Monster Beverage Corporation (MNST) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monster Beverage Fourth Quarter and Year-End 2015 Financial Results Conference 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 call is being recorded. I would now like to introduce your host for today's conference, Mr. Rodney Sacks, Chairman and CEO. You may begin. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Good afternoon, ladies and gentlemen, thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, Vice Chairman and President, is with me today, as is Tom Kelly, our Senior Vice President of Finance. Before we begin, I'd 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 & 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 November 6, 2015, 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 February 25, 2016. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. We are continuing to make good progress with the implementation of our strategic alignment with Coca-Cola bottlers worldwide. We have successfully concluded negotiations with Coca-Cola bottlers in many countries, and are planning to launch Monster with these bottlers in most of their international markets in the near future. We have substantially completed the transition of Monster in most of the 28 countries serviced by the Coca-Cola Hellenic Group, and are currently in the process of transitioning the remaining countries. We have successfully launched Monster in Russia, and are moving forward with plans to commence production and distribution of Monster in Nigeria, through Coca-Cola Hellenic. We've also recently successfully transitioned our Monster brand in both Spain and Portugal to Coca-Cola Iberian Partners. We are continuing to transition a number of countries in Africa to Coca-Cola bottlers. This process will continue through the remainder of 2016. We've also reached agreement with Coca-Cola İçecek for distribution of Monster within the countries which fall within their Coca-Cola territory, which includes Turkey and 10 other countries. We've reached agreement with Coca-Cola Amatil, which distributes the Coca-Cola product in Australia, New Zealand, Indonesia, Papua New Guinea, and Fiji. Finally, we having reached agreement with Big (3:42), the 100% owned Coca-Cola bottler that operates in a number of international markets, for the distribution of Monster in the majority of their markets. We've also made good progress in our discussions with FEMSA, Arca, and other bottlers operating in South America. Our plans to launch Monster in China are continuing to move forward with the Coca-Cola bottlers there. We received preliminary approval from the Chinese authorities for our Monster Energy formula, and are currently awaiting formal approval. We had a successful trial run in China, and are currently engaged in additional trial runs. We are still planning to launch Monster in China late in the second quarter of 2016, but the launch could be delayed by various factors, including regulatory approvals. We've also made good progress in the repositioning, repackaging, and reformulation of many of the Coca-Cola energy brands that were acquired as a result of the Coca-Cola transaction. As announced earlier in the week, we are pleased with our pending acquisition of the concentrated flavor business operated by American Fruits and Flavors, in California for $690 million in cash, subject to adjustment. The acquisition agreement was entered into on February 22, 2016 and we expect to close this transaction by the end of the first quarter of 2016. AFF is our principal supplier of concentrated flavors for our Monster Energy drink line. Our purchases from AFF represent approximately 87% of their sales. In 2015, AFF's total net revenues were approximately $168 million, and its adjusted operating income was approximately – sorry AFF – was approximately $87 million. It is our intention that AFF will continue to operate from its existing premises in Southern California, and will continue to carry on its business of supplying concentrates and flavors to third-party customers as it has in the past. Following the transaction, we will own the vast majority of the proprietary flavors that we use in our Monster Energy drinks including, in particular, the flavors used for our original green Monster Energy drink, Lo-Carb Monster Energy, and Monster Energy Absolutely Zero, the majority of the flavors that are used in our Java Monster and Ultra lines, as well as flavors used in many other Monster Energy drinks. We intend to continue to purchase concentrates and flavors from other flavor suppliers for both our existing products and new products we develop. Put simply, we intend to operate in the same way as we have in the past to ensure that we are able to develop and secure the best flavors in the future and to continue to excel at innovation. The acquisition of AFF will be immediately accretive to the company from the transaction's closing. The location of AFF's facilities in Southern California will facilitate our management of the business and the integration of AFF's business into the Monster organization. We are extremely excited by this acquisition, which aligns us with our principal flavor supplier, and will enable us to expand and secure most of our flavors at an economical cost. Our board has authorized the repurchase of up to an additional $1.75 billion of the company's outstanding common stock, which combined with the current outstanding authorization of $250 million remaining from the September 2015 repurchase program, totals $2 billion. We are planning to move forward with the return of capital in 2016 to our shareholders, pursuant to repurchases which could be effective pursuant to open market transactions, a modified Dutch auction tender offer, accelerated share repurchases, privately negotiated transactions or otherwise, subject to applicable laws, regulations, and approvals. The timing of share repurchases, or a modified Dutch auction tender offer, will depend on a variety of factors, including market conditions and may be suspended or discontinued at any time. Obviously, the company is expected to continue to generate cash from operations. In the fourth quarter, sales in the beverage industry in general, and of carbonated beverages in particular continue to show weakness. However, the sales of Monster Energy products accelerated in January. In the fourth quarter, the company achieved record gross sales of $743.2 million, up 6.7% from $696.3 million in the fourth quarter of 2014. Net sales were $645.4 million, up 6.6% from $605.6 million in the fourth quarter of 2014. Net sales in the fourth quarter were adversely affected by unfavorable changes in foreign currency exchange rates of approximately $19.7 million. Net sales were also adversely affected by the buy-in before the price increase effective August 31, 2015, which had an estimated impact of approximately $11 million by destocking in Spain and South Africa, by existing international distributors in anticipation of our transition to Coca-Cola bottlers in these countries and also, by reduction in inventory in Germany during the fourth quarter, all of which had an estimated impact of $11.8 million. In total, such amounts had a negative impact on net sales of approximately $42.5 million in the fourth quarter. The increase in net sales after adjusting for these items would have been approximately 13.6% as compared to the reported increase of 6.6%. Our original green Monster Energy drink continued to perform well at retail. Retail sales of the Ultra line continue to show good growth in the United States during the fourth quarter, as did our Java Monster line. Gross profit as percentage of net sales was 62.5%, as compared to 54.8% for the comparable 2014 fourth quarter. The increase in gross profit as a percentage of net sales was largely attributable to increased net sales of the Concentrate segment, which has higher gross margins than the Finished Products segment, the disposal of our non-energy brands, and the price increase on our 16-ounce Monster Energy drinks effective August 31, 2015. Distribution costs as a percentage of net sales were 3.2%, as compared to 4.1% in the same quarter last year. Selling expenses as percentage of net sales were 12.9% compared to 9.3% in the same quarter a year ago. Sponsorship and endorsement costs, advertising expenses, principally for strategic brands, merchandise display costs, social media expenses, and commissions were all higher in the fourth quarter as compared to the fourth quarter of 2014. General and administrative costs including distributor terminations as a percentage of net sales for the 2015 fourth quarter were 11% as compared to 9.5% for the corresponding quarter in 2014. Payroll expenses were up $6.1 million due partially to increased staffing in connection with our acquisition of the strategic brands. Stock-based compensation, which is a non-cash item, was $3 million higher in the 2015 fourth quarter as compared to the same quarter last year. Distributor termination costs were $3.3 million higher in the fourth quarter as compared to the 2014 fourth quarter. Regulatory matters and litigation concerning the advertising, marketing and promotion, ingredients, usage, safety and sale of the company's product were $3.1 million higher in the 2015 fourth quarter as compared to 2014 fourth quarter. In addition, other legal costs were $1.8 million higher for the 2015 fourth quarter. On a pro forma basis, giving effect to the items above, operating income for the quarter would have been approximately 31% higher than the reported operating income for the same quarter in 2014. Our effective tax rate increased from 34.7% to 39.5% in the fourth quarter primarily due to the reduction in the domestic production deduction. On an ongoing basis, we expect that our normalized tax rate will be approximately 36.5%. Net income was $138.7 million, compared to net income of $125.3 million during the fourth quarter of last year, an increase of 10.7%. However, due to the substantial increase in share capital, diluted shares increased from 174.9 million to 205.8 million following the issuance of shares to Coca-Cola, diluted earnings per share decreased to $0.67 for the fourth quarter from $0.72 in the 2014 comparable quarter. Turning to the full year results, the company achieved record gross sales of $3.1 billion for the full year, up 9.9% from $2.8 billion in 2014. Net sales were up 10.5% from $2.5 billion to $2.7 billion. Net sales for the year were adversely affected by unfavorable changes in foreign currency exchange rates, totaling $84.3 million for the year. The acceleration of deferred revenue added $39.8 million to net sales in 2015. Gross profit as a percentage of net sales increased to 60% for the year ended December 31, 2015 from 54.4% for the year ended December 31, 2014. Operating income was up 19.6% to $893.7 million from $747.5 million in 2014. Pro forma operating income is adjusted for acceleration of deferred revenue of $39.8 million. Distributor termination costs of $224 million, the Coca-Cola transaction expenses of $15.5 million as well as $161.5 million from the gain on the sale of the non-energy business was $931.9 million, an increase of approximately $23.9 million over 2014. Operations from outside of North America delivered operating income of $51.5 million for the 2015 full year as compared to operating income of $37.8 million for the 2014 full year. Our effective tax rate increased to 38.7% in 2015 from 35.2% in 2014. Net income was $546.7 million, up 13.2% over net income of $483.2 million in 2014. And diluted earnings per share increased 2.4% to $2.84 from $2.77 in 2014. Gross sales to customers outside the United States were $177.1 million in the fourth quarter of 2015 compared to $160 million in the corresponding quarter of 2014, an increase of 10.6%. Net sales to customers outside the United States were $145.3 million in the fourth quarter of 2015 compared to $133.8 million in the corresponding quarter of 2014, an increase of 8.6%. Foreign exchange movements had an unfavorable impact on gross sales of approximately $23.1 million, and our net sales were approximately $19.7 million. Gross sales to customers outside the United States were $713.2 million in 2015, compared to $657.9 million in 2014, an increase of 8.4%. Net sales to customers outside the United States were $580.3 million in 2015 compared to $534.2 million in 2014, an increase of 8.6%. Foreign exchange movements had an unfavorable impact on gross sales of approximately $102.4 million and on net sales of approximately $84.3 million. According to the Nielsen reports for the 13 weeks through January 23, 2016 for all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category including energy shots increased by 9.9% versus the same period a year ago. Sales of Monster grew 10.7% in the 13 week period, while sales of NOS increased 5.3%, and sales of Full Throttle decreased 8.4%. Sales of Red Bull increased 10.1%, sales of Rockstar increased by 21.7%, sales of 5-hour increased 1.6%, and sales of AMP decreased 7.4%. According to Nielsen for the four weeks ended January 23, 2016, sales in the convenience and gas channel, including energy shots, in dollars increased 7.9% over the same period last year. Sales of Monster increased by 8.9% over the same period last year, while NOS was up 2.4% and Full Throttle sales decreased 9.5%. Sales of Red Bull increased by 7.4%, Rockstar was up 19%, 5-hour was up 2.7%, and AMP was down 10.3%. According to Nielsen for the four weeks ended January 23, 2016, Monster's market share of the energy drink category in the convenience and gas channel including energy shots in dollars increased by 0.3 points over the same period last year to 35%. NOS' share decreased 0.2 of a point to 4.1%, and Full Throttle share decreased 0.2 points to 1.1%. Red Bull share decreased 0.2 points to 34.6%, slightly below Monster share. Rockstar share was up 0.8 points at 8.4%. 5-hour share was lower by 0.4 points at 8.4%. And AMP share decreased 0.4 points to 1.8%. According to Nielsen for the four weeks ended January 16, 2016, sales of energy plus coffee drinks in dollars in the convenience and gas channel increased 20.7% over the same period last year. Java Monster was 16.4% higher than the same period last year while Starbucks Doubleshot Energy was 39.7% higher. According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended January 9, 2016, the energy drink category increased 5%. Monster sales were up 5% versus a year ago, in line with the category. Our markets share decreased 0.2 share points to 28.2%. Red Bull sales increased 8%, and its market share increased 1.6 points to 37.3%. Rockstar sales increased 10%, and its market share increased 0.8 points to 18.7%. According for Nielsen for all outlets combined in Mexico, the energy drink category grew 40.7% during the month of December 2015. Monster sales increased 16.4%. Our market share decreased 5.5 points to 26.4%against the comparable period last year. Sales of Burn, one of our acquired strategic brands, increased 19.5%, although Burn's market share decreased 1.1 points to 6%. Red Bull sales increased 13.6%, and its market share decreased by 4 points to 16.8%. Vive 100's market share increased 11 points to 31.3%, while Boost's market share decreased 2.1 points to 13.9%. 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 chain in turn can be materially influenced by promotions that may be undertaken in their 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 in the 13 week period ended December 2015, the OXXO 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 12.7% to 13.5% in Great Britain, from 17.8% to 20.3% in France, from 10.6% to 13.6% in Germany. In the same period, Monster's value share grew from 8.6% to 10.7% in Sweden, from 8.1% to 8.6% in Belgium, and from 5.9% to 6.7% in the Netherlands. Monster's retail market share in value for the 13 weeks ending December 2015 as compared to the same period last year decreased from 18.1% to 15.7% in South Africa, although value sales were higher according to Nielsen. Monster's retail market in value for the 13 weeks ending September 2015 in Spain increased from 21.7% to 23.7%, and in Italy decreased from 11.8% to 11%. According to IRI, Monster's market share in Greece increased in the 13 weeks to the end of December 2015 from 29.7% to 30.5%. I would like to point out that the Nielsen numbers and the 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 December 2015 in Chile, Monster's retail market share in value increased to 20.3% as compared to 14.2% last year, and in Brazil, Monster's market share for the month of November declined from 5.7% to 3.7% as compared to the same period last year. According to Nielsen in the 13 weeks to the end of December 2015, Monster's retail value sales grew 15.8% in Spain, 11.4% in South Africa, and 41.8% in Germany. For the top 20 EMEA markets which account for approximately 92% of EMEA Monster volume, Nielsen reports that in the 13 weeks to the end of December 2015 Monster's retail value sales grew 19.3%. According to INTAGE for the month of December 2015, the convenience store channel in Japan, Monster's market share grew from 32.6% to 38.6%. The launch of Monster Energy Ultra in Japan continues to be a positive driver for the brand. Net sales for the Finished Products segment in the fourth quarter, formerly the DSD segment, but excluding Peace Tea, were negatively impacted by approximately $16 million of foreign currency movements in the fourth quarter, and by approximately $74.1 million for the year. Net sales for the Finished Products segment in the fourth quarter were also adversely affected by the buy-in of approximately $11 million before the price increase on August 31, 2015, and by destocking in the amount of approximately $11.8 million in Spain and South Africa, and a reduction in inventory in Germany as described above. On a pro forma basis, net sales for the Finished Products segment for the fourth quarter, after adjustments for these items, would have increased 8.5% from $574.8 million to $623.9 million in the quarter. On a pro forma basis, after adjusting for foreign currency movements of $74.1 million and $39.8 million of acceleration of deferred revenues, net sales for the Finished Products segment for the year would have increased 10.3% from $2.3 billion to $2.6 billion. Net sales for the company's new Concentrate segment were negatively impacted by approximately $3.7 million of foreign currency movements in the quarter, and by approximately $10.2 million for the year. On a pro forma basis, after adjustment for foreign currency movements, net sales for the Concentrate segment would have been $64.1 million for the quarter, ended December 31, 2015, and $153.5 million for the year. As a result of the Coca-Cola transaction which closed on June 12, 2015, there were no sales for the Other segment during the fourth quarter of 2015 as compared to $30.8 million of net sales in the fourth quarter of 2014. And for the full year 2015, net sales for the Other segment were $60.8 million as compared to $150.4 million in 2014. In Europe, the Middle East, and Africa, net sales in the fourth quarter in euros increased 26.3%, and in dollars increased 10.2% over the same period last year. Gross profit in this region as a percentage of net sales increased from 44.2% in the same period last year to 53.4% during the quarter. For 2015, net sales in euros increased 30.5%, and in dollars increased 8.8% over 2014. Gross profit in this region as a percentage of net sales increased from 41.2% in 2014 to 48.4% during 2015. Despite the destocking issues described earlier, EMEA overall is now operating well, and we have made good strides in achieving increased sales distribution levels and in-store execution, including securing distribution by Coca-Cola bottlers in new countries and territories within the region. The launch of MEGA Monster in 553 ML cans with the resealable lid in limited additional markets in Europe has been successful and is largely incremental to our original Monster 500 ML size products. Additionally, we have continued the launch of a limited number of SKUs in the Ultra line, in a number of countries in Europe with positive initial response. Ultra will be launched in a further 15 markets in Europe in the first half of 2016. Monster sales depletions from our distribution partners to customers in the fourth quarter of 2015 were up 18.9% in EMEA. And in particular, sale depletions experienced double-digit growth in Spain, Germany, and South Africa. In Denmark, France, Germany, Great Britain, Greece, Hungary, Ireland, the Netherlands, Norway, Poland and Sweden, Monster achieved increased sales gains at retail as well as increased market share. In many international markets, where our independent distribution partners anticipated the Monster brand being transitioned to the Coca-Cola network, sales levels were markedly lower compared to last year than sales levels in markets which were already being distributed – we were already being distributed by the Coca-Cola bottler system also as compared to last year. We are pleased with the initial sales and distribution gains following the December launch of Monster in Russia. The rollout of Monster in Russia is currently taking place. In Asia-Pacific, net sales for the quarter increased 52.6% in local currencies, and 37.2% in dollars. For the year, net sales increased 45.1% in local currencies and 27% in dollars. Net sales in Mexico, Central and South America and the Caribbean for the quarter increased 28.8% in local currencies, and 10.7% in dollars. And for the year, increased 29.8% in local currencies and 15.7% in dollars compared to 2014. Monster's sales in Brazil were negatively impacted due largely to the overall difficult economic and market conditions there, together with the uncertainties for distributors relating to the Coca-Cola transaction. In Chile, sales of Monster continue to show good growth. Net sales in the quarter increased 114% over the fourth quarter of last year, and for 2015 increased 29.1% over 2014. In Mexico, net sales for the fourth quarter increased 24.4% in local currency and 5.4% in dollars as compared to the same quarter last year. And in 2015, net sales in Mexico increased 14.2% in local currency and 10.2% in dollars as compared to 2014. In Japan, net sales in the fourth quarter increased 15.3% in local currency and 4.1% in dollars as compared to the same quarter last year. And in 2015, net sales in Japan increased 32.4% in local currency and 13.4% in dollars as compared to 2014. We are moving ahead with production in India and anticipate reentering the market in India later in 2016. As mentioned earlier, we're optimistic that we will be able to finalize agreements with Coca-Cola bottlers in numerous countries in the near future. We're also continuing to evaluate production opportunities with Coca-Cola bottlers both in the U.S. and internationally, which we believe will yield cost reductions. Turning to the balance sheet, cash and cash equivalents amounted to $2.2 billion compared to $370.3 million at December 31, 2014. Short-term investments were $744.6 million compared to $781.1 million at December 31, 2014. Long-term investments decreased $15.3 million from $42.9 million at December 31, 2014. All auction rate securities have now been redeemed in full and are no longer included in either short- or long-term investments. Days outstanding for accounts receivables were 43.2 days at December 31, 2015, and 36.4 days at December 31, 2014. Inventories decreased to $156.1 million from $174.6 million at December 31, 2014. Average days of inventory was 58 days at December 31, 2015, which was slightly higher than 57.4 days of inventory at December 31, 2014. During the 2015 fourth quarter, we launched Ultra Black, which was previously sold last year on a limited time basis to a single convenience and gas chain, but it's now being made available to the general public. In the fourth quarter, we also launched Pipeline Punch nationally. In the first quarter of 2016, we launched Salted Caramel Java Monster, and are in the process of launching our new Gronk energy drink. We are planning to launch additional new products in 2016. Gross sales in January 2016 in dollars were approximately 9.5% higher than in January 2015. In local currencies, gross sales in January 2016 were approximately 12.2% higher than in January 2015. January 2015 gross sales included the old Warehouse division and Peace Tea. 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, our acquisition of AFF is exciting and represents an important milestone for the company through the ownership of the proprietary formulas for our principal products. This transaction will immediately be accretive to the company's earnings. Two, the board has authorized a new repurchase program of up to $1.75 billion of its equity securities, in addition to the $250 million available under the previously authorized $500 million share repurchase program. Once implemented, the effect of this repurchase program will be to substantially reduce the number of shares of common stock outstanding, and thereby enhance earnings on a per-share basis. Three, North American and international gross margins remained healthy and continued to improve. Four, the U.S. Nielsen market statistics and equivalent market statistics for many countries around the world show that the energy category is continuing to grow, and that Monster is invariably growing ahead of the category. Five, the new additions to the Monster family continue to gain momentum and add to the company's sales. We believe that the repositioning of our Juice Monster and Punch Monster lines continue to be positive. Six, we are particularly pleased with our performance in our international markets. Seven, we have successfully transitioned a number of countries to Coca-Cola bottlers and we have reached an advanced stage to transition many more markets to Coca-Cola bottlers from the second quarter of 2016. I'd like to open the floor to questions about the quarter and the year. Thank you.

And our first question comes from Vivien Azer from Cowen. Your line is now open. Vivien Azer - Cowen & Co. LLC: Hi, thank you very much for taking the question. I have just one point of clarification. Hi. The $42.5 million impact, was that the global number or was that just international? Rodney Cyril Sacks - Chairman & Chief Executive Officer: $42.5 million I believe is (34:00) it relates to international. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Yes, it does. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Yeah. Relates to international. Vivien Azer - Cowen & Co. LLC: That's just international. Perfect. Thank you for that. And so my bigger picture question, clearly, the underlying health of the business is just fine, and there's a lot of moving pieces in terms of this transition, but can you help give us a sense of the timeline of when we might expect some of this destocking and distributor transition disruption to abate, please? Thank you. Rodney Cyril Sacks - Chairman & Chief Executive Officer: I just want to clarify, that $42.5 million does include the impact of destocking. Yeah, which is then global. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Not the destocking, the buy-in. Rodney Cyril Sacks - Chairman & Chief Executive Officer: The buy-in. Sorry. It does include the buy-in. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: It does include the $11 million from that buy-in. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Yep, so I want to just clarify that. Sorry, could you repeat your follow on question? Vivien Azer - Cowen & Co. LLC: Certainly. So lots of moving pieces, underlying business remains healthy, but the disruption is clearly a little bit painful, so can you give us a sense for how you see that progressing, and then we might be through that? Rodney Cyril Sacks - Chairman & Chief Executive Officer: Okay. We are clearly having a choppy time just getting everything implemented and in line. There are a lot of moving pieces all over the world. And we believe that pretty much we should be done with a lot of the transitions by – we hope, by the end of the second quarter or at a position where we've at least negotiated the transitions, and are starting to implement them. That's been part of the uncertainty. Now that uncertainty will start being removed. We believe that the actual results will start flowing through once we've transitioned markets, and that does take some time. But we think that will be – we'll start seeing the impact of that through the second half of the year. But – so we really just believe it's been pretty much a year of transition for us from when we originally closed the transaction, and we are, as we've indicated throughout the call, at an advanced stage of our discussions with really the principal Coca-Cola bottlers around the world. So we do anticipate we will start seeing some really rapid advances in that regard. Vivien Azer - Cowen & Co. LLC: Thank you very much.

And our next question comes from the line of Bill Chappell with SunTrust. Your line is now open.

Thanks. Quickly, two things. One, can you give us a little more behind the thought process on the size of the share repurchase? Why not more? Why this? And then, also on the AFF acquisition yesterday, can you give us a little idea, I'm just trying to understand, should we just bake in that whole $90 million of operating income that you'll receive or is there some since they were a supplier, do you not get all of that? I mean, how do we model that going forward? Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Bill, maybe I can answer that. Hi.

Good afternoon. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: On your first question, I think you know that we are conservative folk when it comes to borrowing, and we took a decision, and the board took a decision that we would rather maintain a cash-positive situation, hence the amount of the buyback. So the results of the buyback will mean that we will not have to go into borrowings. So that's the answer to your first question. The answer to your second question is the $87 million operating income that we discussed is the operating income in 2015. Some of the customers may, in fact, choose not to continue with the company. But we account for 87% of the company's business. And the business that we place with AFF is indeed profitable to them. So as you model, I think a good chunk of that $87 million could be taken into enhancing operating income for the consolidated organization. But as results of the other 13%, it's really too premature to say. But the number will be determined in due course.

And our next question comes from the line of Mark Astrachan with Stifel. Your line is now open. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Hey, good afternoon, guys. So the 9.5% gross sales in January, just want to clarify. So that includes the new Coke Concentrate acquired business, but also laps the old business, which includes the Warehouse business. Is that correct? Rodney Cyril Sacks - Chairman & Chief Executive Officer: That is correct. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Great. And then secondly, just trying to understand again the supply-demand reported versus, and demand metrics here, I don't get it. I mean, I understand there's moving parts here, but last quarter you killed numbers versus expectations. The June quarter was almost flat. This quarter, again, a miss relative to people's expectations. I get you don't give guidance. But, I guess, is there anything that you can help us sort of understand that makes us believe that the end demand per what we see in the scanner data in the U.S., what we hear from distributors outside of the U.S., is still consistent with how you believe your end demand is actually looking? And, obviously, then reconcile that with what you reported from a top line standpoint in the quarter. Rodney Cyril Sacks - Chairman & Chief Executive Officer: I think that you've got to look at the – and that's a very good indicator, that's why we spent time on the call dealing with the Nielsen numbers, and we've actually also referred to some of the sales-out numbers from our distributors because that is more indicative of your ongoing and sort of more stable demand for our product. So Nielsen are just – as you know is pure scanned data, and therefore, that's the demand that's happening. And then your demand from retailers, unless there is a big promotion, that is also less choppy than our demand. Our demands are really – clearly, our demand for our products from our customers is choppy and that choppiness has been exacerbated during the last probably 12 months or so. But because of all these announcements, because of the changes, different bottlers or distributors have different policies in holding inventory. Some bolt up extra inventory because they would just – I think anticipate it being canceled, and having their own minds, that somehow that would give them a longer period to sell, or different opportunities to sell, and then you've got to deal with that inventory situation. And there were a lot of independent – there were independent bottlers, and that's part of the issues, and there was no consistent pattern. And that really is what has happened. And so, obviously, we can only report our revenues as they are and as they come into us, and we try and match them as well. And so, we believe that the – literally if you're looking to the trends, the more important trends are not our reports over the last three quarters or four quarters, but it is the Nielsen numbers which are showing consistent numbers, and showing good growth both in the U.S. and internationally. And that's what keeps us excited and makes us comfortable that as to the direction of our brand, and our brand is continuing to grow. And so as soon as we are able to actually get through all these transitions, get rid of the uncertainties, we will see long term growth that we think a healthy growth for the brand and for the company.

And our next question comes from the line of John Faucher with JPMorgan. Your line is now open.

Yes, thank you. Good afternoon. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Good afternoon.

I want to talk a little bit about the Concentrate revenues, and Hilton, you talked about this before that the numbers that we got in the filings were pro forma numbers, but it seems as though the Concentrate numbers continue to come in a little bit lower than – well, not a little bit this quarter, a lot lower than what I would have anticipated there. Is there – is that FX? Is that volume? Is that inventory adjustments at the bottlers as you look to transition to this new model? Is there something going on in terms of the Concentrate revenues versus the pro forma numbers that we got in the filings? Thank you. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Well, some of it was indeed forex, as we highlighted that number on the call. Some of it was that some of the international distributors – international bottlers were, in fact, overstocked as we went into the transaction really to ensure that they would not miss a beat with regard to production. So, some of it is that. Some of it is indeed the fact that some of the KO brands have been falling off in market share, and that is something that we are addressing. We spoke earlier that we're repositioning a number of their brands – or a number of our brands. We're repackaging them, and we have a number of marketing initiatives going with regard to those brands. So a lot of it is a lot of all of that. But, in essence, I think we remain satisfied with the acquisition of the strategic brands, and we remain satisfied with the profitability that those strategic brands are generating to us relative to the purchase consideration that we paid. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Yeah. And we are starting to see positively – also I think there was a little bit of a drop-off in morale from the bottlers for some of those brands in some of the areas. And they hadn't seen sort of the levels of investment or a clear direction or positioning for those brands. We are taking steps to deal with that now and to address those issues. We've changed some of the marketing and the focus and the positioning of the brands and these things does take time to turn this around in different regions of the world. But we are doing that, and we've got into it now. We're introducing some new flavors. And as Hilton indicated, our packaging has changed on some of them and we're continuing to make changes. But most important, we've actually decided on some strategic positioning for the brands. And again, those are being changed. I mean in many cases, one of the higher costs we had was, for example, advertising. There was an advertising campaign that we committed in order to, in the best interest of the brands, we continue to be responsible for it. It was committed before we took over. But ultimately, we don't believe that that was really beneficial for the brand, and it's not a direction we're going on, so we've changed those directions. So these are the changes that we are making, and long-term, we believe we will stabilize and continue to grow these brands, but in slightly different ways. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: I think I also may have mentioned it, and if I didn't, I should say that some of those brands also did not benefit from the same level of marketing contribution that they had in the past. So they definitely, as we moved through the transition, there was a reduction in marketing expenditure on those brands.

And our next question comes from the line of Nik Modi with RBC Capital Markets. Your line is now open.

Yes, thanks. Just two questions from me. On the acquisition, does this flavor supplier, are they dealing with some of these new breakthrough products that you've been discussing, the three to four new products? Just wanted to get some clarity on that. And then the bigger picture question is when you think philosophically about how you launch into a market, should we think about it in a similar template on how you handle the U.S. in terms of kind of SKU by SKU, flavor by flavor, or do you think you'll go with a much broader SKU set as you enter some of these global markets? Thanks. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Just perhaps dealing with the SKU set, there isn't a one-formula-fits-all. In some countries, we'll launch with two or three flavors, but not a massive array of 10 flavors. In other countries, we'll do one or two flavors. And then obviously try and seed up our principal Green Monster, that's the flagship, that's where all our marketing around the world goes to, and get that on the shelf. And then basically expand from there as quickly or as slowly as we need in order to make sure that we're able to get our products on the shelf and they're able to sustain a satisfactory sell rate. And so that is (47:24) and that's what we've done throughout Europe and everywhere else. We started with two flavors, I think it was Green and then Lo-Carb, and then we introduced a juice, and then we introduced another. And that is how we've continued to go. In some of the Ultra flavors in Europe, we took the decision to actually introduce two or three at the same time as a line. So again, it's flexible, and it depends on where we see the demand and where we see the ability to secure shelf space for the products. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: And then the second question – or the first question I think was is this flavor company involved in developing new flavors for us for new products? And the answer is yes. The other point I wanted to make earlier to Bill Chappell, and I'm just going to make it on the call, is that we spoke about the total net revenues of $168 million approximately from AFF. Please remember that as we go forward, a significant part of that will flow through in cost of sales and gross margin rather than in additional revenues, because on a consolidated basis, we will not reporting those sales as sales. They'll come into our financials as a reduction in cost.

This concludes Q&A for today. I would now like to turn the call back over to Mr. Sacks. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Thank you very much. One of the things I would like to perhaps just stress on the call is I think there've been one or two questions that were just posed to us as to why we did the transaction now and timing and we have other things. But I just wanted to say that this was an acquisition and the strategy behind buying and getting ownership of our own flavors was something we considered very important and valuable as far back as a decade ago. And we have made approaches repeatedly, we have spent time trying to negotiate. And really it came about last year that I think the owner was approaching getting I think close to his 80th birthday, and for the first time after an approach, they decided that they were receptive, the family, to an approach. And obviously, we took the opportunity when we could. It wasn't just spur-of-the-moment. This was something we've been wanting to do for a very long time. And then, there has been some other suggestion asked whether this is – people if we could expect more acquisitions along this line. We don't think so. We're not going to say, give you an emphatic no on anything. But certainly that is not our intention to get into the flavor business or concentrate business. We're not intending to expand it. This clearly was a very strategic acquisition for a supplier of almost all of our products. And for us, we're able to lock up pretty much most of these revenues, or our revenues, as we sell. As we go forward, every additional case of Monster we sell, that will be additional margin that we will able to basically drop to our bottom line. So we see this as a very low risk and a very strategic acquisition. It's based in California, it's easy to manage. It's not a massive staff. It's not a very capital intensive business. It has a very low capital base, a very low working capital requirement. It was also strategic we felt to enable our flavor supplier to grow internationally with us. As a private company, they had faced some challenges in many countries and actually having the resources and the expertise to have their flavors get through the regulatory process in these countries and be able to import ingredients, and particularly ingredients and supply them in country. And not being an international base, but yet their flavors were obviously very, very important and key for us. So we believe that by aligning ourselves with them, we will be able to facilitate and help them through, on the regulatory side. We have quite a deep bench of staff here who understand regulatory issues and legal issues, or in the regulatory area. We also obviously, as it's important for us, as we expand into many more countries and many more distant places, we want to really have the opportunity to put our best foot forward and have these key flavors come from this supplier and not have to resort to alternative suppliers. But that being said, obviously we do also still intend to continue to work with our existing suppliers, because we want everybody to – we want to obviously ensure that we're still able to get cutting edge technology, cutting edge flavors, have everybody stay competitive whether it's on the AFF side or our independent suppliers side. And so for all those reasons we do believe this transaction to be very, very important for us going forward. Thanks, everybody, for your continued interest in the company. We continue to obviously believe in the company and our growth strategy and are committed to continuing to develop and to differentiate our brands and to expand the company, both at home and abroad and in particular, to expand distribution of our products, including the strategic brands, through the Coca-Cola bottler system internationally. We are particularly excited by the new opportunities that we have going forward with our robust portfolio, together with our newly acquired strategic brands. Thank you very much for your attendance.