Monster Beverage Corporation (MNST) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation Third Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host for today, Rodney Sacks, Chairman and Chief Executive Officer. You may begin.

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 August, 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 on 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 November 3, 2016. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. Sales in the beverage industry in the third quarter continued to be weak on a global basis. In the third quarter, net sales were $788 million, up 4.1% from $756.6 million in the third quarter of 2015. The Company achieved record gross sales of $913.3 million up 5.9% from $862.4 million in the third quarter of 2015. The comparative growth in net sales of $862.4 million and $756.6 million respectively for the 2015 third quarter was positively impacted by advance purchases made by the Company’s customers due to a pre-announced price increase effective August 31, 2015, on certain of the Company’s Monster Energy brand energy drinks. The Company estimates that both gross and net sales for the 2015 third quarter increased by approximately $12 million and the $11 million respectively as a result of such advance purchases. Gross and net sales for the 2016 third quarter, after adjusting the 2015 third quarter comparatives for advance purchases, increased by 7.4% and 5.7%, respectively. In this regard, I would like to point out that the increase in Monster’s net sales for the 2016 third quarter is hurdling a significant increase in the third quarter of 2015 over the prior year’s third quarter. Unfavorable currency exchange rates reduced gross sales by approximately $4.8 million and net sales by approximately $2.6 million in the 2016 third quarter. Gross profit as a percentage of net sales was 63.8% as compared to 61.5% for the comparable 2015 third quarter. The increase in gross profit as a percentage of net sales was primarily attributable to the cost of goods savings and as a result of the AFF transaction and product mix. Distribution costs as a percentage of net sales were 3.1%, compared to 3.5% in the same quarter last year. Selling expenses as a percentage of net sales were 12.1% compared to 10.7% in the same quarter a year ago. Increased sponsorship and endorsement costs, as well as increases in certain other marketing expenses including marketing, research and social media were the principal reasons for the increase in selling expenses. In-store demos and premiums were also higher in the quarter. General and administrative costs as a percentage of net sales were 11.7% as compared to 8.8% in the same quarter last year. Payroll expenses were up $7.3 million, primarily to support the strategic brands that we acquired from Coca-Cola, and stock-based compensation and non-cash item was 3.3 million higher. Distributor termination costs were $4.7 million in the third quarter, as compared to $2.5 million in the 2015 third quarter. Regulatory matters and litigation concerning the advertising, marketing, promotion, ingredients, usage and safety. and sale of the Company’s product were $4.9 million in the 2016 third quarter, as compared to $3.4 million in the 2015 third quarter. Legal and professional costs related to intellectual property matters particularly in China were $2.5 million in the 2016 third quarter as compared to $0.8 million in the comparable 2015 third quarter. Our effective tax rate in the quarter decreased from 39.4% in the 2015 third quarter to 33.8% in the 2016 third quarter, primarily due in part to a one-time benefit related to a prior period domestic production deduction. On an ongoing basis, we expect that our normalized tax rate will be approximately 36%. Net income was $191.6 million in the 2016 third quarter compared to net income of $174.6 million in the 2015 third quarter, an increase of 9.8%. Net income per diluted share increased 17.5% to $0.99 in the quarter due in part to a lower share count as a result of the completion of the modified Dutch auction in June 2016. The weighted average number of diluted shares outstanding decreased from $208.1 million at September 30, 2015, to $194.4 million at September 30, 2016. We are continuing to make good progress on the implementation of our strategic alignment with Coca-Cola bottlers internationally. In United States, we’re continuing to see improvements in our quality of distribution. In the third quarter, we commenced distribution of Monster with Coca-Cola bottlers in Mexico, Colombia and Chile. We commenced with the transition to Coca-Cola bottlers in Brazil earlier this week and we’ll transition Panama and Costa Rica later this month. We commenced distribution of Monster with Coca-Cola bottlers in Denmark, Montenegro and Ukraine in the third quarter. In July, we successfully transitioned Monster to the Coca-Cola bottlers in South Africa, which occurred at the same time, as the restructuring of the Coca-Cola bottlers in South Africa took place. After a slow start, we’re seeing better execution in South Africa. During the quarter, we also commenced distribution of Monster in Botswana and Zimbabwe, and transitioned Swaziland, Réunion and Mauritius. Over the fourth quarter, we plan to launch Monster with Coca-Cola bottlers in additional African countries. We are making good progress in Nigeria with regard to both product registration and co-packing arrangements and are planning to launch Monster by early 2017 in Nigeria. In October, we commenced sales of Monster through the Coca-Cola bottlers in Turkey. In the fourth quarter, we are planning to launch Monster through Coca-Cola bottlers in a number of central Asian and Middle Eastern countries with further launches to follow in 2017. Following the conclusion of negotiations with Coca-Cola bottlers in China, we commenced the launch of Monster beginning with Beijing in September and Shanghai and Hunan province in October. We expect Guangzhou, Shenzhen and potentially other markets to be launched in the fourth quarter and are planning to launch Monster in additional territories in China during 2017. We are currently awaiting approval for our product in India. As we previously reported, we successfully completed our acquisition of a concentrated flavor business operated by American Fruits & Flavors on April 1, 2016. As a result of the AFF transaction, we achieved raw material cost savings of $23.3 million in the 2016 third quarter, which were broadly in line with the expectations. According to the Nielsen report for the 13 weeks through September 24, 2016, all outlets combined, namely convenience, grocery, drug, mass merchandisers, sales in dollars in the energy drink category, including energy shots, increased by 3.5% versus the same period a year ago. Sales of Monster grew 6.4% in the 13-week period, while sales of NOS increased 2.4%, and sales of Full Throttle decreased 8.2%, sales of Red Bull increased 2.4%, sales of Rockstar increased by 3.8%, sales of 5-Hour decreased 4.9% and sales of AMP decreased 30.2%. According to Nielsen for the five weeks ended September 24, 2016, sales in the convenience and gas channel, including energy shots in dollars increased 2.3% over the same period last year. Sales of Monster increased 5.1% over the same period last year, while NOS was up 3.2% and Full Throttle sales decreased 4.6%. Sales of Red Bull increased by 1.4%, Rockstar was up 0.5%, 5-Hour was down 4.5% and AMP was down 27.1%. According to Nielsen, for the five weeks ended September 24, 2016 Monster’s market share of the energy drink category in the convenience and gas channel, including energy shots in dollars increased by 1 point over the same period last year to 35.6%. NOS’ share remained the same at 3.9% and Full Throttle’s share decreased 0.1 of 1 point to 1%. Red Bull share decreased 0.3 points to 35%. Rockstar share was down 0.1 of 1 point to 7.9%. 5-Hour share was lower by 0.5 points and 7.6%, and AMP share decreased 0.6 points to 1.5%. According to Nielsen, for the five weeks ended September 24, 2016, sales of Energy Plus Coffee drinks in dollars in the convenience and gas channel increased 19.1% over the same period last year. Sales of Java Monster were 18.2% higher than in the same period last year, while sales of Starbucks Double Shot Energy were 21.7% higher. According to Nielsen, in the convenience and gas channel in Canada for the 12 weeks ended August 20, 2016, the energy drink category decreased 4%. Monster sales increased 1% versus a year ago. Our market share increased 1.6 share points to 31.3%, Red Bull sales decreased 4% and its market share increased 0.2 points to 39.2%, Rockstar sales decreased 11% and its market share decreased 1.2 points to 15.6%. According to Nielsen, for all outlets combined in Mexico, the energy drink category grew 36.3% during the month of September 2016. Monster sales increased 12.6%, our market share in value decreased 4.7 points to 22.3% against the comparable period last year. Sales of Burn, one of our acquired strategic brands increased 28.4%, although Burn’s market share decreased 0.3 points of 1 point to 4.9%. Red Bull sales decreased 11.7% and its market share decreased by 6.3 points to 11.7%. Vive 100’s market share increased 15.4 points to 44.2%, while Boost’s market share decreased 5.9 points to 9.3%. The Nielsen statistics for Mexico cover single month, which is a short period that may often be materially influenced positively 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 September 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 11.9% to 14.2% in Great Britain, from 19.4% to 22.6% in France, from 12.3% to 14.9% in Germany, from 22.2% to 25.6% in Spain, from 8.8% to 10.5% in Belgium, from 9% to 10.5% in Sweden, from 6% to 11% in Norway, from 9.5% to 11.4% in the Czech Republic and from 6.1% to 6.4% in the Netherlands. According to IRI, Monster’s market share in Greece decreased for the 13 weeks prior to the period ended September 2016 from 28.4% to 27.4%. For the 13-week period ended August 2016 according to Nielsen, Monster’s retail market share in Ireland grew from 8.6% to 11.2%. And for the 13-week period September 2016 Monster’s retail market share in value decreased, however, from 15.6% to 13.1% in South Africa, primarily due to increased distribution of Dragon, a new low-priced energy drink, although retail sales of Monster increased. I would like to point out that the Nielsen and IRI numbers in EMEA should only be used as a guide because the channels read by Nielsen and IRI in EMEA vary from country-to-country. According to Nielsen, Monster’s retail market share in value in Chile increased to 21.6% in September 2016 as compared to 18.2% last year and Monster’s market share in Brazil declined from 3.9% to 2.6% in September 2016, as compared to the same period last year. In South Korea, Monster’s retail market share in value increased from 10.7% to 23.7% in September, compared to the same period last year, and according to INTAGE, Monster’s market share value in the convenience store channel in Japan grew from 39.2% to 41.7% in September of 2016. According to IRI, in Australia Monster’s market share in value grew from 3.5% to 6% in September 2016 and in New Zealand Monster’s market share in value grew from 2.2% to 6% for the last four weeks ending October 2, 2016 versus the same period last year. Net sales for the Monster Energy Drinks segment in the third quarter were negatively impacted by approximately 1.6 million of foreign currency movements. Net sales for the Monster Energy Drinks segment for the third quarter of 2016 increased 3.4% from $686.7 million to $710.1 million from the comparable period last year. Net sales for the Company’s Strategic Brands segment were negatively impacted by approximately $1 million of foreign currency movements in the quarter. Net sales for the Strategic Brands segment were $72.1 million for the third quarter as compared to $69.9 million in the same quarter last year. Net sales for the other segment, which includes third-party sales made by AFF were $5.7 million in the 2016 third quarter. There were now sales for the other segment in the comparable 2015 third quarter. Continued increases in sales of the ready-to-drink coffee category in the U.S. including our Java Monster line bodes well for the future. However, their exists limited production in the U.S. for such products which requires a rethought process due to the use of fresh milk and cream. Due to production capacity constraints, resulting from production and maintenance issues with co-packers, product shortages have been experienced in the industry. We are taking steps to address the issues but anticipate that it will take a number of month before production availability will be balanced with consumer demand. Sales of Java Monster were impacted by such shortages in September and October, and we anticipate that sales will continue to be impacted in the foreseeable future. Net sales for customers outside the United States were $190.8 million in the 2016 third quarter compared to a $170.6 million in the corresponding quarter in 2015. Net sales to customers outside of the United States were higher in local currencies by approximately $2.6 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. Net sales in EMEA in the third quarter of 2016 in dollars were 14% higher than in the same period last year. In local currencies, net sales in the region were 19% higher than in the same period last year. The foregoing differences were primarily due to the weakening of the British pound against the U.S. dollar. Gross sales were 11.6% higher in dollars and 18% higher in local currencies. Gross profit in this region, as a percentage of net sales, decreased from 51.5% in the same period last year to 50.5% during the 2016 third quarter. Gross profit as a percentage of net sales increased from 51.5% in the same period last year to 52.5% during the 2016 third quarter in local currencies. Monster is continuing to gain momentum and increase market share in Europe. In particular in Germany, France, Spain, Great Britain, Belgium, Sweden, Norway, the Czech Republic and Ireland, Monster achieved sales gains and continued to increase its market share. We are pleased with the performance of the Monster Ultra line in EMEA region, which is now available in 25 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 third quarter increased 34.2% in dollars and 20.4% in local currencies over the same period last year. Gross profit in this region as a percentage of net sales decreased from 49.4% in the same period last year to 46.6% during the 2016 third quarter. In Japan, net sales in the quarter increased 28.2% or 7.2% in local currency, primarily due to the strengthening of the Japanese yen against the U.S. dollar as compared to the same quarter last year. We continue to experience strong performance in Japan. In Korea -- South Korea, net sales increased 125.7%, 127.2% 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 22.2% or 19.9% in local currencies, as compared to the same quarter last year. In Singapore, net sales increased 109.1% or 111.1% 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 in 2017. In Latin America, which includes Mexico and the Caribbean, gross sales in the third quarter decreased 6.1% in dollars and increased 3.9% in local currencies. Net sales in the third quarter decreased 15% in dollars and decreased 6.2% in local currencies, over the same period last year. This region was impacted by foreign currency exchange rates and higher trade promotions in 2016. Gross profit in this region as a percentage of net sales decreased from 50.3% in the same period last year to 47.6% during the 2016 third quarter. In Mexico, gross sales increased 3.8% in dollars and 21.5% in local currency in September 2016. Net sales decreased in part due to changes in foreign currency exchange rates and higher trade spending in 2016. However, although Nielsen reported Monster’s market share decreased during September 2016, Monster sales at retail in Mexico grew 12.6% during September 2016. 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 transition of Monster to Coca-Cola bottlers, which took place on November 1. Turning to the balance sheet, cash and cash equivalents amounted to $341.5 million at September 30, 2016 compared to $2.18 billion at December 31, 2015. Short-term investments were $257.7 million compared to $744.6 million at December 31, 2015. Long-term investments decreased to $9.5 million from $15.3 million at December 31, 2015. Accounts receivable increased to $467.3 million at September 30, 2016 from $353 million at December 31, 2015. Days outstanding for accounts receivables were 46.5 days at September 30, 2016 compared to 43.2 days at December 31, 2015 and 43 days at September 30, 2015. Inventories increased to $167.8 million from $156.1 million at December 31, 2015. Average days of inventory was 53 days at September 30, 2016 compared to 58 days of inventory at December 31, 2015 and the 59.4 days at September 30, 2015. In late September, we launch Mutant, an exciting super soda in the U.S. that is positioned as refreshment energized in limited convenience stores in certain markets with encouraging early results. We experienced some production challenges with Mutant in early September, which have now been largely, resulting in very limited distribution for Mutant in the quarter. The number of retailers stocking Mutant increased substantially in October. We have an additional new product planned for later this year and are working on new product that we’re planning to introduce early in 2017 and which includes our new Hydro line that we previously announced. On October 14, 2016, the Company announced that its Board of Directors approved Board of Directors approved a 3.1 stock split of its common stock to be effected in the 200% stock dividend. On November 9, 2016 each stockholder of record will receive two additional shares of common stock for each share of common stock owned at the close of business Eastern Time on October 26, 2016. We estimate October 2016 gross sales on a foreign-exchange adjusted basis to be approximately 12.3% higher than in October 2015. In this regard, we point out that according to Nielsen, for the five weeks ended September 24, 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 3.5% versus the same period a year ago, while sales of Monster grew 6.4% in the same period versus a year ago. 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, 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. 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. 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. Our ability to utilize the full benefits of the transaction through a reduction in operating costs commenced with the third quarter. This transaction will be accretive to the Company’s earnings. North American and international gross margins remain healthy. 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. Currency exchange rates continue to affect our results. While the net difference was on balance not material, unfavorable exchange rates in the UK, our largest market in EMEA, negatively affected our EMEA results following Brexit. Similarly, unfavorable currency exchange rates in Mexico also negatively affected our Latin American results. On the other hand, favorable currency results in Japan positively affected our Asia Pacific results. The new additions to the monster family continue to gain momentum and add to the Company’s sales. We are excited about the prospects for our new Mutant beverage. We are pleased with our performance in our international markets. In particular, I would like to call out the launch of Monster in China and the enormous growth potential for us in one of the largest energy drink markets globally. 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 fourth quarter and in 2017. I would like to open the floor to questions about the quarter. Thank you.

Thank you. [Operator Instructions] And our first question comes from Judy Hong of Goldman Sachs. Your line is now open.

Thank you. Hi, everyone. So, Rodney, I guess just maybe you can help us quantify how much the production shortages in Java perhaps hurt the Q3 reported sales and then the October number? Because it looks like in Q3, I know the advance purchases last year was a tough comp but even beyond that it looks like, there was a pretty sizeable gap between reported and the takeaway data. And then just secondly on China, maybe, you can just help us what you’ve seen so far in terms of the launches you’ve done in Beijing and Shanghai, and what’s been the response to the launches? I know it’s early, but just any color there would be great.

Hilton will speak about the coffee Java issue, if you’re able to. It’s been difficult for us, because we’re just trying to get a handle on what impact it’s had with different bottlers, because again, it’s affected different bottlers in a different way, and we were not certain of how much inventory they’ve had. What we have seen is that in stores there have been signs put up by our major competitor who we also had shortages. So it’s really been difficult to determine. I think it affected our October number probably more than our September number, and that’s where we’re trying to get handle on that at the moment. If you’re able to give any more color?

Judy, we are really trying to get and exercise together because there was some inventory that we had obviously in the system that we were able to get out in the quarter. But we’re still reviewing those numbers and we’ll be in a better position to talk about that sometime later. But I think there will be a more pronounced impact in Q4.

Judy with regard to your second question on China, basically the way we launch generally is through a soft launch and to go into the smaller stores, independent convenience stores first and start to get the product established and sampled cold. Today, we probably secured probably of the order, and it’s a very rough guess from what we’ve discussed with our bottlers, about 50,000 accounts in the areas where we’ve already launched. We will be going into Guangzhou, Shenzhen pretty much within the next week or so. So, we are getting good distribution. We are getting good response to the product. And so, we just are very hopeful and excited that we will be able to continue to expand. There is a massive universe of stores available to us, it’s a very big country. Probably by the end of the year, we should have launched Monster in probably areas that would be covered by about 18% of the population or and those areas represent our estimate at the moment is about 30-33% of the current energy market, once we’ll have got through December. So, it’s a big market and we’re obviously planning to do -- there is little bit of -- there will be a bit of a hiatus between beginning of January and until off the Chinese New Year. But once we’re through that, then we’re going to start focusing on launching pre-summer in China. Obviously that will be the thrust of our focus.

But we can also say Judy that the teams are satisfied with the results and the bottlers are excited about the results, we’ve seen so far. So, it will help us well for the future.

One thing I just wanted to clarify, I talked about the October gross sales on a foreign exchange adjusted basis 12.3; this was actually 12.6; the unadjusted basis was 12.3, just to give that clarification.

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

The October number, wanted to come back that again, are there any differences in selling days from a year ago? And also if you could quantify roughly what the impact is from Mutant sell in or even China I guess would be helpful. And then just to go back to sort of the quarter itself. So, by my math, your U.S. legacy sales were down something like 1% in the third quarter; the scanner data shows up something, I don’t know, mid to high single-digits roughly. We know you talk about benefits from on track channel in the past. So, could you help just sort of quantify what is going on there, was there some selling ahead of third quarter; is there pent-up demand out there from an inventory standpoint, just sort of helping to reconcile that would be good?

There is a whole bunch of questions. [Multiple speakers] Can you just start and then we can answer them one at a time?

Okay, October. So, selling days, this year versus last year and then incremental benefits from Mutant in China?

Okay. We’ll get to you that because we just don’t have it handy.

Okay. And then, the other is, I calculated down one for your legacy U.S. business sales in the third quarter, obviously the scanner data has been better than that. So what gives?

I think on the legacy sales, it’s just the timing issue.

Okay. [Multiple speakers].

Not there is any destocking or restocking or anything of that nature.

Whenever we sell a concentrate with the legacy brands. And so what we -- what we see in Nielsen and what we are selling in concentrate is quite a significant disconnect, it’s not even as if we’re selling a finished product. We do sell finished products but in main, you talk about concentrate and there is a huge lag between where the concentrate is manufactured by the bottlers and then sold in the market and sold to consumers.

Thank you. And our next question comes the Laurent Grandet of Credit Suisse. Your line is now open.

I would like to understand a bit more about Mutant. I know, I mean it’s very early stage right now. And it’s kind of a double effort [ph] for you in terms of profitability. So, any kind of calculation -- cannibalization between Mutant and your energy core brands would be helpful for us to understand. If it’s a good start and is there some legs in the future, could you give us some more color on this?

Again, it’s been very early days on Mutant, but we’ve had some insight from three or four of the what we’d call representative or convenience chains. And the Mutant sales as a percentage of Mountain Dew, which is the main competitor, they are obviously going after, has been quite good. It varies quite a bit between the stores but whichever way you look at the percentages, it’s quite respectable. And everybody, including the retailers, have been quite surprised and quite happy with the sell-in. The actual level of Mutant that was sold in the quarter, I think that is Mark’s question -- one of Mark’s questions earlier was about 4.5 million in our numbers on a gross basis. And so, it really started late and it’s really just starting to ramp up now. And the whole strategy that we had with Mutant, just talking about Mutant generally, is we never intended at any time, it’s how we’ve launched all of our products, we didn’t intend to go out and secure execution and make a big splash on day one. It’s a bubbling up, we put it into convenience stores, we are being very specific about way we want to see it placed in the store and we feel that’s important. And the results of us doing that is actually the feedback we’ve got is that there is very, very minimal, if any cannibalization. So, we are achieving we believe our strategic objective to minimalize any cannibalization with Monster Energy Drinks. And so that is being achieved. We are pretty much across the board getting retailers buy in on our strategy and where it should be placed. There have been a few retailers that have resisted that. And in some cases, for that reason, we have not sold to those retailers. But we pretty much have very, very board acceptance and buying from retailers. And so far we are actually very encouraged by the sale rate for a new brand.

Also Mark, to answer your question, it was one extra day, selling day in October 2016 versus 2015.

Thank you. And our next question comes from Vivien Azer of Cowen & Company. Your line is now open.

So, I was hoping, please, if you could just comment on the broader health of the energy drinks category. Given the torrid rates of growth that we’ve seen historically, I think it’s not unexpected to see the growth rate moderate. Do you feel like kind of this new run rate is sustainable or is there any kind of exogenous headwinds that you think may be weighing on category sales?

Yes. That’s $1 million or $64 question -- $64,000 question. We have seen some sort of settling in the energy category. However, we’ve also got to bear in remind that I think over this period, we haven’t seen a lot of innovation. Our innovation, we’ve been dealing with new packaging, different packaging, it’s taken some time for us to get our hands around it. And so, if you take for example high growth coming out, we’re looking at the beginning of next year, Mutant really has just hit the shelves, just pretty days before the quarter-end. And our Cafe Monster product, which we’re looking at launching next year also it will come through next year sometime. We will have to obviously deal with the production issues, it’s one of the things -- one of the challenges we’ll face with Cafe Monster. But we think that if you’re looking at innovation, it really was probably pretty limited this year and that we think has been one of the reasons. But again, the category is more positive, it’s gone up and down over in the past, and we do believe that we will continue to see some increase in growth rates next year. But again, this is -- we don’t have any crystal ball to be able to do so.

One of the other growth opportunities for us is in the non-traditional channels which are not measured by Nielsen? And we make a lot of headway with the Coca-Cola system in some of these non-traditional channels.

Thank you. And our next question comes from Kevin Grundy of Jefferies. Your line is now open.

Two detail-oriented questions from you. First on the getting back to the October sales update. Do you have the split between U.S. and international? That would be helpful just to kind of gauge how the U.S. may look versus what we’re currently seen in the Nielsen data, and any potential benefit there with shipments with respect to Mutant. That’s question number one if you have that handy. And question number two, the selling and distribution expense was elevated; you spoke to some of this in your prepared remarks. I know you don’t guide specifically. But given the push here internationally, particularly in China and a number of other markets, should that remain elevated -- should we expect that to remain elevated in the near to intermediate term?

Okay. If we could talk about the numbers for October. The U.S. grew by just under 10%, 9.8%. And you can work out regarding international. So that’s the number for the U.S. Your second question on selling and operating expenses, obviously what we spoke about in the quarter was an increase -- a significant increase in endorsement and sponsorship costs and that’s something that maybe grow as we go forward, depending on when it takes the brand from a marketing perspective. So, we don’t give guidance and I broadly not give any guidance on selling expenses because a lot of that will determine on a number of initiatives that we’re considering at this time. Regarding operating expenses, I think there is -- the operating expenses other than selling expenses i.e. the admin expenses are probably largely in line where they will be in the foreseeable future of course depending on a lot of these legal costs and relating to the regulatory aspects and some of the -- the case is that we are still involved in, which are in fact reducing in number.

Okay. Thank you.

So, one of the things that -- the bumps that came in the series was the -- take on staff to really support the sales and marketing, put some marketing behind the strategic brands as we continue to -- we’re getting our hands around them, we may be able to look at some sort of rationalization on some of those costs going forward as we get to know the brands better and we get more focused on how we want to position these strategic brands going forward.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Rodney Sacks for any further remarks.

Thank you. On the half of Monster, I’d like to thank everyone for their continued interest in the Company. We continue to believe in the Company and our growth strategy, and remain committed to continuing to develop and differentiate our brands and to expand the Company, both at home and abroad, and in particular, to expand distribution of our products through the Coca-Cola bottler system internationally. We are particularly excited by the new opportunities that we have going forward, with a robust portfolio of energy drink products throughout the world, comprised of our Monster Energy brand, together with the strategic brands, as well as Mutant. Thank you very much for your attendance.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.