Monster(MNST) - 2023 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This chapter includes the company's unaudited condensed consolidated financial statements, detailed notes, and covers financial position as of March 31, 2023, and December 31, 2022, and operating results for the three months ended March 31, 2023, and 2022 Condensed Consolidated Balance Sheets This section provides the company's condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (As of March 31, 2023, and December 31, 2022, Thousands of USD) | Indicator | March 31, 2023 | December 31, 2022 | | :---------------- | :------------- | :------------- | | Assets | | | | Total Current Assets | 5,294,609 | 4,764,897 | | Investments | 41,152 | 61,443 | | Property and Equipment, Net | 545,922 | 516,897 | | Deferred Income Taxes, Net | 177,039 | 177,039 | | Goodwill | 1,417,941 | 1,417,941 | | Other Intangible Assets, Net | 1,222,598 | 1,220,410 | | Other Assets | 145,101 | 134,478 | | Total Assets | 8,844,362 | 8,293,105 | | Liabilities and Stockholders' Equity | | | | Total Current Liabilities | 1,187,511 | 1,001,978 | | Deferred Revenue | 219,764 | 223,800 | | Other Liabilities | 41,727 | 42,286 | | Total Stockholders' Equity | 7,395,360 | 7,025,041 | | Total Liabilities and Stockholders' Equity | 8,844,362 | 8,293,105 | - As of March 31, 2023, total assets were $8,844,362 thousand, a 6.65% increase from $8,293,105 thousand as of December 31, 2022[6] - As of March 31, 2023, total stockholders' equity was $7,395,360 thousand, a 5.27% increase from $7,025,041 thousand as of December 31, 2022[6] Condensed Consolidated Statements of Income This section presents the company's condensed consolidated statements of income for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Income (For the Three Months Ended March 31, Thousands of USD) | Indicator | 2023 | 2022 | Year-over-Year Change (%) | | :---------------- | :----- | :----- | :----------- | | Net Sales | 1,698,930 | 1,518,574 | 11.88 | | Cost of Sales | 801,081 | 741,907 | 7.98 | | Gross Profit | 897,849 | 776,667 | 15.61 | | Operating Expenses | 412,785 | 377,178 | 9.44 | | Operating Income | 485,064 | 399,489 | 21.42 | | Interest and Other Income (Expense), Net | 12,496 | (7,300) | -271.18 | | Income Before Income Taxes | 497,560 | 392,189 | 26.87 | | Provision for Income Taxes | 100,116 | 97,986 | 2.17 | | Net Income | 397,444 | 294,203 | 35.10 | | Basic Net Income Per Share | 0.38 | 0.28 | 35.71 | | Diluted Net Income Per Share | 0.38 | 0.27 | 40.74 | - Net sales for Q1 2023 reached $1.699 billion, marking an 11.88% year-over-year increase and a new record for the first fiscal quarter[9][148][166] - Gross margin improved from 51.1% in Q1 2022 to 52.8% in Q1 2023, driven by pricing actions, lower freight costs, and reduced aluminum can costs[143][157][173] Condensed Consolidated Statements of Comprehensive Income This section provides the company's condensed consolidated statements of comprehensive income for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Comprehensive Income (For the Three Months Ended March 31, Thousands of USD) | Indicator | 2023 | 2022 | | :---------------- | :----- | :----- | | Reported Net Income | 397,444 | 294,203 | | Other Comprehensive Income (Loss): | | | | Change in Foreign Currency Translation Adjustments | 7,981 | 1,079 | | Available-for-Sale Investments: | | | | Net Change in Unrealized Gains (Losses) | 3,181 | (4,059) | | Other Comprehensive Income (Loss) | 11,162 | (2,980) | | Comprehensive Income | 408,606 | 291,223 | - Comprehensive income for Q1 2023 was $409 million, a 40.35% increase from $291 million in the prior year, driven by net income growth and changes in foreign currency translation adjustments and unrealized gains on available-for-sale investments[16] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's stockholders' equity for the three months ended March 31, 2023, and December 31, 2022 - The company announced a two-for-one stock split of its common stock on February 28, 2023, effective March 27, 2023, with all per share amounts and share numbers retroactively adjusted[8][29][141] - On March 10, 2023, the company retired 170 million shares of treasury stock with a book value of approximately $4.69 billion, adjusting common stock and retained earnings accordingly[28][102][223] Changes in Stockholders' Equity (For the Three Months Ended March 31, 2023, Thousands of USD) | Indicator | March 31, 2023 | December 31, 2022 | | :---------------- | :------------- | :------------- | | Common Stock | 5,587 | 6,418 | | Additional Paid-in Capital | 4,829,301 | 4,776,804 | | Retained Earnings | 4,706,192 | 9,001,173 | | Accumulated Other Comprehensive Loss | (147,911) | (159,073) | | Treasury Stock | (1,997,809) | (6,600,281) | | Total Stockholders' Equity | 7,395,360 | 7,025,041 | Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Cash Flows (For the Three Months Ended March 31, Thousands of USD) | Cash Flow Activity | 2023 | 2022 | | :---------------------- | :----- | :----- | | Net Cash from Operating Activities | 424,475 | (351) | | Net Cash from Investing Activities | (52,766) | (303,630) | | Net Cash from Financing Activities | (6,049) | (4,223) | | Effect of Exchange Rate Changes | (141) | (3,472) | | Net Increase (Decrease) in Cash and Cash Equivalents | 365,519 | (311,676) | | Cash and Cash Equivalents at Beginning of Period | 1,307,141 | 1,326,462 | | Cash and Cash Equivalents at End of Period | 1,672,660 | 1,014,786 | - Operating activities generated $424 million in cash flow in Q1 2023, compared to a cash outflow of $0.351 million in the prior year, primarily due to increased net income and changes in working capital[21][197][198] - Cash outflow from investing activities significantly decreased from $304 million in Q1 2022 to $53 million in Q1 2023, mainly due to the $330 million cash outflow for the CANarchy acquisition in the prior year[21][200][201] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, offering further context and breakdowns of financial figures 1. BASIS OF PRESENTATION This note outlines the basis of presentation for the financial statements, including significant accounting policies and recent corporate actions - On March 10, 2023, the company retired 170 million shares (split-adjusted) of treasury stock with a book value of approximately $4.69 billion, adjusting common stock and retained earnings according to accounting policies[28][102][223] - The company announced a two-for-one stock split of its common stock on February 28, 2023, effective March 27, 2023, with all per share amounts, average shares outstanding, shares outstanding, repurchased shares, and stock-based compensation retroactively adjusted[29][141] 2. REVENUE RECOGNITION This note describes the company's revenue recognition policies and provides a breakdown of net sales by geographic market and reportable segment - The company operates four reportable segments: Monster Energy® Drinks, Strategic Brands, Alcohol Brands, and Other, primarily generating revenue by selling ready-to-drink packaged beverages or concentrates to bottlers/distributors[33][123][146] Net Sales by Geographic Market and Reportable Segment (For the Three Months Ended March 31, Thousands of USD) | Segment/Region | 2023 | 2022 | | :---------------- | :----- | :----- | | Monster Energy® Drinks | | | | United States and Canada | 1,021,328 | 925,680 | | Europe, Middle East, and Africa | 277,111 | 260,889 | | Asia Pacific | 121,994 | 110,556 | | Latin America and Caribbean | 141,235 | 107,722 | | Total Monster Energy® Drinks | 1,561,668 | 1,404,847 | | Strategic Brands | | | | United States and Canada | 43,043 | 53,051 | | Europe, Middle East, and Africa | 30,951 | 30,176 | | Asia Pacific | 8,983 | 6,662 | | Latin America and Caribbean | 3,381 | 2,704 | | Total Strategic Brands | 86,358 | 92,593 | | Alcohol Brands | | | | United States and Canada | 46,290 | 15,207 | | Total Alcohol Brands | 46,290 | 15,207 | | Other | | | | United States and Canada | 4,614 | 5,927 | | Total Other | 4,614 | 5,927 | | Total Net Sales | 1,698,930 | 1,518,574 | - As of March 31, 2023, deferred revenue was $264.2 million, with $9.9 million recognized as net sales during the current period[46] 3. LEASES This note provides details on the company's lease arrangements, including lease costs, right-of-use assets, lease liabilities, and weighted-average terms Composition of Lease Costs (For the Three Months Ended March 31, Thousands of USD) | Lease Type | 2023 | 2022 | | :--------- | :----- | :----- | | Operating Lease Costs | 2,467 | 1,694 | | Short-Term Lease Costs | 979 | 929 | | Variable Lease Costs | 215 | 183 | | Finance Lease Costs | 137 | 130 | | Total Lease Costs | 3,798 | 2,936 | Right-of-Use (ROU) Assets and Lease Liabilities (As of March 31, 2023, Thousands of USD) | Lease Type | ROU Assets | Lease Liabilities | | :--------- | :------------------ | :---------------- | | Operating Leases | 36,209 | 35,600 | | Finance Leases | 3,694 | 2,426 | Weighted-Average Remaining Lease Term and Weighted-Average Discount Rate (As of March 31, 2023) | Lease Type | Weighted-Average Remaining Lease Term (Years) | Weighted-Average Discount Rate (%) | | :--------- | :---------------------- | :----------------- | | Operating Leases | 6.6 | 3.5 | | Finance Leases | 0.9 | 5.7 | 4. INVESTMENTS This note provides a summary of the company's investment portfolio, including amortized cost, fair value, and unrealized gains and losses Investment Portfolio Summary (As of March 31, 2023, Thousands of USD) | Investment Type | Amortized Cost | Fair Value | Unrealized Gains | Unrealized Losses | | :--------- | :------- | :------- | :--------- | :--------- | | Commercial Paper | 296,708 | 296,708 | 1 | 1 | | Certificates of Deposit | 12,630 | 12,630 | — | — | | Municipal Securities | 129,779 | 129,574 | 3 | 208 | | U.S. Government Agency Securities | 129,605 | 129,308 | 35 | 332 | | U.S. Treasury Securities | 744,403 | 742,379 | 156 | 2,180 | | Corporate Bonds | 72,536 | 72,429 | 15 | 122 | | Total Short-Term Investments | 1,385,661 | 1,383,028 | 210 | 2,843 | | Total Long-Term Investments | 41,181 | 41,152 | 16 | 45 | | Total | 1,426,842 | 1,424,180 | 226 | 2,888 | - As of March 31, 2023, the company's investment portfolio had a fair value of $1.424 billion, primarily comprising commercial paper, U.S. Treasury securities, and municipal securities, with all investments holding investment-grade credit ratings[69][70] 5. FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES This note details the fair value measurements of certain financial assets and liabilities, categorized by fair value hierarchy levels Financial Assets and Liabilities by Fair Value Hierarchy (As of March 31, 2023, Thousands of USD) | Asset/Liability | Level 1 | Level 2 | Level 3 | Total | | :---------- | :------ | :------ | :------ | :----- | | Cash | 886,785 | — | — | 886,785 | | Money Market Funds | 713,009 | — | — | 713,009 | | Certificates of Deposit | — | 41,050 | — | 41,050 | | Commercial Paper | — | 310,774 | — | 310,774 | | Corporate Bonds | — | 74,180 | — | 74,180 | | Municipal Securities | — | 129,574 | — | 129,574 | | U.S. Government Agency Securities | — | 151,678 | — | 151,678 | | U.S. Treasury Securities | — | 789,790 | — | 789,790 | | Foreign Exchange Derivatives | — | 77 | — | 77 | | Total | 1,599,794 | 1,497,123 | — | 3,096,917 | - All of the company's short-term and long-term investments are classified as Level 1 or Level 2 within the fair value hierarchy, with Level 1 based on active market quotes and Level 2 on observable market data and valuation models[76] 6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES This note describes the company's use of derivative instruments, primarily forward foreign exchange contracts, to manage currency risk - The company uses forward foreign exchange contracts to manage foreign currency exchange rate risk, but these are not designated as hedging instruments, with gains and losses recognized in interest and other income (expense), net[80][81] Derivative Instruments Notional Amounts and Fair Values (As of March 31, 2023, Thousands of USD) | Derivative Instrument Type | Notional Amount | Fair Value | Balance Sheet Location | | :------------- | :------- | :------- | :------------- | | Assets: | | | | | Foreign Exchange Forward Contracts | 120,883 | 382 | Accounts Receivable, Net | | Liabilities: | | | | | Foreign Exchange Forward Contracts | 117,408 | (305) | Accrued Liabilities | - For the three months ended March 31, 2023, net losses recognized on derivative instruments were $7.852 million, compared to $4.019 million in the prior year period[84] 7. INVENTORIES This note provides a breakdown of the company's inventory composition, including raw materials, work-in-process, and finished goods Composition of Inventories (As of March 31, 2023, and December 31, 2022, Thousands of USD) | Inventory Category | March 31, 2023 | December 31, 2022 | | :--------- | :------------- | :------------- | | Raw Materials | 421,914 | 467,392 | | Work-in-Process | 1,615 | 1,688 | | Finished Goods | 483,194 | 466,551 | | Total | 906,723 | 935,631 | - As of March 31, 2023, total inventories were $907 million, a slight decrease from $936 million as of December 31, 2022[85] 8. PROPERTY AND EQUIPMENT, NET This note details the composition of the company's property and equipment, net, including land, buildings, and machinery, along with depreciation and amortization Property and Equipment, Net (As of March 31, 2023, and December 31, 2022, Thousands of USD) | Category | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :------------- | | Land | 139,922 | 139,798 | | Leasehold Improvements | 31,753 | 31,327 | | Furniture and Fixtures | 9,335 | 9,286 | | Office and Computer Equipment | 22,532 | 22,386 | | Computer Software | 5,310 | 5,906 | | Equipment | 255,991 | 244,739 | | Buildings | 164,821 | 163,885 | | Vehicles | 51,675 | 49,175 | | Construction in Progress | 111,283 | 83,553 | | Total | 792,622 | 750,055 | | Less: Accumulated Depreciation and Amortization | (246,700) | (233,158) | | Net | 545,922 | 516,897 | - As of March 31, 2023, net property and equipment totaled $546 million, an increase from $517 million as of December 31, 2022[88] - Total depreciation and amortization expense for the three months ended March 31, 2023, was $14.8 million, up from $13.1 million in the prior year period[88] 9. GOODWILL AND OTHER INTANGIBLE ASSETS This note provides a breakdown of goodwill by reportable segment and the composition of other intangible assets, both amortizable and non-amortizable Goodwill by Reportable Segment (As of March 31, 2023, and December 31, 2022, Thousands of USD) | Segment | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :------------- | | 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 | Composition of Intangible Assets (As of March 31, 2023, and December 31, 2022, Thousands of USD) | Category | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :------------- | | Amortizable Intangible Assets | 50,578 | 52,588 | | Non-Amortizable Intangible Assets | 1,172,020 | 1,167,822 | | Total | 1,222,598 | 1,220,410 | - Total amortization expense for the three months ended March 31, 2023, was $2.0 million, an increase from $1.5 million in the prior year period[91] 10. DISTRIBUTION AGREEMENTS This note explains the company's revenue recognition policy for deferred revenue from distribution agreements and the amounts recognized - The company recognizes deferred revenue from distribution agreements proportionally over the expected life of the agreements (typically 20 years), with $9.9 million recognized for the three months ended March 31, 2023, compared to $10.0 million in the prior year period[92] 11. COMMITMENTS AND CONTINGENCIES This note outlines the company's significant contractual commitments, contingent liabilities, and ongoing legal proceedings - As of March 31, 2023, the company had approximately $336.8 million in purchase commitments and $380.6 million in contractual obligations, primarily for raw material purchases, sponsorships, and other marketing activities[93] - The company is involved in multiple lawsuits, including a false advertising and trade secret case against Vital Pharmaceuticals, Inc. (VPX), where a jury awarded Monster Energy Company (MEC) approximately $293 million in damages[94][96] - MEC and Orange Bang, Inc. were awarded $175 million and a 5% royalty on future sales against VPX in another arbitration, though the timing of the award's realization is uncertain due to VPX's bankruptcy filing[97][98] 12. ACCUMULATED OTHER COMPREHENSIVE LOSS This note details the components and changes in accumulated other comprehensive loss, including foreign currency translation adjustments and unrealized gains/losses on securities Changes in Accumulated Other Comprehensive Loss (For the Three Months Ended March 31, Thousands of USD) | Component | March 31, 2023 | December 31, 2022 | | :--------- | :------------- | :------------- | | Currency Translation Losses | (145,249) | (153,230) | | Unrealized Gains (Losses) on Available-for-Sale Securities | (2,662) | (5,843) | | Total | (147,911) | (159,073) | - As of March 31, 2023, accumulated other comprehensive loss was $148 million, a decrease from $159 million as of December 31, 2022, primarily due to foreign currency translation adjustments and changes in unrealized gains on available-for-sale securities[102] 13. TREASURY STOCK This note provides information on the company's treasury stock activities, including share retirements and remaining repurchase authorizations - On March 10, 2023, the company retired 170 million shares of treasury stock with a book value of approximately $4.69 billion[102][223] - As of May 5, 2023, the company had $682.8 million remaining under its authorized stock repurchase programs[103][104][224] - In Q1 2023, the company repurchased 1.7 million shares of common stock from employees for $90.4 million for option exercises or tax withholdings, which are not part of the authorized repurchase programs[104][225] 14. STOCK-BASED COMPENSATION This note details the company's stock-based compensation expense, tax benefits, and a summary of stock option activity - The company recorded $16.1 million in stock-based compensation expense in Q1 2023, compared to $16.3 million in the prior year period[107] - Tax benefits from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, and vesting of restricted stock units and performance stock units were $25.9 million in Q1 2023, significantly higher than $0.4 million in the prior year period[108] Summary of Stock Option Activity (As of March 31, 2023, Thousands of Shares) | Stock Option Activity | Number of Shares | Exercise Price Per Share | | :------------- | :------- | :--------- | | Unexercised at January 1, 2023 | 29,710 | 26.38 | | Granted | 3,962 | 50.82 | | Exercised | (3,129) | 11.62 | | Canceled or Forfeited | (73) | 37.39 | | Unexercised at March 31, 2023 | 30,470 | 31.04 | - As of March 31, 2023, unrecognized compensation expense related to unvested options was $125.2 million, expected to be recognized over a weighted-average period of 3.6 years[113] 15. INCOME TAXES This note provides information on the company's income tax provision, effective tax rate, and changes in unrecognized tax benefits Changes in Unrecognized Tax Benefits (For the Three Months Ended March 31, Thousands of USD) | Category | Amount | | :----- | :--- | | Balance at December 31, 2022 | 3,020 | | Additions for Current Year | — | | Additions for Prior Years | 738 | | Reductions for Prior Years | — | | Balance at March 31, 2023 | 3,758 | - As of March 31, 2023, the company had approximately $0.6 million in accrued interest and penalties related to unrecognized tax benefits[118] 16. EARNINGS PER SHARE This note presents the calculation of basic and diluted earnings per share, including the weighted-average shares outstanding Weighted-Average Shares for Basic and Diluted Earnings Per Share (For the Three Months Ended March 31, Thousands of Shares) | Category | 2023 | 2022 | | :----- | :----- | :----- | | Basic | 1,044,909 | 1,058,810 | | Dilutive | 14,160 | 12,298 | | Diluted | 1,059,069 | 1,071,108 | - In Q1 2023, 2.6 million options and awards were excluded from diluted EPS calculation due to their anti-dilutive effect, compared to 3.2 million in the prior year period[122] 17. SEGMENT INFORMATION This note provides financial information by reportable operating segment, including net sales and operating income, and identifies major customers - The company operates four reportable segments: Monster Energy® Drinks, Strategic Brands, Alcohol Brands, and Other, with the Monster Energy® Drinks segment contributing the vast majority of net sales[123][148][150] Net Sales by Reportable Segment (For the Three Months Ended March 31, Thousands of USD) | Segment | 2023 | 2022 | | :---------------- | :----- | :----- | | Monster Energy® Drinks | 1,561,669 | 1,404,847 | | Strategic Brands | 86,357 | 92,593 | | Alcohol Brands | 46,290 | 15,207 | | Other | 4,614 | 5,927 | | Total | 1,698,930 | 1,518,574 | Operating Income by Reportable Segment (For the Three Months Ended March 31, Thousands of USD) | Segment | 2023 | 2022 | | :---------------- | :----- | :----- | | Monster Energy® Drinks | 560,819 | 454,563 | | Strategic Brands | 51,771 | 57,195 | | Alcohol Brands | (6,883) | (4,953) | | Other | (293) | 1,127 | | Corporate and Unallocated | (120,350) | (108,443) | | Total | 485,064 | 399,489 | - Coca-Cola Europacific Partners, Coca-Cola Consolidated, Inc., and Reyes Coca-Cola Bottling, LLC accounted for approximately 13%, 10%, and 9% of the company's net sales, respectively, in Q1 2023[131][154] 18. RELATED PARTY TRANSACTIONS This note details transactions with The Coca-Cola Company (TCCC), a related party, including commissions, net sales, and procurement - TCCC controls approximately 19.5% of the company's voting interest and serves as a distributor for its products in domestic and international markets[132] Related Party Transactions with TCCC (For the Three Months Ended March 31, Thousands of USD) | Transaction Type | 2023 | 2022 | | :--------- | :----- | :----- | | TCCC Commissions (based on TCCC subsidiary and affiliate sales) | 15,700 | 18,400 | | TCCC Commissions (based on TCCC independent bottler/distributor sales) | 8,800 | 11,000 | | Net Sales to TCCC Subsidiaries | 35,100 | 31,800 | | Concentrate Purchases from TCCC | 6,500 | 8,500 | | Contract Manufacturing Fees from TCCC Subsidiaries | 7,400 | 9,200 | Accounts Receivable/Payable Related to TCCC Subsidiaries (As of Period End, Thousands of USD) | Account Type | March 31, 2023 | December 31, 2022 | | :--------- | :------------- | :------------- | | Accounts Receivable, Net | 128,697 | 88,169 | | Accounts Payable | (36,703) | (35,467) | | Accrued Promotional Allowances | (10,833) | (11,222) | | Accrued Liabilities | (23,569) | (14,733) | 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 months ended March 31, 2023, including business overview, key financial metrics, segment performance, liquidity, capital resources, and risk factors Our Business This section provides an overview of Monster Beverage Corporation's business, focusing on its primary activities in energy drinks and a smaller portfolio of alcoholic beverages - Monster Beverage Corporation is a holding company primarily engaged in developing and marketing energy drinks through its subsidiaries, along with a smaller portfolio of craft beers, hard seltzers, and flavored malt beverages (FMBs)[140] Stock Split This section details the company's two-for-one common stock split implemented in March 2023 and its retroactive adjustments - The company announced a two-for-one stock split of its common stock on February 28, 2023, effective March 27, 2023, with all per share amounts and share numbers retroactively adjusted[141] Pricing Actions & Gross Profit Margins This section discusses the impact of pricing actions in domestic and international markets on the company's gross profit margins - The company implemented price increases in the U.S. on September 1, 2022, and in certain international markets during Q1 2022 and Q1 2023, positively impacting gross margins in Q1 2023[142] Gross Margin Trends | Period | Gross Margin as a Percentage of Net Sales | | :--- | :----------------------- | | Three Months Ended March 31, 2023 | 52.8% | | Three Months Ended December 31, 2022 | 51.8% | | Three Months Ended September 30, 2022 | 51.3% | - Gross margin improvement was primarily attributed to pricing actions, reduced freight costs, and lower aluminum can costs[143][173] Overview of Products and Segments This section provides an overview of the company's diverse product portfolio, including energy drinks and alcoholic beverages, and its four reportable operating segments - The company primarily develops, markets, sells, and distributes energy drinks and their concentrates under brands including Monster Energy®, Reign Total Body Fuel®, NOS®, and Full Throttle®[144] - The company also develops, markets, sells, and distributes craft beers, FMBs, and hard seltzers under brands such as Jai Alai® IPA, Dale's Pale Ale®, and The Beast Unleashed™[145] - The company operates four reportable segments: Monster Energy® Drinks, Strategic Brands, Alcohol Brands, and Other, and launched several new products in Q1 2023[146][147] Net Sales Performance This section analyzes the company's net sales performance, including year-over-year growth, impact of foreign currency exchange rates, and segment-wise breakdown - Net sales for Q1 2023 reached $1.70 billion, a new record for the first fiscal quarter, representing an 11.9% year-over-year increase[148][166] - Foreign currency exchange rate fluctuations had an unfavorable impact of approximately $52.0 million on Q1 2023 net sales; adjusted for foreign currency, net sales increased by 15.3%[148][166] Net Sales by Segment (For the Three Months Ended March 31, Thousands of USD) | Segment | 2023 | 2022 | Year-over-Year Change (%) | | :---------------- | :----- | :----- | :----------- | | Monster Energy® Drinks | 1,561,668 | 1,404,847 | 11.16 | | Strategic Brands | 86,358 | 92,593 | -6.73 | | Alcohol Brands | 46,290 | 15,207 | 204.40 | | Other | 4,614 | 5,927 | -22.24 | | Total Net Sales | 1,698,930 | 1,518,574 | 11.88 | - International net sales were $622.9 million, an increase of 12.6% year-over-year, accounting for 37% of total net sales; adjusted for foreign currency, international sales grew by 21.9%[151] Customer and Distribution Channels This section outlines the company's distribution channels and identifies key customers across its non-alcoholic and alcoholic beverage segments Gross Billings Percentage by Customer Type (For the Three Months Ended March 31) | Customer Type | 2023 | 2022 | | :--------- | :----- | :----- | | U.S. Full-Service Bottlers/Distributors | 48% | 49% | | International Full-Service Bottlers/Distributors | 38% | 39% | | Club Stores and E-commerce Retailers | 9% | 9% | | Retail Grocers, Direct-Store-Delivery Convenience Stores, Specialty Chains, and Wholesalers | 2% | 2% | | Alcohol, Discount Stores, and Other | 3% | 1% | - Key non-alcoholic customers include Coca-Cola system bottlers (e.g., Coca-Cola Europacific Partners, Coca-Cola Consolidated, Inc., Reyes Coca-Cola Bottling, LLC) as well as Walmart, Costco, and Amazon[153] - Key alcoholic customers include J.J. Taylor Distributing, Ben E. Keith, and Reyes Beer Division[153] Key Financial Results (Q1 2023 vs Q1 2022) This section provides a comparative analysis of key financial performance indicators for the first quarter of 2023 versus 2022 Key Financial Statistics (For the Three Months Ended March 31, Thousands of USD, except per share amounts) | Indicator | 2023 | 2022 | Year-over-Year Change (%) | | :---------------- | :----- | :----- | :----------- | | Net Sales | 1,698,930 | 1,518,574 | 11.9 | | Cost of Sales | 801,081 | 741,907 | 8.0 | | Gross Profit | 897,849 | 776,667 | 15.6 | | Gross Margin as a Percentage of Net Sales | 52.8% | 51.1% | 1.7 pp | | Operating Expenses | 412,785 | 377,178 | 9.4 | | Operating Expenses as a Percentage of Net Sales | 24.3% | 24.8% | -0.5 pp | | Operating Income | 485,064 | 399,489 | 21.4 | | Operating Income as a Percentage of Net Sales | 28.6% | 26.3% | 2.3 pp | | Interest and Other Income (Expense), Net | 12,496 | (7,300) | -271.2 | | Income Before Income Taxes | 497,560 | 392,189 | 26.9 | | Income Taxes as a Percentage of Income Before Income Taxes | 20.1% | 25.0% | -4.9 pp | | Net Income | 397,444 | 294,203 | 35.1 | | Net Income as a Percentage of Net Sales | 23.4% | 19.4% | 4.0 pp | | Basic Net Income Per Share | 0.38 | 0.28 | 36.9 | | Diluted Net Income Per Share | 0.38 | 0.27 | 36.6 | | Energy Drink Case Sales Volume (Thousands of Cases) | 182,444 | 168,793 | 8.1 | Gross Profit Analysis This section analyzes the drivers behind the company's gross profit and gross margin changes, including pricing, costs, and promotional activities - Gross profit for Q1 2023 was $897.8 million, a 15.6% year-over-year increase, primarily driven by growth in net sales[173] - Gross margin increased from 51.1% in Q1 2022 to 52.8% in Q1 2023, mainly due to pricing actions, lower freight costs, and reduced aluminum can costs, partially offset by increased ingredient and other input costs and higher promotional activities in certain markets[173] Operating Expenses Analysis This section examines the changes in operating expenses, including sales and marketing, warehousing, and payroll costs, and their impact on net sales percentage - Total operating expenses for Q1 2023 were $412.8 million, a 9.4% year-over-year increase, primarily due to a $18.7 million increase in selling and marketing expenses, a $9.9 million increase in warehousing costs, and a $21.9 million increase in payroll expenses (of which $6.3 million related to CANarchy)[174][176] - Operating expenses as a percentage of net sales decreased from 24.8% in Q1 2022 to 24.3% in Q1 2023, partially offset by a $16.0 million reduction in freight and fuel expenses[176] Operating Income Analysis This section analyzes the company's operating income and its percentage of net sales, broken down by reportable segment - Operating income for Q1 2023 was $485.1 million, a 21.4% year-over-year increase, with operating income as a percentage of net sales rising from 26.3% to 28.6%, primarily driven by growth in net sales and improved gross margin[177] - Operating income for the Monster Energy® Drinks segment increased by 23.4% to $560.8 million, while the Strategic Brands segment's operating income decreased by 9.5% to $51.8 million[178] - The Alcohol Brands segment's operating loss expanded by 39.0% to $6.9 million, mainly due to expansion expenses and infrastructure investments within the segment[179] Interest and Other Income (Expense), net This section details the components of net interest and other non-operating income (expense), including foreign currency transaction losses and interest income - Net interest and other non-operating income (expense) for Q1 2023 was $12.5 million, compared to ($7.3) million in the prior year period[180] - Foreign currency transaction losses increased from $8.4 million in Q1 2022 to $11.2 million in Q1 2023, but interest income significantly increased from $1.5 million to $23.5 million[180] Provision for Income Taxes This section discusses the company's income tax provision and the factors influencing its effective tax rate - The provision for income taxes for Q1 2023 was $100.1 million, a 2.2% year-over-year increase[181] - The effective combined federal, state, and foreign tax rate decreased from 25.0% in Q1 2022 to 20.1% in Q1 2023, primarily due to increased stock-based compensation deductions in Q1 2023[181] Net Income This section summarizes the company's net income performance and the key factors contributing to its growth - Net income for Q1 2023 was $397.4 million, a 35.1% year-over-year increase, primarily driven by growth in net sales, improved gross margin, and a lower effective tax rate[182] Non-GAAP Financial Measures and Other Key Metrics (Gross Billings) This section presents non-GAAP financial measures, specifically gross billings, and reconciles them to net sales, along with an analysis of promotional allowances - Gross billings for Q1 2023 were $1.955 billion, a 12.1% year-over-year increase, with foreign currency exchange rate fluctuations having an unfavorable impact of approximately $60.9 million[184] Reconciliation of Gross Billings to Net Sales (For the Three Months Ended March 31, Thousands of USD) | Indicator | 2023 | 2022 | Year-over-Year Change (%) | | :---------------- | :----- | :----- | :----------- | | Gross Billings | 1,955,039 | 1,743,927 | 12.1 | | Deferred Revenue | 9,946 | 10,020 | -0.7 | | Less: Promotional Allowances, Commissions, and Other Fees | 266,055 | 235,373 | 13.0 | | Net Sales | 1,698,930 | 1,518,574 | 11.9 | - Promotional allowances, commissions, and other fees totaled $266.1 million, a 13.0% year-over-year increase, with their percentage of gross billings slightly increasing from 13.5% to 13.6%[188] Sales Volume This section provides an analysis of sales volume for energy drink cases and alcoholic beverage barrels, including year-over-year changes Energy Drink Case Sales Volume by Segment (For the Three Months Ended March 31, Thousands of Cases) | Segment | 2023 | 2022 | | :---------------- | :----- | :----- | | Monster Energy® Drinks | 151,071 | 140,126 | | Strategic Brands | 31,373 | 28,667 | | Total Case Sales Volume | 182,444 | 168,793 | - Energy drink product case sales volume increased by 8.1% to 182.4 million cases, with the average net sales per case increasing by 1.8% to $9.03[172][192] - Barrel sales volume for craft beers, hard seltzers, and FMBs increased by 224.7% to 0.15 million barrels[172][193] Liquidity and Capital Resources This section discusses the company's liquidity position, including cash, investments, and expected cash flows, and outlines its contractual commitments - As of March 31, 2023, the company held $1.67 billion in cash and cash equivalents, $1.38 billion in short-term investments, and $41.2 million in long-term investments[194] - The company anticipates that cash generated from operations, existing cash resources, and credit facilities will be sufficient to meet working capital needs, capital expenditures, and stock repurchases over the next 12 months[195] Summary of Cash Flows (For the Three Months Ended March 31, Thousands of USD) | Cash Flow Activity | 2023 | 2022 | | :------------- | :----- | :----- | | Net Cash from Operating Activities | 424,475 | (351) | | Net Cash from Investing Activities | (52,766) | (303,630) | | Net Cash from Financing Activities | (6,049) | (4,223) | Contractual Commitments and Related Due Dates (As of March 31, 2023, Thousands of USD) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--------- | :--- | :------ | :---- | :---- | :------ | | Contractual Obligations | 380,587 | 291,735 | 81,618 | 7,234 | — | | Finance Leases | 2,493 | 2,459 | 34 | — | — | | Operating Leases | 40,005 | 8,758 | 11,791 | 7,837 | 11,619 | | Purchase Commitments | 336,845 | 332,774 | 4,071 | — | — | | Total | 759,930 | 635,726 | 97,514 | 15,071 | 11,619 | Critical Accounting Policies and Estimates This section states that there have been no significant changes to the company's critical accounting policies and estimates since its last annual report - There have been no significant changes to the company's critical accounting policies and estimates since the disclosure in its annual report on Form 10-K as of December 31, 2022[206] Recent Accounting Pronouncements This section indicates that recently issued or adopted accounting pronouncements have not had a material impact on the company - Recently issued or adopted accounting pronouncements have not had a material impact on the company[207] Inflation This section addresses the negative impact of inflation on the company's operating results, specifically on costs - Inflation negatively impacted Q1 2023 operating results, leading to increased cost of sales and operating expenses[208] Forward-Looking Statements and Risk Factors This section highlights that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements regarding revenue, profitability, and capital adequacy, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations[209][210][216] - Key risk factors include rising costs, economic slowdowns, supply chain disruptions, relationship with TCCC, regulatory changes, litigation risks, shifts in consumer preferences, competitive pressures, and raw material cost fluctuations[210][211][212] Item 3. Quantitative and Qualitative Disclosures About Market Risk This chapter states that the company's market risk has not materially changed from what was disclosed in its annual report on Form 10-K for the three months ended March 31, 2023 - For the three months ended March 31, 2023, the company's market risk has not materially changed from what was disclosed in its Form 10-K[217] Item 4. Controls and Procedures This chapter discloses management's assessment of disclosure controls and procedures and reports on changes in internal control over financial reporting - Management assessed that the company's disclosure controls and procedures were effective as of the end of the reporting period[218] - There were no changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect internal control during the quarter ended March 31, 2023[219] Part II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This chapter incorporates information regarding legal proceedings into the "Commitments and Contingencies" note to the condensed consolidated financial statements - Information regarding legal proceedings is incorporated into Note 11, 'Commitments and Contingencies,' to the condensed consolidated financial statements[221] Item 1A. Risk Factors This chapter advises investors to consider the risk factors disclosed in the company's annual report on Form 10-K and acknowledges that the listed risks are not exhaustive - Investors should carefully consider the risks discussed in the 'Risk Factors' section of the annual report on Form 10-K, as well as other risks and uncertainties mentioned in this report[222] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This chapter details the retirement of treasury stock, remaining authorized share repurchase amounts, and employee stock purchases - On March 10, 2023, the company retired 170 million shares (split-adjusted) of treasury stock with a book value of approximately $4.69 billion[223] - As of May 5, 2023, the company had $682.8 million remaining under its authorized stock repurchase programs[224] - In Q1 2023, the company purchased 1.7 million shares of common stock from employees for $90.4 million for option exercises or tax withholdings, which are not part of the authorized repurchase programs[225] Item 3. Defaults Upon Senior Securities This chapter states that there were no defaults upon senior securities - No defaults upon senior securities[226] Item 4. Mine Safety Disclosures This chapter states that mine safety disclosures are not applicable to the company - Not applicable[226] Item 5. Other Information This chapter states that there is no other information requiring disclosure - No other information[226] Item 6. Exhibits This chapter lists all exhibits filed with the quarterly report, including certifications and financial information in iXBRL format - Exhibits include certifications by the Chief Executive Officer and Chief Financial Officer filed pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[227] - Exhibits also include condensed consolidated financial statements and notes filed in iXBRL format[227][228] Signatures This section provides the signatures of the company's co-Chief Executive Officers for the report - This report was signed on May 5, 2023, by Hilton H. Schlosberg, Vice Chairman and Co-Chief Executive Officer, and Rodney C. Sacks, Chairman and Co-Chief Executive Officer[230][231]