion for financing activities, dominated by stock repurchases, and management believes current cash, operational cash flow, and credit access are sufficient for working capital needs for at least the next 12 months, with capital expenditures estimated to be under $500 million - The company had $1.63 billion in cash and cash equivalents as of September 30, 2024, with $1.12 billion held by foreign subsidiaries240 - In May 2024, the company entered into a new $1.5 billion credit facility, consisting of a $750 million term loan and a $750 million revolving credit facility, with the term loan drawn and the revolver remaining fully available241 - The primary use of cash in the first nine months of 2024 was for repurchases of common stock, totaling $3.77 billion19251 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its market risks during the third quarter of 2024 compared to the disclosures in its Annual Report on Form 10-K for the year ended December 31, 2023 - There were no material changes in market risks during the three-months ended September 30, 2024, compared with the disclosures in the 2023 Form 10-K267 Item 4. Controls and Procedures Management, including the Co-CEOs and CFO, evaluated the company's disclosure controls and procedures and concluded they were adequate and effective as of September 30, 2024, with no changes occurring during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - Management concluded that the company's disclosure controls and procedures are adequate and effective as of the end of the reporting period268 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls269 Part II. OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 12, "Commitments and Contingencies: Litigation," in the condensed consolidated financial statements section of this report - Details on legal proceedings are provided by reference to Note 12 of the financial statements271 Item 1A. Risk Factors The company advises that stakeholders should carefully consider the risk factors discussed in its Annual Report on Form 10-K, in addition to the information presented in this quarterly report, as these risks could materially and adversely affect the company's business, reputation, financial condition, and operating results - The company refers to the risk factors detailed in its Annual Report on Form 10-K for a comprehensive understanding of potential risks272 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, the company was highly active in share repurchases, exhausting both the November 2022 ($500 million) and November 2023 ($500 million) repurchase plans, and authorizing a new $500 million plan in August 2024, which remains fully available as of November 6, 2024, in addition to the major $3.0 billion modified "Dutch auction" tender offer completed in June 2024 - The company completed a $3.0 billion modified "Dutch auction" tender offer, purchasing approximately 56.6 million shares at $53.00 per share, funded by cash and borrowings280 - During Q3 2024, the company exhausted the remaining availability under its November 2022 and November 2023 share repurchase plans273274 - A new $500.0 million share repurchase program was authorized by the Board on August 19, 2024, with the full amount remaining available for repurchase as of November 6, 2024275276 Item 5. Other Information The company reports that during the third quarter of 2024, none of its directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q3 2024283