Monster Beverage Corp (MNST) — Q3 2020 Earnings Call Transcript

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm 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 the cautionary announcement.

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 operation. 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 August 6, 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 obligations 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 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 November 5, 2020. A copy of this information is also available on our website: www.monsterbevcorp.com, in the Financial Information section. I would now like to hand the call over to Rodney Sacks.

Thank you, Tom. Let me begin by saying that our thoughts and prayers are with all of those who have been impacted by the COVID-19 pandemic. Despite the ongoing impact of the COVID-19 pandemic, we achieved record third quarter net sales and the highest quarterly net sales in the company's history. While our performance in EMEA was solid in the third quarter, EMEA remained adversely affected by the COVID-19 pandemic. Since mid-March 2020, we have seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in food service on-premise consumption. Our 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 our largest channel, but improved sequentially from the latter half of the 2020 second quarter and throughout the 2020 third quarter. Now e-commerce, club store, mass merchandiser and grocery related business continued to increase in the quarter, while our food service on-premise business, which is a small channel for the company, remained challenged. Currently, we do not foresee a material impact on the ability of our co-packers to manufacture, and our bottlers and distributors to distribute our products as a result of the COVID-19 pandemic. In addition, we are not experiencing significant raw material or finished product shortages, and our supply chain remains intact. We are continually addressing our aluminum can requirements, given our volume growth and the current supply constraints in the aluminum can industry. With certain countries, particularly in EMEA, returning to lockdowns and other restrictions, consumer demand could be impacted, and we are unsure of what impact this may have, if any, on our future performance. Monster Energy Cares, our philanthropic arm, continues to be actively engaged in a number of philanthropic efforts, including donating products to individuals working on the front lines of the COVID-19 pandemic as well as those involved with the recent natural disasters in the U.S. Based on currently available information, we do not expect the COVID-19 pandemic to have a material impact on our liquidity. In the third quarter of 2020, net sales were $1.25 billion as compared with $1.13 billion in the third quarter of 2019. Adjusting for foreign currency movements, net sales for the 2020 third quarter would have been up 11.1%. Gross profit as a percentage of net sales for the 2020 third quarter was 59.1% compared with 59.4% in the 2019 third quarter. The decrease for the 2020 third quarter was primarily the result of geographical sales mix and higher allowances as a percentage of net sales, partially offset by favorable aluminum can pricing. Operating expenses for the 2020 third quarter were $277.9 million compared to $277.6 million in the 2019 third quarter. As a percentage of net sales, operating expenses for the 2020 third quarter were 22.3% compared to 24.5% in the 2019 third quarter, primarily the result of decreased expenditures for sponsorships and endorsements of $14.1 million and decreased expenditures of $9.3 million for travel and entertainment, each largely as a consequence of the COVID-19 pandemic. The costs for certain postponed or rescheduled events have been or may be deferred to future periods. Due to the uncertainty surrounding the COVID-19 pandemic, the company is unable to estimate in which future periods, if any, such deferred sponsorship and endorsement costs will be recognized. The decrease in operating expenses as a percentage of net sales was partially offset by increased payroll expenses of $14.5 million, increased expenditures of $7.4 million for social media and digital marketing and increased outbound freight and warehouse costs of $6 million. Operating income was $458.6 million, up from $395.4 million in the third quarter of 2019. Net income increased 16.3% to $347.7 million as compared to $298.9 million in the 2019 comparable quarter. Diluted earnings per share for the 2020 third quarter increased 19.6% to $0.65 from $0.55 in the third quarter of 2019. According to the Nielsen report for the 13 weeks through October 24, 2020, all outlets combined, namely convenience, grocery, drug, and mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 10.6% versus the same period a year ago. Sales of the company's energy brands, including Reign, were up 7.7% in the 13-week period. Sales of Monster were up 7.6%. Sales of Reign were up 18.6%. Sales of NOS increased 1.7% and sales of Full Throttle increased 2.4%. Sales of Red Bull increased 19.4%. Sales of Rockstar decreased by 10.4%. Sales of 5-Hour decreased 1.9% and sales of Amp decreased 11.1%. VPX Bang sales decreased 2%. According to Nielsen, for the 4 weeks ended October 24, 2020, sales in dollars in the energy drink category in the convenience and gas channel, including energy shots, in dollars, increased 9.3% over the same period the previous year. Sales of the company's energy brands, which include Reign, increased 7.3% in the 4-week period in the convenience and gas channel. Sales of Monster increased by 7.6% over the same period versus the previous year. Reign sales increased 14.6%. NOS was up 0.4% and Full Throttle was up 3.9%. Sales of Red Bull were up 19.4%. Rockstar was down 18.2%, 5-Hour was down 1.5%. Amp was down 12.5% and VPX Bang sales decreased 4.5%. According to Nielsen, in the 4 weeks ended October 24, 2020, the company's market share in the energy drink category in the convenience and gas channel, including energy shots, in dollars, decreased by 0.7 of a point over the same period the previous year to 38.2%. Monster's share decreased 0.5 of a share point to 31.4%. Reign's increased 0.1 of a share point to 2.8%, NOS' share decreased 0.3 points to 3.2% and Full Throttle share remained at 0.8%. Red Bull share increased 3.1 points to 36.4%. Rockstar share was down 1.5 points to 4.5%, 5-Hour share was lower by 0.5 of a point at 4.7%, and Amp share decreased 0.1 of a point to 0.4%. VPX Bang share decreased 1.1 points to 7.5%. According to Nielsen, for the 4 weeks ended October 24, 2020, sales in dollars in the coffee plus energy drink category, which includes our Java Monster line, in the convenience and gas channel increased 14.8% over the same period the previous year. Sales of Java Monster, including Java Monster 300, were 24.6% higher in the same period versus the previous year. Sales of Starbucks Energy were 17.1% higher. Java Monster share, including Java Monster 300 of the coffee plus energy category, which primarily includes Java Monster, Java Monster 300, Starbucks Doubleshot and Tripleshot, Rockstar Roasted and Bang Keto Coffee for the 4 weeks ended October 24, 2020 was 49.9%, up 3.9 points, while Starbucks Energy share was 47.3%, up 0.9 of a point. According to Stackline, which tracks energy drink sales by Amazon, in the United States, for the 4-week period ending October 17, 2020, sales in dollars in the energy category by Amazon, including energy shots, increased 157.5% over the same period the previous year. Sales of Monster increased 156%, and its share was 31.2%, down 0.2 of a share point versus the same period a year ago. Red Bull sales increased 179% and its share was 15.8%, up 1.2 points. CELSIUS' sale increased 190.3%, and its share increased 1.6 points to 13.9%. 5-Hour sales increased 45% and its share declined 3.4 points to 4.4% percent. VPX Bang sales increased 101.8%, and the share declined 1.2 share points to 4.3%. Reign's share increased 3.2 share points to 5.5% and Rockstar share increased 0.8 of a share point to 4%. According to Nielsen, in all measured channels in Canada, for the 12 weeks ended October 3, 2020, the energy drink category increased 15.9% in dollars. Sales of the company's energy drink brands increased 19.7% versus a year ago. The market share of the company's energy drink brands was 39.7%, up 1.3 points. Monster's market share decreased 0.6 of a point to 34.8%. NOS' sales increased 3% and its market share decreased 0.2 of a point to 1.9%. Full Throttle sales decreased 19%, and its market share decreased 0.3 of a point to 0.7%. Red Bull sales increased 22.6%, and its market share increased 2.1 points to 38.8%. Rockstar sales decreased 9.3%, and its market share decreased 3.8% to 13.6%. Guru's sales increased 37.2% and its share increased 0.5 of a share point to 3.4%. According to Nielsen for all outlets combined in Mexico, the energy drink category declined 3.7% for the month of September 2020. Monster sales decreased 7.4%. Our market share in value decreased 1.1 points to 28.1% against the comparable period the previous year. Red Bull sales decreased 19%, and its market share decreased by 1.2 points to 6.6%. Vive 100 sales decreased 19.2%, and its market share decreased by 4.4 points to 22.7%. Vault sales increased 0.4%, and its market share increased 0.8 of a share point to 18.5%, while Boost sales decreased 13.5% and its market share decreased 0.7 of a point to 6.2%. Amper sales increased 63.8%, and its market share increased 6.1 points to 14.8%. Coca-Cola Energy sales decreased 46.9% and its market share decreased 0.5 of a point to 0.6%. Predator, which was launched in March 2020, achieved a market share of 1.8%. The Nielsen statistics for Mexico cover single months, which is the short period, that may often be materially influenced positively and/or negatively by sales in the OXXO convenience chain, which dominates the market. Sales in the OXXO convenience chain, in turn, can be materially influenced by promotions that may be undertaken in that chain by one or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico. According to Nielsen for the month of September 2020, compared to September 2019, Monster's retail market share in value increased in Argentina from 27.9% to 44.1%, in Brazil from 26.1% to 33.3% and in Chile from 38% to 45.6%. Since the launch of Monster Energy in Argentina in the first quarter of 2018, Monster Energy is now the leading energy brand in value in both Argentina and Chile. I would like to point out that the Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country and are reported on varying dates within the month referred to from country to country. According to Nielsen in the 13-week period to the end of September and beginning of October 2020, Monster's retail market share in value as compared to the same period the previous year grew from 12.9% to 13.4% in Belgium, from 21.5% to 25.3% in Great Britain, from 20.7% to 21.4% in Italy, from 14.9% to 20% in Poland, from 33.3% to 35.5% in Spain, but declined from 27.6% to 25.4% in France, from 15.7% to 14.1% in Germany and from 7.2% to 7.1% in the Netherlands. According to Nielsen, in the 13-week period to the end of August and the beginning of September, Monster's retail market share in value as compared to the same period the previous year grew from 23.6% to 25.2% in Denmark, from 23.9% to 28.6% in Norway, from 23% to 26.2% in the Republic of Ireland, from 17.4% to 20.2% in South Africa and from 13% to 13.3% in Sweden, while it remained flat at 36.6% in Greece and declined from 13.4% to 13% in the Czech Republic. The Nielsen numbers in EMEA should only be used as a guide because the channels read by Nielsen in EMEA vary from country to country. According to IRI in Australia, Monster's market share in value for the 4 weeks ending October 11, 2020, increased from 9.8% to 12.7% as compared to the same period the previous year. Mother's market share in value decreased from 12.7% to 11.9% during the same period. The market share of the company's brands in Australia for the 4 weeks ended October 11, 2020 increased from 22.5% to 24.6%. According to IRI in New Zealand, Monster's market share in value for the 4 weeks ended October 11, 2020, increased from 8.4% to 11.5% as compared to the same period the previous year. Live Plus market share in value decreased from 7.9% to 7.3%, and Mother's market share in value increased from 5.9% to 6.1%. The market share of the company's brands in New Zealand for the 4 weeks ended October 11, 2020, increased from 22.2% to 24.9%. According to Nielsen in South Korea, Monster's market share in value in all outlets combined for the third quarter of 2020 grew from 41.5% to 54.8% as compared to the same period in the previous year. According to INTAGE in Japan, Monster's market share in value in the convenience store channel for the third quarter of 2020 increased from 51.2% to 55% as compared to the same period in the previous year. We, again, point out that certain market statistics that cover single months or 4 week periods may often be materially influenced positively and/or negatively by promotions or other trading factors during these periods. Net sales to customers outside the U.S. were $444.5 million, 35.7% of total net sales in the 2020 third quarter compared to $379.8 million or 33.5% of total net sales in the corresponding quarter in 2019. Foreign currency exchange rates had the effect of decreasing net sales in U.S. dollars by approximately $12.5 million in the 2020 third quarter. Included in reported geographic sales are our sales to the company's military customers, which are delivered in the U.S. and transshipped to the military and their customers overseas. In EMEA, net sales in the third quarter increased 15.8% in dollars and increased 15.7% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales for the quarter was 39.5% compared to 39.3% in the same quarter in 2019. Gross profit percentage for the region was impacted by foreign exchange rates. It would have been slightly higher at 40.1% in local currencies. We're also pleased that in the third quarter, Monster gained market share in Belgium, Denmark, Great Britain, Italy, Norway, Poland, Republic of Ireland, South Africa, Spain, and Sweden. In Asia Pacific, net sales in the third quarter increased 23.1% in dollars and 22.8% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales was 43.2% versus 40.5% over the same period in 2019. In Japan, net sales in the quarter increased 4.6% in dollars and 3.9% in local currency. In South Korea, net sales increased 170.7% in dollars and 174.3% in local currency as compared to the same quarter in 2019. In China, net sales increased 20.6% in dollars in the quarter and 22.7% in local currency as compared to the same quarter in 2019. In Oceania, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia, Papua New Guinea, and Guam, net sales increased 38.1% in dollars and 35% in local currencies. Sales of the Monster brand in Oceania increased 54.7% in dollars and 50.3% in local currency as compared to the same quarter in 2019. In Latin America, including Mexico and the Caribbean, net sales in the third quarter increased 6.1% in dollars and 31.9% in local currencies over the same period in 2019. Gross profit in this region as a percentage of net sales was 42.9% compared to 44% over the same period in 2019. In Brazil, net sales in the quarter increased by 38.5% in dollars and 90.3% in local currency. Net sales in Chile decreased 21.1% in dollars and 11.8% in local currency in the quarter. I will now briefly discuss our litigation with Vital Pharmaceuticals, Inc., the maker of Bang Energy drinks. Several proceedings are currently ongoing with VPX, including claims for false advertising and trademark and trade dress infringement brought by the company against VPX and by VPX against the company. The company's lawsuit for unfair competition, false advertising, and misappropriation of trade secrets is scheduled for trial in September 2021. In VPX's lawsuit against the company, returning to its allegation that Reign infringes the Bang trade dress, VPX's trade dress infringement claims were trialed in the Southern District of California in late August and early September and the company is awaiting a final judgment on these claims.

Rod, it's the Southern District of Florida.

Of Florida, sorry, of Florida. I beg your pardon. As this litigation and other pending proceedings with VPX are sub judice, we will not be answering any questions on this matter on today's call. In the United States, we launched Reign Total Body Fuel, Lilikoi Lychee in August 2020. And in early October, we launched Ultra Watermelon, Juice Monster Papillon, and Juice Monster Khaotic to the retail trade. In Canada, during the third quarter of 2020, Ultra Rosa was launched in July, followed by the launch of Reign Energy in August in 4 flavors. In El Salvador, we launched Fury Gold Strike as our first entry in the country in the affordable energy category during July, which is performing well. In August 2020, we launched Ultra Paradise in Brazil in our largest LATAM market. Additionally, in September 2020 in Brazil, we launched Reign Total Body Fuel in 2 flavors. June 2020, we launched Ultra Paradise in Argentina and in August 2020, we launched Ultra Paradise in Chile. As markets eased restrictions after lockdowns, we were able to introduce a number of new products across EMEA in the third quarter. Unfortunately, a number of EMEA markets, including some of our largest markets, have recently reintroduced lockdowns, which may adversely impact these and future product introductions. Juice Monster Pacific Punch was launched in Norway and Poland in September 2020 and is now available in 12 markets across EMEA. Juice Monster Pipeline Punch was launched in the Czech Republic and Slovakia in August 2020 and is now available in 23 markets across EMEA. We are planning to launch Juice Monster Pacific Punch in an additional 5 markets later in 2020. Juice Monster Mango Loco was launched in Namibia in July 2020 and Mozambique and Mayotte in August 2020 and is now available in 38 markets across EMEA. We are planning to launch Juice Monster Mango Loco in an additional 7 markets in 2020. Monster Ultra Paradise was launched in Iceland, Poland, and South Africa in August 2020, and in Malta in September 2020, and is now available in 18 EMEA markets. We are planning to launch Monster Ultra in an additional 3 markets in 2020. The Monster Mule was launched in Poland in July 2020, and in Germany, Sweden, and South Africa in September 2020. We're planning to launch Monster Mule in an additional 5 markets in 2020. Espresso Monster, mocha and vanilla variants were launched in Hungary in September and are now available in 21 markets in EMEA. Reign Total Body Fuel was launched in Norway and Iceland in September and is now available in 8 markets in EMEA. We are planning to launch Reign Total Body Fuel in an additional 4 markets in 2020. We launched Predator, our primary affordable energy brand in Ethiopia in August 2020, and we've also introduced Predator Purple Rain in South Africa in September 2020. We launched Burn Gold Spark in Turkey in August 2020, and we launched Burn Peach Zero in Hungary and Ukraine in August 2020. In Japan, in the third quarter of 2020, we launched Ultra Paradise in approximately 90% of the country. We are continuing to build on our #1 country share position in value. In South Korea, in the third quarter of 2020, Monster Energy increased its #1 share position in value. We launched Ultra Paradise in late June. In China, in May 2020, we began distribution of our new noncarbonated Monster Energy Dragon Tea, which has received early positive consumer feedback. During the 2020 third quarter, we saw additional distribution gains for Monster Energy Dragon Tea, along with Monster Green and Ultra White. Large parts of India still remain in national lockdown due to the COVID-19 pandemic. During the 2020 third quarter, no shares were repurchased under the previously authorized repurchase program. As of November 5, 2020, approximately 441.5 million remained available for repurchase and under the previously authorized share repurchase program. We estimate October 2020 gross sales to be approximately 14.8% higher than in October 2019. On a foreign currency-adjusted basis, October 2020, gross sales would have been approximately 14.9% higher than comparable October 2019 gross sales. October 2020 had one less selling day than October 2019. In this regard, we caution again that sales over a short period are often disproportionately impacted by various factors such as, for example, selling days, days of the week in which holidays fall, timing of new product launches and the timing of price increases and promotions in retail stores, distributor incentives as well as shifts in the timing of production in some instances where our bottlers are responsible for production and unilaterally determine their production schedules, which affects the dates on which we invoice such bottlers as well as inventory levels maintained by our distribution partners which they alter unilaterally for their own business reasons. We reiterate that sales over a short period such as a single month should not necessarily be imputed to or regarded as indicative of results for a full quarter or any future period. In addition, the COVID-19 pandemic remains a serious concern. If the COVID-19 pandemic and related unfavorable economic conditions continue to intensify the negative impact on our sales, including our new product innovation launches could be prolonged and may become more severe. In conclusion, I'd like to summarize some recent positive points. The company's priority has been and remains the health and safety of our employees. Currently, the company's flavor manufacturing facilities, its co-packers, warehouses and shipment facilities and bottlers and distributors are all operating. We are continually addressing our aluminum can requirements, given our volume growth and the current supply constraints in the aluminum can industry. We are pleased with the new additions to the Monster Energy portfolio. We are encouraged by the prospects for our Reign Total Body Fuel high-performance energy drinks and Reign Inferno Thermogenic Fuel high-performance energy drinks. We are planning for future launches of our Reign Total Body Fuel high-performance energy drinks in certain countries outside of the U.S. We are pleased with the rollout of Predator and Fury in our affordable energy drink portfolio internationally. We are proceeding with plans for future launches of our affordable energy brands outside of the United States. Despite the obstacles of the COVID-19 pandemic, we are pleased with our performance for the quarter and for the 9-month period ended September 30, 2020. I would like to open the floor to questions about the quarter. Thank you.

So we've seen category growth come back at pretty healthy levels looking at the U.S. and Europe. You mentioned the sequential improvement within Q2. Obviously, October seems solid. So I was just hoping you could give us a bit of your perspective on category growth here post-COVID. Are you seeing more of a sustained pickup perhaps people are substituting energy drinks for coffee shop consumption? Or should we still expect sort of below pre-COVID growth levels with the consumer not back to full mobility? Just really wanted to get some perspective on category growth. And I'm thinking more longer-term ex restrictions, but while you're on the subject, perhaps you could touch on the short-term risk from the second round of restrictions also?

I think we are in a period of uncertainty. Everyone seems to be speculating about whether consumers will switch from coffee to energy drinks. What we do know is that there are significant channels involved, from convenience stores to larger and take-home packages. This situation has also influenced on-premise sales, where some of our competitors have larger businesses that have been affected more significantly than ours, as our on-premise presence is smaller. This shift may lead to some channel adjustments. Ultimately, it is difficult for us to predict how these changes will unfold. However, we are observing trends, with increased sales rates for the category and positive indicators from our own internal numbers as well as Nielsen data. Our momentum has been good, and our innovation efforts have shown promise. This year, the introduction of new products has faced various disruptions globally, as we launched some right before COVID, some during it, and we have attempted to release more late in summer. These factors continue to affect our sales, but we expect things to stabilize moving forward. Still, uncertainties remain, particularly with Europe reintroducing restrictions in several countries. Therefore, we cannot provide concrete guidance as the outcome is too unpredictable. It seems that no one is entirely certain at this point.

I can add some insights if that's alright. What we are observing is that caffeine is essential for consumers, and energy drinks are viewed as an affordable luxury. Even though people are spending more time at home than ever, their consumption of energy drinks is increasing, alongside their coffee intake, even though a cup of coffee is less expensive than an energy drink. I believe we won't return to our previous state; instead, we will settle somewhere between our past situation and the current one. While I can't provide guidance, I encourage you to draw your own conclusions based on the sustained growth in this category during the COVID period.

Can you help us understand the sales trends this quarter? Was there any factor, such as retailers increasing their inventory in anticipation of potential price changes, that could explain the fluctuations in certain regions? It seems that after the strong performance in July mentioned in the last call, there was a slowdown in August and September to high single digits, followed by a significant rebound in October. Also, can you share your thoughts on how the lockdowns have impacted the EMEA region and the current levels of mobility?

I didn't hear that very much of what you were saying. It was very unclear. I don't know if you heard it, Hilton, perhaps you could...

Yes. I think Andrea was talking about Red Bull. Is that correct?

No. Yes, sorry for the technical issues, but I was just asking about the sales cadence in the quarter. Was there any reason why you saw some in July and then...

Okay. You're talking about our cadence?

Yes, your cadence. Correct.

Yes. Our bottlers reduced their inventories, and we discussed that. Eventually, they need to place orders to restore inventory levels, considering the depletions. There has been continuous percentage growth in depletions, which has not been matched by orders. Thus, in the quarter, we observed a consistent rebuilding of inventories in the distribution system to support retail growth. Moreover, many of our bottlers, especially in the U.S., returned to cover stores more frequently than in the past, contributing to that acceleration. Regarding EMEA, the first and second quarters were noteworthy, and the third quarter showed strong performance. However, the EMEA teams believe there’s still significant potential ahead. We are aware of October’s developments and, while we won't provide guidance, we are uncertain about the impacts of the upcoming lockdowns, though we have some insight into what transpired earlier this year.

I guess just building on one of the earlier questions on the U.S. Not that it's not improving as pandemic lessens and mobility increases. More curious your thoughts about the still disconnect that we're seeing in the data between your business and Red Bull or even Red Bull share gains versus the category. So you mentioned that you're doing a better job. You talked about that last earnings call about the coast system being back in the market, I think, right around July or so. But Red Bull is now growing close to 20%. So what do you think is really contributing to their outperformance? And how do you think that sustains, if it does, as we go into next year, and they, in particular, have to lap that and you guys have to lap easier comparisons?

I believe Red Bull is likely to face more challenges when it comes to comparisons. However, it appears they are gaining traction in the 12-ounce market. We think there's been an uptick in consumption since much of Red Bull's business traditionally came from bars, and with people not going to bars as much, they are likely still using Red Bull as mixers at home. This may be contributing to their growth. As mentioned in our previous call, Red Bull has established a strong and focused distribution network, outperforming not just Coca-Cola but also Pepsi and other larger companies. We continue to observe the positive effects of their strong execution compared to some competitors who are struggling, even though some were expected to improve. They have introduced some effective innovations, but this seems to have plateaued somewhat, though there are notable gains in the 12-ounce segment across their entire product range, including original offerings. We are implementing new products now and increasing our focus. We have created a new division with a dedicated street team and appointed a Chief Field Execution Officer to enhance our focus. We recognize that we may not have paid enough attention to independent channels, which are crucial for trial and innovation. We are currently in the process of rolling out our street team, which will be fully operational in the next month or two, and once established, we plan to expand it. This initiative aims to strengthen our presence in the independent channel where we may have fallen behind. Even so, we are still experiencing solid growth overall. The main concern is the disparity between our performance and that of Red Bull. However, within the broader category, we are doing well. Reign is growing at a similar rate to Red Bull, and we believe our recent innovations like Ultra Watermelon and two juice products have been well received, with more exciting innovations on the horizon for next year. Once things stabilize, we anticipate a good position to address any performance gaps.

And maybe just to piggyback on Mark's question and talk a little bit about the innovation. I guess just with the introduction of Watermelon, has that shipped at this point? And maybe just talk to us a little bit about what you observed with seasonality with that product. And help us understand, I guess, in your own internal planning, how you're thinking about how big that line could be relative to, say, an Ultra Paradise or a Fiesta or a Rosa?

It has shipped at the beginning of October and has received very positive feedback from both our bottlers and retailers. Initial sales data from some retail chains indicates that it is performing exceptionally well, surpassing some other products. The Ultra Fiesta had a successful launch earlier this year and continues to grow, but this new product is starting to show a higher sales rate after just 3 to 4 weeks. Although we recognize that winter months can impact sales, we believe being a zero-calorie product will benefit it. We are optimistic about Watermelon as a strong opportunity; it is a great product. The entire Ultra line continues to show excellent performance. Would you like to add anything to that, Hilton?

Yes. The only thing I would add is that the energy drink category is not as seasonal, as for example, sodas and other soft drinks and beer. And it is 0-calorie. It's on trend. We're seeing higher rates of sales in some of our major retailers. So as we transition into the January's and the better-for-you months, it's really very much on trend.

Thanks. 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 bottling 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.