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

Welcome, everyone, and thanks for joining us. I'm Michael Lavery, the Food and Beverage Analyst here at Piper, and big pleasure today to have Celsius with us. We've got CEO, John Fieldly; and CFO, Jarrod Langhans. He's been on a tear, if you had looked at the stock, you might not know what you've been missing, but they've been doing a real nice job.

Let's jump in, just first, maybe could you tell us a little bit about some of the top line drivers we see accelerating, pretty significant growth. We just saw the latest scanner data, if we get the IRI that had you up 144%, I think, in the latest 4 weeks faster -- each period has been accelerating faster, still. Can you just help us unpack some of what's driving that? And how to think about that U.S. -- the measured retail piece in the U.S.?

Yes. No, thanks for having us as well. It's excited to be here. And yes, that must be the Celsius. I mean, the company has been on a tear. I think, when you look at what's happening in the category, it's -- Celsius is really capitalizing on 3 of the fastest-growing trends in food and beverage. So everyone wants better for you, but they don't want to sacrifice flavor. So we deliver on that, with 7 essential vitamins, and great flavor combinations. Probably some of the most innovative flavors in the industry. And then when you look at functionality, we delivered on that. And consumers want more out of the foods and beverages they consume. And then fitness is heat, cool, sexy premium and align with today's health-minded consumer. And that's in our DNA, and that's who we are. So Celsius Live Fit, and Essential Energy inside and outside the gym. And when you look at some of the key drivers, we're coming up on our 1-year anniversary with the Pepsi partnership. They sold their first case in October last year. So that's been a really big driver, brought our ACV from about 60% to over 95% today. Talk about some of the latest scan data. I didn't see the latest data, but came out in the last week or so. But if you look at like the August 13 data, and you look at the 24-week and 52-week, Celsius was one of the main drivers, and not only dollars but units. And units are really important, right? Because you're bringing new consumers into the category, really building the brand in the portfolio. And then when you look at the other drivers that we see, we're seeing that distribution has expanded. We're seeing new consumers come into the category. And the latest Mintel data shows that Celsius, our consumers are about 44% are new to categories. So that's we're really incremental, and that's what we're seeing on the mix. And what we're doing is working. We're expanding into new markets, and it's exciting.

So I want to touch on -- there are a few things there we can dig into a little bit more. I want to talk about some of the differentiation. I think, when we were looking at the name in our initiation, what really stood out is how the packaging, the flavor profiles. There's quite a bit that makes it distinct relative to other energy drinks. How do you think about that? And you mentioned that how many users are new to the category. Have you seen that evolve over time? Is that increasing at all? And where are those consumers coming from? Is it other -- is there like a coffee occasion they're replacing? Or tell us some about how that consumer comes out of the category.

Yes. We had a lot of questions on that today from a lot of investors, and it's -- when you look at the Celsius portfolio, and you look at it, trip versus traditional energy, it's really inviting. We have -- let's -- we hear that a lot. We'll also hear from our consumers that they don't drink energy drinks. They're not energy drink consumers. You talk about usage occasions. And you see like -- what's interesting with Celsius, a lot of our consumers consume it with lunch. So we think there's a huge opportunity with food service, expanding that energy occasion, and we just launched in over 2,000 Jersey Mike's. So that's going to be a really good indicator on how this performs in fast casual. And then when you look at the partnership with Pepsi, the amount of distribution you can gain in fast-casual, which is outside of that traditional energy drink convenience, where 78% or so, should be a great opportunity to really test that thesis out. We do extremely well on Amazon. We're about over 18 share. The club business has been -- we're about 1.5 years in, and almost going on 2 years and doing extremely well in the club business. It's the flavor combinations with innovation. Jarrod's got a Cosmic Vibe, which is a sparkling. Fruit punch, we just launched at Circle K, which is out of this world with Cosmic Vibe, and now there's aliens that are identified. So it really goes on consumer trends and what's in the news we can leverage. But it's -- we've done great. Oasis Vibe, I had a couple back there that I think have gotten grabbed. It's a prickly pear lime. We launched it at Coachella. A lot of great strategies behind that on leveraging social media and influencers. And then we had a green apple, we just launched at 7-Eleven, which is one of our top-selling flavors at 7-Eleven right now. And that's what makes us unique with our consumers, too, is we've got great flavors, and we see our consumers are very loyal to Celsius, but they will move in between flavors as well, so.

No. So that's great. So yes, foodservice club, Amazon, your ripen it right on my list. We'll come back to all of that. Let's come back to distribution for a minute. I want to understand. I think somebody may be new to the story, it could be tempting to think that you hit October 1, and it's all over, you're lapping the Pepsi Lift, and then that's it. But we've looked at this and even since just January, the sequential total distribution points have increased an average of 4% per month. It's still building. Can you bring to life a little bit of some of how that looks in terms of secondary placements or phasings? And just how the distribution can grow within the stores you're in, as opposed to just white space that you referred to with the ACV Lift?

Yes. So I mean, just because we hit 95%, doesn't mean the game is over when we go home, right? So we're at about 14.6 average SKUs per location. So if you look at the top 2 players, they're probably in that 25 to 30 range. But then they're also double phase, triple phase, 10x phase. So we've got a huge opportunity to get better placement, more SKUs, double phase, triple phase. We talked about the Vibe line here. He's got -- which one you got, orange. So that's our core line. So the more fruit-forward line, and then we've got our Vibe line that we're bifurcating to create kind of 2 different brands within the brand, right? So we're looking to really expand that and look for a shelf for each and -- or 2 shelves each, or 3 shelves for each. So there's a lot of opportunity within that. That 95% ACV just means we're in the door. But once you're in the door, you want to get out of the crack, you want to get out of the gutter, you want to have really good placement, and that will drive velocity, and that will drive further market share.

And I think when you -- we're getting ready for NACS as well in the first week of October, where buyers and convenience really start their review season for next year. And when you go back, and you think of where we were 12 months ago, we were sitting at about a [ 3.4% ] share in the category. And today, we're on a trajectory to be a [ 10% ] share. So -- which hasn't been done in the last decade, which is really an amazing feat for the team, the brand and the partnership with Pepsi as well. And when you see -- when you're going into buyer review meetings from a [ 3.4% ] share brand to a [ 10% ] share brand with increased unit sales and dollars, that puts you in a different prioritization list and different conversations that you're able to have with these buyers. And so we're really excited about heading into buyer season and review season to add what Jarrod's talking about, getting that better place and getting out of the gutter as they call it, and getting into the bull's eye. And consumers are -- we're all creatures of habit. We go to the same store, the same convenience store, the same restaurant, the same gym. So it's really about gaining that point of interruption. So we can do top funnel marketing, try to build that awareness. We need to gain trial, and then that's where we can convert into loyalty. And once we get a consumer, our consumers are really loyal. Look at the sales on Amazon. That's all warm product that people are paying over $20 a case for it. They have to be shipped to their house, they have to chill it and drink it as part of a daily routine, daily lifestyle. So it's really leveraging. This Pepsi partnership is gaining that, that tapping into that impulse purchase, that cold purchase, those secondary purchases that are available out there that really drive the energy category.

And so if you get better awareness, better visibility, likely better trial from better placement, more phasings, even better assortment because to your point, it's not a single SKU that really does all the work, more like maybe in Red Bull's case. And so now that you're coming into these resets again, another cycle, have you had those conversations yet? Is that just getting started? Is it kind of a continuous thing that not even just this next year, but if your momentum continues, you'll be a year from now looking at another wave again? Is it kind of a ladder entropy?

Yes, it is. I mean we've already had some of the top retailers. We had a pre-meeting with Walmart, that went extremely well. So we're excited about that. And we'll get into review meetings as we further refine but just in exploratory meetings, and really have never been invited to exploratory meetings before. As a [ 3% ] share brand, you don't get invited to those. So it's an honor to be there. We actually have flew out to California and it was great sitting with their leadership team there. And I think there's a lot of opportunities. I mean, if you look at Walmart, they drive the biggest energy seller of all retailers. And so there's lots of opportunities there. They're really under-indexed versus where we are on a national level. So we need to close the gap and that's where distribution placement having the right assortment. I think what Jarrod touched on, when you look at our Vibe line and you look at our Core line, I think there's -- we think there's really a big opportunity to bifurcate those 2 lines. And it really provides our sales team to sell 2 unique portfolios. The Vibe line is more really experiential. We have great experiential flavors, and unique combinations, versus the Core line, it's very fruit-forward. We're going after really the most refreshing energy drink on the planet, and we win on that. So there's little bit different marketing and messaging around those. And we're also seeing potentially somewhat different usage occasions or different consumers that are attracted to those 2 portfolios, so.

No, that's great. And so you touched on Amazon. Can you give a sense of what your share is there? And has it been impacted at all by broader distribution? It seems like if you're selling cases, it may be more heavier users who just don't want a lot of case home from the store, as opposed to people -- now it's hard to think somebody is ordering on Amazon because they don't have the product available nearby. What's their Amazon consumer like? And how has that business been doing?

Yes. I mean we're just under a 19 share on the last data pool. So we're a couple percent below Monster. So we're well ahead of Red Bull on Amazon. But if you look at our last -- our Q2 reporting, we're in excess of 100% growth in all channels, right? So MULOC, Amazon club. So as we're continuing to expand and get more availability and build more brand awareness, we're not cannibalizing anywhere. So we're seeing -- and it's somewhat of a different consumer, like you said, Amazon might be that more loyal consumer that has the repeat purchases. They don't mind having an 18 pack that's warm, that they're going to have to stick in the fridge. We got the impulse buyer now, with the CNG and the MULOC. And then we got the Costco consumer that, again, is similar to the Amazon, but again, it's not cannibalizing anything. So we're just seeing growth all throughout.

Yes, I agree. I think you would think you would get some cannibalization, either on Amazon or in the club channel or in a large format. And it's -- like Jarrod said, the tides are rising. It's really exciting, and I think it's different consumers, right? I think you got a different shopper at Costco versus you do on Amazon. And then when you look at convenience and gas and some of the opportunities we're in, we're also the #1 energy drink sold through Instacart. So I think that's really unique as well. I think that's a big opportunity this omnichannel world, within Instacart, and potentially delivery dudes as we get more into fast casual, and those type of opportunities ahead of us. But it's been -- Amazon has been one of a key growth factor for us for -- I've been with the company 12 years, and it's been a key growth factor every single year.

So one of the questions we get a lot is, what is the market share ceiling? You touched on how it's -- other than Red Bull and Monster, obviously, there's not somebody who's really stayed above that 10% threshold. Can you maybe touch on -- you've got basically 19 share on Amazon. Can you touch on how you're positioned in South Florida where you're more established your base there? What have you seen in that market?

Yes. So we used to say, where can we be? And how big can we be? And we used to say, well, somewhere between Amazon, where every brand is kind of treated equal and has the same opportunity, to the 3 share where we are naturally today. And then we got a lot of people we're second-guessing or questioning the Amazon, saying that's not the average consumer, that's not the average shopper, which I kind of flipped that story because I think that's an extremely loyal shopper that's on Amazon because of that warm package in the $20 purchase. Trying to get someone new and spend $20 on a product is practically near impossible or very difficult. And then when you look at -- so we threw out the South Florida market, and we have been there in South Florida for some time, but if you -- in April, we released the market share data, it was 21.7% share in South Florida. And then most recently, on the August 13 data, it was 23.5%. So we added about 2 share points in South Florida in 2 months, which is an amazing feat. And South Florida is really -- it's very transient. You get a lot of people in for spring break, a lot of people in South Florida coming through their vacation. So we figured that, that is a good market to throw out as another data point that people can talk about. I guess the downside on this one is, now it's in our backyard. So maybe it's not as equal as an opportunity. So I think in the next earnings call, we'll throw out of a couple of markets that maybe Buffalo, New York, which we haven't really marketed, and it's all the way north, and maybe some other markets that we have out there. But South Florida is great. I think that's just another data point that this brand can perform extremely well. And it's -- the energy category is growing and it's expanding. And you're seeing -- this category has evolved beyond just energy, and Celsius is a key driver on that. We're differentiated. It's almost Energy 2.0. It's -- I can't tell you the amount of people that I speak with, even at this conference that come in and said they substitute their afternoon coffee with Celsius. And then you ask me if they're an energy drink consumer, and they say, no. And it's just -- it's fascinating where this brand has evolved and it's -- the team has done a great job.

Let's touch on foodservice, again, just for a minute. You mentioned the launch into Jersey Mike's. How much with your partnership with Pepsi do -- how does it work for some of those expansion opportunities? Is it -- do you jointly talk to potential customers? Are they driving that? Is that more of your sales side? How does that look? And what are some of the wins that might be on the horizon there as well?

Yes, absolutely.

Yes. So we actually, through a remote recommendation, brought a guy out of retirement that have worked in foodservice for Pepsi. So we brought them on to our side. So he obviously knows the Pepsi system and how to navigate through the system. So a lot of it is going to be joint partnerships, and using all his connections within Pepsi, but then his connections within foodservice. And the population size is really who Pepsi is already delivering to because from a distribution perspective, it's not going to -- for us to go find some 2,000 other restaurants, it's not going to make sense from a profitability perspective. But that kind of gives us the universe. So you've got a lot of the former Young brand-type companies, better opportunity sets. You've got the Marriotts of the world, the Hyatts, the Sheraton, colleges and universities. Pepsi has about 60% of the college population that we can attack. We got into Lowe's through Pepsi. So it's really a part of expanding the partnership, and it's incremental opportunities and incremental runway that we have through our access with Pepsi.

And I think what we have is, we have a thesis that we're trying to -- we're going to get some more data on this. But we were speaking we are like delivery dudes and trying to get some really understandings. We need some more data points, but there is a kind of a thesis that these delivery, when people are ordering food through delivery apps, they're not really -- the amount of sales that are leveraging the fountain is somewhat low. So a lot of people are either not getting a beverage included in that delivered item when it's delivered. And if we can be incremental to that basket ring and that dollar profit, that could be a really great story that we can unlock. And then also, at fast casual, we see our Celsius consumers. We have a small data set that looks at the consumer is really not purchasing the fountain drink, is actually getting water out of the filtered water. So that's a lost sale potentially. If we can show we're incremental to that consumer, that basket ring, dollar ring. I think that could be really successful to the overall story for foodservice. And we have a ton of cafeterias around their office in South Florida. And I see it in a variety of other offices, like when you go through airports. Now that we've gained access in airports with Pepsi, you see people consuming Pepsi -- consuming Celsius with some type of meal item and sandwich and some other items. So it makes it differentiated and open up to more opportunity for consumption.

So we've been focused on the U.S. Let's switch to international. How do you think about that opportunity, and what's next for you there?

Yes. I mean, it's the same. Global trends that we have, the same trends we have in the U.S., our global trends. And the world has gotten so small. It's one click away. So leveraging marketing and we get a lot of feedback from other markets about opportunities to distribute Celsius. We are in Sweden. We have a little over a 10 share in the market. We are growing in Finland. We have some distribution in South Korea. We have distribution initially seeded right now in Taiwan. We're looking at other APAC markets. We're in Hong Kong, the licensing royalty agreement in China. We have some distribution in Malaysia and the Philippines. And looking at some other markets that you want to kind of [indiscernible].

This year has been a lot of planning and connecting with the European and the APAC teams from Pepsi. And really just get everything set up. We'll launch in some markets in 2024. Like John said, we've seeded a bunch of markets already. But I would look at that as more of a '25 and '26 opportunity. It's really about doing the planning this year, getting and building the blueprint next year, and the launch plans, and then kind of refining those, and then get to '25 get to '26, and that's where you'll see more activity from an outside market perspective. So there's so much runway in the U.S. right now that we don't want to take the eye off the prize, and the team's focus away from the U.S. So we see the U.S. as just a significant opportunity. And so instead of jumping out to a bunch of other countries in other markets, we're going to stay focused here. We will lay the groundwork for the international markets, but we're at $310 million in the U.S. sales just last quarter alone. So -- and growing at 100%. So I think that's it where we need to keep our focus. But again, we'll launch out into a number of markets. We'll build a blueprint. We'll build a plant. And then we'll get rolling after that.

And our blueprint, we've identified -- we know how to activate. We know how to build awareness and build loyalty within the Celsius consumer portfolio. So we got the right strategy. We demonstrated it in multiple markets in the U.S. and Sweden has been a turnaround market for us. We've been in Sweden for some time, and that's turned around. And with our strategies that we have. As well as in Finland, we've only been there about 2 years, and that's like a high single-digit market share right now and growing. So we've got a winning strategy. And we need to make sure timing and sequencing is so important and distractions as well. As Jarrod said, that this -- the opportunity in the U.S. right now, it's just massive. And then, I think being very strategic on our approach within the leadership team and how we add resources is going to be critical versus going into a new market, and maybe doing like -- getting 95% ACV with a big partnership opportunity. And then we're chasing to try to gain rotation at retail. And the reality of it is, you've got 6 months to perform at retail. Otherwise, you're out. So you have to keep that in your mindset. So when we land, when we expand in the market, we need to make sure we're building that loyal consumer. We continue to build upon that because they're only new ones in the market, right? And it needs to be done right.

Yes. No, that makes sense. You touched on how you can differentiate, kind of the sub-brands and shape your portfolio that way. Any other innovation in the works? I think, similarly to how you talked about the U.S. being such an opportunity and not wanting to get too distracted too quickly with international, it would make sense because these -- this Core is really doing the work, and you don't want to kind of take your eye off that. But anything maybe down the line? Or how do you think about building out the portfolio with anything else?

Yes. I mean, we have a cross-functional team that meets every month. We're always looking at new innovation. There's a variety of opportunities with functional hydration. You could do -- there's so many new ingredients on the market. I think there's -- the question is, number one is focus, is very important right now with our Core portfolio. But then when you look like where is Celsius, 3, 5 years, 10 years down the road. Can the Celsius portfolio be like a Gatorade brand, that can -- is very versatile. So those are things that we look at. I think there's opportunities. I do think Celsius can play in functional waters, can play in hydration. Right now, we have a big powder opportunity as well. We don't really market the powder product. It's an On-The-Go stick. It's in Walmart. It's in Target. It's in -- we're getting it placed in other retailers. It's in Kroger and several other chains. But that's going to be -- that's over $100 million business, and growing rapidly. So the On-The-Go stick opportunity is something we're looking on further expanding. A lot of people mix it with smoothies, and it's great On-The-Go. So I think that's an opportunity we could play in hydration within that set, too. There's other brands that are doing extremely well in there.

And then just maybe one last one. Let's come back to margins. Your second quarter margins were well above, I think, what anybody expected. You've called out some extra spending and promotional spending and marketing spending in third quarter. So it's obviously -- you can at least can have a little bit of a sequential pull back. But how do you think about the margin outlook or profile? And what should investors have in their minds as far as kind of a sustainable range, or place for your margin? I'm thinking EBITDA margins in particular for those to live.

I mean, Monster set the gold standard, right? So that's what we strive to do, to get to where their margins were historically. I know we've all had a little bit of supply chain hiccups over the last few years. So their margins are down a little bit. But they're working them back to where they have been. So that's where we strive to be, ultimately. With 100% growth right now, we're more focused on making sure that we're investing behind that growth. So we are giving up a little bit of margin. But it is profitable growth. And the money we're making today, we're reinvesting that into the future growth of the business. So while we're on this significant increase from a growth perspective. We're going to continue to invest behind that growth. But we do see opportunities from a gross margin perspective to slowly leverage that business, and over time, from a sales and marketing perspective. We are putting the sales and marketing dollars to better use as we continue to build the brand, and become a bigger brand. It's not just us going out and trying to find influencers or trying to find partners. We actually have -- it's inbound as well. A lot of people want to be associated with us, just like we want to be associated with them. So we are able to get better bang for our buck from a sales and marketing perspective, and we'll continue to do that. But it's really getting to those EBITDA margins that you see Monster deliver time and time again.

And there's lots of leverage in the system as we scale between G&A, and like Jarrod's mentioned the sales and marketing piece, like with the 95% ACV would improve shelf placement, your dollar is going to be more effective, more efficient as we go and continue to scale this business.

Yes. Just out of time, but perfect. Great update. Thanks for all your input and thanks for being here with us today.

Thank you. thank you, everyone.