Good afternoon, everyone, and welcome to the Monster Beverage Company Fourth 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] At this time, I'd like to turn the conference call over to Mr. Rodney Sacks and Mr. Hilton Schlosberg, Co-CEOs. Gentlemen, please proceed.

Thank you. Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and Co-Chief Executive Officer is on the call, as is Tom Kelly, our Chief Financial Officer. Tom will now read the cautionary announcement statement.

Before we begin, I would 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 risk 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 28th, 2020 and our most recent quarterly report on Form 10-Q filed on November 6th, 2020 including the sections contained therein entitled Risk Factors and forward-looking statements for a discussion on specific risk and uncertainties that may affect our performance. The company assumes no obligations to update any forward-looking statements whether as a result of new information, future events or otherwise. I would now like to hand the call over to Rodney Sacks.

Thank you, Tom. The company's top priority continues to be the health, safety and well-being of its employees. Early in March 2020, the company 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. Throughout this period, the company has engaged with its employees through ongoing communications, online training and personnel development opportunities to promote their well-being and motivation. The company's flavor manufacturing facilities, its co-packers, warehouses and shipment facilities are all operating. Certain of the company's bottlers and distributors have implemented modifications to their core points and service levels, but the company's products remain generally available to consumers. In limited countries, the operations of its bottlers and distributors have been more affected. Despite the ongoing impact of the COVID-19 pandemic, the company achieved record fourth quarter net sales. While our performance in EMEA was solid in the fourth quarter, EMEA remained adversely affected by the COVID-19 pandemic. 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 foodservice on-premise consumption. The company's sales in the 2020 second quarter were initially adversely affected as a result of a decrease in foot traffic in the convenience and gas channel, which is the company's largest channel, but improved sequentially from the latter half of the 2020 second quarter and throughout the 2020, third and fourth quarters. The company's sales in e-commerce, club store, mass merchandiser and grocery and related business continued to increase in the fourth quarter, while its foodservice on-premise business, which is a small channel for the company remained…

[Operator Instructions] Our first question today comes from Dara Mohsenian from Morgan Stanley. Please go ahead with your question.

Hilton, I was hoping you could discuss the commodity cost outlook as you look out to 2021, particularly on the aluminum side. I know you won't get into guidance territory, but just any conceptual thoughts would be helpful. And if we do see sustained higher commodity costs, can you discuss your willingness to potentially take pricing to offset some of the higher costs? And how you think about that? Thanks.

Yeah. Dara, that's a really good question. I mean, in previous calls like this, I've spoken about the fact that we engage in contracts with aluminum can suppliers from time-to-time to fix some of our aluminum costs. And we've done a little bit of that for 2021. Obviously, we monitor aluminum costs every morning. And we've seen, as you've seen and the rest of the group have seen an increasing situation with regard to aluminum and also with the Midwest premium, which I think has taken a lot of us by surprise. The aluminum, the Midwest premium was in the upper-single digits some months ago and with the imposition of the tariffs on aluminum went up. And everyone expected that to fall. And it hasn't. It's just sitting at just below $0.16. So where we are, we're doing our best to manage our aluminum costs. And I'm not sure there's much more I can say other than, yes, we will - aluminum costs will increase over - in 2021 over 2020. So that is - that's a fact of life. And it will impact us as it will impact many other beverage companies.

And regarding your second question about take your price increase. We're not at this time we haven't been looking at taking a price increase. However, whatever rules out, take your price increase when the right opportunity presents itself. And right now, none of our competitors have been looking at price increases. I know we led the market last time. But this time, we're cautious, as indeed, we should be with our market share. And we're examining the opportunities to take price up. And we will, if we find there's an opportunity to do so.

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

Congratulations on the strong result. For me, I'd like to ask about the seltzer category. Specifically, you made some comments recently at your Analyst Day we could get some news here, either on the alcohol side or even non-alcohol side. I know it's a big decision. And certainly not one where you want to be beholden to any sort of time line that Wall Street may have set. But any updated thoughts here with respect to what you've decided to enter and what that timing may be? Thank you.

I think that our position there is still much the same as we indicated on our last call. We are reviewing - they're very separate. If you go to the non-alcoholic side, it would be an energy product, obviously. If you go to the alcoholic side, you'd be then competing with all the other colleagues as the white claw and truly and the others that are in that category. We are continuing to evaluate both of them. We do believe we will have some news in the not too distant future, but we are looking at the positioning of what we're looking at opportunities on - particularly on the non-alcoholic side. The alcoholic side has become very crowded. And we are reviewing it. We are developing products, but whether we decide to pull the trigger and when and how is - we're just looking at where the category is going there before we make a decision on that side. So other than that, I just don't think there's much more that we can really provide to you as an update. As I said, on the non-alcoholic side, we just wouldn't like to get into those discussions and our plans in the clean energy area, which we are addressing and looking at.

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

I was hoping if you can comment on the inventory levels at the bottlers in light, obviously, with the pandemic. And obviously not to take away from your strong volumes, did the bottlers decide to take more inventory in the fourth quarter in January and also driven by your innovation. So perhaps you were taking the new products that I think the pipeline has been stronger than ever. So, if you can comment on that or, if we should see the pace of growth continuing?

So where we are Andrea, is an interesting territory because you can see that our sales are growing, I think, quicker than we had expected that they would. And we are doing everything we can to service our bottlers and get product to our bottlers, so they can service the retail trade. Having said that, I'm pretty confident that there's not excess inventories in the bottlers warehouses. Because I know what - that we're doing everything we can to satisfy their demand, and they have not been terribly happy with us in terms of getting product, because cans - excess cans are tight. And we're doing everything we can to service customers in an area where the market is growing quicker than our expectations. So from that perspective, I don't believe that the distributors are carrying any excess inventory in their system. And we also know, of course, we monitor depletions and depletions are in line with our shipments.

With regard to specific countries, I think we've already indicated in the transcript, we did make mention of the fact that of the differential in certain selected countries where we saw our distributors reducing their stock holding slightly because of anticipated slowdowns in retail in those particular countries.

That's correct. We spoke about that in China and Japan. And that is correct.

So we've given you those sort of indications. But other than that, seem to be reasonably good shape.

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

I guess I'm going to try to cheat and ask a short follow-up and then another question. I guess on the follow-up what prevents you from working more with the Coke system in procuring aluminium and manufacturing in general, so that you have a bit more of sharing of ability to supply bottlers. And second separate question is just could you update us, Rodney, probably on where you are from an SKU standpoint in terms of international markets sort of broadly versus where you are in the U.S., meaning, how many do you have on a typical shelf outside the U.S.? And what's the opportunity going forward for that?

So let me start, Mark. In terms of working with the Coca-Cola bottlers and working with the Coca-Cola system on procurement of cans, we're doing what we can to produce within the Coca-Cola network. Obviously, that's something that we like to do because it reduces shipping costs and improves efficiencies. But there are a whole bunch of products that we manufacture that cannot be manufactured at a Coca-Cola facility. We do a wide range of products from hot four to and those products cannot be manufactured at a Coca-Cola facility. So where we can, we try and work with the system. And obviously, that's our major focus. And that's been improving over the years. We've opened up a number of Coca-Cola facilities to produce Monster. On the other hand, on procurement, which is a question you asked, that's been a longer-term project, and we haven't resolved that situation yet. The Coke bottlers have their own organization, which is for the Coca-Cola bottling situation. We are not a bottler. And we don't fall within that mandate. So that's been a difficult discussion. And it's something that I'm hoping that we'll be able to progress in the future. But right now, we're doing our own procurement of all our raw materials, including aluminum and including cans. So Rodney you asked that, you answer the second question. Sure. Go ahead.

Yes. On the second one it's various from country to country, Mark. But if you try and take it as an average, the number of SKUs that we have in distribution internationally is substantially less than we have than our range of SKUs that we have in the U.S. And so we are continuing to expand the number of SKUS. But it does vary. And in some countries, we're trying to start accelerating that instead of doing just one a year. We're actually increasing the pace of innovation going on shelves. But it does vary quite dramatically from country-to-country. And where we can get receptiveness from retailers to increase the energy space, we obviously take advantage of that and increase more. And so we did, as you would have noticed from the call, we went into quite a lot of depth in EMEA in places like of new products and where we're introducing new flavors, because that pace is accelerating, but there is quite a long runway internationally for international markets to get up to the U.S. levels. And there are many products that haven't yet been launched at all in the international market. So the rehab products are in very few markets internationally, we just starting to launch some of the Hydro products. So there are a number of product lines or we call them as sub-families that aren't yet - don't appear in many international markets at all. So there is opportunity there. But it all depends on the appetite of retailers and their willingness to grant additional space. But I think that as we've seen everywhere, the category does increase sales - on a sales per unit basis, it is a hiring than other - a lot of other comparable beverages, competitive beverages. And so we are seeing a receptiveness from retailers to continually recognizing the category and increasing the allocation of space.

Yes. It's just an evolution. It's a question of time. We generally start one or two SKUs, and we build from there. And if you look across the various countries that we are distributed in, some have more or less depending on when we started and the appetite for taking on additional products. But as the energy category grows, there is a huge opportunity to be able to do that. And then in some countries like in China, we've actually launched unique items that are not available in the U.S. In Brazil, we have a tea product, for example, that's also not available in the U.S. So there are a bunch of products under the Monster brand that are not available in the U.S. that are distributed internationally and of course, our strategic brands are in various countries in the world, many of those - many of the flavors that we sell in other parts of the world are not available in the U.S. So it really is a mixed bag and as we see an opportunity.

Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Rodney, I just wanted to ask on capital allocation. It's been a couple of quarters, I guess, since we've seen some meaningful share repurchase. You talked about the authorization outstanding. Just help us kind of think about your appetite to do more potentially in 2021 and beyond. Thanks.

I think that what we did was we were quite active in the market, and then we saw an increase in uptick in the share price. And so we just sort of sat patiently, and that has moved forward. But again, as part of, I think, our own just review of our own opportunities and what we want to do, we've sort of been a bit patient because we are reviewing a number of additional potential product categories and sectors, and so until we make up our minds to determine how do we go about or address them. We're just sort of taking a cautious approach. And we'll see later in the year, whether we have the cash. And we'll decide on how to employ that, whether to use that to repurchase shares or potentially some other purposes. But we just wanted to rather be in a position to make - to be flexible in making that decision going forward. But if we don't have any other use for it, depending on our direction, we will continue to resume purchasing repurchases of shares.

And ladies and gentlemen, this will conclude our question-and-answer session. I'd like to turn the conference call back over to Mr. Sacks and Schlosberg for any closing remarks.

Thanks very much. On behalf of the company, I'd like to thank everyone for their continued interest. 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 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 all stay safe and healthy. Thank you very much for your attendance.

Ladies and gentlemen, with that we will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.