Good day, ladies and gentlemen, and welcome to your Monster Beverage Corporation Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn you over to your host for today's conference, Mr. Rodney Sacks, Chairman and CEO. Mr. Sacks, you may begin.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg our Vice President, is with me today; as is Tom Kelly, our Senior Vice President of Finance. Before we begin, I would like to remind the 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 and 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 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 March 3, 2014, as well as our most recent report on Form 10-Q filed May 9, 2014, 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 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 August 7, 2014. A copy of this information is also available on our website at monsterbevcorp.com in…

[Operator Instructions] And our first question comes from the line of Judy Hong from Goldman Sachs.

So maybe just on international margins. The first time, I think, many of your markets actually showed profitability in the quarter. So I just wanted to get some color on what the key drivers of that improvement were in the quarter, how sustainable that improvement is? And if you look at the overall gross margins for the company in that 55%, do you think this is, at least, the sustainable level, at least for the foreseeable future?

I think that Europe -- I think the improved profitability came from, I think, better distribution in -- largely, in existing accounts. I think we still have an opportunity to increase distribution in numerical number in additional accounts. So we've been trying to focus on improving the quality of distribution and we will continue to do so. And also, in some of the markets that are becoming more mature, we also, as we indicated earlier, we did review our operating model and took down some of the -- some of our marketing and costs that we had spent in establishing the brands in those markets. We felt that we were able to do so going forward, and so we will continue to do so on an ongoing basis.

Then just maybe on some of your innovation that you've have called out in the call. I guess the last comment you made at the shareholder meeting was really trying to be maybe more thoughtful about innovation and, perhaps, thinking about innovation being more incremental to your brand portfolio. So if you can help us kind of -- how you think about the upcoming innovation? Do you really think this is now more incremental to your existing portfolio? And as you go into the market, kind of thinking about how you would approach getting extra shelf space as opposed to taking one out and placing the new innovation with -- replacing with your existing brand?

I think that, that is illustrated by the value we sort of believe in, for example, in the Punch Monster line. We believe there is a subset sort of set of energy, which is in Punch products. I believe that by focusing our brand back into that Punch line with 2 SKUs, it will, in fact, help us. It is, in fact, doing that. We believe we are increasing distribution on the Punch Monster line. It has taken a little bit of time to get the new graphics out. There are new flavors that are more fit the Punch profile a little bit, they've being tweaked a little bit. And so we believe that is more strategic and that will become a key subset for us. We also believe that -- and many years ago, when we had the Juice Monster product, we rolled them out and -- but I think there were less sort of strategically focused as being a subset. And again, we had some fall-offs just because they became older and less-exciting and people went on to newer and more exciting things. So we've -- Khaos has continued to do well, but the -- and maybe started a little bit -- it was probably a little bit too heavy as a drink. So again, we've looked -- people are really turning to, we believe, lighter, easier-to-drink product. So again, the focus that we've had is in changing and reducing the juice content of our drinks because the -- and maybe sort of had a connotation to that, added percent juice. We've taken the juice content down quite substantially. So we've changed the name to Ripper, which is in line with the -- that, basically, product that we have overseas. So again, we've now clearly delineated what the…

And our next question comes from the line of Kevin Grundy with Jefferies.

So Rodney, my question is on broadly the energy drink category in the U.S., and we've seen some slowing here, and you look at the Nielsen data in the convenience and gas channel, and we've gone from low-double-digit growth to about mid-single-digit growth in the category. So my question is broadly, what is your consumer research telling you that's driving the slowdown here? What are your expectations for the balance of the back half of the year? Do you think that innovation is going to help drive an acceleration? And just broadly here, are you getting the sense now that some of the consumer health concerns that are hitting the carbonated soft drink market are kind of seeping into consumers' awareness here as well?

Yes. We really don't have any market research on what is driving the trends. We obviously see the continued soft trend across beverages in general. We think that the Energy category is being slowed down a little bit by the negative growth that is being experienced by 5-Hour, which is an energy shot. We lump it in the same sort of category. So we think that is pulling down a little bit of the growth as well. The growth would be higher without the energy shots in the category as a category. But overall, we are just seeing that slowing trend. We think that it's -- it seems to be around the world. It seems to have slowed a little bit as well in some of the -- in most of the international markets. But we believe that eventually that will sort of settle down and ride itself. We think there have been some health concerns about CSDs, and then the CSDs have now translated into the dark CSDs, so illogically, because of some scares about sweetness. Again, we think this too will pass, and I think things will settle down. But there are certainly some changing consumer trends and preferences. And those are something that, I think, we'll deal with them. We will deal with some of them, I think, by adapting our products to be more drinkable, to be lighter, lighter in calories and lighter in taste. And that's the sort of profile that we have for the Ultra line, and that's what we're now doing in reformulating the juice line. On the other hand, there are a lot of -- a majority of consumers still like full-flavored, heavy-bodied drink, just as they like light wines, and they like heavy wines. So we're trying to obviously cater for the full gamut of consumers, and that is the reason we introduced Muscle Monster. We think there is a trend for consumers, again, on a broader-based and pure sports people or bodybuilders to actually have drinks with protein in addition to the having the energy component, and that is why we introduced that line. So these are lines that are starting to solidify themselves, and we think that they will continue to grow. And we have -- I think we're well-positioned because of the broad range of our line to actually address this as we go. But we don't have any specific ideas as to why some of these of things are happening. I think a lot of the beverage companies would like to be able to have a crystal and see, but we just don't.

And our next question comes from the line of Ms. Bonnie Herzog from Wells Fargo.

I just have a first quick follow up question on Ultra Sunrise specifically. Is your goal to merchandise this new product within the CSD door? And then how realistic do you think this will be if, in fact, that is your strategy?

This product has got nothing to do with CSDs. It has nothing to do with CSDs. It's got nothing to do with Mountain Dew. This product is going to be merchandised in the Energy door with the other Ultra products. It is a citrus flavor, probably more aligned into an orange flavor. It's got nothing -- it's not designed to address Mountain Dew or Kickstart in any way. It is simply a lighter -- 0-calorie and a lighter-tasting and refreshing and easier-drinking energy drink, completely in line with the original Ultra White product. The whole Ultra line mantra is the same. That is the subset that we are focusing on. And we're not changing the characteristics of that product at all. So if anything, our product is probably -- this product is aligned more to an Orangina-type of flavor profile. And -- which is similar to, again, to the Rossi can, and not to any of the other CSDs.

And our next question comes from the line of Mark Astrachan from Stiefel. Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division: So 2 questions on international. First, what drove the slowdown on easier comparisons, which continued into July? Could you quantify the impact from timing and/or destocking? And then secondly, can you quantify the impact on international growth broadly from your focus on profitability?

I think there were a couple of factors that occurred in July. We don't want to go into more details because it is a single month. But -- and it varies quite dramatically. We believe that a lot of the factors that happened in July will not recur and it will make itself up into August, so we're not particularly concerned with it. But we really don't want to go into more detail on that front. It really was mainly destocking and movement and changes in production from one month to another because some of the production -- or some, actually, it's on an increasing level of production, is being handled in some cases by our distributors. And so their planning cycles are not necessarily linked to our sales and they will produce when they have gaps in production or when they feel they need it and we all find it and we try to smooth it out with them. But if we are finding that they were overproducing one period and then go down in inventory levels to another month, and then suddenly, the beginning of the month, start up again. And that is having quite a dramatic effect on some of our numbers on a month-to-month basis. Internationally, generally, we're starting to see some slowing but we've also tried to focus on getting many of the countries profitable. We will look again to accelerating sales but focusing on the bottom line and ensuring that we don't go back into the red in those countries. And so we're trying to just balance that through. We think that there has been some slowdown, but many of the international markets are really doing very well and starting to improve. Sales, for example in -- although we had a slowdown in international in July, and as I indicated, the actual sales in the USA were actually higher than the average company sales, the sales out in many of our markets, particularly in EMEA, from our distributors to customers, were up actually in the double digits in the EMEA in July. But our sales to our customers were substantially lower than that. So it's just a mismatch in July of some of those numbers.

And our final question comes from the line of Bill Chappell from SunTrust.

Just wanted to follow-up on the gross margin side and just -- was there a big contribution from local manufacturing in Japan and elsewhere? And is that expected to kind of continue as you open up in Korea and India? Or I mean, have we seen kind of most of the gains this quarter?

We think that the effect of local production in Japan was substantial and that really did help us. Sweetener cost was a big contributor as well as we started packing again at Dr Pepper in Texas, which also helped us -- we had stopped for a period of time, which was also beneficial. As we go forward, as we said, Japan is now onstream, where we're launching M3 in Japan, we're launching that with the local production from the get go. When we launch Coffee Monster in Japan, that will be locally produced. So again, that is being improved. We have had some challenges in getting going in Korea and South Africa with local production, getting their production up to speed and up to our quality, and same thing in India. We're all working with it and we're all making progress. And as those countries come on board, it will obviously improve the results there quite substantially. We recently expanded our production facilities in Europe by adding another facility, which we have approved. And so as we continue to really rollout and become more well -- better well-established overseas, we clearly will continue to derive the benefits from better production in those countries. And also, the other thing that will help with our margin, Bill, was just mentioned back there, it was lower allowances. We were able to achieve these sales by not having to go as deep with our CMAs and other allowances we've had historically provided to retailers. We think that we will be able to manage that on a similar level going forward.

And there are no further questions in the queue. I'd like to turn the call back over to Rodney Sacks for closing remarks. Mr. Sacks, please go ahead.

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 continue to develop and differentiate our brands, and to expand the company both at home and abroad. We reiterate that our products are safe, are properly labeled, and the caffeine content of a Monster is approximately 10 milligrams per ounce. It's less than half the milligrams per ounce of caffeine level that's contained in Starbucks and other coffee house brewed coffee. Thank you very much for your attendance.