Good afternoon and welcome to the Monster Beverage Corporation, Fourth Quarter and Full Year 2019 Conference Call. All participants will be in listen-only mode. [Operator Instructions].I would now like to turn the conference over to Mr. Rodney Sacks, Chairman and CEO and Mr. Hilton Schlosberg, Vice Chairman, President and CFO. Please go ahead.

Hi, thank you. Good afternoon ladies and gentlemen. Thanks for attending this call. I am Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President is with me; as is Tom Kelly, our Executive Vice President of Finance.Before we begin, I'd like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends.Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from the forward-looking statements made during this call.Please refer to our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed on February 28, 2019, and our most recent Quarterly Report on Form 10-Q filed on November 7, 2019, including the sections contained therein entitled Risk Factors and Forward-looking Statements for a discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.An explanation of our non-GAAP measure of gross sales and certain expenditures, which may be mentioned during the course of this call is provided in the notes and designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated February 27, 2020. A copy of this information is also available on our website at monsterbevcorp.com in the Financial…

[Operator Instructions] And our first question comes from Dara Mohsenian of Morgan Stanley. Please go ahead.

Hey guys.

Hi Dara.

Hey Dara.

Gross margins returned to year-over-year expansion in the quarter after fairly significant compression, generally in the last couple of years. So can you just tell us some of the key factors that drove that sequential year-over-year improvement in Q4, and if you think those factors are more sustainable as we look to 2020?And then just on the U.S. front, can you discuss your shelf space outlook, particularly with the Coke Energy launch and if you think you've seen any market impact from the Coke Energy launch so far. Thanks.

So maybe I can address the gross profit issues that you referred to. So if you look at worldwide, what the positive effect is worldwide – well obviously the price increase in U.S. and Canada and then product mix, particularly with Reign, which is an alternative gross margin for some of our juice and coffee products. We also had benefits in [Inaudible] because we were manufacturing our Java Monsters domestically and we weren’t importing from the U.S. and aluminum and other raw materials were a positive factor, so that was the positives.Against that, we continued to have and you’ll see the gross margins that we referred to on this call. Against that, you'll continually see a change in the strategic brands versus the Monster products and the strategic brands, because they are concentrates and they have higher margins than the finished goods product, so that you'll continue to see that as an offset.You'll continue to see geographic mix as an issue, because obviously in the U.S. our margins are strong. They are less strong in other parts of the world for all the reasons we've spoken to in the past and you'll see the same trend with regard to product mix as we sell internationally, as we sell more juice products and more coffee products, they have a lower margin than the traditional Monster products and Reign products. So that's in a nutshell where we are with margin.

Our next question comes from Andrea Teixeira of JPMorgan. Please go ahead.

Hi, thank you for taking my question. If you can comment on how the allowances in particular in Reign Inferno and how incremental it has been to your quarter-to-date update. And as a follow-up to your Coronavirus commentary, obviously safety is the most important at this point, but what is your view on the monitoring California and overall changes in mobility? Have you seen any greater impact in convenience stores so far against other channels? Thank you.

Perhaps I’ll just take the – Inferno has been really well received. In the initial you know it's very new to tell, but the sales have been good. The line extensions that we introduced into the Reign line, including particular Orange Creamsicle have also been well received. So the numbers are looking really positive for Orange Creamsicle and the other new products, as well as Reign. So anecdotally we’ve had some good response, both to the concept of the thermogenic Inferno product, as well as to the actual flavors.

So Adex [ph] , if you look at for example what's happening in China, we are seeing obviously significant foot traffic decreasing in the biggest stores and the convenience stores, they have an all suffering, but not to the same degree.So if you translate that back to California, we haven't seen any implications yet, but you know the whole idea of this situation in China is that they limit the number of shoppers in particular stores. So that's why you'll see you know reduced foot traffic in the bigger stores and more concentrated foot traffic in the convenience stores. But we haven't seen any implications of that at this time.And then you know, if I could just talk about the Coronavirus for one second, I've been asked and I haven’t really answered it, because I was waiting to answer it on the call and we don't normally give numbers, sales in various countries. But what I can tell you is that our sales in China in 2019 were less than 1% of our consolidated net sales for the company, so that puts a little bit in perspective, because there was a little bit of nervousness, but it's less than 1%.

Our next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Yes, hey thanks. So Hilton, last month in New York your acknowledged substantial – I think – you think you framed those issues of focus as coke bottlers were taken on Coke Energy and bringing it to the market in the U.S. I guess just some update there on how you're feeling about those bottlers execution on your brand's now that we’re a couple of months into the year, but January numbers imply that you've had some good uptake of that innovation, but just any color around that and around the in-market execution that you're seeing would be great.And then just to give voice to a question Dara had asked, I think we might have lost sight of just any additional color on the cooler and shelf set redesigns as they are shaping up in the U.S. Are you getting the positioning that you thought you would? Is Coke Energy getting the position that you thought it would relative to yourselves and Red Bull and others, that too would be great? Thank you.

Okay so, you know the situation without our bottlers is always going to be a challenge now and we know that and working with all of our bottlers and our field teams and our guards on the street are working very closely to ensure that we get the rock top of representation on shelves.The anecdotal information that I've seen is that Coca Cola Energy took off and unfortunately or fortunately there doesn't seem to be a very strong amount of repeat purchases. However, you know they will continue we believe to spend significant amounts of dollars on their products and what we have to do is what I'll probably said in New York and I’ll say it gain, we have to still stay true to our last and ensure that our products get the right representation is the store, and that we don't suffer the issues of shelf space that for example we experienced in Australia, and we alluded to this in our presentation as well. But the news of today is that Coca Cola Energy has been – in its current form has been discontinued from the two major retailers in Australia.

If I could just perhaps just add a little bit on that, on color, we've looked at some of the schematics that have come out for this year. In the U.S., which is obviously the place Coke Energy has recently been launched and if you look at the schematics, for that plus obviously the performance energy products, by and large we are getting increased shelf price, both for our general products, as well as our Reign products and Inferno, including our innovation.And perhaps if you look back on ’19, some of the innovation that we introduced didn't quite get the real estate and distribution levels that we had hoped for and that probably you know was – affected us a little bit in the 2019 year, but if you look at the new products, we have a really robust pipeline of new products.We have you know new Reign product, Inferno; we've got Ultra Fiesta and Ultra Rosa in the Ultra line that are two really good products; we have NOS Turbo, which is sort of a performance energy product to help boost the NOS line; we've got our new Hydro Sport SKUs; we have a new Java 300 line which has a higher caffeine content to compete with the Starbucks triple shot and I’m looking at the SKU’s and we’re getting a lot of good listings for the innovation.So hopefully you know the execution of our bottlers and distribution partners this year, particularly on innovation will be better and we are getting extra innovative. In many cases we are getting the performance products on to an additional separate shelf. In some cases it's simply an expansion of and within the Energy set.

Our next question comes from Kevin Grundy of Jefferies. Please go ahead.

Thanks, good evening guys.

Good evening.

Two very quick ones; first one for Hilton. The G&A in the quarter, this one 's a bit granular, but I think it needs to be asked and sort of explained. Some of the profit margin pressure in the quarter, so gross margin better, but G&A was quite a bit higher, even excluding the intellectual property claim. Can you talk a little bit about some of the drivers there and I know you don't like to guide, but should we expect sort of normalization on that line item looking out for the balance of the year.And then Hilton, just on the performance segment, understanding your comments are right in the shelf space reset, but can we get updated thoughts there. So Bang obviously made a lot of noise, but the market share on that product is down about a point sequentially from where it was around the time of the launch of Reign, and when we look at the combined market share of those two brands being Bang and Reign, it's kind of hanging around this 11% sort of area.So your updated thoughts on the outlook for performance for the balance of ‘20 and sort of beyond that; are we sort of at of place where this 11% market share is kind of the right number or you think it goes beyond that, and if so why? So thanks for all that guys.

Okay, well that’s quite an amount. That’s about 24 questions in one. If we talk a little bit about G&A, I think we were satisfied with the G&A that was spent in the quarter. You know we were running off the NASCAR program and we have a big push into social media and that was one of the big factors that we kind of were duplicating, some of the social media costs in the quarter as we roll off the NASCAR program. So you won’t see that NASCAR program to the same degree in 2020.And then when I look at you know the rest of the G&A, payroll is obviously increasing higher than ordinarily we would like, but you know we’re running an international business today that’s growing and developing and you can see from the sales and the number of countries we’re in, that we have to support the organization.So quite apart from you know other small issues which all – not small issues, but other issues which we’ll pick up in the K, I don't want to go into them now. All I can tell you is that I think that apart from that litigation, which obviously we were very really unhappy about that it's you know the effect of doing business in the U.S. and I always tell everyone, I'm not a lawyer, but you know I listen to these juries and it’s like – you know it is what it is. But I'm satisfied that our G&A is under control.So sorry, the next question you asked was about the percentage of the performance energy products in the U.S. and where that… [Cross Talk] Yeah, sorry.

Yeah, I’m sorry. It was just basically broadly outlook for performance segment, which of course has made a lot of noise in the past year or two, but Bang’s market share is now down about a point; Reign is 3, 3.5, it's in that range and when you look at the combined market share of those two brands, it's been sort of bouncing around this 11% sort of area. So where does that leave us? What’s your outlook for performance energy and what’s its role in the category going forward? Thank you guys?

I think Rodney put up his hands. So I'm happy for him to take over.

Alright, just looking at that section. I think this section, that’s you know again, we call it the performance section, but really it’s part of the energy category and it's really energy. It’s a question of whether we can call that additional space with retailers to look at it, correcting you know increased bias into the categories.And so I think that you all – we all see some increased buyers coming into the category, and the set is sort of starting to settle down now. You're getting space allocated to banks, space allocated to Reign including Inferno. We are seeing a little bit of space being allocated to some of the competitors. You've got Rockstar with their sort of line and they’ve come out with a thermogenic line as well and then you’ve Adrenaline Shoc and then some of the smaller guys who are trying to get space, but don’t have the distribution depth, CELSIUS and C4.But we think it is panning out. So it’s sort of starting to settle down. It may grow a little bit, but we certainly don’t know. We think that there is an appetite, there is an increased consumer base through the different type of products that we've introduced now for example though Inferno.But, we don't give as I said guidance, I think you know that, and we certainly don’t have a crystal ball. But we think that there is some positive growth that will be achieved in energy generally and I think that this subset of types of products within the energy category will grow a little bit.We are launching for example HydroSport and that again is sort of an advanced hydration, but it does have BCAAs and higher caffeine. So a lot of products like that, Turbo, are starting to play into this area. It’s just really dividing up the attributes that consumers are looking for. Some consumers are looking for higher caffeine or BCAs and we think that that will help the whole category grow, as well as these specific products within the category.

Yeah, I can just add to that it Kevin. I'm a consumer of these products and I honestly believe the category is here to stay. But where it will go, I don't think anybody knows. I think the main thing is that we have a number of SKUs that are addressing the category. We have some new product innovation that's coming in terms of the flavors and we are pretty excited about that whole performance energy part of the energy category, but its one part; there is lots of other parts to it as well.

Thanks.

Our next question comes from Mark Astrachan of Stifel. Please go ahead.

Wow! That was a pronunciation. Hey guys, how are you?

Alright and you?

I am good, I'm good other than the stock market. So Hilton, I wanted to go back to gross margin, I know I seem to ask this question a lot on calls. But international in particular, I guess how should we think about that going forward? I’m not asking guidance, but I guess it seems like the pressure on the strategic brands is having an outsized impact on that number.So as you go to the back half of ’20, you start laughing at these low double digit declines that you had in 3Q and 4Q. You are obviously launching Predator now, I guess that’s not – you are launching Predator now, it’s a concentrate model, so that should help. How should we be thinking about kind of those moving parts, meaning as you lap easier comparisons you get the benefit from Predator. Should that help stabilize international gross margins? Can they move a little bit higher if Predator works in these markets. And maybe just a bit more color there in terms of puts and takes. I’m thinking about international margins would be helpful.

Yeah, I think that as we look at the international business, we've spoken about the way the processing structure works in those markets, that we try and price ourselves close to where Red Bull is and that we have different models with the bottlers internationally that kind of force us into a different gross margin computation than we have in the U.S.Having said that, if I look for example at the EMEA margin, which we discussed earlier on the call, and the margins there fell from 42% to 38.7%, but there were a number of factors that went into – you know that went into that result. Firstly, and we’ve spoken about this before, we have country mix, we have brand mix, we have product mix. So we have a very extensive project now to reduce the juice content in a number of our juice products to enhance margin.We have other projects – and I just came back from the UK about two weeks ago, where the whole meeting was just focused on margin, focused on freight-in, focused on co-packers, focused on where best to allocate our resources to try and improve the gross margins, and we have this concentrate and Monster Progression that of course will be resolved in part when we are able to get Predator up and running. So there were a number of factors and then you always have one-offs in the quarter. So in the fourth quarter we had about a 1% hit to gross margin in EMEA through one off costs.So you know I think we are very well aware from this office, of the need to improve margins and we are working on improving the margins within the constraints of the strategic brands having higher margins than the Monster brands and Reign brands. Obviously our objective is to sell more Monster and so more Reign and if that takes away from the strategic brands, then so be it, because you know this is a Monster Beverage Corporation. This is what – our mission is to sell Monster and Reign products.So if the strategy brands will in fact, over time they may get hit. We are doing the best we can to keep them at their current levels and improve on them. But you know it's a mix and it will continue to be a mix and I'm not sure there’s anything more I can say. I probably said too much.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Sacks and Mr. Schlosberg for any closing remarks.

Thank you. On behalf of Monster, I would like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy, and remain committed to continuing to innovate, develop and differentiate our brands and to expand the company both at home and abroad, and in particular to expand distribution of our products through the Coca-Cola bottler system internationally.We are particularly excited about the new opportunities we have going forward, with the portfolio of energy drinks throughout the world comprised of our Monster Energy brand, together with the strategic brands, as well as Hydro, Predator and Reign and the pretty extensive new innovation that we have. It’s recently introduced and are planning to continue to introduce throughout the rest of 2020. Thank you very much for your attendance.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.