Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation’s First Quarter 2016 Financial Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference to Rodney Sacks, Chairman and CEO. 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’d like to remind listeners that certain statements made during this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and which are based on currently available information regarding the expectations of management, with respect to revenues, profitability, future business, future events, financial performance, and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company that may cause actual results to differ materially from the forward-looking statements made during this call. Please refer to our filings with the Securities & Exchange Commission, including our most recent Annual Report on Form 10-K filed February 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 designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated April 29, 2016. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. At the outset I should mention that the release of our quarterly…

Thank you. Our first question comes from line of Kevin Grundy with Jefferies. Your line is now open.

Thanks, good morning, guys.

Good morning.

I want to start with China given the importance of your launch in that market, can you talk a little bit about building upon the timing of that around the brand positioning, the investment that’s going to be required for trial there to raise brand awareness that would be helpful. Thank you.

To give most of the information that you are asking would be giving future estimates and indications and even more difficulty in a market that we are just going into. We are -- all I would like to say about China is that we are planning to enter China in a similar way to which we have entered other markets. We look at building distribution on a store-by-store basis, we are going into the market with one SKU which is Monster green primarily our main product. As I indicated in the call, we are still looking to finalize negotiations with our distribution partners on the distributions agreements and those negotiations have been taking -- have taken some time. We are progressing with registrations. So we are in a new country it’s -- we are looking at -- obviously we don’t have a lot of experience there because we’ve not been there. And so to say more than that I don’t know we are looking to continue later this year, but there could be some delays in getting the registrations, but we are continuing to focus on China and I just don’t believe that there is more at this point that we will be able to say. Obviously, we will need to make investments in the market, which we will do as appropriate to establish the brand, but it’s a slow traditional build for us going into China.

Can I ask a follow-up?

Yes.

Thank you. Just switching gears to the U.S. some of the Nielson data has slowed a bit broadly for the category and some of this may have been that we’ve cycled the pricing that Red Bull has taken and you want to cycle that into the fall, but can you talk a little bit about some of the slowing that we are seeing broadly in the category in the U.S. whether that’s concerning at all or whether you think it’s a bit of blip and then what is our expectations broadly for the category for the balance of the year? Thank you.

The category, might be seeing a slowing slightly, but obviously it’s still growing at a good positive rate, you have got to look at the category in the context of beverages generally, I think the point you made is one of the important points is that part of that category’s growth is that we are cycling on price increases now and if you look at the growth and it’s largely is influenced -- the category growth largely gets influenced by the growth that obviously Red Bull enough contribute to the category as the major participants in the country. And you have seen a slowing in the Red Bull numbers and that really has probably a large influence on that category. So we don’t see much difference, we are positive about the category, but obviously we can’t tell where the category will grow, what sort of innovation will come from our competitors, we have innovations as I have indicated coming. It is going to come later in the year, but we do have quite a robust innovation pipeline.

And our next question comes from Judy Hong from Goldman Sachs. Your line is now open.

Thank you, good morning.

Good morning, Judy.

Good morning, Judy.

So broadly speaking it seems like your international sales growth has accelerated in Q1 versus Q4 and I was just hoping to get a little bit more color just in terms of how much is this really lapping some of the inventory issues that you have had and are we now mostly behind some of that issues? How much are you getting growth in some of the transition market and as you look over the next six months markets like Australia where you are transitioning to Amatil and then you got Nigeria and some of the newer markets you are entering just your expectation in terms of how quickly you can see growth accelerating just broadly from an international perspective?

Again, like everything in life everybody would like things to happen instantaneously, but it takes time and as we transition we are starting to see once you have had an opportunity to settle down with the particular bottler in that market we all starting to see good progress. But again is also depends on the commitment of a bottler and each bottler has his own priorities, his own commitments and it is varied, but if you look at the trend Judy, which is clearly from what we have given the indication on each of the countries on our market share. The trend generally is continuing to be positive and we are continuing to take market share.

I would say look at the German numbers Judy that we spoke about on the call and also South Korea. Those are two markets that have been transitioned to the Coca-Cola System. Those may give some indications but the other markets that we have not seen that amount of growth and those are some of the Hellenic markets. So as Rodney said it does differ from country to country. So those are two good indications here.

So we just think generally it’s positive and as we go forward obviously we do look work our way through the choppiness and the transition issues that we had in the past.

Thank you. And our next question come from Mark Astrachan from Stifel. Your line is open.

Hey, good morning, guys.

Hi, Mark. Good morning.

Good morning.

I wanted to ask about the Concentrate business. So it still seems to be a little bit weaker I think than it was originally trending going into the deal close. I guess I’m curious if you were to try to parse it out sort of differently maybe there is some questions have been asked about it in the past. How much of the under performance has been driven by some of the larger brands like Relentless in particular, but also like Burn in terms of what has happened from relaunches, repositionings, potential reductions in shelf space in favorable Monster and the like. In other words is there a way to sort of think about it split up by the bigger brands and maybe even comment on some of those smaller brands that could be getting discontinued?

I think it’s a mix bag. I actually have done full analysis of these strategic brand. Like you we also need to understand what the position is with regard to those brand. Some of it is relating to weakness in the brand themselves that we are addressing in various ways. Some of that of course is a foreign currency and there is another factor in that in certain countries we have been unable to structure ourselves in a way that we could actually self concentrate and what we do in certain countries is we get a royalty from the Coca-Cola Company, which equates to effectively what we would have done had we sell the Concentrate. The struction is sitting up various countries to accommodate the Concentrate business. So there is a whole lot of factors that one has to take into account in evaluating the Concentrate business. But largely there is some weakness, but you are not seeing in these numbers the full extent of the Concentrate business because of some of these adjustments that have to take place.

I think that one other thing we did mentioned previously that we did find that in some of the cases the investment in the strategic brands prior to and during the transition had been trimmed and cut back and that did affect sale. So we did see a reduction in sales in those countries as a result we believe of that. So what we’ve had to do is not only just go in and blindly obviously reinvest in marketing, but we’ve had to relook at how we repositioning these brands and at the same time get the repositioning done both in repackaging, in designs, in flavors and then obviously then recreate marketing plans to fit those the new positioning that we have looked at four of these brands particularly the Burn brand and Relentless are two of the large brands that did have some weakness. We’ve also in many ways repositioned NOS a little bit in the U.S. although we haven’t changed packaging, we all are going to modernize that packaging and that’s still coming through now. So this is a long process because there were many brands in many countries and laid on top of our own staffing and our own business obviously at Monster it takes a long-term to get a lot of these reposition done. So we think that’s partially the reason for it and yes, it has been weaker than we had estimated but we are -- we have been doing the repositioning, we have doing some focusing, we are starting to see some strong signs and we do believe that that will continue to be positive. Some of the other brands although smaller again it’s a mix big you can’t put it into one category because in some cases the brands are smaller and may go away, but in other cases some of the smaller brands are very good, very strong brands and we are actually looking to long-term growth from those brands, but again it’s going to be a positioning and a build. It’s not going to happen overnight. But there are some really good brands that we see in the mix that we do believe we will see growth from going forward.

Does that answer your question? So it’s a kind of mixture of volume decreases in certain brands that are being addressed and other factors that...

Thank you. And our next question comes from Bill Chappell from SunTrust. Your line is open.

Thanks, good morning. Rodney can you talk a little bit about Mexico from kind of the numbers you were reeling off I couldn’t tell if they were just some short-term turbulence or can you give a little more color, what’s going on there?

There were obviously some challenges in March as we indicated, that is a market that has not transitioned so there is obviously some uncertainty relating to the market. The market we have still grown just short of 10% and so the brand has continually grown quarter-to-quarter, but there is the emergence of a low cost brand Vive 100 in the market that have been very aggressive and they have really expanded the market and that’s why when we look at the market we say our market share has decreased, but is it of a very much increased market and may be a little bit different. And then we had a debate earlier as to does Vive 100 really put into category or do well we really in the premium category and Vive 100 is in a lower price category are they really different and should we be splitting them. And as we think we have traditionally put them into the one category, but that really what’s happens. So if you look at the underlying market bearing the uncertainties et cetera it is still growing and obviously one of the issues is ForEx and affordability, but we are still growing. So we are comfortable with end market, we think it’s a good market and we think that in the future we will continue to see pretty good growth from there.

So since you like numbers, let me quote the number enough for Vive 100, there 340 ml PET which is their leading product in pesos sells for 10 pesos. Our product, a 473ml U.S. product that sold in Mexico sells for 30 pesos to 32 pesos. So that’s the comparison in pricing. It’s a very, very aggressive competitor and we don’t want to go down and we will not go down to that type of pricing for Monster.

Thank you. And our next question comes from John Faucher with JP Morgan. Your line is open.

Thank you. Just want to follow-up on the last couple of questions. You’ve talked about sort of preaching patients in terms of getting these bottler deals done totally understand that. Can you tell us what goes into the negotiations, it sounds like some of these sort of brand shifts what the underlying support levels are the transition may be out of some of the Coke Concentrate brands into the Monster brand and how you manage that transition? It sounds like that’s part of the negotiations and so is that why this is taking longer? And so I guess sort of a little bit of color in terms of kind of what you need to nail down with the bottlers as you do these deals? Thanks.

I think you put into two different buckets, the one bucket is although we are trying to get us have ourselves the hope further that we will become more integrated into the Coca-Cola System. We are still nevertheless an independent publicly traded company and as a result it’s been important for us to continue to negotiate agreements on terms that we believe will put us in a position where we can take protect ourselves and our brand if things -- the relationships didn’t go as planned. And so the contract that we have agreed to with the company as a principle and obviously now you take that to the individual bottlers they have their own lawyers, they have their own local laws and they have their own view of license, very respectfully many of them are not used to signing a contract of this nature, which is more akin to a finished product distribution agreement as oppose to a manufacturing concentrate bottler agreement, which puts a lot more discretion and decisions in the hands of the bottler whereas we tend to keep or want to keep most of those decisions about global marketing, about some of the local marketing and a number of things. The other thing is that we obviously got to be very cautious that we don’t get into a situation, we have a large line of products for example and we don’t want to be in a position that if the bottler decide he wants to take one skew or three skews and not the rest that we are kept out of the market for the rest of the SKUs. So there are bones of contention that keep going up and down between the legal agreements and we’re getting through them, but it’s in many case that…

No, I think that’s absolutely right. One of the big issues the legal stuff can be negotiated and it is but it’s got to be a fair agreement in terms -- on commercial terms for us and a fair agreement for the bottler and often the bottler feels he is entitled to more and we as a brand owner have substantial expenses, have substantial marketing expenses and we have to ensure that after those marketing expenses we do a good deal for our shareholders. So it is a bit of a hedging, but as you can see from the agreements that have been finalized we’re moving forward and we’ll move forward in due course with some of the other bottlers or we won’t. And if it’s not there are other distribution partners that we’ll be working with.

Yes I agree.

Thank you. And our last question comes from Caroline levy from CLSA. Your line is open.

Thanks so much, good morning. My question relates to margins which were just outstanding in the quarter 840 basis points improvement I believe and as you move into the next four quarters I believe you’ll get about a 250 basis points left from the benefit of the acquisition. So I just want to…

So it’s your estimate.

Yeah I just want to be sure that within the margin expansion we did see there were no unusual items in the first quarter and obviously there is the benefit of the acquisition which will continue I think through most of the second quarter. But if there are any moving parts you can elaborate on little bit more on margins or is this the new status quo the…

We spoke about the price increase number one; number two, we’ve got the Concentrate business has now kicked in it wasn’t in the first quarter of last year. So those are two factors that influenced margin in this quarter. There is product mix, which has also influenced margin so apart from those I’m not aware of anything unusual apart from those that influenced margin in the quarter.

And I'm wondering if you could…

And in going forward yes we will have the benefit of the AFF transaction.

Yeah just because I think the strategic is the million dollar question on the company is do you think overtime international margins get pretty close to domestic and I mean we could talk in 5 or 10 year increments I guess is there a reason why international structurally would always be below the U.S.?

Well pricing differs from country to country obviously and we have very good pricing in the U.S. and in some countries internationally we don’t benefit from the same pricing structures. So what we’ve done we don’t give projections as you know, we don’t give guidance, but what we’ve done in this quarter is we’ve actually given you the margins in the international territories in aggregate so you can see the trends in margin in EMEA and the trends in Asia Pacific and Central and South America.

I think I’d like to just add is that if you look at international margins I think we should expect them to be lower than U.S. because of pricing and in many of those cases our cost of goods seems to be higher, we’re producing out of the U.S. particularly for the -- in the immediate future when volumes really get to the levels of the U.S. we’ll see some reduction but even then I think we should expect cost of goods to be higher internationally. The other thing is that we go through the -- in looking at the mix it’s a mix bag Caroline because even internationally we’ve obviously got Concentrate business, which has got traditionally the higher margins, but as Monster and we think that ultimately the growth in the long-term for the company is that the Monster brand will grow while again we think we will get growth from the new brand there is some nice brands in the strategic group that will continue to grow as well. If you looked -- if we looked at it we think that ultimately the larger growth will come from Monster and then as Monster there will be a -- because they’re international there will be some slight reduction in overall margin, but you want to take the mix…

Because it’s a finished goods margin.

Correct. And that’s [indiscernible]. So again I just want to bear that in mind so there I am conscious like a I think just a straight line and then take the incremental margin we should get from AAF and should be applied going forward. So while we do expect there to be an improvement in some immediate factors that one should take into account.

And we don’t give predictions.

Thank you and I'm showing no further questions. I would now like to turn the call back to Rodney Sacks for any further remarks.

On behalf of Monster I’d like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy and remain committed to continuing to develop and differentiate our brands and to expand the company both at home and abroad and in particular to expand distribution of our products through the Coca-Cola bottler system internationally. We are also particularly excited by 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. 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.