Q2 2023 Celsius Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Celsius second quarter 2023 earnings call. All lines have been placed on a listen only mode and the floor.
All will be open for questions and comments following the presentation. If you should require assistance throughout the conference. Please press star zero to reach a live operator.
This time it is my pleasure to turn the floor over to your host Cameron Donahue Investor Relations for Celsius.
Thank you and good afternoon, everyone. We appreciate you joining us today for Celsius Holdings second quarter 2023 earnings Conference call. Joining me on the call today are John <unk>, President and Chief Executive Officer, and Jarrod Langhans, Chief Financial Officer.
So I was prepared remarks, we'll open the call to your questions and instructions will be given at that time.
Company released earnings press release earlier, this afternoon, and all materials will be available on the Companys website Celsius Holdings, Inc. Dot com.
As a reminder, before I turn the call over to John the audio replay will be available later today and can be accessed with the same wide webcast link in our conference call announcement press release.
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 eight 2023.
These statements involve numerous risks and uncertainties, including many that beyond the companys control.
Except 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 review in full our safe Harbor statements contained in today's press release, and a recording filings with the SEC for additional information.
With that I'd like to turn the call over to President and Chief Executive Officer, John purely prepared remarks John .
Thank you Cameron and good afternoon, everyone. We thank you for joining us today.
On our first quarter call I highlighted that it was the first quarter in company history to exceed $200 million in retail sales today I highlight for the first time in company history, we have achieved over $300 million in a single quarter our record sales in the second quarter totaled approximately 326.
$6 million, an increase of 112% from last year's second quarter of 100, approximately $154 million.
In our North American business revenue increased 114% for the quarter to $311 million up from $145 million in the prior year's second quarter.
Celsius continues to be the top driver of growth within the energy category, both in dollars and unit growth in total U S. <unk>.
Energy for the last 52 weeks ending June 18, 2023, contributing over $665 million in incremental retail sales were 23% of the category growth and $204 million incremental units, representing 35% I think category growth.
Her IRI in the four weeks ending as of June 18th 2023.
<unk> total energy Celsius maintained the number three energy drink brand in the United States, representing a new market share record in the company history and the category of eight 6% doubling its market share of four 3% in the year ago period.
We continue to see growth across all channels, both tracked and non tracked with our club channel sales hitting another quarterly record of approximately $68 million for the quarter ending June 32023 up 120% approximately compared to $31 million in the second quarter of 2022.
Second quarter channel sales also exceeded our first quarter sales by approximately $20 million, which was driven by a full rollout of our second new pack size of our vide energy.
Going into Sam's club and the first full quarter of our national rollout with M. P. J S.
We also just hit a new record on Amazon with over 28 million in sales up 108% from the prior periods second quarter revenue of 14 million approximate Celsius maintained its position as the second largest energy drink brand, which approximated 18.6 share of the energy category as of the last 14 weeks period ending June .
32023 per stock line energy drink category data total U S on Amazon and.
In addition, we continue to expand growth opportunities in non tracked foodservice channels.
Gaining more distributions and colleges universities hospitals hotels eateries casinos anymore.
Overall foodservice represent represented and exceeds approximately 11% of our Pepsico revenues and we see this as an area of growth and scale in the future.
We have been extremely happy happy with our Pepsico partnership and see a long runway of growth ahead across a variety of channels, including expanded retail convenience and foodservice.
As highlighted in our earnings supplement for the four week period ending per IRI spins total energy data ending June 18th 2023 as stated in Moolah Celsius maintained the number three energy drink predisposition and the U S. And now has an 8.6 market share which doubled from the prior year share a 4.3.
In addition, according to Mullah Celsius grew its E V to a record of 96, 8% for 79, 8% year ago period, which is a tremendous achievement by our teams and our partner with Pepsico.
And in addition, inconvenience Celsius has gained an additional 31.9 points of E. C. V grew up versus the prior year ending period and resides at a 94, 9% ACB compared to 62.9% of ACB in the prior year. This provides a tremendous amount of opportunity as.
We continue to green greater availability across the country as we can and in addition, as we continue to build greater awareness with our consumers.
International sales grew 76% in the second quarter totaling $15 1 million compared to $8 6 million in the second quarter of 2022. We believe is there is a significant opportunity for incremental growth going forward with Pepsico.
Over the next three to five years, although earlier in our process. We are mapping out and rollout plans and continue to have discussions with our partners and opportunities for 2024 and beyond.
While the U S transition has taken the majority of our focus today, we do expect to announce additional international expansion opportunities and plans in the future, but that said we continue to work towards early 2024 for some opportunities to roll out internationally with 2023 being a year of planning around logistics production distribution et cetera.
The goal will be to create a blueprint and a handful of countries in which which in 2024 for further expansion within 25 and 26, we will provide additional details as we continue to get closer to those dates.
Beyond new markets. We are very excited about a number of innovations that our team has been working on throughout the year, we hope to hear a lot some of them.
The initial exciting launch plans in 2024 and beyond and will provide additional insight as we get closer to those launch dates.
The company achieved a record non-GAAP adjusted EBITDA of $78 1 million in the second quarter, representing approximately 24% of sales.
This was driven by gross margin improvements by over a 1000 basis points from the year ago period to 48, 8% up from 38, 5%.
In addition, we saw continued leverage across our sales and marketing with a total of approximately 19, 2% of sales in the second quarter compared to 21, 1% the prior year.
This leverage was more of a product of accelerated sales as we did increase our spend in the second quarter as we outlined in our first quarter call. In addition, we have seen some savings as we have.
As we have rolled out slower pace against our head counts, resulting in our initial budgeted expectations.
We will look to add additional head count across the back half of 2023 Geron to walk you through in more detail some expectation around this area.
Celsius was the leader in unit growth over the last 12 weeks ending June 18th 2000, and twenty-three per IRI for the entire beverage category contributing over 17% of unit growth in L. A or b, which is liquid total liquid refrigerated beverages as the company continues to gain new consumers. We believe they are unique to the energy category.
Which further increases the value of each of our customers with this proximity equal mix of male and female customers. The average age demographic is 18 to 45, plus we are expanding the energy category with expanding consumer base and usage occasions, the Celsius consumer making it a daily part of their act.
Live lifestyle and a consumed with consumption patterns that are similar to coffee than traditional impulse purchases with legacy energy drink brands to close my prepared remarks, both on a dollar and unit growth Celsius is the industry, leading in the category with tracked channels showing acceleration year over year, our customers unique expanding the category.
New consumers why they are increasing their dollar spend on Celsius. This is even further evidenced by our record sales in the club channel and on Amazon as well as the rapid growth in E. C. V expansion, we've seen in reported in <unk> with our topline growth of 112% for the quarter, we saw over approximately 400% growth in op.
Operating income showing the leverage in our operating model to drive further shareholder value.
I will now turn the call over to Jarrod Langhans, our Chief financial Officer for his prepared remarks Jerry.
Thank you John and thank you all for joining us it was another great quarter, where we continue to exceed both internal and external expectations not only are we continuing to benefit from the distribution system of Pepsi, but we're also delivering on increased SKU count improved placement increased displays and continuous improvement within velocities.
As we look to Q3 and beyond we will continue to invest in our growth Elena we have multiple opportunities and strategies that we will be testing in the back half of the year. In addition, we have seen the opportunities of leverage across our business with gross margins operating margins and EBITDA margins, all improving quarter over quarter.
Before I jump into the results, let's start with some administrative comments in regards to progress on clearing our material weaknesses as things stand through the second quarter. We have seen very good progress and we have a clear path ahead of us with that said, we will not be able to provide full clearance until we get through the entire year incomplete all testing.
In terms of legal updates in mid July we reached a preliminary agreement to settle the securities class action suit. The agreement provides for a single cash payment of $7.9 million in exchange for the release of claims. Although we were confident that we would've prevail. Our leadership team felt that our time was best spent on growing the business and the many opportunities ahead of us as opposed to replaying.
Does that existed as a result of the pace of our growth from a few years back.
Regarding the SEC review, we will continue to cooperate with any inquiries or requests that have received but that said, we do not have any further updates at this point in time.
Turning to our second quarter financial results, our second quarter revenue for the three months ended June 30th 2023 was approximately $326 million, an increase of 112% from $154 million for the three months ended June 30th 2022.
Driven by our North American business, our second quarter revenues were $311 million, an increase of 114% from the same period in 2022 <unk>.
International revenue grew 76% to $15 million as we saw a recovery of the business from the challenging environment that existed in the prior year.
The acceleration of growth relative to Q1 in North America sales volume can be attributed.
Attributed to several key factors.
Primary driver has been our successful integration into the Pepsi distribution system, which has resulted in continued growth, notably we've experienced consistent and robust expansion in traditional distribution channels and club channels with SKU increases in SKU placement contributing significantly. Moreover, our products have found their way into several new channels within CMG and foodservice.
Or is further fueling the sales growth. Additionally, following the substantial growth in our ACB, we have observed a notable increase in product velocity.
During the quarter, we did not see a significant increase in days inventory outstanding within the Pepsi mixing centers relative to the end of Q1 2023 as the changes likely contributed less than $5 million in incremental growth and therefore was not a key driver of our growth in Q2.
And looking at our promotional allowance, we continue to see a consistent rate relative to prior quarters as we look to the back half of the year. We would expect this to see some increases as 100 days of summer program will incorporate incentive programs that fall within this bucket as opposed to the sales and marketing bucket as a result, there will be some movement between promotional allowances as a percentage of <unk>.
Sales and sales and marketing as a percentage of sales in Q3, which in essence will reduce the top line, but overall will not impact expectations around total EBITDA or net income as it is simply where the spend is classified within the P&L.
Gross profit for the three months ended June 30th 20, twenty-three increased 168% to $159 million up from $59 million in the year ago quarter gross profit margins in the second quarter were approximately 49% of revenues compared to approximately 39% for the prior year's second quarter. The improvement in gross profit margins is attributed to low.
Your package and raw material unit cost reduce product waste and scrap and improve inbound and outbound freight efficiency.
Q2 was the third quarter that we were operating within our new distribution system, and we continue to drive efficiencies and optimization within this system, while maintaining our number one goal of keeping the shelf stocked in order to meet the consumer demand.
And looking towards the second half of the year, we believe that we will operate with gross margins in the mid to high Forty's. The second quarter saw improved freight lanes as a percentage of net revenues relative to Q1. This is one area that we will continue to monitor but has the potential to fluctuate during the back half of the year. In addition increased promotional allowances will put some pressure on the topline relative to gross margins.
Both of which are drawing are driving our overall margin expectations.
Sales and marketing expenses for the three months ended June 32023 were approximately $63 million, an increase of approximately 93% compared to the second quarter of 2022, we saw increased marketing and sales investment during the quarter, but at the same time saw our SKU count and velocities accelerate at a rate in excess of our budget delivering good leverage across the sales and market.
On the expense lines.
As a percentage of sales sales and marketing was 19% compared to 21% in the prior year on a full year basis, we will continue to invest in our sales and marketing expenditures and would expect to see some further increase as our 100 days of summer program. Only included one month in Q2 with two plus months in the third quarter.
As we look to Q4, we are working on some strategic investment programs across the U S, which will include programs with our distribution partner as well as specific sales and marketing activities beyond our budgeted pillar strategy, albeit we would not expect these opportunities and investments to exceed our historical sales and marketing spend from prior years Jen.
General and administrative expenses for the three months ended June 30th 2023 were approximately $32 million an increase of 119% relative to Q2 2022. This increase was due to increased administrative fees, such as legal as well as audit and other consulting fees G&A.
G&A expense as a percentage of sales was 10% for the second quarter of 2023 versus 9% in the prior year versus 8% in the prior quarter, which is higher than expected primarily due to the class action litigation settlement accrual that was booked in Q2.
Adjusting for this accrual G&A was better aligned with historical rates.
Looking at the first half of the year revenue for the six months ended June 30th 20, twenty-three was approximately approximately $586 million an increase of 104% from $287 million for the six months ended June 30th 2022.
This was driven by our North American business, where first half revenues were $559 million, an increase of 108% from the same period in 2022 International revenue grew 43% to $27 million in the first half of the year.
Gross profit for the six months ended June 30th 2023 increased 141% to $273 million up from $113 million in the year ago first half gross profit margins in the first half were approximately 47% of revenues compared to approximately 39% for the prior year first half the.
The improvement in gross profit margins is attributed to lower package and raw material unit cost and improved inbound and outbound freight efficiency in the second quarter as a percentage of sales sales and marketing was 19% in the first half of 2023 compared to 22% in the prior year first half G&A expense as a percentage of sales was 9% for the first half of <unk>.
2023 versus 9% in the prior year same period.
Focusing now on liquidity and capital resources as of June 32023, we had cash in excess of $680 million in network and capital in excess of $800 million in the second quarter. We returned in excess of $30 million for the balances due to Pepsi representing excess funds provided by Pepsi for our distributor transition in this.
Reduced restricted cash on the balance sheet by the same amount of cash.
Cash flows provided by operating activities totaled $45 million for the six months ended June 32023, which compares to $42 million and a net in net cash provided by operating activities for the six months ended June 32022, the increase in cash generation was driven by an increase in net income and improvements in working capital offset in part by the reimbursement to Pepsi, which.
I just noted.
Looking at inventory total inventory ended at a just a above $150 million flat versus the prior quarter. This was driven in large part by the significant increase that we saw in our sales volume as we look to the second half of the year, we will see production increases to accommodate the demand of the market going forward. We will continue to monitor inventory to ensure we are able.
To keep up with the significant growth we are experiencing at the same time, we do see opportunities to continue to drive efficiency in our D. I O as we move through 2023 and into 'twenty 'twenty. Four. This concludes our prepared remarks, operator, you may now open the call for questions. Thank you all.
Thank you.
Ladies and gentlemen, the floor is now open for questions and thank you have a question. Please press star zero on your telephone keypad I'm, sorry Star one on your telephone keypad at this time again that star one if you do have a question or comment.
And we will take our question. Our first question from John King from Bank of America. Please go ahead John .
Hey, good afternoon, everybody congratulations on the quarter.
Yes to start could you guys tell us anything you've seen.
In terms of exit rate out of <unk>.
And maybe what quarter to date has looked like so far.
Hey, John Thank you I appreciate the question.
Teams did a great job in the second quarter, I mean being north of $300 million, we're really excited about the performance of the brand.
In our portfolio, we don't give any forward guidance right now so but.
I will say that you know the company performed extremely well during the quarter.
Okay, if I could ask a follow up.
As mentioned the 11% of sales through Pepsi went into the foodservice channel I was just wondering if you could.
I know it will be in the Q, but if you could if you could let us know what what the Pepsi size wise.
And I guess, how should we think about that channel going forward as the school year starts up pretty soon.
Are you guys fully distributed and in you know across colleges is the opportunity in the next two quarters coming from that specifically for colleges or is it you know there's a lot more to be had are you guys also sort of distributor didn't.
The other foodservice channels, you guys mentioned.
Yes, that's a good point, Jon when you look at the quarter or 11% of our revenue through Hep C was attributed to the Foodservice Division and that does concludes college and universities and we know that was pretty much down for the quarter.
So with the <unk>.
Summer and everyone getting back to college campus and Celsius.
We launched yourselves as University and graduated 170 students just two weeks ago and are going to be going back to the campuses around the country. So really excited about that but that is correct that volume is not included in that second quarter and thats could be some opportunities for us in Q3 as everyone gets back to campus.
Regards to the overall revenue.
It represented about 56, 7%.
Whereas the Pepsi revenue.
So you can take a 11% of that number.
Got it thank you I'll pass it on thanks, guys.
Thank you John .
Thank you and we will take our next question from Mark Astrachan from Stifel. Please go ahead Marc.
Yeah, Hey, Thanks, and afternoon, everyone. I guess my shout out is going to be to whoever and marketing decided to invest in the fight. This past weekend in the Miami S. E sponsorship pre messy, so hats off to that person or person.
Okay.
And a question.
I guess from.
From your standpoint are you surprised at the level of distribution that you've achieved through Pepsi.
Yes, you know what what channels have surprised you and then how do you think about where the distribution points can go in terms of where in absolutes or were on a percentage basis, where if you don't want to answer specifically how did just broadly think about where we are today versus where you can.
B in certain key channels. Thanks.
Okay.
Yes, Mark I mean, great question I see the relationship with Pepsi has been just a great transition.
And the great opportunity I think it's exceeded all of our expectations internally in our internal budgets.
I give hats off to our team our all of our sales team members and our marketing team members in operations and finance team I mean, it was really it's a 360 approach the way we were able to tie in.
And just for US you really great partnership.
Everyone on the Pepsico within all of our divisions and very collaborative we've been hiring a lot of staff members, who work closely with them. It was a seamless transition.
Biggest opportunity we saw going into the partnership was really gaining additional distribution in convenience and gas and.
That's the biggest.
<unk> gains that we've seen as a convenience and gas and then seeing the number of items.
Being so that our scanning at each.
Point of distribution has increased as well so.
Foodservice was something we weren't even thinking about and having that represent 11% of our revenue just really surprised us I think we know Celsius is being consumed outside of that traditional energy drink usage occasion.
Pairing it with food in those lives. So that was a saw that as an opportunity, but if we didn't think it would be as large of an opportunity as it is today representing 11%.
You talked about in the last two John Bank of America in regards to college and universities are really going to be opening up next month, so that was a big surprise.
And.
Everything is going extremely smoothly with the partnership and we look forward to a bright future together.
Got it okay.
Maybe a similar sort of question, but put differently. So the shelf space that you're getting or total distribution points, increasing obviously a lot how much of that is coming from.
Other energy brands versus incremental space in additional coolers and what do you think the opportunity is for the latter assuming that that's a contributing factor here.
Yes, I think thats.
That's a great point I know in the latest.
IRI.
Data as of June 18, 2023, we had about it on last four weeks, we had about $14 six casings in the U S.
So that is a sizable increase where we started the year.
And those resets really helped.
With a lot of our retailers. We did have some some are cut ends with variety packs, which added to that number as we are heading in.
As we're going through summer.
The coolers that really helped.
Our teams have been working very collaboratively Pepsi not only going into some of the Pepsico energy coolers, but also Celsius.
Focus and dedicated coolers that we've been investing in and placing around the country. So I would say it's a mix.
Whenever you know.
The shelves to the planet grams, the way they were adjusted.
Adjusted in the first the beginning of the year.
I'm not sure we took space from from other brands in regards to like mid year summer recess.
But it seems like we did gain incrementally we.
We are hearing from a variety of buyers.
They are looking at further potentially reducing maybe some juice the juice coffee category.
Also potentially looking at some CSD is to give more space to energy as they look to their resets in 'twenty four.
Got it thanks guys.
Thank you Mark.
Thank you and we will take our next question from Peter Grom from UBS. Please go ahead Peter.
Thanks, operator.
Peter and good afternoon, guys. So you.
You kind of touched on this a little bit.
Would love to kind of get some updated thoughts on that.
The national rollout that you outlined last quarter.
Just any views on potential markets, how you think about the market share opportunity over the next couple of years.
It's probably hard to do right now, but just any parameters you can provide in terms of how we should think about the contribution to growth looking ahead, what would be really helpful.
I mean, Peter's Jared if you use.
One of our competitors that you guys have available data for as a proxy they run about 35% to 40% of their revenues in the international markets.
I think that's a good barometer for the eventual size of the prize obviously, we've got work to do to get any kind of scale internationally. We are working with our partner on a number of opportunities.
To expand across the globe, we have mentioned.
Probably focus on the energy category or energy countries that are more familiar with energy as opposed to trying to go in and creating the category in terms of the timing we're working through a number of things we would expect to launch some opportunities in early 2024, but we're going to hold off until.
Till we get closer to that time period before we start announcing plan.
In part due to competitive measures because we got to keep some of that close to the vest for now, but we see it as a big opportunity over the next three to five years, we will have more data available as we get closer to the end of the year and closer to the launch period.
Super helpful. If I can just follow up on gross margin.
Honestly very strong and I think back in May the expectation is for 40% of mid 40% gross margin. So can you maybe you talked about the drivers of the expansion, but can you maybe just help us understand the drivers of the upside versus kind of what you outlined back in May and then looking ahead. I think you mentioned I may have misheard this but I think you.
The the freight rate that we were at this quarter, but there is still that is still kind of a variable that we're not comfortable walking in at the moment. So that there could be some volatility. There were also have some opportunity from a slotting in perspective and from a call at a contra revenue perspective in the back half of the year.
Here to push themselves and to push further growth so that that could put a little bit of pressure on on the margins, which is kind of why we were pointing to more of a call. It.
<unk> mid forties back onto that kind of high end of the mid forties.
As opposed to going higher from that perspective.
[noise] Super helpful. Congrats again on the great results.
Thank you Peter Peter.
Thank you and next I'll go to chat fan sender in from be Riley. Please go ahead.
Let me add my congratulations on strong metrics recorder.
How much do you think you'd you'd benefited from stocking head of the summer seasonal sell through a peak in any sense you have a product inventory levels and the channel I realize that's a really tough question and then how are you thinking about cells grow or Q3, whether you think it would moderate because maybe there was a little.
Stocking and Q2 or just a soldier are so strong that there's no reason that it would moderate.
So I'll I'll take the first part of that from a D. I O perspective.
We're pretty consistent I mentioned that on my prepared remarks, you know it would have been less than a 5 million dollar kind of benefit in the poorer so really the the D. I over the course of the quarter. When we're looking at Q1 and two two was was pretty consistent we would hope that that that.
Right with would stay the same in Q3 from a D. I O perspective in terms of kind of growth and depletion in those kind of things. Yeah. You know when you look at where we are Jeff I think you know they look at the second quarter of the numbers just a really solid results all the way around you know we saw velocities.
<unk> expand slightly we solved the distribution grow a number of items Prestore grub.
We're really pushing on a variety of marketing vehicles in the quarter for two three talking about the MLS opportunity that we we just recently Ah line with as well as the recent J qualified over the weekend lots of activation social radiation. The teams are doing really well.
We're in 100 days of summer program, So really excited for the summer and we were watching it you know you'll have to see how everything pans out for the rest of the quarter here, but you know based on the latest data and scanned is that we were seeing it looks like we're we're gonna continue to maintain on Trent.
Yeah, <unk> <unk> to get there.
Do you have enough production capacity to do thanks to meet demand and and says you know we did notice a couple of stock Gotcha and the club channel I, obviously, a high class challenged how're Ya flexing to remedy where do you get sort of you know.
Very.
Small thing I don't think it's happening widespread but when you're getting a stock apps how reflection of remedies.
Yeah, I think it'd be looking a percentage of our sales to our premium Tori balance you know I think we're in pretty good shape. When you look at that on a percentage basis as we're maintaining but you know right now I have the operation team trying to produce enough product and I have the sales team trying to out sell them, but.
Things are going well I think we've got a good inventory balance I think we were you know we did have some short shipments in the quarter, but.
But we're still shipping you know 95 per cent plus shipping rates. So I think we're in really good shape. There Manhattan couple of sporadic out of stocks during the quarter in certain markets, but otherwise it was all pretty much 90 over in order to 95 per cent and as we head into summer you know, we're looking at trying to build inventory.
At the moment slightly but we're going to take we have about 17 co Packers and partners around the country and we're able to continue to keep up with demand plus and we <unk>. We just Don boarded a couple go backwards as well so to get up to that 17 number. So we're we're in good shape in terms of having a capacity.
Having a co packers that we need and will actually look to build out what was once a six more good model I'm looking to make that more of a hate Oregon model over the course of the back half of the year. So from a capacity perspective were in great shape, we've gotten bored I'm bored some additional partners and so we'll we'll make sure that.
Shelter stop in Q3 and Q4.
Alright, well keep crushing it thanks for taking my questions.
Thank you Jeff.
I don't think our next question from Michael Library from paper Sandler. Please go ahead Michael.
Thank you good afternoon.
Good afternoon Michael.
Just as a consumer of noticed a growing number of of secondary replacements and including some of the branded fridges and venue touch on this in your prepared remarks, but can you maybe give a sense of how big a push you have behind that and you know maybe that coupled with just you know as you've had you know you're you're you're.
Three quarters in to Pepsi distribution as you come up on reset you know another round are you getting kind of a second push as as the momentum has been so much stronger but to someone wants some of the distribution upside ahead and how much is if someone the secondary placements or the <unk> branded fridges are a big part of that.
Yeah, No Michael Greif, that's a great question you know in regards to you know building a brand and especially in the energy category and just in a beverage category in general and the competitive nature. You know, we got a lot of great marketing, we're reaching consumers on a top funnel walking them down for to drive that awareness and most importantly, we gotta get the lips.
And create that that loyalty, but that you get when you connect to consumer with Celsius. So the secondary displays are extremely critical has we continue to grow within the category. We have a variety of all of our sales team members are really focused on those secondary replacements. Most importantly to cold placements are extremely critic.
<unk>, what we're doing is Jack capitalizing on that impulse purchase opportunity that's out there at cold check out to create that connection with a consumer and Ah. Most importantly, great that loyalty cause we know we have a really high loyalty right. Once a consumer tries which we're really excited about this.
The Celsius coolers had been in a big push you know there there's there's a variety of them out there I think the biggest opportunity. When you look at is no further gaining additional S. K using cold placements I know a lot of the cold placement. So some of the larger chains, maybe in a grocery and masses is somewhat limit.
<unk> generally a few flavors versus some of the larger convenience store changed now we you know we're getting closer to almost four shelf and a lotta these locations within certain regions of the country. So that's gonna be a big opportunity.
Is the cold placements. So that's what our teams are focusing on next year for recess, we're talking with buyers now we're looking for really to gain work hold availability and secondary replacements really within the outer wall of the stores. So you get the higher foot traffic, but that's really critical as we continue to grow for me to continue to capitalize on that.
I don't know if you've gone into circle K with just launched our cosmic five it's been out for a few weeks and we did have casestack displays and all circle case, which was great and also the 711 has been a big supporter of the brand as well providing secondary replacements.
Okay. That's a great color and can I just have a clarification question on three Q you mentioned some of the greater promotional spending tied to 100 days of summer, but I guess two things one maybe could you quantify that at all or either way would we be right to think that.
If it's a promotional price reduction we would see that in the scanner data as well, it's not an adjustment from that that we would need to make right.
It's a mix there is up there you know with it I won't get into got two depot with a a C. 606, there are certain things that you could do from an incentive perspective that get your record as a punch revenue may not be something you.
By two per forum type concept. So there there's another number of incentives that you can offer.
That type of activity that would still be a put there and you might not pick it up and the scan data I'd say, probably the easiest way to look at it is if you're kind of within our turnkey, which is also file. So you can you can pull it now, but if you take a look at kind of the promotional activity. The promotional dollars that we spent relative to.
<unk> you have to do based off garage sale. So you gotta take the promos added to our net sales number and that'll give you kind of the percentage that we've been run it we have typically been running around 20%. So I'd look for that to go up a bit when we look at Q3.
Okay, great. Thanks, so much.
Thank you and we will take our next cough and Gerald passed the rally from Wedbush Securities. Please go ahead.
Great. Thanks, very much for the question. So I just I had a clarification I was hoping that you could you could help me with an distributor inventory levels can you just to make sure.
Standing as correctly, Yeah, 20 to 25 million last quarter that was shipped in to to the Pepsi distribution system ahead of the head of summer. Thank you call that 5 million.
On the call today, so just to be clear like.
Expected to reverse or is it one of those things like giving kind of how new your partnership is with Pepsi, they're still trying to find the right inventory levels and there's a chance that there's essentially no reversal in these in particular, given how strong your consumer take away trying to ban just any any incremental color you could provide there would be great.
Thank you.
Yes. It was it was less than $5 million that was just rounding up. So it was it was kind of <unk>. This quarter. So the the D. I O is very consistent quarter over quarter, you know and that goes back to you in queue for we felt inventories were low so they are at a level that.
We would prefer they stay but obviously, it's part of the partnership so it's not just us.
Now will that change it could.
You know again right now you wanted to U two has been consistent from a D. I O perspective, we'd expect that to continue on into Q3, when we get the queue for I'm not sure that will stay at its it's kind of what what I'll call preferred run right or if it if it would go down.
That's something that our partner will have to make that decision in terms of how they want to kind of and the year prior to to move it into the queue 120 24.
Perfect extra just one more from me on on Nonmeasured [laughter] channels, I know that in clubs, you're getting some some distribution with with Sam's with Bj's, which is which is new to this <unk> you really did expand your distribution and Costco over the course of 2022 and I think that we're <unk>.
<unk> came in for for to cure a little higher certainly then I would've expected as.
And in addition to your revenues and Amazon. So maybe just some incremental color on the drivers there I assume costco's, probably divides variety pack relative to relative to the prior quarter, but yeah any any color you can provide there would be great. Thanks.
Yeah Gerald that can jump in here you are correct. We did have that by pack rollout. It's been really successful now we have two packs from Costco. We also did some promotional activities and then when the roll out of Sam. So that's why you're seeing that club channel you don't have a really good quarter within the second quarter, and we'll see how that progresses into Q3.
Perfect. Thanks, very much guys.
Thank you and.
So go to a gym celaire from Stevens. Please go ahead <unk>.
Oh, yes. Thanks for taking my question wanted to dig down a little bit on the club channel do you have any sense for how many of the consumers that are purchasing and club are incremental to the brand given that it's probably a different consumer of them will be able to store or maybe even a traditional looked at the M.
Do you have any sense for how many of them are new or have trialled. It in a single Serb.
Serve option and then are buying the pop in club.
Yeah, I think that's a that's a great point <unk>, if you'd been tracking the company for some time when we expand it into the club channel. It was really like all tides rose at the same level. So it has been incremental to our overall sales and we haven't seen them any cannibalization so.
It does seem like.
It's it's incremental to our revenues.
Revenue.
Mmm, what would drive so are the consumers that are new to the brand and are just buying it because I would think buying a larger pack size is like I have an 18 pack is something that.
More energy drink consumer Woodbine, but you guys have done a very good job kind of reaching outside that core energy drink buyer. So do you have any <unk> is it like a traditional coffee or tea consumer that's trying Celsius because it has a different positioning when I was the traditional energy beverage.
Yeah, and I think I think you really kind of nailed it where that's something that's unique about Celsius is where there are demographic of 50 50 male female or 18.
45, plus consumer you know one thing at at the club channel you're able to gain Saint we have lots of sampling activities as well as you know when did you see it as a as an incremental consumer somewhat older as well we have seen I'm still getting more data points, there, but I think that's one thing that differentiates Celsius for maybe.
Other traditional energy drinks is really when you look at.
You know the opportunity we have on a different age demographics. The incrementality the energy category and then when you looked at I've talked about it in my prepared remarks about the the percentage of growth within L. R P which is.
You know like we'd refrigerator beverages, just all of those beverages. You know, we're really a unit growth driver that we saw last data. So I'm truly incremental it's really an exciting time. The club channel has been great business for us and you know something <unk> monitoring closely it doesn't seem like it's cannibalizing at all.
Alright, thanks for the help us along.
Thank you.
Once again, that's star one if you do have a question or comment and we'll take our next question from Sean Mcgowan from Ross. Please go ahead Sean.
Oh. Thank you first a quick clarification as 100 per cent of that legal settlements in Virginia in a line.
Yes, that's correct shot.
Okay, I wanted to get a little bit more color on sales and marketing <unk> I think it would be fair to say that is.
As a percentage of revenue that came in lower than <unk>.
They came in lower than you expected does a dollar spent come in lower than expected or was that in line and you will kind of give us a little bit more color of your time on what we should expect to see in the balance of the year give them. Some of the comments you've made about you know promotion that would be a concert revenue.
Okay.
Yes.
This is Jerry I I'd expect some of the what were we would kind of position to sales and marketing to be actually up in contra revenue. We have been running between that 19, and 20 per cent as opposed to closer to that 22 per cent. So we haven't been seemed really good leverage come through some of that is the sales have exceeded expectations.
<unk> in some of that as we are getting better leverage through the system and then the other pieces from a head count perspective in our budgeting headcount perspective, you know, we're adding heads but not at the the same glib.
We we thought we may have needed to so we will still continue to add head count, which will drive a little bit of cost somebody that'll get moved up into contra. So we do we will look into in the back half of the year to to spend that kind of historical rate closer to that 22 per cent, but again some of it it'll be bucketed it up in <unk>.
Entre revenue and then really we just need to get the head count in to continue to drive the velocity to drive the business from if you could just specifically to marketing you know call. It advertising, we have actually been spending a little bit ahead of historical rates. So it's in some of those other buckets that would've seen some savings.
Like storage and warehousing and some of the other sales line, where we've been able to really leverage the system in our D. I O R internal D I O.
Gone down a bit and so we've been able to leverage that cut across some of the sales and marketing spend as well.
Okay first I'll have to.
Already.
As a reminder, that star one if you do have a question.
And we will take the next question from Anthony then Daddy from Maxim crowd. Please go ahead Anthony.
Hey, guys. This is Thomas on for Anthony Thanks for taking my question. So just kind of you guys. Just mentioned isn't talked about it in the prepared remarks, but on the head count additions you know it seems like it might not be you know super aggressive in terms of expanding head count, but just looking to get a little bit more color on on where we might expect to see.
These headcount additions and kind of what you hope to achieve through this.
Yeah. So I was thinking what we're looking at applying additional resources as we continue to grow in scale. We're not gonna just start strategic standpoint identify we're we're adding additional resources within our operations marketing and sales, but we do have additional head count plan for the back half of the year there will be no further building.
Our teams.
And I did mentioned earlier, we did add 170 College University students to our to our University program that are heading to universities around the country right now.
Awesome thing that's it for me now I'll hop back in queue. Congrats on the corner yes.
Thank you.
[noise] once again star one if you do have a question.
And there are no further questions at this time I'd like to turn that far back to John family for closing remarks.
Thank you Karen Thank you on behalf of the company you'd like to thank everyone for their continued support and interest Ah results demonstrate our products are gaining considerable and mentum are capitalizing on today's global health and wellness trends and try the transformation that's taken place today in today's energy drink category.
Active lifestyle position as a global position with mass appeal, we're building upon our core and leveraging opportunities pulling best practices.
We have a winning portfolio strategy N team and a large rapidly growing market that consumers want.
Like to take this time to thank our investors for their continued support and confidence in our team the company will be attending several upcoming investor compensating throughout the month of September .
Including <unk>.
Piper Sandler's Barclays Wells Fargo, and be Riley investor conferences, and we look forward to seeing many of you there.
Thank you for your interest in Celsius stay healthy and lipstick.
Thank you, ladies and gentlemen, this task and kind of today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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