Celsius Holdings, Inc. (CELH) Earnings Call Transcript & Summary

All right. Good morning, everyone, and welcome to the UBS Global Consumer Retail Conference here in New York City. My name is Peter Grom, I'm the UBS beverages and household products analyst. And we are very excited to have joining us from Celsius this morning, Jarrod Langhans, Chief Financial Officer; and Executive Vice President, Toby David. So over the last few years, the energy category has seen a pretty meaningful fragmentation just since the emergence of Performance Energy and a lot of brands have seen outsized growth, but it does seem as if a Celsius is kind of leading the pack here. And it seems as you're clearly becoming a competitive threat to kind of the incumbents of Red Bull and Monster. And more recently, you transitioned your distribution to the Pepsi system, which should add fuel to the company's growth profile. So I have a lot of ground to cover here today. I have a number of questions that I plan to ask the team. If you do want to ask -- or want me to ask a question on your behalf, you can submit a question through the app. It will show up here on this iPad. Alternatively, if you want to just raise your hand, and I'll call on you and I can repeat the question to make it easier. But before we start, I'm required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express of you on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after this meeting.

So with that, why don't we just get started here. And I think it would just be helpful to kind of -- to start with kind of the background of Celsius, right? Clearly, Bang opened the door, if you will, for performance energy a few years back. But can you really -- and I guess maybe just before we get there, you just have seen a lot of new category entrants, right? So maybe just for those in the audience, those on the line, can you just talk about what differentiates Celsius versus maybe some of these other up and coming brands. And I guess just going back to kind of when performance energy started, where did Celsius kind of really see the biggest opportunity to kind of go after a category that's largely been dominated by 2 players for so long?

You want to talk about some of the history.

Yes, I will talk. I've been with the company 11 years, so I'll kind of talk about a little bit of the background. What differentiates us, I think, from a lot of other players in the category is -- the brand has been around since the mid-2005, 2006 time frame. It was launched as the world's only negative calorie beverage, 6 clinical studies behind it, PureView publisher medical journals, and it was created by folks from the supplement industry. So it's a disruptive technology. And over the years, what came to fruition was that it just didn't resonate with consumers. New management team came in around 2011, 2012 time frame. Look at John Fieldly, who is our current CEO. He came in as a CFO at that time. And we repositioned the brand in 2016, 2017. Based on the science still, but we figured out what was really resonating with consumers was the energy drink component. I mean you look at the Amazon reviews on our product at the time, and everybody was saying, oh, this feels great. It gives me energy, no crash. So we repositioned the brand. And to your point, Peter, Bang clearly opened the door and showed retailers -- the retail buyers that there was an opportunity for this new subset, Energy 2.0 performance energy whatever we want to call it and Bang open that door. And we've been very fortunate along the way that for a variety of reasons, every time, maybe Bang had a misstep, we were able to capitalize on that. So that's kind of the short version of the history of the product. But I would say the biggest thing that differentiates us is the authenticity of the brand. People want to claim their performance. That's our roots, and that's how we grew up with some of the gyms. We have that authenticity that gives us the credibility with the consumer. They see their trainer or their friend who works out a lot, drinking the product, it creates like a healthy halo type effect where people just -- it resonates with people, and they feel like, okay, I feel better during this, there's no sugar, has all these healthy ingredients in here. So I mean that's the short. I could go on for probably an hour just on that question, but I know you have a lot more questions.

No, I mean, I guess, maybe building on that a little bit. And I think what really stood out to me when I started looking at the company was just kind of -- how it was built differently. And I want to touch on the channel dynamics a little bit, but more from the core consumer, right? And maybe just -- it would be helpful to kind of walk through. Can you just talk about the demographics of your core consumer, male versus female. I think it was largely kind of 50-50. Has that really evolved at all as you kind of expanded distribution here?

So it's interesting. I was having this conversation with our internal category manager just yesterday. Just trying to understand if there's been any shift. We haven't seen it yet. Traditionally, we have been roughly a 50-50 split, maybe SKU a couple of points towards the males. I think that it's a little bit too early for us to understand if our expansion into convenience, which, I mean, we've seen a massive growth just in the last 4 to 5 months since the Pepsi transition. If that is going to help lean in more to the males. But one thing I do know is you're seeing a far more females consuming energy drinks than historically. And we feel like Celsius presents a nice pathway. And so like dirt bikes and WWE maybe that we've got Celsius [indiscernible] a little bit easier to convert some females into energy. We meet people all the time that say "Oh, I don't drink energy drinks. Why they're sipping a Celsius." So we feel like there's some different use of occasions where the incrementality of Celsius is unlike any other energy drink out there. We're bringing more consumers to the category than anybody else, including the 2 big players. So there is an opportunity, I think, pick up more males but also continue to pick up a lot more females who are entering the category.

Okay. And then I guess, I alluded to this just before, but just kind of the channel mix was interesting, right? A lot of energy drinks kind of start in the C-store channel and they grow from there where it's always been the reverse for you where C-stores have kind of been one of your latest avenues of growth, right? And I guess where does your channel mix sit today? And as you look out over the next 2 to 3 years, like kind of what's the optimal channel mix, if you will?

I'll get that one. I mean, we kind of had the backdoor of the energy drink category because a lot of getting to C-stores is having the distribution, right? So the biggest players in distribution were taken. So we were using wholesalers, we were going direct. So from that perspective, you can get into retail, you can get in the club, but it's a lot harder to get into CNG. So from that perspective, we really didn't get into a DSD system until early 2020. And that's when you started to see things take off for us when it came to your historical DSD channels. So that's one of the reasons why historically, we haven't been there because it's been a wholesale and a direct model. And then with the move of Bang into Pepsi, that opened up the AB InBev network for us. And so you saw in 2020, we started growing like crazy because we were able to get product on the shelves in more places, started expanding the key accounts nationally. You saw 2021, continued growth; 2022, a record year for us. And then at the end of last year, we were able to move another Pepsi system, and you saw our ACV go from mid-60s to 90. So that's the biggest catalyst to getting us in the CNG. So it's not that we didn't want to be there. It's just that -- it's hard to get there if you don't have the DSD network and getting in with Pepsi, we've seen it grow significantly already from a CNG perspective. We were probably -- I don't know, something like 25% a year ago would be CNG from our channel mix, and it's probably double that already, and then the category is, what, 2/3. So we still got a little bit more room to go. When it comes to CNG., we see that as a huge opportunity for us. And then there's a number of other channels that Pepsi is getting us into that will allow us to grow even more that we didn't have access to historically.

Okay. And I guess going back to the Pepsi transition, I mean, I guess -- why was Pepsi? I mean, obviously, one of the best distribution networks in the U.S., if not the world. Why was Pepsi the right partner? And then I guess just maybe building on that, why was the structure of the agreement the right structure?

Yes. I mean Pepsi is one of the probably top 2 distribution systems in the world, right? You got the red and the blue. And obviously, the red one was taken. So wasn't really on the table. So Pepsi is a top distributor across the world. It gives us international opportunities as well. You saw the power of their system. In a matter of 6 weeks, they took us from 65 ACV to 90 ACV. So I mean that alone just tells you how powerful that system is. They're very data-driven. Historically, when it came to getting on the shelves and having kind of consistent planograms and those kind of things, so they're very meticulous when it comes to those kind of things. So it will allow us to really have that kind of set, set of SKUs that allow us to drive efficiencies. We'll have one distributor instead of 250 distributors. So a ton of opportunity from an optimization and efficiency perspective, but also from an ACV perspective. I mean they bring their own energy coolers to the table. They bring their regular Pepsi coolers to the table. They bring the opportunity to get into food service, colleges, hospitals, hotels, casinos. So they just bring an opportunity that we didn't have access to, and we wouldn't have had access to. Colleges is a great example. They have 60% of the college population, right? If you're not on a retro blue truck, you're not getting into colleges now. The white truck gets into some of them, but really, it's either red or blue. So opened up huge doorways and huge opportunities to us and the timing worked out great.

Yes. I mean, clearly, a lot of opportunity. But I mean, over the last few months, I mean, have there been any surprises as you kind of transition, good or bad?

I mean, we've got a lot of people on the team that went through it when Rockstar transitioned into Pepsi. So they kind of had that experience to fall back on. So Paul Storey, who heads up our operations transitioned Rockstar into Pepsi when they went from the Coke to the Pepsi system. So he had a lot of learnings to use, which helped drive efficiencies because he'd already done it once. We had -- our Head of Sales, Tony had been a part of that transition as well. So from a sales perspective, our Head of DSD sales was in the Pepsi system. So we had a lot of people that had done the transition before and new the Pepsi system. So I think that helped keep things more seamless because they knew each other. And you had a lot of relationships that were already built. So if issues happen, you can get them cleared pretty quickly. So I think probably the most surprising thing and they would probably say too is it wasn't very smooth, like there was very little kind of bumps along the way. So I think that's probably surprising because you would expect more disruption. And based on history, what we saw with Bang going on their system and Rockstar going on their system, you saw a little bit of disruption. And I think the disruption was very limited. And so that's props to the Pepsi team and also our team on getting that transition done successfully with -- obviously, there was bumps in the road, but it was -- from an expectation perspective, it was pretty smooth.

Okay. And I kind of want to pivot back to maybe some of the more recent results, 4Q specifically, where sales were still exceptionally strong. But maybe they -- versus some expectations fell short of maybe some lofty expectations, if you will. And I know there's a lot of kind of these onetime issues. There's a pull forward of Pepsi sales. There was inventory management. I think you also mentioned sales returns. So is there any way to kind of disaggregate how much of these "onetime items" really impacted 4Q performance? And then while we're kind of just talking about the fourth quarter, we can really see that the performance in the track data is exceptionally strong, right? But can you maybe talk about what's going on in Amazon and Club, which also was very strong, I believe as well, but fitness. And I guess what I'm trying to understand is just the gap between what we see and kind of the scanner data versus kind of the reported results and kind of -- if there's any way, we can kind of walk through that, the differences from a channel perspective?

I mean you've seen it with Monster and Coke. There is some timing in lead and lag depending upon ordering. And so that's something for the last 20 years, you've seen with those guys. So it's just the part of the system, it's part of the process. As we continue to optimize and get to know each other a little better over the coming quarters, we'll be able to call those kind of things out like Monster has done historically, if there's a kind of a fill-in at the end of the quarter or right after the quarter, that will help with that kind of understanding where the disconnect was. We also have -- when you look at the non-track data, you've got fitness, you've got naturals depending upon which data you look at. You got military, if you're looking at Nielsen or IRI, we use IRI. IRI was a little closer than the Nielsen data based on what I've seen. So from that perspective, if you look at some of the non-track stuff, that's where we were historically. So we've been with Amazon since 2014, 2015. We've been in the fitness, the whole time. So if you're looking at some of those channels that are part of our DNA, but might not be growing at the same rates that some of these other channels are because like we just talked about, we're just getting into CNG at a good clip relative to the market. We are strong in places like club and grocery, but there's a little bit of a disconnect if you look at some of the nontrack stuff. And then we're just entering some nontrack channels that might be a lower velocity channels, right? So the Dollar Generals and Aldis of the world. So from that perspective, there is a little bit of a gap looking at that data. But I would look at the scan data more from a consumer perspective, what is the consumer doing and that tells you is our business strong with the consumer. Is our business continuing to resonate with the consumer, and that's really where we look to the IRI and the Nielsen type data that really show that we continue to resonate with the consumer. We continue to grow with the consumer. And yes, there's going to be some timing differences there. But that's something that we'll just have to through as we optimize the system with Pepsi and understand the cadence and the timing of orders and those kind of things so that we can get to a position where we can provide a little bit more information to The Street. But right now, as we're just rolling into the system, we're getting used to each other. There's not a whole lot we can do for [indiscernible] because it's going to be a little bit of lead and lag in terms of timing.

Yes. Okay. And then I guess, just -- you mentioned on the last call that 1Q is off to a pretty strong start. I think you were referring to the scanner data. But I guess, is it fair to say that we should expect kind of -- just building on that last point that we should expect some of these differences to kind of continue moving forward?

Yes. Like I said, I mean, we just transitioned to Pepsi on 10/1. There's a part of the system that was on 11/1, part of the system was on 12/1. So I mean, we're early days, right? So they have a huge system. We went from a 65 ACV to a 90 ACV. So it's not going to be perfect out the gate. We have instances where we're shipping out of orbit and things like that as we're launching innovation, we're launching programs. So I think there's going to be a little bit of kind of volatility within that system along the way. And like I said, when we get to the quarter end and the results, we'll have to help everyone kind of work their way through it. But we look at the scanner data continues to be strong. And so if there's a little bit of a timing on when I have to record revenue, which is when I deliver it to Pepsi as opposed to when they deliver it, to the retailer who then gets to record it when it goes to the scan data, so you're talking 3 steps along the way. There might be a little bit of a disconnect, but we'll continue to work on helping The Street understand that.

Yes. I guess maybe building on that last point, and I think we all can agree that the growth has been and continues to be incredibly impressive. But if I just look at consensus expectations for this year. It's a pretty wide band, right? I actually think it's almost like $200 million between the high end and the low. And Jarrod, I know you and I used to talk quite a bit during your days at Primo Water. And we actually have a lot of discussions around guidance, right? And there's clearly a lot of positives. There's a lot of negatives around it. I mean I know your largest publicly traded competitor doesn't really give guidance besides kind of quarter-to-date sales trends. But how do you really think about approaching guidance? And I guess, do you think that your approach might change as the visibility improves, as that kind of partnership with Pepsi kind of grows?

I think Monster is smart to not give guidance to be honest with you. There is a wide band, but it's with a company like us that have been growing as fast as we've been growing and getting into the Pepsi system with a huge opportunity. I have some people that are a little bit more aggressive on their expectations than others. I know that doesn't help with consensus and things like that. But at least in the short term, as we look out over the next 2, 3 years with the growth opportunities we have, guidance kind of locks you into having to fight for the quarter, right? And we really need to just drive this business for long-term success. We want to capture market share. We're actually incremental to the business back to an earlier conversation we were just having is -- If you look about 26% of our -- from Mintel, 26% of our growth was from new to the category; about 52%, 54% something like that was increased consumption. So I mean we're about 75%, 75% plus incremental, right? So that's low 20s is actually kind of market shifting. So from our perspective, with the opportunities we have there, I look at guidance, it's actually just something that could hold us back. And so we don't want to do that. But -- we'll see how a couple of years down the road, maybe we'll change our mind.

Yes, that makes a lot of sense. It's just a question that I get a lot, just because I think you look at the scanner data, right, and then you kind of look at expectations and sometimes there's a big gap, and it's just hard to kind of get that visibility, right? I just want to make sure that people don't get too ahead of themselves and then they get disappointed when growth is 75% and not 80%, which is kind of ridiculous when you say that loud, but sometimes it's just how people look at it. But thinking about growth in 2023, can you maybe just frame how you think about growth this year? And I guess what I'm trying to understand is how much growth you can expect distribution? How do you think about velocity? And I guess you mentioned earlier that the ECB has kind of jumped up to 90% following the Pepsi transition. How much more room is there? And I guess maybe more shelf space at current retailers, new doors. Just how much more room really do you have from a distribution perspective?

So from the track channels is we're getting the ACV data from, right? So there's a big opportunity in the non-tracked channels. So the food service, our own cooler placement, John talked about wanting to place 15,000 more coolers. We only had 5,000 before this year. So by the end of the year, if we get 20,000 coolers of our own place, that's a huge driver of growth and velocity within where those units are placed. We talked about colleges and universities and those types of opportunities. Within the track channels, if you go back to kind of when Bang moved into the system, they kind of peaked around 93%. Can we do better than that? We would like to, but that's a data point out there. So if we're at 90%, there's a little bit more runway from an ACV perspective as we go through this year. We're going through resets right now. So that's kind of April, May. So we'll have a good picture as to what the SKU count is on the shelf once we get to kind of mid-June, which will kind of give us a perspective on where we're going to go through the rest of the year, right? So we'll have the ACV, we'll have the resets done and then we'll have the growth trends that you can kind of mirror. Once we get to the middle of the year, we'll really have a good perspective on how we're going to end the year.

Yes, I would just piggyback off that. If you look at the real big growth opportunities we're certain, I mean, at our last earnings, we said 12.5 SKUs for a retailer right now. Bang, Rockstar just 12 months ago, they were sitting at 16 SKUs per retailer. So I mean that's some big upside right there. And just traditionally, I mean, if you go into a lot of stores nationally just 12 months ago, especially convenience stores, you might only find 3, 4, 5 SKUs of Celsius. It's not sitting there right on Broadway. It's sitting there like in the gutter up in the top crack. So you're only -- the people that are grabbing that are really going and looking for Celsius versus what we're hoping for is coming through these resets, getting better positioning on the shelf, getting more SKUs so we can create a billboard effect. So when somebody goes in there, maybe to grab a Monster or Red Bull, whatever they're going to grab, what they see is the Celsius sticking out right in their face because of the better positioning that you're going to get more trial, bringing new consumers because we know we're going to win on space. So that's a big opportunity. And then something we haven't even mentioned very much today is the food service component, which is a massive opportunity. We feel like the usage occasion of Celsius is quite a bit different than all the other energy drinks. You actually see people consuming with their food at lunch. You just don't see that typically with other energy drinks, which are more appetite suppressants. So from -- whether it's restaurants, food and service -- for Pepsi is College University falls into that umbrella. Hotel chains like Marriott, big opportunities there, hospitals. So we are really comfortable that we're going to have some strong position within food service. So that's a massive opportunity for us as well.

Do you have visibility on the shelf resets at this point just in terms of better placement? And I guess like is there any opportunity like because the brand kind of sits in this unique position, where some people don't always view it as specifically an energy drink, right? Is there any opportunity to kind of expand Celsius to maybe outside the energy drink cooler?

I would say we don't want to be outside the energy cooler. That's where the consumers are going to shop. That's the category is continuing to grow. We don't want to get pigeon holed into this functional energy. We don't really like leading with functional energy. We're an energy -- better for you energy brand that's bringing in new consumers. So we want to be in that door -- but we want incremental placements within the door. So if we can get another cooler, Celsius cooler, if we're in a Pepsi cooler, if we can get displays set up, that's ultimately what now if we're in a healthy food bowl-type place. Yes, we put us wherever you can find because they don't have an energy door in there, but we consider ourselves energy drink. We want to be sitting on the shelf right below or above Red Bull, Monster.

Okay. And then going back to the competition, and we touched on this a little bit earlier. But I would love to get your perspective on some of the innovation that maybe Monster is bringing to the category and they've had performance energy rain for a while, but it does seem like rain, storm, clean energy is pretty targeted in my view, messaging the labeling packaging. So I don't know. There seems to -- I've gotten a few questions from investors on whether or not that's -- that could maybe alter the momentum of the portfolio. So just any thoughts on kind of rainstorm and how that might impact or not your growth trajectory?

I mean it's good for the category, right? So if you look at Red Bull and Monster over the last 5 years, the category is growing 8% to 10%, right? So I mean if you take 9% growth for just those 2 companies, they've had huge sales growth, right, with those businesses, the shelf space has actually gotten bigger. So there's more shelf space dedicated to energy than historically. Energy is usually the first set of coolers when you walk into CNG, when you walk into a lot of places. So they've done a lot for the category. So if they want to expand kind of the sugar free, the good-for-you concept and help take that to more consumers and bring more consumers into the category. There's plenty of room of that pie because the pie is getting bigger and bigger every day. If you go back to Bang back in 2019 when they kind of hit their peak -- if you look at what that market share, which was 8%, 9% market share would be today, it's 50%, 60% bigger today if you're at that market share. So I think there is opportunity to continue to expand the category like we said, we've been incremental to the category. So we've helped grow that category. I think we're at 22% of the growth of the category last year. So we see that as -- if they want to help from an innovation perspective, from an expansion perspective, to continue to help grow the category like we've been doing, then that we see that as a plus. So even the sugar free, I look at that as if they want to call out on their super SKU, sugar-free is the way to go, right, and encourage the consumer to start turning the can around and looking with on the back and looking what the ingredients are. We look at that as a positive for us, right? So increasing the sugar-free category within energy and pushing more consumers to that category is actually a benefit for us. And if you look overseas from -- especially in places like Europe, sugar-free is a much bigger component of the category. So we look at all those things, factors as more pros and cons for us. We got to keep doing what we're doing. We got to stay authentic to our brand, and we've got to keep driving brand awareness. But from that perspective, if they want to help grow the category, help encourage consumers to go into that healthy halo, then we look at that more as a positive than a negative.

Okay. That's really helpful. And I guess, I do want to ask about international. It's a really good point. But maybe before we go there, pricing has been a key topic of discussion not just for energy drinks, but also CBG more broadly. Obviously, some of your larger competitors took a nice price increase this past fall. The volume impact seems to be pretty limited, right? So can you maybe just talk about pricing from here? What should we expect from Celsius? What do you really expect from the competition?

Yes. I mean we took pricing. I think we were really actually first in line and started talking to our customers pricing back in April. And then we took it across the year based on a tiered structure depending upon the timing of when we got into the doors, right, because we can't get in the door in March and then a price increase in April. So we took pricing last year consistent what Monster did. And then both Monster and Red Bull eventually took pricing. You've seen some of that pricing come through more with Monster and Red Bull because when you take it, you don't just throw the price increase in there and call it a day, you kind of work your way into the pricing. So we've seen some of that pricing resonate. The consumer from our perspective hasn't really pulled back. You do look at some of the data with the top 2, the quantity slowed, but the sales dollars have continued to increase. So it looks like at least it's not causing consumers to stop buying. While we're on our growth trajectory, we look at pricing -- there's a lever there. When we were coming out of 2021, there was a lot of aluminum costs, freight costs, those kind of things that we wanted to offset with the pricing and the consumers weren't having an issue because there was inflation everywhere. We do think pricing is there this year. There's probably an opportunity if we want to take it. But right now, we're really focused on the growth and growth is more important. So at the percentage of growth we can get this year, pricing would be nominal in terms of what it could add. We understand it could help with margins and those kind of things. But right now, we don't want to stop the momentum. But we do know if we need to pull the lever or pull the trigger, we can.

How do you -- that's a really good point. But I guess, energy has been a category just because Red Bull doesn't take consistent pricing -- that it's been harder to take price over time. And I guess, do you think what we've seen over the last few months kind of changes that in terms of -- just like energy category more broadly, right? Do you think instead of every several years, someone implementing a price increase when it's warranted that you could -- you see more of a steady cadence of pricing longer term?

Yes. I mean I think the consumers showed that they'll accept it. We live in the strange times with the amount of inflation we've seen right? I don't think we've seen this kind of inflation for 40 years, 30 years. So I think from that perspective, it's a unique time we live in. I think eventually, the consumer is going to get tired of pricing, right? So you can only take so much pricing and they're going to find something else. So I think from that perspective, there's probably room for it. If you get back to more of the historical cadence where the CPG company might take a couple of percent every year. I mean, if you look at some of the CPG companies, what they took last year was in the high teens, right? So I mean, good for them to be able to push it through. If you talk to Johnny, he'd be like -- see, we should have taken more pricing, and I'm the finance guy, right? So I think there's opportunity. But I think we got to manage it carefully because, again, we want to continue to take market share to continue to grow the brand and the business and don't want to be a turn off. So we're still bringing new users into the category. We still want to have that trial period so we can get the loyal customer in. So we don't want pricing to be deterrent as we build the brand and as we grow.

Okay. And just kind of maybe rounding out the top line questions here, and you kind of alluded to this. International seems -- it's obviously been a big driver of growth for the energy drink category. And I think the Pepsi agreement certainly opens doors for you internationally and then creates a pretty big opportunity. So can you maybe just discuss that opportunity? Have you done a lot of work? I know you have some international business today, but are you doing more work in terms of how the brand would resonate with the consumer. You mentioned Zero Sugar is actually bigger. I think that would be beneficial to you. And I guess what are kind of the guideposts that really inform when is the time to really make that push?

Yes. So it's all about timing and sequencing, right? So the biggest focus is let's get into the U.S. system of Pepsi. Let's optimize that system. Let's make sure that the orbit model we have is functioning and working as efficient as it can be and really develop a good cadence from an ordering perspective with the Pepsi system. And then behind the scenes, we'll work on some opportunities, whether it be in Europe or APAC or places like that. The initial push would be into markets that already have energy, right, that already where you can go in and you understand the energy, you can model things out and you can have a perspective on how we would do when we went in there as opposed to kind of up-and-coming countries. So we look for the big energy countries to be the first areas that we'd roll into. And that's kind of where we'd start. Start with a handful and then as you roll out, learn, understand and then there's about 100. John keeps saying 126, there's somewhere between 126 and 129 countries that Pepsi either has assets on the ground or partnerships. And so it's a big opportunity. But again, it's timing and sequencing the price as the price right now is so big in the U.S. that we don't want to lose focus. So we'll work on opportunities and distribution agreements and partnerships that will roll out in the next few years with the Pepsi system. But it's the focus, but it's not the core focus right now.

Okay. I just want to remind everyone, I have a few more questions to run through. But if you do have any questions, please submit them through the app, and I'm happy to ask. But I guess maybe shifting gears to margins. And I guess, -- you kind of talked on the last conference call around mid-40% gross margin kind of being the appropriate range, really looking out to '23. Can you maybe just provide a bit more context around that. It just seems like a lot of the headwinds that you alluded to earlier are beginning to abate. So just any thoughts on why gross margin wouldn't build more substantially as those kind of cost pressures lessen?

Yes. I mean we say mid-40s so that we're not like pigeonholing ourselves into like we talked about guidance earlier. And it's really -- it gives us the ability if we need to spend in. So from a freight lane perspective, from an orbit model perspective, our growth is huge, right? We're just getting to know each other with Pepsi. So there have been instances where we might have production run over in Walla Walla up in Oregon, and we're shipping it across the country, right? So that's not efficient, but right now, it's really important to make sure we got product on the shelf. So that gives us a little leeway in terms of -- are we a little towards the lower end of the mid-40s? Or can we get to the higher end. So as we continue to optimize the system, that gives us that ability. So we think we can kind of operate within that range. But that gives us a little bit on the margins in terms of being able to focus more on getting that growth through, still profitable growth, but it allows us to -- if we need to move things around that, that we don't have to worry, again for the quarters because we really need the company to really focus on managing the business for the long term and driving market share and driving that growth. So that's kind of with that. I mean, when you're looking at commodities, we've talked about it, raw materials have kind of flattened relative to the inflation we had seen coming out of '21. The fuel costs have kind of tapered off as well. So there's opportunities that we can lever the margin, but we're kind of sticking with the mid-40s to give us a little bit of leeway as we optimize the system as we really kind of build that cadence with the Pepsi network.

Okay. And then I guess maybe thinking beyond the next 12 months, what's kind of the appropriate target for Celsius from a gross margin perspective? And I know you benchmark sometimes you versus Monster. But I think if we were to think about the next 3 to 5 years, like what would you -- what would be reasonable from your perspective?

I mean right now, since we're in the high growth, if you look at Monster during their growth period, they weren't growing at kind of 100-plus percent per year. So it was a little different as to the timing of when they started to really leverage their system. They've got their own flavor house. So they do have some optimization. They're able to do obviously their scale, they're able to, from a pricing perspective. As we continue to scale, we'll get better pricing, whether it comes to raw materials or working with our partners. So we see that as a goal is really they set the precedent, they set kind of where we can get to. They set the model to get there. Again, we're going to focus on profitable growth over the next couple of years. So we'll be opportunistic. We'll give a little bit on margin if we can get more growth. But eventually, as things taper off for us and as the growth trajectory kind of scales down a bit, then we'll look to start levering things. And obviously, they kind of set the present as to what the goal should be.

Okay. To finish up, from my prepared questions, I guess I want to get your perspective on the market share opportunity, right? I guess the most recent 4-week period, the high single digits, I guess, on whatever data you're looking at in the track data. But I guess, how do you think about the share opportunity given the distribution ramp for 2023? And I guess maybe following up on that, and this might be a bit more difficult to answer. But I guess if you were to look out over the next 2 to 3 years, I mean, what would success really look like from a share perspective? And I guess, do you think we're kind of Monster and Red Bull have kind of been in this 80% share for kind of forever. So do you think the opportunity is really around that remaining 20%? Or do you kind of see that share from Monster and Red Bull kind of moving lower over time?

It kind of goes back to the comment I made where they've been growing at 9% a year, Monster and Red Bull. So the pie has gotten bigger every year, right, from a gross perspective. So we look really internally at sales targets more than we look at kind of market share targets because, again, if you went back to 2019 and you look at what's a 10 share mean, that means a lot less than what it means today, right? So I think our goal right now is we want to have good growth. We want to continue to grow. We want to continue to be incremental to the category and really go after full beverage. Because obviously if 75% of our growth is incremental to energy, some of that's probably coming from other places, right? So is it coming from coffee, tea, sodas, those kind of places. So we think that it's a bigger play for us, is really we want to continue to get our fair share of the pie, continue to enable at gaining market share, but also we're comfortable taking market share just from the beverage category in general and not really being stuck to that energy pie. So we see a lot of opportunity for everybody. And if we can keep that market growth at 9% a year, that's huge growth that will continue to come, and we'll get our fair share.

I would just add, we're sitting at 18% market share on Amazon, where it's really an apples-to-apples comparison with the big players. When you go into a convenience store, you get 4 shelves of Red Bull or 4 shelves of Monster. Amazon is more of an equal playing field for us to be situated 18% market share. We don't have the brand awareness they have either. So we view that as an opportunity or if you're looking at a true apples-to-apples comparison where Celsius maybe can get to in a midterm type of period of time. And we don't have the brand awareness in certain pockets of the country just because we've been trying to grow profitably over this journey. So we focus on certain markets around the country. And just at the beginning of 2022 is when we expanded from really focusing on 5 markets around the country to moving to 19 markets. And then this year, it's 22 of the highest consuming energy drink markets in the country. So if you're sitting in Portland, Oregon or Chicago, Celsius doesn't have the share up there as it does for import Lauderdale. But if it gets to that share because we're putting the resources into it now, then you're looking at something special, and we think that we have that opportunity.

That's really helpful. I guess just one question that I kind of just come in. Just innovation. Just can you maybe talk about the innovation pipeline? Do you have plans to bring the Celsius brand into adjacent categories? And are you actually prohibited from doing so because of the Pepsi agreement in any way?

I'll let Toby talk about innovation. From the Pepsi agreement, the innovation that we're looking at and working through, we're not restricted on that. Now obviously, with Pepsi, there are certain restrictions they have. In general, like alcohol, which is why they had to have the relationship they created for their Mountain Dew alcoholic beverage. We don't have any intentions of alcohol at the moment. So that's not a problem. But I'll let Toby kind of speak on some of the innovation.

Yes. I mean we're -- at the moment, we're looking to -- I guess, the fancy word is bifurcate our line right now. So with our core traditional fruit on the package can get a row of that in the store and then get a row of our Vibe line. So that's the bifurcation we're going through now. We'll continue to innovate on flavors. We are looking at other opportunities. I mean, we're highly caffeinated at the office going through the samplings. So whether it's pack size or some other opportunities within energy. Maybe you look at hydration and you look at -- I mean, there's a whole lot -- a vast world out there. And having a partner like Pepsi, where if we can get their buy-in on innovation, then there's opportunities to scale quickly and if it's the right product. So we're always looking at innovation, but we have our eye on the price right now. We've got to keep stay focused with the current line. I mean, we have so much upside, so much room for growth. We don't want to get too distracted, but we're always looking at innovation.

And with the Pepsi system, it gives us the opportunity to test things so we can test them regionally, so we don't have to do full launches. And so we have their support. And if we can find holes in their portfolio, it's a win-win for both of us.

Okay. Well, why don't -- we only have a couple of minutes left. So why don't we stop it there. Thank you both for joining us today. And also thank you to Celsius for keeping all the attendees highly caffeinated as well. We wish you nothing but the best of luck moving forward.

Great. Thank you.

Thank you.