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

Hi, everyone. We're going to go ahead and get started. My name is Jim Salera. I run the packaged food and beverage practice here at Stephens. And today, I'm excited to announce with us are Toby David, Executive Vice President; and Cameron Donahue, Head of Investor Relations, both with Celsius. Thank you guys for joining us today. Excited for our conversation.

I think a good place to start, a lot of investors are familiar with the brand, but a lot of investors, I think, are still starting to gain familiarity with it. Celsius is one of the fastest-growing brands really across all categories. What would you say about your product resonates so much with consumers that supports the growth that we've been seeing.

I think the brand is capitalizing on the health and wellness movements that have been underway, probably the last 5 to 10 years. The brand has actually been around since all the way back in 2005, it was born in the fitness space, really more of a pre-workout dietary supplement. And over the years, through different management teams, we've transitioned into more of an energy beverage that has multiple usage occasions throughout the day. So whether it's as a workout drink before going to the gym, whether it's for traditional energy drink purposes, whether it's for consuming with lunch, which is really nice usage occasion for us and what is one of the ways we differentiate from traditional energy. We just have multiple areas where you see the consumption of Celsius, and we are a better-for-you brand. You look at -- we have a cleaner label, no sugar, no artificial preservatives, no artificial colors or flavors. We have 7 essential vitamins, green tea, guaraná, ginger. So just overall, cleaner label. I think also just the roots being from fitness give us credibility and authenticity with the consumers. You take a look at other brands that try to launch and maybe position themselves with an influencer and it just might not resonate because it feels like it's forced. It works in some other categories, but haven't really seen that really resonate in the energy category. So we're capitalizing on that now. We've got a fantastic marketing team. We've increased share. And quite frankly, we feel like we're -- the Energy 2.0, and we're here to compete with Red Bull and Monster.

And I think also the demographics that we have is not like traditional energy. Typically, we had been kind of that 24 to 45, probably the last 3 years, that 18 and 24 has been the fastest-growing segment of the demographic and then as well as the index of male, female. So we're really driving a lot of market share from outside traditional energy.

That's great. Last year, you guys got a big win, signing distribution partnership with Pepsi. Can you just offer us some thoughts on how that partnership has helped fuel your growth and really kind of the incremental opportunity that, that brings to distributing the brand?

Yes. So the opportunity present itself and August 1, we signed a deal last year with Pepsi that came in as an 8.5% owner within Celsius. We transitioned the distribution over them, October 1, 2022. We were sitting at about a 65% ACV, which means we're in about 65% of the tracked retail locations nationally when we commence that transition. Quickly, rapidly, we jumped to about a 90% ACV by the end of the year, and now we're situated around 95%, which is close to full distribution at this point. I mean, really, it's just the opportunity to partner, and there's really a big 2 between Coke and Pepsi. Being able to partner with Pepsi has been fantastic. They're best-in-class as far as their distribution, merchandising. So we've been able to leverage that. We still have our team making all the call points with the retailers, but being able to leverage their muscle has really been phenomenal for us. I think that's part of the reason why we've seen so much growth. But getting on the shelf isn't enough, there's a lot of brands that get on the shelf, but being able to rotate is really the key, and that's where ultimately it comes down to your marketing. And I think what people have seen is our velocities have really maintained with this massive distribution that Pepsi has been able to get us out to, especially within the independents. But there's -- I mean, so much they're bringing to the table, foodservice. That's really an area that we hadn't tapped into previously. So foodservice, the way Pepsi defines it, therefore, we define it the same way. It's traditional eateries, but it's also could be college and universities, vending, [ lows ], I mean it's all over -- all across the board, hospitals, hotels, so we're going out to Vegas for the F1 race after the show. The casinos are part of that as well. So it's just been a phenomenal opportunity. And really, it's the opportunity to be the #1 energy drink in their portfolio and lead horse for Pepsi in this fast-growing category.

That's great. Toby, one of the metrics that you mentioned there was ACV and how we saw a pretty rapid step up in that following the partnership. But if we think about the actual breadth of your products available in the store, how do you think about the opportunity there to really increase the number of available SKUs in the number of facings, especially relative to some of your peers, you mentioned like a Monster or like a Red Bull.

Yes, there's still quite a bit of opportunity for further distribution for us and not necessarily new retail locations, at least within the tracked channel. But the breadth, as you called it, we're sitting around 15 SKUs per location in the tracked channels. And when you look at Monster, Red Bull, they're around 25, but it's not just SKUs, it's the facings within the cooler where you'll have -- the Monster Green Claw, for example, that's 1 SKU. They might have 2 full shelves just of that 1 SKU. So you see Red Bull and Monster with 40, 50 facings in a lot of these traditional retail locations. So we're situated -- we're 1 for 1, 1 SKU, 1 facing for the most part. So really for us, it's about getting more SKUs, more facings, better location. I mean, a lot of times you find Celsius were down in the bottom shelf, up in the top crack. And that's because when we were negotiating with retailers last year, we were at about a 3.5% share. This year, it's quite a bit different. We're able to negotiate from a 10% share, #3 in the category. So the hope is, is that next year, we get more SKUs on the shelf and much better location, which drives trial, and we have a stickiness where when people try our product, they tend to stay with us.

I think we touched on a little bit some of the unique characteristics that Celsius has. But how does that enhance your ability to really reach beyond that core energy drink consumer that we've talked about. And in particular, tying that back to retail, how does that impact your ability to maybe gain shelf space that's outside of where your energy drink peers are positioned in the store?

Yes. That's really one of our strengths is we're bringing so many new consumers to the category. I think Numerator had some data out there around 44% of our consumption is new to category and then another 40% or so is what they term user intensification which means that people are consuming more of the product than they otherwise would have. So what that means is over 80% of our consumption is incremental to the category. And that's really important to retailers. I don't want to just trade out of -- from a Red Bull or a Monster to Celsius such as changing dollars. It doesn't benefit them. So number one, we're bringing new dollars to the category and to that retailer, we also have a higher win rate. People are consuming or eating other products when they go into convenience stores. So that creates opportunities for us to -- when we go in and pitch retailers, not only is our velocity strong, therefore, we merit more space. We're also bringing these new consumers. And who are those consumers? We overindex, clearly, with females, many people know that and we're about a 50-50 male-female split roughly. We're unisex. We don't position ourselves one way or another. We also -- I mean, per Numerator, we over index African-American, Hispanic. We really have this broad swath of consumers that find our drink appealing. We're incredibly popular with, call it, the college age students. Anyone who has children may probably could ask them, they can -- Celsius over-indexes in that crowd, but also, I mean, I run into people in their 50s and 60s all the time who are not your traditional core energy consumers, and they drink Celsius all the time, especially that's where we come to all these investor conferences, we try to get people hooked here, and then hopefully that can help create higher velocity for us.

Well, to go off of that point, obviously, you have your product here at our conference, kind of the traditional white collar office worker. We've seen a very high adoption rate in that cohort, which is not your typical energy drink cohort. You talked about some of the brand positioning, but what do you think about Celsius again, relative to some of your peers allows them to win in a category with white collar workers where energy drinks normally wouldn't be.

Yes. We used to -- like our CEO and I used to joke that -- and this is before we were picking up a lot of market share, but someone walking into their office on Broadway, whether it's whatever [ fund ] it might be, if they're walking in with like a bang or I won't name other names, I'll just say with bang, [ their boss goes ], what does this guy do last night? Like was this guy partying? like he has to drink this, whereas the perception of Celsius is cleaner label. It's really -- I don't -- somebody shows up with the Celsius and they're not like, okay, this guy is kind of suffering from a hangover or something like that. It's got a little bit different reputation. I think it's because of the roots and the fitness and that you see a lot of hardcore like trainers and other people like that, the consumer product and then just kind of snowballs from there that if those people feel this is a quality product to consume, then it's good for me. And there's just really a lot of different usage occasions for it. I mean people are swapping out their coffee in the mornings and maybe their afternoon coffee for Celsius, again, consuming with their lunch. I look at it almost as a functional soda in some senses where some of our flavors taste like a traditional soda that is maybe better for you, but also provides that energy to help them get through the rest of the day, and it pairs well with food.

That's great. Why don't we pause there and see if there's any questions from the audience?

As you think about your share gains, when you think about kind of taking share [indiscernible] what color [indiscernible] share gains [indiscernible] that market or moving down market?

Yes. So as we look to pick up share, we like to have our cake and eat it, too. So we're going to want to pick up share by bringing new consumers to the category. But obviously, when Monster and Red Bull control roughly 70%, 75% of the category. You want to be able to pull from others, including those 2. So I think when we look at what we're trying to accomplish, it is -- it's both of those, right? And we've had some success stories. You look at Amazon. We're the #1 energy drink on Amazon. We've historically performed very well there. We just passed Monster for #1 this past quarter. We've called out -- understand some people were skeptical about the Amazon data, will this convert over to brick-and-mortar. And earlier this year, we began citing our South Florida data because it is a very strong market for us. It's a top 10 energy drink market in the country, and we're situated around the 24% market share down there. And I've been saying it throughout conferences this year that we feel like it's not a fully baked in, fully mature market at this point. And if you look at it, we called it out on our last earnings call, or John did, our CEO, that at the beginning of the year, we were roughly, I believe, a 17.7% market share in South Florida, and we're up to 24% now. So that's a mature market. So what we're looking to do is replicate that across the country. We have what we call drill-deep markets. That was the foundation when we came in as a turnaround management team was we had finite resources. So we really focused in on 5 markets around the country to put all of our capital and resources towards. It was South Florida, Tampa, New England, Dallas and Los Angeles. And then we picked up New York somewhere along the way when we picked up Big Geyser as our distributor there. And if you look at those 6 markets, we really over-indexed there from a market share perspective versus our national average. South Florida is only one we've named, but I can just say the other markets well exceed that 10% national average. So what we're doing now is we expanded to 18 markets last year. And when I say we expanded, we've been in these markets on the shelves to some degree, but we're putting resources there, whether it's marketing or sales or feet on the street, identifying from a marketing capacity, what events are the cool ones that we want to be associated with. Sales reps out there helping to get us incremental placements in stores and then geo-targeted marketing tactics. So we've been putting those resources towards those 18 markets last year, 23 markets this year, and we're going to expand to 30 markets next year. And then we also have an umbrella marketing national plan that we put a lot of resources into as well. But we're essentially targeting the top energy drink markets in the country. And we feel that the success we've had in those original core 5 or 6 markets showcase that we have an ability to expand not just in South Florida, not just in Boston or New York or Dallas or L.A. but we can do this across the country and then hopefully, internationally.

And I think just one other thing is the 58% of our sales are coming from C-store, if you look like a Monster or Red Bull, it's closer to 70%. So there's still a lot of room to go as far as getting the expansion within that convenience channel.

Just a follow-up on these focus markets. [ If you thought it was cohorts ], how should we think about that ramping to market share, take 5 years and take 3 years?

So it shouldn't take 10 years like South Florida then or however long is we've really been around. It's tough to identify exactly what that time line looks like. I think each market is going to be a little bit unique because you have to -- we have a playbook and then we toggle it for, call it, regionality or like the culture of the market because Portland, Oregon is a little bit different than Miami. So you've got to kind of figure out what are the little tweaks and whether it's a different events that you're participating. And that's why it's important we have marketing folks on the ground to tell us what we want to be associated with in each market. So I mean, I can't really give you a firm time line. It's not going to take 10 years. I think that when you look at that South Florida data though, I mean, we jumped from a 17.7% market share to 24% in 10 months, which is really phenomenal. So as a percentage, is it like a 25% roughly gain over the course of the year. I don't know if that's the expectation in every market. I don't want to like put a firm number on it, but I would anticipate and what we're seeing is market share gains in some of these newer markets for us. And I mean, there's some of these cities, I mean, we've really only been focused in the last 12 to 24 months. So it's taking some time to get that brand awareness. There's a lot of accounts like Circle K as an example, second largest convenience store chain in the country. We just went into most Circle Ks in the last 12 months. So to Cameron's point, we're under-indexed from -- as a share of our total revenue coming from convenience, but it's not because we're not performing there. We perform our velocity strong there. So that just means there's a lot of opportunity not only from a velocity standpoint, but really in these new markets that -- where our brand awareness is relatively low by driving that brand awareness, which, therefore, drives increased velocity in those major energy drink markets and then you'll see it in the total national numbers as well.

And just with that growth on the top line, it would probably be $300 million is that approximately 20% that's sold on the sales and marketing as a percentage of revenue. And so you get $300 million versus $150 million. So you have a lot more capital to accelerate those markets.

[indiscernible] the top 5 markets that you started with? Roughly, what was [ the standard of ] the energy drink market is that and what [indiscernible]?

They're probably top 10 markets.

Well, I mean, L.A. is the largest energy drink market in the country. Dallas is either #2 or #3. Miami is a top 10 market. Tampa is a top 25 market, New England is a top 20 market like Boston. So I mean just for perspective -- New York it's a top 5 market. So I mean, just -- I don't know what as a percentage, I can say the 23 markets we're in now, it's kind of like 80-20 rule. So these are the very -- most of them are large metropolitan areas [ worth ] that drive and they all drive a ton of energy drink sales. So that's why we identified them. Some of them would be surprising. I don't want to name them all because some of the brands might be listening to this right now, and I don't want to let our total play book out. I mean they have pretty good deal what's going on. But we focus on where the energy during consumption is and then that's where we want to focus on. And then we can start focusing on the mid-markets after that.

Can you just talk about [indiscernible] or contract and just the last [indiscernible] [ marketing of '21 and '22 ]. How you avoid the forecasting issues that can...

Yes. So we're very fortunate. About 2.5 years ago, we have a gentleman named Paul Storey, we brought to the team as our Head of Operations. Paul was the Head of Global Operations at Monster Energy. So that was a really nice [ queue ] for us to be able to pull him over to our side, over the good side. So Paul was also the Head of Operations at Rockstar as well. So I mean he's incredibly talented. He knows the business. He has best-in-class relationships. I bring that up just because, I mean, he's able to be part of some pretty large organizations to help scale Rockstar, and he's helping to scale us. We have plenty of capacity. There's challenges that we have, we'll have challenge with sales team like to outsell his capacity. So we're -- we work with the biggest can companies, Ball, Crown, Ardagh. We're very well situated there from a co-packing perspective. I think we're -- I don't know what the exact number is. I believe we're around 13 or so co-packers at the moment. We have what we call an orbit strategy. So if you picture a bunch of circles on a map, we are up to 8 orbits where what we try to accomplish is we try to produce the product, ship the product to a warehouse, ship that product from the warehouse to the distributor, and that distributor ships it to the retailer, all within these like geographic circles because we want to put a few miles as possible on the product, helps pricing, it helps on damages, user experience, everything. So we have a pretty sophisticated organization from the op side, and we're very well situated to scale.

So it's all co-packed?

It's all co-packed right now. At some point, I mean, the vertical integration could be something we take a look at. You've seen Monster do that on the -- they acquired a flavor house, I believe, about a decade ago that we had been producing their flavors. I think they actually have 2 manufacturing facilities now, one, I think, in California, I know they acquired one in Arizona through the bank bankruptcy. So it's something that we look at, if it makes sense, if it's the right thing for us, the business and our investors, that's something we'd take a look at potentially.

Great. Maybe just to wrap up as we were kind of talking about the versatility theme. Toby, you had mentioned some of the food service opportunity with Pepsi. Recently, you guys announced pretty significant wins at Dunkin' and Jersey Mike's. Can you maybe just give us some color into how those partnerships unfolded and what the opportunity in foodservice looks like?

Yes. So for quite some time last year or 2, we've seen -- and I've mentioned already here, we've seen people consuming Celsius with meals. So we always felt and had heard -- we had felt it and we had heard it anecdotally that some sandwich shops in the bodegas in New York City and what we see locally down in South Florida where we're based, people consuming it with meals. So when we transition over to Pepsi, we had very little food service as part of our business at that point. But because of the -- really the bandwidth that Pepsi has, it provided us an opportunity. Ramon Laguarta, CEO of Pepsi. He actually helped [ Coke ], somebody out of retirement that he just retired from Pepsi that was an executive on their foodservice team and he joined our organization, which is really critical to have somebody who understands the infrastructure of Pepsi. It's a very complex organization. So if you're coming as an outsider like myself, it would be incredibly difficult to navigate it quickly. It would take a while to understand it. The acronyms they use are phenomenal. I don't understand most of them still, but we were able to get this gentleman, [ Rand ] is his name, over to the team, and he just knows insides and outs of everything Pepsi, their food service. So that really in Q1 is when we began leveraging him and his knowledge base. So it's not just food, but you said it Jersey Mike's. That's a huge opportunity for us. There's 2,000 Jersey Mike's around the country. It's an opportunity for us to create a proof of concept that then we can take to other eateries around the country that are -- especially the ones that are Pepsi-oriented and that's going to be an opportunity moving forward. But then on top of that, the college and university component of foodservice that falls within foodservice is huge for us. Just to be able to go after the early adopters, the heavy consumers, the college kids, you couldn't get on college campuses historically and let -- [ I'm going to try the red or blue truck ] because of the contracts they have with the campuses. And Pepsi caters to, I believe, about 60% of the college and university population in the U.S. So that's a huge opportunity for us, not just from a revenue standpoint, but just to get in front of these kids from a marketing perspective. And we want to touch people where they live, work and play. So whether it's the convenience store when you're in your way in to work, whether it's at your gym when you're working out, whether it's at your office and it's in a vending machine, we want to be touching people at the airport. We're certainly in a lot more airports. We want to touch people as frequently as possible, and that's something that we're accomplishing.

Do you think, especially given some of the dynamics we've talked about around traditional kind of white collar workers consuming your product. If you can capture a consumer at the college level as they transition through the life cycle and enter the workforce, does that give you an opportunity to really solidify them as a lifetime Celsius consumer if you reach them at college and they just really switch kind of the day part that they consume it in?

Yes. I think like, theoretically, that's like what you want to accomplish. You want to retain these people as long as possible. I think -- what's interesting is because you see people of all ages drinking Celsius that -- I mean if someone does become a lifelong consumer, I mean, you're looking like a 50 or 60 here runway with them. And that's like perfect world, right? So I think really, what we're trying to do is they are the 18 to 25 crowd are the, call it, like heavy users, where they drink 1 to 2 cans a day. So you want to get in with them because they're going to be the ones purchasing with the most frequency, of that note, the blue-collar consumer as well. So these are like all things that we want to work on. But yes, certainly, you want to get that lifetime consumer. And what we found is you see it where -- people still drink Red Bull, people -- a lot of people drink Red Bull. A lot of people drink Monster because they've been doing it for years. So we feel that Celsius is similar that you can capture people, even if it's for a decade or 15 years, that's a pretty good run with someone.

Absolutely. You did touch on your co-manufacturer relationships. Can you just maybe give us a couple of quick comments on capacity-wise, I mean, since you guys have been growing so strong, is there ample room to scale up with them?

Yes. I mean that's why Paul challenges the sales team to out selling because he's very confident that we can continue to produce product as we scale. We're going to probably sell close to 2 billion cans this year. So it's a lot of cans. So yes, we're very confident we can increase and flex with different co-packers around the country. I mentioned around 13 now. We probably predominantly use more like 6 or 7, and we have some flex space with the other ones. And we also work with somebody -- Refresco as an example, and they have multiple co-packing locations around the country and globe, that we can pick up as well if needed and around the globe for international expansion as well.

That's great. If we zoom in to the near-term environment, what are you guys seeing right now with kind of promotional spend? What have your retail partners have been saying to you regarding kind of expectations around promotion and pricing?

I'd say that -- I mean we have a very sophisticated sales organization, and we're in a very highly promoted category. So I think it's around 25 weeks a year roughly that energy is on promotion. So really, what we're focused on is like what's the depth of the promotion that we're going on. Do you need to do a 2 for $4 or can you do 2 for $4.50 and squeeze out $0.50 extra of margin? Do you lose any sales when you do that? So we have a lot of analysis that goes on to that. You see the other -- Red Bull and Monster, they promote very frequently as well. Supposedly, Red Bull is taking price, which is going to be interesting. Are they really taking price? Or are they just saying they're taking price and then are they going to deal down on their promotional spend. So these are all things we take a look at. We evaluate the landscape. We pay attention to what the others are doing, but we typically make decisions where it doesn't really involve what the other players are doing. We took price at the beginning of last year. We made the decision before anybody else announced theirs. So with Red Bull taking their price, we'll see what Monster does. I'm not sure if Monster is going to take price, they may follow down the road. And then we're going to play it by ear and see what happens. But if we do take price, you guys will find out.

How do you feel -- just kind of keep it on that same train of thought about your price position relative to your competition? I mean, obviously, there wasn't a ton of private label in the category. Do you guys think about like maintaining a certain price gap versus peers. Is that something that doesn't really matter in the category? Just your thoughts around that.

Yes. I mean, historically, we've been priced in between Red Bull and Monster. Monster has increased in price quite a bit where -- but on a per ounce basis, we're more expensive that we still fall in between them. So I think that -- and we do feel we have price elasticity and that we could increase price, but part of -- we're a growth brand right now. So part of the decision-making process is if Red Bull does take price and it's getting close to $4 a can, that could be an opportunity to get some of their consumers and say, listen, it's $4, it's too much for me. I can trade into whatever we price set at that location $2.75, $3, whatever it might be. So I mean we take a lot of things into account. We meet monthly. We have a small, call it, management team that sits and discusses and looks at all the analytics. But we feel like we're well positioned right now. The consumer -- we feel the consumer views us as a premium offering. And that's why I think -- I mean Red Bull has that perception as well, I think, within the category as being more of that premium offering as well. So I think that, that could be an opportunity for us to -- if and when they do take price to maybe capitalize on that.

Great. While we're keeping on the topic of kind of pricing and promotions. When you think about limited time offerings, seasonal offerings, what role does that play in your broader merchandising strategy? And maybe any thoughts we should think about kind of entering the new year and again, relative to kind of peer set, what you see them doing?

Yes. So we historically haven't done the LTOs or the seasonal offerings that you see some other brands have, that are only out for, call it, a couple of months, if it's like a Thanksgiving like, I don't know, [ gravies ], I don't know what they would do in the other brands. What you'll find with us is we'll do run exclusives with different retailers over a period of time. We have really good partnerships with a lot of the top retailers in the country because it really needs to truly be a partnership. You can't just like demand, demand, demand. You need to get their needs -- there must be some give and take. For example, at 7-Eleven this year, we launched a green apple cherry flavor and it's been exclusive all year at that 7-Eleven, then that's going to roll out nationally in January for other retailers. So typically that's what you find us doing is running more exclusive flavors for -- and sometimes it's just like an early launch, maybe we'll give it to Walmart for 30 or 60 days. ESSENTIALS is our new 16-ounce line that's sitting in front of me. We just rolled that out at 7-Eleven about 2 weeks ago. We were planning on launching it in January and 7-Eleven said they would take it early. So we're giving them a 2-month exclusivity with 4 SKUs. And then in January, we're going to begin rolling that out nationwide as well. So that's more of our strategy is when you take care of your partners, they tend to take care of you as well. So we like to offer them some form of exclusivity, whether it's like 30, 60, 6 months, whatever it might be.

That's great. And -- go ahead.

You say it's a smaller form factor, 6- or 8-ounce product [indiscernible]?

So I sit down on the innovation team, and we talk a lot about a lot of different options. I think that could make sense to have, whether it's an 8.5, I think a 250 ml like the Red Bull can, maybe at a lower caffeine offering. We haven't made any decisions. As far as that, I mean, we just rolled out the 16-ounce for next year. So I think from an innovation perspective, you don't want to launch too many things at the same time. We want to be able to focus your resources on whatever you just launched. And we're also going to have a bunch of new flavors coming out next year as well of our Core and Vibe lines. But yes, I think that's certainly something that's interesting because if you had a lower caffeinated version, maybe you get an extra purchase from somebody throughout the day or maybe if it's 4:00 p.m. and somebody doesn't want traditional Celsius because they feel like they'll keep them up all night. Yes, it's certainly an opportunity and something that we've looked at, but that's kind of TBD right now.

Great. Again, keeping on the same train of thought with expanded in-store visibility and driving kind of trial. You guys have been expanding the number of branded fridge placements that you're doing. What do you think the opportunity is there? And do you find that in stores where you have branded fridges or kind of off-shelf displays that you see a lot of incremental trial buys and that brings new consumers to the brand?

Yes. I mean the sales are astronomical in some of the locations where we put a brand [ to Core ]. I mean if you throw one into Walmart in like a really good position, the number of case sales that, that drives is -- I mean, I can't tell you, but it's a lot. The coolers pay for themselves very quickly over like 4, 5, 6 months. I mean, if it's at a Walmart, probably in about 3 days, it will pay for itself. So that's been a high priority for us. I think John, our CEO, called out that we were going to be pushing for about 20,000 total coolers placed out in the field this year. So we'll see how close we get to that. It's going to continue to be a really critical piece for us because it's our silent salesman, they really pop, they give you an incremental placement in the store, catches people's eye, you can put a ton of different SKUs and offerings in there. So we're going to continue to push that. They're a great investment. We amortize them. I can't recall it's either over 5 or 7 years, but again, they pay for themselves so quickly that they're really an incredible investment for us. So that's going to continue to be one of our primary tools that we use.

Do you get any pushback from retailers when you try to put fridge placements in or kind of any thoughts on that?

Yes. It just depends on the retailer. Every retailer is different. So typically, if it's a store that sees -- it's typically a store that either we have someone on the ground there that has a relationship with that store owner or manager or the Pepsi folks have a relationship with them, and they're able to say, hey, would you like to take a Celsius cooler in. Sometimes in the past, we used to run promotions where maybe we give them what they call free fill, where you get a full cooler of cans for free, if you place it in there. We haven't had to really do that anymore just because a lot of the stores see value in the incremental place when it drives more dollar sales for them. But it just depends on the retailer. Some retailers aren't allowed to. So like 7-Eleven, you won't find branded coolers typically in there, but then a lot of the independent convenience stores are where the opportunities are as well. But if you can get them in a Walmart, Target, some of these locations, they drive incredible sales.

That's great. I'll open it up for questions one more time. And I think let's switch gears, we talked a lot about the top line. Maybe talk about some of the operations piece of the business. I think a good place to start near term, just what you're seeing kind of commodity basket and how you guys feel about gross margins moving into 2024?

Yes. You've seen some really improved gross margins out of us over the last 12 months. We came in just a tick north of 50% on the gross margin side in Q3. There were some one-offs in there that were to our benefit. I think a more normalized rate would have been around 49%, and that's spelled out in the Q, if anybody wants to take a look at it. We've said really as a benchmark for like the very near future that maybe the Q2 margin profile is probably like what maybe set that as the baseline. We've said historically over the last few years now that we look at Monster and what they've been able to accomplish as really the benchmark of where we want to eventually get to. There is a little bit of noise there because they don't include outbound freight as part of their cost of goods. So that's like a 4% delta. So back -- and Monster has kind of been all over the place in our gross margins over the last few years as they've done a lot of different innovation outside of energy. But I think if you look back about 3 years ago, they're in the upper 50s as far as gross margin, so call it, 59% for them would be 55% for us. So I think that's like a really nice aspirational number that we've kind of looked at. And we think with scale, maybe some vertical integration and some other things going on that that's something that's certainly achievable. And then I think historically, they've been in the 30% to 35% on the EBITDA side, and that's something that we're -- we came in at 27% last quarter, which was pretty strong. So that 30% to 35% number is something that -- we've set that as kind of a target for us as well.

That's helpful. Maybe keeping in that same train of thought, you guys currently have a very strong balance sheet, $750 million whatever in cash. What are your thoughts about optionality? You mentioned vertical integration, but does that cash just build? Do you have a couple of kind of key places that you think it would be best be deployed?

Yes. I've been pushing for management bonuses for a while now since we're sitting on so much cash, but then they're turning deaf ear to that one. Well, I mean we have a dividend payment that we make to Pepsi. So right now, that $750 million is gaining interest and that kind of offsets that dividend payment. It's nice to have the flexibility to be able to make decisions if there is an M&A opportunity. But we're going to be really strategic about it. Where -- we look at a lot of different opportunities. But right now, our mindset is to focus on this unicorn of a brand that we feel we have, and we're going to continue to drive share whether there's an opportunity on M&A with other brands, vertical integration. These are all things that are on the table, but I mean we're going to be very cautious with our approach, and it's got to make sense to our investors.

That's great.

Just on customer acquisition costs. I guess I'm trying to get a sense of what kind of visibility -- or decision happen? You know you're going to spend what's the payout -- is it adding people [indiscernible] the marketing dollars is that people [indiscernible]?

Yes. So as a percentage of revenue, we're going to continue to invest in sales and marketing at a similar rate to what we've historically done. So more recent times, it's been closer to 19% and then in the last few quarters, and then it was closer to 21%, 22% prior to that. So it's going to probably be somewhere in between that range. As a growth company, we're going to continue to invest in it. As far as acquisition costs, one of the things that we really focus on, John, our CEO, is his mantra. We want to own the phone. We're all like, I don't know, I want to say all of us, but many of us are just like staring down our phone all day, our necks are killing us because we're staring down at it. It's something that, unfortunately, everybody is doing. So we want to, therefore, own the phone, whether it's targeted ads, Hulu, YouTube, Instagram, TikTok, Snapchat, we want to hit people over and over, and we can be very strategic in the way that -- and precise with the way that we do that. So if I want to target a 20-year-old male that lives in Portland that loves UFC, I can run a targeted ad with Dustin Poirier, who's our UFC fighter, targeting him on YouTube because we know what they watch and we know their demographics. So we feel that a lot of the more modern tactics call it, or you can have better visibility on the type of ROI you're getting, especially if you're driving them to, call it, amazon.com or walmart.com or like some of these other places for immediate sales. But we have -- I mean internally, we know we've never really publicized like what our ROAS is and all these other acronyms for marketing. But we're pretty -- we do very, very well on the digital front. And we're going to probably consistently stay in the way that we market and maybe stay away from more of the traditional forms of marketing, although we're dabbling right now.

So 2 questions. One on scanner data. So scanner data for the more matured guys, it's tough to tell the sales because they're not going to ask you guys [indiscernible] predictable for a while. Is there a point where you think scanner data [indiscernible] tracked channels inbound is a big dollar amount for you guys? Becomes less predictable to results [indiscernible]?

I think over time, you'll see a narrowing from the -- it's been a kind of decent gap. It's tough, I'm sure, for you guys, like try to plug it into the spreadsheet and it's not adding up the way that what you end up seeing. Especially -- I don't know when that's going to happen because if you look at where a lot of the, call it, like the meat left on the bone in for us is a lot of these independent non-tracked channels. Really Red Bull and Monster own that space, and Pepsi gives us the vehicle to get into those locations. And we're in a lot of those locations now, but you might only have 2 or 3 or 4 SKUs, maybe not the best location because you're just getting into these indies for the first time. So for us, it's about getting a full rows, 2 full rows, 3 full rows in these independents. But to answer your question, I think at some point, I don't know if it's a year out, 2 years out when it is, you'll start seeing a narrowing of that gap. I do think that we're in a unique position as a growth brand that we're generating so much revenue from non-tracked accounts like Costco and Amazon, like those 2 in particular. You're looking at probably what, like $250 million on a run rate wise of our sales, so call it like $500 million of retail sales. If I could just -- nobody else has to put up with that, that's a growth brand. Red Bull, Monster do, but nobody else. So if you want to like look at how some of the other growth brands are doing in our space, like how would we compare to them if you pop $500 million of Costco and Amazon into our tracked channels then all of a sudden our velocity looks amazing. Our market share looks totally different. But I mean, these are all things that we're -- it's a good problem to have, right? We've been fortunate that our marketing team has done a phenomenal job. Our sales team has done a great job that we've been able to continue to grow our velocities and track while we're growing in all these other channels at the same time. And I don't think we referenced it here, but we're #1 on Amazon now, #1 on Instacart which -- I mean, it's really phenomenal for us to be -- these are like the areas that you want to be winning in because it's the direction that many people are flocking to. So we're having success there. And I think you're seeing it in the data that we're calling out in South Florida. And we'll see in the future, we want to be careful about how many markets we put out there. I mean we basically put a bull's eye on us, so to speak. I mean, as soon as we bring up the South Florida data, you've got hordes of Red Bull and Monster folks flying into South Florida with like 50 to 100 people just trying to battle us in the street. So it's become interesting.

Just to follow up on that. You mentioned Amazon [ stat sheet ]. Let me ask questions. So number one on Amazon, you guys announced last quarter. Can you just talk about if there's anything different in that customer mix that makes that market share now [ trending with the rest of the market ]?

I mean, I think pretty much everybody uses Amazon these days. So I feel like that what we've always said was we felt on a fair basis where everything is equal, where Red Bull and Monster don't have 4 or 5 full shelves, and we're stacked with like 5 cans in a cooler. Amazon is a neutral playing field. And we feel that, obviously, we compete very well. So I mean, if you gave us the same space that Red Bull and Monster has, I'm not saying we'd be #1 today. Our share would be pretty significant. It would be a lot higher than it is today if you gave us 4 shelves in every store in the country like they have. I think it's an indicator. It's like what I mentioned earlier, I get that there's some skepticism of how that translates over to brick-and-mortar. But that's why we've been citing the South Florida data. And then depending on -- I mean, it's available for purchase, I mean, you guys can dig into the Boston data, the L.A. data, the New York data, the Dallas data, Tampa. I only bring up Tampa because that was one of our core 5s, another just incredible market for us. John, our CEO, always wants to talk about Buffalo because his family is from Buffalo, I told him nobody cares about Buffalo other than people from Buffalo. So we're probably -- we're not going to call that one now or John might, he might just get crazy one day and bring it up.

Great. Well, maybe as we wrap things up, we can just close with some thoughts on the international piece of the business, which I think sometimes gets over shadowed just given the size of the domestic opportunity. But maybe just some closing thoughts on kind of the opportunity you see in international markets and anything we should be aware there?

Yes. I mean I'll continue to cite Monster because they're an amazing brand. I mean -- and I'm sure everyone in the room knows what their trajectory has been like as a publicly traded stock. So we always like to kind of use them as that benchmark. And I think about 37% ballpark of their revenues coming from international, which is pretty amazing. That's still 67% of what $7.5 billion company in revenue companies still coming from the U.S., which really highlights that, that needs to continue to be our focus. The State of Ohio is probably a top -- would be bigger than most countries around the world as far as their consumption of energy. So that's why it's important for us to continue to focus there. That being said, we also appreciate that expanding internationally is going to be a great way for us to incrementally grow. We're going to be strategic about it. We're not going to have a shocking approach where we're jumping tens of millions of dollars into markets where it's screwing up our bottom line and all of our investors are upset with us on a quarterly basis. So we announced that we're going into Canada in Q1 with Pepsi Canada. We've -- we're looking and speaking with some distribution partners around the globe right now. We're looking at certain countries in Europe. We're looking at -- Japan is an interesting market to us. Australia is an interesting market. Pepsi is our preferred international distribution partner by our contract with them. That being said, we're not mandated to use Pepsi. We'd like to. We'd like to use them as our bottlers if it makes sense. But as I mentioned earlier, we're going to ultimately do what's in the best interest of us as a company and our investors. We're going to do right by them. So there's a lot of negotiating going on. We want to make sure that we build out frameworks that 5 years from now, I'm not up here and you guys are killing me with questions about why did you sign these terrible international distribution deals. So we're doing our best to make sure we lay the foundation for a successful future. And we also want to make sure that we're able to execute in the first 12 to 18 months, so that -- then we can start taking that playbook and that framework into other markets and expand more rapidly in '25 and '26.

Great. I think that's a great stopping point. Toby, Cameron, thank you very much for your time today, and thank you, everyone, for joining us.

Appreciate it.

Thank you.