Monster Beverage Corporation (MNST) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation Third 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. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Rodney Sacks, Chairman and CEO for Monster Beverage Corporation. Please go ahead.

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 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 August 10, 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, November 5, 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 closed on June 12, 2015. We are continuing to implement our strategic alignment with Coca-Cola bottlers worldwide. Our transition in Germany in July was successfully implemented and we are starting to see an improvement in the quality of our distribution with and execution by that bottler. We are also pleased to announce that we have reached an agreement with the Coca-Cola Hellenic Group that will be applied across 28 countries serviced by them for Coca-Cola. Monster is currently being distributed through the Hellenic Group in approximately 14 countries. We are currently in the process of signing agreements and planning for the transitions and or launches of Monster in the remaining 14 countries within the Hellenic Group's distribution network. Of particular note are our plans to transition our brand from our existing distributors in Italy, Romania, Ukraine, Bosnia, Croatia, Serbia and Slovenia to Hellenic as well as to launch Monster in Russia through Hellenic before the end of this year. Another substantial opportunity for us with Hellenic is the planned launch of Monster in Nigeria in 2016. We have commenced discussions regarding the production of Monster locally with Hellenic in Nigeria, which is one of the two largest energy drink markets in Africa, the other being South Africa. Besides the agreement with Hellenic we have also reached definitive agreements with the Coca-Cola bottlers in Spain and Portugal, which are large markets for Monster. We are planning to transition monster in Spain and Portugal from our existing distributors to Coca-Cola Iberia partners early in the first quarter of 2016. We have had positive discussions with the Coca-Cola bottlers in Southern Africa and are in the process of commencing the distribution of Monster in a number of countries in Southern and Central Africa through Coca-Cola bottlers. We are planning to commence local production of Monster in South Africa in the next few months. We are also planning to launch Monster in China. We have filed applications for approval of our product and have commenced negotiations with the Coca-Cola bottlers for production and distribution of Monster in China. Although the approval process could take longer, we are still planning to launch Monster in China in the first half of 2016. We are also pleased to report that we entered into a definitive agreement with Coca-Cola Beverage Company owned by Ladies and gentlemen Household & Health Care Limited in Korea to distribute Monster in South Korea and are in the process of making transitioned arrangements with them. We are continuing negotiations regarding the prospective transitioning of Monster to Coca-Cola bottlers in South and Central America as well as in Australia. While we have made good progress, many legal and financial issues still need to be resolved. We are hopeful that we will be able to make further progress over the next few months. We are also engage in ongoing negotiations to transition monster to Coca-Cola bottlers in a number of smaller countries worldwide. We intend to continue to manage the Coca-Cola energy brands, which we acquired and refer to as our strategic brands, as a Concentrate business similar to the manner in which the Coca-Cola company operated such business prior to the closing of the transaction. Under the Concentrate model, concentrate and our beverage base is sold to bottlers who add other common ingredients in containers to produce the finished product. We will, however, continue to operate a finished product model for our own Monster energy drinks consistent with the manner in which we have historically run our business. Such arrangements will form part of our Finished Products segment. As previously indicated our reportable segments will reflect our view of the business going forward. In this quarter we reported on three operating and reportable segments: one, Finished Products, the principle product of which include the company's Monster energy drink products, which previously comprised the majority of the former DSD segment; two, Concentrate, the principle of which include the strategic brands acquired from Coca-Cola; three, Other, the principle products of which include the brands disposed of as a result of the Coca-Cola transactions including those which previously comprised the majority of the former Warehouse segment and the Peach tea brand. Sales in the quarter continued to be negatively impacted by foreign exchange movements as well as the uncertainty faced by many of our independent international distributors outside of the Coca-Cola network given the anticipated implementation of the transitions in their territories. Additionally our bottle in Great Britain experienced production issues causing production to be suspended for a number of weeks towards the end of the quarter and most of October resulting in loss sales to us both for the quarter and in October. Although substantial progress was made during the third quarter, results were still affected by out of stock retail, although at a lower level than in the previous quarter. Gross sales for the 2015 third quarter were $862.4 million compared to gross sales of $738.1 million in the comparable third quarter of 2014, an increase of 16.8%. Net sales in the 2015 third quarter were $756.6 million as compared to $636 million in the same period last year, an increase of 19%. Changes in foreign currency exchange rates had an unfavorable impact of approximately $34.1 million on gross sales and approximately $28.6 million on net sales. Gross and net sales were impacted by advanced purchases made by our customers in the quarter due to a price increase effective August 31, 2015 on certain of our Monster 16 ounce energy drinks. We estimate that approximately $12 million of gross sales and $11 million of net sales in the quarter were attributable to such advance purchases. Gross profit as a percentage of net sales were 61.5% as compared to 53.8% for the comparable 2014 third 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 the sale of the non-energy brands, the price increase referred to earlier, lower cost of certain raw materials and changes in product sales mix. Distribution costs as a percentage of net sales were 3.5% for the 2015 third quarter compared to 4.5% in the same quarter last year. Selling expenses as a percentage of net sales were 10.7% compared to 10.1% in the same quarter a year ago. Advertising costs, sponsorships and endorsements as well as commissions and royalties were all higher in the third quarter. General and administrative costs as a percentage of net sales for the 2015 third quarter were 8.8% as compared to 9.2% for that corresponding quarter last year. Parallel expenses were up $7 million due partially to increased staffing in connection with the Coca-Cola transaction. Stock-based compensation, which is a noncash item, was $8.9 million for the third quarter of 2015 compared to $7.4 million in the same quarter last year. Gross sales to customers outside the United States were $207.8 million in the 2015 third quarter compared to $173.2 million in the corresponding quarter in 2014, an increase of 20%. Net sales to customers outside the United States were $170.6 million in the 2015 third quarter compared to $136.3 million in the corresponding quarter in 2014, an increase of 25.2%. Foreign exchange movements had an unfavorable impact on gross sales of approximately $34.1 million and our net sales of approximately $28.6 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 transfer to the military and their customers overseas. According to the Nielsen Reports for the 13 weeks through October 24, 2015 for all outlets combined, that'd be convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including shots increased by 10.1% versus the same period a year ago. Sales of Monster grew 9.3% in the 13-week period while sales of NOS increased 6.8% and sales of Full Throttle decreased 6.7%. Sales of Red Bull increased 11.2%. Sales of Rockstar increased by 28.5%. Sales of 5-hour increased 2.8% and sales of AMP decreased 3.9%. According to Nielsen for the four weeks ended October 24, 2015 sales in the convenience and gas channel including energy shots in dollars increased 8.6% over the same period last year. Sales of Monster increased by 4.3% over the same period last year while NOS is up 3.9% and Full Throttle sales decreased 5.5%. Sales of Red Bull increased by 11.2%. Rockstar was up 32.1%. 5-Hour was up 3.5% and AMP was down 6.6%. According to Nielsen for the four weeks ended October 24, 2015 Monster's market share of the energy drink category in the convenience and gas channel including energy shots in dollars decreased by 1.5 points over the same period last year to 34.9%. NOS' share decreased by 0.2 of a point to 3.9%. Full Throttle's share decreased 0.2 of a point to 1.1%. Red Bull's share increased 0.8 points to 34.8%, slightly below Monster's share. Rockstar's share was up 1.5 points at 8.2%, which is similar to the market share Rockstar had two years ago. 5-Hour's share was lower at 8.2% and AMP's share decreased 0.3 points to 2%. According to Nielsen for the four weeks ended October 24, 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 5.9% higher than in the same period last year while Starbucks Doubleshot Energy was 16.6% higher. According to Nielsen in the convenience and gas channel in Canada for the 12 weeks ended September 19, 2015 the energy drink category increased 8%. Monster sales were up 32% versus a year ago. Our market share increased 5.7 points to 30.4% over the same period last year. Red Bull sales increased 1% and its market share decreased 2.5 points to 39.1%. Rockstar sales increased 6% and its market share decreased 0.4 points to 16%. According to Nielsen for all outlets combined in Mexico the energy drink category grew 31% in the month of August 2015. Monster sales increased 24%. Our market share decreased 1.8 points to 32.2% against the comparable period last year. Sales of Burn, one of our acquired brands, increased 8% although Burn's market share decreased 1.1 points to 5.2%. Red Bull sales increased 8% and its market share decreased by 3.7 points to 17.8%. Vive 100's market share increased 5.1 points to 26.9% while Boost's market share decreased 0.1 of a point to 13.1%. 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. According to Nielsen for the 13-week period ended September, 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 from 11.4% to 12% in Great Britain, from 16.6% to 19.4% in France and from 8.9% to 12% in Germany. In the same period Monster's value share grew from 8% to 9% in Sweden, from 7.9% to 8.7% in Belgium and from 5.6% to 6.1% in the Netherlands. Monster's retail market share in value for the 13 weeks ended in the August, 2015 as compared to the same period last year decreased from 17.6% to 15.7% in South Africa, although in local currency sales were higher. Monster's retail market share in value for the 13 weeks ending September, 2015 in Spain decreased from 22.75 to 22.1% and in Italy decreased from 12.6% to 10.3%. These latter three markets all have independent distributors. According to IRI Monster's market share in Greece increased for the 13 weeks to the end of September, 2015 from 28.2% to 29.4%. 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 the IRI in the EMEA vary from country to country. According to Nielsen for the month of September, 2015 in Chile, Monster's retail market share in value increased to 18.3% as compared to 11.8% last year and in Brazil Monster's market share for the month of September declined from 5.7% to 3.7% as compared to the same period last year. According to INTAGE for the month of September, 2015 the convenience store channel in Japan, Monster's market share grew from 30% to 39.2%. The launch on Monster Energy Ultra in Japan has been positive and sales continued to be solid. As stated earlier, the company has revised its reportable segments into Finished Products, Concentrate and Other. Net sales for the Finished Products segment, formerly the DSD segment but excluding Peach tea increased 15.5% to $686.7 million and operating income for the Finished Products segment increased 25.3% to $289.5 million in the 2015 third quarter. Net sales for the Finished Products segment were negatively impacted by approximately $23.1 million of foreign currency movements and operating income for the Finished Products segment was negatively impacted by approximately $2.5 million of distributor termination costs. Net sales for the new Concentrate segment were $69.9 million for the three months ended September 30, 2015 and operating income for the Concentrate segment was $45.3 million. Net sales for the Concentrate segment were negatively impacted by approximately $5.5 million of foreign currency movements. As a result of the Coca-Cola transaction, which closed on June 12, 2015, there were no sales for the Other segment during the third quarter of 2015 as compared to $41.6 million of net sales in the third quarter of 2014. In Europe, the Middle East and Africa net sales in the third quarter in local currencies increased 45.4% and 19.9% in dollars over the same period last year. Gross profit in this region as a percentage of net sales increased from 38% in the same period last year to 51.5% during the quarter. While Monster is continuing to gain momentum and increase market share in Europe, throughout the third quarter growth in Spain and Italy in particular were negatively impacted due to the uncertainty following the Coca-Cola transaction. We believe that this situation will be reversed once Monster is transitioned in these countries to the Coca-Cola bottlers. Overall EMEA is now operating well and we have made good strides in achieving increased distribution levels and in-store execution. EMEA traded profitability during the third quarter. We are continuing with the launch of Mega Monster in 553 ML cans in limited additional markets in Europe. Response from consumers has been positive and we believe sales from Mega Monster are largely incremental to sales of our original Monster 500 ML size products. In particular in Belgium, Bulgaria, France, Germany, Greece, Hungary, Ireland, Netherlands, Poland and Sweden, Monster achieved increased sales gains as well as increased market share. It is noteworthy that in many of our international markets where our distribution partners anticipate the Monster brand being transitioned to the Coca-Cola network, sales levels as compared to the same level last year were markedly lower than the sales levels in those markets which are being managed by the Coca-Cola bottler system also as compared to last year. In Asia Pacific net sales in the third quarter increased 64% in local currencies and 42.6% in dollars over the comparable quarter last year. Net sales in Mexico, Central and South America and the Caribbean in the third quarter increased 65.8% in local currencies and 45.7% in dollars over the comparable period in 2014. Monster sales in Brazil were negatively impacted due largely to the overall difficult economic and market conditions in Brazil along with the uncertainty for the distributor there associated with the Coca-Cola transaction. In Japan net sales increased by 11% in dollars and 34.1% in local currency during the quarter as compared to the same quarter last year. In Mexico net sales increased by 48.8% in dollars and 72.6% in local currency as compared to the same quarter last year. Both Japan and Mexico contributed meaningful operating profits to the region in the third quarter of 2015. India continues to be impacted by regulatory issues and we continued to incur losses in the first quarter. We are addressing these issues and hope to achieve a resolution in the near future. We continue to be actively involved in discussion with prospective Coca-Cola bottlers in numerous countries around the world regarding distribution opportunities for our Monster Energy drinks. We are also evaluating a large number of local production opportunities with Coca-Cola bottlers but in the U.S. and internationally which we believe will yield cost reductions. As previously reported, we have reformulated and repositioned our Muscle Monster line. In September a new Juice Monster drink named Pipeline Punch was launched exclusively with 7-Eleven. During the 2015 third quarter the company purchased approximately 2.9 million shares of the common stock and every purchase price of $134.43 per share. Purchases were made under a prior repurchase program authorized by the Board which has been exhausted as well as under the new 500 million share repurchase program announced in September 2015. Subsequent to the close of the 2015 third quarter, the company purchased an additional 0.6 million shares.

0.06.

0.06 million shares at an average purchase price of $134.12 per share. The company has approximately $250 million available under its current board authorize repurchase program. Turning to the balance sheet, cash and cash equivalents amounted to $1.2 billion compared to $370.3 million at December 31, 2014. Short-term investments were $1.5 billion compared to $781.1 million at December 31, 2014. Long-term investments decreased to $34.4 million from $42.9 million at December 31, 2014. Including short and long-term investments our auction rate security is $1.5 million, which are now being redeemed in full. Days outstanding for accounts receivables were 43 days at September 30, 2015 and 36.4 days at December 31, 2014 compared to 38.5 days at September 30, 2014. Inventory decreased to $159.7 million from $174.6 million at December 31, 2014. Average days of inventory was 49.4 days at September 30, 2015 which was lower than the 57.4 days of inventory at December 31, 2014 and lower than the 62.9 days at September 30, 2014. In November we will be launching Pipeline Punch as well as Ultra Black nationally. Our reposition of Monster Energy Rehab, Juice Monster and Punch Monster lines all continue to make good progress. We are planning to launch additional new products early in 2016. Gross sales in October 2015 in dollars adjusted for the advance purchases I referred to earlier were approximately 6.8% higher than October 2014. In local currencies gross sales in October adjusted for the advanced purchases I referred to earlier were approximately 10.6% higher than in October 2014. October 2014 included the old warehouse division and Peach Tea. October 2014 comes to a high. October also had one less selling days in October 2014 and was also negatively impacted by the production issues experienced in Great Britain. 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, timing of new product launches and the timing of price increases and 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'd like to summarize some recent positive points. One, we continue to be pleased with the Coca-Cola transaction and the opportunity that this presents to the company. Two, North American and international gross margins are healthy and continue to improve. Three, the U.S. Nielsen market statistics show that the energy category is continuing to grow. Four, the new additions to the Monster family continue to gain market share and add to the company's sales. Ultra continues to perform well, we believe that the changes made to and the repositioning of our Rehab, Juice and Punch Monsters lines have been positive. With regard to international markets, we are particularly pleased with the performance of a number of our international markets, particularly Japan, Great Britain, Germany, France, Belgium, Sweden, Chile, Ireland and Greece. I'd like to open the floor to questions about the quarter. Thank you.

Ladies and gentlemen on the phone lines [Operator Instructions] And our first question comes from Kevin Grundy of Jefferies. Your line is now open.

Hey, thanks. Good evening, guys.

Good evening.

So first a broader question and then just a couple brief modeling questions. First, can you talk about the investment that you think is going to be necessary specifically in Russia and China with your big opportunities, but relatively going to be new markets for you? Talk about what sort of lift you're expecting there, how you're defining success and then if you could touch on the investment piece? And then a modeling question for you, Hilton. Just margins were particularly strong in the quarter. What we should expect there for the balance of the year going forward? And then some guidance on the long-term tax rate. Thank you very much.

I think that much of what you're asking is really forward-looking, which we have historically not given and we're not going to give. So the large part of your question will remain unanswered. We don't believe there is - at this point, our intention in launching in Russia is not going to be different to the way we have historically launched. And there may be some changes in China but it's too premature for us to even make that decision. We've not made it. We are at the moment evaluating the market and how we're going to go to market in Russia. Again, we do not believe that those would be extraordinarily high or different in any way to how we've gone in the past but it really is premature for us to give you any real indication on that. With regards to the tax rate, Hilton will give you some response on that going forward and I'll hand over to him.

Okay. Kevin, there were two questions you asked. One was about margins and, as you know, we do not give guidance. However, what I can tell you is that we took a price increase on certain of our Monster 16-ounce line effective August 31. So we had one month of sales with increased prices and there were buy-ins in that period as well, which we referred to, and there were some buy-ins in September. So you can factor that into your analysis. The second thing is we have looked at the tax rate and we believe here and obviously we stand corrected but we think our tax rate should be more normalized at about 37.5%.

Very good. Thank you, guys.

Thank you. And our next question comes from Mark Astrachan of Stifel. Your line is now open.

Yeah, hey. Good afternoon, guys.

Hi, Mark.

Just a couple of logistics modeling type questions. Could you give the split of your legacy business sales in the U.S. and international so we can get a sense of the comparisons there? And then separately, just curious how you think the price increase has impacted your market share and volumes just broadly? And then sort of market dynamics, I know there's been a lot made of a strange weeks' worth of data in the scanner services. So curious if you could comment on that. And obviously in the context of the weaker results in October, sort of hearing what you're saying, how much of that is the pieces that you were talking about, the moving parts versus underlying weakening and in demand for you or just the category broadly?

Yeah, just to start with the Nielsen in October, the months particularly of October was sort of a choppy month. And we just think that it's the timing of promotions, the timing of launches. Things are sort of - with all these other factors, we think they did have some influence over it. We don't believe that it will be ongoing but we believe that the rest of the quarter will improve. But we still see strength in the category. We have a number of new products launches planned for the beginning, early next year and running through a number of quarters next year. So we believe that you just should not have that high regard or influence on the single month's numbers. With regard to the split between the legacy, we've given you that split throughout the company. We haven't divided it into the U.S. versus the rest of the world. And I don't have that debt number about what we've done it. We look at it in country by country and regions. So I don't have that really but I'm not sure that we should be providing that information at this point we know because then that starts creating other issues and segments. And so at this point we'd like to just leave it at the Finished Products and Concentrates segments as a group going forward.

Okay. Thank you.

Thanks.

Thank you. And our next question comes from Caroline Levy of CLSA. Your line is now open.

Could you just clarify, when you said October's up 7%, was that including international? That was a worldwide number?

Yes.

Okay. And 10 if you exclude the advanced purchases?

Forex.

Oh, that was forex?

Yeah.

Okay. Sorry, sorry. Would you be able to give us the breakup - I mean your case sales seem to include Concentrate, which then distorts what your Finished Product, we can't get at what Finished Product grew or what net revenue per Finished Product case looks like. Would you be willing to share that?

So you're looking for a break out again of the Finished Product cases and we, again, this is...

We haven't - you'll see the statement information. You'll see Finished Goods and you'll see Concentrates in the Q, which we're hoping to release tomorrow or Monday. So you'll have that then. And we're looking forward as whether it will make sense to give case numbers.

Because I think it's very hard to model something if we don't have an idea of what volume pricing - and you give us contact I think by division, but we need that volume in pricing by division, if at all possible. So anyway just lastly, could you talk - getting back to share loss, which is what we're seeing in the measured data and we actually haven't seen that for several years. And then a few months ago Red Bull started growing significantly faster than you guys. And I thought maybe with the price increase you would catch up but it doesn't appear to be happening. So are there any other dynamics over the past couple of months that would have affected that other than launch timing?

Well, again it depends on how you, you've got to look at the two-year step numbers and where we were. So those have quite a big impact on share, or if you take share loss. Red Bull's numbers are basically been a percent or two above ours generally. And but again, they had - they took a price increase in January at a slightly higher level which seems to have stuck. We are really just starting to try and get the - our price level solidified. But if you look at cases and units, then our market share in fact increased and ahead of Red Bull's.

Thank you. And our next question...

So and that's what I'm a little confused about, Caroline, because we mentioned on the call today that in convenience, which is a major sector, our share's actually higher than Red Bull's. So what you're looking at is year-on-year historical 2014 versus 2015. But if you look at the actual share, our share in convenience according to Nielsen is bigger than that of Red Bull.

And it's been trending that way for the last three months. We've been increasing share. So these figures are sometimes - you've got to read, depends how you read them.

Thank you. And our next question comes from Pablo Zuanic of SIG. Your line is now open.

Hi. This is - good afternoon. This is actually Atisha on behalf of Pablo. I have more of a strategic level question. For the markets where you're planning to keep your distributors, what kind of emphasis will be played on the energy drink brands acquired? And can we expect any kind of attrition cannibalization of those brands? And on the flip side, where you will be moving to the new Coke system in the countries, should we expect some attrition for those brands? And if not, how will those brands be segmented in those countries.

I think that we don't believe there will be any attrition in our business. The whole strategy is that in those countries that we stay with our existing distributors like Japan, then they will stay with whatever portfolio they have and if we have portfolio that we've acquired, in Japan there just isn't one but in other countries where there is one then that will be managed through the Coke bottler. We've taken assignment of the Coke distribution arrangement or contract and that will simply be managed. In the cases where we are going to transition Monster, we are going to transition them and the outputs are managed separately. You've got Monster going into that bottler and we obviously have bought and paid for the strategic brand and we are going to manage those brands. It is our job basically to try which is different to how Coke obviously looks at their competitors, but now that we have both brands in our country, we're going to look to try and segment them and position them differently. But they both are important brands they both are, in each country good contributors to our bottom line and to our growth as a company and to giving us a stronger position, overall in the energy category in that country if you aggregate the two brands, in many countries it gives us a very strong and leading position, which I think also helps us. And obviously from a management point of view, where we can use the same stop we will try to rationalize it. But in some cases we feel you do need additional stops to take in focus on their own brand in a country. So I don't' think there will be attrition. The attrition will come from if the brand is not strong enough in a particular country to sustain its distribution or shelf space then there will be attrition but obviously we're going to try and put focus on this and try to avoid that. So at the moment, obviously we are going through a learning curve with some of then we brands. We are repositioning the new brands, we are looking to redesign them and reevaluate their size, containers, and whether we need a different size or a single size. Some of them there are too many size containers and different flavors in different countries for the same brand. We are trying to rationalize some of these and improve some of the flavors. We have plans to introduce some innovation and some new flavors for these brands, these strategic brands in 2016. So we are positive about them and that they will be managed differently and they will be managed separately, but we obviously are looking to put support behind and to do our best with all of the brands that we have in our portfolio with the energy focus. That remains our focus in that category.

Thank you and our next question comes from Judy Hong of Goldman Sachs. Your line is now open.

Thank you. Hi, everyone.

Hi, Judy.

I have two questions. One is, Rodney, just a little bit more color on China as you think about 2016. One, just in terms of the clarification on where you are on the approval process. I think you said you're still expecting to launch in the first half. Any risk that it gets delayed into the back half? And then just in terms of distribution opportunity, just given the strengths of the Coca-Cola system in that country, do you expect to see distribution ramp up pretty quickly in China versus some of the other countries that you've entered? And then the second question is really on return of capital that you, in prior calls, you have commented on the Board actively looking at ways to return more cash to shareholders. Obviously, you still have a pretty sizeable cash balance on your balance sheet. But any sort of update in terms of the Board's willingness to actually take on some leverage and return even more cash to shareholders?

I'll let Hilton answer the second one. I'll address the first one, which divides the questions up. On distribution in China, we are looking at going into China not very differently to how we've addressed most of the markets where we believe we have the best prospect of success. And again, without having taken a final decision, it is unlikely that we're going to have some sort of massive national launch with big TV campaigns behind it. We like to go into a country, we'll take a number of areas or types of chains or class of business and focus on that and roll it out. And it may mean that it takes some time. It doesn't - it may not go through all of the provinces. China is very, very big. It's like saying in America, how would we launch? Well we launched in America in one county, in San Diego. And we launched in one county in Northern California. And then you sit down and grow from there and develop it. We think that that type of launch, and not necessarily one county, I mean one city, but that type of launch is far better. If it's a smaller country, it's a lot easier to get your distribution up. But China is a massive country, it's like a continent. And we're still working through the strategy as to how do we launch, where do we launch, what cities do we launch in, do we launch a little slower in two different or three different types of cities, more modern or a little more traditional, get the responses and see how we position the brand. We're going into a new market with new culture and new consumers. And it is very, very, we believe, a great opportunity for the company and enormous growth. But we need to do it correctly and we need to do it right. And we're right in the middle of this process, so it's premature for us to give you any further direction. As to the process, there are a number of alternative categories in which we believe our drinks can conform. We've made applications in two places for our products in two or three different categories. Those are currently being processed. I don't know how long it'll take. We don't think that they will take that long. We think - we are hoping in the next few months to start getting some positive response and maybe get some approvals but we really don't know how long it is. We've not done it before so we don't know. And we do have different ingredients and therefore a different time line. We can't just simply look back and compare a soda and say, how long does it take for a soda to get approved? It's a different product with different ingredients. But we still believe that we have a good prospect of launching the first half, perhaps a little later than we thought maybe a few months ago but we still think that we have a good shot of going in the first half of launching in China. And perhaps, Hilton will then take your other question.

Judy, the Board is still reviewing options with regard to return of capital to shareholders and we will update shareholders once this decision has been finalized. At this time, no final decision has been taken how best to accommodate a buyback. You also asked a question about leverage and I think my answer is the same answer I've given in the past. Some of us may have a - personally have an aversion to that but it's a Board decision and the Board will determine what's in the best interests of shareholders and the company. So just watch this space. That's all I can say.

Great. Thank you.

Thank you. And that concludes our Q&A session for today. I'd like to turn the conference back over to Mr. Sacks for closing remarks.

On behalf of Monster, I'd like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy, and remain committed to continuing to 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 brand together with our newly-acquired strategic brands. We believe that our agreements 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.