Monster(MNST) - 2023 Q3 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) Monster Beverage Corporation's unaudited condensed consolidated financial statements for Q3 2023 include balance sheets, income statements, and cash flows, with notes on accounting policies and the Bang Energy acquisition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $5,311,515 | $4,764,897 | | Cash and cash equivalents | $1,773,849 | $1,307,141 | | Accounts receivable, net | $1,231,188 | $1,016,203 | | Inventories | $883,582 | $935,631 | | Total Assets | $9,314,338 | $8,293,105 | | Total Current Liabilities | $1,178,802 | $1,001,978 | | Total Stockholders' Equity | $7,873,149 | $7,025,041 | Condensed Consolidated Statements of Income Highlights (in thousands) | Account | Three-Months Ended Sep 30, 2023 | Three-Months Ended Sep 30, 2022 | Nine-Months Ended Sep 30, 2023 | Nine-Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,856,028 | $1,624,286 | $5,409,919 | $4,798,119 | | Gross Profit | $983,763 | $833,725 | $2,855,833 | $2,390,252 | | Operating Income | $510,527 | $417,930 | $1,519,396 | $1,190,369 | | Net Income | $452,694 | $322,387 | $1,264,009 | $889,950 | | Diluted EPS | $0.43 | $0.30 | $1.19 | $0.83 | - On February 28, 2023, the Company announced a two-for-one stock split effected as a 100% stock dividend, issued on March 27, 2023, with all financial statements and per-share amounts retroactively updated to reflect this split[8][31] Notes to Condensed Consolidated Financial Statements Detailed explanations of accounting policies and financial activities include the Bang Energy acquisition, derivative instruments, lease obligations, share repurchases, and segment performance - On July 31, 2023, the Company acquired substantially all assets of Bang Energy for approximately $363.4 million, resulting in a recorded gain of $45.4 million[37][38][35] - The company operates four reportable segments: Monster Energy® Drinks, Strategic Brands, Alcohol Brands, and Other, with the Monster Energy® Drinks segment being the largest revenue generator from ready-to-drink packaged energy drinks sold to bottlers and distributors[42][43] - The Company uses derivative financial instruments, specifically cash flow hedges, to mitigate risk from fluctuations in foreign currency exchange rates and aluminum commodity prices[32][77] - The Company retired 170.0 million shares of treasury stock on March 10, 2023, and bought back a total of 7.3 million shares for approximately $399.9 million during Q3 2023 under its June 2022 and November 2022 repurchase plans[107][108][109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial results, highlighting record net sales, improved gross margin, the impact of the Bang Energy acquisition, and details on liquidity and capital resources Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,856,028 | $1,624,286 | 14.3% | | Gross Profit | $983,763 | $833,725 | 18.0% | | Operating Income | $510,527 | $417,930 | 22.2% | | Net Income | $452,694 | $322,387 | 40.4% | - Gross profit margin improved to 53.0% in Q3 2023 from 51.3% in Q3 2022, primarily due to pricing actions, reduced freight-in costs, and decreased aluminum can costs, with the gross margin reaching 53.4% excluding a $7.8 million inventory step-up from the Bang acquisition[161][194] - The acquisition of Bang Energy, completed on July 31, 2023, contributed to sales but resulted in a $7.8 million negative impact on gross profit due to an inventory step-up and $8.0 million in acquisition-related operating expenses in Q3 2023, offset by a $45.4 million gain recorded in other income[157][158][195] - Net sales to customers outside the United States grew 20.2% to $733.7 million, representing 40% of total net sales in Q3 2023, up from 38% in Q3 2022, with international sales increasing by 24.9% on a currency-adjusted basis[169] Results of Operations This section provides a detailed comparison of financial performance for the three and nine-month periods ending September 30, 2023, versus 2022, showing significant increases in net sales, gross margin, operating income, and net income Segment Net Sales Growth (Q3 2023 vs Q3 2022) | Segment | Q3 2023 Net Sales | % Change YoY | | :--- | :--- | :--- | | Monster Energy® Drinks | $1.71 billion | +13.7% | | Strategic Brands | $98.8 million | +11.2% | | Alcohol Brands | $42.3 million | +57.8% | | Other | $6.7 million | +3.9% | - For the three months ended September 30, 2023, operating expenses increased 13.8% to $473.2 million, primarily due to higher selling, marketing, and payroll expenses, including $8.0 million in acquisition costs for the Bang Transaction[195] - For the nine months ended September 30, 2023, net sales grew 12.8% to $5.41 billion, with gross profit margin increasing to 52.8% from 49.8% in the prior year period, driven by pricing actions and lower input costs[203][212] - Net income for the nine-month period increased 42.0% to $1.26 billion, benefiting from higher sales, improved gross margins, and a lower effective tax rate (21.9% vs 24.5%)[221][222] Liquidity and Capital Resources The company's strong cash position and cash flow from operations, detailing major cash uses like the Bang acquisition and share repurchases, confirm sufficient liquidity for future needs Cash Flow Summary (Nine-Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,283,426 | $589,186 | | Net cash used in investing activities | $(360,023) | $(57,743) | | Net cash used in financing activities | $(433,793) | $(459,275) | - The company had $1.77 billion in cash and cash equivalents at the end of the quarter, of which $924.7 million was held by foreign subsidiaries[240][243] - Major uses of cash in the first nine months of 2023 included the $363.4 million Bang Transaction and $488.1 million for treasury stock purchases[22][251] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risks were reported for Q3 2023 compared to the disclosures in the 2022 Annual Report on Form 10-K - No material changes in market risks were reported for the three months ended September 30, 2023, relative to the disclosures in the 2022 Form 10-K[267] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The company's management concluded that disclosure controls and procedures were adequate and effective as of the end of the reporting period[269] - There were no material changes to the company's internal controls over financial reporting during the quarter ended September 30, 2023[270] Part II. Other Information Item 1. Legal Proceedings Details on the resolution of litigation with Vital Pharmaceuticals, Inc. (VPX) following the Bang Energy acquisition, resulting in mutual release of claims and Monster's allowed unsecured claims in bankruptcy - Following the acquisition of Bang Energy's assets, Monster and Bang Energy mutually released claims related to a prior Jury Award and Arbitration Award, with Monster allowed approximately $422.0 million in unsecured claims in VPX's bankruptcy case[100] - The company notes that from time to time it is named in various litigation in the normal course of business, but management believes such litigation will not have a material adverse effect on its financial position[95] Item 1A. Risk Factors The company refers to the risk factors detailed in its 2022 Form 10-K, emphasizing that these risks could materially adversely affect its business and financial results - The company refers to the risk factors detailed in its 2022 Form 10-K and states that these risks could materially adversely affect its business and financial results[274] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased approximately 7.3 million shares for $399.9 million during Q3 2023 under authorized plans, with $282.8 million remaining for future repurchases as of November 6, 2023 Share Repurchase Activity (Q3 2023) | Month | Total Shares Purchased | Average Price per Share¹ | | :--- | :--- | :--- | | July 2023 | — | $ — | | August 2023 | — | $ — | | September 2023 | 7,293,834 | $54.83 | - The company exhausted its June 2022 Repurchase Plan by purchasing 3.3 million shares for $182.8 million and purchased an additional 4.0 million shares for $217.1 million under the November 2022 Repurchase Plan during Q3 2023[275][276] - As of November 6, 2023, $282.8 million remained available for repurchase under all authorized plans[276] Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023[279] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, Sarbanes-Oxley certifications, and financial statements in iXBRL format - Exhibits filed include certifications from the Co-Chief Executive Officers and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[281] - The filing includes financial information formatted in Inline eXtensible Business Reporting Language (iXBRL)[281]