Q2 2020 Celsius Holdings Inc Earnings Call

August 6, 2020

Good morning, and welcome to Southeast Holdings second quarter Twentytwenty earnings.

Hi, all participants are in listen only mode. I believe question answer session will follow the formal presentation. If anyone should require operator [laughter]. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Cameron Donahue of Hayden IR. Thank you Mr. Donahue you may begin.

Thank you and good morning, everyone. We appreciate you joining us today for Celsius Holdings second quarter 2020 earnings Conference call. Joining me on the call today or John Field, Lee President and Chief Executive Officer that when did Ron Chief Financial Officer.

John Fieldly: As we entered Q2, traffic and purchasing patterns were severely disrupted as online ordering patterns, pantry purchasing, and curbside pickup became more prevalent in response to the stay-at-home orders and consumer lifestyle shifts. During Q2, we began to see impacts in several of our distribution channels, mainly in our health club, specialty vending, and food service channels. Our health club vitamin specialty channels, which historically represented approximately 20% to 25% of our US revenue, were predominantly shut down during the quarter. We have always believed that we have a different consumer base, not just an expanded age bracket and not just a 50% female demographic, but that our consumers are reoccurring, regularly consuming Celsius as part of a daily lifestyle.

Founder prepared remarks, well open the call to your questions and instructions will be given at that time.

The company polyps form 10-Q, with the FCC issued a press release today all materials are available in the company's website at Celsius Holdings Inc. Dot com under the Investor Relations section as a reminder, before I turn the call. The John the audio replay will be available later today.

Please also be where this call may contain forward looking statements, which are based on forecast expectations and no information available to management as of today August six 2020. These statements involve numerous risks and uncertainties, including many there beyond the company's control except to the extent as required by applicable law. So she is holding undertakes no obligation disclaims.

Any duty to update any of these forward looking statements. We encourage you to review and full our safe Harbor statement contained in today's press releases and our quarterly filings with the FCC for additional information.

John Fieldly: With these two channels shut down, our consumers shifted their purchasing patterns of Celsius to other channels, to online and grocery, where we see the largest incremental increases, which not only replaced the sales in these channels, but also showed record growth, further reinforcing the opportunity we have at Celsius. Celsius is more than just an impulse purchase. We are part of a daily lifestyle, a line for today's health-minded consumer. During the quarter, we made significant progress on further building out our distribution network as our pursuit for a national network to service our key accounts. We secured additional distribution partners with Anheuser-Busch InBev, PepsiCo, Keurig Dr Pepper, and Molson Coors, independent network partners, which further expanded our availability of products to new regions.

With that let's turn the call it a president and Chief Executive Officer, John Field, Lee first paired remarks John.

Thank you Karen good morning, everyone.

Thank you for joining us today.

The second quarter was the first full quarter impacted by the Cobot 19 pandemic no data leap pose challenges to all of our stakeholders.

While the passport remains uncertain, we remain encouraged by our momentum and the dedication and presser be variants of our employees partners and customers.

He is extraordinary times present challenges to all of us and our condolences go out to all those I've been affected by this pandemic.

The health and safety of our employees customers consumers and partners remain our top priority and we continue to monitor the environment implemented contingency plans to mitigate risk through our business.

John Fieldly: Our national distribution network now includes more than 135 regional direct store delivery partners, up from just over 100 direct store delivery partners when we last spoke to you in May. We have plans for several additional partners in the second half of 2020, where we will have the majority of major metropolitan markets covered by the DSD model in the United States. In addition, during the quarter, we further transitioned over Target and 7-Eleven locations from the wholesaler direct route to market to our DSD partner, Big Geyser, in the New York metropolitan market, where we saw volumes more than double in these key accounts.

Despite these disruptions our second quarter performance again demonstrates the momentum we are building in the marketplace and the efforts from our team to reach more consumers through wider distribution improve margins through cost and operational improvements and increase our brand recognition globally.

We set another record quarter with over 30 million in revenue.

An increase of 86% over the second quarter of last year and delivered another quarter of profitable growth of approximately 1.6 million in GAAP net income.

John Fieldly: We plan to transition over additional regions to our DSD network throughout the remainder of the back half of this year and into 2021, which will even take Celsius to more points of distribution and more than double our organic growth rate in these top accounts. We also launched our newest flavor, Peach Vibe, a refreshing, exotic summer flavor, which was very well-received. Upon launch, Peach Vibe was ranked as the number 1 new release in the energy drink category on Amazon, and we anticipate that this new flavor will be a meaningful addition to our portfolio as customers and consumers and retailer planograms resets take place in the back half of this year and into 2021. In the retail space, our US door count now exceeds 75,000 locations nationally, which is up by more than 10,000 since the end of 2019.

Consumer demand for our functional beverages remained strong and the most recently reported United States spins data for the 52 weeks ending July 12.

2020 confirms the we have significantly outpaced the category across multiple channels, which includes a 46.5% growth and the convenience channel outpacing that category growth rate by 11.6 times, and then move though our growth is that over 99%.

In addition in accordance to stock line, which tracks energy drink sales by Amazon in the United States for that 13 weeks ended April 11th 2020 sales in dollars and the energy drink category by Amazon, including energy shots grew 80.8% versus the same period a year ago.

And sale Celsius sales increased 118%.

John Fieldly: We expect this number to grow even further in the second half of 2020 as retailers execute planogram resets, which were delayed in the first half of this year. From an operational perspective, we continue to refine our contingency plans around production and remain nimble with our sales and marketing initiatives as COVID situation continues to unfold. Our teams are prepared to pivot and adapt quickly to capitalize on opportunities as consumer shopping patterns and behaviors flex with the changes in the environment. Most importantly, we have a culture that embraces flexibility in the midst of uncertainty. In Europe, we continue to capture incremental benefits and synergies from the fully integration of Func Food Group, a Nordic wellness company, into our operations. This business was immediately accretive to earnings and is an important step in our strategy to build a global dynamic brand.

And our share increased to 11.4% of the category, which puts Celsius as the third largest energy drink brand on Amazon just behind Monster energy at 34.8% share at an 88.8% growth and Red Bull share up 14.9% growing at 86.7% growth.

As we entered the second quarter traffic and purchasing patterns were severely disrupted and online ordering patterns.

Pantry purchasing and curbside pickup became more prevalent in response to the same home orders and consumer lifestyle shifts during the second quarter, we began to see impacts in several of our distribution channels maintain mainly in our health club specialty bending and boost service channels.

Our health club vitamin specialty channels, which historically represented approximately 20, 25% of our United States revenue were predominantly shut down during the quarter.

John Fieldly: As in the United States, our Europe operations were impacted by COVID and mainly saw decreases in the fast protein snack portfolio as consumer shopping patterns and habits changed to comfort foods. This trend started to take place in the beginning of Q2, and towards the end of Q2, we started to see changes going back and seeing growth in the category. We expect the category to fully rebound in the back half of this year and into 2021. These decreases were partially offset by increases in sales of Celsius in the region, where we continue to see great opportunities and momentum. As with Europe and the United States, China and APAC were impacted as well with the COVID-19 recovery continues, where we are seeing and regaining momentum over the summer.

We have always believed that we have a different consumer base not just an expanded age bracket and not just a 50% female demographic.

But that our consumers are re occurring regularly consuming celsius as part of it daily lifestyle.

With these two channels shutdown.

Our consumer shifted their purchasing patterns of Celsius to other channels to online and grocery where we see the largest incremental increases.

Which not only replaced the sales in these channels, but also showed record growth.

Further reinforcing the opportunity we haven't Celsius Celsius is more than just an impulse purchase we're part of it daily lifestyle outlined for today's health mining consumer.

John Fieldly: In China, we maintain a licensing royalty model in the market, where our distributor covers over 76 cities and now has over 60,000 points of distribution as of the end of Q2. In Malaysia, where we maintain a direct relationship with a local distributor, we maintain approximately about 2,000 7-Elevens, with plans to reenter the gym, vitamin specialty channels, and other retailers as the recovery continues throughout the summer. As with Europe and the United States, we see great opportunity to capitalize on the changes in consumer preferences for better for you offerings, and we see tremendous opportunities in the enormous market of Asia. On a marketing front, we continue to prioritize with meaningful and emotional connections through robust marketing programs that drive live integrated programs and competitive activities, even while consumers are at home.

During the quarter, we made significant progress on further building out or distribution network as our pursuit for a national network to service. Our key accounts, we secured additional distribution partners with Anheuser Busch Inbev Pepsico Kirk Dr Pepper, and most similar cooler independent network partners, which further expanded our build.

Bill Lydia products to new regions, our National distribution network now includes more than 135 regional direct store delivery partners up from just over 100 direct store delivery partners. When we last spoke to you in may.

We have plans for several additional partners in the second half the 2020, where we will have the majority of major metropolitan markets covered by the DSD model in the United States.

In addition, during the quarter, we further transitioned over target and 711 locations from the wholesaler direct.

John Fieldly: On social media, we now have more than 100,000 Instagram followers who actively engage by sharing home workouts and videos that feature our products. In addition, with gyms closed, we created a Sweat with Celsius live workout program, which takes place every Monday, Wednesday, and Friday at 12:00 PM Eastern Time, and I encourage all of you to attend. We are partnering with local certified trainers to provide a variety of workouts for every fitness level, which allows us to further connect with our community in a meaningful way. In addition, we pivoted our planned sampling programs during the quarter to target first responder locations during the quarter, where we handed out and dropped off thousands of cases of Celsius to over 550 hospitals and first responder locations, supporting the front lines through this pandemic.

Route to market to our DSD partner Big guys are and the New York Metropolitan market, where we saw volumes more than double in these key accounts.

We plan to transition over additional regions to our DSD network throughout the remainder of the back half of this year it into 2021.

Which will even take Celsius to more points of distribution and more than double organic growth rate and these top accounts.

We also launched our newest flavor peach by refreshing exotic summer flavor, which was very well received.

Upon launch Peach five was ranked as the number one new release any energy drink category on Amazon and we anticipate that this new flavor will be a meaningful addition to our portfolio assets customers and consumers and retailers plan of grams resets take place in the back half of this year and into 2021.

John Fieldly: We remain focused on driving profitable growth by expanding and increasing our distribution networks, nurturing relationships with new and existing accounts, and engaging consumers through a variety of creative mediums. In an industry that is rapidly changing, we are growing exponentially and adapting quickly to grab market share. The momentum we are creating reinforces our confidence in the long-term growth and profitability prospects of our business. Heading into Q3 2020, we remain optimistic and are seeing sales orders through July in the United States exceeding over a 50% growth rate versus prior year. I will now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer, for his prepared remarks. Edwin?

And the retail space, our U.S. door count now exceeds 75000 locations nationally, which is up by more than 10000 since the end of 2019, we expect this number to grow even further in the second half of 2020 as retailers execute planogram resets, which were delayed in the first half of this year.

From an operational perspective, we continue to refine our contingency plans around production and remain nimble with our sales and marketing initiatives as cobot situation continues to unfold. Our teams are prepared to pivot and adapt quickly to capitalize on opportunities as consumer shopping patterns and behaviors flex with that.

Edwin Negron-Carballo: Thank you, John. For the 3 months ended 30 June 2020, revenue was a record high, $30 million, an increase of $13.9 million or 86%, compared to $16.1 million for the same period last year. The overall increase in revenues was due to increases in sales volumes as opposed to increases in product pricing. By geography, the 86% revenue increase was attributable to continued strong growth of 44% in North America, related to double-digit growth from both existing accounts and new distribution, including expansion at world-class retailers. Consequently, North American revenue delivered a record $20.8 million for the quarter, a $6.4 million increase when compared to the prior year quarter.

Changes in the environment. Most importantly, we have a culture that embraces flexibility in the midst of uncertainty.

In Europe, we continue to capture incremental benefits and synergies from the full integration of funk food group, a Nordic wellness company into our operations.

This business was immediately accretive to earnings and is an important step on our strategy to build the global dynamic brand.

As in the United States, Our Europe operations were impacted by Covance and saw May we saw decreases in the fast protein snack portfolio as consumer shopping patterns and habits change to comfort foods. This trend started to take place in the beginning of the second quarter and towards the ended the second quarter, we started to see changes.

Going back and seeing growth in the category.

We expect the category to fully rebound in the back half of this year and into 2021. These decreases were partially offset by increases in sales of Celsius in the region, where we continue to see great opportunities and momentum.

Edwin Negron-Carballo: Revenue from the European markets was $8.8 million, or an increase of $7.5 million compared to Q2 2019, reflecting the full impact of consolidating the results of our European operations. Asian revenue totaled $326,000, compared to $381,000 in the year ago period. The modest decline in Asia was primarily a result of currency fluctuations and the impact of the current health crisis. Revenue from all other areas amounted to $107,000, which doubled compared to the quarter a year ago. Gross profit increased by $6.1 million or 88% to $13 million in Q2 2020, up from $6.9 million in the year ago quarter.

As with Europe, and the United States, China impacts were impacted as well with the Cobot 19 recovery continues we're seeing and regaining momentum over the summer in China, we maintain a licensing royalty model in the market, where our distributor covers over 76 cities and now has over 63.

I was in points of distribution is at the end of the second quarter and in Malaysia, where we maintain a direct relationship with the local distributor we maintain approximately about 2007 alliance with plans to reenter the gym vitamin specialty channels and other retailers as the recovery continues throughout the summer.

As with Europe, and the United States, we see great opportunity to capitalize on the changes in consumer preferences for better for you offerings and we see tremendous opportunities at enormous in the enormous market of Asia.

On a marketing front, we continue to prioritize with meaningful and emotional connections through robust marketing programs that drive wide integrated programs and competitive activities even.

Edwin Negron-Carballo: Gross profit margin for the first 3 months ended 30 June 2020 was 43.3%, which compares favorably to 42.6% for the 2019 Q2. The increase in gross profit margin and dollars reflects the impact of the consolidation of the European operations and the result of the increase in sales volumes, as opposed to increases in product pricing. The increase in gross profit margin translated to an incremental profitability of $210,000 in this Q2. Selling and marketing expenses for the 3 months ended 30 June 2020 were $7.8 million, an increase of $2.2 million or 39% from $5.6 million for the same Q2 in 2019.

Even while consumers are at home on social media, we now more than 100000, Instagram followers actively engaged by sharing home workouts and videos that feature our products.

In addition, with Jim's close we created a sweat, which Celsius live workout program, which takes place every Monday Wednesday in Friday at 12 PM Eastern time, and I encourage all of you attend we're partnering with local certified trainers to provide a variety of workouts for every fitness level, which allows us to further connect with our community anyway.

Meaningful way. In addition, we pivoted our planned sampling programs during the quarter that target first responder locations during the quarter, where we handed out and dropped off thousands of cases, the Celsius to over 550 hospitals at first responder locations supporting the front lines through these pandemic.

Edwin Negron-Carballo: The increase is mainly due to the impact of the consolidation of the operations of our Nordics partner, which was not reflected in the 2019 results. Consequently, marketing expenses increased by $930,000 or 40% compared to the Q2 of 2019. Similarly, all other sales and marketing expenses reflected the increases related to the consolidation of the European operations and currency fluctuations. Specifically, employee costs increased $1.2 million or 80% from the 2019 Q to the 2020 Q, and also reflect investments in human resources to properly service our markets. In addition, our support to distributors, investment in trade activities, and storage and distribution costs increased by $185,000, mainly related to the increase in business volume year-over-year.

We remain focused on driving profitable growth by expanding and increasing our distribution networks nurturing relationships with new and existing accounts and engaging consumers through a variety of creative mediums.

In an industry that is rapidly changing we're growing exponentially in adapting quickly grab market share.

The momentum, we're creating reinforces our confidence in the long term growth and profitability prospects of our business.

Heading into the third quarter of 2020 remain optimistic and are seeing sales orders through July and the United States exceeding over 50% growth rate versus prior year.

I will now turn the call over to Edwin have grown Kabbalah, our chief financial officer for his prepared remarks Edwin.

Thank you John for the three months ended June Thirtyth 2020 revenue was a record high $30 million, an increase of $13.9 million or 86% compared to $16.1 million for the same period last year.

Edwin Negron-Carballo: General and administrative expenses for the three months ended 30 June 2020 were $3.6 million, an increase of $1.2 million or 50% compared to $2.4 million for the three months ended 30 June 2019. This increase similarly reflects the impact of the consolidation of the operations of our Nordics partner and currency fluctuations. As such, administrative expenses were $1 million, an increase of $404,000 compared to the prior year quarter. Employee costs for the three months ended 30 June 2020 increased by $442,000 or 66%, not only related to the consolidation of our European business, but also reflecting investment in resources to support our higher business volume.

The overall increase in revenues was due to increases in sales volumes as opposed to increases in product pricing.

By geography, the 86% revenue increase was attributable to continued strong growth of 44% in North America.

Related to double digit growth from both existing accounts and new distribution, including expansion and world class retailers.

Consequently, North American revenue delivered a record $20.8 million for the quarter, a $6.4 million increased when compared to the prior year quarter.

Revenue from the European markets was $8.8 million or an increase of $7.5 million compared to the second quarter of 2019.

Edwin Negron-Carballo: All other increases for general and administrative expenses amounted to $280,000 when compared to the prior year quarter. Below the operating profit line, total other income was $67,000 for the 3 months ended 30 June 2020, compared to total other expenses of $345,000 for the same period in 2019. The delta between the 2 periods of $412,000 was a result of a favorable impact from realized foreign currency transactions of $197,000, a gain on lease cancellations of $152,000, lower net interest expense of $31,000, and a favorable impact of currency fluctuations regarding the investment repayment from China of $342,000.

Reflecting the full impact of consolidating the results of our European operations.

They shouldn't revenue totaled $326000 compared to $381000 in the year ago period.

The modest decline in Asia was primarily a result of currency fluctuations and the impact of the current health crisis.

Revenue from all other areas amounted to $107000, which doubled compared to the quarter a year ago.

Gross profit increased by $6.1 billion or 88% to $13 million in the second quarter of 2020 up from $6.9 million in the year ago quarter.

Edwin Negron-Carballo: These favorable impacts were partially offset, mainly by higher amortization of intangibles and financial instruments of $310,000. As a result of this activity, the company had net income of $1.6 million or $0.02 per diluted share for Q2 2020, compared to a net loss of $1.5 million, or a loss of $0.03 per diluted share in the year-ago quarter. Adjusted EBITDA was $2.6 million, compared to a loss of $15,000 for Q2 2019. We believe this information and comparisons of Adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance. To that effect, a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. Now turning to our year-to-date results.

Gross profit margin for the first three months ended June Thirtyth 2020 was 43.3%.

Which compares favorably to 42.6% for the 2019 quarter.

The increase in gross profit margin and dollars reflects the impact of the consolidation of the European operations and the result of the increase in sales volumes.

Opposed to increases in product pricing.

Increasing gross profit margin translated to an incremental profitability of $210000 in this quarter.

Selling and marketing expenses for the three months ended June Thirtyth 2020 were $7.8 million, an increase of $2.2 million or 39% from $5.6 million for the same quarter in 2019.

The increase is mainly due to the impact of the consolidation of the operations of our Nordics partner, which was not reflected in the 2019 results. Consequently, marketing expenses increased by $930000 were 40% compared to the second quarter of 2019.

Edwin Negron-Carballo: For the first 6 months of 2020, revenues increased by a solid 90% to $58.2 million, up from $30.6 million for the 6 months of 2019. The increase was the result of a strong year-over-year growth in North American sales of 56%, which, similar to the quarter, was driven by double-digit growth in existing accounts and distribution expansion. In Europe, the revenue increase of over 300% largely reflects the full financial impact of the consolidation of the results of operations of our European distribution partner. Revenue in the Asian markets for the first 6 months of 2020 increased 37% to $594,000.

Similarly, all other sales and marketing expenses reflected the increases related to the consolidation of the European operations and currency fluctuations.

Specifically employee costs increased $1.2 million or 80% from the 2019 quarter to 2020 quarter and also reflect investments in human resources to properly service our markets. In addition, our support to distributors investment in trade.

Activities and storage and distribution costs increased by $185000, mainly related to the increase in business volume year over year.

Edwin Negron-Carballo: This increase was driven by higher sales volume in the first three months, which was partially eroded by foreign currency fluctuations and weaker market conditions as a result of the current global health crisis. Gross profit increased by $13.4 million, or 106%, to $26 million for the first six months of 2020, compared to $12.6 million for the first six months of 2019. Gross profit margin increased by 360 basis points to 44.7% for the six months of 2020, compared to 41.1% in the year ago period. This increase delivered incremental profitability of $2.1 million.

General and administrative expenses for the three months ended June Thirtyth 2020 were $3.6 million, an increase of $1.2 million or 50 per cent compared to $2.4 billion for three months ended June Thirtyth 2019.

This increase similarly reflects the impact of the consolidation of the operations of our Nordics partner and currency fluctuations.

As such administrative expenses were $1 million, an increase of $404000 compared to the prior year quarter employee cost for three months ended June Thirtyth 2020 increased by $442000 or 66% not only related to the consolidation of our European.

Business, but also reflecting investment in resources to support our higher business volume.

Edwin Negron-Carballo: Sales and marketing expenses increased by 67% to $15.4 million for the first 6 months of 2020, compared to $9.2 million for the first 6 months of 2019. The increase is mainly due to the consolidation of the operating results of Func Food. The increase also reflects higher marketing expenses, employee costs, and other commercial expenses to support our distributors in light of the higher sales volumes compared to the year ago period. General and administrative expenses for the first 6 months of 2020 were $7.9 million, an increase of 55% compared to $5.1 million for the year ago period. The increase reflects the consolidation of Func Food operations, which were not present in the 2019 results, as well as additional resources in order to have the proper infrastructure for business growth.

Other increases for general and administrative expenses amounted to $280000 when compared to the prior year quarter.

Below the operating profit line total other income was $67000 for the three months ended June Thirtyth 2020.

Compared to total other expenses of $345000 for the same period in 2019.

The delta between the two periods of $412000 was a result of a favorable impact from realized foreign currency transactions of $197000 again and lease cancellations of $152000.

Lower net interest expense of $31000.

And a favorable impact of currency fluctuations regarding the investment repayment from China of $342000.

These favorable impacts were partially offset mainly by higher amortization of intangibles and financial instruments of $310000.

Edwin Negron-Carballo: Additionally, administrative expenses included an additional $221,000 related to an increase to our bad debt reserve to cover potential collectibility risk associated with the current health crisis. Below the operating line, the total other expenses were $635,000 for the first 6 months of 2020, compared to total other income of $11.8 million in the prior year period. The prior year results included $12.1 million in other income for the recognition of the note receivable from our China distributor that was signed at the beginning of 2019.

As a result of this activity the company had net income of $1.6 million or two cents per diluted share for the second quarter of 2020 compared to a net loss of $1.5 million or a loss of three cents per diluted share in the year ago quarter.

Adjusted EBITDA was $2.6 million compared to a loss of $15000 for this second quarter of 2019.

We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance to that effect a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release.

Edwin Negron-Carballo: Based on the aforementioned activity, net income for the first six months of 2020 was $2.1 million, or $0.03 per diluted share, compared to $10.2 million or $0.18 per share for the first six months of 2019. Net income for the 2019 six-month period included the non-recurring gain of $12.1 million related to the note receivable from our China licensee. Adjusted EBITDA for the first six months of 2020 was $5.4 million, which compares to $863,000 in the year ago period. As of 30 June 2020, the company had cash of $20.1 million, compared to $23.1 million as of 31 December 2019.

Now turning to our year to date results.

For the first six months of 2020 revenues increased by a solid 90% to $58.2 million up from $30.6 million for the six months of 29 team.

The increase was the result of a strong year over year growth in North American sales of 56%.

Similar to the quarter was driven by double digit growth in existing accounts and distribution expansion.

In Europe, the revenue increase of over 300%.

Partially reflects the full financial impact of the consolidation of the results of operations of our European distribution partner.

Edwin Negron-Carballo: The company also had working capital of $31.8 million as of 30 June 2020, compared to $24.8 million as of 31 December 2019. Cash used by operations during the 6 months ended 30 June 2020, totaled $4.3 million, reflecting an increase in working capital, mainly related to higher inventory values, prepayments, as well as deposits, and an increase in accounts receivables due to higher sales. That concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

Revenue in the Asian markets for the first six months of 2020 increased 37% to $594000.

This increase was driven by higher sales volume in the first three months, which was partially eroded by foreign currency fluctuations and weaker market conditions as a result of the current global health crisis.

Gross profit increased by $13.4 million or 106% to $26 million for the first six months of twentytwenty compared to $12.6 million for the first six months of 2019.

Operator: Thank you, sir. We'll now begin the question-and-answer session. If you would like to register for a question, press the 1 followed by the 4 on your touchtone phone. You'll hear a 3-tone prompt to acknowledge your request. If your question has been taken and you would like to withdraw your registration, press the 1 followed by the 3. Once again, we welcome your questions and/or comments. Please press the 1 followed by the 4 now. Currently, our 1st question will come from the line of Jeff Van Sinderen with B. Riley. Please go ahead, sir.

Gross profit margin increased by 360 basis points to 44.7% for the six months of 2020 compared to 41.1% in the year ago period.

This increase delivered incremental profitability of $2.1 million.

Sales and marketing expenses increased by 67% to $15.4 million for the first six months of 2020 compared to $9.2 million for the first six months of 2019.

The increase is mainly due to the consolidation of the operator results from foods. The increase also reflects higher marketing expenses employee costs and other commercial expenses to support our distributors in light of the higher sales volumes compared to the year ago period General and admin.

Jeff Van Sinderen: Good morning, everyone. Let me just first say congratulations on the strong results. John, maybe you can give us a little more color on how the process of adding DSD partners is going since you're now over 130 partners at this point. Maybe speak more about the retailers that are expected to flip over to DSD in second half, impact on your business and that. Then kind of given the strong sales growth, how do you feel about inventory levels, production plans, and position to deliver to meet that demand, considering the boost you typically experience from flipping over to major DSDs?

The straight of expenses for the first six months of 2020 were $7.9 million, an increase of 55% compared to $5.1 million for the year ago period.

The increase reflects the consolidation of fun foods operations, which were not present in the 2019 results as well as additional resources in order to have the proper infrastructure for business growth.

John Fieldly: Excellent. Thank you, Jeff, I appreciate it. The team has done a great job this quarter, continues to execute extremely well. You are correct, we are about 135 DSD partners today. The transition of Bang from majority of Anheuser-Busch independent distributors to Pepsi, has really opened up a lot of opportunity for us. The team's been busy filling in the gaps in several key markets in the United States and the metropolitan areas to really cover the DMAs, so we're able to flip over those key accounts. As it stands right now, with 135, we have about 70% of all the major metropolitan markets in North America covered. We do have a few gaps that we're working to really close in the back half, really in Q3.

Additionally, administrative expenses included an additional $221000 related to an increase to our bad debt reserve to cover potential collectability risk associated with the current health crisis.

Below the operating line. The total other expenses were $635000 for the first six months of Twentytwenty compared to total other income of $11.8 million in the prior year period.

The prior year results included $12.1 million in other income for the recognition of the note receivable from our China distributor that was signed at the beginning of 2019.

John Fieldly: We really have come a long way since the beginning of the year, so really excited about that transition. In the past, we talked about Target and flipping over to Big Geyser in New York, and that has gone really well, as well as 7-Eleven in that market, but we're currently working on CVS as well. We have been giving the green light in Q3, starting in the back half of this month and into September, that we will be flipping over and changing the route to market with Target. Target will be one of the first really key accounts that will be taking on more DSD distribution throughout the country. A variety of key markets in the country will be serviced by DSD by, through, with Target.

Based on the aforementioned activity net income for the first six months of 2020 was $2.1 million or three cents per diluted share compared to $10.2 million or 18 cents per share for the first six months of 2019.

Net income for the 2019 six month period included the nonrecurring gain of $12.1 billion related to the note receivable from our China licensee.

Adjusted EBITDA for the first six months of 2020 was $5.4 million, which compares to $863000 in the year ago period.

As of June Thirtyth 2020, the company had cash of $20.1 million compared to $23.1 million as of December 30, Onest 2019. The company also had working capital of $31.8 million as of June Thirtyth, Twentytwenty compared to 24.8 million dollar.

John Fieldly: CVS, we're working with CVS extremely closely on doing the same thing. We anticipate the majority of CVSs will be converted over to DSD towards the back half of this year. Walmart is taking a little bit longer, so that will likely take place towards most likely around January 2021. We have had a lot of, you know, everyone going through dealing with COVID in a lot of these key accounts. As we all know, a lot has been delayed. We were hoping that a lot of these key accounts would be migrated over in Q2. We disclosed that some of the delays we were seeing in Q1 when we released earnings, but we're really optimistic. We're seeing great, great rotation in accounts that are serviced by DSD.

As of December 30, Onest 2019.

Cash used by operations during the six months ended June Thirtyth 2020.

Total $4.3 million, reflecting on increasing working capital mainly related to higher inventory values prepayments as well as deposits and an increase in accounts receivables due to higher sales.

That concludes our prepared remarks, operator, you may now open the call for questions. Thank you.

Thank you Sir well now begin the question answer session. If you would like to register for question plus the one followed by the for Touchtone phone.

John Fieldly: Then the new partners that we brought on are, are extremely excited to get Celsius out into more points of distribution. We're excited about that as well. We've also saw the store count increase to 74,000 in the United States, and that was really driven by a lot of small format locations, regional accounts, coming on through the help of our partners, our new partners in the DSD network. As it relates to inventory, Jeff, we are, you know, we've increased inventories. We started to do that in Q1. Due to the COVID pandemic, we wanted to make sure we have ample supply in case we have any difficulties with any of our co-packers, who have been such great partners through this all and, and really supportive of the brand.

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One follow up three.

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We welcome your questions and comments. Please press star one follow up all the for now.

Currently.

Our first question will come from the line of Jeff.

And then with B. Riley. Please go ahead.

Good morning, everyone.

John Fieldly: We do have a new co-packer coming on board. Actually, we're running a test run next week in the Southeast, so we're really excited about that. That'll give us additional ample supply and as we build out our distribution network. We feel confident that we'll be able to maintain demand, meet demand with ample inventory and supply. We're working every day to get more efficient on that, get costs, get cases to our customers and to our distributors at a lower cost. The team has done a great job putting strategies in place to accomplish that.

Let me just first say congratulations on the strong result.

John maybe you can give us a little more color on how the process about India. We partners is going since you're now over 130 partners at this point.

Maybe speak more about the retailers that are expected to flip over to DST in second half.

Impact on your business from that and then probably given the strong sales growth. How do you feel about inventory levels production plans and position to deliver to meet that demand considering the boost you typically experience and flipping over to major guest is.

Jeff Van Sinderen: Okay, great. Just a follow-up to that, I know that you mentioned Peach Vibe being a success. Maybe you can just touch on some of the resets that are, that are happening in second half and some of the retailers, you know, where you might be adding SKUs, flavors, getting, getting more shelf space. If you could just touch on or update us on, on marketing plans, how those have evolved for second half?

Excellent. Thank you Jeff I appreciated the team has done a great job this quarter continues to execute extremely well.

You are correct. We are about 135 DSD partners today, the transition Bang from majority of Anheuser Busch independent distributors to Pepsi has really opened up a lot of opportunity for us. So the team has been busy filling the gaps in several key markets and the United States in the metropolitan areas.

John Fieldly: Yep, excellent. Hopefully, everyone on the call has tried Peach Vibe. If you haven't, I encourage you to. It's been a great success. The team has done a great job, really, at a time of uncertainty and all the craziness. Our Peach Vibe launch was a great thing to bring to people, bringing positive vibes during the summer, much needed positive vibes. The team did a great job through a variety of marketing activities to get that out there. We were the number one new relaunch or new release on Amazon for about two weeks, which was a great success. We saw a great rotation. We actually had to go back to production very quickly on that product. We overshot some of our forecasts initially.

Really cover that economies, so we're able to flip over those key account so as it stands right now.

With a 135, we have about 70% of all the major metropolitan markets and the North America covered we do have a few gaps that we're working to really close in the back half early in Q3, but we really have come a long way.

Since the beginning of the year, so really excited about that transition.

In the past we talked about target.

And flipping over to big guys are in New York and that has gone really well as well as 711 in that market.

John Fieldly: A lot of our new distributors that are coming on board, it was a perfect timing. All these new distributors coming on board, bringing up something really exciting, new, that added a Peach Vibe, and it's cool. The team did a great job on the marketing with a variety of influencers and social engagement and activation. unfortunately, it was delayed with a lot of these resets. It was anticipated to be in more key accounts than it currently was in the summertime. We did feel, you know, it was timing to move forward with it due to our distributors, the number of distributors coming on board, and the plans for the summer launch. We did augment a lot of our marketing plans.

Currently working on CBS as well.

We have been giving.

Greenlight and.

Third quarter, starting in the back half of this month and into September that we will be flipping over and changing the route to market with target. So target will be one of the first.

Really key accounts that we'll be taking on more DSD distribution throughout the country. So a variety of key markets in the country will be serviced by DSD by through.

Good.

So CBS, we're working with CBS extremely closely on doing the same thing.

John Fieldly: The offline activation was augmented to online, but it was a great success. Hopefully, everyone gets to try it there. It will be listed, it is listed right now at CVS. We did do a summer display program with CVS in about 2,800 stores. Right now, Peach Vibe is in a lot of locations at CVS. They took it in. In the back half of this year, you'll likely see it in a variety of Target locations and many other retailers as we head in to the back half of these resets and into 2021. We think it's gonna be a meaning contributor to revenues and another one of our great, great flavors that our innovation team has put together.

We anticipate that you already have CBS is will be converted over to you DSD towards the back half of this year and Walmart is taking a little bit longer so that will likely take place storage.

Most likely around January.

2021, so we have had a lot of everyone going through dealing with Covidien a lot of these key accounts as we all know a lot has been delayed it we're hoping that a lot of these key accounts would be migrated over in the second quarter, we disclose that some of the delays we were seeing in the first quarter, We released earnings, but we're really optimistic we're seeing.

Great great rotation in accounts that are serviced by DSD.

John Fieldly: Staying on the forefront of flavor innovation with an experiential offering, has driven great success on behalf of the team. They did a great job.

And then a new partners that we brought on are extremely excited to get Celsius out into more points distribution. So.

We're excited about that as well and we also saw the store count increased to 74000 in United States and that was really driven by a lot of small format locations regional accounts coming on three to help of our partners, our new partners and the DSD network.

Jeff Van Sinderen: Okay, terrific. Continued success, and thanks for taking my questions.

John Fieldly: Thank you, Jeff. Thank you.

Operator: Thank you, sir. Continuing on next. Our next question comes from the line of David Bain with Roth Capital. Please go ahead, sir.

As it relates to inventory, Jeff we are.

David Bain: Great, thank you. I was hoping first, maybe if you could speak to the promotional environment. I think Scanner has Red Bull up 10% in Q2. They did the summer watermelon flavor and, you know, a lot of promotions during COVID. It sounds like Monster may now resume some activities as well and expand with the watermelon product also. I mean, as competitors begin to ramp promotions and special items, is there a need to react differently, or is this kind of ramp out of COVID pretty much as expected and no real need to adjust?

We've increased inventories we started to do that in Q1.

Due to the Kogut pandemic, we wanted to make sure we have ample supply case, we add any difficulties with any of our co Packers you've been such great partners through this all it and really supportive of the brand we do have a new co packer coming on board.

Actually were running tests run next week in the southeast we're really excited about that that will give us an additional ample supply.

As we build out our distribution network. So we feel confident that we'll be able to maintain demand meet demand.

John Fieldly: Well, thank you, Dave. Appreciate the question. You know, in regards to the category, the category has always been very competitive, with a lot of variety of different pricing architectures and promotional strategies. You know, we've indicated on our Q1 earnings call, we were gonna run, really heading post-COVID. A lot of retailers wanted us to see some integrated promotional programs, really to entice consumers back into retail. We have participated in those. We were selected, as an example, in the month of July, we ran a BOGO program at 7-Eleven, which was great success, further increasing our penetration in the 7-Eleven chain, adding more additional SKUs on shelf. We see a really great partnership further. Over the last three years has been great, but we see it further expanding with 7-Eleven.

Ample inventory and supply our working everyday to get more efficient on that get costs get cases to our customers and to our distributors at a lower cost and.

Team has done a great job putting strategies in place to accomplish that.

Okay, Great and then just a follow up to that I know that you mentioned Peach Vod being a success. Maybe you can just touched on some of the resets that are that are happening in second half its in the retailers.

Where are you might be adding skus flavors.

Getting getting more shelf space and then if you could just touch on or update us on a marketing plans how those have evolved for second half.

Yes excellent.

Hopefully everyone on the call that tried peach five if you havent encourage you to its been a great success. The team has done a great job really at a time.

John Fieldly: That was great. Also, Target, we have an endcap program running. That was our first time really getting off that warm shelf in the energy aisle, and with great placement. We've run promotions there. Also, at CVS, we've run some promotions on coming out of the COVID-19 through the summer. You know, I, I think the, the, the category has always been very promotion- promotional driven, especially during the summer months with beverage. What we have done is it's very important we continue this premiumization in the category. Celsius is the premium offering in the new performance energy category. You know, we won't be discounting down extensively. We're gonna maintain our margins, but it's very important we continue to drive premiumization in the new category as it grows and scales. That's the opportunity we have.

Uncertainty and the.

Craziness, our Peach five launch was a great thing to bring to people, bringing positive vibes during the summer at much needed positive vibes and the team did a great job through a variety of marketing activities to get that out there. We were the number one new relaunch our new release on Amazon for about two weeks, which is a great success, we saw great rotate.

And actually had to go back to production very quickly on that product the overshot some of our forecast initially.

And a lot of our new distributors that are coming on board. It was a perfect timing all these new distributors coming onboard, bringing if something really exciting new that.

Added as possible vide and it's it's cool in the team did a great job on the marketing with a variety of Influencers and social engagement and activation and it's unfortunately it was delayed with a lot of these resets who is anticipated to be in more to strip more key accounts than it currently was in the summertime.

John Fieldly: You will see promotions, targeted promotions to gain trial and gain awareness.

David Bain: Okay, great. Just my second one, if I could, on the DSD, I know you gave a lot of good detail. I just wanna make sure I understand. Maybe the easiest way for me, at least, would be on the last call you gave us a penetration across your distribution. I think it was like 12%. Based on the color you provided, is there kind of a current, maybe Q3 and Q4 contemplation of, you know, where that is and goes to? As you deepen the, the, you know, certain DSD relationships, will the number of DSDs narrow to just the larger ones? I mean, how do you strategically think about DSD partnership, you know, that evolution generally?

It did feel is timing to move forward with it due to our distributors the number of distributors coming on board and the plans for the summer launch we did augment a lot of our marketing plans the offline activation was off augmented the online.

But it was it was a great success so.

Hey, everyone gets to try it there it will be listed it is listed right now at CBS. So we did do a summer display program with CBS and about 2800 stores. So right now Peach five isn't a lot of locations at Cvs HLC it in.

In the back half of this year, you'll likely see it in a variety of target locations and many other retailers as we headed.

John Fieldly: Yeah, I, you know, the partners we have now are in some of the top tier distributors in the...

David Bain: Right

John Fieldly: regions that we're operating in. We will, you know, we're looking to build a really long-term relationship and partnership with our key DSD partners. You know, we're at 135. We're probably we're gonna be adding several more in the back half of this year to round out some of these markets. We won't see really a contraction. It's really activating and partnering, and working together to build Celsius and gaining more penetration. You absolutely do gain more penetration with our DSD partners because that allows us to further expand into regional chains, small format locations, and also get that better execution in the trade and the higher velocity numbers. Those are some key points that we're really looking to accomplish on building out a national DSD network.

To the back half of these resets and into 2021, we think it's going to be a meeting contributor to revenues and another one of our great. Great flavors that are innovation team has put together so staying on the floor front a flavor innovation, we did experience actual offering.

Thats driven great success on behalf of games. So they did a great job.

Okay terrific.

Since access and thanks for taking my questions.

Thank you Jeff Thank you.

Thank you Sir continuing on.

Our next question comes from the line of David Bain with Roth Capital. Please go ahead Sir.

Great. Thank you I was hoping first maybe if you could speak to the promotional environment I think.

John Fieldly: What we're seeing is extremely positive where we stand today.

Scanners rebel up 10% in the second quarter, they did the summer watermelon flavor and.

David Bain: Great and perfect. Could you-- Is there a way to sort of capsulate the, the percentage penetration at this point?

A lot of promotions during cold, but it sounds like Monster may now resumed some activities as well and expand with the watermelon product also I mean as competitors begin to ramp promotions and special items is there need to react differently or is this.

John Fieldly: Yeah, I mean, at the last earnings call, we said roughly about 10, 12% of our stores were serviced.

David Bain: Right

John Fieldly: ...currently being serviced by DSD. You know, over the last quarter, a lot of our partners did expand us into additional regional, small format, and we did make progress on flipping over, you know, transitioning some more accounts over in key markets. You know, we're probably still in the teens at this point. We really need a lot of the bigger retailers to help us as we go through the transitional phase with CVS, Target, Walmart, Rite Aid, 7-Eleven, and several other new customers that we have plans to come on board in the back half of 2024. That'll continue to grow. We anticipate that number to continue to grow over the next every quarter.

David Bain: Right

Kind of ramp out a couple that pretty much as expected and no real need to adjust.

Well. Thank you Dave appreciate question.

In regards to category to category has always been very competitive.

With a lot a variety of different pricing architectures and promotional strategies.

We've indicated on our Q1 earnings call, we were going to Ron.

Really heading post Colgate a lot of retailers wanted just to see some inched integrated promotional programs really to entice consumers back into retail.

David Bain: Awesome. Congrats. Thank you.

We have participated in those we were selected as an example.

John Fieldly: Thank you, David.

Operator: Thank you for your question. Next, we have Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

In the month of July we ran a bogo program at seven Aladdin, which was great success further increasing our penetration in the 711 chain, adding more additional skews on shelves and we see a really great partnership further over the last three years has been great, but we'd see it further expanding which 711 so that was.

Jeffrey Cohen: Oh, hi, John and Edwin. How are you?

John Fieldly: Hello. Excellent. Excellent, Jeff. How are you doing?

Jeff Van Sinderen: Doing well. Thank you.

Jeffrey Cohen: Great quarter on the top line. Congrats, and a few questions for me. Can you talk about the channels a little bit? I was listening to Rodney the other day, talk about your Nielsen at, like, 11.3 on the Amazon Direct, and thinking about that as well as, you know, what's been going on with what they call gas and convenience, as well as, you know, gyms. I assume that gyms are probably less than 1/4 of your revenue and have taken a lag. Could you talk about the gas and convenience a little bit, as well as the online and kind of the trajectory that you had through the Q2?

Great and also target we have an end cap program running now is our first time really getting off that warm shelf the energy I'll.

And with Great placement and.

Run promotions there also at CBS Bronson promotions on this coming out of that focus due to summer so.

I think the category has always been very.

Promotion promotional driven, especially during the summer months with beverage what we have done is it's very important we continue this premiumization in the category Celsius is the premium offering and a new performance energy category. So we won't be just counting down extensively.

John Fieldly: Yeah, absolutely. You know, thank you, Jeff Van Sinderen. You know, the channel mix has been quite interesting over the last, you know, quarter as we entered Q2 and then throughout Q2. As we all know, you know, gyms and the vitamin specialty stores and locations have been closed and reopened and closed back down. When the gym channel, you know, a lot of these gym chains have opened, but they're running at, like, 25% capacity, 50% capacity. We have experienced a significant decrease in our fitness channel. We're very committed to fitness and working closely with our partners. Also, some of the news on 24 Hour Fitness and Gold's Gym as well.

Going to maintain our margins, but it's very important we continue to drive premiumization and the new category as it grows and scale thats the opportunity behalf.

But you will see promotions targeted promotions to gain trial and gain awareness.

Okay, Great and then just my second one if I could.

The DSD I know you give a lot of good detail I just want to make sure I understand maybe the easiest way for me at least would be on the last call you gave us a penetration across your distribution I think it was like 12% and based on the color. You provided is there kind of a current maybe threeq and Fourq you contemplation of.

Where that isn't goes too and as you deepen the certain DFT relationships will the number of DSD narrow.

John Fieldly: You know, that channel has impacted us, but it has been offset by the growth that we've seen in Amazon, you know, mass, grocery, where we're just seeing, you know, great rotation. It really goes back to what I said earlier about, you know, the opportunity we have here in the Celsius consumer. We're not just an impulse purchase. We're part of a daily active lifestyle. You know, you're drinking a product, which we hear a lot of times that we're just a pre-workout. We're more than just a pre-workout, and it's obviously, obviously, that was, you know, shown in how the revenue has migrated over. When you look at gas and convenience, we have a limited exposure there. We are currently about 11, 12% ACV.

Just a larger ones and I mean, how do you strategically think about DSD partnership.

Evolution generally.

Yes.

The partners, we have now or in some of the top tier distributors in the entire engines that we're operating in so we.

Are we looking to build it really long term relationship in partnership with our key DSD partner so.

135, we'll probably we're going to be adding several more in the back half of each year round out some of these markets.

But we won't see really contraction, it's really activating and partnering.

And working together to build Celsius, and gaining more penetration you absolutely do gate more penetration with our DSD partners because that allows us to further expand into regional chains small format locations and also get that better execution in the trade and higher velocity number. So those are some key points that were.

John Fieldly: We're still growing at about a 50% growth rate. Latest SPINS data coming out on that market with a right around a 12%, 12.5% ACV, so a long runway ahead, and just seeing great rotation in the accounts we're in. We closed additional Circle Ks in the quarter, some several divisions there, which we're excited about. Seeing great rotation at QT, RaceTrac, and of course, 7-Eleven has been great for us through the quarter. You know, we feel it's gonna come back. Obviously, we all know the traffic has been down. Through the quarter, you started to see more traffic come back. It's not where it was pre-COVID, we feel that the trend that the category is gonna come back.

Really looking to accomplish on building out a national DSD network and.

And what we're seeing is extremely positive where we stand today.

Perfect could you is there a way to sort of capsulate the percentage penetration at this point.

Yes, the last earnings call, we said roughly about 10, 12% of our stores recover service being currently being serviced by DSD over the last quarter a lot of our partners did expand us into additional regional small format.

John Fieldly: It's gonna come back in, in convenience and petrol, and we wanna make sure we're gonna be a major player in that category, as it continues to recover.

And we did make progress on eight I'm flipping over transitioning some more accounts over in key markets, but.

We are probably still in the indicates at this point, they really need a lot of the bigger retailers. They help us as we go through the transitional phase with CBS target Walmart right eight seven Aladdin and several of our new customers that we have plans to come onboard in the back half of this year. So that'll continue to grow.

Jeffrey Cohen: That's great. Then, secondly, for me, could you just talk a little bit about your demographic and demographics as compared to your supposed competitors out there, as far as picking up probably what I'd be more of the Gen X and Gen Y generation, as opposed to Gen Z or boomers, you know, post-millennium. Can you talk about that a little bit for us?

Anticipate that number to continue to grow over the next.

The quarter.

Awesome Congrats thank you.

John Fieldly: Yeah, absolutely. Absolutely. You know, that- that's what's really unique about Celsius and the great opportunity we have, and which Edwin and I, and our, our team members here, are really excited about the opportunity. It's, we have a much broader consumer base than, say, a traditional energy drink consumer. The, the energy drink category, when you look at, you know, traditional energy, historically, has been 18 to 24 male, has been really the target. The category continues to evolve. You know, the category is aging up. The consumers that were drinking those con-- you know, those traditional energy drink products are looking for better for you, you know, options. As we all know, health and wellness is even more important today than it ever was been before.

Thank you David.

Thank you for your question.

Next we have Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, John and Edwin.

Hello excellent excellent Jeff.

Well thank you.

Great corridor.

Line. So congrats few questions for me so.

Can you talk about the channels the little bit.

I was listening to our Roger the other day talk about your Nielsen like 11, three Amazon direct.

Thinking about this well is what's been going on with.

What they call gas includes yields as well is.

John Fieldly: Celsius, born in fitness, vitamin specialty, we're all about encouraging people to live a active, healthy lifestyle and live fit with Celsius. It's really resonating well with today's health-minded consumers. You know, when you look at our demographics, we've always been about 50/50 male, female, which is unique in the category. Also, our age demographic has indexed up. We've aged up, you know, in the 45, 50 range, actually, in a lot of categories. I think it has to do with the ingredients. We have green tea, guarana, ginger, biotin, chromium, and a variety of seven essential vitamins, and it tastes great. It's light, it's airy, and makes you feel really good as well, and no crash.

Jim as I assume that ginger.

Probably less than a quarter of your revenue would have taken will lag, but could you talk about to guess inconvenience, a little bit as well as the online and kind of the trajectory that you had through the second quarter.

Yes, absolutely.

Thank you Jeff.

The channel mix has been.

Quite interesting over the last quarter as we entered the second quarter and then throughout the second quarter.

As we all know.

Gyms, and vitamin specialty stores and locations I think closed and reopened and close back down and when the gym channel oddities, Jim chains of open but they are running at like 25% capacity, 50% capacity. So we had experienced a significant decrease in our finished channel we're very committed to fitness.

John Fieldly: We're also seeing the new consumers entering the energy drink category aren't grabbing for, you know, mom or dad's Red Bull or Monster. You know, they're grabbing, and they're looking for products that align with their active lifestyle. You know, one of your top picks has to be the premium offering and premium Celsius in the category, and we're seeing great rotation on that. We're seeing a lot more of Gen X, Gen Z, and Millennials over-index in the category as well, drinking more of these, these products than the traditional energy drink consumers, say, five, six years ago. We're excited.

And and working closely with our partners also some of the news on 24 hour and Gold's gym as well so.

That channel has impacted us, but there has been offset by the growth that we've seen at Amazon.

Mass grocery, where we're just seeing great rotation and it really goes back to what I said earlier about the opportunity we have here in the Celsius consumer we're not just the impulse purchase or part of the daily active lifestyle. So.

Jeffrey Cohen: Lastly, for me, can you talk a little bit about July versus June and, kind of, you know, reopening of some of the economic sectors out there, coupled with your traditional summer strength? Does it, does it feel good where you're situated now into traditionally your strongest quarter versus how you came out of June and Q2?

You're drinking consumers that were drinking beer drinking product, which we hear a lot of times that were just a pre workout were more than just a pre workout and it's obviously obviously that was.

Shown in how the revenue has migrated over so when you look at gas and convenience.

We have a limited exposure there. We are currently about 11, 12% ACB, we're still growing at about a 50% growth rate latest spins data coming out.

John Fieldly: Yeah, I think we came out, considering, you know, like you mentioned, 25% of our revenue is approximately, you know, 28% of our revenue is almost 30, historically, have come from vitamin specialty gyms and health clubs. Having that having that channel down, as well as the momentum we are building in the on-premise vending and micro market channel, which has been impacted. You know, we're seeing good momentum. Saw good momentum in June, and we're seeing good momentum as we head into July. I did state that orders, purchase orders in-house, in North America were over 50% versus the prior year. Just looking at the quarter there, we entered and exited July with some pretty good momentum.

On that on that market with a.

Right around a 12%, 12.5% HCV. So a long runway ahead, and just seeing great rotation in the accounts. We're in it closed additional circle Kazan the quarter some several divisions there.

We're excited about seeing great rotation acute Keith.

Race track.

And of course 711 has been great force did a quarter so.

Yes, we feel it's going to come back obviously, we all know the traffic has been down through the quarter you started to see more traffic come back that's not where it was three coded but we feel that the trip that that the category is going to come back it's going to come back and convenience and petrel, and we want to make sure we're going to be a major player in that category.

John Fieldly: That doesn't even really include a lot of the new accounts that are, that are planning to come on board in the back half of this year and really set us up for a really strong, 2021. You know, I, I think, you know, we feel, we feel pretty good as an organization. We're working hard, and we're we wanna take share in this category.

As it continues to recovery.

That's great and then secondly for me could you just talk a little bit about.

Your demographic and demographics as compared to our you're supposed to competitors out there as far as our picking up probably what I'd be more the geninex in Gen Y. generation as opposed to Gensix or boomers per school and it could you talk about that a little bit fours.

Jeffrey Cohen: Fantastic. Thanks for taking the questions.

John Fieldly: Thank you, Anthony.

Operator: Thank you, sir. Now, as a brief reminder, to register for a question, press the 1 followed by the 4. Next, we have Anthony Vendetti with Maxim Group. Please go ahead.

Yes, absolutely absolutely.

That's what really unique about Celsius, and the great opportunity, we have and which Ed what denied our team members here.

Anthony Vendetti: Thank you. Hey, John. I just wanted to talk about a little more on the Amazon channel. You said you're third after Monster Red Bull. Can you talk about the growth in the channel, just related to Celsius versus last year at this time? What's the growth year-over-year?

Our really excited about the opportunity. It's we have a much broader consumer base than say a traditional energy drink consumer.

The energy drink category. When you look at traditional energy historically has been 18 to 24 mail has been really to target.

The category continues to evolve.

The categories aging up to consumers that were drinking those cuts. This traditional energy drink products are looking for better for you.

John Fieldly: We've been growing very strong. Thank you, Anthony, number 1, for appreciate your question. You know, in, in regards to Amazon and, you know, we've been seeing strong growth over the last, you know, several years on Amazon. You know, we were in the, you know, high double-digit growth rates on the Amazon on platform. Most recently, I saw latest data from Rodney Sacks at Monster Energy on his earnings call. He had the latest top line data, which he disclosed, and the category is growing about an 88% growth rate. You know, that was over the last 4 weeks as of, I think it was 14 July, his, his cutoff. You know, strong growth in the category on Amazon. We are exceeding that growth rate.

Options and as we all know health and wellness is even more important today than it ever was been before and Celsius foreign and fitness vitamin specialty we're all about encouraging people to live to acted healthy lifestyle and lift fit with Celsius. So it's we're it's really resonating well at today's health mining consumer so.

When you look at or demographics, we've always been about 50 50 male female.

Which is unique in the category and also our age demographic as indexed aged up.

And a 45 50 range actually and a lot of categories and I think has to do with the gradients, we had green tea Ron Ginger.

By it and chromium a variety of seven essential vitamins and it takes great slights area. It makes you feel really good as well no crash. So and we're also seeing the new consumers entering the energy drink category aren't grabbing for mom or dad, Red Bull or monster their grabbing and they're looking for products that align with their active life.

John Fieldly: We-- I think he reported us over a 200% growth rate, I believe. I'd have to double-check that, but it was extremely high, a 180, 180% growth rate, versus the 88. And we took, we increased our share by 1 point. Red Bull did lose their, 1 point in share. So getting closer to number 2 position, potentially the second largest energy drink on Amazon. We've been doing very well, very well. You know, that's where consumers are shopping now, the at-home deliveries. Their sales are up tremendously, so it's great that we're growing faster than the growth rate, which is key.

Style and one of your topics has to be the premium offering and premium Celsius and the category and we're seeing great rotation on that we're seeing a lot more genex NZ.

Anios over index in that category as well drinking more of these these products then that traditional energy drink consumer say five six years ago. So.

Anthony Vendetti: That's great, John. Just in terms of the new accounts that are coming on in the second half, as it sets you up for 2021, how has COVID-19 changed? It doesn't look like it's obviously impacting you, but how has it changed your day-to-day practices for your team? And it has it... What additional-

We're excited.

And then lastly from me can you talk a little bit about.

July versus June and kind of you know reopening of some of the economic sectors out there coupled with your traditional some restrained because.

Does it feel good where you are situated now into our traditional your strongest quarter versus.

How you came out of June and Q2.

John Fieldly: Yeah.

Anthony Vendetti: I know there were some additional expenses, but what, what type of sanitation expenses, can you, can you, can you talk a little bit about that and how the sales practice has changed a little bit?

Yes, I think we came out considering like you mentioned, 25% of a revenues approximately 20 actually 28% of a revenues almost 30 historically have come from vitamin specialty gyms and health clubs. So.

Having that having that channel down as well as been momentum we are building in the on premise.

John Fieldly: Yeah. No, absolutely. I think everyone's world as an organization and everyone's world has kind of turned upside down. The teams are working hard to continue to stay focused and execute and drive, maximize opportunities, and stay nimble. You know, it's, it is a challenge for all of us. You know, we live in, we're operating in, in from South Florida, that's where our headquarters is based. You know, we do have contingency plans in place for most recently, we had a little bit of a scare with a hurricane coming at us. It is something that we're all always prepared to work remotely. We have our servers in facilities. We do drills, you know, we have not really missed a beat.

Ending in micro market channel, which has been impacted.

We're seeing.

We're seeing good momentum.

Good momentum in June and we're seeing good momentum as we head into July I did state that orders purchase orders in house.

In North America were over 50% versus the prior year. So just looking at the quarter there.

We entered and exited July it's pretty good momentum and that Doesnt. Even really include a lot of the new accounts that are planned to come onboard in the back half of this year. It really set us up for a really strong.

2021 so.

I think we feel we feel pretty good as an organization, we're working hard and we want to take share in this category.

John Fieldly: I feel, I think the team has done a great job. It is difficult working with a lot of individuals remotely. Many of our team members are working remotely. We're taking extra precautions, cleaning, sanitizing, to your point. Also, our teams on the sales side has not been able to really have those customer meetings. Right now, we're in the midst of 2021 or entering 2021 buyer seasons. You know, this is the time to sell in additional expansion for 2021, and a lot of those meetings are happening now through different platforms, video conferencing. You're missing those touch points. Also, many of our distributors, you know, we're not really able to activate them as we originally planned with support and team blitzes.

Fantastic Thanks for taking the questions.

Thank you have to say.

Now that's a brief reminder to register for question plus the one followed by the full line.

Look we have Anthony Vendetti with Maxim Group. Please go ahead.

Thank you.

Hey, John.

I just wanted to talk about.

A little more on on the Amazon Channel you said your third after amounts to Red Bull.

Can you talk about the growth in the channel is related Celsius versus last year at this time.

John Fieldly: We're doing the best we can and, and trying to be as precautious as we can as well. Our marketing initiatives obviously had to pivot from offline experiential marketing to online. Trying to get creative, think out of the box, and get in front of consumers and, and continue to grow the brand and, and grow our consumer base, and to stay flexible, which is key.

Let's see what's the growth year over year.

We've been growing at a very strong. Thank you Anthony number which are appreciate.

Your question.

In regards to Amazon and you know we've been seeing strong growth over the last.

Several years on Amazon.

We were in the high double digit growth rates.

Anthony Vendetti: Okay, excellent. Excellent. Just maybe if Edwin has the number or if you know off the top of your head, in the quarter that you're in, do you expect that increased expenses due to COVID-19, like you said, cleaning, sanitation, sanitizing, whatever, do you expect that to continue in this quarter? Is it a material expense or right now, it's something that's-

On the Amazon platform. Most recently, so latest data from Rodney sacks that monster energy on his earnings call. He had some the latest stack line data, which she disclosed in the category is growing about an 88% growth rate. So yes that was over the last four weeks as I think it was July 14th is cut off.

So.

Strong growth in the category on Amazon, we are exceeding that growth rate.

David Brown: You're, you're doing, but it's not, it's not impacting, the expense line that, that, that much.

Anthony Vendetti: You're, you're doing, but it's not, it's not impacting, the expense line that, that, that much.

I think you'd reported EPS over a 200% growth rate belief that up a total checked that but it was an extremely hot one 880% growth rate versus the 88, so and we took.

John Fieldly: I'll let Edwin take that.

Edwin Negron-Carballo: I'll let Edwin take that.

Edwin Negron-Carballo: Yeah. Thank you. Yeah, absolutely. Yeah, we are doing obviously, you know, those type of efforts. To your point, it's not, hasn't been material at this point. We are obviously taking all the precautions and taking all the measures in terms of sanitation and safeguarding, as John mentioned, employees, you know, consumers, and so forth. Not something that at this point it is material.

We increased our share by one point Red Bull did lose a one point share.

So getting closer to number two position.

The.

Centrally the second largest energy drink on Amazon, but we've been doing very well very well.

That's where consumers are shopping now that home deliveries their sales are up tremendously. So it's great that we're growing faster than the growth rate, which is which is key.

John Fieldly: Yeah, just like that. I think it's more, Anthony, not really a cost, a material cost to us, but the cost is really an opportunity cost. It's really what's costing us as an organization because of, you know, the limited ability to execute and really activate our new distribution partners and the delays that we're seeing in a lot of these retailer resets. It's more of an opportunity cost, which is the material component.

That's great John just in terms of the new accounts that are coming on the second half is it sets you up for 21, how has how is coal that 19.

It doesn't look like it's obviously impacting you, but how does it change Youre your day to day practices.

Per year for your for your team.

David Brown: Understood. Excellent. All right, guys. Thanks, appreciate it.

Anthony Vendetti: Understood. Excellent. All right, guys. Thanks, appreciate it.

And it.

What do you still I know there were some additional expenses, but what.

John Fieldly: Excellent. Thank you, Anthony.

Edwin Negron-Carballo: Thank you.

Operator: Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please go ahead.

What type of.

Operator: Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please go ahead.

Sanitation expenses.

Can you can you can you talk a little bit about that and how the sales practices changed a little bit.

Aaron Grey: Hi, good morning, and thanks for the questions, and congrats on the additional distribu- distribution agreements in quarter.

Yes, no absolutely I think everyone's world as an organization and everyone's world. So thats kind of turned upside down.

John Fieldly: Excellent. Thank you, Aaron.

Edwin Negron-Carballo: Thank you.

Aaron Grey: First question from me is, is just around, you know, the new distribution agreements and kind of having them more as your brand ambassador, if you will, especially with the retailers. Just kind of curious as to how it's gonna help with your shelf placement, and then also how we can think about potentially being placed more, you know, at the fridges, at checkout as well, to create more additional opportunities and kind of where you see opportunities for that going forward.

The teams are working hard to continue to stay focused and execute drive maximize opportunities and stay nimble.

It's it is a challenge for all of us.

We live in we're operating and from South, Florida, That's where our headquarters is based so we do have contingency plans in place for most recently, we had a little bit of scare with.

John Fieldly: Absolutely. That's the power of the DSD network. You nailed it on the head. You know, we say kind of internally, faces sell cases, and when it's cold, it's sold. You know, that's, we have a great product that fits both those. That's where the DSD comes in. It's the power of the people, the power of the teams, activating them, and getting more people out there selling Celsius. We have a, you know, a limited team, and through these distributors, we're able to educate, excite, motivate, and help us continue to build share, and also help merchandise, which has been key.

Hurricane coming at US. So it is something that we're all always prepare to work remotely.

So we have our servers and capex facilities, we do drills. So.

Have not really.

Missed a beat I feel I think the teams done a great job it is a difficult.

Working with a lot of individuals remotely. So many of our team members are working remotely we're taking extra precautions cleaning sanitizing to your point.

Also our our teams on the sale side.

Has not been able to really have those customer meetings. So right now we're in the midst of 2021 or entering 2021 buyer seasons. This is the time to selling.

John Fieldly: As we all know, there's a lot of going direct to retailers in this high-turning category causes a lot of challenges and complexities due to shelf presence, taking out, you know, some of the activity by other partners in the category at what happens on the street at retail. The manpower is really the key, and that's where we see a great opportunity and benefit.

Additional expansion for 2021 and lot of those meetings are happening now through different platforms video conferencing. So you're missing those touch points also many of our distributors.

We're not really able to activate them as what we originally planned would support and team blitzes and.

Aaron Grey: All right, great. Thanks for that. Then just one more from me. Obviously, the category remains very competitive with players, you know, looking to innovate. You've come out with your own innovation as well, and there's particularly a lot of competition on the healthy beverages side that we've seen. Just curious to how you think about the competitive landscape, how it's evolving. Obviously, Celsius has been doing very well. Do you feel like it's more of a rising tide lifts all boats as you see these other competitors come out with product and the entire energy drink category, you know, kind of, you know, gains traction? We're just curious to your thoughts on that. Thank you.

We are doing the best we can and try to be as Precautious as we can as well and then our marketing initiatives, obviously had to fit it from offline experience from marketing to online so trying to get creative think out of the box.

And get in front of consumers and continue to grow the brand and grow our consumer base and.

The state flexible which is key.

Okay excellent excellent.

Just maybe if headwind has the number.

Well in the quarter that you were in the expecting.

John Fieldly: Yeah. Thank you, Aaron. I mean, there's always been competition. Beverage is fierce. The barriers to entry are fairly low. The barriers to succeed are extremely high. You know, and it's the competitive landscape continues to evolve, and that's important that the teams at Celsius stay on the forefront. We continue to build the brand, the brand equity, maintain our distribution. You know, this is something that we operate in an extremely competitive environment. That's beverages, especially energy. You're seeing that now in sparkling waters. You're also seeing it in spiked seltzers now. But once, you know, you've built a brand, a strong brand, you continue to attract more consumers, you can really take share in the category, and that's what we're focused on.

Increased expenses due to cook at 19% cleaning sanitation sanitizing whatever.

Do you expect that.

To continue in this quarter.

And is it a material expense or right now it's something that.

You're doing but it's not it's not impacting.

The expense line that that that much.

I'll, let Edwin take that yes. Thank you, yes, absolutely. Yes, we are doing obviously those type efforts, but to your point, it's not hasn't been material at this point.

But we are obviously taken all the precautions and taken all the measures in terms of sanitation and safe guarding as John mentioned employees consumers and sold for so.

Aaron Grey: Great. Thank you, and best of luck.

But not not not something that at this point. It is material I'd just like that I think it's more Anthony not really a cost a material cost to us but its a.

John Fieldly: Thank you, Aaron.

Operator: Thank you. I'll now turn the presentation back to our main presenter for his concluding remarks. Please go ahead, Mr. Fieldly.

The cost is really an opportunity costs is really what's costing us as an organization because of.

John Fieldly: Thank you. Also, I'd like to thank Megan Frese for her service as a board of director to the company. She has a great opportunity, and I wish her well on her new endeavors at Danone as a Senior Vice President role. In addition, I would like to welcome Caroline Levy, who was recently appointed to our board of directors. She brings over 30 years of consumer industry experience and extensive network of industry and investor relationships, and we give her a warm welcome and welcome to the team. In addition, I would like to mention on 14 August, we will be participating in a virtual fireside chat hosted by Alliance Global Partners. If you would like to attend, please contact your Alliance Global Partners representative for additional details. On behalf of the company, we'd like to thank everyone for their continued interest and support.

There's limited ability to execute and really activate our new distribution partners and the delays that we're seeing in a lot of these retailer resets. So it's more of an opportunity cost which is the material component.

Understood.

Alright, Thanks appreciate it.

Excellent. Thank you. Thank you.

Okay.

Next question comes from the line of and Gray with that line level.

Please go ahead.

Hi, good morning, and thanks for the questions and congrats on the digital distribution distribution events in quarter.

Excellent. Thank you Mary.

So first question for me is just around the new distribution agreements and kind of having them more UBS. Your brand Ambassador if you will especially with the retailer so just kind of curious.

John Fieldly: Our results demonstrates our products are gaining considerable momentum, and we are capitalizing on today's global health and wellness trends, and the changes taking place in the transformation of the energy category. Our active healthy lifestyle position is a global position with mass appeal, and we're building upon our core, leveraging opportunities, and deploying best practices. We have a winning portfolio, strategy, and team, and a large rapidly growing consumer base. Our mission is to get Celsius to more consumers profitably, and I'm very proud of our dedicated team, as without them, our tremendous achievements and significant opportunities we see ahead would not be possible. In addition, I'd like to thank all of our investors for their continued support and confidence in our team. Thank you everyone for your interest in Celsius. Be safe and have a great day.

As to how it's going to help with yourself placement and then also how we can think about potentially being placed more the fridges at checkout as well create more additional opportunities and kind of where you see opportunities for that going forward.

Absolutely that's the power up to DSD network, you nailed it on the had.

Let me say kind of internally faces sell cases, and when it's cold it sold so.

That said, we have a great product that fits both us.

For the DSD comes at if the power of the people to power the teams activating them.

And getting more people out there selling Celsius. So we have.

Limited team.

And through these distributors were able to educate excite motivate and help that help us continue to build share and also helped merchandise which has been key as we all know theres a lot of.

Operator: Thank you, sir. That does conclude the conference call for today. We thank you all for your participation, and I'll ask that you please disconnect your lines. Thank you once again. Have a great day.

Going direct to retailers in this high turning category causes a lot of challenges and complexities.

Due to shelf presence taking out.

Some of the activity by other partners in the category at what happens on the street retail. So the manpower is really to key and Thats, where we see a great opportunity in benefit.

Alright, great. Thanks for that and then just one more from me obviously the category remains very competitive with players looking to innovate you've come out with your own innovation as well and this particular lot of competition from healthy beverages sign that we've seen so just curious to how you think about the competitive landscape how it's evolved.

Obviously Celsius has been doing very well so do you feel like it's more of a rising tide lifts all boats as you see these other competitors come out with product and the entire energy drink category.

Gains traction, we're just curious to your thoughts on that thank you.

Yes. Thank you I mean, there's always been.

Petition beverages fierce the barriers to entry are fairly low barriers to succeed are extremely high.

And it's.

The competitive landscape continues to evolve and if thats important that the teams at Celsius down the forefront.

We continue to build the brand the brand equity.

Maintain our distribution.

And.

This is something that we operated an extremely competitive environment thats beverages, especially energy you're seeing that now in sparkling waters, you're also seeing it in spite Celsius now so.

But once you built a brand a strong brand.

Continue to attract more consumers you can really take share in the category and that's where we're focused on.

Great. Thank you and best of luck.

Thank you. Thank you.

Now I'll turn the presentation back to I may present.

Police concluding remarks. Please go ahead Mr. family.

Thank you also like to thank Reagan Ebert for her service as a board of director to the company. She has a great opportunity and I wish her well on our new endeavors and on as a senior Vice president role.

In addition, I would like to welcome Caroline Levy was recently important to our board of directors. She brings over 30 years of consumer industry experienced an extensive network of industry and investor relationships and we give her a warm welcome and welcome to the gene.

In addition, I would like to mention on August 14th we will be participating in a virtual fireside chat hosted by Alliance Global partners. If you would like to attend keys contact Your Alliance Global partners representative for additional details.

Then on behalf of the company, we'd like to thank everyone for their continued interest and support.

Our results demonstrates our products are gaining considerable momentum and we are capitalizing on today's global health and wellness trends and the changes taking place in the transformation of the energy category are active healthy lifestyle position as a global position with mass appeal and we're building upon our core and leveraging opportunities and deploying best practices.

We have a winning portfolio strategy and team and a large growing rapidly growing consumer base. Our mission is to get Celsius to more consumers profitably and I'm very proud of our dedicated team as without them are tremendous achievements at significant opportunities. We see ahead would not be possible. In addition, I'd like to thank all of our investor.

As for their continued support and confidence in our team.

Thank you everyone for interested Celsius be safe and have a great day.

Thank you, Sir and that does conclude the conference calls like today. We thank you all for your participation and asset you. Please disconnect. Your lines. Thank you once again have occurred.

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Q2 2020 Celsius Holdings Inc Earnings Call

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