Monster Beverage Corporation (MNST) Q1 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hansen Natural Corporation First Quarter 2011 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, May 5, 2011. And I'd now like to turn the conference over to Mr. Rodney Sacks, Chairman and Chief Executive Officer. Please go ahead, sir.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President, is with me today; as is Tom Kelly, our Vice President of Finance. 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 which 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 management's 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 forward-looking statements made herein. Please refer to our filings with the Securities and Exchange Commission including our most recent Annual Report on Form 10-K filed on March 1, 2011, and our most recent quarterly reports on Form 10-Q, 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 measures of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated May 5, 2011. A copy of this information is also available on our website at www.hansens.com in the Investor Relations Section. Positive news is that the growth in the energy drink category inclusive of energy shots that we saw in the 2010, fourth quarter has continued through the first quarter of 2011 and appears to have a solid base. According to Nielsen, for the 13 weeks through April 23, 2011, all outlets combined in the convenience, grocery, drug and mass merchandisers, excluding Wal-Mart, sales in the energy drink category, including shots, increased 16.4% versus the same period a year ago. Sales of Monster grew 21.7% in the 13-week period concerned while sales of Red Bull increased by 16.2%. Sales of Rockstar increased 10.9%, 5-Hour sales increased 46.4%, sales of Amp decreased 1.1%. Sales of NOS increased 12.1% and sales of Full Throttle decreased 19.5%. According to the Nielsen reports, for the 4 weeks ended April 23, 2011, sales of energy drinks in the convenience and gas channel increased by 15.9% over the comparable four-week period in 2010. Sales of Monster increased by 23.3% over last year, while sales of Red Bull increased by 15.6% over last year. Rockstar was up 8% while 5-Hour was up 38.4%. Amp was down 3.5%, Full Throttle was down 14.3% and NOS was up by 13.6%. According to Nielsen, for the 4 weeks ended April 23, 2011, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots, in dollars was 29.3% against Red Bull share of 31.7% and Rockstar share of 9%. According to Nielsen, in the 13 weeks ended April 23, 2011, for all outlets combined, sales of energy plus coffee drinks increased 6% over the same period last year. Java Monster was 1.1% higher than last year and Starbucks Double Shot Energy was up 20%. However, our net sales to our customers on the Java Monster line in the first quarter were approximately 15.6% higher than in the comparable quarter of 2010. Java Monster sales and market share remain the leader in this category. Sales of Monster Rehab, our new non-carbonated rehydration energy drink that we introduced during the first quarter, appeared to be progressing well. We are continuing to see improvement in Monster's market share and sales numbers in Canada. According to Nielsen, in the convenience and gas channel in Canada for the 12 weeks ended March 12, 2011, the energy drink category grew 12%. Monster sales increased 39% and its market share increased 4.9 points over the same period last year to 24.4%, while Red Bull sales increased 9% and its market share decreased 1.1 points to 37.1%. Rockstar sales increased 17% and its market share increased by 0.6 of a point to 12.9%. According to Nielsen, sales in the energy drink category in Mexico grew 12.7% in March 2011 over last year. Sales of Monster Energy in Mexico in March 2011 grew 37.9% over last year while sales of Red Bull were 1.2% lower. Monster's market share in Mexico in March 2011 increased by 5.8 points to 31.5% over the same period last year, and these figures exclude a little business in Java Monster that we do in Mexico. Sales continue to progress satisfactorily in the United Kingdom and continental Europe. Net sales in Europe in the first quarter of 2011 in dollars were approximately 157% higher than in the same period last year. We believe that Monster is, overall, continuing to gain momentum in Europe. Both cost of goods and selling expenses in Europe were lower than in the first quarter of 2010 on a per case basis. We are launching Monster Energy in Portugal, Greece, Cyprus and the Baltic states, that's Lithuania, Latvia and Estonia, during the first half of 2011 and are planning launches in additional countries in Central and Eastern Europe, South America and Asia in the second half of 2011. And as previously reported, both gross and net sales comparative first quarter of 2010 were negatively impacted by bulk [ph] purchases made by customers in the 2009 fourth quarter due to our announcement of a new per case marketing contribution program for Monster Energy distributors, which commenced on January 1, 2010, as well as to avoid potential interruptions in product supply due to our announcement to transition the SAP enterprise resource training system in January 2010. Its sales attributable to the 2009 fourth quarter buy-in had been included in the 2010 first quarter which the company has previously estimated at approximately 4% to 6% of 2009 fourth quarter sales. Such sales would've moderated the increase in net sales that we achieved in the current quarter of 49.7%. During the quarter, we commenced TV advertising to promote our Worx Energy brand. Initial consumer response appears to be positive. However, as distribution levels achieved for Worx were lower than expected, we reduced our plan to spend on TV advertising during the quarter. We are in a focus period with Coca-Cola refreshments for Worx Energy and depending on distribution levels achieved, we intend to increase the level of our TV advertising spend. As a trading update, gross sales in April 2011 are approximately 15% higher than in April 2010. The lower percentage increase in sales in April 2011 over April last year is partly due to the relatively higher level of sales that was achieved by us in April 2010. We caution again that sales in a single month are often disproportionately impacted by various factors and should not necessarily be imputed to the fourth quarter. For the 3 months ended March 31, 2011, sales to retail groceries, specialty chains and wholesalers represented 5% of gross sales, down from 7% last year. Sales to club stores, drug chains and mass merchandisers represented 10% of sales, down from 12% last year. Sales to full-service distributors represented 65% of sales, up from 64% in the same period last year. Sales outside of the United States increased to 18% from 14% in the same period last year. Other sales were 2% down from 3% last year. Gross sales to customers outside the United States in the first quarter of 2011 amounted to $72.8 million compared to $37.8 million in the same quarter last year, increasing 93% over the same period last year. Included in such sales are sales to the company's military customers, which are delivered in the U.S. and then transshipped to the military and their customers overseas. Gross profit margin achieved in the first quarter was 52.1% this quarter versus 52.3% in the same quarter last year. At this time, we anticipate that cost of goods will be higher throughout the remainder of 2011 primarily due to increased costs of aluminum, cans, PET containers, freights and a number of other ingredients. You'll recall that sugar and apple juice costs have been largely covered by us at anticipated levels. But if sales continue to be higher, we will have to buy in the open market, although we do not anticipate that such increase will have a material effect on our margins. Distribution expenses, as a percentage of net sales, were lower than in the same period last year. Selling expenses, as a percentage of net sales, increased to 13.7% in the quarter compared to 13% in the same period last year. Sponsorship and endorsement costs incurred by us in the first quarter were approximately $3.2 million higher than in the comparable quarter last year but were lower as a percentage of net sales. Advertising, commissions and cost of merchandise displays, samples and premiums were also higher in the quarter than in the comparable quarter last year. Increased cost of our sampling teams, as well as our trade development sales personnel, particularly in Europe, also contributed to the increase in such costs. We believe we have a unique opportunity to establish and develop the Monster Energy brand internationally and that it is necessary for us to continue to invest in the brand internationally. In the United Kingdom and certain overseas countries, our distribution partners do not operate a full-service direct store delivery system to stores in all channels, particularly small independent stores like our full-service distribution partners due in the United States. Consequently, to maximize the opportunity in the independent channel, we need to supplement our distribution partners' sales forces with our own TV and sales personnel to call on service and merchandise more independent stores, even though this results in increased cost to us. In fact, we are extending the program in the United Kingdom as well as to select countries in Europe and elsewhere. Additionally, to increase awareness of our Monster products in new international markets, we're undertaking extensive sampling activities. We believe that these activities will play an important role in the development and establishment of our Monster brand in those countries. Such costs are included in selling expenses but do not for part on our payroll cost. General and administrative costs, as a percentage of net sales, decreased to 9.4% from 13.1% in the same period last year as federal costs were only marginally higher than last year, partly due to the benefit of lower stock-based compensation expense, which was approximately $3.8 million in the first quarter of 2011 compared to $5 million in the same quarter last year. Operating losses in the first quarter in Europe, including the Middle East and Africa, Australia and Brazil combined, were lower than in the comparable quarter in 2010. Our effective tax rate for the quarter ended March 31, 2011, was 38% compared to 37.1% for the first quarter of 2010 and 39.3% for the year ended December 31, 2010. The increase in the effective tax rate was primarily the result of the continuation of a full valuation allowance against the deferred tax assets of a foreign subsidiary established during the second fiscal quarter of 2010. The increase in tax rates was partially offset by lower effective state tax rates for the 3 months ended March 31, 2011. Our Peace Tea line, our ready-to-drink iced teas has been well-received by consumers and it's continuing to gain traction. Turning to the balance sheet, cash and cash equivalents amount to $295.5 million compared to $354.8 million at December 31, 2010. Short-term investments were $299 million compared to $244.6 million at December 31, 2010. Long-term investments consisting of auction rate securities decreased from $44.2 million to $30.5 million. Trade accounts receivables net increased to $149 million from $101.2 million at December 31, 2010. Days outstanding for receivables were 36.3 days at March 31, 2011, compared to 27.7 days at December 31, 2010. Inventories increased to $173.7 million from $153.2 million at December 31, 2010. And the average days of inventory was 91.5 days at March 31, 2011, which is higher than the 89.4 days of inventory at December 31, 2010. At March 31, 2011, the company held auction rate securities with a face value of $78.6 million, $79.6 million at December 31, 2010. The company determined that an impairment of $7.2 million existed in March 31, 2011, of which $2.2 million was deemed temporary and $5 million was deemed other than temporary. As a result, included as a component of accumulated other comprehensive loss is $1.4 million net of taxes as of March 31, 2011. The auction rate securities will continue to accrue interest at the contractual rates until their respectable auctions succeed or they are redeemed. After the quarter, the company exercised its put option to sell 13.6 million of its auction rate securities. During the quarter, we repurchased 708,140 shares in the company at an average price of $54.88 per share. I would like to open the floor to questions. Thank you.

[Operator Instructions] Our first question comes from the line of Kaumil Gajrawala with UBS.

I guess, the first question, looks like your net selling price increased by about 4.5%. Can you give us more color on that? And particularly if it's front-line pricing or maybe it's a reduction in promo or mix or something?

Sorry, I didn't hear you clearly. You talk about selling? Sorry, you just weren't clear, Kaumil, on the call.

I was trying to get a read on selling price. It looked like it was up about 4.5%.

I think it is really just a factor of mix of products during the quarter. I don't think there's anything else to it.

So there were no price increases though on there?

There weren't on the Monster side. There were some small increases in the [indiscernible], but I don't think that had any real impact on it. We think it really is attributable to a mix of products.

Okay, got it. And then the other thing, looks like margins were fairly strong. Is that operating leverage where the cost coming in maybe a little bit lower than you had expected? Could you give us a little more on leverage or on your margins?

As indicated, the selling expenses were still marginally higher because of the -- we're still investing in the brand, but when you go down to savings, we're at the bottom line in the G&A and payroll, and that should really help the percentages. But otherwise, they were pretty much in line with last year on a comparable basis.

Okay, got it.

And our next question comes from the line of Judy Hong with Goldman Sachs.

Rodney, just your April sales trend, you said 15%. That's including international, so U.S. plus international?

That's an estimate for, yes, all of them. Correct.

And is U.S. then lower than 15% if you think about just the international growth that historically has been outperforming the U.S. number pretty meaningfully?

Probably there is a lower rate in the U.S., yes. I don't know the exact percentage, but there is a lower rate in the U.S.

And to your point, I mean, I know the monthly sales trends could be pretty noisy but just any color as to why April did slow down pretty meaningfully in the U.S.? I know some of the beer companies called out weather issues. There was also higher gas prices. So anything you can maybe extrapolate as to why...

Some of the beverage companies we're talking about their sales, but they were talking about sales at Easter falling into different periods. We really don't have any color on that. For us, we look at the Nielsen trends that sort of are ahead of ourselves, look at the type bought from retail. And as I've indicated, the numbers, they're all strong. Maybe the convenience channels may be off a point or so on the last 4-week numbers. And there's no other reason. Again, it's just monthly. It's a very short period. It's ordering, it's when they order. I mean, a lot of orders, a lot of our purchases are through CCR now, depending on when they order at beginning of the month. And these have quite a big impact on the numbers. And we also have a very high comp. It just happened to be that last year in March was a strong March. And so you're trading off a very high comp as well. And that obviously affects it. But if you look at the -- just looking at the convenience in 4 weeks, the convenience was trending at basically 16.9%, 17.3%, 17.5% and then 15.9% for the last 4-week period. So we think it's a solid base but there is clearly a little bit of softness in that gauge. Even in the actual convenience numbers for energy and as I said, I think you're correct, we've seen that in some of the other announcements and discussions that have taken place in the industry. But again, I make the point, I want to make it clear that those are the numbers, but there's a long quarter still to go before we end the quarter and they shouldn't be taken as indicative of where we're likely to end up at the end of the quarter.

And then your comment about costs going up, I mean, clearly I think some of the input costs, obviously, have become more challenging. Any way you can tell us how much your cost will be up? And then you also said your margins won't be meaningfully impacted. So I just wanted to get color on what gives you confidence that your margins will hold up even with comp going up.

Well, as we indicated, part of the input costs, which are basically the apple juice and aluminum -- no, no, no, which one we fixed? Sugar and aluminum are fixed. If you then take the remaining costs into account, a large component is our actual ingredients and supplements and they are reasonably stable. They've been subject to small increases as well as particular items have been subject to some increases, some ingredients. But generally, more, more stable than the raw material commodity prices. And then you look at the cost more likely to be impacted, which is aluminum cans, PET containers. And if you take that as a percentage of our total cost of goods, it is very, very much less impacted then, for example, the traditional beverage companies are. And so if you take all of those factors, we believe that, yes, we will see an impact but we don't believe it will ultimately be material. But there will be some impact but not material. We just don't want to quantify more because we ourselves are not exactly certain of where we are and the commodities are very fluid and we're buying on the spot markets. And so we don't know where they'll end up the year.

Actually, shake-up today as you noted, Judy.

Are these aluminum, PET, are these about roughly a quarter of your cost?

We don't disclose that information.

Yes, we've not sort of gone there. Just we purchase those.

Okay. And then just in terms of the Worx, you talked about distribution off to a slower start. What do you think happened there? And then, how do we think about Worx just as from a consumer proposition perspective? What are you seeing in your interaction with your customers or just any read on the consumer pool of that product?

We think it's too early to tell, more definitive than we have indicated. Our best sort of read was that we sort of -- that the product got out but people we sort of were anticipating waiting, and then some of these other companies were launching it and they were waiting for the TV, and we were waiting for them to get distribution up to a point that made TV sensible. You don't want to advertise to empty shelves. But what has happened in the end is that the distribution levels, as far as we've been able to entertain, sort of we're at the low 20 levels and we sort of then started to review spending a lot of money against distribution at that level. So we reduced some of the TV spend after we had started and pulled back and then had a number of, obviously, discussions with CCR and they'd put a focus of the brand and the distribution levels are moving up. The latest, I heard yesterday, it would seem to be we're moving up into the 30s levels, and it is moving up. And so as we see distribution being secured and availability, the product being available, we will -- the intention is to increase the TV spend to support the brand again. But it's really too premature at this point. I think by the next quarter, we'll be in a far better position to have a better read on Worx and how it's faring.

And your next question comes from the line of Bill Chappell with SunTrust.

Just wanted to follow-up on the commodities side, it sounds like you're still not hedged or there are no near-term plans to hedge aluminum. Do you see any changes to the hedging strategy as you move through the year? And I guess you would be benefit if these prices start to drop? And then also, any change on pricing? I mean, I know that you had said the price per case for the quarter wasn't because of a price increase. But do you or the industry needed to take some pricing before the year's out?

Bill, let me, if I may, just talk about the hedging of aluminum. Obviously, we watch our commodities on a very frequent basis. In fact, daily with regard to aluminum. And we are reviewing the cost of commodities and we'll make a determination as we move forward what our strategy should be. Right now, we had covered a small portion of our aluminum in the first quarter but we are evaluating the strategy, and you know what happened today. As I said on my response to Judy, commodities came up significantly today and we are reviewing it on a very regular basis.

Okay, and then on the Worx spend, just trying to quantify or get some more color on how much of the spend was postponed. Is it something that's postponed throughout the year or just kind of from first quarter to second quarter in terms of the launch?

I don't have the figures available. We just basically reduced our weekly spend that had been planned on a campaign. We had some, what I call, black periods in the white periods, whatever, that we would go on air and off air. So we just reduced the spend basically. It's easier for me to give you an idea of the spend, but not on what our plan was going to be. I don't have the number and I think it's not appropriate to go into what we are going to spend and how we're going to spend it. And then some of that is up in the air. A lot of that will depend on how quickly distribution levels are increased and how we haven't taken a decision on what to actually invest back in the spend at this point in time.

But it doesn't sound like it was a massive shift. It was just some timing issues for certain areas.

Yes, but we did reduce the actual weekly spend quite a bit. Particularly, I think it was in March, we pulled back quite a bit. So we started off a little higher, then we pulled it back until we see where we are and then we'll invest again.

And then just one last question, just for housekeeping. Is Worx included in the price per case number or not? If so, would it eventually bring the price per case number down?

No, it would bring the price per case number up, but it really doesn't have a material effect on us in the quarter. It had an effect but not a material effect.

And our next question comes from the line of Caroline Levy with CLSA. Caroline Levy - Credit Agricole Securities (USA) Inc.: Just want to understand, it sounds like you're continuing to expand your international footprint, and would you expect to be able to shrink your losses on international as you do that just because some of the older markets are becoming profitable or losing less?

The answer is yes and no. We are becoming more profitable in many of the countries where we've been established for a long period of time, but there are exceptions to that rule. There are some countries that our stores, we're still incurring cost. But we see the ultimate benefit coming down the line. But the going forward, it's very difficult, Caroline, to give you an answer because we think that there is a good chance of us being able to reduce the losses. Certainly on a per-case basis we have. But we are continuing to expand and the actual expansion is very fluid. The way we are expanding is we're looking for the right partner in the right country, and that is a big factor in determining where do we go first. We have a wish list of countries and we have a list of which countries which we think our pricing is better and we'd like to go to. In a perfect world, we'd go, in an orderly fashion, 1 through 20. But it isn't an orderly world and we look at opportunities when they arise and that will change, there are a number of factors that change or literally are very fluid. Literally, until about 3 months before a launch, we'll secure a distributor of our launch. Things are changing. So even our plans within Eastern Europe are going to change in which country we launch it in the second half. I now am pretty well-aware of that, that we're going to change the countries we are planning to launch. The rich countries, to one extent, how much resources we put behind different launches in different countries. It varies. And things like that will change. Some of these things are also dependent on the economies of the countries and our distribution partners, particularly in Eastern Europe. So it's really very hard for us to give you any further color on that. Caroline Levy - Credit Agricole Securities (USA) Inc.: That's helpful, though. I also want to ask about the enormous revenue growth you had this quarter. Was any of it a pull-forward, do you think? Because even on a two-year basis, it would imply a run rate of about 25% average growth, which is still very, very high.

No, absolutely not. Those are the sales that we were able to achieve.

Caroline, you must also temper the increase with what happened with that buy-in in the fourth quarter of 2009. Caroline Levy - Credit Agricole Securities (USA) Inc.: No, I understand. But even so, 50% growth was astounding.

Yes, but can I add a big contribution, as I gave you the numbers from Europe, which was very healthy. And then one of our new products that we launched late last year, Absolutely Zero, is doing very nicely. That's really performed very nicely and, as I said, we've got Rehab, which is also, we think, is doing nicely for us. Caroline Levy - Credit Agricole Securities (USA) Inc.: And did your core brand grow as well? Just the base margin...

Generally, our green core brand is growing, correct. It is doing nicely and is continuing to grow. For example, in the latest convenience number, the 13 weeks, our core 16-ounce Green Monster is up 19% against the category growth of convenience of 16.9 for the 13-week period. And that is, we think, is very encouraging because that is the workhorse of the brand and that is what the brand's about. And we think that, that shows well for the brand. Caroline Levy - Credit Agricole Securities (USA) Inc.: And can you just give any more color -- I know you need to add sales. You mentioned maybe the U.K. where CC, for example, doesn't have direct store delivery. But is that incremental spending versus what you originally anticipated or something you've factored in over time?

I think it's probably more of a -- as we're continuing to go international, we are continuing to incur costs. And what I really wanted to give everyone a color of -- one of the reasons why we are incurring costs, as we've always indicated, the margins that we anticipate from overseas are lower than the margins, generally, we'd been incurring -- be able to achieve in the U.S. And one of the factors is, in those margins, there's higher cost of goods, slightly lower selling prices relatively speaking in certain countries. But also, the cost of investing and establishing our brand in markets that are already well-established and there are a lot of competitors, not only Red Bull, but other local brands and private label. And so we are investing in this area. We believe there is a -- it is the right way to invest, the right way to get consumers to taste your product and sampling. To get -- as I said, it depends on the country. Some countries, our distribution partners have very, very strong distribution systems and are calling on every little store. In others, they just don't get down to them. In many places, you've got to go through a wholesaler, which means that you've got to create the demand for the brand from the individual store owners to pull the brand when they go buy their weekly stuff from the wholesalers. Countries like that particularly come to mind are Great Britain, where the very, very small independent stores, the go-to bookers and demand. There's a whole host of wholesalers that they go to. And in France, they go to Metro [ph]. So in order to get the demand created, you've got to do a lot of the heavy lifting ourselves. And then we are putting TV and sales personnel into the field to open up the accounts and get the store owners to become familiar with the brand when they see that it gets sold and it goes through. When they go back to the wholesaler the next week, they're able to -- hopefully we're selling these by the second or third time we've called on them, they now know the brand, they see it moving through their store and now it will be part of their regular weekly orders. And that's really the strategy we're having to follow in many of the countries where -- for a lot of full cost of transport and then congestion, the distributors just don't go to the small accounts.

And just for the record, we include those costs, those TDM costs in selling expenses. Caroline Levy - Credit Agricole Securities (USA) Inc.: I have one last thing. Some people have worried higher gas prices would cut off demand, really impact demand. You're not seeing it on energy, and I think even Coke and Pepsi have said not so much yet. Do you have any explanation for that?

We really don't. All I could say is that we saw that very, very small drop-off in the growth rate in the convenience channel that I referred to earlier that I gave you the figures earlier. And so while it's still in the mid-teens and it's really healthy, it is a slight -- there had been a slight ameliorating of the growth. And we think that might be due to gas prices. But something again, I just don't think we have a better color on it. The world of Pepsi, as you have, the economist on this top, probably they can give you more color than we can.

And our next question comes from the line of Mark Astrachan with Stifel, Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: I guess, just starting with selling expenses. It seems to be mirroring sales growth at least sort of the last year or 2. Curious if you think that, that sort of trend should continue in terms of absolute numbers or at least just give a little bit of a direction on kind of you're thinking about it. You've talked a little bit about international. But even in the U.S. in terms of the core spend levels.

I think that in the U.S., we have been achieving some savings on a percentage basis, but that's being basically offset somewhat by the spend internationally, which has been higher as we are launching in small markets where you don't have the volume to set and to offset it against. And so eventually, as part of a long-term plan, we believe we will start getting, being able to achieve benefits. But in the shorter term, we sort of looking to try and really match our growth and keep going in that area. But obviously, we're trying to manage that and hopefully, as we go through the rest of the year, we might be able to achieve, have some sort of savings in that area. But it really is, again, it's something that I'm not really in a position to give you direction on. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: And then on the G&A side, that was up a little bit sequentially year-on-year but options were down. Was it legal expenses again? Was that the big contributing factor here? If so, should that moderate?

Legal expenses, yes, were pretty similar. We believe that we have resolved a couple of reasonably large litigations in the last few months and we think there might be some saving there going forward, but we still do have some important litigation relating to IP and the securities litigation, which is costly. So we can't tell which way we'll go on that. But we hopefully will be able to try to take that down a little bit. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: Got it. And then just finally, in terms of gross margins, so not to keep beating on this, but you said you're not anticipating any material impact on margins. What does material mean to you, Rodney?

I don't think that's something I want to quantify. Everybody will, I think, have their own view of materiality. I just don't think -- I mean, I just want to be material. It's something I just won't, don't feel comfortable getting into. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: Well, I guess maybe putting it differently, so if you can go back to 2005, your gross margins have been within a band of, call it, high-51s to low, mid-53s? I mean, does that seem like somewhere that we should be looking at going forward?

You've indicated the band. I think that's reasonable. But you've got to really come to your own conclusion on the band. We really aren't in a position to give guidance on that.

And I show no further questions at this time. Please continue.

All right, thanks very much, guys. Obviously, we're also all pleased with the results that we were able to achieve in the first quarter. We are obviously, working hard to continue to use new products. And in the second quarter, we'll see how we go. We are -- I want to point out that we do have a stockholders' meeting in 2 weeks' time. Being 2 weeks away, expect us at least to talk about 10 days, 9 days or something. I don't know. Anyway, it's pretty soon. It won't be much of an update, I think, that we'll be able to really give at that time. We obviously, will -- we'll deal with everything, but I think that I just really want to give the investors and analysts a heads-up that there really doesn't seem to be much more that we're going to be able to give color on between now and the stockholder meeting. But we will be there, and thank you very much for your attendance and we will report again at the end of the next quarter. Thanks very much. Goodbye.

Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.