Q2 2021 Celsius Holdings Inc Earnings Call
Greetings and welcome to Celsius Holdings, Inc. Second quarter 2021 financial results.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. 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 Investor Relations for Celsius Holdings. Thank you you may begin.
Thank you and good morning, everyone. We appreciate you joining us today for Celsius Holdings second quarter 2021 earnings Conference call. Joining me on the call today are John <unk>, President and Chief Executive Officer, and Evan Mcgraw.
Ron Chief Financial Officer.
Following the prepared remarks, well open the call to your questions and instructions will be given at that time.
The company filed its form 10-Q, with the SEC and initiate a press release today all materials are available on the company's website Celsius Holdings, Inc. Dot com under the Investor Relations section as a reminder, fortunate a call of the John an audio replay will be available later today.
Please also be aware this call may contain forward looking statements, which are based on forecasts expectations and other information available to management as of August 12.2021.
These statements involve numerous risks and uncertainties, including many that are beyond the company's control except to the extent as required by law Celsius Holdings undertakes no obligation and disclaims any duty to update any of these forward looking statements. We encourage you to you in full our safe Harbor statements contained in today's press release, and our quarterly filings with the SEC for additional information with.
That lets you tend to Cologuard, President and Chief Executive Officer, John purely for his prepared comments John.
Thank you Cameron and good morning, everyone and thank you for joining us today.
Our record second quarter results are representative of the momentum that the Celsius brand is achieving across the board with increased sales growth S. K U expansion distribution gains increased brand recognition and increase organic social support adjust some of the drivers supporting what we feel has been a significant step up for the company.
We believe these also provide leverage to drive further acceleration in market share gains.
Total sales for the quarter totaled $65.1 million up 117% from $30 million in a year ago quarter, our domestic revenue increased 157% to $53.7 million up from $20.8 million in the year ago quarter with both of these.
Percentage growth rates.
Highest in our history.
Two of the highest hardest hit channels from Covid, our fitness channel and vending channels, each had triple digit growth, which contributed approximately $4.9 million of incremental revenue when compared to the prior quarter International sales growth grew 25% to $11.5 million, primarily from a 23% growth in Nordic sales of $10.8 million.
Even with the record second quarter and first six months of 2021, we're still dealing with the impacts of Covid 19, including in our international markets increased cost in raw materials and transportation, our fitness channel and vending channels saw tremendous growth on both a year over year period and sequential basis with <unk>.
Positive trends continuing into the third quarter, although the comparable basis from the second quarter of 2022, what the low mark for both of these channels the great growth rate and total sales for each continue to improve our EU Middle East Asia Pacific Australia more operations remain adversely affected by Covid 19 with.
Marine restrictions and Lockdowns in these markets overall, we have been seeing sequential improvements over the last several quarters with capacity restrictions as well as re openings in the hardest hit channels, but there still remains a lot of uncertainty as there potentially could be re closings due to new variants in cases, increasing in our regions of operations would could force extend.
Closures in some states and countries the health and safety of our employees and partners remains our top priority and the safety precautions have been implemented which we haven't been developed and adopted in line with guidance from public health authorities.
The aluminum can shortage driven by covid impacting the entire industry remains in place, but for Celsius. We believe we are well positioned from our proactive sourcing of international cans and new relationships with top can manufacturers in the U S, which have been initiated a major expansion projects and.
<unk> to anticipate the completion of this expansion in the back half of 'twenty 'twenty, one through 'twenty 'twenty, two we implemented our contingency plans around production and which imported can production started in March of 2021, we anticipate 50% of our can supply for 'twenty and 'twenty, one we derived from imported and wrap cans, which should decrease.
Late in 2021 and through 'twenty 'twenty, two we expect a significant majority of cans will be sourced domestically in 2020 to improving our margins and at this point. We believe Q1 of 2021 was the low point for margins with the back half of 2021, showing sequential improvements towards our physical year 2022.2020 levels.
In addition, the team is expanding warehouse distribution sites to six regional orbit model to drive efficiencies implementing plans to further secure raw materials with minimum floor stock programs blanket purchase orders in second and third alternatives.
Suppliers. The teams continue to quickly adapt to new Covid environment, and our four could focus on driving efficiencies in operational performance and believe we are with our significantly expanded scale, we have the opportunity to leverage this to reduce input costs costs. As we move forward. We have also further integrated and leveraged synergistic.
It's from our global operations focus on our marketing operations financial integrations implementing our strategy to build a global dominant iconic brand.
The company improved our fill rates through the second quarter from the 80% level in Q1, driving driven by shipping delays and can shortages gas shortages in the east coast, and the Texas freeze, which impacted our co Packers warehouses for several weeks. We ended the second quarter in June at approximately 90% fill rate and expect to see you there.
It's improved further in the back half as we continue to reach normalized levels of inventory.
Turning to some additional financial highlights for the second quarter, our domestic sales revenue topped $53.7 million was driven by accelerated triple digit growth in traditional channels of trade expansion of world class retailers and further activation and growth from our distribution partners, our DSD direct store delivery network delivered growth of about.
333% and our distributor revenues when compared to the prior year, our fitness channel is discuss sales increased over 300% from the prior year. In addition to our vending growth, which saw over 250% growth rate.
Which together contributed about $4.9 million of incremental revenue when compared to the prior year as of July 1st we have over 18500 vending micro market placements and we expect that growth to continue throughout the year as we drive additional new national distribution agreements with performance food group contracts and additional several regional.
<unk>. In addition, all major change, but our gym fitness channel expanded Skus, where we further expanded our new offering our new flavor, our tropical vibe and our strawberry guava flavor, which is now the number one selling flavor in the fitness channel.
On a mass club channel continues to accelerate we are now fully rolled out nationally in all 561 Costco locations. In addition, and target we have converted approximately 95% of DST and are also in process of launching four packs.
Honor convenience channel side in North America, which represents the largest market in the energy drink category with over 10 billion in annual sales. The latest spins data shows an 86% year over year increase for Celsius product portfolio in the convenience channel compared to a nine 1% overall growth in the.
Energy category, while Celsius is only holding a 17, 1% a C V which truly shows the opportunity. We have lying ahead as we continue to further expand through this year. We have added over 19000 convenience stores to the last 12 months with additional accounts expected anticipated as fall resets take place.
This is per spin shelf stable energy functional beverage convenience 52 weeks ending July 11.2021.
Industry backed third party data continues to show accelerated growth metrics. We are confident the Celsius will continue to drive sales even higher as we continue to increase our ACB across channels through additional launches with nationwide retailers change and transforming our existing distribution to our DSD service model network consumer demand for Celsius accelerated through this.
Second quarter of 2021 with most recent reported Nielsen scan data as of July 3rd 2021, showing sales of Celsius were up 193% year over year for the two weeks ending at 195% for the 12 weeks ending with a 1.6 share of the total energy drink category over the last four weeks.
On Amazon Celsius, as a third largest energy drink with a 13 point, 12% share of the energy drink category, just one point, 32% share behind Red Bull at a 14, 44% share and 18 point, 13% behind Monster at a 31 point 25.
Sent share last 52 weeks ending July 10, 'twenty 'twenty, one stateline energy drink category total U S and for the four weeks ending July 3rd 2021 category sales, including soft shot surged 104, 5% with bank sales up 216.1% Celsius sales were up 100.
And 33, 1% Red Bull sales were up $109 four per cent and monster sales were up 59, 9%. According to Stateline latest year to date leaderboards ranking most popular search brands in the U S. Grocery Department Celsius is the number one fastest growing brand while positioned at an 18 overall for the reported period.
In July <unk> 2021.
We continue to see acceleration are now beginning to also see the additional lift from the conversion of our accounts to our National DSD network, just delivered a growth of 333% and our distribution revenues when compared to the prior year second quarter, we secured additional distribution agreements with partners in the Anheuser Busch Network Independent Anheuser Busch network independent Pepsico.
Kirk Dr Pepper owner of Miller Coors network further expanding availability to new regions at Celsius builds out its national distribution network, which now includes over 190 regional direct store delivery DSD partners distribution centers now covering approximately 19, 90% of major metropolitan markets and 85% of <unk>.
All U S counties are now covered we also filled one of the major gaps in our DSD network as the mid Atlantic region, adding additional security initially additional three new distributors in that region, which were signed up in the second quarter.
Transitioning the DSD continues with our retail partners with 45% of retail stores are now serviced by DSD Kia.
Key accounts converted with over 75% transitioned to DSD include target Walmart Racetrack, Kroger Circle, K Speedway, Mercury's USA, where CBS and 711 also in the process with more being transitioned in the back half of 'twenty 'twenty, one and through 2022.
Our rollout of Celsius brand in coolers in the second quarter totaled approximately 300 and now have over 500 placed in the market through the first six months of 'twenty and 'twenty. One we have also implemented additional comprehensive tracking tools to leverage our growth and accelerate the metrics and the read through the retail partners. We expect additional cooler placements in the back half of this year at similar.
Or increased numbers as we continue to see strong velocity rates and increase same store sales today in the United States. Our total door count now exceeds over 100000 locations, which is a major milestone and grew over by 20000 doors in the beginning of 'twenty and 'twenty one with additional expansion plan throughout the rest of this year as retailers reset to <unk>.
Place.
On a co Packer front, we continue to expand our partners and scale, our existing locations improving our line time priority.
Our total U S co Packer footprint now totals nine active locations, which will help fuel our growth and limit our out of stocks and support the national National massive growth opportunity that lies ahead during the second quarter, we increased our inventory levels up to 63 million up 27% from $36 million at the end of the first.
Quarter to support our growth and increased warehouse distribution centers and to better service, our customers and meet demand as well as increased our inventory of raw materials.
In Europe Nordic sales increased 23% versus the prior year helped by the growth of our Celsius portfolio and the launch of two new flavors of tropical flavors. In addition, or global Celsius EMEA packaging launched in Finland, where the initial results have been extremely positive and has been further rolled out to a top main retailer S. Okay spanning to.
832 locations the vast portfolio experienced out of stocks during the quarter due to co packer delays associated with Covid, which has started to normalize in the back half of the quarter Celsius sales made up for the reduction in the fast portfolio to drive positive growth in territory. We also have initially a soft launch the fast portfolio.
In the U S through Amazon.
We continue to evaluate the timing of additional European expansion markets were confirmed to launch the first Amazon EU market of U K in Germany in the back half of 'twenty 'twenty, one and expect to launch additional EU countries through 2022, including Sweden, Spain, Italy, France and several others.
In China, we maintain a licensing royalty model in the market, where a distributor covers approximately 76 cities and over 60000 locations of distribution.
Our other international markets have been impacted in both the in country service in our buyer co Packers supporting these countries due to covid impacts.
Pace of paint that these geographies once fully opened who will provide additional long term growth opportunities as with Europe, and the United States, we see significant opportunities to capitalize on a global scale, reflecting the changes in consumer preferences for better for you offerings in this enormous Asian market.
Now moving to the marketing on the marketing front, we continue to activate targeting consumers, where they live work and play building meaningful and emotional connections through robust integrated marketing programs specifically during the quarter. Despite the covid restrictions, we sponsored targeted programs both in person and virtual we further expanded and integrated our experiential sampling live fit tour and floor.
Arda, Texas, and California, and other markets as well. In addition, we further expanded our brand ambassadors and influencer programs, reaching more consumers any meaningful way in.
In addition on June 9th 'twenty 'twenty, one the company completed an offering which generated net proceeds to the company of approximately $67.8 million intended use of proceeds primarily for growth capital, including building of inventory to support our sales growth leveraging and optimizing our warehousing targeting.
Investments in targeted marketing programs as well as the expansion of the Celsius branded cooler program we.
We have reached another inflection point in our operations and growth, one which positions Celsius for exponential sales and market share growth with this we have been proactive in the building that Celsius team to maximize the opportunity as well as with key partners such as Ernst <unk> young as our corporate auditors beginning in the third quarter of 2021 International.
DSD network is in place with our retail partners accelerating distribution, which we have only just begin to recognize the incremental growth associated with these transactions. Our team is ready and our infrastructure is in place to support the sales growth. We expect on an expedited scale I will now turn the call over to Edwin Gabon Kabbalah.
Our chief Financial Officer for his prepared remarks Edwin.
Thank you John first I wanted to cover the June 9th public offering led by UBS and Jefferies. The company issued and sold 1 million 133953 shares of common stock approximately a 1.7% dilution and selling stockholders sold 6 million.
257455 shares in the aggregate of common stock in the offering at a price of $62.50.
The offering generated net proceeds for the company of $67.8 million with net proceeds for selling stockholders of $375 million.
The company did not receive any proceeds from the sale of shares by the selling stockholders.
The company intends to use the proceeds for general corporate purposes, such as working capital financing expanding our Celsius branded cooler program and expanding our warehouses and distribution model to reduce miles on cans and better service our distributors.
Now turning to the second quarter results.
Our second quarter revenue for the three months ended June 30th 'twenty 'twenty, one was approximately $65.1 million ERO bust increase of $35.1 million, which translated into a significant growth of 117% from $30 million for the three months ended.
June 30th 'twenty 'twenty.
Approximately 94% of this growth was a result of increased revenues in North America, where 'twenty 'twenty, one second quarter revenues were $53.6 million, a considerable increase of $32.8 million or.
Or an impressive 157% increase from the 2020 quarter.
The balance of the increase was largely attributable to a 23% growth in European revenues.
To $10.8 million in the 'twenty 'twenty, one quarter from $8.8 million in the prior year quarter.
Asian revenues, which primarily consists of royalty revenues from our China licensee for the three months ended June 30th 'twenty, 'twenty, one where $619000 an increase of 89, 9% from three $326000 for the prior year quarter. This increase was provided for in our licensing their green.
Yeah.
Other international markets generating $62000 in revenue during the three months ended June 32021.
Decrease of $45000 from $107000 for the prior year quarter, mainly related to an operational restructuring in the middle East.
The total increase in revenue was mainly related to increases in sales volume as opposed to increases in product pricing. The primary factors behind the increase in North American sales volume were related to continued strong triple digit growth in traditional distribution channels combined with an increase in and optimization of <unk>.
Our presence in world class retailers.
Additionally, the continued expansion of our DSD network resulted in significant growth in distribute and distributor revenues when compared to the prior year quarter.
We also achieved triple digit growth in our fitness and vending channels into 'twenty and 'twenty, one quarter, which contributed considerable incremental revenue when compared to the prior year quarter during which time many fitness facilities were closed due to the Covid 19 pandemic.
Furthermore, we estimate that the strengthening of the Europe accounted for approximately two 3% of the increase in European revenue in the 'twenty and 'twenty one quarter from the prior year quarter.
Gross profit for Q2 increased by approximately $15.2 million or 117% to $28.2 million from $13 million for the three months ended June 30th Twenty-twenty.
Gross profit margins reflected a nominal increase to 43, 4% for the three months ended June 30th 'twenty 'twenty, one from 43, 3% for the 2020 quarter.
Excluding freight and some of our competitors do not include this as cost of goods sold our adjusted gross profit for the second quarter would translate to 51, 8% compared to 55% in the second quarter of 2020.
The increase in gross profit dollars is mainly related to increases in volume while the nominal increase in gross profit margins is mainly related to lower processing costs and repackaging costs.
We estimate that the increase in gross profit dollars of approximately $15.2 million from the 2020 quarter to the 'twenty and 'twenty, one quarter reflected $14.4 million related to volume increases as well as favorable cost impact of approximately $25000 and favorable currency impact of seven.
Hundred and $96000 sales and marketing expenses for the three months ended June 32021 were $15.5 million, an increase of $7.6 million or <unk> 96, 2% from $7.9 million for the three months ended June 30th Twenty-twenty. This increase was mainly attributable to.
Two additional marketing investment activities, which resulted in an increase of $4.2 million when compared to the prior year quarter. Additionally, employee costs increased by 900000 from the year ago quarter as we continue to invest in this area in order to have the proper infrastructure to support our growth. Additionally, we're now income.
Bring in travel and business expenses as we are able to resume our in person marketing events and selling activities.
Similarly, we experienced increases in other sales expenses in the amount of $795000 mainly related to trade marketing activities to support our ongoing DSD network expansion lastly, storage and distribution expenses as well as broker costs accounted for the remainder of the <unk>.
Increase in this area of $1.7 million from the 2020 quarter as a percentage of revenue sales and marketing expenses amounted to $23 nine in the second quarter of 2021 compared to $26 two in the second quarter of 'twenty 'twenty.
General and administrative expenses for the three months ended June 30th 2021 were $9.1 million, an increase of $5.2 million or 133% from $3.9 million for the three months ended June 30th Twenty-twenty. This increase was primarily attributable to stock option expense, which.
<unk> amounted to $4 million for the three months ended June 30th 'twenty, 'twenty, one or an increase of $2.8 million, which accounts for 51, 9% of the total increase in this area when compared to the prior year quarter.
Management deems it very important to motivate employees by providing them ownership in the business in order to promote over performance. Additionally employee costs for the three months ended June 32021 reflect an increase of $670000 or 61% as investments in this area are also required to properly support.
Our higher business volume and the commercial and operational areas of the business.
Additionally, travel and other similar expenses are now being incurred at.
Administrative expenses amounted to $2.7 million or an increase of $1.4 million or 107, 7% when compared to the prior year quarter. This variance is mainly related to an increase in bad debt reserve of $650000 to properly cover any potential reallocation exposures.
We also experienced increases in audit costs legal expenses insurance costs and office rent, which accounted for the majority of the remaining fluctuation of $750000.
Depreciation and amortization increased by approximately $124000 when compared to the prior year quarter.
Lastly, all other administrative expenses, which were mainly composed of research development and quality control test testing increased by $200000 when compared to the second quarter of 2020.
Total net other income for the three months ended June 32021 amounted to $361500, which reflects an increase of $51500 when compared to the total other income of $310000 for the three months ended June 30th 'twenty 'twenty.
Total other net income of $361500 is composed of foreign currency exchange gains of $178000 miscellaneous other non operational income of $108000 interest income of $77000 related to the note receivable from our China licensee which were.
Partially offset.
By miscellaneous interest expense of four $200 pertaining to financial leases. The note receivable requires repayment by our licensee over five year period. So note receivable is due from the licensee in accordance with its terms, even if the independent license arrangement is terminated.
As a result of the above the net income for the three months ended June 32021 was $3.9 million or five cents per share on a weighted average of $73.2 million shares outstanding and dilutive earnings of five cents per share based on a fully diluted weighted average of $77.2 million.
Shares outstanding in comparison for the three months ended June 30th 2020. The company had net income of approximately $1.6 million or <unk> <unk> per share based on a weighted average of $69.4 million shares outstanding and a dilutive earnings per share of two cents based on a fully dilutive weighted.
Average of 71.5 million shares outstanding.
Focusing now on liquidity and capital resources as of June 32021, and December 31, 2020, we had cash of $83.8 million and $43.2 million respectively.
And working capital of $151 million and $66.2 million, respectively with no long term debt cash.
Cash flows used by operating activities totaled $33 million for the six months ended June 30th 'twenty 'twenty, one representing a $26.1 million increase from net cash used in operating activities of $4.3 million for the six months ended June 30th Twenty-twenty.
The use of cash was mainly related to increase in our inventory levels in order to properly service demand for our products. Our net inventory increased $45.4 million from Q4, 2020 to $63.8 million in Q2 of 'twenty 'twenty one.
Excluding this significant increase in inventory cash flow from operations would have totaled $15.1 million.
I also wanted to cover a few additional metrics. We believe provide a good perspective of our operational performance using Q2 business volume as a basis. Our dsos are daily sales outstanding were approximately 45 days our inventory days on hand were approximately 155 days and our payable.
Our days payable outstanding were approximately 31 days.
Given our growth these are very good working capital metrics.
Lastly, adjusted EBITDA for the second quarter was $7.9 billion or 12, 2% of revenues. We believe this information 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.
<unk> has been included in our earnings press release.
This concludes our prepared remarks, operator, you may now open the call for questions. Thank you.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
You'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Cal meal Kazmer Waller with credit Suisse. Please proceed with your question.
Thank you operator, hey, everybody.
Couple of questions I guess first you.
There's just meant to be quite a significant amount of catch up shelf resets. This fall after.
Some delays no sorts of things, obviously, you've gained quite a bit of distribution you've had some momentum should we be expecting that to accelerate into those resets or do you think you could may be captured.
A reasonable amount of what you would have captured at a reset anyways and we should just expect things to kind of continue along its current path.
Thank you.
John.
When we look at research we added about 20000 stores through the first six months of the year.
<unk>, reaching 100000 doors is a major milestone for the company.
We're seeing Coke energy is getting you listed out there right now and our team has been extremely aggressive.
Essentially getting some of that space for us in the back half of this year as retailers are doing some midyear cut in so you'll see some of the resets are a little bit unique.
Given with Covid and 2020.
There is some different timing on reset. So we are seeing shelf sets get we're gaining additional distribution, we expect to gain additional distribution. In Q3 also the activation of the DSD network really going after small format independents as a huge opportunity for us as we continue to activate this DSD networks.
We anticipate stores to continue to grow we will see.
Right.
But early indications are we will continue to grow doors throughout the year and then as we anticipate larger resets happening.
As you know in 2020.
Sure.
Got it and then if I could ask you about Europe, you mentioned that you are planning on launching an Amazon Europe and a C.
Series of markets can you.
Maybe just add a little bit more detail on maybe the market size, what your expectations are for contribution.
And those launches that sort of thing.
Yes.
And talking about it for some time.
It's doing extremely well at Amazon in North America, and working with our European partners and divisions over there. We're looking for really in Q3 to launch in the U K, Germany and other markets.
Early indication is.
The overall size of the energy drink market on Amazon is not as large as the U S.
You anticipate incremental revenue, but most importantly, it gives us additional exposure as we expand into these markets. So.
Think of it as air cover per Se as we entered the U K and Germany and opportunity as we look for partners in retail as well as distributors. So lots of opportunity as we look to further expand throughout Europe, but in regards to significant.
The top line, we will see how it prevails, but do you anticipate it to be incremental.
Okay, Great and maybe a final question on margins.
Are you it sounds like you have quite a bit of confidence in getting your gross margins back up to.
Where they were.
Which I guess was just under 47% last year.
Is that what you were indicating when you're saying by the end, we will sequentially get better to get back to that 40 against 46 six or was.
What was that maybe longer range is that kind of a year ago. The figure for what you intend to exit the year, what do you think you'll get the full year two.
Yeah, we're still in the back half of 2021. This year, we're going to see sequential growth anticipated in the margins as we've seen in Q1 and Q2 Theres a lot of variables out there freight costs as well.
Extremely volatile as well as we will be cycling through some imported cans and raw materials. So that will put some pressure on our margins in Q2 and potentially into Q4, we do anticipate more use can manufacturing to be utilized towards the back half of 2021 and into 2022 and Edwin I don't know if you want to add needed.
Color on that yes. Thank you John Yeah, I agree there is a lot of variables and the other one that I always like to emphasize is the parity between the U S dollar and the euro.
The dollar is strengthening so I think that's also going to come into play as well.
Yes, so difficult to predict.
Predict where we're going to land but.
I always want to make sure that that's also taken into consideration, yes, no. Good point, but we do anticipate the Q2 results at around 43% gross profit to anticipate.
Being the floor as we continue to move forward.
Great Okay. Thank.
Thank you everybody.
Thank you as well.
Our next question comes from the line of Sean King with UBS. Please proceed with your question.
Hey, good morning, guys. Thanks for the question.
How are you thinking about about pricing in the energy drink category and maybe your ability to take pricing given some of the consumer loyalty metrics that you've seen.
Yes.
Consumer loyalty has been extremely high for us that's one of our competitive advantage. We have is our loyal fan base in regards to pricing. We do think there's opportunities on pricing as we continue to grow at scale.
Looking at pricing right now, we're really watching what the other players in the category are doing.
Also theme with Monster and many players really watching our promotional.
Allocations allowances and plans as we go forward to mitigate the overall frontline price increase.
Great if I could.
I squeeze one more in I just was curious just to how to understand that.
The mechanics.
Of the shift of DSD and if that that does have a drag on margins going forward.
Yeah, no. It's a great question.
There is somewhat of a transition we are giving up top line.
And we're giving up margin to move through our DSD network, but theres a lot of synergistic benefits that you receive on transitioning so what we're seeing is it's really.
Essentially margin neutral and also where we see opportunities as we grow further scale.
Really really leverage some of those efficiencies on a larger scale operations as we continue to grow to further increase our margin. So at this point.
As we make the transition.
It's been fairly neutral yes.
The way I would look at it as well is that.
From my perspective is kind of short term versus long term or midterm.
Sure Yeah, there may be an impact of construction, but as John mentioned, then with the synergies.
Other benefits will definitely be be able to make that up.
Great I'll pass it on thanks a lot.
Thank you. Thank you John.
As a reminder, it is star one to ask a question. Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
John and everyone how are you.
Good morning, Jeff Good morning, Jeff excellent.
Just a bit of a follow up on a couple of communities questions as far as the you know the big five plus in Western Europe, you're going to my mom launch Oh, No you Amazon are there any plans for other.
Other channels to happen in the short to mid term sure as you know Jim journals or retail.
Yes.
A massive opportunity we are under discussions we're looking at that with a variety of opportunities or potential partners.
So more on that in the coming quarters, but at this point, our first step is to expand with Amazon.
And then we're looking for other partners in those in those markets, where we're under discussions.
Great and then circuit for US can you talk about the the coolers and what we should expect for the back half and you can talk a little bit about some of the channels in philosophy that you're getting to there.
And how that may roll out in some of the data in stores for US you know what they are finding as far as the effects on the coolers. Thank you.
Yes.
Great question in regards to sitting here in 2019 and 2018, we had even into 2020, we really had a lot of out of stocks at retail just due to the velocity of the products. So you know moving to DSD is one step in enhancing our availability maintaining that in stock position and then taking it to the next step first or further.
Is getting coolers placed strategically in locations, where we really can drive the velocity and really service our customers.
Historically up until really over 12 months ago. The majority of our sales are all Pico, so where the cold availability that allows us to take part of the larger energy drink category, which is that immediate impulse purchase and when we're seeing when we place coolers in strategic locations, where consumers are we're seeing great returns.
On the investments in the coolers, ROI and better servicing for our customers and also it's a greater partnership with our DSD partners. So.
Think of it like the silent salesperson as well when you see those coolers there they look great.
We are happy.
Indicated as I stated we have about 500 that are currently in place as of June 30.
We have many more we anticipate the place in the back half of this year and into 2022, we're working on some cooler programs and some larger retailers for 2022 as well so really in a good place.
As we continue to service, our customers better where they live work and play.
Got it and then the last thing first can you talk about the throughput rates are previously 80, and 90% of reported results. This quarter show, where it's kind of steady state and what are the push and pulls there involves thank you.
Yes. Thank you Jeff fill rates in Q1, roughly around 80% we have increased those the back half of the second quarter.
Mainly in June getting two at 90% fill rate there. So we anticipate that to continue to sequentially increase over the next several months.
Currently in Q2, we're averaging right around that 90, 493% fill rate that should increase as we further increase our inventories moving to this six orbit model of warehousing also will allow us to drive some efficiencies. The key is to get the inventory levels at a at the right level and then we'll be able to continue to them.
Proof fill rates.
Thanks, again and congrats on the strong right now.
Thank you Jeff Thank you.
Our next question comes from the line of Jeff Van <unk> with B Riley. Please proceed with your question.
And thanks for taking my questions.
Just any update you can give us on where we are on Evs and seven elevens progress on flipping to maxed out DSV.
Yes, Great question, Jeff in regards to 711, we continue to make progress each and every day the whole West Coast Division has been turned over or working on the southeast Division and several other regions. So.
You seem to have a full support of 711 really closing the gaps now that we have about 85% of every county covered in the U S. Really gives us further grip our DSD team really made great strides in the second quarter securing the final pieces of some of these counties that needed to be covered in order to flip over the zones. So really.
On 711 that is going to continue to transition there and then Cvs, we make we are making progress on that each and every day more zones are more dcs are being converted I still have a lot of work ahead to.
To continue to move forward, mainly with Anheuser Busch network. There are some challenges on.
Alcohol service alcohol distributors servicing some nuances there we're working through.
But all in all everyone is in favor and flipping over to DSD and then Cvs. If you look at it we have full shelves across the country. So lots of opportunity to drive volume to better service our customers.
Okay, Great and then.
Are you anticipating any impact on that sadness and vending channel with the resurgence of Covid or do you think we're beyond that.
Yes, it's a great question I mean, we saw great growth in the second quarter, and our fitness and vending, but all between the both of them are $4.9 million.
We haven't seen it slow down yet.
That is definitely a concern we're having.
<unk>.
Additional protocols and safety measures throughout the whole company.
Time will tell at this point, we're seeing especially in Florida, Texas in many markets. We're seeing the gyms are coming back so people are very cautious but.
It seems to be a growing opportunity for Celsius. So.
Time will tell I don't have a great answer on that but we're watching monitoring that closely and we are aggressively pursuing those markets.
Okay, and then if I could just squeeze in one more if you could touch on the launch of the four packs.
Yes.
Yes, the launch of the <unk>.
Yes.
Jeff you've been with us sometime as well when you look at where we've been.
The company transition to a single strategy and to drive trial and awareness and now due to our velocity has increased exponentially, especially in grocery and mass.
There's opportunities for further pack size and I think everyone has been talking about multi packs. So while we've been here strategically is further expanding the multipack offerings and.
In our forecast going into target is a great win for the company and just shows you. The velocity, we started off with three singles three or three flavors for flavors five flavors expanded stores now we're taking that partnership to the next level with four packs and soon to be a multi pack we're working on as well as we look at 2022, so lots of opportunity.
Is there, but definitely take home larger take home, it's going to increase our rover velocity as well versus people buying one or two cans you can pick up multiple packs. It's worked really well for us at Publix as an example, where we have singles and four pack. So expect more four packs and multi packs coming back half of 2021 and into 2022.
Thanks, and best of luck.
Thank you Jeff Thank you.
As a reminder, it is star one to ask a question. Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.
Thanks, Good morning, guys.
Good morning.
Yes.
So.
In terms of the branded coolers.
That seems to be to be going well can you give me a little more color around the metrics when.
When you put in a branded cooler and then cap where at the checkout.
What do you see in terms of velocity or or sell through for that versus before you had the branded cooler in there.
I mean, it's all about retail execution for us I mean, we're working on our teams are expanding we're expanding our DSD support teams our field marketing teams, we have great merchandisers and sales support teams. We are building across the country and it's all about now that our brand awareness continues to grow our velocity.
Gross.
We need to have additional placements in store. Our goal is to have three placements in every store we want to be.
Three points of disruption, we call it as well as the importance of cold and an end cap. So that's a big initiative. That's drives I mean, it's it's important that we have that also additional stock on the floor and these retailers, but what we're seeing is the end capital driving additional incremental volume and velocity and then Nicole equipment once it Dan.
We get called placement at the proper location a gross even further exponentially there. So there's a lot of opportunity at placing called equipment in the right location.
And these are giving retailers in our given markets and so we're just at the beginning of that.
Okay, Great and then.
In terms of.
You know being able to meet the demand out there I think right now we have around nine non co Packers if that's correct.
Is that based on your.
Six to 12 month plan right now from what you can see is that sufficient or are you looking to add more co Packers at this point.
We're always talking and looking for Great partners, Great partners build great brands, Great company, So constantly talking with new co Packers and potential partners. We do feel we have the non co Packers now that are active.
Solidify our growth for the next 12 months, depending on how things go we're looking for further partners as well we do have Paul story that joined the company.
So he has been incremental building out our operations team as our EVP of operations. So it comes with a great wealth of knowledge and also potential partners. So lots of opportunity. There I mean, if you look at our the velocity or production levels that we've been producing over the last two months, we've produced more product than we did in all of 2002.
So we are really well positioned as we continue to fulfill the demand thats out there for Celsius.
Okay, great. Thanks, very much I'll hop back in the queue.
Thank you Anthony Thank you.
This concludes our question and answer session I'd like to hand, the call back to management for closing remarks.
Thank you on behalf of the company would like to thank everyone for joining us today and their continued interest our results demonstrate our products are gaining considerable momentum we're capitalizing on today's global health and wellness trends and the transformation taking place in today's energy drink category. Our active lifestyle position is a global position with mass appeal, we're building upon our.
Core and leveraging opportunities and deploying best practices, we have an award winning portfolio strategy and team and a large rapidly growing market that consumers want.
We will be able to continue to navigate through the challenges ahead of us as a result of Covid 19, and we are well positioned to thrive in the transformation taking place in the category. Today. In addition, I'd like to thank all of our investors for their continued support and confidence in our team next week, we'll be hosting our annual shareholder meeting August 19th at two P. M in Boca Raton.
<unk> have been sent out to all shareholders with a record date as of June 32021. Additional information is available on our corporate website also upcoming conferences, we will be attending Wells Fargo fourth annual consumer conference being held September 'twenty three 'twenty four also the Jefferies West Coast Consumer conference is being held November 16th.
<unk> look forward to seeing many of you there. Thank you everyone for your interest in southeast be safe stay healthy and have a great day.
And how it feels.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.