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…

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.