Q4 2022 Celsius Holdings Inc Earnings Call

Speaker 1: The.

Speaker 2: If anyone should require operator assistance during a conference, please press star zero on your telephone keypad.

Speaker 2: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cameron Donohue, Investor Relations for Celsius Holdings. Thank you. Let's get started.

Speaker 2: Thank you and good afternoon everyone. We appreciate you joining us today for Celsius Holdings fourth quarter 2022 earnings conference call.

Speaker 3: Joining me on the call today are John Fieldley, President and Chief Executive Officer, and Jared Langans, Chief Financial Officer.

Speaker 3: Following the prepared remarks, we'll open the call to your questions and instructions at that time.

Speaker 3: The company released their earnings press release early this evening and all materials will be available on the company's website, CelsiusHortonsInc.com.

Speaker 3: As a reminder, before I turn the call to John , an audio replay will be available later today and will be accessed with the same live webcast link and our conference call announcement press release.

Speaker 3: Please also be aware that this call may contain forward-looking statements which are based on forecasts, expectations, and other information available to management as of March 1, 2023.

Speaker 3: 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-Hodrant undertakes no obligations and disclaims any duty to update any of these poor-looking statements.

Speaker 3: We encourage you to review and pull our safe harbor statements contained in today's press release and our filings with the SEC for additional information.

Speaker 3: With that, I turn the call over to President and Chief Executive Officer John Fieldley for his remarks. John ?

Speaker 4: Thank You Cameron, good afternoon everyone and thank you for joining us today. We achieved record sales for the fourth quarter of a hundred and seventy eight million an increase of 71% from last year's fourth quarter of a hundred and four million dollars. This revenue growth was driven despite approximately fifteen to twenty million we discussed in the third quarter that was driven by the inventory pipe built by the Pepsi

Speaker 4: system in the preparation for distribution transition that began October 1, 2022. We believe the distributor inventory levels are now back to normalized levels as we began the first quarter of this year.

Speaker 4: For the full year, sales totaled $654 million, up 108%, or 340 million growth, compared to 314 million in 2021.

Speaker 4: According to the January 1st, 2023, 52-week IRI Energy Category Spins Moolactata, representing the calendar year for 2022, Celsius is the number one brand driver of growth in the energy category in all of 2022. Responsible for 22% of the category dollar growth.

Speaker 4: 222 which were up 247% compared to 40 million and that last year.

Speaker 4: We also hit record sales through Amazon in 2022 with full year sales of approximately 58 million versus full year sales in 2021, up 32 million, up 83% proximate.

Speaker 4: In addition, according to the trailing 12 weeks IRI Muloc total energy, as of January 1, 2023, representing the majority of the fourth quarter, Celsius is now the number three energy drink brand in the category with dollar sales growing approximately 128% versus the same period in the prior year.

Speaker 4: Our fourth quarter represented our first quarter since the commencement and distribution partnership with PepsiCo. During the fourth quarter, we had an additional $38 million in expense of sales and marketing related to termination associated expenses from prior distributors, which was recognized. Most of these distributors were transitioned by November 1st of 2022.

Speaker 4: and in conjunction with approximately 156 million of similar book charges that were recorded in the third quarter. For the full year, transition costs totaled 194 million, mainly associated with distributor termination costs. This completes our distributor transition to the PepsiCo network, and we do not anticipate any further material changes going forward.

Speaker 4: We have been extremely happy with the transition, both from our PepsiCo partner as well as with our Celsius team. I'd like to thank all of our previous distributors for their amazing work that they did helping us build the Celsius brand, especially through these challenging macro economic times over the last few years. As highly in our early supplement for the four weeks period.

Speaker 4: According to SPINS, an IRI total energy as of January 1, 2023 in the Mulach Celsius is the number 3 energy drink with a $6.4 share in the energy category versus 3.4 share in the year-ago period. With an ACV now reaching approximately 89.7% versus 59.6% in the year-ago period.

Speaker 4: In addition, in the convenience channel, Celsius has seen approximately a 96% increase in ACV growing to 89% compared to 45.3% in the year-ago period. We see substantial growth opportunities and convenience on a go-forward basis. In addition, in the food service channel, we have now expanded to over 1,600...

Speaker 4: International sales did see a 38% growth in the fourth quarter, totaling 11.5 million compared to 8.3 million in the fourth quarter of 2021. We believe there is significant opportunities for international growth going forward with PepsiCo. While we just began our distribution partnership with Pepsi and the initial focus has been on the US distribution transition to their network.

Speaker 4: We have begun initial discussions and we see significant opportunities to capitalize on a global scale in the future. We are reflecting the changes in consumer preferences for better for you offerings. While the U.S. transition has taken a majority of our focus today, we do expect to announce additional international expansion initiatives in additional countries in the future.

Speaker 4: Turning to our gross profit, gross profit for the quarter increased approximately 90% in the fourth quarter to a record for the quarter of $79 million, up 42 million in the year-ago quarter. Our gross margins for the quarter totaled 44.4% and increased approximately 445 basis points from the prior year. As discussed on our last earnings call, we reiterate our expectations for continued sequential margin percentage.

Speaker 4: packing facilities which is required for the pack size. We continue to initiate production efficiencies to improve margins in this channel, including working with our co-packers to transition to inline packing, so the product doesn't have to be moved to a secondary location and facility. In addition, we are working to increase our pack size from a 15 pack to an 18 pack size through this transition, which started in the fourth quarter.

Speaker 4: We did launch a second skew of VIDE multi-pack in the fourth quarter at Costco and in the first through end we'll continue through the first quarter of 2023 and we launched a second skew also at a club pack at Sam's Club and in the first quarter of 2023 we were fully rolling out through BJs nationally.

Speaker 4: The company does see opportunities to drive incremental efficiencies in 2023 and beyond from both the expected improvements in the club channel and addition to with our transition from a significant number of independent distributors to PepsiCo's distribution. This will allow our team to consolidate sales, marketing and distribution efforts, which will have associated cost benefits which we expect to recognize and leverage in the future.

Speaker 4: International third-party backed data continues to show accelerated growth metrics. We are confident that Celsius will continue to drive sales even higher as we increase our ATV across channels through additional launches with new national retailers and independent chains and further leveraging our new partnership with PepsiCo. Consumer demand for Celsius on a dollar basis re-accelerated through the fourth quarter of 2022.

Speaker 4: and into the first quarter of 2023 from the initial distribution shift which started October 1st of 2022.

Speaker 4: The most recent period Nielsen scan data and energy reported as of January 28, 2023, so Chelsea's sales were up as of the four weeks, 136% year over year, 129.8% for the 12 weeks ending, 127.5% for the fourth quarter. This compares to the energy category which grew approximately 17.1% for the four week period ending.

Speaker 4: 18.8 for the 12-week period ending and 10.8 for the fourth quarter over the same period. On Amazon, Celsius is the second largest energy drink brand with a 16.94% share in the category. Ahead of Red Bull, which is at 11.71% share,

Speaker 4: and just behind Monster, which is at a 26.38% share year over year periods as of February 11, 2023 per stack line total energy total US.

Speaker 4: Amazon's full year 2022 sales had a hit a record for us of 58 million versus the prior year, which totaled 32 million, which as we stated earlier was up 83%. We see great opportunities as we continue to leverage consumers in the omnichannel world. The company has plans to acquire place an additional 15,000 dedicated branded cell phones.

Speaker 4: provides an additional incremental up to 50,000 additional placement opportunities. Our U.S. store count now exceeds over 210,000 locations nationally, growing approximately 20 percent from the third quarter, with additional expansions planned through 2023 accelerated by the PepsiCo distribution agreement. Before I turn the call over to Jared.

Speaker 4: I want to outline some key pillars the company is focusing on to drive further shareholder value. The first pillar is top line growth, which includes increasing the number of stores and channels that carry Celsius. New retailers, national expansions within existing channels, such as our recent national expansion, as mentioned earlier, with BJs. And also a national rollout which starts...

Speaker 4: the first quarter of 2023 with Aldi. In addition, leveraging and expanding new channels such as food service and college and universities. Also increasing the number of items carried per location. FOSC focusing on key drivers to drive velocity rates.

Speaker 4: and the opportunities to leverage and with international growth. Our second pillar is the operational excellence. These drivers include a focus on gross margin. Our focus on gross margin will be driving efficiencies and leverage as we scale. Leveraging our orbit model, our distribution orbit model, to drive more efficiencies.

Speaker 4: As an example, shipping from co-packer straight to distributor, optimizing freight warehousing costs, vertically integrating and improving our scrap and waste efficiencies.

Speaker 4: Also, focusing on sales and marketing initiatives to gain further leverage, optimizing our PepsiCo partnership.

Speaker 4: and in the G&A, optimizing our revenue per employee, leveraging software optimizations, and focusing on building our internal and expertise internally to drive scale.

Speaker 4: The driver of the final pillar is cash generation and EBITDA leverage. The goal of driving increase, EBITDA, as we scale.

Speaker 4: To close my prepared remarks, with the PepsiCo transition now complete, Celsius is positioned for the next phase of growth. With further opportunities as we begin to expand international markets to further capitalize on our future and optimize our leverage, driving further value for our shareholders.

Speaker 4: Celsius is now established as a leader in the energy category in the United States, driving growth for the entire category in all of 2022, with incremental opportunities to further drive growth.

Speaker 4: to 2023 and beyond.

Speaker 4: I will now turn the call over to Jared Langans, our Chief Financial Officer, for his prepared remarks. Jared? Thank you, John . Before jumping into the financial results for the year and the quarter, I'll cover a few administrative items.

Speaker 5: It was another very exciting and busy quarter. For the quarter, we successfully integrated into the Pepsi distribution system, going from an ACV in the mid-60s to the high-80s very quickly. In addition to moving to the Pepsi system, we processed the majority of our prior distributors' terminations, including final payments, inventory returns, etc.

Speaker 5: As John mentioned, the transition continues to go very well and we are excited to see the results of this long-term partnership. So let's walk through some accounting updates.

Speaker 5: Let's start with transition related expenses. Included within our annual results, we recorded approximately $194 million of termination expenses associated with termination notices issued in 2022, primarily related to the transfer of distribution to Pepsi.

Speaker 5: As of the first quarter of 2023, we have effectively transferred all activities that we had set out to transfer to Pepsi, plus a few additional areas. During the fourth quarter, we saw some increases in inventory reserves and other related costs as we transitioned from our prior distribution network and into the Pepsi system. As a part of our contract with the prior distributors, we accepted return product and had to make decisions about the future.

Speaker 5: Now let's talk taxes.

Speaker 5: As a reminder from our Q3 call, our effective tax rate for the year deferred from the statutory federal income tax rate of 21% primarily due to the tax impact of the $282.5 million Series A preferred stock value adjustment which is being expensed over 20 years for book purposes. As this expense is non-deductible for tax purposes, we recorded a deferred tax...

Speaker 5: associated with our CAN label. As of the middle of February , the notification process was completed, and we would expect to close this out prior to the end of the second quarter. As many of you know, we received an unfavorable verdict in January of 2023 around litigation involving Flowrider. We have incorporated a detailed discussion within our 10K, as well as a range of potential outcomes. We are in the process of appealing and believe that we will ultimately prevail. In regards to the SEC review, we continue to cooperate with any

Speaker 5: new team members and as a result, although we were able to make progress and saw many improvements, we were not able to get to a position where we could fully clear the material weaknesses from 2021. This is reflected in our 10K.

Speaker 5: As we look out across 2023, the team is focused on working towards fully clearing these items, and we will work diligently to get across the finish line.

Turning to our fourth quarter financial results, revenue was approximately $178 million, an increase of 71% from $104 million driven by North America, where fourth quarter revenues were $160 million, an increase of 74% from the same period in 2021. The primary factors behind the increase in North American sales volume were related to our integration of our

This was a one-time pipe fill of around $15 to $20 million.

Gross profit for the quarter increased 90% to $79 million, up from $42 million in the year-ago quarter. Gross profit margins in the fourth quarter were 44% of revenues compared to 40% for the prior year fourth quarter. The improvements in gross profit margins were due to lower average cam prices, improvements in freight lanes from our Orbit model, and transition into Pepsi, as well as pricing benefits.

Sales and marketing expenses for the three months ended December 31, 2022, were approximately $90 million, an increase of approximately 265%. This increase was primarily attributable to termination expenses of prior distributors in the amount of $38 million, as well as an intentional increase in marketing spend versus budget in the amount of $15 million.

as we moved into the Pepsi distribution system. With the huge gains that were made in ACV, we felt that it was appropriate to over invest in marketing in support of this expansion.

As a percentage of sales, sales and marketing would have been in line with historical rates had we not incurred the termination expenses and put forth the additional marketing investment. As we moved into Q1, 2023, we expect our sales and marketing spend to be in line with historical rates as a percentage of sales.

General and administrative expenses for the three months ended December 31, 2022 were approximately $22 million, an increase of 54% relative to 2021. This increase was due to increased employee costs associated with building a backshop that can scale as we grow, as well as administrative fees such as legal, audit, and other consulting fees.

G&A expense as a percentage of sales was 12% for the fourth quarter of 2022 versus 14% in the prior year, which was in line with our annual rate. We would expect to see this area leveraged during 2023 once we have fully built out the team. Turning to our full year financial results, we had revenue of approximately $654 million, an increase of $350 million.

products across North America, as well as our transition into the Pepsi system. Gross profit increased 111% to 271 million dollars, up from 128 million dollars in the prior year.

Gross profit margins were also improved, up 66 basis points on a full year basis. We saw gradual improvement in our gross profit margins across the back half of 2022, as we saw improvements in our average can costs with less higher priced international cans, more efficient freight lanes with our Orbit model, and also some pricing benefits. Sales and marketing expense for the year ended December 31st, 2022 were reduced to a total of $2.3 million.

$48 million, saw increased employee costs of $8 million, and had increases of $28 million across storage, distribution, broker costs, and trade spend.

Sales and marketing costs as a percentage of sales were consistent year over year when excluding the $194 million in termination expenses and fourth quarter incremental marketing spent.

General and administrative expenses were approximately $76 million, an increase of $18 million or 32% from $58 million. Employee costs for the year ended December 31, 2022, reflected an increase of $5 million as investments in this area were required to properly support our higher business volume in commercial and operation areas of the business.

Administrative costs drove an increase of $26 million mainly related to increases in legal expenses, audit costs, insurance costs, and other consulting fees. Depreciation, amortization, and impairment had an increase of $3 million when compared to the prior year due to investments in operational equipment, mainly coolers, and the impairment of the Funk Food brand name.

The increased expenses were offset by a lower stock option expense in 2022, which was $21 million, a decrease of $16 million from the prior year period. This change in stock option expense was mainly attributable to the revaluation of certain share-based payment awards that were modified during 2021.

GNA expenses of percentages sales was 12% versus 18% in the prior year. Excluding stock-based compensation, GNA expenses of percentages sales was 8% versus 70% in the prior year.

Focusing now on liquidity and capital resources, as of December 31, 2022 and December 31, 2021, we had cash of approximately $653 million and $16 million, respectively, and working capital of approximately $757 million and $169 million, respectively. Included within the 2022 cash balance was approximately $39 million of restricted cash that was

that represents $35 million due back to Pepsi, representing excess funds provided by Pepsi for our distributor transition, and $4 million of remaining accrued payments due to former distributors.

Cash flows provided by operating activities totaled $108 million for 2022, which compares to $97 million in net cash used in operating activities in 2021. The approximately $205 million increase in cash generation was driven by continued growth in operations of the company.

as well as working capital benefits, including the timing of transactional costs associated with the PEPSI distribution transition. And looking at inventory, total inventory ended at $173 million, down over $18 million versus the prior year. We'll continue to carry additional inventory in order to make sure that we are able to keep up with the significant growth we are experiencing.

but we would expect to continue to drive efficiencies in our DIO as we move through 2023. With the business generating cash as well as the injection of funds from our PepsiCo partnership, we have sufficient firepower to take our business to the next level across the US and eventually internationally in the coming years.

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'll be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad.

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'll be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press star 2 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. Please remember to limit yourself to one question and one follow-up. Our first question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question..

Hey, good afternoon guys. Thanks for taking the question. First for me, I think just in the interest of clarity, just trying to reconcile a bit the performance in North America on sales growth relative to what we saw on the scan channels. I know there's a handful of moving parts here, not the least of which would be Jared, the pull forward, the 15 to 15 million, which you quantified last call and mentioned again.

Jared, you also mentioned some product returns, which would be a drag. I guess kind of going the other way, you also had strong growth in club again. You had some distribution wins, which John talked about before. Maybe just comment a bit on the gap that we saw with North America up 74%. Nielsen Channel's up very strongly, up about 130. Can you just kind of reconcile the two for us a bit?

Yeah, Kevin, good afternoon. If you looked at the pipe fill, that would have brought us up to in excess of 90% from a North American perspective. We are beholden a little bit to some of our bigger customers in terms of seasonality or in terms of timing.

onboarding and integration into the Pepsi system and the pipe fill and also some kind of year-end working capital type activities associated with some of our customers.

Yep, definitely makes sense, Jared. Thanks. Then just the follow-up, just more broadly, the transition to the Pepsi system seems like it's gone really, really well. Maybe just some color on the spring shelf space resets, wins there, where you guys sort of expect to land. And then just further context for kind of where we are. We see the ACV ramp. You guys may...

you guys have on college campuses, healthcare, et cetera. Just give us a sense for where we are and ultimately when this starts to look something closer to where the ambition is from a fully distributed perspective. Thanks guys.

Yeah, Kevin, great question and good afternoon. I think there's a lot of momentum as Jared mentioned, especially in the first quarter of 2023. You know, our ACV, we finished the year right around 90%, you know, give it right around an average of 90% ACV, about 89% as we talked earlier. Great.

Great execution through the transition with the Pepsi system. Keep in mind, we still had some distributors that transferred over in the quarter. So it weren't purely a 100% Pepsi system from that October 1 transition window. But we do expect to pick up additional ACD points, especially with the spring resets that are coming ahead. We've also been very aggressive in gaining additional banks based as they're out there. So...

You know, the teams, I just hats off to the teams, working extremely hard on our key accounts team, gaining incremental distribution, and also picking up new distribution as well. So we're really excited about the next reset's coming out. As I talked about earlier, we talked about BJs as well, and the club channel non-tracked. I think there's opportunities there. That's rolling out, also meeting incremental shelf space. And then in the alternative channels, food service has been a big opportunity for us. I just touched on the college and university. And people took my staff chief to my everyone.

where we have about 1,600 currently and then hospitals, as well as around 1,600, but we're really just getting started in the food service business. That could be a considerable amount of upside, especially when we're seeing the usage occasion with Celsius really expanding. So we're really excited right now. We're not gonna provide forward-looking ACV guidance, but where it stands right now, we're in really good shape, and I look forward to a great 2020.

not ACV but actual distribution point. Could you just talk about how you're thinking about...

where you're going in 23, you know, we're close to spring resets at this point, what have you secured on a percentage basis? And maybe more broadly, how do we think about where the product is going? Is it in existing energy coolers or are you moving into more dedicated performance, functional, helpful coolers? That's the first question.

Yeah, thank you, Mark. I'll jump in. In regards to distribution points, we talked about currently roughly around $210,000 as reported, but we are gaining considerable amounts of distribution incrementally in the non-reported, as we just talked about earlier, the food service. And then as Pepsi calls it, the OTS segment, which is the independent market, which Pepsi is really strong. And we talked about that in the third quarter.

being involved in their medals program, which is really their independent loyalty program. And that's gonna be a great opportunity for us. There's resets taking place for 2023 now. So that could add considerable amounts. There's over 150,000 additional doors or locations that are out there. So we're watching that closely and there's definitely considerable upside. And then when you look at the reported channel segment, I think there's additional opportunities there.

We expect the next recess to be expanded with additional items per location. Also, it talked about the coolers that we're investing in. We anticipate by the end of the year to have over 20,000 dedicated Celsius coolers. That's a really great opportunity. We've never had that before. In addition to the... Amazing opportunity to do that, really.

PepsiCo energy coolers, which we're told are up to about 50,000 currently that gives us opportunities. So definitely opportunities ahead in 2023, three to expand number of stores, locations, and cold availability. Got it. That's helpful. And maybe just a clarification on some previous points. So I'm still trying to understand the puts and takes of the pipeline fill. So 15 to 20 million of sales ahead of actual sales in the third quarter. So why wouldn't you add that to the fourth quarter? It would be coming out of fourth quarter. Fourth quarter is essentially just servicing what demand is, right? So that run rate should then be higher, right? Because then you're servicing kind of what was there previously. So I guess maybe put, you know.

I'm surprised sales were as strong as they were, given that you had that headwind in the third quarter. So, at the run rate, we should be thinking about the number in the fourth quarter plus the $15 million. And then you made some comments about the inventory de-stocking as well in December . So, can you kind of help put those pieces together, please? Yeah. You know, in regards to the comments that Jared and I made in the prepared remarks, when you look at the, you know, it's running around $15 to $20 million. It was incremental in regards to a pipe fill. So, adding that to Q4, I think, gets you to, you know, kind of a, what we saw as a normalized run rate. We are, you know, there is…

At some end, you know, inventory felt there was inventory control metrics or potentially there could have been. So, you know, we're watching the inventory levels very closely. We don't have full transparency on the inventory levels, but we do think, you know, pulling forward that 20 million in Q3 that we 15 to 20 million in Q3, it kind of gets you to a normalized level for Q4. Keep in mind, there were several other distributors that were transitioning in the quarter two, so you're not looking at a full 100 percent, you know, distribute your partnership with our, with our PepsiCo leveraging the full power of the distribution of PepsiCo. So, there's still some large markets for Celsius that were transitioning during that time. I don't know if you have any other comments, Jared. Yeah, I think we...

We need a little bit of history, too, to understand some of the ebbs and flows in terms of the inventory management of our partners, and in particular our biggest partner, to see kind of is a pull-down something that's going to recur at the end of every quarter. And obviously, after we get to a couple quarters, then we'll have a good kind of baseline, and it won't really be impactful because it'll be more kind of like that one-time item that happens. But at the moment, we're seeing great scan data. We're getting good pull-through across the board with our customers and our primary distributor. So we're seeing things are looking up. Q1 obviously is not as big as we expect when we get to Q2 and Q3. And Q4 and Q1 are probably more consistent with each other from a seasonality perspective. Our next question comes from…

million in the quarter, really supporting the distribution gains and the ACB gains. And, you know, the company has seen a considerable amount of increase in ACB going from October 1st to where we ended the year. We made it a strategic initiative to really continue to invest ahead of those ACB gains to make sure consumers know where we are, where they can purchase.

And if you back out, you know, in the fourth quarter, if you back out the 15 million that Jared was referencing that was over, plus back out the transition fees of about $38 million, you kind of get back to that same run rate around 20, 22% of revenue there. So...

We're going to continue to invest in the brand, continue to build the brand, especially as we continue to increase the distribution. We're really focused on driving velocities, especially heading into the recess. For Pue, what is the idea of you back to Moro long at 22%. Okay. Then it seems very intentional to be some of the commentary about the international rollout. You're doing very well in the United States, obviously. And your share is high compared to where you came from, but still a long way to go. Why is now the right time to start thinking about or talking about international? Yeah, we do have opportunities internationally. We're mainly focused on the United States and the expansion opportunities we have here.

but we do see opportunities on a global basis. And there's partners through the PepsiCo system, as well as our existing partners in looking at, you know, in the Nordics and also Asia distribution in the APAC markets where we've been really laying a foundation. So the energy market continues to grow around the globe and we see these health and wellness trends continuing to gain momentum and we're getting more interest from Celsius, but our main priority is North America. Okay, great. Thank you. Thank you. Next question comes from the line of Peter Graham with UBS. Please receive with your question. Thank you, Jeff here and everyone. Nice to take in the question. So I just wanted to ask a quick clarification, response to Kevin's question on the quarter to the acceleration. Is that just a broad base comment?

or you actually seeing top-lying growth quarter to the each stronger than the 90 plus percent growth you saw in 4Q after adjusting for the Pepsi transition. Yeah, I think what Jared was alluding to is the Nielsen scan data and IRI and spins data that he's referencing that we were providing any board guidance on Q1. Okay, all right, that's helpful. And then I guess I just wanted to ask around you know, gross margins. So you've seen some nice sequential progression in 3Q and 4Q. So, you know, how does the exit rate of 44% plus kind of inform your view on gross margin looking out to 2023 and just, you know, would you expect sequential improvement from here as we move to the year? I mean, it hit the bit 40s for the entire quarter. So we did see...

the improvements that we expected come through. We're no longer beholden to the expensive cans that we had historically over the last kind of 18 months. We're seeing good opportunity within the freight lanes as we deliver products straight to distribution centers or mixing centers with Pepsi. We're also seeing some other areas from COGS perspective or raw materials perspective where we're seeing some advantages or some benefits. So we think kind of that mid 40s throughout 2023 is still valid. Is there opportunity as we work through the year to do better? Definitely. But at the moment we think kind of sticking with that is the way to go. You know, seeing that we don't really know how the rest of the year will go when it comes to commodities and things like that. But at the moment we're.

We're confident in that mid-40s and we're probably more on the side of seeing opportunities than we are seeing other areas that would not allow us to hit those numbers. As a reminder, ladies and gentlemen, it is Star One to ask your question. Our next question comes from the line of Gerald Pascarelli with Wedbush. Please proceed with your question. Thanks very much for taking the question. Mine's actually on the Amazon Channel specifically. Obviously, when you look at track channels, trends have looked as good as they ever have. But you did see some detail in the Amazon Channel. If you could talk about any drivers behind that and specifically any color you could provide on how that channel specifically is trended, over the first couple of months here, I think that would be helpful. Thank you.

Yeah, no, great question in the Amazon. You know, we still have a, you know, prepared remarks, have a really strong Amazon business. You know, the quarter is, you know, we're going to watch that closely. That's why we wanted to, you know, share the information there. As we gave more ACD, we're going to have to watch to see how that performs, but it was great to see it up for the quarter and continuing to show good solid growth. You know, in the quarter, we did have some, in regards to some warehouse movements underlying around Amazon, which potentially caused some delays as they were moving product in different locations. I believe they're closing some locations and opening additional locations. So there was definitely some inventory movement that was taking place, especially around the holiday season. And then they were, they were likely going through substantial volumes through the warehouses. So.

There were some challenges in the quarter with inventory in regards to some of their warehouses, but I think as we look forward, I think that's still going to be a really strong business for us. We live in an omnichannel world. Consumers want it how they want it, when they want it, and we embrace all platforms, including Instacart as well, and driving to retail and home delivery, which we see great results as well. Got it. Thanks a lot, guys. I'll pass it on. Thanks, Joe. Our next question comes from the line of Jonathan Kipour with Bank of America. Please proceed with your questions. Hi, everybody. Thanks for the question. I'm just wondering in 4Q where the ACB was filled geographically in the States. What regions did you guys move into, and then what is left to move into? Also, as you guys spend to activate and get consumers aware of the product, how should we think about maybe a lag on entering a new geography before you're operating at optimal consumption or more optimal consumption?

in regards to mid-Atlantic areas as well. So we're at roughly around a 90%, 89% ACD right now nationwide. Great, thank you. And then just a follow-up. I guess I'm trying to think about how a store you're in, depending on whether or not you have a fridge, it's an owned fridge or not, I guess I'm trying to get a sense of what you're going to be able to get a sense of.

fridge in a in a location something like just trying to get a sense of that kind of relative effectiveness. Yeah no I mean a great question we haven't really discussed that the exact number what we have stated prior is historically you know we've gone back like last year we were talking about coolers and the payback period on the cooler was roughly around five months but what I will tell you you know when we have a cooler the you know the sales increase exponentially

many times before if it's cold at salt so that's something really say internally but that's really all I can comment on that Next question comes on the line of Jeff in center in with B Riley, please proceed with your question

Hi everyone. Just wanted to kind of circle back to the opportunity to increase SKU count this year. Maybe just give us a sense if you could by channel where specifically do you expect those counts to grow most. Maybe if you think about it first half, second half. Just any thoughts around that. Yeah Jeff, great question. I think when you look at our current, when you're looking at the current ACV remote number, this is the moment the AC?.

The average items carried per store has increased exponentially since the PepsiCo partnership. And we're currently sitting at roughly, if it's 12.5, like 12.5 items per store. We do anticipate that they continue to increase with the next reset. Where that lands, I think we're not really comfortable on commenting on that. We have internal expectations, but I think we'll have a better understanding as we get through the reset that are taking place. And we look maybe around April , start looking at the data on April . You should be ever get a better set on where we will be for the rest of the back half of the year. Okay, good. That's helpful. And then just a couple things around margins, your latest thoughts on efficiency opportunities.

Pepsi overall Pepsi distribution and then maybe club distribution and the potential benefit to P&L metrics from that process also notice you you mentioned taking some price And wonder if you're planning to take more price this year Here's your I'll start with Some efficiencies, you know with the the club channel John did mention that Historically, we've had to go to a secondary packing facility We have found a number of co-packers that can pack that in line for us So that is definitely an efficiency and will help drive margin as we look out over 2023 we did start doing that a little bit in Q4 And started expanding that to most of the club channel in Q1 We do have pricing that was kind of fully in play in Q4, but that will benefit us across

2023. We haven't announced anything for 2023 at the moment, so we'll sit tight on that and see where we land. But other opportunities, you know, are really the orbit model we've created to continue to drive with Great Lanes and continue to drive efficiencies there, and also take an advantage of our scale when it comes to raw material purchases and benefiting from some of the changes we've seen across the raw materials, categories in terms of pricing.

Okay, thanks for taking my questions and best of luck. Next question comes from the line of Sean McGowan with Roth Capital Partners. Please be sure to give me their question. Thank you, guys. Following up, Jared, on the comments you made regarding efficiencies, can you give us some sense of what the order of magnitude upside is on that margin improvement? I got to take the take the cans off the line, put it in the, you know, the Fort Knox box. You used to have. Cut into the margin. So what is the upside of talking about hundreds of bases, positive improvement potential? Yeah, I mean, I guess mid 40s is a wide range. I think last time, specifically on the club, I haven't specifically on those extra pack, the 18 packs.

the clubs like how much higher margin would that be if you you know got more cans in there and a more efficient process and You know cleaner card Cardboard it's not cargated anymore. Yes, I have higher margins that item what you had six months ago. I Mean that you know ultimately We have to get it all into the same coat coat packer set in order to get that benefit So we haven't fully transitioned, but I think we'll have the opportunity to do that this year You know if you if you looked at the club margin

It's pretty good. It could be a couple percentage points, but you gotta remember that the club is only a small piece of our business from that perspective. So there is some opportunity there on that piece of the business. I think there's also opportunity, like I said, with the freight lanes on improving that. If you look at our historical rates, over the course of the last two years, the freight lanes have gone down for us. I think if you look over the last couple years, it's gone from roughly 6% to 4% on an annualized basis. So we've seen some gains there across that. We'll see with the aluminum cans as well, where that was putting pressure on us. And there's opportunity with other things like sucralose and caffeine as well. Okay. And then following up on the earlier comments about potential placement or resets and the benefits that could come in April , would you also expect to get kind of better position within some of the back wall refrigerators? I go to some stores and you're kind of down by the ankles. Would you expect to get some better placement?

talk about where you can as far as PepsiCo and some of their SKUs as far as Food and protein goes and what discussions and opportunities may be going on there as far as a ski expansion from your end Yeah, yeah, I mean regards to

The Nordics, Celcius Europe has been mainly sweet in distribution in Finland. It's been going really well. They had a great fourth quarter, gets a new innovation that came in. And you're doing a great job with the Celcius portfolio with our fast brand or snack portfolio, which is focused on Finland. And there's opportunities there. We're not, it's not a, we haven't really had any discussions with PepsiCo now and potentially just trimming out in other areas. And we've had somewhat challenges in Europe with supply chains as well with some of the protein bar raw materials. But the business continues to continue to maintain the business. And at the right time, there could be opportunities internationally just not right now.

So, it's been a bad, it's been going really well and they had a great fourth quarter, gets a new innovation that came in and, you know, you're doing a great job with the Celsius portfolio, with our fast-brand or snack portfolio, which is focused on Finland. There's opportunities there. You know, we're not, it's not a, we haven't really had any discussions with PepsiCo now on potentially just trimming out in other areas. And we've had somewhat challenges in Europe with supply chains as well, with some of the protein bar raw materials. But, you know, the business continues to continue to maintain the business and at the right time, there could be opportunities internationally, just not right now. Can you talk about

skew expansion or new flavors or old flavors and targeting XUS territories as far as Europe would they be kind of country specific on the SKUs and flavors? Yeah, internationally we have, you know, we're starting to leverage the global supply chain as well, trying to gain more efficiencies. So really looking internationally to leverage some of the innovation collaboratively, because really when you look at the world today, especially with social media, the awareness and radiation, you know, goes cross-elantic. So, you know, we're starting to get more aligned, more strategic in our flavor launches. And as we go forward, we expect to have more consistency. But flavor innovation is extremely key, has been driving the category and expect us to continue to lead in flavor innovation. Yep, I know I took a couple weeks to get that fantasy vibe. And then lastly, talk about all the a little bit. How many stores, geographical rollouts and, you know, what we may see during 23? Yeah, we have a national rollout that's taking place. So expect to find us in an all-being near you in the near future. I have a number of stores that believe there is roughly, I think there was like 600 in growing. Roughly approximately. Got it. Super, thanks for taking other questions. Absolutely, thank you.

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question. Thanks. I just wanted to follow up on the coolers. Did you say John about 20,000 coolers you expect to be in terms of the branded Celsius coolers by the end of 23? That's correct. We have placed in retail as our is our internal goal and we have about 15,000 on owner currently so and we're working on placing those strategically in a variety of our core markets and core retailers. And how many were placed in in this quarter for Q22? We didn't disclose the number that was being that we placed in the fourth quarter but we did place a good number but you know through the transition we kind of pulled back a little bit and we expect that to continue to increase upon the new year. Yeah there have been less. We're probably somewhere between four and a half and five thousand by the end of the year but overall you know we held back on that as we were doing the transition and also we really

ramped up our ordering in Q3 and Q4 so they do that a little bit of lead time. So we're starting to see all those come ashore. Okay and then lastly on the Pepsi energy coolers, you mentioned there's 50,000 of those. How many are Celsius in right now and what's the goal by the end of 23 for those Pepsi coolers? Yeah, I don't have that current number. In regards to how many of the 50,000 we're in, we're working on getting those reset. I expect us to have a, you know, I'd like to be in the majority of them by the end of the year. That's the goal. So, you know, we're part of the Pepsi co energy portfolio and we expect to be in every single one by the end of the year and we'll work towards that goal. Okay. And the last question is on a Ruthert Hall, the sugar substitute. How many of your products have that right now? About the recent news that it could cause an increase in stroke and heart attack. Yes, a very minor piece of the portfolio. There's, um,

certain store types that have wanted the stevea type branded product from us. So I'd be surprised if it was more than 1% of our sales. So not really a big volume for us. It's something that we've provided to a customer set that's wanted it, but not really a core portfolio. And we're looking into it. Our next question is a follow up from the line of Camargue Guarguello with Credit Suisse. Please receive your question.

and store types that have wanted the stevia type branded product from us. So I'd be surprised that it was more than 1% of our sales. So not really a big volume for us. It's something that we've provided to a customer set that's wanted it, but not really a quarter portfolio. And we're looking into it. Our next question is a follow up from the line of Camel Garjualo with Credit Suisse. Please receive with your question. Your line is live.

Doug, come on. Sorry about that. Yep. I wanted to bring it back to a little more high level on talking about distribution. You mentioned the Pepsi transition is complete, but the actual practical conversions, they're still sometimes similar to what we saw during the Anheuser-Busch transition. How much is left? We've given a lot of very detailed figures about kind of pieces of it, but are you 100% available but only 60% converted? How much is kind of left on the PepsiCo actual availability side? Well, just to clarify, when we stated in the prepared remarks that the transition has been complete, we talked about distribution. That's our distribution partners. We're about 90%, 95% being serviced now by PepsiCo in North America. We did keep on a few of our...

our prior distributors and partners in certain markets. But other than that, we are pretty much 100% complete with the transition within the PepsiCo agreement that started October 1st of 2022. Now, when you look at the opportunity on store distribution and store expansion, we have reached that 89%, 89% ACV number of reported stores. We do think there's considerable, there's additional upside from there, but we're not in a position right now to really comment on where that will arrive. I think we'll have a better indication at the April data to see where the company will really probably finish the year at. Now, there is non reported stores and locations that were able to gain additional distribution and cold placements. And that's really those OTS stores, which are non reported, which is Sue PepsiCo as a metals program. And we're told there's about 150,000 of those, so independent locations. So we're working through those and resets are taking place as well. And then also in food service.