Hansen Natural Q3 2007 Earnings Call Transcript

| About: Monster Beverage (MNST)

Hansen Natural Corp. (HANS) Q3 2007 Earnings Call November 8, 2007 2:30 PM ET


Rodney Sacks - Chief Executive Officer

Hilton Schlosberg - Vice Chairman and President

Tom Kelly - Accountant and Financial Officer


Andrew Sawyer - Goldman Sachs

Mark Astrachan - Stifel Nicolaus

Greg Badishkanian - Citi

Steve Colbert - Canaccord Adams

Alton Stump - Longbow Research


Good day everyone and thank you for joining today's Hansen Natural Corporation’s Third Quarter 2007 Financial Results Conference Call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to the Chief Executive Officer, Mr. Rodney Sacks. Please go ahead sir.

Rodney Sacks

Good morning, ladies and gentlemen. Thank you for attending this call. I have Mr. Hilton Schlosberg: Vice Chairman and President with me and Mr. Tom Kelly: our Accountant and Financial Officer.

Certain statements made in this discussion 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, regarding the expectations of management with respect to revenues and profitability.

Management cautions that these statements are qualified by their terms or important factors, many of which are outside the control of the company that could cause actual results and events to differ materially from the statements made herein, including, but not limited to a number of factors including changes in consumer preferences, demand that are weather related, etcetera.

We would also like to place on record that we assure no obligation to update any forward-looking statements. To briefly run through the announcement: gross sales for the third quarter increased 35.8% to $277.8 million from $204.6 million a year ago. Mid sales for the third quarter increased 38.4% to $247.2 million from $178.6 million a year ago.

Gross profit as a percentage of net sales for the three months increased to 51.9% from 51.6% for the comparable 2006 quarter. Operating income for the third quarter increased 73.3% to $73.4 million, from $42.3 million a year ago and excluding the identified expense items described in the announcement increased 42.4% to $73.8 million from $51.8 million a year ago.

Net income for the third quarter increased 73.1%, to $45.8 million or $0.46 per diluted share from $26.5 million or $0.27 per diluted share last year. Gross sales for the nine months ended September 30, increased to 42.7% to $748.5 million from $524.6 million a year earlier, net sales for the nine-month ended September 30, 2007 increase 44.8% to $657.8 million from $454.4 million a year ago.

Gross profit as a percentage of net sales was 52%, for both the nine months ended September 30, 2007 and 2006 respectively. Operating income for nine months ended September 30, 2007 advanced 35.6% to $166.7 million from $122.9 million a year ago.

Operating income for the nine months ended September 30, 2007 excluding the identified expense items described below, increased 45.3% to $192.7 million from $132.7 million a year ago. Net income for the nine months increased 37.7% to $104.3 million or $1.06 per dilution share from $75.7 million or $0.77 per diluted share last year.

In connection with the transition of certain Anheuser distribution arrangements, we incurred termination costs amounting to $300,000 and $9.5 million during three months ended September 30, 2007 to 2006 respectively to certain of our prior distributors. We incurred termination costs amounting to $15 million and $9.8 million respectively during the nine months ended September 30, 2007 and 2006 to prior distributors.

Those costs are, and have been, expensed in full and are included in operating expenses for the three and nine months, non refundable amounts totaling $1.3 million, $12.3 million were recorded by the company related to newly appointed Anheuser-Busch distributors for cost of terminating prior distributors in the three months ended September 30, 2007 and 2006 respectively, and nonrefundable amount amounting totaling $21.1 million and $12.3 million were recorded by the company related to those distributors for the nine months ended September 30, 2007 and 2006 respectively.

These payments have been accounted for and commitments have been accounted for deferred revenue and are being recognized relatively over the 20 year anticipated lives of the respected Anheuser-Busch distribution agreements. The amount of written were recognized as $0.5 million and $0.2 million for the three months ended September 30, 2007 and 2006 respectively.

In connection with the company's special investigation of stock option grants and practices and related litigation, the company incurred professional service fees of $0.1 million, net of $0.8 million insurance reimbursements and $11 million net of $0.8 million insurance reimbursements for the three and nine months in the September which have also been fully expensed. These items are set out in the table in the announcement.

If I can then turn to just initially gross profit: Gross profit percentage, as you'll note, came in very nicely at 51.9% and 52% year-to-date. Factors affecting gross profits include the increased product mix to DSD products from 83% to close to 88% for quarter. That was positive. The negative was in the DSD segment where the increased sales mix of Java, which is at a substantially lower margin, and also negative due to certain increases in raw materials. On the other side there were some increased margins that we were able to achieve on the warehouse division.

Going forward, gross profit percentages will be affected and the main factors will be possibly the higher mix of Java Monster products. We are seeing some increases in certain raw materials, particularly dairy products and apple juice concentrate. Dairy particularly has gone up in the last six months or so and we're looking to see how we can try and obviously lock in some pricing for next year.

We are planning some price increases for some of our products, and in this regard we are planning a price increase for Java Monster around the beginning of the year. We feel that the brand is pulling, it is selling very well. I'll come on to that a bit later.

With the increased cost of the actual product, and it is in the margin to start, we obviously swallowed that and we actually put the product out at a price that we thought was not too high and we were obviously trying to gauge the consumer response.

We believe that we've been getting good pricing at the retail level, which has not had a much of a premium to the regular Monster. But since we launched the product, we have had increases in dairy, which is quite an expensive component in the product and, with the already thin margins from the start, we made the decision to increase pricing of Java Monster going forward in the New Year. We're launching a number of new products, which I will come to, in Java Monsters. So, all in all, we think that it is appropriate and we don't think that will affect the product. We believe that in any case there should be some price distinction in order to one of the factors that will help us minimize cannibalization from existing Monster consumers to Java Monster.

Just looking to some selected sales information: obviously the main increase in sales is attributable to Monster. Java Monster also came in very much ahead of our expectations. One of the limitations we had in the quarter in Java Monster was production. Java Monster sales were just over 10% of the sales of Monster in the quarter.

We also had some increases in sales of apple juice and juice blends and in tetra pack juice product. Some of the decreases that we had [inaudible] as a brand, which has sort of suffered some reductions in sales and we are taking steps to address that.

Joker, Ace and Unbound are all products on the Allied product side where we have seen a falloff in sales, which has been disappointing and we’re looking at decisions on what we do with those lines and how we address them going forward.

We're still very happy with the Rumba line; we think that it has got some legs. But going forward we've got to make some decisions as to whether we concentrate primarily on Monster, obviously, and then on Rumba. And that seems to be a direction we possibly will head in a year, but we haven't yet made any final decisions on the other Allied brands. We wanted to see what we should, or shouldn't, do with those going forward.

They sell, and there is a proper contribution, but I think that we are probably allocating too many resources to them and we could have those resources better spent both on a sales and marketing level; we think with the principal and main brands.

Just talking about Lost, we still think Lost is a great brand. It has got a good positioning; it's still one of the leading brands in the country. What we have done is we have launched a new product; we're just about to launch it called Lost Cadillac.

It's, sort of, a margarita mix type of flavored product, but we also have redesigned all of the cans in the Lost line. We think that they will appeal to a broader spectrum of consumer and we're going to test the new cans with the full line, launching that in Florida first.

We are launching Cadillac in the new graphics nationally, and then, as we get to work through out existing inventory of cans in Lost, we will introduce the new packages into the rest of the markets in the U.S. going forward. So there will be four products in the Lost line.

We're also planning to increase an additional flavor in the Rumba product line, the 100% non-carbonated juice line. We think that that brand has got some legs as well and it's selling nicely. We think that with an additional SKU, it will give it more visibility and presence in the juice shelf and will help the brand overall. And we are going to introduce a new product at beginning of the New Year in the Rumba line.

Just going through some of the actual financial details, promotional allowances, you'll see reduced from 13.5% to 12.4% in the comparable quarters and year-to-date basis reduced from 15.4% to 13.8%.

The MDF was reduced considerably as a percentage and we had an increase in chains we had made which is really shelf space programs with the chains. That did go up as a percentage, but overall the actual number is down. This includes increased invasion fees which we will pay to distributors for certain customers who we sell to direct, which also was up substantially, about double on last year. So, total allowances on the reclassification came off resulting in a higher net increase in sales versus gross.

With regard to distribution expenses: our distribution expenses reduced from 6.5% to 5.3%. We had an increase in warehouse cost, principally due to the changeover in warehouses. We have re-let probably about 60% plus of the previous warehouse.

We are busy with the bulk and are re-letting the remainder of the warehouse that we were in. We are operating fully from a new warehouse in Pomona, and we've also moved our offices to 550 Monica. So, we have gone through that, and there were periods and times, obviously, when we had double rents. And so, we think therefore, this will stabilize a little bit going forward.

Freight-out: we did manage to achieve some significant savings, and freight-out was down from 5.7 to 4.2, which we think is a good performance on that side.

With regard to selling and marketing expenses: selling expenses in total down was slightly down to 15.8 from 16.1. On the year-to-date they were slightly up to 15.6 to 16. Included in selling expenses are commissions that we pay to AB, which has continued to increase as more businesses is transitioning over into the AB system and commissions have increased from 0.9% to 1.5% in the quarter. But, overall, resulting in higher sales expenses, where, if you take sales and marketing together, we did have a decrease.

I am just trying to get through sponsorships, and some of the items that we have hired in last year. Sponsorships were up from 1.3% to 2.5%. That's one of the largest items. We are obviously finding that it's costing more to do business in the category as the competition heats up and there are competitive brands which are obviously competing for the talents of athletes and events. And we are also obviously stepping up our program.

We still believe we shouldn't be looking at direct advertising at this point, traditional advertising. So we are putting more money and effort into the alternative sports events, that we've traditionally done, and we want to continue to focus on as we go forward.

As a percentage, we did achieve some savings in merchandise displays. It's not as though we've sort of let up it all, but we have in fact been more efficient. We've also obtained contributions from our distributors to the cost of merchandise displays. We feel that in overall execution, the field has in fact improved and we've got more merchandize displays as a percentage up in the stores although our cost of athlete funding, those displays going out has reduced.

So those were probably the major items. One other item that I would probably refer to is our sampling costs which have gone up from 0.6% to 1.1% and on a nine-month basis from 0.6% to 0.9%. We really have spent a lot more time getting into sampling, and programs at colleges and events and we feel that's very important for the brand.

Just going back to the selling expenses item, the figures I gave you, I think those expenses included distribution. I'm sorry. And that's why, I sort of hesitated for a while and then I looked at them and I saw them a little differently. Selling expenses, in fact, went up to 10.4% from 9.6% in the three months and to 10.4% from 8.9% in the nine months.

On the payroll and administrative side, stock based compensation was $2.1 million, 0.88%, which was down from 1.6 in the previous comparable quarter, while actual administrative salaries was down from 4.5 to 4.1.

Legal costs are still obviously being incurred by us at a high rate as we continue to deal with some of the litigation that is starting to taper off now. As I think all of you are aware, the Securities Litigation matter was dismissed with prejudice and against the plaintiffs. So, we think that the others will eventually follow in the same direction.

On a segment basis, net sales for the DSD division was $221.888 million up from $152.879 million at the same period last year. Contribution margin was up at $82.328 million from $49.522 million. The warehouse division, net sales were at $25.323 million as compared to $25.787 million, and contribution margin was a little down at $1.242 million versus $1.572 million in the previous period. On a year-to-date basis, DSD net sales were $585.611 million versus $383.745 million. It’s an increase of 52.6% and contribution margin was up to $204.645 million from $140.456 million, up at 45.47%. The percentages on the quarter basis, was 45% up in DSD segment for the quarter and contribution margins was up 66.2%.

In the warehouse for the nine months, net sales were $72.216 million versus $76.85 million and contribution margin was $2.929 million versus $5.069 million. So, sales were up slightly but, contribution margin due to increased costs and increased promotional costs were down.

Case sales, 192-ounce case equivalents: in the three months case sales were up at 26.5 million cases, an increase of 5.3 million cases or 24.9% versus 21.2 million cases in the three months, ended September 30, 2006.

Overall average net sales price per case increased to 935 in the three months, which is 10.9% higher than the average net sales price of 8.44 for the three months ended September 30, 2006. The increase in average net sales price per case was attributable to an increase in the proportion of case sales derived from higher priced products.

On a year-to-date basis, case sales were $72.8 million for the nine months, an increase of $17.5 million or 31.7% over $55.3 million for the comparable period last year. Overall average net sales price per case increased to $9.04, which is 10% higher than the average net sales price of $8.22 for the nine months ended September 30, 2006.

On a sales regional basis in California, sales of the company decreased from 32% in the quarter to 28.8% in California, comparably outside increased from 68 to 71.2 on a year-to-date basis. Sales in California decreased from 32.4 to 28.8 and comparable outside figures are 71.2 to 67.6.

Customer mix in the three months, sales through grocery, specialty chains, and wholesalers decreased from 10% to 8%. Club stores, drug chains and mass merchandisers increased from 14% to 16%. Full service distributors increased from 70% to 72%, health food distributors was level about 2% and others was a decrease from 4% to 2%.

In the nine months the figures are, retailing decrease from 12% to 9%; Club stores and mass increased from 13% to 15%; full service was the same 70% to 72%; health food 2% on 2% and other 3 down to 2% in mix.

Dealing with the balance sheet: cash and short-term investments increased at September to $255 million from a $198 million in June, and from a $137 million in December. This increase was probably due to operations, partially from the exercise of options. Cash is generally invested in high-grade securities with less than one year's duration. And in the three months ended September we've been earning approximately about a 6% yield.

Accounts receivable were at $90 million as of September 30, down from a $111.9 million in June but up from $54.6 in December.

Sales were lower going into September than sales in June; obviously, you're going to up your trend in summer. And the same comparison applies to December/September: sales were higher than in September and going into December, at the end of the year, we believe we'll obviously also be able to get accounts receivable down. Sales goes outstanding with 31.2 as of September 30, down from 33.9 in June and 27.1 in December, largely affected by lower days outstanding from the Cadbury Schweppes Group. Cadbury was 32.1 days outstanding as of September, which is one of our large customers. They were at 41.1 in June and 30 in December.

The days outstanding also reflect increased sales to distributors that have longer payment terms than other customer groups who take the benefit of a 2% 10 day discount that we extend to those groups.

On the inventory side, inventory balances were $94 million as of September versus $87.5 million at June, and $77 million at December. Average days of inventory were 71.2 versus 67.9 in June and 97.7 at the end of December.

On the intangible side: trademarks were flat compared to June, marginally up at 23.9 versus 23.6 and up from 21.2 as of December. Current liabilities were 97.8 versus a 114 in June and 62.8 in December.

Deferred revenue increased from $20.4 million at December to $40.2 million, due to receipts from AB Distributors which more than compensates the company for the distribution termination payments that we've been paying or having to pay to existing distributors, because the non-matching issue that shows up on our balance sheet as deferred revenue item will be taken to revenue over 20 years.

Working capital has increased from $212 million to $363 million. This should give everyone a reason; a good explanation on the balance sheet items. Going forward for October, company's gross sales are up 48% for the month of October and about 43% on a year-to-date basis through the end of October.

Year-to-date Monster sales was up about 44.5%. We are happy with the sales increase; we'll talk about the category. We think the brand is still continuing to pull strongly. It's pulling ahead of the category and we'll deal with some of the operational issues we've had in introducing Java and how we plan to address them going forward.

According to Nielson, all outlets combined which are convenience and gas, grocery and drug. But it excludes Wal-Mart's and independent markets. The energy category grew in the 13 weeks to the 29th of September grew 33.2% versus a year ago.

The Red Bull increased share, we've introduced a 12 ounce bottle, and their share was up for their total brand at 36.4% over a year ago, and their share is 36.2. So, they have changed year-on-year, and is 0.9%.

Monster's increased share, according to Nielson, was 51.4% and our percentage dollar share was 24.9, which is also up 3 points on the year ago numbers. Rockstar's percentage change a year ago is 38.5, and their share is 11.8% and their change in points is 0.4. Full Throttle has a 29.7 increase from last year despite a number of new brand extensions, and has a 6.4% share, and so their change on share is down 0.2 from last year. AMP, which is Pepsi, is up 38.4% change. The share is 5.1 and they are 0.2 up from last year with the AMP brand, which they have extended into 160- and 24-ounce and they’ve also had a flavor extension.

So, Be No Fear, which is Pepsi, is down 32.8, their share is 3% and the share is down 2.9 points. Adrenaline Rush , which is also So Be from Pepsi, share from last year is up 4.6%. Dollar share is 2.2 of the category, but down 0.6 in the category.

I need to just check that figure as we go. There may have been an error in that. No, that is correct. And Lost, share is down 26.9%, they have a 0.5 share and they are down 0.4. So, we’ll see a slight decrease in the percentage changes. But in the convenience channel, which is a major channel, the category is up 35%, and in that channel, which we regard as the major channel, Monster is up 50% and Red Bull is up 40, Rockstar is up 37.9’ Full Throttle up 35 and 34.7, No Fear is negative, Adrenaline is up marginally at 8.3, and Lost is down 25.

Talking about Monster; we've increased on the top brand, we've increased our percentage of store selling by 16%. Our sales per point are up 23.7%. And we see the actual brand still being extremely healthy in the category.

One of the factors that we look at, which may not be completely scientific, but it’s something that we’ll share with you. When we look at the brands, all of the major brands have been introducing line extensions, package extensions, size extensions over the past year.

So when we look at increased share of the brand, we think it also is useful to look at the actual increased share of the individual products. And if you take what we would call: “the main” or “the flagship product” and size package in each of the brands and look at their growth, that often tells a slightly different story.

In the case of Red Bull, 8.3 AMP, they did introduce a 12-ounce pack, which cannibalized their other packs, so they are down 23.4% [in convenience in] their lead item, which is their 8.3 regular product. Our regular product, which is Monster 16-ounce green, is up 29.5%.

Rockstar's main product: the black regular energy drink, in the black can, is down 0.6%, Full Throttle’s main product is down 11.5%, AMP is up, but also it was going through a conversion to 16 at the time, but their 16 is up 16.7. No Fear is down 26, Adrenaline is down 70, and Lost is down 38.

So when you look at it in that light, we believe that Monster's performance was probably unbelievable. The green product was the strongest product in the category by far on year-over-year comparison, on an individual SKU basis. And as we indicated earlier in convenience, the actual product as a brand is still up at 50%, which is very strong.

 Just on some market strategy, just to take you through sort of analysis over the past four quarters, we measure convenience and gas at the end of each quarter. That's usually a four- or five-week period because of the year events. So, if we take the years that actually ended up in a five week periods, Monster's market share in convenience and gas as at the end of the December ’06 was 22.1%. That increased to 22.5 at the end of March, increased to 24 at the end of June, and is at 26.8 at the end of September. Red Bull was at 35.3 at the end of December, went up to 36.4 at the end of March, dropped to 35 end of June and is dropped to 34.9 at the end of September.

Rockstar was 12.3 at the end of December, dropped to 11.6 end of March’, up to 11.8 in June and is down to 11.3 at the end of September. Full Throttle was 7% at the end of December, is down to 6.7 on each of the three periods following still down at that 6.7.

Amp was at 5.4, they increased to 6% at the end of March and have since dropped off to 5.7% share at the end of the June and is down to 5% share at the end of September. No Fear was a 4.8, down to 4.1 end of March, down to 3.4 at end of June, and down to 2.9 at the end of September. And Adrenaline was at 3.3 at the end of December, was down to 3 at the end of March, to down 2.6 at the end of June and down to 2.2 at the end of September. Monster is the number one product in 9 out of the top 30 convenience store, convenience and gas store markets in the U.S. according to Nielsen numbers for the 13 weeks ended September 29.

As I’ve indicated previously, by and large the transition arrangements to the AB system is largely complete. We did put a brake on them. We are looking to as to what we should be doing going forward. There will be some selected markets, where I believe we will continue to transition additional markets to the AB system, but that will be done on a carefully selected and determined basis.

We think that if you can see from the distribution numbers that we have increased our distribution pretty significantly. Overall, we've increased our regular Monster as a brand by about 16%, which we think is pretty good and the quality of distribution has also increased pretty dramatically. In the case of a lot of our other products, we're also up equivalent amount.

So, we think that is largely due to the transition into the AB system. One thing one needs bear in mind is that the Nielsen numbers measure, basically, the chain business whether it's convenience and gas or grocery. It doesn't really deal with the “up and down the street” and the independents, where some of the business is done. And it doesn't measure it, and that is probably the one area where the Budweiser system is not as perhaps as strong as perhaps the independent beverage systems like Coke and Pepsi, because that's parts of their everyday businesses, going to all these non-alcoholic, small mom’s and pop’s stores which are traditionally not on the radar of the beer distributors.

 In all cases, they have agreed to address the smaller nonalcoholic areas or the dry areas where there isn't a complete match up of some of the accounts. But there is a greatly challenging part of matching our distribution needs with the traditional AB system. We think that it’s continuing to improve, but that is an area that obviously we have to address with AB system. Shouldn't AB distributors have embraced the brand and the potential for the brand in these, sort of, non-alcoholic accounts more readily with more resources than others? And that is just an ongoing challenge that we've had in the transition to AB.

But we all are continuing to make progress there, and, by and large, we are certainly happy. If somebody asked me: looking back would we be happy? Would we’ve done the AB transition again? Yes. We would have, absolutely! We think that was the right decision for the company, the right decision for the brand. It's just a question of working through AB, our good partners, and as I said, it’s a question of working through these issues. And, as we go forward, we’re still growing at better rates than all of our major competitors.

With regard to: on premise, that is the one area that is probably coming along more slowly than we had hoped for. It's a slow go. It’s a lot of hard work, a lot of hard lifting. We’re making progress. We are seeing increased sales rates on a monthly basis into the on premise. We are making presentations. It's probably too premature to give you some [again, I think we are having] some success in some very high profile accounts, which we are getting distribution into and some of that distribution will be starting in the fourth quarter and beginning in the new year when contracts come up for renewal.

A lot of that business is done on contracts, and, although we’ve approvals, obviously, we can't get going until the existing contracts expire. So, again, on the on premise, I think some of the [funds] and analysts may have possibly expected a quicker sales ramp-up. It is taking time. It's a business that Red Bull has built up over the last 10 years plus and secured a [brilliant great] position and we are obviously working diligently to break into it. And Red Bull knows that we're doing that and they're, obviously, also working diligently to keep us out of it.

So there is a heavy lifting, but we are very confident that we are going to make a success. We are going to get it going; we are working through some issues in sort of integrating the sales effort into the AB sales team. There are some challenges there because they've got their focus on their own products as well and so we're looking through the various issues. But, once again, it is taking some time and that's one of things that have, perhaps, not come on board as quickly as we had originally hoped.

On the Java Monster side, the brand is doing extremely well. It's been very successful, it’s successful pretty much, we've hampered by achieving sufficient production. We are getting more production, it's started up. We ramped up production in October and November.

Our plans for the product line are very exciting. We've been getting very good response from the retail chains. They've seen the sales number. We've seen the sales numbers falling to come through in the Nielsen number for convenience and gas, but we, ruefully, got no grocery or other [travel mass] business yet. And in those cases, Java Monster is selling at sales per point that is comparable to Chaos and [MIT] and Assault. So we're very excited that we are getting nice sales per point sell through on Java.

The challenge, again, has been in launching the product before we've had the schematics in the convenience stores changed. We are getting the schematics change. We are in the schematics coming -- starting the New Year where we are in the right shelf, we are in the coffee door. And we are planning to introduce a number of additional SKU's in that line. We think we see that line as a very different line. It's sort of a cousin; it’s a subline of Monster, but it is different, and in order to maximize our opportunity there, we are going to introduce quite a number of additional SKU's in Java Monster. We’re in fact introducing a low-cal version, a hazelnut flavor version called [Nut Up]. We are introducing a product called: the Russian which is a Kahlua-flavored coffee energy drink and one called: Irish Blend, which is sort of an Irish-whiskey-flavored coffee blend. They're all nonalcoholic. But that gives us that we're also introducing a Chai Hai product. The local product obviously it can't get it to the same low calories that you would normally get a diet drink to, but it is about half the calories of our regular drink.

So those are going to come out, pretty much, towards the end of the year. We think that’s going to really [start to promote] at least probably a full shelf in the major convenience and gas chain accounts.

And once we have that real estate put in place, and locked in with programs for 2008, we think that the cannibalization that we had experienced, and the trial going over from Monster consumer, will be minimized and we'll be able to draw and compete head-on. Obviously, more directly with the Starbucks’ coffee range, and the new coffee range, that Coke is introducing under the Caribou name. This will minimize cannibalization from us, but also draw equally from almost all energy consumers to the extent they do have conversion at the moment.

With lots of these retailers having put Java Monster directly into the Monster space, obviously, the principal brand that's suffering the canalization is Monster itself and it’s also to be naturally expected. At the end of the day you have traditional monster consumers. They're coming to the store; they're seeing another product named Java Monster. You are more likely to get them sign the brand and then doing some cross-switching.

But again, after trial, that will settle down. One of the reasons we think that we can take a price increase is we have to sales. We do think there should be a clear distinction in price between Java Monster, which is more closely priced to the high price coffee drinks that Starbucks has.

On an ounce for ounce basis, we have more value and so we believe that we will be able to sustain the higher prices. We're going to use a higher price across the whole Java Monster line going forward.

We are still in the process of working through the price increases on the 16-ounce Monster line. We are going ahead with some price increases, but we have some other things in the works, and we're just sort of trying to decide finally what would be the optimal time and basis of doing so going forward.

We're also going to introduce an additional juice product in the Monster line, which is a juice product called Mixed, and we're also about to introduce a 52-ounce can sized Monster to complement the BFC Monster under the brand name called Heavy Metal in a 32-ounce can.

Ultimately, we haven’t made a decision yet but, the plan may be to take that into and we shall see how the reception is, and also take it into a 16-ounce extension probably in the second quarter of next year. So we do have some brand line extensions. We're also going, as I indicated earlier, to extend the Rumba with an additional juice product in addition to the Lost.

So we have a number of new products going out. We will get additional shelf space. We're busy at the current time in negotiations with major retail chains to secure shelf space for 2008, and we think that that will also be important in enabling us to continue to see incremental growth in the overall Monster brand.

On the international side, sales in Canada were consistent. They are all continuing to grow. We've overcome a number of obstacles in working with the Pepsi group. We think that things are working more smoothly now and we're seeing some solid increases and we're very happy they are increasing the number of Monster SKU’s that they will be distributing to Canada, so that is positive. We're also continuing to make progress in the Mexican market. We're going to introduce an additional SKU there. And that is continuing to grow and we're very happy there.

With regard to expansion into Europe: we have taken the decision to expand into Europe. We've made the decision to expand into the United Kingdom as the first country that we're looking to. We've appointed a Senior Marketing Executive from Red Bull, Mr. Guy Carling, who was with Red Bull in the U.K. to head our U.K. operations and ultimately going into Europe.

We also are starting to start up those operations. Due to the unusual distribution systems in the U.K., we've certain specialty distributors who go, for example, to the what we call: “convenience and gas”. They call it: “the garage forecourts” or the “on premise”.

In order to avoid an extra tier of distributor, in some cases, we will be dealing direct with retail chains. For example: grocery, at this point in time, it is our plan to go direct to the grocery chains. To get to the forecourts, we will deal directly with the specialty distributor that goes in there.

We'll appoint a specialty distributors for on premise and we have appointed an on premise person to head up the on premise in the U.K., who is an ex-employee of Red Bull, who has left them some months ago, but he is very well known and is very experienced in the on premise business in the U.K.

As soon as we get the U.K. settled down, we are going to look abroad. We are going through and we're evaluating packing opportunities in Europe now. We may initially start -off by shipping product from the U.S. in the five normal cans, but ultimately, obviously, we will be packing in the U.K. and/or in Europe as we go forward.

So the plan is pretty much starting to get exposure, starting to make some marketing plans there and to kickoff in the U.K. early in the New Year.

Sales in September were somewhat weak and until that time the sales had been going pretty well. I can't explain why they were weak in September. The increase was weak in the last couple of weeks of September (Technical Difficulty).

Question-and-Answer Session


(Operator Instructions) And we'll take our first question from Andrew Sawyer of Goldman Sachs.

Andrew Sawyer - Goldman Sachs

Hello guys. I was wondering: if you could talk about this volatility? I guess, we're seeing in your selling with second quarter up 57%, the third quarter up 38%, and now October up, I think you said, 48%.

Has there been a real slowdown in sell- through? Or is there something in the ordering pattern which could explain that? Or how do you think we should think about that?

Rodney Sacks

I just don't know. I don't have an exact answer for you on that. I saw that we had a slight reduction in sales in September, which I just don't have an explanation for why that happened. It picked up again. I was looking at the AB numbers and the same thing. The AB numbers had been growing from AB distributors, as we were transitioning for each month, we increased in June, July.

We were up on May, June, July, and August. And then just a drop off in September and we were back up in October. Pretty much very close to the August number again. Obviously, October is traditionally a weaker month, but we will be pretty close back to that number on the AB distributors.

And so, I'm looking at the category generally and I just don't have an explanation of what happened towards the end of September. I just can't throw more light on it. When I look at the actual Nielson numbers, which may just change, we're up very nicely in that. I mean we're up 51%, on the 13-week basis.

Andrew Sawyer - Goldman Sachs

Okay. And then, I guess, kind of shifting gears and you talked about cannibalization rates for Java Monster, any way:  can you put some sort of quantification around what impact you think that had and quantify, perhaps, how incremental shelf space you getting as part of these resets?

Rodney Sacks

In many cases, we did achieve a full shelf for Java Monster in the separate door and pretty much we’re getting between two, three and in some cases up to four shelves for monster now.

So we are actually getting incremental. In many cases, it's another full shelf.

Andrew Sawyer - Goldman Sachs

And then, just one last quick one, you talked about taking the Java Monster price increase: can you tell us how much that is? And then: can you update us on whether you’re thinking of taking a broad 16-ounce price increase, especially Red Bull talking about 16-ounce product?

Rodney Sacks

I think, on the Java Monster side, it's probably going to be in the order of about $3 a case, but I can't be more specific. We haven't finalized the amount.

Andrew Sawyer - Goldman Sachs

That's about 10%, I guess?

Rodney Sacks

Yes. And Monster, we haven’t yet decided, because we have some other things in the works that are just too premature for me too discussed at this point on the cans. So we are looking at Monster, we’re going up roughly of the order of about probably 6% or 7%.

But, we haven't yet finalized when we going to it and exactly what context we're going to do it. So there are some other issues that have arisen that we trying to address before we go out and be seen, what's happening with Red Bull and other competitors, we'll make a decision on that reasonably shortly, but we just haven’t finalized that yet.

Andrew Sawyer - Goldman Sachs

Thanks a lot, guys.

Rodney Sacks



And we'll take our next question from Mark Astrachan of Stifel Nicolaus.

Mark Astrachan - Stifel Nicolaus

Good afternoon, guys. I guess, first of all, just to follow up on Andrew's question: could you talk a little bit about what you saw in terms of your own core energy drink brands versus some of the tertiary brands in the quarter; in terms of what the incremental negative was for the Lost and Chaos and so forth, looking at what the core brands did?

Rodney Sacks

If you look up sales for the all brands, just list of sales for quarter. I'll get to that, Mark, and I'll get back to you. [I’ll just onset] longer we're dealing with it. Just one thing I wanted correct the one figure I've given for promotional allowances reduction from [’06 to ’08 about] 13.5 down 12.4, it is actually 14.5 down to 12.4, and the year-to-date was 15.4 down to 13.8, just wanted to correct that.

Mark Astrachan - Stifel Nicolaus

Okay. Well, I guess, while you're looking for that. I can give you another question.

Rodney Sacks

Okay. I've got it over here: The effect of the drop off in sales of what I would call these Allied products was in the quarter about $5.5 million to $6 million with energy. So about $6 million was the dropped off in the other energy products, based on the pervious year, whereas, obviously, we had expected an increase. So it, obviously, has affected the numbers quite dramatically.

Mark Astrachan - Stifel Nicolaus

$6 million for the previous year?

Rodney Sacks

Yeah, in the quarter. These Allied product sales were lower. So if we had been projecting a 40% increase or 50% on the Allied products, so if you’ve got it in numbers that would have made about a $10 million difference.

Mark Astrachan - Stifel Nicolaus

Right. Okay.

Rodney Sacks

Okay. And then, one of the major other items was in our DSD division we lost about $3 million in the quarter on teas, lemonades, and cocktails that was down, which was sale for one customer where their sales were down, we were doing sort of a special brand for them. A control brand and their sales were quite substantial as you can see from those numbers. I think the reason was probably it introduced [off and] there was sell-in. And that accounted for $3 million also negative on the warehouse division.

Mark Astrachan - Stifel Nicolaus

Okay. Great. And then, in terms of thinking about your selling and promotion activity on a forward-looking basis: Yeah, obviously, Pepsi has talked about making more of an effort to get into the energy drink arena through various sponsorships and product promotions and things like that. So, I guess, tell me: what you’re seeing their in terms of preliminary trends for '08 in terms of what the potential cost increase in this category?

And then, building on that, you're talking about getting these incremental placements in coolers and shelves and having Java Monster separate from your Monster brand. What is that going to cost you as well in terms of how do you think of that?

Rodney Sacks

As I indicated earlier, we've actually achieved a reduction in our allowances, which is really the area you were addressing there. That’s the MDF and chain CMAs et cetera that we put in slotting. We believe that, going forward, we will at least be as efficient as we have or possibly be able to get some reduction even going forward even though we will be listing it for the first time a lot of the, obviously, the Java Monster into the chains. But going through the year, it may get a little bit skewed in the beginning. But if you take it over the whole of the next year, we believe we probably will be very close to, or better than, the lower numbers that we've shown in this quarter. With regard to the marketing costs: we have stepped up our marketing. We believe: “yes, there will be additional marketing”. Pepsi has publicly committed to going into spending additional money. They've spent a very substantial amount to get into NASCAR. We're not sure that that's going to help the brand very much. We're not sure it's the right consumer, and we don't believe that’s going to change the fortunes of Amp. We’ve seen Amp that has -- it had tremendous amount of attention given to it and a substantial amount of SKU and package expansion into 16- and 24-ounce and yet when you look at the numbers as I read them out earlier, it's really made no difference. In fact, they're lower than they were six to nine months ago.

So, we don't believe, as a market share -- so we don’t believe that Amp will in fact have the legs to ultimately increase any market share of any significance that's going to affect our market share. They other brands in the Pepsi camp don’t have the legs that are falling off quite substantially. We have a similar view to Full Throttle. We don't believe that that has the legs. There has been a tremendous amount of effort put behind Full Throttle going forward. They have had three to four. There were now a total, I think, of four different SKUs in regular and low carb. They have got diet. They have got 24-ounce. They’ve used a new one called Mother or something of that order recently.

And again, if you look at their share, they've also come off. They’ve not been able to go on [share] even though they're at an awful lower base. Now, they are already spending and promoting very aggressively across that brand and so we do believe we'll be able to handle it. We believe that we're going to continue to do what we're doing. We think we do that well. That really translates and identifies who we are as a brand. We think we need to stay true to the personality of the brand. And that sort of our strategy at the moment is to continue to go along those lines and not be distracted by the fact that there are these enormous spends that might be coming from one or other competitor into other areas.

Mark Astrachan - Stifel Nicolaus

Great. And then final question: could you tell us what your trends look like from fourth quarter of last year, on a month by month basis, in terms of what you are lapping in October and what are going to be lapping in November and December, your volume increases?

Rodney Sacks

Yeah. I'll just try and find out while we are here; I will try to find out individual monthlies. I don't have them easily to hand. But we'll try and find them while we're looking, and I'll come back to that question.

Mark Astrachan - Stifel Nicolaus

Thank you, guys.

Rodney Sacks

Thank you.


And we'll go next to Greg Badishkanian of Citi.

Greg Badishkanian - Citi

Hi. Just a few questions here: First one on Java: You’d mentioned that it’s about 10% of, I think, Monster sales. And what percent do you think that could get up to over the next 12 months?

Rodney Sacks

You know, Greg, we really don't know. We think that the category will expand. We are having competition. One of our competitors, Rockstar has just copied us as they’ve done in the past as well. They've introduced a Rockstar Roasted. We think that just a not a really well thought through attempt to just compete with whatever we do. But we think that that whole category will broaden into that coffee area, really that's what's going to happen. We think that that category will expand and expand consumer usage and then consumer demographic into the category. So, we think that it will, ultimately, with the extra expansion, we're coming and offering a low carb version, offering these other versions offering a chai version. We believe that will increase the category and the consumer base and percentage. But we think it will go into the double digits. It will be in the teens somewhere. Overall, it might get to the high teens of the overall sales. But, hopefully, we won't cannibalize the existing products to the extent that we probably have in the past three to four months. But we think that, ultimately, we are probably hoping to be something close to 20% of our business. The real benefit is that these products offer a morning alternative to traditional coffee to the existing cold coffee drinks. But with the energy kick to it we think that we will actually also draw on the hot coffee sector -- from the hot coffee sector. Additionally, we just believe that the whole product lineup has been very well received and will continue to grow.

Greg Badishkanian - Citi

And what percentage of Java right now is sold next to energy as you sort of look at the retail? And where do you think that ultimately will be? Do you think it's going to be a vast majority sort of in that emerging category?

Rodney Sacks

We think we will get the vast, going forward, we believe we’ll get the vast majority into the right door. In many accounts that door is right next to it or maybe above it or below it. And sometimes in very small stores there may only be one or two doors.

But those are the minority. The majority do have a separate door and separate either next to it or may be two or three away. We believe that the vast majority of our sets going forward will end up in the right door. Whereas, at the moment, we're seeing probably the vast majority in the energy set because that's been the easy way to selling three SKUs. While having a whole offering of eight SKUs to nine SKUs or, whatever it is, of eight SKUs, seven, eight SKUs, which will take up a full shelf of nine. It won’t be able to be put into the Monster Energy, and that will force it into its own space. Particularly, with extra SKUs coming on the Monster side on the juice and heavy metal, we believe we will be able to tighten up, get extra space, but tighten it and that will force retailers to actually take the trouble and effort to go and reset their shelves. So, that they actually put the product in the right section instead of taking the lazy, easy way out which is what's happened to us in the past three to four months.

And I think they also believe us now. I think everybody weren’t sure whether Monster Java would be a credible competitor to Starbucks, because literally nothing else has been able to stand up to Starbucks over the past number of years. And I think everybody in the retail side have been converted and they already do believe and see that this brand in the coffee format has serious legs, good sell-through and clearly they're now all prepared to make space in order to maximize their own profitability in their stores.

Greg Badishkanian - Citi

Do you know what their margin is on yours versus Starbucks?

Rodney Sacks

I don't know that figure off hand. I don’t know. But they are getting very healthy margins on our product. They're getting pretty much their full margins.

Greg Badishkanian - Citi

Okay. And so higher than the Starbucks you think maybe?

Rodney Sacks

I just don't know the Starbucks. I know that they have full modules. I don't know what Starbucks has been able to achieve with them generally.

Greg Badishkanian - Citi


Rodney Sacks

I just don't have that information.

Greg Badishkanian - Citi

All right. Absolutely. And do you have any early read on the Red Bull 16-ounce can? I think it is 3.49 to 3.60 price point that's being sold at the market?

Rodney Sacks

I don't think they're achieving that. I think it’s coming into the market at 3.79.

Greg Badishkanian - Citi

It is. Okay.

Rodney Sacks

Yeah. And which is way above our 24-ounce pricing. So we think that that's not going to be a big issue. Again, we think what's happened is, if you look at the Red Bull numbers, they have kept up with the category, so they have stopped the erosion in the percentage share. But when you look at the actual product mix, they’ve really transferred product sales from their 8-ounce to their 16 to their 12 in order to keep up their market share. And when you look at that, overall, I think that the 16-ounce is probably only going to cannibalize more than the 12. But the result is I think that they’re going to find that 8-ounce is probably going to become the smaller packet. And it is almost going to go away.

And I think they going to [talk forth], they carry on and introduce 16 permanently, they will probably find is our guess that they will end up with 12 and 16 and eight will go away, which hurts them on their own margin. But they've obviously been trying to fight continuing loss in market share over the past of couple years and this is what they are trying. But I think that 16 is not going to help them other than reduce their own margins and costs.

Just going into the numbers on the sales from one of the earlier questions, this October versus last year, I'm looking for this October. Last year October was marginally ahead of September. And then it dropped off on a gross basis to about 44 from about 52 dropped off to 44 in November and about 38, nearly 39 in December whereas on the numbers that we have, we've basically gone up from September to October. Our October number is about 10%, 11% higher than September. So, just to give you some idea.

Greg Badishkanian - Citi

Great. Thanks.

Rodney Sacks

All right. Thank you.


And we'll take our next question from Steve Colbert of Canaccord Adams.

Steve Colbert - Canaccord Adams

Hi, guys. Good afternoon.

Rodney Sacks

Good afternoon. Hi.

Steve Colbert - Canaccord Adams

Looking at sales for the quarter, how should we look at the sequential drop off in growth? I know you just touched on it a little, but September was soft. Can you quantify how soft it was year-over-year versus what you saw in July, I guess?

Rodney Sacks

September, I don't have it for the whole company for the month. I don’t have it. I have it percentage wise versus the year before. I know that in September, Monster was about -- July -- August was off about 3% from -- the increase was about 3% lower in August than July and then in September was about 4% lower than in August on a prior year basis.

Steve Colbert - Canaccord Adams


Rodney Sacks

And then what has happened is, then in October, it's come back about 10% higher.

Steve Colbert - Canaccord Adams

And I know you touched on it, but you really can't kind of pin anything on what's driving the re-acceleration?

Rodney Sacks

No. I think a lot of it may just have been timing. I don't know whether it was orders coming in for Labor Day, that they pulled back orders and then put the orders in after deliveries. I know we did struggle with some deliveries. We couldn’t get out. We had more orders for Java Monster than we could deliver. That was a material number that we had to reverse out. There was a little bit of a couple of other products deliveries we just didn't get out at the end of the month. So we probably had a slightly higher. When we book our sales, we close over month end and then we actually go back in and check the deliveries to see, to verify which products were actually delivered to customers before we book them.

And so normally we end up for the month and then you end up with a reversal depending on how much of the products that have shipped had actually been received. And I know that in September it was just higher than usual. But again, that was a smaller portion. The main portion was, in fact, I believe the Java Monster that we just weren’t able to get out at the end. There were a couple of manufacturing issues. We shipped the [light] things a few days and in any case we just couldn’t keep up with the orders. So, we ended up with quite a bit of a reversal there. And I just don't have another explanation because I just don't have one. I mean, I haven't been able to get to something that I have been able to put my finger on and say that it is.

Steve Colbert - Canaccord Adams

Okay. Fair enough. Obviously, the Nielsen numbers, everything still looks pretty strong. How do you view the consumer environment? How discretionary do you think energy drinks are?

Rodney Sacks

We think that they are. We think they're just becoming more and more acceptable. They are becoming the soft drink of the future. We think that they're performing. We think that consumers are drinking the products regularly as part of their regular beverage selection now. It's not as though it’s a treat selection or they I'll do it once or they are going to go out and party and do it with something. We believe that this is from our read into the markets and the feedback people are just regular consumers. The same as if you have a regular coffee consumer. They drink one cup of coffee every morning. People are drinking one cup of Monster in the morning or they are drinking one can in the afternoon. It's just becoming a regular part of their traditional beverage selection, their regular diet. So we see that the category continuing to solidify, continuing to strengthen. That the use occasions continuing to segment out. And there will be use occasions for the morning, for lunchtime, for the evening, for mixing. We just continue to see that. We really do see it continuing to grow. We do see, obviously, a slight deceleration in percentage wise when you look at the dollar numbers. They're continuing to be very, very strong. I mean this whole sector is continuing to grow enormously in dollars now. It’s becoming a real big sector. When you look at all the other new age sectors, this sector is starting to completely outgrow that.

Steve Colbert - Canaccord Adams

Okay. Fair enough. And then if you can just talk a bit more about the opportunity in England? How big do you think the market is over there? What's the rollout going to look like?

Rodney Sacks

We think that the market is a big market. We think that traditionally the market is the biggest, what I'd call real energy product is Red Bull. A very heavy product there that had for many years, that was traditionally not an energy drink, but it was pretty much a glucose based drink called Lucozade and it was used as a, sort of mix it and dilute. It’s a ready-to-drink [cold]. They’ve put an enormous amount. It is Glaxo SmithKline who owned it. They’ve put a tremendous amount of effort behind the brand. It sold primarily in glass bottles or plastic. They positioned it as just a sort of a sports pick-me-up. And it’s slightly different positioning, but they have a lot of business. So if you look at the whole category, we believe the category is probably of the order of about £400 million to £500 million. That’s probably between $800 million -- or $750 million to $1 billion at retail.

And so we think it's a big category. For a country of 50 million people, that's a pretty high per capita consumption. And what we see is that that is a great market. It's really been unchallenged. The competitors that were there haven't made inroads. And we just see that there is a great opportunity. And once we obviously establish ourselves, they will go into other markets. We see Germany particularly as a high consumption market. There are a little bit of some lower priced brands, local brands that have done quite well there.

So the pricing in some cases, there is a price stratification in Germany between Red Bull and the local brands. But there are also some strong markets elsewhere in Europe. And the whole European market is pretty much, as big as the American market. So, we see a lot of growth opportunity, but, again, it will take time and effort to get there and to do it right. But we obviously are determined to do that. And we see that as a main focus for the next couple of years for us.

Steve Colbert - Canaccord Adams

Okay. And then final question for me: Looking at the cash balance you built up, what's the current repurchase authorization? And then: are there any plans to be active in it?

Rodney Sacks

On the share repurchase, again, we do have an intention to look at that. We basically do have an existing plan in place. We are going to evaluate an increase in that plan. And to go ahead, obviously, there was quite a substantial run up in the share price over the past couple of months. We will look at the repurchase program based in the light of current share prices from time to time. And our belief is that, again, we need to get a Board consensus on it because we're having a Board meeting late this week. But certainly from our point of view at management, we believe that we should go ahead and instigate a share repurchase program. But that will be subject to the formal approval of the Board, which we’ll need to go though with them. And then, obviously if that is so, we will announce it.

Steve Colbert - Canaccord Adams

Okay. Great. That's it for me. Thanks, guys.

Rodney Sacks

Thank you.


And we'll be taking our final question of today from Alton Stump of Longbow Research

Alton Stump - Longbow Research

Thank you. Hello, Rodney.

Rodney Sacks

Hi. Hi, Alton.

Alton Stump - Longbow Research

Just had a quick question, not to get too specific, but on the cost front, you mentioned early on that there was some increased shelf space programs as well as invasion fees. Could you try to ballpark that number for me? What impact it was year-over-year and in the third quarter?

Rodney Sacks

The Invasion fees that we paid in the quarter were about $3.8 million versus $1.3 million in the prior period.

Alton Stump - Longbow Research

Great. Thank you. And then, on the shelf space program: any idea there?

Rodney Sacks

That was up from about five to just over eight in the quarter.

Alton Stump - Longbow Research

That's great. Thank you. And then, just one other question: We've seen for the last couple of quarters in a row, superior growth in the category within the convenience and gas channel versus grocery. Obviously, the CG channel should be more saturated, but still it is doing better. Any thoughts there? It is just better focus from all the major players involved do you think that's driving that?

Rodney Sacks

You say you’ve seen more growth in the convenience?

Alton Stump - Longbow Research

Right so.

Rodney Sacks

Yeah. There is. It’s just a question of, I think, that the grocery chains are just haven’t yet really completely embraced the energy category as a substantial incremental value to them whereas I believe the convenience and gas have in fact done so. And I believe that the grocery chains haven’t allocated the same amount of space proportionally that perhaps they should have done, whereas the convenience, just because they have been in it much longer have done so. And they have seen more profit. So when you look at the grocery increase, grocery is only up 22.5% year-on-year as a category. Although, obviously, we feel we’ve done very well there, because we’ve actually upped 53.7% in grocery, which is quite interesting because you’ve got really good execution coming out of Coke with Full Throttle, they are only up 7.3. That sort of made earlier inroads because it isn’t a channel that they’re more familiar with, but the year-on-year is only up 7.3, and the same thing with Rockstar, that’s up 37.

And even the sort of revitalized, call it, Amp is only up 49.6 in that channel, which is the hunting ground for Pepsi. That’s their one of the main channel for sales of beverages. So we’ve actually exceeded the growth in that category. But the category as such still is still very small proportion of convenience. And as you say, the overall growth in convenience is still outstripping them. But I just think it’s a question of embracing it and consumers embracing it. And it will grow. It’s just going to take more time.

Alton Stump - Longbow Research

Okay. Great. That’s all I have. Thanks, Rodney.

Rodney Sacks

Thank you.


And Mr. Sacks, I’d like to turn the call back over to you, sir, for any additional or closing remarks.

Rodney Sacks

Okay. Thanks very much. So gentlemen, again, thank you very much. I know there have been a number of issues that we’ve had to deal with and we are trying to deal with in this call and as we go forward in the category, there is some unusual things that have happened. We’re all very excited. We do believe that we’ve got a category that is still growing very much more than any other category particularly with the size of it in the beverage field, because we believe that it will continue to grow.

And we believe that the expansion of this category into this coffee area is an extremely exciting number for us. We think that that will help expand the category. We also believe that our juice offerings in the Rumba line will expand the category. So going forward, we are pretty excited for the prospects for the fourth quarter and for next year as a whole for the company.

We need to address some other issues. We realize that on-premise to try and see how that grows and see what we can do to speed that up to the extent that we can. We need to minimize cannibalization. We think that will rectify itself when we get more identified shelf space going forward into the New Year.

And we also need to address these issues of the Allied Products and we have some plans. We've just introduced a new whole line of products in a slim can, in a 11-ounce, 10.5-ounce slim can which are less than 100 calories. There is a dark line, there's a green tea line in it. We believe that going forward next year, we are already positioned very well in that healthier alternative category as well. I know it's sort of dwarfed at the moment by the Monster product, but in the long term we believe that’s a very solid and viable category. Half the beverage category is still carbonated and we believe we have a very credible [player] that pretty much everybody’s looking for is the solution to get a healthier better position. So, we believe we do have that in that Hansen line. So we are quite excited going forward with our products. We are still very excited about as I’ve said I want to reinforce that the relationship with Anheuser-Busch is a very strong relationship. We are very happy with the relationship. We understand that they are happy with the relationship as well. We just got to deal with operational issues as we go forward because that happens in life and that we'll get through them all.

We are going to also take steps to try and address some of, perhaps, the smaller independents and some of the dry area issues that we've encountered in transitioning into AB system and we have some plans in place to try and get to them to also improve our general availability and sales of our products.

So overall, we are excited. We do believe it has been a good result. We're getting some of the other issues and stock option issues behind us. Hopefully, that will stop distracting management and we can put our heads down and go forward with the business.

So, thank you very much for your support. And we'll report back at the end of the year on the fourth quarter in due course. Thank you.


And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.

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