Q3 2025 Celsius Holdings Inc Earnings Call

Speaker #1: You'll be the prince . And the princess . It's the love story , baby . Just say no .

Speaker #2: Good morning and welcome

Speaker #2: to the I'll be Celsius Holdings, Inc. . Third quarter 2025 Earnings Conference Call . All lines have been placed on mute to prevent any background noise .

Speaker #2: After the speakers remarks , there will be a question and answer session . If you would like to ask a question during this time , simply press star , followed by the number one on your telephone keypad .

Speaker #2: Thank you . I will now hand the call over to Paul Wiseman investor Relations . Please go ahead .

Speaker #3: Good morning and thank you for joining Celsius Holdings, Inc. . Third quarter 2025 Earnings webcast with me today are John Fieldly chairman and CEO , Jarrod Langhans Chief Financial Officer and Toby David , chief of Staff .

Speaker #3: We'll take questions following the prepared remarks . Our third quarter earnings press release was issued this morning with all materials available on our website , IR Celsius Holdings, Inc. , and on the SEC's website , sec.gov .

Speaker #3: An audio replay of this webcast will also be accessible later today . Today's discussion includes forward looking statements based on our current expectations and information .

Speaker #3: These statements involve risks and uncertainties , many beyond the company's control . Celsius Holdings, Inc. disclaims any duty to update forward looking statements except as required by law .

Speaker #3: Please review our safe harbor statements and risk factors in today's press release and in our most recent filings with the SEC , which contain additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward looking statements .

Speaker #3: We will present results on both a GAAP and non-GAAP basis . non-GAAP measures , like adjusted EBITDA , adjusted EBITDA margin , adjusted diluted earnings per share , adjusted SG&A and adjusted SG&A as a percentage of revenue and their GAAP reconciliation are detailed in our Q3 earnings release and non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP .

Speaker #3: With that , I'll turn it over to John .

Speaker #4: Thank you . Paul . Good morning , everyone , and thank you for joining us today . The third quarter of 2025 was another pivotal period in what continues to be a transformational year for Celsius Holdings, Inc. , setting the stage for our next phase of growth .

Speaker #4: Building on the Alani Nu acquisition in April and our ongoing international expansion . We've deepened our partnership with PepsiCo , added Rockstar Energy to create a total energy portfolio and strengthen our leadership team to lead the next era of modern energy .

Speaker #4: Before getting into the highlights of our business , I want to thank our employees , our retail and distribution partners , and our loyal consumers for their commitment and belief in what we're building .

Speaker #4: Their energy continues to drive ours . In August , we announced an important expansion of our long term partnership with PepsiCo , a milestone that deepens our collaboration and establishes Celsius Holdings, Inc. as PepsiCo's US strategic energy drink captain .

Speaker #4: This new role gives Celsius a leadership position within PepsiCo's energy portfolio and greater control over the distribution of our leading portfolio of brands , including Celsius , Alani Nu and now Rockstar Energy .

Speaker #4: With the expanded partnership , we're further increasing our ability to shape Planograms prioritize SKUs , align promotional periods , and bring a unified commercial strategy to life across channels .

Speaker #4: In short , we're helping lead how energy shows up in retail for the consumer from the aisle to the checkout cooler and everywhere in between .

Speaker #4: As part of the same transaction , a large portion of the US Alani Nu based DSD network is joining the PepsiCo distribution network , starting December 1st , 2025 .

Speaker #4: A move that over time , is expected to expand . Alani news reach and accelerate its growth trajectory for Celsius Holdings . This is a meaningful near-term catalyst , and we intend to execute the transition with the same efficiency that made our original Celsius integration into PepsiCo's leading distribution system a success .

Speaker #4: We also acquired the Rockstar Energy brand in the US and Canada at the end of August , adding one of the most recognizable brands in energy to our total energy portfolio .

Speaker #4: Rockstar extends our reach into new consumer segments and strengthens our ability to serve a broader spectrum of energy consumers , from fitness to lifestyle to culture and music .

Speaker #4: Together , we believe that these steps . Category accountancy aligning has expanded distribution and the Rockstar acquisition represent a meaningful advancement for our company .

Speaker #4: It gives us greater scale , control and the platform to compete from a position of strength . Importantly , this also comes with an endorsement of PepsiCo's increased ownership stake in Celsius Holdings and an additional board representation .

Speaker #4: A vote of confidence and our shared long term trajectory . In the third quarter of 2025 , our combined portfolio represented more than 20% share of the US energy drink market and track channels and grew 31% year over year , according to Sakana , nearly twice as fast as the overall energy drink category .

Speaker #4: Only two years ago . Celsius Holdings was celebrating after surpassing a 10% share with the Celsius brand alone . Now , through both organic growth and strategic expansion , we've doubled the share position with our total energy portfolio .

Speaker #4: It's a remarkable achievement that validates the power of our brands and our disciplined execution . Over the last 52 weeks , our portfolio generated more than 5 billion in retail sales and US track channels , according to Sakana .

Speaker #4: That success is supported by strong retailer partnerships and consistent consumer demand for functional , great tasting , modern energy innovation across major retail and convenience partners .

Speaker #4: We continue to expand our space and distribution , winning new displays at Target end caps at Walgreens and CVS and achieving double digit growth in unit sales across Walmart , circle K and Dollar General , just to name a few .

Speaker #4: And Walmart alone , Celsius Holdings portfolio gained more than two share points year over year , and Alani recorded its best ever sales week in August , led by Witches Brew , the Celsius brand achieved double digit retail sales growth in the third quarter of 2025 at a 13% year over year .

Speaker #4: Lonnie New grew triple digits at 115% year over year , and Rockstar began selling under our ownership . Together , these brands are defining what a modern energy company looks like inclusive , functional , culturally relevant , and growing .

Speaker #4: Marketing and culture continued to drive how we win seasonal flavor offerings once again delivered strong results with the news Witches Brew notching record sales , reinforcing the power of flavor innovation to excite consumers and drive velocity .

Speaker #4: In October , we launched our first Celsius limited time offering , spritz five , and we are seeing strong consumer response from US and Canada retailers .

Speaker #4: Our Celsius Go campaign continues to strengthen awareness , trial and repeat purchase for our core brand . Connecting performance , energy to an inspirational lifestyle .

Speaker #4: And we're extending the same storytelling across the entire portfolio , ensuring each brand stands for something clear and inspirational . Celsius Fitness and Lifestyle performance Celsius Essentials High performance energy .

Speaker #4: Alani Nu female focused lifestyle energy and rockstar energy culture , music next generation energy . Last week I and along with several of our leaders , had the opportunity to speak directly to 30,000 PepsiCo employees at one of their national Town halls .

Speaker #4: We showcased our total portfolio approach and shared how Celsius Holdings has become the energy partner capable of powering every consumer occasion . Our goal in the conversation was simple to inspire 30,000 teammates across PepsiCo to rally behind our portfolio and help us win in the category together at the National Association of Convenience Stores trade show in mid-October .

Speaker #4: We've spent time on the floor meeting with retailers . The excitement around our new portfolio was incredible . You could feel the confidence building for our growth in 2026 .

Speaker #4: We believe that the message from consumers was clear . Celsius Holdings continues to be the growth engine of the energy category and retailers want to partner with us to share in the opportunities that lie ahead .

Speaker #4: We're also proud of how we continue to invest in our people and culture . Our annual Celsius University summit brought together more than 200 of our student marketing ambassadors from across the US and Canada .

Speaker #4: The next generation of marketers who are helping us stay culturally connected to our consumers . It's one of the many ways we build brand advocacy from the inside out .

Speaker #4: As our business grows , so does the depth of our leadership team . We've recently welcomed Rishi Deng as Chief Marketing Officer , who brings more than two decades of global marketing and commercial leadership experience , including senior roles at PepsiCo and Mark Anthony brands .

Speaker #4: We also had two other important leadership appointments , including Garrett Quigley as president , Celsius International and Gary Shivprasad as Chief human resource officer .

Speaker #4: Each brings valuable experience that complements the strong bench already leading the company . Our approach remains team first , execution driven , focused on empowering our people and integrating new expertise while at the same time maintaining the entrepreneurial energy that defines Celsius across the organization .

Speaker #4: We're executing with focus , advancing , aligning news , integration , capturing early synergies , onboarding , Rockstar , and preparing for what we believe will be an even stronger 2026 .

Speaker #4: The third quarter was another step in a series of transformational moves for our global functional beverage portfolio . Future . We're now operating at true scale in the US , and we're currently beginning to build that same foundation internationally in markets like Australia , performance has continued to exceed or expectations in the UK .

Speaker #4: We've learned valuable lessons . What will make us even stronger as we enter 2026 ? We're refreshing the Celsius Fizz free line and incorporating new limited time offers into Celsius brand portfolio , starting with Spritz Vibe , which has now launched in the US , Canada and the Nordics .

Speaker #4: Along these highly successful witches Brew proved again in the third quarter that limited time offers that create consumer excitement also can lift the whole trademark around them .

Speaker #4: This week , another Alani fan favorite , Winter Wonderland , returns for the holidays , and we have more great innovation in store for 2026 that I'm excited to share with you soon .

Speaker #4: We're optimizing our Rockstar Energy portfolio with a medium term goal of stabilizing the brand and recapturing the magic that makes Rockstar an iconic and powerful force to grow the next generation of energy drink consumers .

Speaker #4: We've entered a new era for Celsius Holdings in 2025 , one defined by scale , Partnership and purposeful growth . We're building a portfolio that reaches more consumers during more occasions , and we're doing it with discipline , collaboration and a commitment to organizational excellence .

Speaker #4: I look forward to what's ahead in 2026 and beyond . I'll now turn the call over to Jared to discuss third quarter financial results .

Speaker #4: Jared, thank you, John, and.

Speaker #3: Good morning , everyone . Turning to the financials for the quarter ended September 30th , 2025 .

Speaker #5: Consolidated .

Speaker #3: Revenue was approximately $725 million , up 173% from a year .

Speaker #5: Ago . The Celsius Brands third quarter 2025 US scanner growth rate was 13% , driven by favorable product mix and increases in total distribution points .

Speaker #5: A number of factors can cause the scanner data to vary from reported results , such as promotions and incentives , and the success of such programs .

Speaker #5: Timing of acquisitions and timing of customer orders , which can vary from time to time based on various inventory builds for promotions , cash management programs , limited time offering programs , as well as a number of other factors .

Speaker #5: The difference between the 44% revenue growth rate at the Celsius brand versus the US scanner growth rate of 13% , was primarily driven by year over year inventory movements across the company's customer base , including a net benefit relative to the inventory optimization program .

Speaker #5: With our largest distributor in the prior year quarter , as well as increased promotional activity and our international expansion . Alani new revenue nearly doubled , up 99% , driven by strong limited time offerings , particularly Witches Brew , which delivered record sell through as well as organic core SKU growth .

Speaker #5: Rockstar energy contributed roughly $11 million in revenue in its first month under Celsius ownership . In additional portion of Rockstar sales , roughly $7 million was recorded in other income due to GAAP accounting .

Speaker #5: Combined, the total impact from Rockstar Energy was about $18 million in Q3. We expect this accounting treatment to continue through Q4 before normalizing in 2026.

Speaker #5: Year to date , consolidated sales are up roughly 75% , or $770 million , with Alani Nu accounting for the majority of that growth and Celsius up 12% through the first nine months of the year .

Speaker #5: Gross margin for the quarter was 51.3% , compared with 46% a year ago . Year to date , gross margin was 51.6% , up from 50.2% last year .

Speaker #5: The improvement reflects the lapping benefits of the prior year inventory optimization , lower net portfolio , promotional spend , pack mix , favorable channel mix and scale benefits on raw materials from higher volume , partially offset by tariffs and the impact of Alani , Nu and Rockstar Energy's lower margin profiles .

Speaker #5: We expect to improve Rockstar energy margins over time . Starting in the first half of 2026 . As we integrate sourcing and production , much like the progress we've seen with Alani Nu since its acquisition , sales and marketing expenses were elevated , reflecting continued investment behind brand building , including the Celsius Live Fit Go campaign , sales and marketing represented about 20% of sales , consistent with our reinvestment strategy in connection with Alani NUS transition into Pepsi's DSD network , we recorded approximately $247 million in distributor termination expenses during the quarter .

Speaker #5: These costs are fully funded by PepsiCo . Under our long term agreement , and while they are recognized in our PNL under GAAP , the reimbursements are deferred .

Speaker #5: On the balance sheet and amortized into gross sales over the life of the distribution agreement , making the transactions cash neutral to Celsius Holdings .

Speaker #5: General and administrative expenses remained well controlled at approximately 6% of sales , excluding acquisition costs , down from 9% last year , reflecting efficiency initiatives and cost discipline .

Speaker #5: Operating income benefited from higher margins and overhead efficiency, partially offset by marketing and integration investments. We ended the quarter with a strong balance sheet and cash position, giving us flexibility to fund future growth and integration initiatives.

Speaker #5: Shortly after quarter end , we reduced debt by $200 million and reduced our term note by 75 basis points , bringing total debt to roughly $700 million and reducing our annual interest rate expense by approximately $20 million .

Speaker #5: Beginning in 2026 . Our near-term priorities remain unchanged , continue investing in brand growth , capture synergies from our acquisitions , and further strengthen the balance sheet through debt reduction and disciplined capital allocation .

Speaker #5: As Ilani begins distribution in the US , Pepsi system in December , most of the financial benefit is expected to be realized in Q1 2026 due to a phased in approach ramping from Q4 into Q1 as retailers reset and inventory builds across the Pepsi network .

Speaker #5: Looking ahead , we expect continued growth in both Celsius and Alani Nu , with a focus on stabilizing rockstar energy as we optimize the product assortment and reestablish the identity that makes that brand so relatable to consumers , we anticipate Q4 will be a noisy quarter , reflecting year end timing effects from promotions and integration activities and cash management from our largest customers , along with some incremental freight and tariff pressure .

Speaker #5: We are looking at the potential for more pressure on our gross margins in Q4 2025 relative to the prior three quarters , due to promotions , higher scrap and freight from the integration of Alani into the Pepsi system and tariff pressure before Re-expanding in Q1 2026 , we also expect sales marketing to represent 23 to 25% of sales in Q4 .

Speaker #5: As we continue investing in our Celsius lift fit go campaign and complete the Alani Nu transition . In summary , we delivered strong top line growth , maintained margins above 50% , and continued investing for the and future .

Speaker #5: Celsius is once again growing ahead of the category . Alani nu continues to outperform expectations , and Rockstar Energy strengthens our total energy portfolio by expanding our reach to new energy consumers .

Speaker #5: We remain focused on balancing investment with profitability , maintaining a strong balance sheet , and creating sustainable long term value for shareholders . With that , I'll turn the call back to the operator for Q&A .

Speaker #6: Thank you . As a reminder , in order to ask a question , please press star , followed by the number one on your telephone keypad .

Speaker #6: And if you would like to withdraw your question , simply press star one . Again . To kindly ask everyone to limit themselves to one question only .

Speaker #6: Thank you . Our first question comes from the line of Gerald Pascarelli with Needham . Please go ahead . Your line is open .

Speaker #7: Great . Good morning . Thank you very much for taking the question . I just wanted to go back to Core Celsius here .

Speaker #7: The 44% growth in core Celsius off of that depressed year ago base period implies a meaningful negative delta between the 13% growth that we saw in measured channels .

Speaker #7: When you add back 110 to 120 million to the base . So I'm just curious on some of the mechanics , on what's driving that negative delta .

Speaker #7: It would seem that the add back to the base period should have been maybe much lower than the 110 to 120 . So I'm just curious if that's part of what happened in the quarter .

Speaker #7: And then if that's not the case , how do you explain just the wide variance between what you reported versus what we saw in the measured channel ?

Speaker #7: Thank you .

Speaker #4: Yeah , Gerald , thank you for the question . In our prepared remarks , Jared touched on that and some of the deltas that we're seeing in regards to the variety of numerous factors that are really impacting that that difference from the 44% to the 13 .

Speaker #4: But I'll turn it over to Jared just to further reiterate some of his remarks . He had .

Speaker #5: Yeah . Hi , Gerald . Good morning . The short answer is yes , but there were a bunch of puts and takes .

Speaker #5: It's not a perfect apples to apples comparison . You know , over the 52 weeks mix can change promos can change , timing can change .

Speaker #5: For instance , Q2 . We had some benefit from the Prime Day build up , which happened in early Q3 . So there's a number of factors built into that .

Speaker #5: But it was a lower number . It wasn't a perfect 1 to 1 comparison year over year . When you're talking about the inventory optimization .

Speaker #5: With that .

Speaker #7: Said . So yeah , sorry . Go ahead .

Speaker #5: Yeah . With that said , we're you know , we're 13% on the scanner growth . We believe the scanner is a good barometer of the health of the business .

Speaker #5: If you look at October , we're up ahead of the category growth from an energy perspective . So yeah , definitely a lot of noise in the quarter with timing and sequencing of various things .

Speaker #5: And Q4 will be a bit noisy as well .

Speaker #7: Understood . So lower base and then maybe just a little bit more of a variance than we saw over the past couple of quarters , given multiple multiple factors .

Speaker #8: Yep .

Speaker #4: Yeah that's correct . And I think when you look at the 13% growth rate at the register as Jared mentioned , reiterated , you know , it was great to see really the rally come behind the brand .

Speaker #4: We started off slow in the first quarter and second quarter . You know , not keeping up with the category growth rates and heading into the back half , especially the end of the quarter .

Speaker #4: Our live fit go campaign that we kicked off really is adding more excitement around the brand , getting more trial , more repeat purchase , which sets us up really nicely heading into resets in 2026 for the Celsius portfolio .

Speaker #7: Perfect . Thanks for the color guys .

Speaker #4: Thank you .

Speaker #6: Your next question comes from the line of Kummer with Jefferies. Please go ahead. Your line is open.

Speaker #9: Hey guys . Good morning . A lot of conversations these days about pricing . Mazda has announced some pricing . Sounds like it might be even higher than the 5% they have announced .

Speaker #9: Despite some promotions back . Curious how you're thinking about the price point , not just of Celsius , but also Villani and and Rockstar ?

Speaker #4: Yeah , it's something that is extremely hot topic with a lot of the headwinds , even on the last earnings call that we had , we talked about some of the headwinds we're seeing , especially with tariff impacts , higher cost of commodities , and then , you know , the investments behind these brands .

Speaker #4: So , you know , it's something we are contemplating and looking at . There's a variety of ways , in addition to taking frontline price promotional strategies , were evaluating .

Speaker #4: We're really also building out a revenue management team as well to further enhance our capabilities around that so we can be more precise , building out further our key accounts team .

Speaker #4: But there is a I think there's opportunities there . We're tracking it very closely , but we're not going to make any formal announcements today .

Speaker #9: Okay . Got it . And then on some of this timing and integration stuff for Q4 , if you could just go over it maybe a little bit more detail , it sounds like there's some additional integration stuff in timing that moves into one Q4 or is Q4 messy ?

Speaker #9: And then it's back to sort of ordinary course of business . By the time we get to one .

Speaker #4: Q yeah , I'll turn it over to Jared further enhance some of his prepared remarks .

Speaker #5: Yeah . So it's I mean , it's Q4 and it's it's December when the activity is happening . If you go back to when Celsius went into the Pepsi system , it was October 1st .

Speaker #5: We're going in on December 1st . So obviously a lot of CPG companies , there's not a lot of activity at the very end of December .

Speaker #5: Also , if you recall , when we went in , we were replacing bang . So it was a one for one swap out .

Speaker #5: So there was a ton of space that needed to be filled immediately . So it was a bit quicker of a push . So it's going to be more of a phased approach .

Speaker #5: And because we're so close to kind of the timing of resets , and when the OTS , the kind of up and down the street programs are reloaded , you know , we're going to kind of phase it in as opposed to have all this open space that'll get shoved into .

Speaker #5: So I think it won't be quite as quick as you saw back in 22 . But across kind of December and Q1 , you'll see us really ramp up from a perspective .

Speaker #5: But there will be some crossover in the quarter as we build that inventory and as we we roll it out across really Q1 .

Speaker #4: Yeah , I'll just add additional color around , you know , the strategic energy drink Pepsi within the Pepsi partnership . Further enhances those capabilities .

Speaker #4: So , you know , it's not a one for one replacement , but as Alana rolls through the network , you know , we're able to really have control over the planograms and , you know , we have over 30,000 PepsiCo team members and our dedicated team really working to further penetrate gain ACV distribution and really maximize the sets for , you know , the highest quality offerings for this channels .

Speaker #4: And regions that will see the expansion in .

Speaker #9: Thank you .

Speaker #6: Your next question comes from the line of Michael Lavery , Piper Sandler . Please go ahead .

Speaker #10: Thank you . Good morning . You cited that this transition could could lead to optimized warehouse and distribution . That may affect inventory levels .

Speaker #10: Can you be more specific ? What exactly are you expecting and how much does the intra quarter transition it mitigate disruptions that might be puts and takes within for Q any just more detail on four Q and into next year , what your comments there are pointing to would be great .

Speaker #5: Yeah , I think we're just trying to be transparent and lay out what some of the puts and takes . You could see in the quarter are so typically , if you look at most large CPG companies , they do have some cash management activity in Q4 .

Speaker #5: You'll also if we're going into a system in a warehouse and we're starting to build some inventory , last time we didn't have any inventory in that system .

Speaker #5: So when we went in , you , it was just us going in as opposed to us being a part of that process .

Speaker #5: So I think there's just going to be some movement as we build Ilani and as we roll it out across really kind of December and Q1 .

Speaker #5: And so we just wanted to list out some things that could cause some noise and really just let everybody know that there's going to be a lot of puts and takes in the quarter .

Speaker #5: It's going to be a really noisy quarter. So, you know, expect it to be noisy and not to be perfect.

Speaker #10: Can you just maybe unpack noise a little more ? I mean , you've cited puts and takes . Where does it net out .

Speaker #3: Well .

Speaker #5: Again , it's going to depend on how quickly we roll things out . So there's there's a lot that could happen over the course of the next six weeks .

Speaker #5: So instead of kind of putting my foot in my mouth and throwing a bunch of numbers at you, I'm going to say it's going to be really noisy.

Speaker #5: I'd look at the scanner data that's going to tell you about the health of the business , and that's what all we're going to give you right now .

Speaker #4: Yeah , I'll just I'll jump in in regards to some of the additional variances as an example , we'll be picking up inventory on returns from the prior distribution network .

Speaker #4: So you got increased costs . Their on logistical movements . Also secondary warehousing right . That you will you wouldn't have under a normal course of business .

Speaker #4: Also as our really supply chain is not optimized and fully integrated as now we are strategically tied in with the roots servicing the warehouse through the PepsiCo network .

Speaker #4: And we're going to we're going to need to optimize that . We need to optimize , you know , the co-packing facilities , procurement , logistics .

Speaker #4: We want to make sure we're running one day hauls to optimize the freight lanes and making sure we have the right inventory in the right locations around the US .

Speaker #4: So , you know , there will be some pressure on margins as well . And then also the puts and takes on inventory levels and returns .

Speaker #10: And just a quick clarification . So I appreciate some of the cost headwinds or the margin drag as you get these returns . That's a reduction of sales .

Speaker #10: Correct . And if so , why would we hear you correctly . That directionally you think that coming in could come more quickly than you refill pipeline going out that maybe directionally net it's you at least are trying to make us aware of the possibility of of a net drag as opposed to , you know , kind of all else equal .

Speaker #4: Yeah , I think , you know , we're not we're not forecasting . I mean , we need to be conservative on that and that that could be a scenario that plays out .

Speaker #4: We're just it's too early for us and we're not . We don't have year end orders in in yet . So , you know , we got several weeks orders in initially .

Speaker #4: But you know , we got to see how the rest of the quarter plays out in Q4 . And really the return pickup is unknown right now .

Speaker #4: So we're evaluating that . But you know , we'll have to see as we get closer . So making any , you know , firm predictions at this point is not really plausible .

Speaker #5: Yeah , I would say if you go back to 22 , we did the team did a great job managing that process so that there wasn't a significant impact .

Speaker #5: But with that said , you know , it is a different time of year . There is different timing and sequencing that's going on .

Speaker #5: So we will manage that to the best we can , and we'll look to manage it as efficiently as we did before . And that's the plan .

Speaker #5: But we'll see what you know , where things kind of pan out when you're talking about 250 plus distributors that you're you're working to drive down their inventory , build up another set of inventory , and take returns at the same time .

Speaker #10: Okay . Thanks a .

Speaker #8: Lot .

Speaker #6: Your next question comes from the line of Eric Sirota with Morgan Stanley . Please go ahead .

Speaker #11: Great . Just housekeeping item to not try not to beat a dead horse on the inventory . And situation with respect to the third quarter , but did your inventories with Pepsi decline sequentially ?

Speaker #11: I know you referred to the year on year variances , Jared . But was there any change sequentially ? And then bigger picture in terms of growth ?

Speaker #11: We have seen it slow in scanner over , you know , really since the second quarter , you obviously had to totally incremental ltos in the second quarter .

Speaker #11: One , you know large but not fully incremental LTO in the third quarter . So how are you thinking about the Alani growth rate on a going forward basis for sort of the core brand ?

Speaker #11: And then whatever sort of incremental contribution from Ltos that you expect over time , realizing the LTO timing is going to always vary a bit .

Speaker #11: Thanks .

Speaker #4: Yeah . Thank you Eric , I'll take the second part of that question in regards to Alani . We're really excited about the portfolio .

Speaker #4: And , you know , we've talked about in prior , there will be some lumpiness in regards to the timing of these ltos .

Speaker #4: And then the phase out . And , you know , we're seeing that right now with Celsius , with five . That's now rolling out .

Speaker #4: But in the quarter you had Witches Brew , which was phenomenal . A great success , amazing flavor . It was its fifth year , more than doubled prior year sales results .

Speaker #4: And got everyone really excited . It was the talk of at Nacs with a lot of retailers as well . When you're looking at the growth rates and you look at the ACV , where Alani is to where Celsius is in the PepsiCo system , I think there's a lot of underlying distribution and TDP gains that we're going to be able to capture as we , you move through 2026 and really leverage the benefit of the PepsiCo distribution network , as well as the excitement behind the brand and all the work .

Speaker #4: Our key accounts team has been working on . When you look at large format , especially within food and and mass , and you look at Celsius and Alani , it is a large percentage of the overall energy drink category sales .

Speaker #4: So that really gives us a great leverage . And to really further optimize and really create some unique programs for that channel . And as I mentioned in prepared remarks coming out of Nacs , we got retailers are really excited about , you know , what what Alani is doing the the category , it's incremental , really driving increased female consumption rates and really like the uniqueness of what Alani brings to the table within the category .

Speaker #4: Some of its flavor profiles . Sherbet , swirl and so on . And right now we have Winter Wonderland launching , which is rolling out in retailers .

Speaker #4: So we do anticipate that will not be as large as Witches Brew , which is really historically has been one of the larger ltos and also Winter wonderland mazing flavor profile .

Speaker #4: Check us . Check out the social media activations and in-store execution . It's been phenomenal , but it is crossing over through a transitional period with Alani moving from the the prior distribution network into Pepsi .

Speaker #4: December 1st in North America or in the US . So you know , that likely will not be to its full potential as we're hoping to see next year .

Speaker #4: There . So those are some of the puts and takes . The good news is in which we're really excited about is these ltos bring up our our growing the core skew offering , which is great to see as well .

Speaker #4: So adding excitement , bringing incrementality and growing the base within velocity .

Speaker #5: Yeah . And the first part of the .

Speaker #11: Question .

Speaker #5: Back on to the the Ltos John was talking about , you know , the spritz vibe was great for , for brand Celsius .

Speaker #5: I think we've got a great lineup for next year as well across the entire portfolio in particular , Alani and Celsius . So I think you know that that we are setting ourselves up well for 2026 from in terms of the inventory rollover , you know , it's not perfect .

Speaker #5: It's always a point in time . There was some noise in there , pack size , a little bit change mix will change over the last 52 weeks .

Speaker #5: The promos have changed . So there's a lot of puts and takes that went into it as well as timing of the inventory movements .

Speaker #5: And so that's where you got a little bit of a lower number that came through than maybe it expected . If it was a perfect 1 to 1 rollover .

Speaker #11: Okay . And comments sequentially , I know the year on year is tougher , but given all those noise factors , you mentioned , but any change in the inventory sequentially , I realize it's probably some seasonality to it .

Speaker #11: But going back a year and a half or so , you would talk inventory impact sequentially .

Speaker #5: Yeah , I think what we've said thus far , that's that's really all we're going to go go with .

Speaker #11: Understood . Thank you so much . I'll pass it on .

Speaker #4: Thank you .

Speaker #8: Eric .

Speaker #6: Here . Next question comes from the line of Bonnie Herzog with Goldman Sachs . Please go ahead .

Speaker #12: All right . Thanks . Good morning everyone . I had a question on gross margins in the quarter . I guess I'm hoping for some more color on the puts and takes and how we should think about gross margins moving forward .

Speaker #12: Maybe remind us of the impact , if any , from tariffs . And then how big of an impact was the inflation we're seeing on the Midwest premium .

Speaker #12: And then , you know , your hedging strategy on that . Thanks .

Speaker #4: Good morning Bonnie . Thank you for the question . And you know that's a that's an area of opportunity for us within the gross profit line , especially as we further integrate Al-ani in Rockstar into the network .

Speaker #4: We've built . And there's a lot of efficiencies . And the areas we're focusing on Midwest premium as impacted , we don't do hedging , but it is .

Speaker #4: We do some forward buys that . But long term hedging is something we haven't implemented . And it's an opportunity and something we continue to evaluate .

Speaker #4: And as we have a larger purchasing power and a greater number of capacity , that's something that's on our radar . So more to come on that in regards to tariff .

Speaker #4: You know , we're seeing greater tariff impacts . You started to see it slightly in Q2 , a little bit more in Q3 .

Speaker #4: We anticipate even larger in Q4 . Now we're trying to offset some of that with the scale and the synergies we're seeing as we're bringing and starting to really kick off the production of Alani .

Speaker #4: So also leveraging the vertical integration of our Co-packer , we acquired back in November , there's opportunities there as we look to 26 .

Speaker #4: We'll be adding a second line to further enhance the capabilities of that and drive more efficiencies . But I'll turn it over to Jared if you have any additional color in regards to the to your prepared remarks .

Speaker #5: Yeah . So I mean , John kind of covered the tariffs . We talked about last quarter that , you know , we'd see a little bit in Q3 .

Speaker #5: It would increase a bit in Q4 . At the same time as we're integrating . Alani , we were driving improved margin as an offset also with our scale , we're seeing the opportunity and you've seen that across the last year from a raw material perspective , even with the tariffs , there's still opportunity to to take some of that pricing down .

Speaker #5: We've seen some movement internationally with the US and other countries where we may actually see some benefit from tariffs . And then there's a variety of other tactics and other programs that we're putting in to further drive raw material savings across the board as as we scale up , like John said , we've got a new line coming in our plant next year that'll help drive some savings as well .

Speaker #5: We're looking to continue to save freight as we bring all three brands together. If you look at brand Celsius, it's roughly 3% of sales.

Speaker #5: Lonnie's a bit ahead of that , as is Rockstar , so we'll be able to bring that down as an offset . But that will take some time .

Speaker #5: We talked about Rockstar . Really , you'll start to see the margin from that business improve in the , you know , really first half of 26 .

Speaker #5: Alani we're on track to capture most of that by I believe in the modeling call we did in May . We'd look to capture it by the end of Q1 .

Speaker #5: So there's a number of good guys coming through . They're just not coming through necessarily as quickly as some of the pressures . So that's why we called out there's probably going to be a little bit of pressure in Q4 .

Speaker #5: We'll have some scrap and some returns and things like that . That will drive some pressure on the margin , like you saw back in 22 when we transitioned Celsius into the Pepsi system , and you saw kind of some of those one time impacts that came through .

Speaker #5: And then , you know , we were able to then leverage the business from there on . So you'll see similar thing happen in Q4 before we start to see a lot of those benefits come through in the first half of 26 .

Speaker #12: All right . Thanks for the color . I'll pass it on .

Speaker #8: Thank you .

Speaker #6: Your next question comes from the line of Shane MacGowan with Road Capital Partners . Please go ahead .

Speaker #13: Thank you . Questions about international . Now that we're deeper into the ownership of Aulani . And you've had some time to think about what to do with Rockstar , what what are the plans there internationally ?

Speaker #13: And then more broadly , how do you feel about how the performance has gone internationally ?

Speaker #4: Yeah , no . Great . Great question . Thank you . Sean . Lots of opportunity in international . We just hired our first president of our international expansion .

Speaker #4: You know , we've been really building a foundation over the last several years . As you know , we've started off in in Sweden and Finland been great markets for us for a long time .

Speaker #4: And , and really just expanded into Australia , the UK , Ireland , New Zealand , France and Benelux markets . And you know , just getting started there .

Speaker #4: We started , we built out small but yet impactful sales organizations and marketing organizations and really building that first foundation . And I think as you look for 26 , we're going to lean in further those same opportunities we see in the health and wellness trends in the US .

Speaker #4: They're global trends . We're getting a lot of excitement from retailers and consumers as the world is just one click away . So , you know , as we look for 26 , we are we'll make making further strategic investments .

Speaker #4: In the given markets, we've had a lot of key learnings as well. Taking those key learnings, we are going to continue to build upon them.

Speaker #4: Our biggest successful market in the last , you know , from last year and into this year and then early expansion market has been Australia , really .

Speaker #4: 7-Eleven leaned in, and we're seeing some great expansion opportunities that will position us really well as we're entering 2026. When you look at the other markets, particularly in Europe, we're laying a really foundational strategy and working closely with retailers and some of our key partners. We kicked off our University Ambassador programs and are leaning into fitness, health, and wellness.

Speaker #4: We're really well positioned . Celsius is our first push leading in . And then we see opportunities with with Alani as well . So more to come on that .

Speaker #4: But definitely a growth driver for years to come .

Speaker #13: Thank you .

Speaker #6: The next question comes from the line of John Anderson with William Blair . Please go ahead .

Speaker #14: Good morning John , and share a quick question on Alani new kind of a two parter . You know , currently , you know , well below .

Speaker #14: Celsius on on ACV and Tdps in particular . How do you see the the distribution kind of ramp up for Alani new kind of playing out and and do you think it has the ultimately has the potential the the appeal to kind of reach the kind of level that Celsius is in the market today ?

Speaker #14: And then the second part is , you know , I know that 24 or 23 was a really strong , you know , distribution build with Pepsi for Celsius .

Speaker #14: It did seem to result in quite a bit of inventory optimization in 2024 . How do you kind of work with PepsiCo ? Or are you collaborating with them this time to , you know , avoid that kind of experience as you as you look to take you to new levels ?

Speaker #14: Thanks .

Speaker #5: Yeah . Let me take the second one and then John can jump on the first one . So from an inventory perspective , I think together we've learned a lot .

Speaker #5: We've we've already gone through the process of putting a fast triple digit growing business into their system . So we've got a lot of learnings .

Speaker #5: I think our our teams are much more tightly connected today than they were in the past . We also have the captaincy , which gives us more control and more say in terms of what products we're putting in the coolers and how we're going to set that up within the the Pepsi system , but also within our key accounts across the board .

Speaker #5: So I think overall there's there's a lot more communication . And we also have brought Eric on , who was a long time Pepsi person who is coordinating pretty tightly with them .

Speaker #5: So we're very confident that when it comes to kind of inventory movements , we've got a lot of learnings that will be utilizing so that we can make sure it flows efficiently and smoothly on a go forward basis with the Alani business .

Speaker #5: And then I'll throw the other one over to John .

Speaker #4: Yeah . In regards to ACV and TDP and the opportunity and the appeal , I think , you know , specifically looking at Alani , you know , and we're really attracted to it .

Speaker #4: And what we hear is there's a lot of appeal for it . You know , it's done extremely well in convenience . You look at the latest convenience numbers .

Speaker #4: It's performing well . Huge opportunity . There , especially as I mentioned before , coming out of Nacs . You know , I think the one for one swap out with Celsius and , you know , moving into the bang really planograms .

Speaker #4: And a lot of the OEM accounts and broader distribution within Pepsi , you know , I think that that happened very rapidly versus the Alani with the captaincy , we're able to control those planograms .

Speaker #4: So the opportunity is lies . There . But it could be , you know , it could be more of a quarterly transition over the next , you know , you know , 3 to 6 months , you know , as we continue to really reset those and work our way through 2026 and the resets eventually , you know , but the same opportunity on ACV and Tdps lies within Lonnie .

Speaker #4: And it's we have a bigger key accounts team . We have a bigger distributor management team . And the excitement just last week when we were up at the Pepsi Town Hall meeting , a really excited about that .

Speaker #4: And then in food service is a big opportunity . Now as the really the category energy captain . We're able to get further enhancements in placements within the food service opportunities throughout PepsiCo .

Speaker #4: So I think the same opportunity within ACV and Tdps lies with all of our portfolio .

Speaker #14: Great . Thank you .

Speaker #6: And that is it for our question and answer session . I will now turn the call over to John Fieldly for closing remarks .

Speaker #4: Thanks again for joining us today . Q3 was another strong quarter and a transformational year marked by strength partnerships , portfolio expansion , and our commitment to organizational excellence .

Speaker #4: The energy Drink category is a standout growth area in staples supported by consumer , consumers . Growing preferences for functional , better for you , modern energy offerings .

Speaker #4: We believe that we're very well positioned to continue to benefit from and lead the execution of this revolution that's taking place in the energy category .

Speaker #4: Thank you to all of our employees and partners for all their hard work , dedication that enables our success . Until next time , grab a Celsius and live fit .

Speaker #6: This concludes today's conference call . We thank you for your participation . You may now disconnect your lines . Have a pleasant day .