Good day, and welcome to the Monster Beverage Company Second Quarter 2020 Conference Call. All participants will be in a listen-only mode [Operator Instructions]. After today's presentation there will be an opportunity to ask questions [Operator Instructions] I would now like to turn the conference over to Mr. Rodney Sacks, Chairman and CEO. Please go ahead sir.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I am Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President is on the call as is Tom Kelly, our Executive Vice President of Finance. Tom Kelly will now read our cautionary announcement.

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, as well as the future impact of the COVID-19 pandemic on the company's business and operations. 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, 2020 and our most recent quarterly report on Form 10-Q filed on May 11, 2020, 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 the non-GAAP measure of gross sales and certain expenditures, which maybe 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 August 4, 2020. A copy of this information is also available on our Web site, www.monsterbevcorp.com in the Financial Information section. I would now like to hand the call over to Rodney Sacks.

Let me begin by stating that our thoughts and prayers are with all who have been impacted by the COVID-19 pandemic. From the beginning of the COVID-19 pandemic, our top priority has been the health, safety and well being of our employees. As mentioned on our previous call in early March 2020, we implemented global travel restrictions and work from home policies for employees who are able to work remotely. For those employees who are unable to work remotely safety precautions have been instituted, which were developed and adopted in line with guidance from public health authorities and professional consultants. Our offices have partially reopened in the United States and in certain countries and our field sales teams are operating in the field with our bottlers, distributors and retailers subject to safety protocols. We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers and distributors around the world who are ensuring the integrity of our supply chain. Our flavor manufacturing facilities are co-packers, warehouses and shipment facilities are all operating. Certain of our bottlers and distributors have implemented modifications to their coal points and service levels. But generally our products remain available to consumers. In limited countries, the operations of our bottlers and distributors have been more affected. The COVID-19 pandemic had an adverse impact on our net and gross sales for the 2020 second quarter, in part due to certain of our bottlers and distributors, reducing their inventory levels. However, we did see a sequential improvement in sales in the latter half of the quarter, as certain countries and states began to gradually reopen. Since mid-March 2020, the company has seen a shift in consumer channel preferences and package configurations, including an increase in at home consumption and a decrease in immediate consumption. Our sales…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Andrea Teixeira with JPMorgan. Please go ahead.

Congrats on the results. So I remember you spoke to potentially answer the alcoholic segment, the last time we were there at your headquarters in June last year. And since then, we have heard you're planning to launch a Hard Seltzer. So I understand that you have postponed some of these launches. So the question is, if you are indeed looking to launch a Hard Seltzer and then if so, when are you hoping to be able to share more news with us. Thank you.

Andrea, I think the issue is -- there's been a lot of speculation about what we are going to do both in the non-alcoholic and alcoholic spaces. We are looking at a number of alternatives and opportunities. And we may well do something in both of those spaces and/or one or the other. But we've not had made any final decisions. We are actually, you analyzing it, we were looking at developing some products in both non-alcoholic and alcoholic spaces, we are testing products. But we haven't yet decided on which of those we're going to go into. We have for example, I know that some of the analysts have picked up that we register different names of products, some of those names may be appropriate for one or more of these lines or may not be we are looking obviously as part of our planning, we are looking at availability of names that we think may be appropriate for lines or line extensions outside of the energy category. And in some cases, some of those names may well be used by us for an alternative brand within the energy space. I mean, it's a very broad spectrum that we are currently investigating. We've got the right to do quite a lot. We are looking at how do we do it? What's best, what do we think will have the most impact for the company in the short-term, both in the U.S. and as well as internationally? So, there's been a lot of speculation, and we are definitely looking at it and evaluating it, but we've not made any decision. So at this point, it is premature for us to give any indication to the market of what our plans are because we have not firmed up our plans internally ourselves yet. There's been no definitive decision on when to launch, what to launch and under what brand names. Obviously, we're getting there. We're quite close, but we haven't gotten to that position, yet. So I really can't give you an update other than to tell you that we are seriously looking at all those options. As we, as I said, there's a lot of speculation about what we're going to do because of the names and the trademarks we've applied to register under different clauses, but that is something that we are currently evaluating.

So Andrea, the only thing I would add to that is that we have a very strong innovation pipeline with our existing business. So whatever we do, in addition to that, please rest assured that the company has a very interesting and very strong innovation pipeline.

Thank you. Our next question today comes from Nik Modi with RBC Capital Markets. Please go ahead.

So I guess kind of one and a half question. One question is on innovation. Just given how the resets have been kind of thrown off [indiscernible] and just inactive now cancelled. I'm just curious on how you're thinking about communicating new product ideas and how you think that flow will work as we kind of work into the fall and into the spring of next year. So that's just kind of some general perspective. The real question is on CBD, what's the company's stance right now on that? I mean, is it -- you don't have enough clarity, so really don't want to enter that category? Or do you feel more comfortable now? I mean just any perspective around that would be helpful.

Okay. So on the first question, we have a sales organization who in the U.S. call on every single major customer and that's how we go about presenting new product ideas on a one-to-one basis. So rest assured that innovation can be handled within the framework of our existing organization. Outside in particular, in Europe and in other parts of the world, the Coca-Cola bottle is present to customers with our attendance and they're very capable and they do display new products and new product innovations. On your second point, the environment is actually not clear as to where we are and where we should be with CBD. So at this time, we have products in development, but it's something that we're looking at from the sidelines and if things clear up and the opportunities that will present themselves that's something that we definitely will look at going forward, but not right now.

Thank you. Our next question today comes from Peter Galbo of Bank of America. Please go ahead.

Just wanted to ask you on the July sales increase, Rodney, you mentioned that bottlers had taken down inventory pretty low in the second quarter just, how should we look at that July increase, I guess from an organic demand, improvement standpoint versus bottlers maybe refilling some of the pipeline after getting inventory down to low? Thanks.

I don't think we've really had a good read yet on where the bottlers -- when they're going to sort of get their inventory levels back to previous or pre-COVID levels. If they do, I mean, people are obviously looking at managing their inventory levels as tightly as they can and by taking things down. They may end up being a little more aggressive; obviously, we would like them to take some inventory levels up so that they just have more ability to react in the market and because of the lead time reasons. I don't think that we've seen a major restocking in July. We've just, again, I think people are still cautious and they're trying to manage inventories and in some cases, they're trying to manage or reduce some of the focus on -- better way to put it on their main SKUs. And so some of the smaller SKUs have perhaps suffered a little bit as well during this period, but we think those things will get back to normalizing. But I don't believe we've seen a substantial jump back in inventory levels in July. I think that sort of reasonably normal trading for us and Hilton, if you'd like to add something on that.

Yes. What I'd like to add is that, depletions are tracking positive through July. So sales that are bottlers make to retailers are tracking positively and sure there will come a time when bottlers will revert to the prior inventories. But remember, they look at for us. Some bottlers have cash issues, the bigger bottlers look at sales forecasts that are generated both by their own forecasts and by the computer forecasting models. So they order inventories in accordance with those models. So, you remember when we spoke about on the last call, we spoke -- April was down. And we had a long and a robust discussion about that and we spoke about the patients. And looking at this quarter, we've had a strong July, which is consistent with what's happened in the sequential improvement through May. So April, we had that dip that we spoke about on our call. And in May and June, we've had a sequential improvement and we've seen that sequential improvement through July as well.

Thank you. And our next question today comes from Mark Astrachan with Stifel. Please go ahead.

I guess I'm curious on U.S. I don't know how to diplomatically ask the question but maybe, if you could touch on the engagement of the coke system both in terms of selling your legacy product and the new product innovation including the shelf space for those obviously it was a little bit of a slower start. And we've seen Red Bull do very well. So maybe just touch on kind of where we are with reengagement both in legacy as well as innovation and how you think that should play out if things get back from blocking and tackling standpoint, if the share trends potentially improve and you kind of how you think about that?

So Mark, remember we coming out of 100-year pandemic. And there's been -- the bottlers have all been operating and in some cases, the bottlers have been focused on sending the faster sending items, I think Rodney mentioned that earlier in the call. And they did not focus on the innovation and the SKUs that not move as fast as the faster sending items. So, we've seen that. We've seen some of the bottlers being affected by the employees by COVID; our people remember who are out of the field until the last month so they now are back in the field with the appropriate safety protocols. And our people are working; our field people are working with the bottlers and the retailers to restore the innovation that had not been taken place. So, Red Bull, it's interesting -- we've been watching the growth of Red Bull as well. And, once it's paying, you've seen the numbers and we've spoken about the numbers today. I've heard about the numbers in Nielsen. We are growing much faster than Red Bull in for example, Amazon. They have their own sales force and the distribution network. They've been able to execute pretty well in the trade they had a really good innovation the CEO called watermelon, which is pretty popular. So, in balance I think they probably distributed us in terms of displays and other points of purchase on store shelves and on the floors of the stores. And that's something that we are working to pretty aggressively without fuel people back in the stores to regain. So that's my kind of summary on where we are and the issue with Red Bull.

Perhaps I could just, again also just have a little bit of color too, because I think it's obviously, you're focused on it and some people have been seeing the numbers. I think it comes down to during this period of time; Red Bull really managed their own distribution system. And they have dedicated and very focused personnel. I think when most of the big companies took a step back, particularly with their personnel in the field and their core points and being active in the market in the smaller markets, convenience and gas, et cetera and independent. I think all the bigger companies took their foot off the pedal and looked at protecting their employees and trying to handle the situation. I'll believe is that Red Bull literally was probably the only company that didn't do that and actually had their teams in the field, merchandising and promoting. And when you combine that focus together and they adjust their approach to the COVID pandemic, as well as together with the fact that they did have a flavor that resonated and it was really well executed the introduction of it, and it has really given them that boost. That's really what we think has been the real difference. But those are things that with a bigger company, like the Coke system where I think they just step back as most other consumer product companies did. I think that will start reversing and that they are getting back into the field. Now we're getting out into the field. We also pulled some of our team out as Hilton said. We've got a really understand that and that's what I think has been one of the big reasons. We've got some innovation lined up for the second half of this year, including something in response to the watermelon product and we will be launching that within the next few weeks.

Thank you. Our next question today comes from Laurent Grandet with Guggenheim. Please go ahead.

So last time we spoke I mean, you mentioned that because of COVID-19, I mean retailers and specifically I mean the convenience store retailers then reset for most part I mean [indiscernible] for the summer. There was a clear focus for you; I mean to make sure that you were able to implement your new innovation. So just curious, I mean, in all your retailers and the convenience store retailers, I mean, are they all reset them in their shelves? And did you gain shelf space for the energy category or the performance energy, and/or either I mean any additional retailers that need to convert to a larger shelf. I know it's late in the summer but because of COVID-19 I mean, there was some delays. So want to have you taken these. Thanks.

A lot of the retailers are merchandised by the bottlers. So even though the space was allocated, they may not have got to merchandise the product at the start of the resets. So where we're at now, as I mentioned, learn that guys are back in the field. And they're working with the bottlers to ensure that all of our innovation get the space that has been contractually allocated and just getting away from where we were in the early part of the pandemic where -- it was hands off. And if you look at how the convenience channel has grown and is continuing to grow, I think it's a far cry from where we were in March and April when all of this started.

But that being said, I think that, it really is a work in progress. I don't think we've got to a point where we could say that it's all -- everything that was planned is back in line and everything was achieved. I think it's because it's out of cycle and because of the difficulties just still being faced, generally. It is a slower effort, it's being done, it's slow, but it is improving all the time. But I think it's still not where we would like to see it. But hopefully we will continue to improve as we go through the next few months.

Yes. Sets are done for the most part, but it's the distribution actual physical distribution of the products on the sets on the shelves that our field teams are working on.

And this concludes the question-and-answer session. I'd like to turn the call back over to Mr. Rodney Sacks for his final remarks.

Thank you. On behalf of Monster, I'd 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, expand distribution of our products through the Coca-Cola bottler system internationally. We believe that we will be able to navigate through the challenges ahead as a result of the COVID-19 pandemic and hope that this unfortunate situation will resolve itself in the not too distant future. We believe that we are well positioned in the energy drink category and continue to be optimistic about our total portfolio of energy drink brands. We hope that you will stay safe and healthy. Thank you very much for your attendance.

Thank you, sir. This concludes today's conference call. You may now disconnect your lines and have a wonderful day.