怪物飲料 (MNST) 2016 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Monster Beverage Corporation third-quarter 2016 financial results conference call.

(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, Vice Chairman and President, is with me today, as is Tom Kelly, our Senior Vice President of Finance. Before we begin I would like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27a of the Security Act of 1933, as amended, and section 21e of the Security 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 10K filed February or 29, 2016, as well as our most recent report on Form 10-Q filed August 5, 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 measures of gross sales and certain expenditures which may be mentioned during the course of this call is provided in the notes and designated with asterikes 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 at $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 gross and net sales of $862.4 million and $756.6 million respectively for the 2015 third quarter were positively impacted by advance purchases made by the Company's customers due to a preannounced 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 $11 million respectively as a result of such advance purchases. Growth 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 at 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 good 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 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, a non-cash item, was $3.3 million higher. Distributed 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 products 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 the United States we're continuing to see improvement 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 will transition Panama and Costa Rica later this month. We commenced distribution of Monster with Coca-Cola bottlers in Denmark, Montenegrin 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, (Inaudible) and Mauritius. Over the fourth quarter we plan to launch Monster with Coca-Cola bottlers in additional African countries. We're 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 Coke 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 Guangzho, Shenzhen, and potential 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 previously reported, we successfully completed our acquisition of a concentrated flavor business operated by American Fruits and 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 Nielson Reports for the 13 weeks through September 24, 2016 for 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 Five Hour decreased 4.9%. And sales of Amp decreased [30.2%]. According to Nielson 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 decreased 4.6%. Sales of Red Bull increased by 1.4%, Rockstar was up 0.5%, Five Hours was down 4.5%, and Amp was down 27.1%. According to Nielson 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 remain the same at 3.9%, and Full Throttle share decreased 0.1 point to 1%. Red Bull share decreased 0.3 points to 35%. Rockstar share was down 0.1 point to 7.9%. Five Hour share was lower by 0.5 points at 7.6%. And M share decreased 0.6 points to 1.5%.

According to Nielson 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 Nielson 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, and 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 Nielson 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% while our Burn's market share decreased 0.3 points 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%, will Boost's market share decreased 5.9 points to 9.3%. The Nielsen statistics for Mexico cover single months, which is a short period that might 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 Nielson 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 our IRI, Monster's market share in Greece decreased for the 13 years prior to the period ended September 2016 from 28.4% to 27.4%. For the 13 week period ended August 2016 according to Nielson, Monster's retail market share in Ireland grew from 8.6% to 11.2%. And for the 13-week period ended 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 Nielson, Monster's retail market share in value in Chile increased to 21.6% in September 2016 as compared to 18.2% last year. And Monsters 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 [Inphage] Monster's market share in value in the convenience store channel in Japan grew from 39.2% to 41.7% in September 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 drink segment in the third quarter were negatively impacted by approximately $1.6 million of foreign currency movements. Net sales for the Monster energy drink segment for the third quarter 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 brand 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 no sales for the other segment in the comparable 2015 third quarter.

Continued increases in sales of the ready-to-drink coffee category in the US, including our Java Monster line bodes well for the future. However, there exists limited production in the US for such a product which requires a retort 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 months 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 with continue to be impacted in the foreseeable future. Net sales to customers outside of the United States were $190.8 million in the 2016 third quarter compared to $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 or our sales Company's military customers which are delivered in the United States and trans-shipped to the military and their customers overseas.

Net sales in EMEA in the third quarter of 2016 in dollars were 14% higher than the same period last year. In local currencies net sales in the region were 19% higher than in the same period last year. The afore-going differences were primarily due to the weakening of the British pound against the US 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're 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 US dollar, as compared to the same quarter last year. We continued to experience strong performance in Japan.

In Korea -- South Korea net sales increased 125.7% and 127.2% in local currency as compared to the same quarter last year. In Oceana, which includes Australia and 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're 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 decrease 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 difficulty economic and market conditions, together with the ongoing uncertainties for our distributor relating to the Coke 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 2015. Short-term investments were $257.7 million compared to $744.6 million at December 31, 2016. 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 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 at December 31, 2015 and 49.4 days at September 30, 2015.

In late September we launched Mutant, an exciting super soda in the US 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 resolved, 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've previously announced.

On October 14, 2016 the Company announced that its Board of Directors approved a 3.1 stock split of its common stock to be affected in the form of 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 Nielson 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 would 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 third quarter. This transaction will be accretive to the Company's earnings. North America and international gross margins remain healthy. The US 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 impacted our 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're 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.

(Operator Instructions)

Judy Hong, Goldman Sachs.

Thank you. Hi everyone. Rodney, I guess just maybe you can help us quantify how much the production shortage is in Java perhaps hurt the Q3 reported sales and then the October number? Because it looks like in Q3, I know the advanced purchases last year was a tough comp. But even beyond that, it looks like there was a pretty sizable gap between reported and the takeaway data. And then secondly, on China maybe you can help us, what you 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 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 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 other 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 also had shortages. 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 are trying to get a handle on that at the moment. If you're able to give any more color?

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

Judy, then on your -- with regard to your second question on China. Regularly the way launch generally through a soft launch and to go into the smaller stores, independents, convenience stores first and start to get the product established and sampled cold. To date we've 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 have already launched. We will be going into Guangzhou and Shanzhen pretty within the next week or so.

We are getting good distribution. We are getting good response to the product. 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. We 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. And those areas represent, our estimate at the moment, is about 30%, 33% of the current energy market, once we will have got through December. As I said, it's a big market. And we obviously planning to do -- there's a little bit of a -- there'll be a bit of hiatus between the beginning of January and until after 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 is that, Judy, that the teams are satisfied with the results and the bottlers are excited about the results we've seen so far. It all augers well for the future.

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

Mark Astrachan, Stifel.

Thanks. Good afternoon, guys.

Hello. Mark.

The October number, wanted to come back to 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 would be helpful. And then just to go back to the quarter itself. By my math your US 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've talked about benefits from untracked channels in the past. So could you help just quantify what is going on there? Was there some sell-in ahead of the third quarter? Is there pent-up demand out there from an inventory standpoint? Just sort of helping to reconcile that would be good

Mark, there's a whole bunch of questions. Can you start, and then we can answer them one at a time.

October. Selling days this year versus last year. And incremental benefits from Mutant and China?

We'll get you to figure. We don't have it handy.

The other is, I calculated down 1% for your legacy US business sales in the third quarter. Obviously the scanner data has been better than that. So what gives?

I think on the legacy sales in the US, it's just a timing issue. (Multiple speakers) not noticed any destocking or restocking or anything of that nature.

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

Okay. Got it.

Next one.

Laurent Grandet, Credit Suisse.

Hi, everyone. I would like to understand a bit more about Mutant. I know it's very early stage right now. And it's kind of (inaudible) for you in term of profitability. Any kind of cannibalization between Mutant and your energy core brands would be helpful for us to understand. If it's a good start and that 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 have had some insight from 3 or 4 of the, what we have called representative or convenience chains. The Mutant sales as a percentage of Mountain Dew, which is the main competitor they are obviously going after, has been quite good. If varies quite a bit between these stores. But whichever way you look at it, 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 was 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 just starting to ramp up now.

The whole strategy 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 did not intend to go out and secure execution and make a big splash on day one. It's bubbling up. We've put it into convenience stores. We are being very specific about where we want to see it placed in the store. And we feel that's important. And the result 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, it's to minimilize any cannibalization with the Monster energy drinks. And so that is been 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 broad acceptance in buy in 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.

Vivian Azer, Cowen and Company.

Hi. Good afternoon.

Hi. Good afternoon.

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

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

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

Kevin Grundy, Jefferies.

Good evening, guys.

Evening.

Two detail oriented questions from you. First on the -- getting back to the October sales update. Do you have the split between US and international? That would be helpful, just to gauge how the US may look versus what we are 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 it intermediate term? Thanks

If we could talk about the numbers for October. The US grew by just under 10%, 9.8%. You can look up the rest regarding international. That's the number for the US. Your second question on setting and operating expenses, obviously what we spoke about in the quarter was an increase in -- a significant increase in endorsement and sponsorship costs. And that's something that may indeed grow as we go forward, depending on where we want to take the brand from a marketing perspective. We don't give guidance, and I'd rather not give any guidance on setting expenses, because a lot of that will determine on a number of initiatives that we considering at this time.

Regarding operating expenses, I think the operating expenses, other than setting expenses, i.e., the admin expenses are probably largely in line with where they will be in the foreseeable future, of course depending on a lot of these legal costs and related to the regulatory aspects and some of the cases that we are still involved in. Which are in fact reducing in number.

One of the bumps that came in the surge was the take on of staff to really support the sales and marketing, put some market behind the strategic brands as we continue to -- we are 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.

Okay. Thank you.

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 behalf of Monster I would 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 bottling 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.