Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation Second Quarter 2019 Financial Results Conference Call. 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 introduce your host for today's conference, 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; as is Tom Kelly, our Executive 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 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 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 February 28, 2019, and our most recent quarterly report on Form 10-Q filed on May 3, 2019 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 and designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated August 7, 2019.A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. Consumer beverage…

[Operator Instructions] Our first question comes from Caroline Levy with Macquarie. Your line is open.

Thanks and good afternoon.

Good afternoon.

Just hoping you could give a little background on what you see happening in the performance energy category, whether you were doing the BOGOs in the second quarter and if those pull back. Just what the impact of Reign had on your business and whether you see any slowdown in BOGOs [ph] progress? Just anything you can talk about with that sort of disruptive area.

Well, obviously the performance category has had an impact on the overall energy category. And Reign has continued to perform up to our expectations. We are comfortable with the performance. It's a new product. It just got out and it's obviously going to find its feet in different markets and in different channels. The BOGO did not hit all at one time and some parts of the BOGO took place through the end of June, and I think 7/11 and there were some others that did bleed into July continuing.When we look at the BOGO, if you look at the average Reign sales on a weekly basis in Nielsen, it's been reasonably consistent over the past number of weeks. And so, we don't believe that the BOGO and the tailing off of the BOGO had a really marked influence on the sell rates. So we are comfortable with the ongoing sell rate of Reign. A lot of it depends on timing, getting our products onto the shelves, getting shelves space. As we've launched it, we've had to create shelf space.In many cases, the products are not still worked into schematics, they are still being – schematics are being reset now and later in the year. So those things will continue to, I think affect the performance of the performance energy category. Now, there are a number of other performance energy drinks, there's Bang, and there are also some other performance energy drinks that are seeking to obtain listings in space in the convenience channel such as Celsius and C4 and others.And so, we think that there will ultimately be an additional space allocated to the performance energy drinks. As part of the broader energy drink category in the existing space or probably you will start seeing some additional space being allocated in C stores and coolers alongside or adjacent to the energy space.We think there will be some development of a sort of subset or category of performance-based drinks that will be lumped together. They will also take into account product, we think like Hydro and other performance energy drinks that just generally fall outside of the pure carbonated sparkling sort of traditional energy drinks.And I think we should not meet the Walmart listing, which has really been a few good days now. And the team has done an incredible job of getting out and really stacking products that it will mind. So I think good things from that come as well.

But as with everything, it's timing, and so that only happened in the last few days as opposed to earlier in the year. So we do think that that will start having a positive impact again on Reign's sales and numbers. And we've also got good listings with Dollar General and a lot of other non-traditional retail stores for Reign.

Thank you. Our next question comes from Andrea Teixeira with JPMorgan. Your line is open.

Thank you. Just to clarify, the July figure includes the selling to Walmart for Reign and can you help us quantify the benefits of Reign in acquiring both sales and the negative impact of the margin for the BOGO promotion? Thank you.

So, please remember that we don't sell to Walmart direct. It goes through the distributors. So, it's hard for us to extrapolate those numbers at this time for July. Those are regular July numbers that the distributors would order from us.

But you can confirm that you started – that you've got the distribution at Walmart for Reign?

Yes. They anticipated the distribution for Walmart, but they knew it was going to happen. We knew it was going to happen. And they built up inventory according to their schedules to accommodate that listing, which is a big listing as you know.

Yes. Let's start it in the beginning of August. So obviously there would be some sales.

So listing…

Yes. The listing – there will be some. We don't know.

And then may be sales in June as well and we don't know.

Yes.

Thank you. Our next question comes from Vivien Azer with Cowen and Company. Your line is open.

Hi, good afternoon. I was hoping to get your thoughts on what's happening with the core Monster brand and whether you've done any diagnosis around some of the pressure there. Is it primarily from Bang? Is it more from Reign and if it's the latter, how is cannibalization tracking relative to your expectations? Thank you very much.

Are you talking about the U.S. or internationally? I'm just trying to get an understanding of what you're referring to?

The U.S. please.

Okay. The emergence of the performance energy sort of subcategory or subset within the energy category clearly has had an effect on sales of Monster generally, which is – as well as on the sales of other energy drinks that have really been in the market historically, which is Red Bull and Rockstar and others, even our other brands, NOS and Full Throttle.So there's been an effect on all of those brands. When you look at it on a stack basis, the Monster Energy category had a really good year in 2018. And so, you've got to look at it all over. There clearly has been an impact in this year, and in the second quarter.We are seeing some stabilizing of the other brands and – but overall, we look at the business on an overall basis and on an overall basis, the category is continuing to grow. We are still participating in an overall brands within the category are continuing to grow.And this is not too dissimilar to certain other markets internationally where you've got disruptors or lower affordable energy brands going to the market that you take a market like, Mexico for example, while they were in premium energy category, the shares, our shares were higher as an affordable energy brands got into that market. They grew the market overall and our sales grew continued to grow.Although our share of market if you take those affordable brands and then recategorize and market into a broader market, obviously our share percentage-wise started to and did dropped and lower in Mexico while we've continued to see continued increases and positive sales in Mexico throughout the periods that the category has gone through this redefinition.And so that's where we think, we are all seeing the category in the U.S. and it will continue to grow and evolve. But overall, we obviously are looking to new innovation, we've got new innovation plan for later this year and next year and we do believe that we'll continue to have – Monster will continue to grow in the U.S. as well as the other products in our portfolio.

But U.S. has been some cannibalization on Monster. These being Reign is taking share from other brands as well and did as has Bang. So you look here, the category, the energy category, which includes both the traditional energy that we know, and the performance energy drinks and that together makes up the total energy drink category today.

Thank you. Our next question comes from Mark Astrachan with Stifel. Your line is open.

Yes. Hey, good afternoon, guys.

Hi, Mark.

Lots of questions, I guess just starting on the U.S., so I'm curious just the cadence of the quarter. We obviously see what month of April that it implies May, June we're up like 4% on an all-in basis. U.S. sales 6%, I guess sort of in line with scanner data, but if you exclude your commentary about Reign selling basically implies you didn't sell another product in the quarterSo maybe you give a bit more detail about – just what channel inventories look like, what shipments look like or whether some sort of issue in the quarter and shipping product from a retailer standpoint. And then completely different just what happened in international gross margins I heard what you said, but what specifically is going on there that's driving the overall continued weakness there.

So maybe I can start with the second question about gross margins internationally. So there were a number of reasons for the decline in international margins and many of these reasons we've actually spoken about on previous calls. So we said that our Monster energy drinks have a lower gross profit percentage. They're not strategic brands which are largely sales of concentrate.So as international sales Monster grows at a faster pace, then the strategic brands overall gross profit percentages are negatively impacted. Our international innovation in the quarter was in part driven by the juice SKUs, which we spoke about on this call and Espresso Monster principally in EMEA which also have lower margins in our non-juice Monster SKUs. There's also had an impact on the gross profit percentage in the quarter. Country mix is another factor; we sell in some countries that have lower percentage margins than in other countries. Mark, I'm giving the whole shopping list.In the quarter ForEx negatively impacted the cost of goods in certain countries, particularly in LATAM that import finished products from the U.S. and from Mexico. This impact obviously was less when certain ingredients only are important not the finish goods. In certain overseas countries as you know, we operate different value sharing models with certain bottlers and that could and did have an impact in the quarter.Production issues and capacity constraints in EMEA also impacted margins in the quarter. So some of these items should not be re reoccurring and frankly we are confident with the operating model. We've had a number of issues EMEA which we prefer to, we are getting to the end of those we believe, but we are comfortable with the model and also with our ability to manage our costs.So I hope that answered your question probably in more detail than you wanted.

Thank you. Ladies and gentlemen, this does conclude today's question-and-answer session. I would now like to turn the call back over to Mr. Rodney Sacks for any closing remarks.

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 innovate, 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're also particularly excited about new opportunities that we have going forward with a portfolio of energy drink products throughout the world comprised of our Monster Energy brand together with our Strategic Brands as well as Hydro, Predator and Reign. Thank you very much for your attendance.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.