Monster Beverage Corporation (MNST) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Monster Beverage Corporation's Second Quarter 2016 Financial Results. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session with instructions following at that time. As a reminder, this conference call is being recorded. Now, I'll turn the conference over to your host, Mr. Rodney Sacks, Chairman and CEO. Please begin. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Thank you. 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'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 and Exchange Commission, including our most recent annual report on Form 10-K filed February 29, 2016, as well as our most recent report on Form 10-Q filed April 29, 2016, 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 and designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated August 4, 2016. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. As you are, no doubt aware, sales in the beverage industry in the second quarter continued to be weak on a global basis. We believe that it would be helpful to shareholders on this call to address our results on an adjusted basis after giving the effect to a number of selected items in addition to and not in lieu of our GAAP results. First, the results for the second quarter of 2016 were positively impacted by the accelerated recognition of deferred revenue of $5 million and negatively impacted by the modified Dutch tender stock repurchase expenses of $1.5 million, AFF transaction expenses of $3.6 million, as well as distributed termination costs of $25.3 million, resulting in a net negative impact on operating income in this quarter of $25.4 million. Second, net sales in the 2016 second quarter were adversely affected by unfavorable changes in foreign currency exchange rates of approximately $4.1 million. Third, while the results for the comparable second quarter of 2015 were negatively impacted by distributed termination costs of $12.2 million and the Coca-Cola transaction expenses of $11.5 million, the results for that quarter were positively affected by the sale of Monster's non-energy business for $161.5 million during the quarter, which resulted in a net positive impact on operating income for such period of $137.7 million. Fourth, we accounted for the AFF transaction in accordance with Financial Accounting Standards Board Accounting Standards Codification 805 for business combinations. The effect on contribution margin from the AFF raw material cost savings was minimal in the three months ended June 30, 2016, as inventory on hand prior to the AFF transaction, as well as the inventory acquired in the AFF transaction, were recorded at fair value and were not recognized through cost of goods sold until the end of the 2016 second quarter. As of June 30, 2016, the company's inventory on hand is recorded at the cost to AFF. As a result, the full extent of the raw material cost savings following the AFF transaction will be recognized in subsequent quarters. Had these savings been recognized in full in the current quarter, the raw material cost savings would've been approximately $24 million. In respect of AFF's sales to third-party customers, after recognizing the fair value adjustment to inventory, $0.6 million was recorded as contribution margin in the quarter. Fifth, our modified Dutch auction tender share repurchase was completed on June 15, 2016 and we did not benefit from the lower number of shares in the quarter. Consequently, we believe that these adjustments need to be taken into account in reviewing our results for the quarter. Let me turn to the results for the six months ended June 2016. The results for the six months ended June 2016 were positively impacted by the accelerated recognition of deferred revenue of $5 million and negatively impacted by stock repurchase expenses of $1.6 million, AFF transaction expenses of $4.5 million, as well as distributed termination costs of $28.7 million, resulting in a net negative impact on operating income in such period of $29.8 million. B, net sales in the first six months of 2016 were adversely affected by unfavorable changes in foreign currency exchange rates of approximately $16.4 million. C, the results of the comparable six months of 2015 were negatively impacted by distributed termination costs of $218.2 million and the Coca-Cola Company transaction expenses of $15.1 million, but the results were positively affected by accelerated recognition of deferred revenue of $39.8 million and the sale of Monster's non-energy business for $161.5 million, which resulted in a net negative impact on operating income for such period of $32.1 million. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: There was a gain on the sale of the Monster non-energy business. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Yes. Yes. Our discussion earlier regarding the AFF raw material cost savings during the quarter is applicable in the same manner and to the same extent to the first half of 2016. Consequently, the full extent of the raw material cost savings following the AFF transaction will be recognized in subsequent quarters. We are continuing to make good progress in the implementation of our strategic alignment with Coca-Cola bottlers worldwide. We have successfully concluded negotiations with many Coca-Cola bottlers in additional countries and are planning to launch Monster with those bottlers in most of their international markets in the near future. In the second quarter, we commenced distribution of Monster with the Coca-Cola bottlers in Peru. We also commenced distribution of Monster with Coca-Cola bottlers in Mexico and Guatemala earlier in the third quarter and are planning to commence distribution in Colombia and Chile later in the third quarter. In the fourth quarter, we are also planning to commence distribution of Monster with the Coca-Cola bottlers in Brazil, Central America and Caribbean. We commenced distribution of Monster with Coca-Cola bottlers in Albania, Iceland, Serbia and Macedonia in the second quarter and anticipate commencing distribution of Monster in Ukraine and Montenegro in the third quarter. We successfully transitioned Monster to Coca-Cola bottlers in South Africa in July and commenced distribution of Monster with additional Coca-Cola bottlers in Africa in the second quarter. Over the third quarter, we are planning to launch Monster with Coca-Cola bottlers in eight additional African countries, with a number of additional countries in Africa, mainly in North Africa, to follow in the fourth quarter. We are making good progress in Nigeria with regard to both product registration and co-packing arrangements, which involves the installation of new equipment specifically designed for the production of Monster. We are targeting the fourth quarter for the launch of Monster in Nigeria. We've also completed the registration of our products in Turkey and many other Middle Eastern countries and are proceeding with the launch of Monster through Coca-Cola bottlers in Turkey and a number of Middle Eastern countries in the third and fourth quarters, as well as a number of other countries in the fourth quarter of 2016. In the second quarter, we commenced distribution of Monster with Coca-Cola bottlers in Australia, New Zealand and Singapore. We are proceeding with the launch of Monster through Coca-Cola bottlers in a number of Central Asian countries in the fourth quarter of 2016. Our plans to launch Monster within the Coca-Cola system in China are continuing to progress well and we are currently engaged in the completion of our marketing and promotional plans in connection with the launch. Although we have reached an advanced stage of negotiations, we have still not reached final agreement with certain of the Coca-Cola bottlers in China. Subject to agreement on the outstanding terms, we are on schedule to launch Monster in China, commencing with certain key areas on a progressive basis at the end of the third quarter and/or early in the fourth quarter. We are currently awaiting approval for our product in India. We are making good progress in the repositioning, repackaging and reformulation of many of the Coca-Cola energy brands that we acquired as a result of the Coca-Cola transaction. As previously reported, we successfully completed our acquisition of the concentrated flavor business operated by AFF on April 1, 2016. While the acquisition and ongoing business activities of AFF have been in accordance with expectations, we did not account for the full benefits of the transaction during the quarter as previously discussed. Had we been able to account for the full benefits of the acquisition in determining our cost of goods for the quarter, our cost of goods would have been reduced by approximately $24 million in the second quarter, resulting in a commensurate increase in our gross profit, less a minimal reduction that was recorded in the quarter. We believe that from the third quarter onwards, we will be able to utilize the full benefits of the lower cost of goods for AFF flavors. The company commenced a tender offer in May to purchase up to $2 billion in value of its common stock through a modified Dutch auction tender offer. The tender offer resulted in the company's purchase of approximately 12.8 million shares at a price of $156 per share. The company accepted tendered shares on June 15, 2016 and as a result, was unable to obtain the full benefit of the reduction in its weighted average basic and diluted share capital for the full quarter. Had the repurchase been in effect for the full quarter, the repurchase would've increased net income per share on our basic and diluted share capital by approximately $0.05 per share for the quarter. On August 2, 2016 the company's board of directors authorized a new repurchase program for the repurchase of up to $250 million of the company's outstanding common stock. There are limited sales of finished products in the strategic brands acquired from Coca-Cola. As a result, we have decided to rename our segments to address the products sold in those segments. Our ensuing discussion compares our 2016 second quarter results with our 2015 second quarter results after adjustments for certain items in both quarters previously described, namely acceleration of deferred revenue, distributed termination costs, expenses related to, one, the TCCC (12:40) transaction, two, the AFF transaction and three, the share repurchase, as well as the gain on the sale of Monster's non-energy business. These adjustments are set out in the table in our earnings release and may be helpful to participants to refer to. I would like to point out that such adjustments exclude any effects relating to, A, the manner of accounting pursuant to the AFF transaction in the quarter as opposed to future quarters, and B, the increased number of shares in the quarter due to the timing of the modified Dutch auction tender offer. In the second quarter, the company achieved record gross sales of $940.9 million, up 19.1% from $789.9 million in the second quarter of 2015. Net sales were $822.5 million, up 18.6% from $693.7 million in the second quarter of 2015. Net sales in the second quarter were adversely affected by unfavorable changes in foreign currency exchange rates of approximately $4.1 million. Gross profit as a percentage of net sales was 62.4% as compared to 56.9% for the comparable 2015 second quarter. The increase in gross profit as a percentage of net sales was primarily attributable to the Strategic Brands segment, which generally has higher gross margins than the Monster Energy Drinks segment; two, no sales in the three months ended June 30, 2016 of the brands disposed of as a result of the TCCC (14:14) transaction on June 12, 2015, previously comprised of the majority of the former warehouse segment in the Peace Tea brand, which generally had lower gross margins than the Monster Energy Drinks segment; three, lower costs of certain raw materials; and four, the price increase for our 16-ounce Monster product which was implemented at the end of August 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 a percentage of net sales were 11.3% compared to 10.4% in the same quarter a year ago. Commission to Coca-Cola and increased sponsorship and endorsement costs largely related to the strategic brands were the two principal reasons for the increase in selling expenses. Premiums were also higher in the quarter. General and administrative costs as a percentage of net sales were 9.7% as compared to 9.5% in the same quarter last year. Payroll expenses were up $5.1 million, primarily to support the strategic brands that we acquired from Coca-Cola, and stock-based compensation on a non-cash item was $3 million higher, but was partially offset by a reduction in payroll taxes of $3.4 million. Distributor termination costs were $25.3 million in the second quarter, as compared to $12.2 million in the 2015 second quarter. Regulatory matters and litigation concerning the advertising, marketing, promotion, ingredients, usage, safety and sale of the company's product were $3.8 million in the 2016 second quarter, as compared to $3.5 million in the 2015 second quarter. Our effective tax rate in the quarter decreased from an adjusted 37% in the 2015 second quarter to 35.3% in the 2016 second quarter, primarily due to the domestic production deduction. On an ongoing basis, we expect that our normalized tax rate will be approximately 36%. Net income was $203 million in the 2016 second quarter compared to net income of $143.2 million in the 2015 second quarter, after taking into account the adjustments previously discussed, an increase of 41.7%. Net sales to customers outside the United States were $200.2 million in the 2016 second quarter compared to $151.3 million in the corresponding quarter in 2015. Net sales to customers outside the United States were higher in local currencies by approximately $4.1 million. Included in reported geographic sales are our sales to the company's military customers, which are delivered in the United States and transshipped to the military and their customers overseas. According to the Nielsen reports for the 13 weeks through July 23, 2016, all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 4.3% versus the same period a year ago. Sales of Monster grew 7.2% in the 13-week period, while sales of NOS decreased 0.4%, sales of Full Throttle decreased 8.8%, sales of Red Bull increased 2.3%, sales of Rockstar increased 10.5%, sales of 5-Hour decreased 3.4% and sales of AMP decreased 25.8%. According to Nielsen for the four weeks ended July 23, 2016, sales in the convenience and gas channel, including energy shots in dollars increased 2.5% over the same period last year. Sales of Monster increased by 5.9% over the same period last year, while NOS was down 5.2% and Full Throttle sales decreased 7%. Sales of Red Bull increased by 0.3%, Rockstar was up 7%, 5-Hour was down 2.7% and AMP was down 34.1%. According to Nielsen, for the four weeks ended July 23, 2016 Monster market share of the energy drink category in the convenience and gas channel, including energy shots in dollars increased by 1.1 points over the same period last year to 35.3%. NOS' share decreased 0.3 points to 3.5% and Full Throttle's share decreased 0.1 point to 0.9%. Red Bull share decreased 0.8 points to 35.5%. Rockstar share was up 0.3 of a point to 7.9%. 5-Hour share was lower by 0.4 of a point to at 8.2% and AMP share decreased 0.8 of a point to 1.4%. According to Nielsen, for the four weeks ended July 23, 2016 sales of Energy Plus Coffee drinks in dollars in the convenience and gas channel increased 20% over the same period last year. Sales of Java Monster were 14.2% higher than in the same period last year, while sales of Starbucks Double Shot Energy were 28.9% higher. According to Nielsen, in the convenience and gas channel in Canada for the 12 weeks ended June 25, 2016, the energy drink category decreased 4%. Monster sales decreased 2% versus a year ago. Our market share increased 4 share points to 28.2%, Red Bull sales decreased 3% and its market share increased 0.4 points to 38.6%, Rockstar sales decreased 8% and its market share decreased 0.6 points to 18.6%. According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 36.4% during the month of June, Monster sales increased 4.2%, our market share decreased 7.6 points to 24.5% against the comparable period last year, sales of Burn, one of our acquired strategic brands increased 1.8%, although Burn's market share decreased 1.7 points to 4.9%. Red Bull sales decreased 14.9% and its market share decreased by 7.9 points to 13.1%. Vive 100's market share increased 20.2 points to 41.8%, while Boost's market share decreased 4 points to 10%. The Nielsen statistics for Mexico cover single month, 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, in the 13-week period ended June 2016, 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 12.3% to 13.8% in Great Britain, from 18.7% to 22.7% in France, from 11.4% to 14.5% in Germany, from 21.6% to 24.8% in Spain, from 8.9% to 10.3% in Belgium, from 8.6% to 10.5% in Sweden, from 5.9% to 10.7% in Norway, from 9.7% to 11.7% in the Czech Republic and from 6% to 7.4% in the Netherlands. According to IRI, Monster's market share in Greece increased for the 13 weeks prior to the period ended June 2016 from 27.2% to 27.4%. For the 13-week period ended May 2016 according to Nielsen, Monster's retail market share in Ireland grew from 8.2% to 9.6%. Monster's retail market share in value decreased, however, from 16.7% to 13% in South Africa. 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. We also note that South Africa was one of the markets that transitioned to the Coca-Cola bottlers at the beginning of July. According to Nielsen, Monster's retail market share in value in Chile increased to 22% in May 2016 compared to 15.6% last year and Monster's market share in Brazil declined from 3.9% to 2.5% in June 2016, as compared to the same period last year. In South Korea, Monster's retail market share in value increased from 10.8% to 22.3% in June, compared to the same period last year, and according to INTAGE, Monster's market share in the convenience store channel in Japan grew from 32.7% to 39.2% in June of 2016. Net sales for the Monster Energy Drinks segment in the second quarter were negatively impacted by approximately $2.6 million of foreign currency movements. Net sales for the Monster Energy Drinks segment for the second quarter of 2016 increased 13.4% from $651.2 million to $738.5 million from the comparable period last year after the adjustments described above. Net sales for the company's Strategic Brands segment were negatively impacted by approximately $1.5 million of foreign currency movement in the quarter. Net sales for the Strategic Brands segment were $77.4 million for the second quarter, as compared to $13 million in the same quarter last year. Net sales in EMEA in the second quarter of 2016 in dollars were 33% higher than in the same period last year. In local currency, net sales in the region were 30% higher than the same period last year. Gross sales were 31% higher in dollars and 27% higher in local currencies. Gross profit in this region, as a percentage of net sales, increased from 46.4% in the same period last year to 50.8% during the 2016 second quarter. EMEA sales continued to be negatively impacted during the quarter by supply disruptions encountered by CCE in Great Britain, Monster's largest market in EMEA, during the first quarter that partially carried over to the second quarter, following the implementation of new software. Monster's continuing to gain momentum and increased market share in Europe. In particular, in Germany, France, Spain, Great Britain, Belgium, Sweden, Norway, the Czech Republic and the Netherlands, Monster achieved sales gains and continued to increase its market share. However, growth in South Africa was negatively impacted due to anticipated transition to Coca-Cola bottlers, which took effect from July 4, 2016. We are pleased with the launch of the Monster Ultra line in the EMEA region, which is now available in 19 European countries and was launched in South Africa in July. We anticipate that the Ultra line will be sold in almost all of our Western European markets by the end of this year. In Asia-Pacific, net sales in the second quarter increased 69.8% in dollars and 64.6% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 30.9% in the same period last year to 46.1% during the 2016 second quarter. In Japan, net sales in the quarter increased 20.1% or 10.3% in local currency as compared to the same quarter last year. We continue to experience strong performance in Japan. In South Korea, net sales increased 170% or 188.8% in local currency, as compared to the same quarter last year. In Oceana, which includes Australia, New Zealand, Tahiti, French Polynesia, New Caledonia and Guam, net sales increased 330% or 339.7% in local currencies, as compared to the same quarter last year. And in Singapore, net sales increased 81% or 83.7% in local currency as compared to the same quarter last year. As previously mentioned, we are moving ahead with the planning for local production in India with a view to reentering the market later in 2016. In Latin America, which includes Mexico and the Caribbean, net sales in the second quarter increased 0.6% in dollars and increased 9.6% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales increased from 46.2% in the same period last year to 50% during the 2016 second quarter. Net sales decreased in Brazil, largely due to the overall difficult economic and market conditions, together with the ongoing uncertainties for our distributor relating to the Coca-Cola transaction and the anticipated transition of Monster to Coca-Cola bottlers, which is now being set for November 1. In Mexico, net sales decreased in part due to changes in foreign currency exchange rates, customer inventory destocking and the uncertainty relating to the Coca-Cola transition. However, as reported by Nielsen, Monster's sales at retail in Mexico grew in the quarter. In Chile, net sales in the quarter increased 2.1% in dollars or 11.2% in local currency, as compared to the same quarter last year. As mentioned earlier, we are optimistic that we will be able to finalize agreements with Coca-Cola bottlers in numerous countries in the near future. We are 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 $434.8 million at June 30, 2016 compared to $2.18 billion at December 31, 2015. Short-term investments were $44.3 million compared to $744.6 million at December 31, 2015. Long-term investments decreased $0 million from $15.3 million at December 31, 2015. Accounts receivable increased to $465.7 million at June 30, 2016 from $353 million at December 31, 2015. Days outstanding for accounts receivables were 44.9 days at June 30, 2016 compared to 43.2 days at December 31, 2015 and 42.6 days at June 30, 2015. Inventories increased to $174.4 million from $156.1 million at December 31, 2015. Average days of inventory was 50.7 days at June 30, 2016, which was lower than the 58 days of inventory at December 31, 2015 and the 54.4 days at June 30, 2015. As announced at our annual shareholder meeting, we are continuing with our plans to launch Mutant, an exciting new beverage that will be positioned as refreshment energized late in September 2016. As previously announced, we also have additional new products planned for production later this year, and are working on additional new products that we are planning to introduce early in 2017. We estimate July 2016 gross sales on a foreign-exchange adjusted basis to be approximately 2% higher than in July 2015. In this regard, we point out that, one, in the U.S. and several countries, we had two less selling days this year compared to last year, a reduction of 10% in selling days, which will be recognized in August. Two, according to Nielsen, for the four weeks ended July 23, 2016 for all outlets combined, namely convenience, grocery, drug and mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 3.8% versus the same period a year ago, while sales of Monster grew 7.5% in the same period versus a year ago. Three, we caution again that sales 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, such as the upcoming Call of Duty promotion, distributor incentives, as well as shifts in the timing of production in some instances where our bottlers are responsible for production and unilaterally determine their production schedules, which affects the dates on which we invoice such bottlers. And four, for the reasons and factors just discussed, we reiterate that sales over a short period such as a single month should not necessarily be imputed to or regarded as indicative of results for a 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. We believe that we'll be able to utilize the full benefits of the transaction through a reduction in operating costs commencing with the third quarter, and that this transaction will be accretive to the company's earnings. Two, North American and international gross margins remain healthy and continue to improve. Three, the U.S. Nielsen market statistics and equivalent market statistics from many countries around the world show that the energy category is continuing to grow, and that Monster is generally growing ahead of the category. Four, the new additions to the Monster family continue to gain momentum and add to the company's sales. Five, we're excited about the prospects for our new Mutant beverage, which we are planning to launch late in the third quarter. Six, we are particularly pleased with our performance in our international markets. And seven, finally, we have successfully transitioned additional international countries to Coca-Cola bottlers, and we have reached an advanced stage to transition many more markets to Coca-Cola bottlers in the second half of 2016. I would like to open the floor to questions about the quarter and the year. Thank you.

Thank you, ladies and gentlemen. Our first question is from Judy Hong of Goldman Sachs. Your line is open. Judy E. Hong - Goldman Sachs & Co.: Thank you. Hi, everyone. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Hi. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Hi, Judy. Judy E. Hong - Goldman Sachs & Co.: So first question is just looking at the U.S. trend. I guess the gross sales number in July, I know you called out the less shipping day issue, but just broadly, it seems like maybe trends are a little bit softer in the measured channel data. So first, what do you think is driving that? Secondly, how much is the non-measured, the non-traditional channel, really adding to the growth, because it looks like the second quarter U.S. number for your DSD business actually came in pretty healthy. And then my second question is just on Latin America. It sounds like you're making progress with the bottlers there in Mexico and Brazil, and just trying to get a sense of, is this more of a staged transition, where you're going into certain regions within that country with one bottle and then you roll out to other bottlers? Or how much of this could really have an impact in the more near-term? Thanks. Rodney Cyril Sacks - Chairman & Chief Executive Officer: We got to get you to start asking single questions, because our memory is not good enough to have all six of them all answered. Judy E. Hong - Goldman Sachs & Co.: It's really two. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Two, but the two gets subdivided into categories. I'm not quite sure how many they are. But okay. Just going back to what, I think, everybody has noticed that there's been a slight decline in the monthly or 4-week or 13-week numbers coming out of Nielsen for the category. And you saw that in the numbers, as we indicated earlier now, and I think, Judy, you published numbers over the past couple of months as well, and it showed there has been a decline. Monster has grown ahead – is growing ahead of the category, which I think is the important news, and we're continuing to take share, and that's in all the major channels. What has been quite interesting is that part of our growth has been coming from the other major channels, traditionally or historically, we sort of grew more in the convenience channel, and we're now starting to grow – we were underrepresented in grocery and drug and some of the other independent channels, and we are starting to pick up higher growth in those channels. So if you look at our Nielsen numbers for convenience and then you look at all measured, we're actually growing more in all measured than the convenience. We still believe that the trends are healthy for Monster. If we look at the gross sales, the key product in the gross sales, Monster Green, is still continuing to be positive. We are getting good traction in the Ultra line in the U.S. and internationally, as I indicated earlier in the call in Europe. And then generally, we are getting growth again in lines that had sort of leveled off a little bit like Rehab and the juice lines, they're both in growth again. And obviously what's quite exciting is the Java line; in fact, in the last 4 weeks, the Java line generally is up at a higher growth rate than it has been reported and has been sort of in the last quarter. So that's where we see the numbers. Obviously, the non-measured channels are also growing. Wal-Mart has been – is a big – an important customer for us, and those channels are growing. And that's why even in relation to July, I did want to mention that we looked at the all measured channels for the 4 weeks because that continues to grow at 7.5%. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Judy, there's two points I would like to make. Firstly, the benefit of the Coca-Cola transaction is, in fact, in the drug and retail channels, as well as in the non-measured channels, and we are making significant progress with the Coca-Cola organization in the non-measured channel. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Yes. Then, Judy, just going to your second question. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Which one of the two questions – the two remaining questions do you want answered first, Judy? Rodney Cyril Sacks - Chairman & Chief Executive Officer: (38:07)

Pardon me, Judy. Judy E. Hong - Goldman Sachs & Co.: Hello?

Yes. Your line is open. Judy E. Hong - Goldman Sachs & Co.: Okay. Sorry. Can you hear me now? I think I was cut off from the queue. I think I'm still mute. Oh, am I on? Okay, because I can't hear. Anyway, I was trying to just get a better sense of your Latin America transition and whether you're transitioning to one bottler at different stages or is this just more of a broader rollout into Mexico and Brazil from a transition standpoint? I can't hear anything. Can you hear?

Pardon me. I'm still on. I think we're having technical difficulties. Wait one second, ladies and gentlemen. Please stand by. Judy E. Hong - Goldman Sachs & Co.: Hello? Rodney? Hilton? Can you hear me? I don't understand. All right. We can't hear you, Rodney and Hilton. I think people could hear me.

Ladies and gentlemen, please stand by. Your conference will resume momentarily. Again, please stand by. Your conference will resume momentarily. Again, ladies and gentlemen, please stand by, your conference will resume momentarily. Again, please stand by, your conference will resume momentarily. Speakers have rejoined and you still have Judy Hong is still on. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Thank you. Judy, can you hear us? Judy E. Hong - Goldman Sachs & Co.: I can hear you now. Thank you. Rodney Cyril Sacks - Chairman & Chief Executive Officer: (41:28) Judy E. Hong - Goldman Sachs & Co.: Yes, and I apologize for my two questions and then... Rodney Cyril Sacks - Chairman & Chief Executive Officer: Sorry, we just get focused on one, and then we just lose track of the other one. What was the other question we were still – you wanted to ask me? Judy E. Hong - Goldman Sachs & Co.: It was related to Latin America. You talked about transitioning in Mexico and Brazil and I just wanted to get some color on whether this is one bottler you're transitioned or is this the broader country in both...? Rodney Cyril Sacks - Chairman & Chief Executive Officer: No, that's fine. What was happening was you have FEMSA that has a lot of areas in which they have operations. And even though they're in different countries, they don't necessarily fill up (42:04) the whole country. So ultimately, we spent a lot of time ultimately in negotiating and getting to a deal with FEMSA. Once we're done there, it didn't facilitated moving quite quickly with other bottlers in each of these different countries. So as we indicated in the call, we have transitioned the whole of Mexico to all of the bottlers that comprised the Coca-Cola group in Mexico, and that has already started as of last week. In the case of the planned transition in Brazil, it will be to all of the bottlers at the same time. The whole group of bottlers have signed agreements with us. We're waiting until that all has happened at one time, and we will transition the whole country on November 1. In the case of Chile, there are two bottlers, we are going to the whole country. In the case of Brazil – sorry, Colombia, there may be some small areas, but really it pretty much is FEMSA. We've already transitioned Peru, and we will be transitioning the other countries. So it will be pretty much the whole area. We will also be starting Central America and going to countries at a time in the Caribbean. We will be making that quite extensively, and that's not the same, for example, in which I indicated in China, where we are looking at – at the three main bottlers, but we are looking at that as such a big country, we're looking at selected areas and selected operating units first to go into then to launch in the second area with the second bottler, then in the third area, which are large towns, for example, we are looking at focusing in Beijing, in Shanghai and in Guangzhou, those areas, and then launching and then going to rolling it out to the different BU, operating units as we go forward. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: And let's not forget about OXXO and how important OXXO is in Latin America as well. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Yes, and so we have come to – that was part of the arrangements that we know you spent time negotiating with those two – with FEMSA and all of the two principal bottlers. That is correct, and so that is a more extensive rollout over the next – coming months in Latin America.

Thank you. Our next question is from Evan Morris of Bank of America. Your line is open.

Good evening, everyone. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Good evening.

Just on the Mutant launch, you talked about being in advanced stages. If you could just talk a little bit about the sort of the planned size of the rollout, just the channels. Is it just going to be focused on C-stores initially or other channels as well? And then just – it would be helpful is just if you've launched other kind of new platforms, not necessarily flavor extensions, but new platforms like this, how additive has it been to your sales growth in let's say the first 12 months to 18 months? Rodney Cyril Sacks - Chairman & Chief Executive Officer: I think that each country is unique. Where we've been in countries, and we've transitioned, you obviously are going into all channels. Where you run into smaller countries, particularly where you got a bottler with good connections with some of the measured channels of the modern trade, you are going to the independent stores and the modern trade and grocery at the same time. Other markets, we just generally try and focus first on the down the street and the independent markets and then go into the market. So you can't – there's no single formula for all of these markets. There isn't even a single formula for which markets you're going into. These are being done on opportunistically on the basis that when we are able to conclude agreements with the Coke bottlers, when we're able to properly terminate on due notice to our existing bottlers if there are bottlers in those markets and – we will then go into markets. I mean, you take Argentina, there we haven't gone into the market – in that market, we are at the moment engaged in planning production and looking at the changes being made to the line in order to accommodate our product. And then once that's done, we are working through the value chains with the local Coke bottlers in Argentina, then hopefully, we will come to an agreement with them and then plan a launch. So that takes a much longer time, and it's a longer planning process than in other countries. So every country is different and while we expect countries A, B and C to be the third quarter, and D, E and F to be the fourth quarter, you may end up with A, B and D in the third quarter and C, E and F in the fourth quarter. So it changes literally from month-to-month. So I can't give you a set plan of this on how it's coming in. And again, as to the contribution, it changes differently. Some markets the bottlers are – get more instant distribution and our sales are at a higher rate. Some markets, it takes time for the bottlers to get to understand our brand, the velocity. It has a different velocity to traditional beverages; it doesn't start off at a high velocity in what would be the normal or ordinary high-volume accounts. It needs to be bought in the smaller stores where it's served cold and sold cold, one can at a time. And so sometimes that takes a lot of getting used to by the bottlers and it takes time. So there is no magical ramp-up the day you start that you have a magical set of things. It just takes time and builds and continues to build. So we're at the stage where we really are transitioning a lot of markets now and there are different stages, and we have been for some months, and these are going to continue to build over the rest of this year and in 2017. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Yes. And what I would say is, while we don't give guidance, I think, you can look at some markets that have been transitioned. We spoke, for example, on the call about Germany, which was transitioned last year. We spoke about South Korea, and you can look at some of those markets. I'm not saying that's indicative of all markets going forward, but certainly there's been a lot of progress with some of the Coca-Cola bottlers internationally. And we do expect good – that's why the transaction was done, we expect good performance from those bottlers as we go forward.

Yeah. I agree. Thank you. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Thank you.

Thank you. Our next question is from Mark Astrachan of Stifel. Your line is open. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah. Hey. Good afternoon, guys. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Hi, Mark. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: So, two questions. One, quickly, just why was concentrate or the strategic brands, Coke brands, whatever you're calling it these days, why was that better? And is that sort of a good run rate to use on a go-forward basis? And then second question, not to confuse you, but I think it's fairly straightforward. So on China, beyond negotiations with Coke bottlers, is there anything else that prevents you from commencing distribution? Like is there any formula or manufacturing approvals that are still needed? Rodney Cyril Sacks - Chairman & Chief Executive Officer: Okay. Let me deal with the China first. In the case of China, we already have product approvals, and we have manufacturing approvals, with two of the three bottlers. With the third bottler, we have product approval and we're pretty much, I think, we're almost through with the product, I don't think we've actually seen it, but I think it should be imminent, and then we'll go through the manufacturing approval process. We don't see any problem with that. It's already been approved by two independent Chinese authorities or provinces and that should be fine. And even if there were some technical hiccups, we could supply product from the Shanghai area, for example, to one of the other areas, and produce it there. So those shouldn't be issues. We just – obviously, we are in the planning stages. We're just trying to get to the finish line on a couple of issues, on the value chains and the sharing and basically just some contractual terms. We think we should be, be there. It started off with a very big laundry list and we're down to a very few items now. So, we're quite comfortable that we will get there. On the strategic brands, on the run rate, you didn't have a full quarter last year, whereas you did have the full quarter this year. The full quarter... Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: (50:35) only completed on June 15, 2015, so you're comparing that to a full quarter in 2016. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Right. And so basically, I think, if you take the – what you will get in the 10-Q, you'll get the breakout in the sectors, and you will get – which will now be called the strategic brand sector, you will get the numbers in that sector, which will give you, we think, to be – which will be indicative of future quarters and the run rate. But again, subject to seasonality, et cetera. But that will be more in line as we go forward. There is a little bit of finished product in sales in that sector, which it doesn't – it really doesn't affect it very much. It's a little bit of noise. If that starts growing a little more, it obviously may have a bit more of the effect, for example, and the reason we are saying that, and pulling it out, and that's why we're putting it into the different sector. For example, in the case of NOS in the U.S., we converted the 22-ounce plastic bottle, sort of that unique NOS bottle, but wasn't really practical to have produced and shipped and on shelves, and we converted that and changed it into our 24-ounce resealable can. So we re-launched the 24-ounce resealable can. It is a good product and it's doing nicely. But that product, the Coca-Cola bottlers who are manufacturing NOS off a concentrate model do not have the ability to manufacture the 24-ounce cap-can. So we are having it manufactured and supplied on a finished product basis. So again, there are some anomalies like this, there is a little bit of finished products in Germany on strategic products, because we changed Relentless into a 355-ml slim can. And again, the Coke production plant that was producing Relentless in a 500-ml can before we made the change to the design to the packaging and the pack size, didn't have either the capacity or the ability, I'm not sure which, but – to do so, so we are producing it at one of our co-packers and selling finished product. So that might have an effect on your sale proceeds and slightly smaller margins, because of just the nature of selling concentrate at a higher margin. But we think at the moment that is not a meaningful number in that sector.

Thank you. Our next question is from Kevin Grundy of Jefferies. Your line is open.

Thanks, guys. Good evening. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Evening. Hi, Kevin.

Hi. So a quick clarification on the July sales update. That was selling-day adjusted, correct – or was not selling day adjusted for two days, so... Rodney Cyril Sacks - Chairman & Chief Executive Officer: It's wasn't. That's our actual estimate, and we are saying that, we actually had 10% less selling days. I mean, that's why we made that point, yes.

So it's something closer to like high-single digits. Is that fair? On a selling day adjusted basis? Rodney Cyril Sacks - Chairman & Chief Executive Officer: We're not going to extrapolate, but we think that, obviously, that does happen, I mean, if you're selling, you're selling, and you just don't have those deliveries. So, it's a delivery up and that's why we again pointed to the fact that the retail sale numbers going out of the store is up substantially higher than, for example, our sales are showing. And that's why we really are cautious because this single month is a very, very difficult month to start trying to look at and look at trends and this happens to be one of those months where we looked – we can all see the number and say, okay, but you look at these other factors, and we just don't feel there's any significance to it. But that's how we read, and we run the business more on a trend basis than a single period of time.

Understood. Thanks for the clarification there. And Hilton, another point of clarity; on the gross margin, if I understood you correctly, you had an unfavorable impact of $24 million on cost of goods, so the top line was very strong in the quarter, I guess, relative to expectations. The margins came in a bit lower than consensus expectations, but is it fair to say that the gross margin would have been closer to about 66% on a pro forma basis, adjusting for that? And number one, is that fair? And number two, is that sort of a reasonable expectation going forward here? Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: Okay, firstly, we don't give guidance. So, I'm not going to comment on gross margins going forward. What I can tell you is that, in the quarter, because of the accounting and for the consolidation of AFF, we did not get the benefit of the lower cost of goods in this quarter because we had the inventory, and they had the inventory and everything was related to fair value adjustment. So we did not get the benefit of the, A, lower cost of sales in this quarter. We will get it in subsequent quarters. If you look at what that number should have been had we not had to account for – on these fair value adjustment methods, we would've added $24 million to our gross profit. And whatever that percentage is, that's what the percentage is.

Very good. All right, that's helpful. Just one more for me, if I could come back to Mutant and Hydro. Hilton, can you talk a little bit about the receptivity from retailers, particularly in the convenience channel, which is what you're targeting at this point? And a little bit on your level of confidence that you're going to get the type of merchandising and shelving that you want. And that is sort of at a different point in the cooler from the existing portfolio. Just sort of minimize cannibalization there. And then also maybe if you could just give us a little bit of clarity on the Hydro launch and when you anticipate that hitting. Thank you very much for your time. Hilton H. Schlosberg - Vice Chairman, President, COO, CFO & Secretary: So sales teams have been not making calls on Mutant, and many of the retailers, many of the major retailers, and in general, the reception has been good. I'm not sure that of any negatives that have been portrayed so far. We have very specific merchandising objectives for this product. It's not going to compromise our space or the Coca-Cola space. So we've very specific merchandising objectives, and all I can say, and I don't want to say too much, but the launch is proceeding in accordance with plan, and the communication with the retailers is also proceeding in accordance with plan. We have not had any negatives to speak of.

Yeah. Okay. Thank you. Rodney Cyril Sacks - Chairman & Chief Executive Officer: All right, then of the Hydro side, we are dealing with the planning on that product, but we really focusing on getting Mutant down into the market and doing that and we have our sales team and obviously the Coke bottlers have theirs, so you want to focus on one thing at a time. We do propose to follow with Hydro launch. We think that may still be – we're anticipating in the fourth quarter. Again, it may be subject to getting the cooperation and the ability of the bottlers to focus when they get to that holiday season that does become a bit tight. But subject to that, we should be able to get Hydro after, again, later in the fourth quarter. And then we do have one or two additional product – innovation product lines, one particular one planned for launch towards the end of the year, beginning of next year. But again, depending on simply timing, we may get the products done and shipped at the end of year, but probably will be fully launched in January or late January. So there is the sort of the innovation pipeline going forward. There are a number of individual items that we are still also looking at introducing in this period in the next couple of months – next six months.

Thank you. This ends the Q&A portion of today's conference. I'd like to turn the call over to Mr. Rodney Sacks for any closing remarks. Rodney Cyril Sacks - Chairman & Chief Executive Officer: Thank you. On behalf of the company, I'd like to thank everyone for their continued interest. 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, and in particular, to expand distribution of our product through the Coca-Cola bottler system internationally. We are particularly excited about the new opportunities that we have going forward, with a robust portfolio of energy drink product throughout the world, comprised of our Monster Energy brand, together with the strategic brands, as well as for our new Mutant product line. Thank you very much for your attendance.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.