Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation Second Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. As a reminder, this conference call may be recorded. It is now my pleasure to hand the conference over to Mr. Rodney Sacks, Chairman and Chief Executive Officer. Sir, 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. Tom Kelly, our Senior Vice President of Finance, is on a well-deserved vacation. 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 on March 1, 2018, and our Form 10-Q filed on May 10, 2018, including the sections contained therein entitled Risk Factors and Forward-Looking Statements for discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise. An explanation of the non-GAAP measure of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes and designated with asterisks in the consolidated statements of income and other information attached to the earnings release dated August 8, 2018. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information…

Thank you, sir. Ladies and gentlemen, at this time if you would like to ask a question...

Sorry, just – sorry. Could I just make – just one clarification. The price increase I referred to is related to the U.S. Sorry. Thank you.

Thank you, sir. Ladies and gentlemen...

All right, thank you.

...my pleasure. And our first question will come from the line of Amit Sharma with BMO Capital Markets. Your line is now open.

Hi. Good afternoon, everyone.

Good afternoon.

Rodney, just talk about international sales growth a little bit. We saw some deceleration across all three regions. Anything to note there or is it just part of normal volatility in these markets?

We think it's part of the normal operations. There have been some sort of – some noise – some countries were higher than others. We are looking at it, but we think that it's, again also distorted in some cases by monthly numbers. We are seeing quite big differences in the monthly numbers as we see them come through from overseas markets. So I think we'll just wait and see what the trend is going to be when we go through the third quarter.

Yeah, I think that's fair. If you look at the consolidated foreign numbers, including Canada, net sales grew at 18.69%. So we also have to adjust for ASC 606. So there are some variabilities in that, and overall we haven't seen a slowing in sales. There's just been some issues in certain countries, which we believe will correct themselves in the next few months.

Any abnormal inventory builds in any market that's worth pointing out to?

No. Actually, there was inventory issues in the quarter, mainly in Europe, where unfortunately, there was insufficient production capacity to satisfy demand. They're having a very hot summer in Europe, as you know, and we've had some production challenges in Europe. So to the contrary, it's lower inventories rather than higher inventories.

Thank you. And our next question will come from the line of Mark Astrachan with Stifel. Your line is now open. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah, hey, thanks, and good afternoon, guys.

Hi, Mark. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: So just a quick follow up on the last one and then another question. In Asia, it sounded like that was a little bit weaker. Maybe any sort of update on what's going on in China? Was there any sort of impact there from lapping the sell-in from a year ago? And then shifting to the U.S., just curious, anything you're seeing domestically? It looked like the trends, if I looked at it correctly, were a little bit below what the scanner data said consumption looked like, you said that online and on-track was doing well. So I don't know, anything that you see there that may have explained the delta?

Well, I think you'll always see a discrepancy between Nielsen and ourselves. And we've discussed this many times on various calls that we sell to our distributors. We also have some direct customers, but in the main, our sales go to our distributors. They sell to their customers, and their customers sell to retail. So you'll always see the discrepancy between Nielsen, which is retail sales, and our own sales. And what I've always advised is the real test is not what we're selling, but the real test is what's coming off the shelves.

Yeah, with regard to China, we've just really focused on the top cities. There was probably a little bit of additional inventory in the pipeline and, with distributors from last year going into summer, which we needed to work through, and our distributors to work through because we didn't – in order to get them fresh inventory. We've done it under the cap promotion this summer in China, which has done nicely, and we are slowly starting to build up some core repeat business and consumers focused on the modern trade in the top, I think, as we said, 40 cities. So it's a slow build. It's steady. We are planning to launch Monster Ultra in China later this year and to roll it out again slowly. It won't be in all the business units initially. It will be in the business units where we feel they're able to handle it better. So we do have some plans to expand the product line with an additional launch next summer early in 2019. We believe this is – it is sort of appropriate and necessary for us. It'll help us, we think, get visibility for our brand on the shelves, which is one of the things we've referred to in earlier calls is it's been hard for us to have a smaller sized can and get recognized with a single can in stores, and particularly in Coke coolers where some of the Coke products have similar size cans. So we believe that the additional products will continue to help build the brand. So we're pretty positive on the build in China, but it is going to be a long, slow build. But ultimately, we think that the brand is going to continue to do well, and as we've said, the new products we've done some initial taste tests of them. They've been very well received. So we're pretty excited. The first product will be Ultra, and the next product will be our Mango Loco product for China.

Yeah, I think the only thing I would add to that, Mark, is that remember we were rolling out China last year. So there was a buildup of inventory gain to the system last year. And Japan was good in the quarter. Korea was good in the quarter. So overall, I think we were satisfied with the numbers bearing in mind the differences in various countries. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Okay. Thanks, guys.

Thank you.

Thank you. And our next question will come from the line of Nik Modi with RBC Capital Markets. Your line is now open.

Yeah, thanks, and good afternoon, everyone.

Hi, Nik.

Hi. A modeling question and then another question. On modeling, can you just – I know you don't want to give guidance for margins, et cetera, but just to help us think about it going forward, can you just rank order the factors weighing on gross margins kind of most impactful to least just to give us a better understanding? Because I guess when we look at the P&L and we look at the year-ago compares, promotional allowances are always listed first when you talk about gross margin pressure, and I know we're going to start lapping some of the Java promotional dollars as you are getting it back on the shelf. So that's the first question on gross margin. And then the second, the bigger picture question is, at the shareholder meeting, you talked about talking to the Coca-Cola Company about Mutant and potentially a new arrangement around that brand, and I just wanted to know if there is any progress there? Thanks.

Okay. Well, if I could just answer the first question. Remember on a previous call, I spoke about a personal view about margins what I felt about personally. So if you go back to the number that I gave you then and you look at this quarter, you adjust for ASC 606, and you adjust for the issues that we have had to sustain in increased aluminum prices relating to increases in aluminum can purchases, you'll find that the number is just kind of within – is in that number. So the margin adjusting for those two factors alone was just above 62%. So while we talk about promotional answers and that is a fact and, yes, promotional answers are up, and one of the big reasons for that is increased shelf costs and cooler placement fees. There is a reduction in margin as we continue to sell products such as the coffee product, Muscle Monster, Caffé Monster that are lower than the Monster cold food products. And then added to that, you have the issue of international sales where the margins are not as high as the U.S. margins. So I hope that's given you a good feel about the margin structure.

Only thing I would add on to the margins is in addition, there's also been a switch between the proportion between we have strategic brands which have concentrated models which have higher margins and Monster. And Monster is continuing to grow ahead of the strategic brand, so that continues to put some pressure on the margin as well. So you take all those three factors on product mix, geographic mix, and mix between the actual product, the Monster versus strategic brands and that has had that effect.

So what I'm looking at here is that if you rank them in order, the point that Rodney mentioned was kind of at the bottom. So you've got all those other factors, plus you've got the strategic brands Monster percentages. And that should give you a full explanation to your question.

Very helpful. And then on Mutant?

On Mutant, we have not made progress with the Coke Company on a different model. We're sort of reevaluating Mutant. We think that Mutant in the U.S. is probably something that's – we're probably going to tailor off and sort of refocus our attention. We're actually spending we think too much time and effort on the brand, and we just don't feel that that's where we would be best spent going forward. So I think that we're going to focus on newer products. We have some additional new product lines and some positioning in the Monster brand in the U.S. I think we're going to focus on that. We will continue to – have regard to Mutant as I indicated earlier internationally as an energy brand and Predator depending on the different markets. But at this point, we just don't see the reward and payback for Mutant in the U.S., so that seems to be something that we're de-emphasizing and moving away from I think going forward.

Thank you. And our next question will come from the line of Andrea Teixeira with JPMorgan. Your line is now open.

Thank you, all. Hi. Good afternoon, there. I just wanted to actually explore a little bit more on the pricing, first of all, if you're seeing any signs of potential moves from your competitors? And then if you can kind of elaborate more if you're thinking of pricing also internationally. I know the pressures from COGS are less so of aluminum, but perhaps because of some places where FX may be going the other way, it hasn't been the case of course for you guys, but if you see some room for international pricing as well. Thank you.

Well, we only really recently announced the pricing increase. Yeah, so we've really not really had any input back or heard anything back from our competitors. So we really can't give you much direction in that regard. We believe that they are undoubtedly also facing the same price and cost increases that we have, so we would believe that they probably will follow similarly, but we don't have any indication on that.

And then internationally, as we've always advised, we are the smaller player in many international markets and we price according to the leading competitor. And we just have to ensure that we are priced correctly relative to that competitor to be able to capture a good share of the market. So we would not lead – necessarily lead internationally without the lead competitor going first.

But that being said, with all of the uncertainty that's been happening in the world with the aluminum price and some other raw material price increases, we are keeping a watch in different countries. And as and when there are price adjustments by leading brands and other competitors in those markets, we will react to that and obviously look at the opportunities as well individually for taking up pricing as and when we think that that's appropriate. But we are certainly focusing initially now on the U.S. pricing, and then which is the largest impact on our business, and then we will look at – probably early in the New Year look at the international markets.

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

Thanks. Good evening, guys. I was hoping for a follow up on the pricing, and then maybe some commentary on India. The follow up on the pricing is just to what extent will the pricing that you announced cover the input cost inflation that you're seeing? Is it adequate to cover all of it? Is it a large portion of it? So commentary there would be helpful. And then help me just building on sounds like a loose guidance or (42:46) your personal view before with the 62%. We've seen this with the presence of negative geographic mix, promotion, et cetera. So in theory, while those things will still be present to some degree, pricing has not been obviously. So should we be thinking about something a little bit better than that 62% as we get into Q4 and then looking out to next year? And then, Rodney, a broader question on India. Maybe talk a little bit about sort of early indications there, and how you're defining success in that market? Thank you for all that.

Okay. So you're kind of getting greedy. The price increase should cover increases in input costs and the increases in freight. But who knows where they're going to go from there. I mean, today aluminum shot up again based on a number of factors. So as we sit here now, the pricing should contain our cost increases. Will we get more? I don't know, and I honestly I wouldn't consider even discussing more on this call because it's just too premature.

If we increase pricing, I mean it's not going to have an effect through to us, certainly not in the current year. And then talking about India, we've had a controlled rollout, literally by city and surrounding region-by-region basis. It's gone well. We are seeing some good response. There is a recognition of the brand from when we were there many years before when we did sort of rollout and we were in India. We had a very limited presence but the brand was there, so we are seeing some recognition of the brand, which is good sort of very different to China where we really obviously had no brand recognition while we've launched. So it is different, and we are – but it really is premature. Hilton and I are both planning to go to India and review the markets and launch this ourselves personally within the next few months, but at this point it just is premature for us to comment on really what is happening there and how it's going. We're getting some good anecdotal reports but that's not sufficient for us to be comfortable to give you a direction from the company at this point yet.

Okay. Thank you. Good luck.

Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today. So now it's my pleasure to hand the conference back over to Mr. Rodney Sacks, Chairman and Chief Executive Officer, for closing comments and remarks.

Thanks, everyone. On behalf of the company, I'd like to thank everyone for their continued interest in the company. We continue to believe in the company and our strategy and remain committed to continuing to develop and differentiate our brands and 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 also particularly excited by the new opportunities that we have going through with our portfolio together with our strategic brands as well as Hydro, Mutant, and Predator in the affordable energy sector in many Eastern European, African, and other markets where that sector is continuing to show good growth opportunities. Thank you very much for your attendance.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.