Monster Beverage Corp (MNST) — Q1 2015 Earnings Call Transcript

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 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 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 March 2, 2015, 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 May 7, 2015. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. As previously disclosed, in August 2014, Monster Beverage Corporation and The Coca-Cola Company entered into definitive agreements for a long-term strategic partnership that we believe will accelerate growth for Monster in the global Energy Drink category. Under the agreements, The Coca-Cola Company will acquire an approximate 16.7% ownership interest in Monster, following the issuance of shares to The Coca-Cola Company, and will transfer ownership of its worldwide Energy business to Monster, which, in turn, will transfer its non-Energy business to The Coca-Cola Company. The Coca-Cola Company and its bottlers will become Monster's preferred distribution partner globally, and Monster will become The Coca-Cola Company's exclusive energy play. We believe that this partnership will strategically align both companies for the long term by combining the strength of The Coca-Cola Company's worldwide bottling system with Monster's dedicated focus and expertise as a leading energy player globally. We are actively engaged both in preparations for and the implementation of the contemplated arrangements. As previously reported, all necessary approvals and consents from the relevant antitrust authorities around the world have been obtained. In anticipation of the closing of the transactions, to date, Monster has transitioned approximately 84% of its targeted distribution rights in the U.S. to The Coca-Cola Company and its bottling partners, and an additional 5% will be transitioned during May 2015. Thus far, such transitions were accomplished with only minor interruptions, and I would like to take this opportunity to thank the many persons involved in the transition, both on Monster's and Coke's respective teams. We've also commenced negotiations with certain international Coca-Cola Bottlers with a view to transitioning distribution rights for Monster Energy to such Bottlers after the closing. While the closing of the transactions is subject to customary closing conditions, we anticipate closing the transactions early in June 2015. We are excited by the addition of The Coca-Cola Company's Energy brands to our Monster Energy portfolio, which will provide us with complementary product offerings in many countries, access to new geographies as well as access to new channels, including vending and specialty accounts. As previously communicated, we plan to review all options available after the transactions close and we receive the funds due to the company in terms of the agreements to return cash to our shareholders. Turning to the first quarter results. We believe that the first quarter of 2015 was negatively impacted domestically by events relating to the closing of the transactions and the transitioning of our brands in the U.S. from existing distributors to The Coca-Cola Company and its bottling partners, as well as internationally, due to the uncertainty inherent in the anticipated closing of the transactions. At this time, we cannot quantify what impact the transactions, including the transitions, will have on our second quarter. In addition to our GAAP condensed consolidated statement of income and other information and our GAAP condensed consolidated balance sheet for the company for the quarter ended March 31, 2015, attached to our press release is a non-GAAP adjusted condensed consolidated statement of income and other information adjusting for certain of the selected items discussed in the press release impacting profitability, which we believe should be considered in assessing our performance in the quarter. We believe that it would be helpful to shareholders on this call to address our results on an adjusted basis after giving effect to such items in addition to and not in lieu of our GAAP results. Excluding the acceleration of deferred revenue of $39.8 million, gross sales for the 2015 first quarter were $670.4 million, an increase of 9.2% over gross sales in the comparable first quarter of 2014. Net sales in the 2015 first quarter, as reported, was $626.8 million. Excluding the acceleration of deferred revenue, net sales for the 2015 first quarter were $587 million, 9.5% higher than net sales of $536.1 million in the same period last year. Changes in foreign currency exchange rates had an unfavorable impact of approximately $15 million on gross sales and approximately $12 million on net sales. After adjustment for the acceleration of deferred revenue, gross profit as a percentage of net sales were 56.1% as compared to 53.5% for the comparable 2014 first quarter. The increase in gross profit as a percentage of net sales was largely attributable to changes in product sales mix, lower cost of certain sweeteners and other raw materials as well as an increase in production efficiencies. Excluding distributed termination costs of $206 million, operating expenses for the 2015 first quarter were $155.3 million as compared to $138.0 million in the same quarter last year. Excluding both the acceleration of deferred revenue and distributed termination costs, operating expenses as a percentage of net sales for the 2015 first quarter were 26.5% as compared to 25.7% in the same quarter last year. We are continuing to work towards reducing our overall operating costs in our international markets. Distribution costs as a percentage of net sales, excluding the acceleration of deferred revenue, were 4.4% for the 2015 first quarter compared to 4.7% in the same quarter last year. Excluding the acceleration of deferred revenue, selling expenses, although higher in dollars, as a percentage of net sales, were 10.6% compared to 10.7% in the same quarter a year ago. The increase in selling expenses was primarily due to a $3.7 million increase in cost of premiums and a $3.7 million increase in sponsorships. TDM and MAT program costs were lower during the quarter. General and administrative costs as a percentage of net sales for the 2015 first quarter, excluding the acceleration of deferred revenues and distributed termination costs of $206 million, were 11.4% as compared to 10.3% for the corresponding quarter last year. Operating income after adjustment for acceleration of deferred revenue and distributed termination costs would have been 16.8% higher at $173.8 million as compared to $148.9 million in the same period last year. Excluding the acceleration of deferred revenue and distributed termination costs on a tax-effective basis, net income would have increased by 13.9% to $108.5 million from $95.3 million in the same quarter last year. Excluding acceleration deferred revenue as well as distributed termination costs, the effective tax rate for the 2015 first quarter would have been approximately 38.1%. The effective tax rate for the 2015 first quarter adjusted for the previously discussed items was higher than in the comparable quarter last year primarily due to a decrease in the company's domestic production deduction due to the exercise of certain stock options. Excluding acceleration of deferred revenue as well as distributed termination costs on a tax-effective basis, earnings would have increased to $0.62 per diluted share, 13.8% higher than $0.55 per diluted share earned in the comparable quarter in 2014. Results for the 2015 first quarter continue to be impacted by expenses related to regulatory matters and litigation concerning the advertising, marketing, promotion, ingredients, usage, safety and sales of the company's Monster Energy brand Energy Drinks. Such expenses were $4.9 million in the first quarter of 2015. Stock-based compensation, which is a noncash item, was $6.4 million for the first quarter of 2015 compared to $7 million for the same quarter last year. Professional services and other transactional costs related to the Coca-Cola transaction was $3.6 million. Also, additional payroll taxes of $7.2 million were incurred following the exercise of certain stock options. If in addition to making the adjustments discussed earlier, professional service costs relating to the Coca-Cola transaction and the additional payroll taxes are excluded from operating costs, operating income would have been $184.6 million, 24% higher than operating income earned in the first quarter of 2014. On that same basis, net income on a tax-effective basis would have been $115.2 million or 21% higher than net income for the first quarter of 2014, while earnings per diluted share would have been $0.66 per diluted share, 20.9% higher than earnings per diluted share of $0.55 for the same quarter in 2014. The effective regulatory-related expenses on earnings per share is approximately $0.02 per diluted share in the quarter. Note also, there was a foreign exchange impact of net sales of approximately $12 million. Gross sales to customers outside of the United States were $141 million in the 2015 first quarter compared to $144.3 million in the corresponding quarter in 2014. Net sales to customers outside the United States were $113 million in the 2015 first quarter compared to $115.8 million in the corresponding quarter in 2014. As stated earlier, gross sales and net sales to customers outside the United States were higher in local currencies by approximately $15 million and $12 million, respectively. Included in geographic sales reported are our sales for the company's military customers, which are delivered in the United States and transhipped to the military and their customers overseas. According to Nielsen report, for the 13 weeks through April 25, 2015, all outlets combined, namely convenience, grocery, drug, and mass merchandisers, sales in dollars in the Energy Drink category, including Shots, increased by 9.7% versus the same period a year ago. Sales of Monster grew 9% in the 13-week period, while sales of Red Bull increased 13.7%. Sales of Rockstar increased by 8.8%; sales of 5-Hour increased by 0.4%; and AMP decreased 12.2%. Sales of NOS increased 28.3%; and sales of Full Throttle increased 4.3%. According to Nielsen, in the 4 weeks ended April 25, 2015, sales in the convenience and gas channel, including energy shots in dollars, increased 10.3% over the same period last year. Sales of Monster increased by 7.3% over the same period last year, while sales of Red Bull increased by 16.5%. NOS was up 21.8%; Rockstar was up 13.2%; 5-Hour was up 1.3%; and AMP was down 17%. We do want to point out that increased processing as well as the trading-up of SKUs of their flavor extensions by Red Bull to 12-ounce had the effect of increasing revenues per unit sold for Red Bull. We have assessed the increase in Red Bull processing that has taken effect earlier this year, and we will be taking up processing of our products later this year. According to Nielsen, in the 5 weeks ended April 25, 2015, Monster's market share of Energy Drink category in the convenience and gas channel, including energy shots in dollars, decreased by 1.0 points over the same period last year to 34.4% against Red Bull's share, which increased 1.9 points to 36.6%. Rockstar's share was up 0.2 points at 7.2%; 5-Hour's share was lower at 8.5%, while NOS' was higher at 3.9%. According to Nielsen, in the 4 weeks ended April 25, 2015, sales of Energy + Coffee Drinks in dollars in the convenience and gas channel increased 11.8% over the same period last year. Java Monster was 8.5% higher than the same period last year, while Starbucks Doubleshot Energy was 17.1% higher. According to Nielsen, in the convenience and gas channel in Canada for the 12 weeks ended April 4, 2015, the Energy Drink category increased 3%. Monster sales were down 5% versus a year ago. I just want to point out that we are cycling on a lot of innovation that we introduced in the first quarter last year. Our market share decreased 2.2 points to 26.1% over the same period last year. Red Bull sales increased 4%, and its market share increased 0.4 points to 37.5%. Rockstar's sales increased 26%, and its market share increased to 2.5 points to 13.7%. Another note is that it's just timing of promotions. We will be embarking on quite an extensive promotional campaign during the second trimester. Some of our competitors' promotions this year were slotted in the first trimester. According to Nielsen, for all outlets combined in Mexico, the Energy Drink category grew 17.2% in the month of March 2015. Monster sales decreased 2.5%. Our market share decreased 6.5 points to 32.1% against the comparable period last year. Red Bull sales decreased 9.5%, and its market share decreased by 5.9 points to 20%. Vive 100's market share increased 11.6 points to 20.9%, while Boost's market share decreased 2.2 points to 14.3%. Coke's market share represented by Burn and Gladiator together increased 0.6 points to 7.7%. Nielsen statistics for Mexico cover single months, which is a short period that may 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 Nielsen, in the 13-week period ended March 2015, the actual 13-week periods vary by few weeks between different markets. Monster's retail market share in value as compared to the same period last year grew from 10.1% to 12.1% in Great Britain; from 17.8% to 18.5% in France; from 8% to 10.7% in Germany; from 7.5% to 8.2% in Belgium. In the same period, Monster's value share grew from 7.8% to 9.2% in Sweden; from 5% to 5.6% in the Netherlands; and from 21.2% to 21.3% in Spain. Monster's retail market share in value for the 13 weeks ended February 2015 as compared to the same period last year decreased from 19.3% to 17.3% in South Africa. According to IRI, Monster's market share increased for the 13 weeks to the end of March 2015 from 25.2% to 29.3% in Greece. 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 Nielsen, for the month of March 2015 in Chile, Monster's retail market share in value increased to 15.3% as compared to 9.4% last year. And in Brazil, Monster's market share for the month of March 2015 grew from 4.3% to 4.7% as compared to the same period last year. According to INTAGE, which provides tracking and market statistics in Japan, for the month of March 2015 in the convenience store channel in Japan, Monster's market share grew from 28% to 33.8%. Excluding the acceleration of deferred revenue and the distributed termination costs, net sales for the DSD segment increased 10% to $566 million, and contribution margin for the DSD segment increased 20.1% to $223.9 million from $186.5 million in the 2014 first quarter. Net sales for our DSD segment were negatively impacted by approximately $12 million due to foreign currency movement. Net sales for the company's Warehouse segment decreased 3.6% to $21 million for the 3 months ended March 31, 2015, from $21.8 million for the same period in 2014. Contribution margin for the Warehouse segment was negative by $0.04 million in the first quarter of 2015 compared to $0.3 million in the first quarter positive of 2014. Net sales in Europe, Middle East and Africa in the first quarter of 2015 in dollars were 2% lower than the same period last year. In local currencies, net sales in the region were 14.7% higher than in the same period last year. Monster is continuing to gain momentum and increase market share in Europe, in particular, in Great Britain, Germany, Denmark, Sweden and Greece. Monster achieved sales gains and continues to increase its market share. Overall, our Western European and African divisions are now operating well, and we have made good strides in achieving increased distribution levels and in-store execution. We are continuing to see the benefit of the strategic changes implemented at the end of 2013 and in 2014. Our EMEA division traded profitably during the first quarter. The Monster Energy Valentino Rossi drink, which is now available in the majority of markets in Europe and South Africa, continues to perform well as a permanent SKU and was launched in 5 additional markets in the first quarter of 2015. During the quarter, we also launched Mega Monster, a resealable 553 ml SKU of our original Monster Green Energy drink in a number of EMEA markets. Early indications show positive sales contribution from Mega Monster. Net sales in Asia-Pacific decreased 9.5% in dollars but increased 1% in local currencies versus the comparable quarter last year. While net sales in South America decreased 15%, 6.2% in local currencies over the comparable period in 2014. Mainly due to foreign exchange differences, a competitor price adjustment in Chile to offset an indirect tax and issues with our Colombian distributor, sales also decreased in Brazil ahead of the anticipated closing of the Coca-Cola transactions although our market share in March increased for Nielsen. In Japan, net sales increased 11% in local currency. Japan contributed meaningful operating profits in the first quarter of 2015. In Mexico, net sales increased 35% in dollars. Similarly, Mexico contributed meaningful operating profits in the first quarter of 2015. We are continuing with our expansion strategy in international markets but have deferred proposed launches in certain countries for the future following the strategic partnership that we are entering into with The Coca-Cola Company. We will address the implementation of such deferred launches following the closing of the transactions. We are continuing with our strategy to secure local production in certain of our international markets in order to improve gross margins, reduce freight, reduce damages and assist in mitigating the effects of exchange rate fluctuations. We believe that our partnership with The Coca-Cola Company may result in additional local production opportunities for us and may accelerate our local production strategy. Our original Monster Green Energy Drink continued to perform well and experienced good growth as did our entire Ultra product line. Unfortunately, we experienced a quality issue relating to the texture of our Muscle Monster product line. This issue has been addressed, and the line has been reformulated. We are refreshing the packaging of that line as well. As a result, however, sales at Muscle Monster during the quarter were substantially lower than the first quarter of last year and obviously negatively impacted our sales. During the 2015 first quarter, no share purchases were made under the board-authorized share repurchase program. However, 2.2 million shares were purchased from employees during the quarter in lieu of cash payments for options exercised or withholding tax as due. Turning to the balance sheet. Cash and cash equivalents amounted to $362.8 million compared to $370.3 million at December 31, 2014. Short-term investments were $647.3 million compared to $781.1 million at December 31, 2014. Long-term investments decreased to $41.2 million from $42.9 million at December 31, 2014. Included in short and long-term investments are auction rate securities of $3.9 million. Days outstanding for accounts receivables were at 46.4 days at March 31, 2015, and 36.4 days at December 31, 2014, compared to 48.1 days at March 31, 2014. Inventories increased to $197.9 million from $174.6 million at December 31, 2014. Average days of inventory were 69.1 days at March 31, 2015, which was higher than the 57.4 days of inventory at December 31, 2014, and lower than the 73.7 days at March 31, 2014. We have now launched Ultra Citron, our fruity SKU in the Ultra product line and Rehab Peach Tea + Energy, which have been well received by consumers. Our repositioned juice and punch products continue to show healthy gains. We are planning to launch additional products later in 2015, but it is premature for us to discuss those products at this time. We believe that the transitioning of a substantial majority of our targeted distribution rights in the U.S., effective April 6, 2015, orders by the Coca-Cola system to implement the transitions, the accounting for returns from terminated distributors, the timing of the transitions as well as uncertainty with our independent international distributors given the imminent implementation of the transaction, are among the factors that impacted our sales levels in March and April 2015. It is premature for us to finalize our April sales and to comment thereon at this time. In conclusion, I'd like to summarize the recent positive points. North American and international gross margins are healthy. Our 2015 first quarter gross margins in North America as well as internationally generally were higher than in the comparable quarter in 2014. U.S. Nielsen market statistics show that the Energy category continues to grow. The new additions to the Monster family that were introduced during 2014 continue to gain market share and contribute positively to the overall increase in the company's sales. Our repositioned Punch Monster and Juice Monster lines have been positively received by distributors and consumers, and both distribution and sales of those lines continue to improve. We believe that our Monster Unleaded, Ultra Sunrise, and Ultra Citron lines as well as Rehab Peach Tea + Energy will continue to increase their contribution to sales through 2015. Turning to international markets. We are pleased with the performance of our international brand expansion, particularly in Japan, Great Britain, Germany, France, Sweden, Denmark, Greece, and Chile. We believe that the Coca-Cola transition, particularly a successful transition, will afford us ongoing opportunities in 2015 and beyond. I'd like to open the floor to questions about the quarter. Thank you.

So I guess just first in terms of the 84% of the volume that you've transitioned to the Coke distribution, just give us a little bit of kind of what you're seeing as you've transitioned. I know you called out some of the disruptions, but are you starting to see some changes in terms of what's happening on the shelves? And you've obviously highlighted the opportunity in the vending and specialty channels. Can we see those channels getting more traction more quickly? And then in the international market, it sounds like the disruptions related to just the pending transition is perhaps a little bit more pronounced maybe than the U.S. markets. So can you verify if that is the appropriate reads that we should think about at this point? And are there any sort of any big markets? You're seeing a little bit more of the transition disruption in those international markets?

Judy, addressing your second question first, you are correct in your assumption. The international markets have indeed been impacted more significantly. There seems to be greater skepticism among distributors regarding the future and their commitment to continuing with our brand. This has influenced their investment in our brand, their efforts to secure distribution, and their sales strategies. Regarding the transition in the U.S., we believe it has generally gone smoothly from the retailers' perspective. There were a few minor disruptions where some retailers and distributors were unable to make timely updates, resulting in certain products still being displayed as supplied by former vendors. However, overall, we feel the transition was successful. Yet, it will take time for us to fully assess the situation. We have heard of some minor issues, but we don't capture everything, especially in the initial weeks following the transition. It will take several months for us to comprehend fully the challenges and opportunities that lie ahead. Commenting on any uncertainties wouldn't be practical or precise at this stage.

The first question, the price increase, should we think about that as sort of in line with the mid-single-digit price increase that Red Bull took?

I think it's probably going to be similar, yes. I just think that having seen how they've managed this and the effect and the response from the trade and consumers, we think that's probably what we are likely to do. We'll finalize the actual numbers a little later, but we'll do that. We're looking to try and do that early in the fall.

Okay, great. And then the tax rates, so should we expect also that to go back to where it was trending over the last year or so following this quarter? And then just one sort of broader question...

Yes, it's challenging for us to pinpoint the exact tax rate. There was a significant stock option exercise that could influence this, but over the long term, those effects should lessen considerably, impacting the tax rate. As we stabilize and expand our international business, both for our own brand and the brands acquired from Coca-Cola, we believe the tax rate will be positively influenced. However, at this time, there are too many uncertainties for us to accurately forecast where it will settle. That said, we do believe we can make progress in reducing the rate.

Great. And then just lastly, how are you envisioning international distribution in terms of percent of volume in the Coke system and away from the Coke system? I know it's early, but just sort of how do you think about that?

It has been challenging to provide a clear answer because it has taken time to connect with international bottlers worldwide to evaluate their interest and our position with the brand. There are also economic considerations regarding whether we feel comfortable making the change based on margin and cost requirements. Several factors are involved, and we are addressing them. Transitioning in the U.S. was more straightforward and was our primary focus. We have traveled to meet with international bottlers and have started negotiations, but many are unfamiliar with Monster and the system. Each negotiation varies due to unique factors in different countries, and there isn't a one-size-fits-all approach. This process is taking longer, and while we are optimistic about transitioning a significant portion of that distribution, we expect developments over the next three to six months.

Question on G&A. So OpEx in the quarter was a little bit higher than we had modeled, and I understand there's some noise in there, regulatory professional services, et cetera. Should that normalize? I guess the thinking was you'd get better SG&A leverage, particularly with the top line pretty resilient. Should we be expecting G&A to sort of normalize for the balance of the year? And then with respect to FX, perhaps you could give us a little guidance there. I guess it was about a 2 point headwind in the top line. What are you expecting for the balance of the year?

On the general and administrative expenses, we anticipate that the regulatory issues will eventually be resolved, but they are still present for now. We expect to see these matters persist for a little while longer until we address the pending regulatory situations. As for payroll taxes, we believe this could take one or two more quarters before normalizing. Additionally, I want to point out that we experienced high premiums this quarter due to recognizing them in the first quarter, which were primarily intended for the second quarter. This resulted in a timing difference regarding when we see the benefits, but it was necessary to comply with our accounting policies. In terms of sponsorships, we saw an increase that we expect will stabilize over the year. Certain sponsorships were allocated based on the actual event timelines, which led to adjustments in our contracts. We are now spreading these expenses over a 12-month period, causing a temporary rise in costs during the first quarter, especially since many annual events start earlier in the second quarter or towards the end of the first quarter. Additionally, we signed a significant sponsorship agreement with UFC this year that contributed to the first-quarter increase. We believe these costs will eventually level out and align better with future projections. We are uncertain about how these factors will be affected once we integrate the KO brands, as their business model will involve different cost structures that may influence our overall expenditures.

And one thing we didn't actually address is the professional services costs related to the Coca-Cola transaction. And of course, that should wind down when the transaction closes.

Yes. Absolutely. And then ForEx, perhaps if you'd like to comment on, the floor is yours. Your thoughts on that, Hilton?

Yes. ForEx, in the quarter, we commented that gross sales we believe were affected by about $15 million and the net sales by $12 million. And depending on what happens in the subsequent quarters, it's difficult to comment on what those numbers will look like going forward.

Rodney, if we look like 12 to 18 months in the future and then you look at your international business, what are some of the key markets that you're focusing on? And as we look at the timeline of getting traction in those markets, should we assume a normalized timeline or a little bit accelerated now that you have a partner of large scale in some of those markets?

We are focusing on major international markets where we already have a presence, such as the U.K., Germany, and Spain. Our efforts will continue in these areas, particularly with the Coca-Cola Bottlers in Great Britain and Spain. Although Germany is not currently aligned with those bottlers, it is likely that we will make changes there in the near future. We also see significant opportunities in other large markets, especially in China, which we consider a promising area for the premium energy segment, even though it is currently dominated by lower-priced products. Our brand positioning in this market is still being decided, but we are committed to exploring it. Brazil is another large market where we believe we can see considerable growth. In Japan, we are performing satisfactorily. While we will continue to enter new markets, particularly China, our focus will primarily be on those where we already have a presence. We are taking steps to better understand the market there and will assess when we can enter it. However, working with the many independent bottlers globally is a significant undertaking, and each country presents its own challenges. In discussions with distribution and bottlers, we are also emphasizing local production to reduce costs and encourage alignment with our goals. This adds complexity, but we are making progress and are confident that this approach will provide long-term benefits.

I mean, that was one of the reasons why we did this transaction was to be able to capitalize on the opportunities that Coca-Cola presents to us through international distribution.

I guess, maybe a follow-up on that just with regards to your progress moving to local production in overseas markets. We've talked a lot about it, and you just mentioned it there. I just was wondering if there's any update to your thinking just given the Coke deal is pending. I guess, specifically, are you now holding back on that transition anywhere where you instead anticipate a move to local production via the Coke system instead of your current...

No, it's a mixed situation. There are definitely more opportunities to establish local production through the Coke bottlers we have engaged with and plan to engage with. In some countries, we are already in advanced discussions with independent Coke packers to package our products. We will continue to pursue these arrangements because they will help us secure local production more quickly. Setting up a Coke-packing plant and making necessary equipment adjustments can take time. Additionally, in some countries, we might need backup or multiple production plants. It really depends on the specific country and circumstances, but there is significant interest from the Coke bottlers who are eager to take on production, which is very advantageous for us. We are exploring dual strategies in some countries, combining the independent packers we have started with and Coke packers. In other countries, we are beginning anew with Coke packers.

Thank you. On behalf of Monster, I appreciate everyone's ongoing interest in our company. We remain confident in our growth strategy and are dedicated to enhancing and differentiating our brands while expanding the company both domestically and internationally. We are particularly enthusiastic about the new opportunities ahead of us with our strong portfolio of Energy Drink products, which includes our Monster Energy Drink line, along with The Coca-Cola Company's energy brands globally. We believe that our partnership with The Coca-Cola Company will allow us to concentrate on our core Energy business while taking advantage of their robust global distribution and bottling system. Thank you very much for joining us.