Monster Beverage Corporation (MNST) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation's Second Quarter 2015 Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Rodney Sacks, Chairman and CEO. Sir, please begin. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: 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 Senior 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 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 2, 2015, as well as our most recent report on Form 10-Q filed May 11, 2105, 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 6, 2015. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. As previously announced, the transaction with The Coca-Cola Company finally closed on June 12, 2015. Under the agreement, The Coca-Cola Company acquired an approximate 16.7% ownership interest in Monster following the issuance of shares to The Coca-Cola Company. The Coca-Cola Company also transferred ownership of its worldwide energy business to Monster and Monster in turn transferred its non-energy business to The Coca-Cola Company. We are excited about our partnership and believe that it will strategically align both companies for the long term by combining the strength of The Coca-Cola Company's worldwide bottling system with Monster's dedicated focus and expertise as a leading energy player globally. We are now actively engaged in implementing our strategic alignment and have commenced discussions with Coca-Cola bottlers in many countries around the world. Our first international transition to a Coca-Cola bottler was accomplished in Germany in early July. There are a number of hurdles to be overcome, both legal and financial, in finalizing the award of distribution rights to new international bottlers. We intend to continue to manage The Coca-Cola energy business, which we refer to our as our strategic brands, as a Concentrate business as The Coca-Cola Company did prior to the closing of the transactions. We will, however, continue to operate a finished product model for our Monster Energy drinks consistent with the manner in which we have historically run our business. Under our historical Finished Products model, we sell Finished Products to our distributors. Under the Concentrate model, Concentrate and/or beverage base is sold to bottlers who add other common ingredients and containers to produce the finished product. As a result, we have revised our reportable statements to reflect management's view of the business. In this quarter, we report on three operating and reportable segments. First is the Finished Products segment, the principal product of which include the company's Monster Energy drink products, which previously comprised the majority of the former DSD segment. Second is Concentrate, the principal product of which include the strategic brands acquired from Coca-Cola. And the third is Other, the principal product of which include the brands disposed-off as a result of The Coca-Cola transactions, including those which were previously comprised the majority of the former warehouse segment and the Peach Tea brand. We are endeavoring to accelerate the pace of our negotiations with Coca-Cola bottlers with a view to be able to transition a number of additional international markets to Coca-Cola bottlers in the future. Sales in the quarter were negatively impacted by foreign exchange movements. The impact of the transitions of a substantial majority of our Monster distribution rights in the United States earlier this year, the lower inventory levels maintained by Coca-Cola bottlers versus the Anheuser-Busch distributors, and the uncertainty faced by many of our independent international distributors outside of The Coca-Cola network, given the anticipated implementation of the transactions, all negatively affected our sales growth during the second quarter. Both the Nielsen numbers, which reflect retail sales to consumers, as well as distributed depletions, which reflect sales out by distributors and bottlers to their customers, were substantially less affected by the transition. Results during the second quarter were also negatively affected by out-of-stocks, which occurred in certain geographies due to the learning curve associated with the transitions to The Coca-Cola network. Also the transition has progressed relatively smoothly in the United States; there is always some disruption when transitioning distribution. This learning curve is not dissimilar to what we experienced when we transitioned a large part of our distribution in the United States to The Coca-Cola bottlers some six years ago. But it was temporary. They got up to speed relatively quickly and we believe that the same will occur here. In addition to our GAAP condensed consolidated statement of income and other information and our GAAP condensed consolidated balance sheet for the company for the quarter ended June 30, 2015, attached to our press release is a non-GAAP adjusted condensed consolidated statement of income and other information adjusting for certain of the selected items discussed in the press release impacting profitability, which we believe should be considered in assessing our performance in this quarter. We believe it would be helpful to shareholders on this call to address our results on an adjusted basis, after giving effect to such items in addition to and not in lieu of our GAAP results. Gross sales for the 2015 second quarter were $789.9 million compared to gross sales of $779 million in the comparable second quarter of 2014. Net sales in the 2015 second quarter were $693.7 million as compared to $687.2 million in the same period last year. Changes in foreign currency exchange rates had an unfavorable impact of approximately $29.9 million on gross sales and approximately $23.9 million on net sales. Gross profit as a percentage of net sales was 56.9% as compared to 55.2% for the comparable 2014 second quarter. The increase in gross profit as a percentage of net sales was largely attributable to net sales of the Concentrate segment, which has higher gross margins than the Finished Products segment as well as changes in product sales mix and lower cost of raw materials. Excluding distributor termination costs of $12.2 million and transaction expenses of $11.5 million, operating expenses for the 2015 second quarter were $166.1 million as compared to $161.9 million in the same quarter last year, excluding termination costs of $0.5 million and transaction costs of $1.1 million. Operating expenses as a percentage of net sales excluding these items were 23.9% for the 2015 second quarter as compared to 23.6% in the same quarter last year. Distribution costs as a percentage of net sales were 4.1% for the 2015 second quarter compared to 4.4% in the same quarter last year. Selling expenses as a percentage of net sales were 10.4% compared to 10.5% in the same quarter a year ago. Commissions and royalties in the quarter were lower, partly offset by a $1.6 million provision for marketing funds for the new Coca-Cola energy business and an increase of $3.6 million in sponsorships and endorsements. General and administrative costs excluding distributor termination costs and the transaction costs as a percentage of net sales for the 2015 second quarter were 9.5% as compared to 8.6% for the corresponding quarter last year. This increase was primarily attributable to increased payroll expenses of $8.4 million, due to additional payroll taxes paid by the company following the exercise of certain stock options by senior management, as well as the addition of certain employees to manage and service the new strategic brands. Stock-based compensation, a non-cash item, was $8.5 million for the second quarter of 2015 compared to $8.1 million in the same quarter last year. Payroll taxes were $6.4 million for the second quarter of 2015 as compared to $1.6 million last year in the same quarter, an increase of $4.8 million. Total transactional costs related to The Coca-Cola transactions during the second quarter were $11.5 million as compared to $1.1 million in the comparable quarter in 2014. Gross sales to customers outside of the United States were $187.2 million in the 2015 second quarter compared to $180.2 million in the corresponding quarter in 2014. Net sales to customers outside the United States were $151.3 million in the 2015 second quarter compared to $148 million in the corresponding quarter in 2014. Foreign exchange movements had an unfavorable impact on gross sales of approximately $29.9 million and on net sales of approximately $23.9 million. Included in gross sales to customers outside the United States are our sales to the company's military customers, which are delivered in the United States and transhipped to the military and their customers overseas. According to the Nielsen report for the 13 weeks through July 25, 2015 for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including shots increased by 10.3% versus the same period a year ago. Sales of Monster grew 10% in the 13-week period, while sales of NOS increased 14.9% and sales of Full Throttle decreased 0.2%. Sales of Red Bull increased 14.1%, sales of Rockstar increased by 13%, sales of 5-Hour increased 2.1% and sales of Amp decreased 5.8%. According to Nielsen for the four-weeks ended July 25, 2015, sales in the convenience and gas channel including energy shots in dollars increased 10.7% over the same period last year. Sales of Monster increased by 9.1% over the same period last year, while NOS was up 11.5% and Full Throttle sales decreased 0.9%. Sales of Red Bull increased by 13.5%, Rockstar was up 21.7%, 5-Hour was up 4.8% and Amp was up 0.4%. According to Nielsen for the four weeks ended July 25, 2015, Monster's market share of the energy drink category in the convenience and gas channel including energy shots in dollars increased by 0.5 points over the same period last year to 34.2%. NOS' share remained the same at 3.8% and Full Throttle's share decreased 0.1 points to 1%. Red Bull share increased 0.9 points to 36.3%. Rockstar share was up 0.7 points at 7.6%. 5-Hour share was lower at 8.6% and Amp's share decreased 0.2 points to 2.2%. According to Nielsen for the four weeks ended July 25, 2015, sales of energy plus coffee drinks in dollars in the convenience and gas channel increased 9.6% over the same period last year. Java Monster was 10.9% higher than the same period last year, while Starbucks Doubleshot Energy was 9.1% higher. According to Nielsen in the convenience and gas channel in Canada for the 12 weeks ended June 27, 2015, the energy drink category increased 5%. Monster sales were up 6% versus a year ago. Our market share increased 1.4 points to 27.8% over the same period last year. Red Bull sales increased 3% and its market share decreased 0.8 points to 38.2%. Rockstar sales increased 37% and its market share increased 4.1 points to 19.2%. According to Nielsen for all outlets combined in Mexico, the energy drink category grew 20.4% in the month of June 2015. Monster sales increased 1.1%. Our market share decreased 6.2 points to 32.2% against the comparable period last year. Our strategic brands market share represented by Burn increased 0.3 points to 6.2%. Gladiator has been discontinued in Mexico. Red Bull sales increased 4.3% and its market share decreased by 3.2 points to 20.9%. VIVE 100's market share increased 7.8 points to 21.7%, while Boost's market share decreased 0.2 points to 14.2%. The Nielsen statistics for Mexico cover single months, which is a 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. In the month prior, which is May 2015, for example, for all outlets combined in Mexico, the energy drink category grew 28.7% in the month and Monster's sales increased 25.6%. Our market share decreased 0.9 points to 35.3% against the comparable period last year. Red Bull sales decreased 0.8% and its market share decreased by 6.1 points to 20.4%. Vive 100's market share increased 6.5 points to 19.6%, while Boost's market share decreased 1.8 points to 13.9%. Coke's market share represented by Burn and Gladiator together increased 1.1 points to 6.2%. According to Nielsen, in the 13-week period ended June 2015, the actual 13-week periods vary by a few weeks between different markets. Monster's retail market share in value as compared to the same period last year grew some 10.5% to 12.4% in Great Britain, from 15.8% to 18.7% in France, and from 7.6% to 11.5% in Germany. In the same period, Monster's value share grew from 7.9% to 8.7% in Sweden, from 8.2% to 8.8% in Belgium, and from 5.9% to 6% in the Netherlands. Monster's retail market share in value for the 13-weeks ended June 2015, as compared to the same period last year decreased from 18.7% to 16.8% in South Africa and from 22.4% to 21.9% in Spain, and from 11.7% to 11.2% in Italy. All three of these markets had independent distributors. According to IRI, Monster's market share in Greece increased for the 13-weeks to the end of June 2015 from 25.4% to 27.8%. I would like to point out that the Nielsen and IRI numbers in EMEA should only be used as a guide because the channels read by Nielsen and IRI in EMEA vary from country-to-country. According to Nielsen, for the month of May 2015 in Chile, Monster's retail market share in value increased to 15.6% as compared to 11.3% last year. And in Brazil, Monster's market share for the month of June 2015 declined from 5.3% to 3.9% as compared to the same period last year. We believe that our distributor in Brazil has lost focus on our brand as a result of The Coca-Cola transaction. According to INTAGE, which provides tracking and market statistics in Japan, for the month of June 2015 in the convenience store channel in Japan, Monster's market share grew from 24.1% to 32.7%. Additionally, within the last few weeks, Monster launched its Monster Energy Ultra energy drink in Japan. Early indications are very positive. As stated earlier, the company has revised its reportable segments into Finished Products, Concentrate, and Other. Net sales for the Finished Products segment or the DSD segment, but excluding Peach Tea, increased 1.2% to $651.2 million, and operating income for the Finished Products segment before taking into account corporate and unallocated amounts decreased 1.1% to $251.6 million in the 2015 second quarter. Net sales for the Finished Products segment were negatively impacted by approximately $22.8 million of foreign currency movements, and operating income for the Finished Products segment was negatively impacted by approximately $12.2 million of distributed terminations. Net sales for the company's new Concentrate segment were $13 million for the three months ended June 30, 2015, and operating income before taking into account corporate and unallocated amounts for the Concentrate segment was $9.1 million. You will appreciate that that covers the period only – between the closing of the transaction and the end of the quarter, which is not a full quarter. Net sales for the company's third segment, Other, decreased 32.6% to $29.5 million for the three months ended June 2015 from $43.8 million for the same period ending June 30, 2014. The 2015 second quarter's results for the Other segment are through June 12, the date The Coca-Cola transaction closed. Operating income for the Other segment before taking into account corporate and unallocated amounts and excluding the gain on the sale of our non-energy business was $2.2 million in the second quarter of 2015 compared to $3.1 million in the second quarter of 2014. Net sales in Europe, the Middle East and Africa in the second quarter of 2015 in dollars were 4.8% higher than the same period last year. In local currencies, net sales in the region were 32% higher than in the same period last year. Gross sales were 10% higher in dollars and 38% higher in local currencies. Monster is continuing to gain momentum and increase market share in Europe. However, growth in Spain, South Africa, and Italy were negatively impacted due to the uncertainty regarding the impact of The Coca-Cola transaction. Overall, EMEA is now operating well, and we've made good strides in achieving increased distribution levels and in-store execution and traded profitably in the second quarter. We are continuing to see the benefit of the strategic changes implemented over the past two years. The Monster Energy Valentino Rossi drink, which is now available in the majority of the markets in Europe and South Africa continues to perform well. During the quarter, we launched Mega Monster in additional EMEA markets. Results continue to be positive. In particular, in Great Britain, Germany, Greece, Sweden, Ireland, Hungary and Poland, Monster achieved sales gains and continued to increase its market share. In our international markets where our distribution partners anticipated transition occurring, there is a notable difference in our sales levels versus our markets that are already operating in The Coca-Cola system. Net sales in Asia Pacific increased 28.7%, a 49.9% increase in local currencies versus the comparable quarter last year, while net sales in Mexico, Central and South America, and the Caribbean decreased 3.5% in dollars but increased 5.8% in local currencies over the comparable period in 2014 mainly due to foreign exchange differences, a competitive price adjustment in Chile to offset an indirect tax, and continuing issues with our Colombian distributor. Sales in Brazil for the second quarter were disappointing, as referred to earlier. In Japan, net sales increased by 41.8% in dollars and 66.5% in local currency. In Mexico, net sales were flat both in local currency and dollars. Both Japan and Mexico contributed meaningful operating profits to the division in the second quarter of 2015. India has been impacted by losses in the second quarter following regulatory issues which are currently being addressed. We're actively involved in discussions with prospective Coca-Cola bottlers in numerous countries around the world regarding distribution opportunities for our Monster Energy drinks. We are also evaluating many additional local production opportunities with Coca-Cola bottlers which we believe will yield cost reductions. We have experienced a decrease in sales of Muscle Monster that we believe is principally attributable to a quality issue relating to the texture of our Muscle Monster products. I did mention this on our previous call. We have addressed the issue by reformulating those products and are currently shipping new Muscle Monster products with new graphics to our distributors. Following the confirmation of the transactions with The Coca-Cola Company, the company received substantial cash funds. The Board of Directors is considering options with regard to the return of capital, including share repurchases. Turning to the balance sheet, cash and cash equivalents amounted to $1.7 billion compared to $370.3 million at December 31, 2014. Short-term investments were $1.2 billion compared to $781.1 million at December 31, 2014. Long-term investments increased to $52.4 million from $42.9 million at December 31, 2014. Included in short- and long-term investments are auction rate securities of $3.2 million. Days outstanding for account receivables were 42.6 days at June 30, 2015, and 36.4 days at December 31, 2014, compared to 43.5 days at June 30, 2014. Inventories increased to $180.9 million from $174.6 million December 31, 2014. Average days of inventory was 54.4 days at June 30, 2015, which was lower than the 37.4 days of inventory at December 31, 2014, and lower than the 60.8 days at June 30, 2014. In the fall, we are planning to launch a new Juice Monster called Pipeline Punch and a new banana-flavored Muscle Monster as well as Monster Ultra Black as a permanent SKU. We have also reformulated our Rojo Tea + Energy Rehab product as a Raspberry Tea + Energy product, which is currently in the process of being introduced. We have additional new product launches planned for the beginning of 2016. Our repositioned Juice Monster and Punch Monster lines continue to show healthy gains. Gross sales in July 2015 in dollars were approximately 14.1% higher than in July 2014. In local currencies, gross sales in July were 19.2% higher than in July 2014. July 2014 included the old Warehouse division and Peace Tea. Specifically, the Finished Product segment, which comprises our Monster Energy brand products, grew 10.2% in July in dollars and 14.5% without a foreign exchange impact. We caution again that sales in a single month and 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 and the timing of promotions in retail stores and should not necessarily be imputed to or regarded as indicative of results for the full quarter or any future period. In conclusion, I would like to summarize some recent positive points. We are pleased that The Coca-Cola transaction closed on June 12 and are excited with the opportunity this presents to the company. North American and international gross margins are healthy and, in fact, have continued to improve. The U.S. Nielsen market statistics show that the energy category continues to grow. We believe that the majority of the increases in dollar values achieved by Red Bull are attributable to their price increase which they implemented in January. In units, sales of Red Bull in the United States increased by 5.5%, which is lower than the 9.1% increase in units achieved by Monster. We think that the resilience shown by consumers to Red Bull's increased pricing augurs well for our planned price increase in September. Importantly, on a unit basis, Monster continues to outperform Red Bull this year, which we believe is significant. The new additions to the Monster family that were introduced last year continue to gain market share and add to the company's sales. We believe that our Monster Ultra lines and additions and changes to our Rehab and Juice Monster lines will continue to add to sales. Turning to international markets, we are pleased with the performance of our international expansion, particularly in Japan, Great Britain, Germany, France, Sweden, Ireland, Greece, and Chile. We are pleased with the improvement in July in our sales growth. I would like to open the floor to questions about the quarter. Thank you.

Our first question comes from the line of Judy Hong with Goldman Sachs. Your line is now open. Judy E. Hong - Goldman Sachs & Co.: Thank you. Hi, everyone. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Hello, Judy. Judy E. Hong - Goldman Sachs & Co.: So if I look at your second quarter international trends, and I think you talked about local currency growth in some of the markets like EMEA and Japan, it actually looks very healthy despite some of the transition issues that you called out in a few of the markets. So, number one, can you just talk about what's driving some of that underlying improvement? Maybe it's the Coke System doing better or it's some of the new markets you're entering? And then even the improvement that you saw in July, what's driving that? And then the markets that you're having some challenges, like Brazil and Italy and maybe even other markets that were having discussions about the transition, can you elaborate on how much progress you're making? What are some of the early learnings as you're talking to these bottlers and thinking about the pace in which you can transition some of the bottlers to the Coke System? Thanks. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Let me take the last question first. In many of these markets, it's not a question of what we can do. The question is, you've got existing distributors and bottlers who obviously have heard about the Coke transaction and believe that their territories will ultimately be transitioned to Coke. So what they've generally have really pulled back on their investments in their markets, in investing in putting extra effort. And although we've tried to obviously work with them and assure them and it effects their buyout to some extent, they really mentally are not in the same place as they were when they were fully engaged as our full-time distributors. So the challenge we've got is in basically being able to conclude arrangements with the Coke bottlers as soon as possible to transition those markets. And we've referred to that there is a learning curve with the international Coke bottlers, not only from a point of view of learning about our products, but the way we go to the market, the way we operate, the terms of our agreements using a Finished Product model, all of these things are not usual generally to the Coke bottlers. They have very different business models and existing contractual relationships with The Coca-Cola Company. So there are some complex issues both with regard to the legal terms of the agreements and the economics and working out the value chains. And these are being done and attended to and we are having these discussions, but it is taking some time. And unfortunately, we've just got to be patient. But what we do clearly see is there is a very big difference in both our sales in and sales out from distributors to please their depletions in markets where they are what we call non-transition markets where the distributors know that they are going to stay with the brand, for example, the Coke, the CCR markets in Europe. Those markets are generally performing well and performing at a much higher level than the markets where there is a likelihood of a transition. There are some markets, on the other hand, where we've not made a decision to transition, and we've communicated that and been able to assure our distributor. Those markets are performing well, particularly you call out a market like Japan where our partner has – we've talked with them and we're focused on continuing to operate with them and there, the market has done very well and they are continuing to perform fully. That is in international. I mean that is not a dissimilar situation in the U.S. If you take our markets in the U.S. with it in some cases, in most cases, our existing Coke bottlers, but in some cases we have some independent bottlers here, distributors or bottlers. And, again, you're seeing a clear difference between the results of both our sales in and the sales in were obviously also affected by the lower stock holding levels held by Coke bottlers versus the AB, the new ones we've gone to here. That was an additional factor. But even if you take that into account or put it to the side for the moment, when you look at the depletions by the Coke bottlers in the transition territories, the depletions are lower than in the same company's non-transition territories. And it's clear that what's going on is that there is a learning curve. There were some out of stocks both from our side and in retail, but it's also a learning curve because the new sales teams have basically got to learn the Monster business, the velocities, those accounts that are higher in velocity don't necessarily replicate the accounts that are higher in velocity for traditional beverages. And so we think that that's a transitory thing and this is the quarter where they've gone through it. It's the first 90 days of the transition to the Coke System in the U.S. And so we think these are things that are just going to have to work their way out of it. And we believe we're starting to see improvements and some of that is now being reflected in the numbers that we're showing in our sales numbers for July. But obviously what you also can see is, if you look at the Nielsen over this whole period, the Nielsen numbers in the U.S. have been pretty consistent on our sales out in units, et cetera, which shows that from the consumer point of view, there is still similar retail pull in all these markets.

Our next question comes from the line of Mark Astrachan with Stifel. Your line is now open. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah, hey. Thanks. Good afternoon, guys. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Hi, Mark. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: I guess just two questions. One is sort of a follow up on the last one. If you could talk maybe about directionally, did the July number benefit from restock? Or did you see more of that in, call it, months of May and June, and so the July number is more of a representation of demand? I guess you could see that from the scanner data, but maybe if you could give us a bit of commentary on that, that'd be helpful. And then secondly on cash, I appreciate your commentary from a board standpoint, but $3 billion in cash is obviously an awful lot. So what prevents you from going into the market, call it, Monday, Tuesday, whenever the window opens up next week, to buy back a lot of stock? Or how should we sort of think about the share repurchases? Is it going to be in open market for some period of time? Will there be an ASR tender? If you could just sort of help us directionally on that, that'd be great too. Thank you. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: Well, Mark, if I could answer that question on cash there, there will be a return of cash to shareholders. The board is meeting tomorrow and it's one of the issues that will be tabled on the board meeting. And I can't say what route the board will take, but there are certainly a number of options open to the board and they will make their decision in due course. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Yeah. It's obviously clear that we have the excess cash, and we will address it, but we need to address it in due course. There are a number of reasons as to what we need to do or how to do it and we will look at that, Mark. It's just premature at the moment. I know everybody is keen to get us to deal with it and address it, but it just has to be dealt with in due course. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: And then your first question was about the July sales and I think there's a general view here that the stock reductions are past us and that the July sales really are a factor of demand. And that's a view, it's not something that one can take to the bank but it's certainly the view that we hold here. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Yeah. And we also think that that's being influenced by the fact that, again, some of that learning curve is now improving and some of the out of stocks that initially occurred because of unknown order patterns for different products in our line which has quite a lot of products. Those things have – we think those are normalizing and we think that that is more indicative of our regular business. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: And we have been having regular meetings with The Coca-Cola bottlers in the U.S. and these issues are being addressed.

Our next question comes from the line of Amit Sharma with BMO Capital Markets. Your line is now open.

Hi. Good afternoon, everyone. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Hi.

Only two questions. One, could you talk about what portion of your non-U.S. sales are going through non-Coca-Cola distributors at this time? And what's the level of decline with those? Any sort of help that would be great. And the second one is in non-U.S. markets where Coca-Cola does not have a contractual obligation to partner with you, unlike the U.S. market, are you seeing greater difficulty? Or it's just going through the process of finding out terms and conditions that are acceptable to both the parties? Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: I think there is a general excitement amongst all of the Coke bottlers to take on Monster and to partner with us. And I think it's right through the Coke. I think there's a very good attitude throughout the Coke System. I think the issue is – as I indicated earlier, it's getting to be able to get them comfortable with the basis on which we do business which is different to the traditional Concentrate sort of model business that Coke has followed for centuries. And to get them to understand us and work through the legal issues such that we're getting through value chain issues. And generally to the extent that we've worked with them, they're all comfortable with the value chain issues that there are satisfactory ways in which we can work to share the issue and they're excited by that. It's a positive for them. But we obviously have to negotiate and get through everybody, trying to muscle each other at the moment to take a position which will obviously be (38:30) going forward. So we're just having to work through those issues. But we are hopeful that we'll get through in most of them. And if to the extent that we don't in any particular territory, we have options that we can go to. We have existing distributors, and a lot of the issues we are having with existing distributors if we were to not transition a territory and go back to those distributors and basically assure them that or give them a longer term contract and give them the assurance that they will have a longer term, that they have a number of years secured, we've got no doubt they will start to reinvest and re-engage in the brand. It's just that we've not been able to do that because we haven't wanted to mislead them or give them any false hopes. And so that's been the delicate tightrope we've been walking at the moment. So again, it doesn't mean that in every territory we will go to a Coke bottler. But I don't think that that is an issue. The issue at the moment is just getting everybody and it's time to deal in all these different countries and get everybody on the same page and get them comfortable with us. We are making progress. And we obviously are going to try and step up the pace of those negotiations. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: Yeah. I think I just wanted to add that the decisions that will be made for international distribution will be decisions that will be the best for Monster, for our company, and that will be assessed following the negotiations, the value chains, legal issues and other opportunities which we may have. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Now, on the percentages, I would say that probably got the – probably pretty much the majority of our sales are with existing Coke bottlers internationally, pretty close to half, and if you look at the numbers in many places other than Japan which is an exception, in other places you've got sales very much down and Chile is also a good market as well in that sense. These bottlers are working well with the distributor, but in Brazil particularly it's been very disappointing. They're just really not engaged and some of the wholesalers they work with seem to have disengaged as well. And then in some of the markets which are non-Coke bottlers, when I say we're up, it's marginal, it's almost flat versus really nice healthy gains across the Coke bottler markets. So there is a very big distinction between those markets. But as to the percentage, I'm just guessing. I just don't have a number in my head or available at this point in time. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: More than 50 billion is probably a good... (41:24) Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Yeah. And then the one distributor that did perform pretty well, which was a distributor in Germany, they also did perform reasonably well until we changed over, but that was quite a large volume market which have now changed to Coke. And in the first month there, we've been very satisfied with the result. It's been very positive. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: And in Mexico, the July sales were actually very good. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: And I should put Mexico into the same category as Japan and Chile. The distributor still continues to perform well. Some of the major problems markets are the ones I did allude to earlier. Thanks.

And our last question comes from the line of John Faucher with JPMorgan Stanley (sic) [Securities] (42:10). Your line is now open.

Thanks. Good afternoon, everyone. Two quick questions here. The first is, and I apologize if you gave this in the numbers. Did you talk about the underlying growth of the acquired Coke brands in terms of how you think they're doing? And will the bottlers view them as reinvigorated as you take over responsibility for or ownership for them? And then secondly, I had a question on the gross margin. Given the regional mix with weaker U.S. and stronger international, the gross margin was still up a lot. Any thoughts in terms of what's driving the gross margin expansion? Thanks. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Gross margin generally has probably been affected a little bit by the Concentrate division, which is the strategic brands which have higher gross margins. And we've just been able to achieve some lower costs, which we indicated, in our brands even though there is a balance between international and domestic. But what had happened is I think our international margins have also improved on this quarter versus previous quarters. So while they are perhaps a little bit lower than our domestic margins, the improvement in those margins have had an effect and have helped push up our overall margins. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: And what we said earlier on the call, John, was that there were higher gross margins because in the Finished Products segment, which is largely a function of product sales mix and lower cost of certain raw materials. So we did refer to that earlier on in the call. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: So could you repeat your first question, John? Hello?

Can you hear me? Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Sorry, no. Can you repeat your first question?

Sure. So the first question was about the Coke energy brands that you acquired and what the underlying trends were for those businesses in July and whether the bottlers feel more reinvigorated given the fact that you are going to be probably providing a greater level of focus on those brands. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: I just want to remind everyone that the Concentrate business was only in for two weeks in the quarter. We closed the transaction on the 12th, which is a Friday. From the 15th to the end of the month, the Concentrate sales were incorporated in the financial results for this quarter. So turning to July, I don't have those numbers for July. I think we had them earlier for the Concentrate division. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: I think the sales for the Concentrate division or the brands have been a little choppy but it's been very early. We only got the brands recently. We then didn't have access to a lot of the underlying marketing information about the brands until we closed. We're still getting information and trying to understand the brands. We have marketing guys working with us. Some of the people we took on from Coke but some of our own guys are having to travel to different markets to try and understand the brands. And we're still trying to put together our strategy on these brands. Obviously, we've talked with the Coke guys and we've reassured them that we're going to obviously focus on these brands and give these brands attention. And at the moment, I think they're doing fine, but I can't give you an indication of direction because it really just is too premature. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: Yeah, I'm just looking at the numbers we have. We don't have them with us as to what happened in July with the Concentrate business last year. We know obviously what it was this year but we don't have it here. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: I think we're just going to have to just spend some time before we start giving more direction. I mean, they are continuing to upgrade pretty decently in most markets. There are a couple of individual markets where the bottlers were sort of not happy and we've seen them want to discontinue some of the brands in some small markets and small brands. Like I mentioned earlier that they decided to discontinue Gladiator in Mexico and then Samurai was discontinued in the Philippines, which was a low-priced brand there. But by and large, the markets are fine. And the most important markets are actually the U.S. with NOS. And we feel the brand is good. It has slowed a little bit. We think there may have been a little bit of a pulling back on some of the marketing spend behind the brand. But we believe in the brand and the bottlers in the U.S. also believe in the brand and I think we can obviously make that brand grow. So we are positive about the NOS brand going forward. And we think that there is a role for Full Throttle in the portfolio as well. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary, Monster Beverage Corp.: NOS has increased actually in the 12 weeks that we mentioned earlier as well in all outlets combined by 14.9%. So sales of Full Throttle were down 0.2% and the overall market was up by 10.3%. So NOS grew in excess of the market. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: Yeah. So that continues to perform and we're excited about that – the NOS brand. And there are a number of the brands that we really see as very good opportunities around the world in the portfolio. Thank you very much. Rodney Cyril Sacks - Chairman, Chief & Principal Executive Officer, Monster Beverage Corp.: 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 are particularly excited by the new opportunities that we have going forward with a robust portfolio of energy drink products throughout the world comprised of our Monster Energy drink line together with the newly acquired strategic brands. We believe that our agreement with The Coca-Cola Company will enable us to focus on our core energy business while leveraging the strength of The Coca-Cola Company's powerful distribution and bottling system on a worldwide scale. Thank you very much for your attendance.