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

I think we can get started now. My name is Sean McGowan. I'm the analyst at ROTH that covers Celsius. And with us from the company is Toby David, Chief of Staff; as well as Paul Weisman, Head of IR. So thanks, guys, for joining. Pleasure to have you at yet another ROTH event.

Pleasure to be here.

Let's maybe set the table with the kind of 30,000 square. How would you define what Celsius is today?

Celsius is a leading functional energy drink brand on the market, our third largest energy drink brand behind both Red Bull and Monster here in the U.S., did close to $1.4 billion in revenue in 2024, we just acquired the fourth largest energy drink brand in the country, Alani Nu about 2 or 3 weeks ago. Pro forma 2024, it's a $2 billion entity. Really excited about that as well. But we're looking to deliver on what modern energy is and what consumers want these days?

Let's start with the line new then. What does a lot of you get you that you didn't already have? -- somewhat. Is this even better for you? Is it a different consumer, different demographic?

It's actually an interesting parallel. Alani Nu was born through a fitness influencer Katy Hearn, targeting females. They were loud and proud saying female energy in the early days, not as pronounced these days, but about 90% of their consumers are female, really tapping into a younger audience, but they were born in health and wellness as well. When we -- our roots are in the vitamin shops, GNCs of the world, they launched in GNC as well. Celsius does very well in fitness. Alani Nu does as well. Now just because we have those similarities doesn't necessary we're cannibalizing each other. I think these are the trends that people are looking for. So just because Celsius over-indexes female, we're a 50-50 gender neutral brand. We've done great with females. We do very well with men. Alani Nu -- there's only one females consumer. Females, they enjoy more than just Celsius, and they're enjoying Alani Nu as well. Anyone has ever tried to Celsius I'd encourage you to try Alani Nu which is very, very different than Celsius, it's a much sweeter profile, but they're growing rapidly. I think in the last 4 weeks, Paul just pulled the data this morning. They're growing 99%. So I mean it's just some incredible growth rates. Looks very similar to where we were 2 or 3 years ago. So we saw an opportunity. We felt like we got an amazing value on a brand that's growing this rapidly. There's only 5 other brands who have ever going to reach the market share they're already at, and we anticipate them continuing to grow.

That's helpful for setting the table then. If we look at the category then and we look at Celsius' growth and a lot of new and C4 growth goes and some of those others, is there even any growth in everybody else? Everybody just fighting for that last incremental dollar.

I think you've seen Monster and Red Bull get back to growth this year, '24 was challenged. But the category is growing in the last weeks is about 7%. So it does appear that the category is healthy again. And we anticipate that to continue throughout the year. Red Bull and Monster have done a really good job in the last 12 months and some of their innovation and their limited time offerings that have spurred some maybe greater frequency of consumption. So they're doing well. Ghost and C4 have slowed down a bit. And you've really seen Alani to kind of separate themselves from that pack of 3. I think 12 or 18 months ago, they were all very similar. That's not knocking Ghost or C4, very nice brands, but they've kind of -- they've slowed down quite a bit. Alani is really the growth engine of the, let's call it, outside of the big 3. They're the ones that are growing the category right now. And for Celsius, we were growing at triple-digit growth for almost 3.5 years. You saw a slowdown just over the last 9 months or so. But we're confident that we have the right plans in place to recapture that momentum in '25.

I'm going to circle back on that particular aspect in just a second. But if we look at the category and you referenced that it was challenged in '24, what's your read at this point looking backwards on what drove that slowdown? Was it inflation fatigue, economic concerns with a lack of innovation? What do you think was going on?

Yes. I mean it's very rare in our category, but I think you saw it across CPG a slowdown across the board. So I think consumer sentiment was challenged last year and you hear a lot of people talk about the election cycle was creating a lot of maybe temerity with consumers and not looking to spend. We didn't see people leaving the category. What we saw was really a reduction in the frequency of consumption. So people are just drinking less energy drinks. Another piece that I think affected us more so than our peers was the new to category. People weren't coming into the category last year, which I think makes sense. If you're trying to save money, which most people were or a lot of people were last year, you're not looking to spend money on goods you've never consumed before. So for us, I mean, earlier last year, we would call out about 44% of our growth historically had been new to categories. So all of a sudden when nobody is entering the category, that was going to affect us at an outsized margin compared to a Monster or Red Bull.

And if you flip that, you accounted for a disproportionate share of the revenue from new consumers new to the category. So if there aren't as many of those that will slow down. Is there anything else you could point to within maybe things that you could control or do differently that would kind of look back and say, here's what happened last year and is what we're doing differently.

Yes, certainly. I mean it's not just outside factories. You look internally and try to be introspective and look at the different marketing tactics you have. One of the things that we're focusing on this year in '25 is we've done very well as far as brand awareness, especially in certain regions of the country. We do very well once we get trial from consumers that they come back for consumption. So there's a couple of things we're doing. We're looking to drive brand awareness in the markets where maybe we don't have that double-digit share like we've talked about previously, like South Florida or New York City, Boston, L.A., Minneapolis, Chicago, and we're looking to drive brand awareness there. But what we're also looking to do is drive people to trial the product that maybe have heard of us before, but never induce them to try the product. And so we've done quite a bit of analysis and data mining to figure out, okay, who are these consumers that have heard of us that aren't trying the product. And how do we have to message to these folks to get them to try Celsius because once they do, they come back. So we feel like we have the right plans in place as we enter Q2 and the summer season, we have a pretty robust marketing plan that we're looking to execute this year.

Can you give us some specifics or is that too much trade secrets...

That's a little bit too much secret sauce right there.

Okay. Fair enough. With all that in mind then, how -- what are you looking at being different in '25 in terms of innovation or SKUs and flavors. You talked a little bit about hydration and Some of the packs. So what's driving the growth?

Yes. We've got about 6 new flavors that we're rolling out right now. Most of those are exclusive for a short period of time at specific retailers. So we have a play a coconut flavor that's at Walmart right now, we have a retro that's a Sherbet flavor. That's at Target right now. We have a few other flavors that are just at the beginning stages of launching. Those will go out nationally once those like 30, 60-day windows are done with their exclusivity periods. One of the other key learnings that we've taken over the last 12 months, and we've seen Alani Nu actually do very well, but Red Bull has done a nice job as well as these LTOs, these limited time offerings, seasonal flavors. These are things that we've taken a look at, and I wouldn't be surprised if you see something maybe in the back half of the year for us there. That's something that can not only bring in new consumers, but also drive greater frequency with your existing consumers, which can really drive share in revenue.

You guys said where Alani Nu's ACV was at the time of the acquisition?

Yes. So they were just below 80% ACV in total, but they're only at about 55% ACV and convenience. So there's a few areas that I think are huge opportunities. Number one, can be interest getting further expansion there, but just getting more SKUs on shelf. I mean, their velocity is very strong. They put up good numbers last year. They had very productive meetings with retailers last fall. So as the planogram resets unfold right now and through May, I would anticipate that they're going to probably get some significant shelf spend.

Now is that something that Celsius can help let with or halo effect? Or like how do they get that ACV up. Now they part of your organization?

Well, once the deal closes -- once the deal closes that's something that we can impact. We have a pretty significant sales force feet on the street. So in independents or 7-Elevens, where we go to shift the space around, I sure that's something that we can help benefit them. They're in the AB system, Anheuser-Busch, independent network around the country. AB has lost quite a few brands over the last 24 months. Poppi was just announced yesterday with Pepsi, Electrolyte, last year, C4, Ghost, Celsius a couple of years ago. Right now, Alani Nu is kind of the lone man standing within that organization. So they're going to get pushed quite a bit. So we're really excited about what they're going to continue to do this year.

Should I handicap like who's truck it's going to be by the end of the year?

That would be up to you. We haven't really spoken about Pepsi or Alani Nu. Pepsi was aware of the transaction, and we have great conversations with them, great lines of communication within their organization. So they are aware of the transaction beforehand. But that being said, the AB network is a fabulous one. So they're in good hands right now, and we'll see what happens in the future.

Celsius ACV is already really high, but are you still adding incremental retail outlets or filling out existing customers.

Yes. So I mean we're close to a 99% ACV right now. John Fieldly, our CEO, referenced on our earnings call. that we're anticipating 15% to 20% additional gains this year in space. On top of that, Subway is an opportunity for us, Pepsi won that contract last year for this year. So that's upwards of 18,000 locations that we have the potential to be in.

Does that automatically cover the franchisees? Or is it like a heavily suggested kind of thing?

I don't want to get in too many specifics where we think we have a really good opportunity to get into those locations. Home Depot is another location. You got a lot of energy drink consumers that pass through those doors on a daily basis. So as far as within track channels, we've got pretty good reach, but it's the depth within those locations and we still have an opportunity to expand within.

And I noticed when -- after you did the Pepsi -- started working with Pepsi closely. There was -- suddenly, it was in several locations within a CVS or within a [indiscernible] or something. Some of that was already in the works that Celsius had on its own, and some of it, I would imagine it was incremental with Pepsi. Has there been any pullback from that, the number of spots within some of these supermarkets or convenience stores [indiscernible] located?

I mean one of the things Nielsen and I [indiscernible] track is number of displays and inventory on display. And I mean, Celsius really hits above its way there. And then we're on partner with Monster and Red Bull. We get a ton of incremental displays in-store, end caps. And that's a combination of factors. Number one, we have a phenomenal field sales ratio that goes in there builds relationships with the store manager. And help us get those, but also Pepsi, mean this is really where the power of the Pepsi blue truck, their reps going in there, their relationships. They're the ones building a lot of these displays for us as well. So that's really an important part of our business and continuing to get those incremental space. I would say that's continued to grow even into this year.

And how about some of your international partnerships? How are those relative to your expectations?

Yes, phenomenal. So we used we went into Canada at the beginning of last year, that's with Pepsi. We also went into U.K., Ireland, France, New Zealand and Australia last year. All those were with Suntory. Suntory has been a phenomenal partner for us. They're also a Pepsi partner in a lot of markets as well. But we've seen some very solid returns this far, we had mentioned that we got off to the 5% share in Canada very quickly. We're seeing this year as the resets flow through in the planogram I went into Australia in Q4 and really have seen some amazing returns on it there thus far. U.K. market top 5 in the world. We took some key learnings out of there. I think we launched it around June last year. But by the end of the year, we felt like we had some pretty strong footing within the Tesco locations that we're in, and now we're starting to roll out nationwide and think that we're really well positioned there as well.

I think it wouldn't be a 2025 conference without mentioning the word tarrifs. But I don't imagine this is a big deal to you guys does canning prices or is there any real impact?

We have best-in-class supply chain. Paul Storey came over Head of Global Ops over at Monster a few years ago for us. So we've that we've mitigated a lot of the potential, call them tariffs or any other exposures that could be flowing through. And I had it explained to me I should have taken notes from our Chief of Supply Chain when he went through aluminum how it's actually sourced out of Australia, flows into Canada and it's a whole -- I mean, sorry, it was above my pay grade. So I will just say this. We don't anticipate it having a significant impact if it has an impact at all. And we feel like we're really well positioned right now.

All right. Thank you. I think we have time for maybe one or two questions from the audience, if there are any. Go ahead.

So yes sure with Alani Nu. So yes, super excited about them. They're the #4 energy drink brand in the country. They did close to $600 million last year, 15% EBITDA. Jarrod, our CFO, said it at earnings that we anticipate about $50 million in synergies over the next 2 years. I feel like that's pretty conservative also -- when you look at a lot of their ingredients, their cans, where they're made, a lot of the same suppliers we use, instead of $600 million worth of product flowing through, you're going to have over $2 billion in terms of buying power. So that's just on the overall profitability side, but just they're growing rapidly right now. I referenced already. They grew at about a 65% clip growth full year '24. That's accelerated. They're up to 98%, 99% right now in the last 4 weeks. It's funny when I have conversations with folks here that you bring some folks you bring up Alani Nu they're like they actually dispel it, they're kind of confused at what you're saying. And I'll say, listen, if you've got a daughter who's in college, he's going to just ask him if they've heard of Alani Nu, right? And it's just it's hot. It's hot right now. There's a lot of surveys out there on both Celsius and Alani Nu with a younger generation that I think when you look at those 2 combined, really makes you quite competitive with Red Bull and Monster especially with that younger generation. You continue to win there and compound that over years. And that's how you close the gap with a Monster and then a Red Bull. Between the 2 brands right now, you're looking at somewhere north of a 16 share, which I mean nobody has touched that ever other than a Red Bull or Monster within our category. So I mean Celsius was the first brand in over a decade to exceed 10 share. And now with Alani Nu bolstered onto our platform and the growth that they're seeing right now. I mean we're really excited about the opportunity. And excited about the valuation we got as well. And no, it's going to be accretive for our shareholders. Well, I don't know, I don't want to get into like the specifics of it. We've known those guys for a while. Max and Trey, 2 of the cofounders were the guys driving strategy there. We know the founders or leadership of all the major brands, whether it's Red Bull, Monster, C4, Ghost, Alani. So it's important to keep a healthy open dialogue. I mean even though we're competitors on the street, you can be cordial with each other. So we've known those guys. We had heard there might be an opportunity, and we engaged in conversations with them.

[indiscernible].

Yes, sure. So as far as on innovation, the powders, I mean, the powder -- the caffeinated version of Celsius, we do quite a bit of business with that. I think it's around 5% of our revenue, which is solid for us. But I also think that's a big opportunity for us to get further growth. I think most of our consumers don't realize we have stick packs that they can travel with. We have a very robust innovation pipeline. I sit on the innovation team with a few other folks, and we're looking at a number of different areas of growth, whether it's within energy. I think there's different formats and different things we can do there. Also, you mentioned hydration. We're kind of dipping our big toe into hydration with the stick packs, just launched that on Amazon in Q1. It's going to be going into some large brick-and-mortar stores in Q2. So I think there's some definitely some other categories that you can get into. It's interesting the paraxanthine that you mentioned. I mean very interesting ingredients. I don't know most people in here probably don't know what paraxanthine is. But it all comes down to costs and supply chain, and those are definitely interesting. I guess they're not technically caffeine is my understanding, but similar effects.

[indiscernible].

Yes, very interesting stuff out there. So I would just say that we have a robust innovation pipeline. We look at a variety of things.

[indiscernible].

Yes. I mean it's a fair question. I guess Aspartame got an ugly name over the years and some diet sodas continue to use that. We predominantly use Sucralose and Alani Nu uses a variety, including Sucralose. It's a balancing act, right? I mean if you don't want sugar, you have a certain amount of alternatives to sugar. Then the question is, do you want something that's going to taste good so that you can hit the masses with it. So it's tough to come up with maybe something that's perfection for everybody. So where we try to meet is what can we hit a broad audience with and make it as healthy as a product as we can that taste as good as possible. We're always looking at alternative sources for all ingredients, whether it's sweeteners or anything else. And if there's something in an area that we can dive into and create a great tasting product that maybe can hit a different audience or even a broader audience, that's something we'll consider. But we feel very comfortable that when you look at our label versus any other sugar-free brand, we've got the best label out there.

Toby, some of the start-ups are focusing kind of on gut health or probiotics. Is this something that Celsius is considering?

I would say that we -- as I mentioned, we have a robust pipeline on innovation. You saw Poppi get acquired by Pepsi yesterday. I think that just reinforces that consumers are looking for functionality and better for you. And whether it's modern soda or modern energy. So I think what you saw with Pepsi and Poppi just reinforces the positions of Celsius and Alani Nu and some of the other energy drink brands out there that are part of the new energy category. Is that an area that we could dive into? And we'll see. I think there's a variety of other categories outside of energy that we take a look at and try to identify, is that something that Celsius as a brand can play in or maybe you create an alternative brand and use the muscle of our current infrastructure and potentially a Pepsi distribution system.

[indiscernible].

Yes, we feel pretty good about what they're doing. We feel like we're as well positioned as anybody. I just mentioned, I would put our label up against anybody in the top 20 energy drink brands as far as the ingredient profile. We actually spend more money for the way that we produce versus our peers by not putting natural or like sodium benzoid and these preservatives in there. So we go out of our way for that. So we feel really well positioned there. Anything that would affect us would likely affect the entire category, and it would be something that would be stair step. So I don't think there's certainly nothing for us to be concerned about.

Can you talk about some of the high-profile sponsorships or affiliations that you've got going from a marketing standpoint? And how do you want to be identified with the consumer?

Yes. I mean we really have a broad marketing approach. So we do have some big platforms. Ferrari on F1 is a big sponsorship for us. We're the official energy drink of Major League Soccer. We're partnered up with Jake Paul and some of his mega flights with like Mike Tyson that got over 100 million eyeballs. So we take heart in a lot of these big properties. But I think what's been important is you need to maintain that authenticity as a brand and continue to build like this grassroots program. So fitness is where we grew up. So I was just at the Arnold Trade Show, Arnold Schwarznager puts on the largest fitness trade show in the country in Columbus, Ohio, which is wonderful to visit at the beginning of March when it's snowing out. But that being said, we have a big presence there, and we're going to continue to have a big presence, whether it's there or the smaller shows around the country, sponsoring the trainers, the athletes. So we want to build from the ground up. So I think a lot of times, it's not necessarily the mega influencers, but it's these nano influencers that have the smaller followings that you can really cultivate this authenticity with that we've looked to maintain because that's where we grew up. So it's important even when we grow wide that we still continue to resonate with that group.

When the Essentials line was launched in a 16-ounce can, John Fily made a point of like telling all you guys got to be an incremental sale. We're not swapping out here. How has that gone? Has it been incremental? And how is that line generally succeeded?

Yes. We feel like we saw some nice initial success with it. It jumped out to about a 1 share, which is where we're at today. It's a nice piece of volume for us. We certainly would like to see it grow more. I mean it's only 1 year in. It went national Q1 of last year. It has been incremental, really targeting a different consumer with that more of your traditional male energy consumer, push that into fitness as well, but it's done very solid within the convenience stores. So 16-ounce that's going to be an area that we're going to continue to push within along with the rest of our other lines, whether it's our core, our Vibe or 16-ounce.

Should we look for Alani Nu to do with 16-ounce?

Well, what's interesting is we're going to try to keep our hands away from the cookie jar when it comes to Alani Nu. I mean -- we don't want to get in the way of what they're doing from a marketing and strategy perspective. Those guys are building an amazing brand over there. So I think that's one of the mistakes that maybe some of the companies that acquire do is they want to immediately go in there and start doing like all sorts of cost cutting and get involved in marketing. And we've got the founders locked up for the next 24 months. They're key -- I mean, these are the people that drive the strategy. They're bringing a lot of the marketing folks over. We're going to let them to continue to run with the business. They have some interesting innovation they've got in the pipeline, but not at liberty to talk about that.

Any other closing questions before we let you go? Well, thank you very much, Toby. Always a pleasure.

Thank you.