Celsius Holdings, Inc. Q3 FY2024 earnings call

• John Fieldly mentioned Celsius retail sales in the quarter ended September 30 increased 7.1% year-over-year on unit sales increase of 7.3%, and it was a significant driver of the overall energy category. The three key growth drivers are attracting new consumers, expanding product availability, and increasing consumption frequency. • They continue to bring new consumers through premium marketing and innovation, like new flavors in Vibe line and RTDs. • In expanding product availability, they expect energy to gain shelf space with Celsius as a beneficiary, have resilient domestic market share, and are focused on reaccelerating share growth with Pepsi incentive program. Also expanding in other channels like food service, Amazon, Costco, and launched in Australia and New Zealand. • They acquired Big Beverage for new innovation capabilities, supply chain control, and financial benefits. Established a new center of excellence in Ireland. Field sales team using AI - assisted selling tools and new mobile technology. • Jarrod Langhans mentioned Celsius generated positive net income despite revenue headwind, financial position and operations are strong. Revenue was impacted by inventory optimization, promotional allowances, and reduced unit velocity. Sales and marketing expenses as a percentage of revenue were higher due to revenue drop. General and administrative expenses rose, but year - to - date G&A was in line with expectations. Non - GAAP adjusted EBITDA and net income decreased, but cash balance was above $900 million and positive operating cash - flow was generated.

Total revenue for the third quarter was $265.7 million, a decrease from last year primarily attributed to distributor inventory optimization. North American revenue for the three months ended September 30th, 2024 was approximately $247 million, a decrease of 33% from $371 million in the prior year period. International revenue grew 37% to $18.6 million in Q3, 2024. Gross profit in the third quarter decreased 37% to $122 million, down from $194 million in the prior year period. Year-to-date revenue through September 30th was $1.02 billion, an increase of 5% from last year. Gross profit margins in the third quarter were 46% of revenues compared to 50.4% for the prior year period.

• The company is not providing forward guidance at this time, but it's something that could be re - evaluated in the future. • Regarding inventory, there is visibility into the fourth quarter with a slight disconnect between sell - in and sell - through currently, and depending on how the year ends, there could be a range from a bit of positive benefit to around $15 million of pressure.

• Macro - economic conditions could impact results. • Consumer behavior changes, such as reduced traffic and shopping pattern changes, could affect sales. • Intense competition in the energy drink category with other brands' innovation and marketing efforts could impact Celsius' market share and sales.

Q: Thank you guys. I wanted to maybe drill down on the cadence as we close out 2024 and move into 2025. Just with the combination of some of the increased promotional you guys have in the channel, the new flavor launches, is it correct for us to assume that we should see the trends in the scan data have improved sequentially month - on - month as we move through 4Q and then go into 2025?

A: Yeah, thanks Jim for the question. We do have a variety of promotional activities planned for Q4 as well. The category is highly promotional as we know. There is a lot of new innovation that's coming out from a variety of other brands within the category. We're watching Velocity on a weekly, monthly, quarterly basis. We have a lot of great plans in place for the back half and heading into 2025. We're really focusing on our growth drivers of increasing new to category, expanding occasions with the usage occasion expanding as well as increasing availability. So those are things we're monitoring. We have a lot of plans in place just coming up in the next few weeks. We have a big program with Jake Paul, Mike Tyson. We’re our title sponsor. So we'll be able to get some further national reach across the country and impressions, and our teams are focused on driving to retail.

Q: Hey guys. Good morning. I guess a couple of things. The first is you were specific to mention in your prepared remarks that the new incentive structure with Pepsi and that you are positive about it. Can you give us maybe some more details on what's behind that and why that should drive category acceleration from where we are now?

A: Yeah. When you look at it, the program, the further alignment incentive program we implemented in 2004 is really further getting implemented into 2025, with additional focus in priority periods. We just finished NACS last month and coming off their annual operating plan meeting that was in Las Vegas that our group, our leadership team, as well as a variety of other team members attended. Just, we're getting great cross - functional collaboration, further alignment on our 2025 plans, and we feel like we're going to have more of a cohesive approach as we're further aligned to truly drive this category, getting additional availability, expanding placements, and getting Celsius in the hands of more consumers and disrupting that path to purchase, which is so critical on building a brand and getting more trial.

Q: Hey guys. I guess the second question is, are they done? Is inventories in the right place? Do we just move on with consumption from here? Presumably you've chatted with them and hope for no more surprises, but I think we'd all like to know if they are at the place they want to be.

A: Yeah, we're watching the correlation between sell - in and sell - out. I'll throw that over to Jarrod to provide some further color on that.

Q: Yeah, so we've got a handful of weeks of visibility into the fourth quarter. We're definitely seeing a tighter correlation on a weekly basis between the inventory sell - in and depletions from our largest distributors' warehouses into retail when comparing to Q3. It's not fully matched yet. So there is a slight disconnect from the sell - through versus a sell - in with retailers, but it's very slight at this point in time. At the current rate we should see alignment of the sell - in and sell - through before Q4 ends, based on the trends we're seeing and the discussions we're having. So our teams are definitely working together diligently to minimize any potential impacts in Q4. With that said, we could see some pressure in the quarter. November and December will be key drivers in this process. So as things stand today, depending upon how we end the year, we could see an impact where we see some positive benefit or potentially all the way up to maybe $15 million of pressure. That's kind of our visibility into today. So, that's kind of the range we can offer and what we're seeing from that perspective.

Q: Thanks operator. Good morning, everyone. So I guess I wanted to ask about the inventory, but maybe just the assumption for a slight benefit versus the $15 million headwind. Is this something you plan to update us on as we move through the quarter? Maybe similar to what we saw in 3Q. And then of that $15 million headwind, what's kind of underpinning that assumption? I guess I'm just trying to make sure we don't have a similar negative update, if you will, versus similar to what we had in September where things came in far worse. And I guess just building on that, you mentioned better alignment several times throughout this call. But how would you compare your visibility today on the inventory dynamic versus maybe what we saw in the spring and the summer?

A: Yeah, I think we have good visibility and we've been working closer and closer together. I think some of the – what got caught up in Q3 was some very good optimization that took place and some very efficient optimization, and I think our largest distributor actually commented on that, on their call a couple of weeks ago. So they did a great job with that. We kind of got caught up in that in Q3. In Q4, we're kind of just looking at trends and we're trying to build an analysis, kind of some part. If things got a little better or if things got a little worse, that's kind of the range we provided based on the trends and the data we're following, and so that's our best estimate for you guys from that perspective. In terms of Q4 versus Q3, Q3 was really where the optimization took place. Q4 is more a product of where does the category go, more so than I would say, any kind of significant optimization.

Q: Hey, good morning everyone. A couple of questions for me. Just kind of zooming out a bit, but kind of picking up on a lot of line of questions around the court. Has there been consideration around introducing formal guidance, both near term and long term? And I ask that in the context, number one, historically appointed to Monster. We can agree they are kind of an outlier, whereas pretty much everyone else in Staples issues some sort of guidance, number one. Number two, I would say the range of outcomes in the U.S. now is a heck of a lot more narrow than it was, my goodness, even probably like just five, six months ago, because I think – And then lastly, I think you guys would know, it's not loss on you for a moment. I think there is a strong desire in the marketplace for greater visibility, more sort of credibility around the results and kind of where we're going, both near term and long term. So your feedback there, your thoughts there would be appreciated, and then I have a follow - up.

A: Yeah Kevin, there's a lot of variables in our models and the outcome, especially over the last several years, so there's a lot of dynamics at play. At this time, the company is not providing for guidance, but it's not something that we can reevaluate in the future. But at this time, the company is not providing forward guidance, it’s something we haven't done.

Q: Okay. Thanks John. Follow - up, unrelatedly, international expansion. So I think in the past there's been somewhat of a more measured, or even to - date for that matter, a more measured sort of approach. And I think the thinking was understandably that there's this massive opportunity in the U.S. and share was just strictly sort of up and right and that's not where the company finds itself today. So is there a sound school of thought, if you will, to expand international much more aggressively than the company is today? You are well aware of where your international business is as a percent of mix relative to Monster. So it seems like that's a potential value trigger where the company can really lean in to offset what has been a pretty market deceleration to U.S. business. So it would be great to get your thoughts there. And then relatedly, do you think you have the right team in place, the right leadership internationally in place to drive that sort of expansion?

A: Yeah Kevin, we just launched. We announced several further expansions this year, partnering with Suntory for the UK, Ireland. We also have Australia, New Zealand and France. So we have a lot of new markets coming onboard, which the teams are working on. We agree with you. We think there's a lot of opportunities within an international expansion. We are being very cognizant of timing and sequencing on the rollout of that, on a temper expectations. As we continue to grow and scale, we can – you know things can turn out really well. So the same health and wellness trends we see in the U.S. are global trends. We feel confident in our international expansion. We're going after higher energy drink volume markets. We have great partners. We're getting great feedback from distributors and retailers and alignment with 7 - Eleven in Australia, New Zealand and Tesco in UK. And so there's a lot of great things in the works, and we're going to continue to move as fast as the brand gains acceptance, a consumer acceptance, a loyal consumer and roll forward, but we're not setting expectations at this point in time.

Q: Thank you. Good morning. Just wanted to come back to shelf space and the resets and maybe get a sense of how much that's already set for 2025, and kind of what updates you can give us on it. And also, I'm curious, just maybe how you see the positioning competitively, compared in contrast to maybe how you see yourself against Ghost and if it's joining forces with KDP. Does that change anything about the competition for shelf space? If not, maybe for this round of resets, maybe beyond. Just love to understand a little bit better, how that is all set up.

A: Yeah, no Michael. Great questions. I think in regards to resets, like I said, coming out of NACS, there was a lot of great positive feedback around the brand. So we're confident we'll be able to gain additional shelf space, better placements and hopefully – and gain secondary placements as well. Increase that cold availability to take advantage of those impulse purchases. So the brand's very well received by buyers. We're bringing in incremental consumers, which is very valuable for our retailers, as well as our alignment. We just won Supplier of the Year awards over the last 12 months at a variety of major retailers around the country, including 7 - Eleven, Circle K and Casey's as well. So we're being recognized by our retail partners. In regards to the acquisition of the most recent transaction with KDP and Ghost, great brands, great opportunities for KDP. Just further reinforces the opportunities that everyone's seeing within performance, energy, better - for - you, fitness lifestyle, which is the lifestyle of the future and today. So as I always say, where there's disruption, there's opportunity. So our teams will be on the lookout. We're working hard each and every day and where there's opportunities to take advantage, we will and we'll go after it. But I think the Ghost and C4 are great brands out there.

Q: Great. Thanks for squeezing me in guys. Two quick questions. First, how are you thinking about kind of evolving the execution playbook for next year? It seems like clearly Red Bull is on the offensive, going after the sugar - free flavor space. They have been since the summer, winter seasonal, realizing it's early, but seems to be off to a strong start, and Monster having a big push this fall and upcoming winter and sugar - free. So how are you looking to evolve the playbook next year, whether it's drill deep strategy or any other execution things? And second, on pricing, surprised it didn't come up already. But I believe that Monster's price increase was – their list price increase was set for November 1. Have you guys communicated anything to the trade yet? And if so, what's the timeline and magnitude?

A: All right, Eric. Excellent, Eric. That's the first question in regards to around the execution, and really well as you further identified the sugar - free movement that's taking place in the energy category, with Red Bull now further leaning in, as well as Monster leaning in with some innovation and sugar - free. This just reinforces the opportunity we have at Celsius as a strong, solid number three player in the energy category. This shows the opportunities we have to further work with our retailers and bring more consumers in. As this category not only grows, gets back into growth mode, but further sees the sugar - free energy movement and percentage of business continue to grow at an increasing rate. So we think we're well positioned. The more we can talk about sugar - free, great. And the opportunities that exist for better - for - you products, Celsius is well positioned with our Live Fit mantra and bringing that essential energy for life. So we think the increased competition in the space further allows us to further expand over the next coming years and beyond. When you look at some of the strategies that we have for 2025, really going back to the three growth drivers we talked about on prepared marks and then some of the other conversations. New to category is going to come back. We feel we know strongly, more consumers need more energy than ever before. And the consumers coming into the category for the first time today, they are well aware of energy drinks, they are well aware. It's part of a daily lifestyle. We're seeing coffee being replaced, that coffee occasion. There's so many other occasions where energy drink play with the new to category consumer that has evolved. So we're going to continue to drive that increased availability. We talked about that with some of a Pepsi partnership on alignment, that increase in that path to purchase, and then increase in consumption. C&U foodservice, talk about Jersey Mike, so many different opportunities to increase awareness, have additional availability and points of disruption as we're moving through. This is the third year in their relationships with Pepsi, and it's going to be a great year as we're heading forward. In regards to pricing, we have discussed, talked about that on prior calls. We did roll out a price increase. But we have said we're being cognizant of that, that we don't expect significant benefit into 2025. So we expect as promotional activities and opportunities exist, where we can gain leverage, we will. But we're not – we have not provided the amount, nor have we provided any additional guidance that we will have additional leverage or pricing flow through our financial statements in ‘25. We're being conservative on that.