Hansen Natural Corporation - Shareholder/Analyst Call

| About: Monster Beverage (MNST)

Hansen Natural Corporation (HANS)

December 15, 2011 4:15 pm ET


Roger S. Pondel - Chief Executive Officer and President

Rodney C. Sacks - Chairman, Chief Executive Officer, Member of Executive Committee and Chairman of Hansen Beverage Company


Unknown Analyst

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Roger S. Pondel

Good afternoon, everyone. I'm Roger Pondel with PondelWilkinson, and welcome to Hansen Natural's Investor Meeting. We are webcasting today's meeting. And for those of you who are not in the room, we are doing this live. We're in New York City at the Harvard Club. We got about 80 people, analysts and investors in the audience. So welcome to all of you.

Before I introduce Rodney Sacks and Hilton Schlosberg, I am going to read the Safe Harbor statement and need to remind everyone that certain oral and written statements in today's presentation and in response to the questions, are forward-looking statements, for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements in connection with, or related to any discussion of, or reference to future operations, opportunities or financial performance. Management cautions that these statements are based on management's current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company, as could cause actual results and events to differ materially from the statements made herein. Such risks and uncertainties include, but are not limited to, the following: actual performance of the parties under the new distribution agreements; potential disruptions arising out of the transition of certain territories to new distributors; changes in sales levels by existing distributors; unanticipated costs incurred in connection with the termination of existing distribution agreements or the transition to new distributors; changes in consumer preferences; changes in demand due to economic conditions; activities and strategies of competitors, including the introduction of new products and competitive pricing and to our marketing of similar products; changes in price and availability of raw materials; other supply issues, including the availability of products and/or suitable production facilities; product distribution and placement decisions by retailers; political, legislative or other government actions or events in one or more regions in which the company operates. For more detailed discussion of these and other risks, please see the company reports filed with the SEC, including the annual report on Form 10-K, filed on March 1, 2011, and the most recent quarterly reports on Form 10-Q, including the sections contained therein entitled risk factors and forward-looking statements, for discussion of specific risks and uncertainties that may affect the company's performance. The company assumes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

It's now my pleasure to introduce Hilton Schlosberg, President of the company and to make the presentation today, Rodney Sacks, CEO. Rodney?

Rodney C. Sacks

Thank you. Good afternoon, ladies and gentlemen. Thank you very much for attending. Seem to be in an echo chamber. Let's go through this presentation. We now have 19 consecutive years of increased sales under our belt since the acquisition of the Hansen Beverage business in 1992, and we achieved in excess of $1.5 billion in gross sales in 2010. Net sales for the third quarter of 2011 increased to $474.7 million, up 24.4% from the same time period last year. Net income for the third quarter of 2011 increased to $82.4 million, up 23.9% from the same quarter last year.

Like to just talk a little bit about the Energy Drink category, in general, before talking about the company, specifically, on our own results. The way we are seeing energy drinks and as we see them as a company now, is that energy drinks are the soft drinks of many generations ago.

Many generations ago, soft drinks were innovative, they were cutting-edge, they were cool and they were premium. That's all of what energy drinks are today. To give you some perspective of historical -- history of soft drinks.

Coca-Cola, which is the best-known brand in the world, in beverages, in this early picture was promotion to the fact that you should drink Coca-Cola after exercise. Here is another Coke ad in the early 1900s, "satisfies the thirst", which we all know, but also "pleases the palate, relieves fatigue quickly and naturally. Puts vim and go into tired brain and bodies." The thing is a little different to how we describe it today. But the meaning remains the same: delicious, cooling and refreshing. That's what is perceived to be the soft drinks are now, thirst-quenching, refreshing. But all of these other attributes, that were used by Coke, nearly 100 years ago to describe their beverages, really, what energy drinks are today.

There's nothing strange or mystical about it. This is an edge in the probably early '20 or '30s. "No after-lunch Drowsiness." That's a very interesting ad. Because it's difficult to read, will you finish it? Any powerful drug such as caffeine is acknowledged -- as caffeine is acknowledged to be, should not be offered indiscriminately to the public in other than it's natural condition and certainly not without the knowledge of the consumer. In this 1912 Good Housekeeping cartoon, Harvey Wiley warns a gullible public against the gremlins of indigestion, nervousness and addiction lurking in Coca-Cola. Well, we've all managed to survive the next 100 years, Coca-Cola thrives and Coca-Cola's a fine product. And this is -- and why I showed this is because you start getting little pockets of people raising -- putting up the hands and raising questions about energy drinks and, more than anything, respectfully, most of the people are saying that because of ignorance. They simply don't know. There's a mystique about our marketing of energy drinks and then, because of that, they're just not sure what's in it. And often, when you go to people who are raising a concern about energy drinks, for example, you go to a meeting and you'll see a lot of people at that meeting, and they're all sitting with Starbucks, or any of the other leading coffee brands in front of them, and the first question you ask the people in the panel, do you drink coffee? Well, of course, we do. Do you know that the coffee you just drunk has twice the amount of caffeine per ounce that any energy drink has. And all their faces go a little bit blank and say, no, it can't be true, not true. And we say, it is true. Energy drinks have got all this high caffeine which I know that's not true. And that's the misconception that a lot of people have about energy drinks and the category. They're just talking generally out of a lot of ignorance and there's a lot of guessing about the product.

The Energy category is continuing to grow and to become an important part of the overall beverage industry. This is the Convenience Store category data that was produced by Beverage Digest in March of this year. And the interesting part of this chart is that it shows that while CSDs have a 53% of the volume share, they only have 40.9% of the actual value dollar share. And what it all shows is the second largest category in Convenience is Energy with 23.2%. The next biggest category share is Water, and that includes all water, that's unflavored water, that's flavored waters, and everything. Sports drinks, Gatorade, Powerade, all the sports drinks, are 8.8% share. That's a 1/3 of the Energy category. Juices and Juice Drinks, 8.9%. That's roughly a third. Ready-to-drink teas, one would think is a big category, 4.9%. That's less than a quarter.

So when you look at these results and you see where the beverage industry is going, where consumers' tastes are going and what is driving consumers and retailers is the higher profit, the higher ring, the premium image and the premium pricing you are achieving for energy drinks. And it is becoming more and more part of the mainstay of the beverage landscape in America and elsewhere. So days of Energy being a tiny niche brand, or niche category, are long gone.

The energy drink market is continuing to grow. It's been around a long time. It started in -- when we launched our first smoothie energy drink in 1996. And then in 1997, Red Bull launched an energy drink and we launched the Hansen's energy product on the West Coast. So energy drinks have been around in the U.S. for many years and we are around in Europe a number of years before that. And so what's interesting is that, after that length of time, we are still seeing, in all outlets, a value change of 14.9 and a unit change of 16. And in convenience and gas, value change of 15.4 and a unit change of 15.8, which just shows very little difference between units and value, as brands continue to and categories continue to mature and grow.

We believe that the Energy Drink category is still in its infancy, with only 16% of adults, 18-plus, claiming to be energy drink consumers. Young adults are most open to trying energy drinks, with 41% of males and 35% of female claiming to be energy drink consumers. As these young adults age, their energy drink consumption habits are likely to remain, while new users come of age and expand the category. Energy drink consumers also continuing to embrace innovation and flavor alternatives, which we believe are healthy to drive the growth and usage occasion, as well as demographics of consumers in the category.

Premium cross brands continue to dominate the category. Monster Energy and Red Bull together have 58.3% unit share of Energy Drink category in the convenience and gas channel. Low-priced alternatives have not affected price integrity in the category. And this is in the U.S.. There is a difference in OREO in Europe, where low-priced alternatives have had a presence for many years.

In an analysis, put up a chart of the Energy Drink category, in value. This is the All Outlets Combined snapshot from Nielsen for the 13 weeks ending 19th of November 2011. It shows the category grew $229,931,000 in dollars, over the same period a year ago, at a rate of 14.9%. Monster grew, 22.1%, which is the largest growth, percentage-wise and also, as you can see, in dollar terms, we grew 92.6% with was far larger than our nearest competitor, Red Bull, which is $78.2 million, in dollar terms. In actual share, we grew 1.7 points to 28.9% of the All Other category.

From this graph, you'll see that 5-hour[ph] , big growth that has been quite growing very aggressively seems to have tapered off quite a lot. And in this last result, they're actually growing lower than us at 17.6% on a much lower base, or 17.5%. Pretty similar to Rockstar, which is growing at 17.7%. The brands that are negative are Amp, which was negative, Full Throttle and Venom. That's Coke, Pepsi and Dr. Pepper. There is one of the other Coke brands is growing somewhat but it’s small and its growth is also tailored off quite a bit is NOS, which you can see has a 3.3% share, but it was only growing at 6.5%. Since it wasn't growing as the same as the category and it was losing share.

Some of our key accomplishments in 2011, we have not only extended our unit share lead over Red Bull, but we have also closed the value-share gap with Red Bull as you saw from the previous slide. Our value sales are up 23.3% versus the category growth of 15.4% in the convenience and gas channel. And our value sales per point of distribution are up 21.1% versus the category growth of 15.4% in the convenience and gas channel.

Sorry, I'm going backwards.

In units, the category -- this is how the category looks on the graph. Going back a few years, but what's interesting is I think you can see the large dissection between the top 2 brands and then the risk of the market below, and in the risk of the market below, the next you got month to now with 31.1% share against, in units, this is Red Bull's, 27.4%, and then there's a large gap to Rockstar which is at 11.7% but, again, what is quite interesting, if you look at the story historical trends from U.S. backdrop stalls [ph] start her off in this graph at 12.4% so remains relatively flat with little bumps they've not been able to really grow the share. The light blue graph is the 5-hour graph and that you'll see they had a lot of growth over the last few years and then you see it towards -- from the beginning of this year they seems to be tailing off again as well.

Now our accomplishments on the unit side of the brand, in the latest 13 weeks, we are outpacing the category by a wide margin on the All Outlets Combined category, excluding Wal-Mart, the category's up 16% and Monster up 25,7%; Convenience and gas channel, the category is up 15.8% and Monster is up 25.3%. Monster Energy's innovation has been enthusiastically accepted by consumers with Absolutely Zero and Rehab making up 4.7 unit share points of Monster's 31.3 share points in the convenience and gas channel. Monster Rehab Tea + Energy, launched in April 2011, is already the #1 in the ready-to-drink tea category in the convenience and gas channel, if you're measuring that in the tea category. Monster Energy's original SKU is still growing at 16.1% with sales to point of distribution growing at 14.1% in the convenience and gas channel. Again we think this a noteworthy metric because of the with emphasis those were the because of the fact that this is our original product and it’s been going all this time and we're still getting growth in our core product which we think speaks to the strength of the actual brand and the continued opportunities for growth for the brand.

Peace Tea is the #9 brand in the convenience and gas channel in the ready-to-drink tea category and has grown 22.2% over the last year, making it a solid player in that category. Peace Tea secured distribution in 2,531 more stores in Q4 of 2011. Turning a little bit to some of our -- what we're doing in marketing as many of you here today saw the earlier video. We obviously, continue to support extreme sports. We obviously -- we change, we expand the universe of the sport that we are following. Some of our athletes -- many of you may have found the video interesting, some of you have seen similar videos in the past, but one of the things that you got to be, we believe you got to be part of the heroes, part of the winning team and part of the lifestyle and the aspirations that consumers have for you and your brand. So we put up on the screen a number of the FA2 sponsor this year who has actually achieved championship wins in their respective disciplines. BJ Baldwin in the desert championship, Baja Racing, Trucker Hiebert [ph], the 3 gold medal on snow cross. Ryan Villopoto won the Supercross and Motocross championships this year. Troy Brosnan won the downhill mountain bike world championship. Johnny Bestrick [ph] was a 5 times consecutive X-Games gold medalist. Josh Hayes won the 2011 World Superbike Championship and one of the core teams we've supported for many years in the light division in motocross is the Pro Circuit Team and they won championships, both in Supercross and the West division this year.

Some of our key athletes are, as I indicated, earlier just now the Pro Circuit Team, we have a long-standing relationship with the Kawasaki factory team for Supercross and motorbike events, racing. Ken Block, as you've seen is a worldwide athlete who's garnered many, many tens of millions of viewer hits on YouTube from the Gymkhana videos that he creates. Valentino Rossi is one of the most well-known world champions for in MotoGP; Michael Schumacher, probably also, one of the most well-known world champions in Formula 1 ever to raced. And we also then participate in Dakar. We have increased our sponsorship and we're aligned with the BMW team, who race BMWs and the Minis. And then we have a motorcycle team in Dakar, which is a sport much more closely followed in Europe and elsewhere around the world, which has a lot of viewers in January. It's a race that takes over 2 weeks and is run from one side of South America this year to -- starts in Argentina and finishes in Chile.

One of our platforms that we continue to develop and expand on and invest in, is music. Music always appeals to, particularly, young males. It's one of their platforms and we've had a number of cross promotions with Slash, who is a very popular, obviously, very popular artist, probably one of the most well-known artists in the world. Tommi Lee, Motley Crue, the Cowen group and the Guns and Roses brand, the Guns and Roses band themselves who are currently on a world tour. We have endorsements with them, they're drinking Monster, they have Monster, where one particular band member loves the Monster T-shirts and he has them onstage. So this is being shown around the world. But again, it's part of what we do in order to portray the lifestyle and the credibility of our brand.

These are the tours. Guns N' Roses, VANS is a very basic 46-, 48-city tour around America in the summer. We've done -- we've sponsored them for many years, Rock the Bells, Rock the Range, Carnival Madness and Epicenters. So again, that's the platforms we continue to invest in and they continue to pay back for us and continue to help us in the molding and establishing of our brand and our image for the brand.

Key sponsorships are the Supercross that has become pretty much the DNA of Monster is motorsports, probably more than any other extreme sport. And in the motorsport area, the most core group that we sponsored both here and in Europe. We also sponsored the Supercross series, motocross series in Europe, which is held in summer. We also have an active participation in the motocross in Australia. So this is very much our probably our primary and core sport. And then we also get to a lot of the younger male through skateboarding. We have a very credible sponsorship of Street League, which is a league created by Rob Dyrdek. We also love the DUB Show, which is very much more of a motorcar culture consumer.

On the digital side, we're continuing to invest more heavily in marketing through the digital platforms. We have now the most -- the #8 most liked, recorded like or fans, or is another words page of all brands in the world on Facebook with 12.77 million, nearly 12.8 million likes. Our approach to social media centers on providing relevant content to target consumers and we utilize Facebook as a broadcast tool to interact with our fans on a daily basis, broadcasting videos, photos and stories to 12.8 million of our fans. On Twitter, we have 120,000 followers. But the -- again, the more direct focus for us is YouTube, which is used to broadcast relevant content to our Monster fans. And we now have over 16 million views on our YouTube channel.

We are also integrating in TV, as have all indicated many times, we don't generally do advertisements on TV, on radio, on bull boards, et cetera and generally, in print. But we do have our product integrated into TV shows in a credible way, which we believe helps the brand and helps the credibility, and doesn't portray the brand as being a corporate or a overtly commercial brand.

One of the events we did this year, which was shown, was the West Coast Customs on Discovery Channel. Very popular. We had to call bolt, which was a Monster call, which was recently actually given away to Davis of Korn, of the band Korn. And we also do the DUB magazine, which is a very popular series on MTV2. And then we've had, for many years, a relationship with Rob Dyrdek, we have a -- in a relationship with him on his Fantasy Factory TV show. And he just come out with a new show called, Rob Dyrdek's Ridiculousness, which -- strange name but it's very popular with young adults on MTV. It's probably one of the most popular shows that has recently been released.

We also spent a lot of time looking in the video gaming area, both on console game integration for Xbox, PlayStation, type games, where we get our brand integrated into the story and into the actual game, as opposed to just having it bannered at the beginning that it's sponsored by Monster, we don't do that. But we have our brand integrated in the game, as part of the story, as part of the event.

We also sponsor a group of kids called Evil Geniuses, it's like kids but they're young adults. And they go around the world and they take place in world championship, actual live gaming competitions. And they have actual champions in different disciplines. So this is a very, unique way of getting to all of these gamers around the world, particularly in Asia, in places where we're starting to look at expanding the brand. Gaming is very popular, it's one of the ways we believe we can weave our brand into the fabric of the Asian communities and society.

This new initiative, which we're going to be taking this year, again, probably it's a question of how do we do it, but we are going to participate more directly in NASCAR. We did for participate with a car, through Ricky Carmichael, in the truck series this year. We are going to step that up a little bit and -- but it's premature because of existing sponsorships that the particular athletes have that we've aligned ourselves with, that for us to announce it at this stage will become public in a matter of weeks, but this would be premature at this time. But that is an area we are going to expand a little more again to try, and we believe, if it's done the right way, we believe we can extend our franchise to a slightly older but a slightly more fanatical NASDAQ consumer.

We're also going to look at a little bit at Monster Jam. That is a series that is promoted by the promoter of the Supercross series, who we have a close relationship with and we've been very intimately involved with over a number of years. And so we believe we're sort of looked at that series a little bit and also help expand our brand.

Traditional activation and support for our brand, while we try in every quarter or, maybe this year we're going to be looking at sort of a trimester basis, we do, do retail promotions with our retail partners, in order to incentivize and improve demand and pull for our brand at retail. But we do try events that are usually unusual, or not easily obtainable by consumers, which provides sort of added value for them and how they perceive the brand and how they perceive being able -- wanting to win these competitions.

So what we did this year was we had the participation with West Coast customs to build a dream car. We had our road trip with Wee Man. I think I might have mentioned that in an earlier meeting but that did go well for this year, it was very successful. We gave away certain types of specific gear to consumers who sent in a certain amount of tabs and a whole lot of things to incentivize them. That was very successful as well, and the current one, we're -- competition which we're implementing this quarter is to have a number of winners attend X-Games with us and to actually integrate and meet with our athletes and our whole, you know, the parties we have at X-Games, et cetera.

In 2012, we are going to extend the brand a little wider. In the first quarter, we're going to have a, call it, activation, which will be around Rehab brand that we just introduced and that's around attending the Rehab Pool Party in Vegas at the Hard Rock Hotel. In the third -- second trimester we're going to deal within -- repeat the royalty gear program because that's really proved to be very popular this year and we're going to do an event with Java Monster to again focus on and extend those brands. So these are the 2 brands we're also going to do, not only just promote Monster Green but promote Rehab, which is the Rehab line, as it's coming off now, and also Java Monster, which we've seen some renewed growth in the brand this year. The last quarter, or last trimester, Monster promotion is something we haven't yet firmed up and so there's a placeholder there.

I'd like to turn to Rehab. Rehab has been a very successful product launch for us. We launched Monster Rehab Tea + Lemonade earlier this year and the sales rates, sales to point of distribution levels have all being very, very exciting for us, and as a result, we've now extended that range, and we've recently launched, and they're out in the market, 3 additional Rehabs. The first Rehab is Rojo Tea + Energy, which is just of red and black tea and energy, sort of a -- more of a berry, cranberry top flavor with tea; Monster Rehab Green Tea + Energy; and a Monster Rehab Protein + Energy, which is a protein drink that has 15 grams of protein. All 3 of these drinks are noncarbonated. The first 2 have about 10 calories per serving, which is the same as the original Rehab and the protein drink has about 50 calories per serving, which is pretty low for a protein product. But we believe that will help us also expand our franchise to, again, those users who do want protein in a drink and is part of the diet, their regular diet.

The addition -- new one that we are planning to launch in the first quarter of 2012 is Rehab Tea + Orangeade, which is a sweeter profile and more of an orange juice profile than the lemonade, but again, in this family, the reason we are going to introduced a fifth one, is that we believe that from the response we're getting back from retailers is that, we're going to be able to command a full shelf in many of our accounts with the Rehab line and our strategy is to look for that line and to look for that shelf in the tea door. In other words, to expand our offering into another door in the convenience channel so that we don't cannibalize our existing space and our existing SKUs on shelf, and also help expand the category to people who go to or use to go into their tea door to get their regular tea offerings of products.

This slide really gives you, I just mentioned sort of a lighter band but this is more likely to be our current energy drink consumer. It's younger, it's male, it's wild, it's aggressive, it's blue-collar. This is who we think, not sure but we think, are the Monster Rehab consumers. We think they're all existing energy drink consumers, but we also believe they are bringing in additional consumers. More slightly older, more female, but it also appeals to all of our existing consumers, particularly consumers who, for example, would want to drink an energy drink before they play sport, before they do something, when they don't want carbonation. Because this is the first drink that we have in our line that offers them, leaving us our coffee which has a milk base, but that really doesn't have carbonation. And some of the comments, I'll just read them that we've got, you can just see from the type of consumer who’s sampling it is: "I don't normally like energy drinks, but this tastes good. It's different than I expected."

"My kids drink Green all the time but I don't like the taste. This is definitely one I would drink." "A non-carbonated Monster, finally. This is perfect for the summer heat."

"Tea + Lemonade is like an Arnold Palmer. Awesome."

Wow, this doesn't even taste like a Monster. This will go perfect with my sweet tea vodka."

We did note one negative comment from a soldier, whose photograph appears on the next page. We couldn't switch him from Green Monster. He said, "I've got a Green Monster claw tattoo on my arm and I isn’t switching."

Some of our newer products, we launched Monster M3, which is a super concentration of 5-ounce bottle, earlier this year. We're seeing some nice distribution and take-her-down. We're seeing really good sales per point. And we actually are quite encouraged by this little product, it's sort of bridging the gap between energy shots and energy drinks. It's our sort of shot equivalent in the Monster family. It still has the attributes and credibility of a drink in a little glass bottle, it's 5 ounces, it gives you the same ingredients as our normal 16-ounce size does, from all the supplements, et cetera. And we're actually getting some really nice repeat purchase and sales. And so we think this is the way to go and obviously, you know, we sort of tried the energy shot product in a 3-ounce size and, really, we struggled to get credibility for a shot for what is positionally known to consumers as being a drink. We think this is a drink and this does resonate and does makes sense to consumers and so we're quite encouraged by the M3 product.

Our new products, we got another new product we're going to launch, in addition to Rehab, is Uber Monster, which is an energy brew, in a large bottle with the large-cap. We have some here cold and I really would encourage you guys, even if you just have a sip of it in some glasses, we have them in cold. Do try and taste it. It's a very uniquely flavor. We call it, you know, it's a bioactivated, actually, a brewed product. It has a very dry -- much drier taste, more like a champagne-type taste, it sort of a Monster champagne, almost. But it's nonalcoholic and it really is good. Just got to be strong to open the bottle and open the cap because this is one big cap.

So we do things differently, we do things to -- that are nontraditional, not normal, and we have this very big cap on the -- but it's a very premium package, you can see from the actual design of the package. And we believe this is something that can compete at the upper end of the price target area for energy drinks, demand which is in the $4 category ring area, $4 to $5.

And if you think it is a niche product but we think it can grow, we're very excited about this as, again, trying to do something different and trying to continue to expand the range, the use occasion, the consumer and keeping the perception of the brand premium, but also giving good value at the same time.

Going to some of the other products, this is our Peace Tea line up. We have a number of SKUs. We, obviously, with any SKU, you find some that sell better than others. There are 3 SKUs, we are going to actually replace this year, in 2012. We're going to replace Ceylon tea, Unsweetened tea and the Diet Green tea. We are going to replace them with Cranberry tea, a sweet Texas-style Sweet Tea and a Pink Lemonade and tea mixture, which is the second one after our Caddy Shack, which is doing very nicely. We're also looking to expand the package offering and we are going to launch a multi-serve package, 4-piece tea this year. During the course of the year, towards midyear. The consumer acceptance of Peace Tea single-serve cans has facilitated this introduction and we believe that we will continue to be able to grow this brand and the franchise with additional packages, which will offer us higher, higher margins.

On the warehouse division side, the profitability has increased this year, due in part to increased promotion and other allowances, and we do propose to take some juice price increases in 2012. We've rationalized some nonstrategic lines and SKUs and updated our juice graphics and expanded offerings. Some of the expanded offerings on existing lines are Hubert's strawberry, lemonade and limeade flavors, the Hubert's lemonade brand is continuing, it's actually doing -- starting to grow and doing very nicely. Junior Juice Coconut Water Twist boxes, Blue Sky Recover Energy and we're going to introduce a sparkling water line in 2012. Other new product lines are Hubert's Half and Half Lemonade and Teas in 16-ounce cans. Angelino Aquas Frescas and we also acquired the pre-digestive health probiotic brand this year, which we're looking to introduce into and support in the primarily in the health food channels.

This gives you just a graphic illustration of the Hansen range in juices. Multi-serve, 64-ounce juices and juice boxes, which are for kids. Add new graphics for all of our products. This is the Hubert's line. The Half and Half Lemonade Tea in cans. Aquas Frescas and the pre-probiotic beverages. And some of these we're looking to expand through an independent DST system in addition to going direct to stores through the warehouse. But it's in that division, it's that brand so they are dealing with that independently over our Monster Energy brand and the Monster Energy stop. We still keep the distinction in the divisions and staff in the company.

Just sort of an update on some of the financial numbers. We have had a 42.3% compound annual growth rate from -- between 2003 and December 2010. Our operating income has continued to rise to the point that in the 9 months of this year, our operating income actually is in excess of operating income for 2010 for the whole year. You'll see the 2008 look light, there is -- it's lower than 2007, that's actually only on a reported basis because on an adjusted basis, if you remember, when we concluded the agreement with CCE, when we had -- we incurred the cost of terminating existing distributors and we received income payment from CC to take on the brand. On the one side of the equation, we were required to take that to account for 20 years the income but on the expense side we were required to write it off in one year and that's really what resulted in, primarily, the main reason resulted in that lower income in that one year. But if you look at the adjusted basis, it continued to rise and on an operating income basis, we have had a 66.4% compound annual growth since 2003 to the end of 2010.

Diluted earnings per share, on this graph again, earnings per share for the last 9 months -- first 9 months of this year were higher than the whole of the previous year. On the balance sheet, our total cash and investments have increased from $643 million to $726 million, and this is off to the share buyback, as you'll see at the bottom line. We bought back 625,000 shares in December -- sorry, in 2010, and 2.13 million shares in the first 9 months of 2011.

Our trade receivables went up from $101 million to $139 million, inventories from $153 million to $164 million. So they were reasonably back. Current liabilities are up from $128 million to $165 million, and deferred revenue is down from $124.8 million to $119.9 million, $120 million, and stockholders' equity increased from $828 million to $932 million.

Just a quick summary for anybody who may not be have been familiar with our third quarter results, net sales up 24.4%; operating income up of 22.8%; net income up 23.9% and; diluted earnings per share up 23.3% to $0.88 per share.

Going forward next year, I'm sure most of you have already received proxies, we are proposing to change the name of the company from Hansen Natural Corporation, the Hansen name, obviously, was lined up with and synonymous with the Hansen brand, which is what we originally acquired when we changed the name to Hansen in 1992. And as the business has grown, over 90% of the business today is represented by the Monster Brand. And it just seemed that it was sort of -- the time had arrive for us to actually change the name of the company to more accurately and closely reflect the principal business of the company, and principal brand and asset of the company, which is the Monster beverage brand. Additionally, over the years, all our pretty much our international subsidiaries have all -- been operating under different Monster Energy brand names throughout the world. So we are proposing to change the name to Monster Beverage Corporation, the operating subsidiary, both name will change to Monster Energy Inc., and then the division will remain and we will continue to favor it under DBAs as Hansen Beverage Company or Peace Tea Beverage Company or Works, whatever it may be. We are proposing that, once we have the change of name to also change the symbol to MNST. The shareholder meeting will take place on the 5th of January. So if that is positive then we propose to implement these changes reasonably quickly thereafter.

I'd like to open the floor to questions.

Question-and-Answer Session

Roger S. Pondel

If you could limit your questions, if possible, please, to one, with one follow-up and, that way, we'll include as many people as possible.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Bill Chappel from SunTrust. Can you talk a little bit about, if you look at international business, you haven't, historically, broken out the FX impact on it. We're coming up over the next 2, 3 quarters of tougher comparison. And I just wanted to kind of understand you know was it 15 to 20 basis points of growth are anyway we can quantify so we're not surprised 2, 3 quarters from now it may appear that international growth is decelerating?

Rodney C. Sacks

I think that we've generally given guidance in the conference calls, on the earnings release to growth internationally. And we will continue to do that. And as international grows, we probably will continue to place more effort, emphasis, on those results and help to break them up so that everybody's happy to do that. But we're not assured at this stage how we’re going to do that or how are going to bring them up and I were going to manage the different aspects of the business. But that's something we'll look to as we go forward and try and give you some more visibility to the results.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Just a follow-up, do you think it is fair to look at the dollar to euro as kind of the best metric in of kind of taking on the currency benefit or is that 80% of it? Is there a better way to look at it?

Rodney C. Sacks

I didn't get the dollar.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

The dollar to euro, in terms of looking backwards. I'm looking at the dollar to euro and kind of backing that out, in terms of your international sales, to look at kind of the pure growth x currency.

Rodney C. Sacks

A large part of our European business is in pounds. So my difficulty is that we don't disclose this information. And there have been some suggestions that possibly we need to disclose more on our international business, and we're examining that. So at this time, we do disclose in our 10-Q statement , the operating losses that are sustained. But we'll take that under advisement.

Unknown Analyst

As you think about the energy drink category, the size of the category in the U.S, with 23.5% in the convenience and gas channel, can you just talk about how big you think you can really -- the category can get to? What are the drivers -- do you really not need to now expand into the -- outside of the younger consumers and as you launch product like we have, how do you ensure that you're not losing relevance with your younger consumers?

Rodney C. Sacks

I think that as I indicated on the earliest slides, one of the ways in which we believe the category is going to continue to grow is the natural aging demographic of energy drink consumer, as that energy drink consumer continues to get older, younger consumers basically come of age and then come into the category. So that we think that trend is going to continue to be followed. The heavier users of soft drinks are younger consumers. And so we believe that's where we're going to continue to get the large portion of the growth. But then, we don't believe that we're going to alienate our consumers by going into products like Rehab. As you can see, there's still a way of marketing those products in a relevant way to our primary consumers and by adopting a lifestyle that the older and broader demographic consumer does not find offensive and still would like to follow. And I always draw the analogy with clothing. The major clothing brands, there are some exceptions, but the primarily clothing brands are brands like Quicksilver and Billabong and all of those brands, that were surfing brands. Surfing is, out of all our extremely sports is probably the smallest and the most precise and the least watched from a spectator point of view. Very difficult to watch a surfing competition, takes 3 days, they wait for swells to come and go, they're half a mile offshore, you can watch it on surfline.com, but it's not a sport that you see on TV. It's a sport that 90% of our consumers have ever seen. They don't know what a surfing competition is. But surfing as a lifestyle is aspirational, surfing as a lifestyle is cool to young adults and that's what drives the fashion. And drives clothing. Now that doesn't mean that anybody, when you hit 30, you stop buying Quicksilver Clothing, you don't. Older people will continue to buy what they see as the cooler products and cooler brands. It's the other way around that doesn't work. You try to appeal to a brand and appeal to the demographic of 40-year olds and you're certainly not going to get the 20-year old kids, or 15, or 18, or 20 or 25-year old kids following that in fashion, but the other way around works so we continue to market to who we believe are the aspirationals and the heart of core and the more focused heavier user of energy drinks. It's the cooler guys, the cooler young men and women and, as you can see, we continue to go deeper into that area and continue to try and find further sponsorship opportunities and further exposure opportunities that will help us grow, again, carefully without going too far off. And that is something obviously we look at because that's important to us to stay cool and to stay relevant to our consumer base. But that doesn't mean you can't go an older demographic and what we've seen from Rehab is people who are older people, office workers and people who are drinking Rehab and they feel very comfortable that the fact that it's Monster and it's -- you have extreme sports is not offensive to them.

Unknown Analyst

First, in thinking about kind of the international business from the outside, it's often tough to understand the profitability when so many different countries in so many different stages of development are kind of lumped together. Can you talk a little bit about kind of operating margins in some of your more established countries so we can kind of see where you are now and ideally, kind of where you see that going as you get bigger in those countries? And then I have a follow-up.

Rodney C. Sacks

It's very difficult. Obviously, we break out and we give you more visibility on -- Canada is really part of the U.S. and we manage that as part of North America. Mexico is continuing to do very well. The other countries are starting to emerge but they're all at very early stages. And there are number of different challenges in these countries. And some of them are more small. So for us to go into the myriad of countries that we're in and start trying to analyze each problem, in each country, and each benefit in each country, I think just will not really serve a really valid purpose and won't really help. It will just create more confusion. I think that you got to look at them as a whole, as areas. We got Europe as a whole, we were Western Europe, what's happened over the past number of years, we've been 3 years plus in Western Europe. And Western Europe is now starting to be profitable, it's starting to mature. And so, that's how we try to manage the business and I think it’s just premature for us to break it because there are odd countries in Western Europe where there are challenges and issues in the category and it's got nothing to do with the energy drink or our brand. It's in some countries, they are just a very strong private label presence or in another countries there's -- there are some taxes that are payable in energy drinks which reduce the margins. I think the time will come when that will be material enough to start breaking it out, but at this point, we just don't think that it would be useful. But again, as we indicated, as we go forward, I think as these countries start maturing and we start getting more meaningful numbers out of the countries as opposed to the top line sales and whether we're making or losing money, we will start going into that and evaluate how to break that up more meaningfully for our stockholders and for analysts.

Unknown Analyst

Just a follow up, then if we were to sort of lump all of western Europe together to try to get rid of some of the lumpiness, would be possible to kind of stay where the operating margin is right now? Are we talking single-digit as you think forward, 3, 4 years, there are, obviously, important differences in Western Europe versus here but where do you see the operating margins perhaps being 2 years forward as well?

Rodney C. Sacks

I think it's very difficult. They're all over the place in Europe. In different countries, they're all over the place, they're all over the place in Eastern Europe. You got one country where you got great margins and right next door they're lousy. It's all over the place. And again, the actual countries are they're all in their very, very infancy. We change the distributor, it makes a marked difference in the country. We were in South Africa for some years, we had a very small distributor, he was doing an okay job, but that's a good energy market. We made a change recently to a new distributor, in the first month or so, he's doing 2x or 3x the numbers of the old distributor. But it's still not mature enough to be saying, where is it and where is the direction? Australia was the tougher market. We're starting to make some progress here. But a lot of them take time. But there are not material enough for us to start having to break down and do a postmortem and analysis. Obviously we do that in managing the business. But we just don't think that at this point it's useful but it is getting to that point, it is getting there and when we believe that it will be helpful and give you more direction and visibility to where we're going, we will obviously, go into those areas and disclose them.

Unknown Analyst

Could you give us a bit of color on how you think about input costs for 2012? And then, Rodney, shifting back international, just a bit of an update on Asia. When do we expect you to launch this for Korea and Japan, and sort of building on the Europe piece of it, central and Eastern Europe versus Western Europe, you've been in those markets long enough now, can you talk about what the real consumer takeaway is versus what is selling, in terms of the actual sales growth?

Rodney C. Sacks

Let me talk about a little about input costs, obviously, one of the biggest input costs that we face is aluminum and we're pretty judicious on the purchase of aluminum. So what we've done is we monitor the markets and under the strength of our own intuition and the intuition of our advisors, largely, we have covered the first 6 months of 2012 at pricing which I regard is very good. However, I don't know what's going to happen in a week or 2 or 3 weeks' time. I can tell you that we're very satisfied where we are with the cover of aluminum for the first 6 months. In fact, it's gotten to a stage where we're we even considering covering the rest of 2012. So that's on aluminum. The other big input cost that we have is apple juice concentrate, which is probably no surprise, but that's more than doubled from 10, to 11, to 12. And what we did there is we took a very strategic stance with regard to aluminum in the beginning of 2010 and we really loaded our warehouses with concentrate that we have stored, in frozen, obviously, frozen conditions. So net seen as well but this year, in 2010, against 2012, we probably got enough apple concentrate for the first 7 to 8 months of the year and we placed orders to cover us through a good part of the balance of 2012 at, again, I believe to be realistic process and not at the ridiculous process that we are seeing around today. Having said that, I'm not sure where the market will shake out. At this time it looks as if that market is going to strengthen and remain strengthened. So our position on Apple concentrate I believe is wise and really justified the investment. And that's one of the things I think we've been able to do with the cash resources that we've had is to deploy them in manners that we believe to be expeditious. It's allowed us, for example, to answer a previous question, it's allowed us to be able to invest in our brands overseas to the extent that we believe that in the medium- and long-term we should have a very successful business overseas. And that's based on investment. You can't just launch a brand in a country without some degree of investment. I hope that answers your question.

Roger S. Pondel

Just to deal with the second part, of your question, Mark, Asia, we are looking to launch in Asia. We are launching -- the plan is to launch in Korea in -- round about February timeframe. And to launch in Japan, roughly in the May timeframe. But again those dates are not hard, there are number of issues we're dealing with in order to -- with the planning in that could move a little bit but that is the current plan. Current plan is also to look at some other opportunities into some of the smaller countries, to reevaluate some production in Asia. And in also obviously, we are starting to look on the longer-term basis. It takes some time and takes some time to get registration for products, et cetera, in the Chinese market and in the Indian market. Both very big markets and we think good opportunities. But again it's a question of how do you get to those big markets and who are the right partners and when is the right time? So we wanted to just first put our foot in and have a look at the Korean and Japanese market. The Hong Kong market and other small market that we will go into, probably in the first half of 2012. And then we're going to look to other markets. The Asian market is a very interesting market because it's a very big market in tradition energy, and what they would define as traditional maybe old, old-fashioned energy which is small 2.5, 3 ounce-size bottles of energy as either multi- vitamin or it's a -- different types of energy. But what we are seeing is that we think we can convert a number of those consumers as well as younger, new consumers into the category. And that's the challenge we have. So there's a lot of opportunity, but how big it will be, we don't really know, until you actually see what we're able to do in those countries and how we're able to expand that the existing energy drink consumer, which we think is a good consumer to be able to convert. With regard to western Europe and eastern Europe, again, there are different countries that are at different stages of development for the brand. The brand is starting really nicely in the U.K. it's now become the #2 brand. It's overtaken Relentless. In France, we're the clear #2 brand. Our shares are somewhere towards the mid-teens there. We've done very well again in mixed areas, for example, Czechoslovakia has been a very good country for us. Bulgaria's been good. We've launched in Greece only earlier this year and that's been a -- there was a great response both from our distributor and partner and from consumers in Greece, despite some of the issues they had in Cyprus. So those have been -- and again that's a mixed bag. Now Hungary's been the challenge because they've introduced -- there's a lower-priced local brand that's quite strong and pretty aggressive. And then we've introduced some taxes, some sugar taxes to try and tax anything with sugar, whether it's chocolate sweets, confectionery, energy drinks. And so we've been looking at how do we deal with that tax and that sort of disrupted the market a bit because it created a higher price and it's affected some of the consumer demand. And there are economies that have been weak but there are additional markets in Eastern Europe that were looking at and it becomes a mixed bag. And what may be good this year, may not be good next year, or vice versa. Until those brands really solidify themselves and grow, we're not sure where they're going to be. We launched in the Baltics, the brand has been well received but that's a small market but we think we'll ultimately grow. Germany's been growing very nicely for us. The brand is doing very nicely, it's been well accepted. One of the markets we been in for some time with the smaller distributor but is starting to get some really nice traction is Spain. The brand is starting to pull on me -- starting to see some good sales to point sales numbers. We just need to increase our distribution. On the other hand, Austria was a tough market, largely because of very aggressive, defensive reaction from Red Bull to us launching. They've been well-established for many years. It's a big energy market. I think Red Bull does probably something like 7 million cases there. So it's very big market per capita but it's been part of the tradition, part of that is where that's from and so they're been very aggressive, they're taking their pricing down to $0.99. But that's been pretty costly. $0.99 on 7 million cases, so it's only going to be a question of time before we think things will normalize. But at also the same we launch we had some challenges because there was a very low-priced store brand that got launched and they put a lot of money, one of the leading stores there behind their brand. And we had some challenges in getting distribution into the, what I call, the All Other market, the dependents, with the result that we put some of that our team of sales, independent sales guys onto get to that market. That is one of the things we did in the U.K. market, which we believe made a big difference to our sales, and really helped us get to the next level in the U.K. Just really helped jump start the brand. And we're doing some similar things in some of the other European countries. Just putting our own sales team in where we feel our distribution partner doesn't have the wherewithal, it's not in their strategy to go to and actually call in those independent small stores. Because we look at those stores as being very important sampling locations for our brand, getting people to know our brand and then they'll buy them in the higher volume stores but you got to walk before you run. Sometimes you can't just -- if you're not going to support it with massive advertising campaigns and then hope the brand sticks, which is not is our way of doing it, we try and do it by way of building up the core brand in the small independent stores first. So again, it's a mixed bag. But we are looking to expand and again it just depends on the -- we've launched in Columbia. South America, we believe we have a very large following for our brand. On the taste profile, our brand is very popular in the Hispanic markets, generally. And so we are planning to launch in a number of other southern American countries this year, as well. So again we will continue to launch and I think it's just a slow ball. We're -- the other energy drinks have been around in these countries for many years and it's not something we're going to just have an overnight success with, it's going to be tough vault. In many of these countries our margins will be possibly be a little lower than they are in the U.S. but, at this stage, it's sort of there's a mixed bag out there.

Unknown Analyst

Rodney, earlier you mentioned that Coke is your competitor and as think about that, they're also your distributor and I know the U.K. is going very well front, it's going very well. But if think about the U.S., you also have Beer, you also have Anheuser-Busch. What's the tension like within the Coke system, now Coca-Cola actually owns the bottler? Are you satisfied with that distribution, how do you this evolved over time and does it build as you get to be the #2 in C stores?

Rodney C. Sacks

I think the dynamics have changed a little bit because you have an independent bottler looking at his bottom line per case that he sold he wasn't as focused on his own brands. You now have an owner that have the own brands and they do look at that area and say where are we going with our own brands. But at the same time, you also look at what we bring to the bottom line and the contribution we make into the Coke bottling system. And the loads is owned by Coke, Coke still has to make profit, it still has to show positive viability through their bottling system and their bottling arms, so to speak, that it may be a separate, maybe division as opposed to independent, but it's still -- it's got to be viable on its own and we think we are an important part of that whole growth of the CC or ARM. So yes, the dynamics have changed a little bit and Coke themselves are a competitor. Coke has their own energy brands and they are a competitor, but we are able to compete because, largely, the way we've always seen -- and more and more now, we see our ability to coexist in basically Coke bottlers, here and around the world, because we remain responsible for marketing our brand, taking care of our brand, giving it to the PLC. The bottler's very responsible for getting it on the shelf, making sure it's distributed, making sure your point of sale is up, that it's position correctly and it's in stock. So largely, we're responsible for the destiny of our brand. And in Coke, themselves, if we going to be in overseas markets remain responsible for marketing their own brand, from the Coke side. They coexist, they usually have slightly different ways of going to market and positioning the different brands and so what we've seen in many -- in just about all the markets we all but Coke, their own brands haven't been hurt by our presence in their system. In fact in most cases it's been enhanced. Because really, the guys going out and executing are not targeting their own brand when they're executing Monster, they're not targeting the Coke brand. You put it in an independent house, they're going out and targeting everybody. All the brands that they see they can get space from. So in many ways it actually -- we believe it actually has helped Coke, but the fact remains that Coke themselves are a competitor, they sell beverages, they sell a share of stomach. So indirectly they are a competitor. But it's a relationship that has existed, we've gone through the transition and it's continuing to thrive. We have the alternative, obviously, in the U.S., of the Budweiser system and we've got to keep those 2 systems evenly balanced and we really try to not many changes in the systems. And keep it attractive for both of them. And that is so forth working. We're quite happy.

Unknown Analyst

It sounds like Rehab has been very successful, about 5 to 7 points of growth, I believe you said. But I don't believe the distribution is nearly as high as core Green Monster. I believe maybe it's only a third. So can you talk about the distribution opportunity for Rehab, including maybe talking about international? And then, second question, if you're willing to give us an update on how trends are quarter to date.

Rodney C. Sacks

If I could just give you the -- in the convenience channel, Green is basically at about 97% distribution. That's been -- shows the success going back to the hybrid system of the Coke and the Budweiser systems working together. We're probably, as highly distributed as Red Bull and way above anybody else. When we go to low carpets at 90, but we've managed to achieve -- the current convenience, we have 77% distribution for 0 and 76% for Rehab. So Rehab's distribution has in fact jumped very quickly because that's a level that we haven't achieved this quickly with many of the other line extensions, almost none of the other line extensions. That obviously, is only the original Rehab, now that we're introducing the others, we believe we'll continue to get additional and we will think we'll bold at distribution quite quickly because Absolutely 0 has become a very good line extension for us, it's doing very well. It's had a very minimal cannibalization from Lo-carb, a little bit but not very much. And we just believe that Rehab will continue to perform. And if you look at those numbers, then they're way above the other brands, the other line extensions. So we're very happy with it and we're sort of a little slow as we're getting out into the grocery and drug and those will continue to -- will have some improvement in those channels going forward.

Unknown Analyst

Have you seen anything in the past say 6 months to a year that makes you think it will be more difficult to enter into new international markets, whether it's based on the Coca-Cola Company being more aggressive in terms of marketing their own brands or any other companies doing the same?

Rodney C. Sacks

You know I think that there have been some challenges in with Coke blocking their own brands and trying to establish their own brands internationally. And we don't see a lot of our international distribution at this point in time going through the Coke system, in addition to the European distribution that we have. And we are looking to independent distributors around the world and we have independent partners in Japan, we have an independent partner in Korea, and we also have an independent partner with a lot of reach in many countries, in Hong Kong and some other countries. So it just means we're going to go to market in a different way with different distribution partners. We have a long skew of independent distribution partners in South America. And we'll continue to do that. There is always pluses and minuses with any distribution partner. You get the strength of the Coke system but then its sometimes harder to get the focus and get the attention because they're dealing with their own brands and their own products and their own set of priorities, and sometimes the little guys, or the independents, just hard at work to start but often gets you are you going to go far more quickly because they're going to concentrate on the smaller independent stores, which is really where we want to start with. So it's going to be a mixed bag. But as I indicated at the outset of my response to your question is probably going to be very little in the Coke system. It doesn't mean it won't be, but it's -- there is -- we are having some debates with Coke about whether we can go into the system. They're trying to obviously protect their system for their own brand. So there is a dynamic going on at the moment with Coke.

Roger S. Pondel

I think in fact, it's fair to say that even in Western Europe, we use independent distributors in a number of countries. Germany, Italy, Spain, so we do work with independent distributors in other parts of the world as well.

Unknown Analyst

Could you all just give us an update again, perhaps. You got a lot of cash in the balance sheet and how you're thinking about that. I know you've been doing some share repurchase but it's actually making a pretty small dent given the big cash bill that you have. Can you talk a little bit about kind of what the plans are and as you think out, you just want to kind of stay at this level indefinitely.

Rodney C. Sacks

I think that we just believe the best of our cash is to buy back shares and then to make sure we have enough cash on hand to -- for our expansion. We have in excess of that, but as we continue to expand internationally, a lot of the terms we're going to need to extend to a lot of the international distribution partners will be much longer than the terms we're used to in the U.S. Many of the countries work on 60-, 90-day terms, 75-day terms. You going to ship products in many cases before you deliver them in any country to actually produce. So that will have an effect of increasing our receivables just by, and we just, obviously, we believe that we need to be make sure we have enough cash for increased receivables or increased inventories, et cetera. Over and above that, we will continue to buy back shares. The price has moved up. And so we need to look and just review where we are, as we go. So it's just premature at this point in time for me to say how much were going to buy back or when. But we are looking to buy back our -- use the cash for share buybacks.

All right, gentlemen, thank you once again for attending this update. I hope that we'll be able to sample you on our new Uber Monster. There are only 2 massive bottle openers that we have here, because you can't open it without having a unique bottle opener. And I'm not sure I'm strong enough to even open it. But we'll give it a go just now but I really would encourage you to take the product and sample it. It's really a great product, as well as the new Rehab product. And we continue to be excited for the continued growth we're seeing in the category for 2012. Thank you once again.

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