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

Okay. We're going to get started. So it's wonderful to once again be joined by Celsius CEO, John Fieldly; and Chief of Staff, Toby David, at the conference. There's always plenty to talk about with all of you. And this year, there is no exception, but a bit different than last year, which is awesome. The new Friday is really positive announcement with the transaction with PepsiCo. So I thought maybe I'd just start by opening the floor to give you guys a couple of minutes, and just things you want to share directly on that topic before we get into questions.

Yes. No, absolutely. Thank you for having us. Glad to be back. It's really exciting not only what's going on with Celsius, but the energy category as a whole. We've seen great fundamentals within the category. When you look back where we were at this conference last year, category was in a negative growth rate. It's really -- it stabilized in Q4. We start to see the category come back in Q1 and Q2, it's growing double-digit growth rates and even today. So really good to see. Celsius portfolio, we've seen great growth within the Celsius portfolio, roughly around a 10%, 11% share as we sit today. We're investing behind a LIVE. FIT. GO. campaign we kicked off this year, which we're really excited about, especially heading into the back half of this year. We have a lot of programming and some advertising that will be taking place around the NFL for the first time. There is some media buys we're doing to enhance and really own Live Fit, Celsius Live Fit, inspires you inside and outside the gym. We have the exciting acquisition that happened this year. It's been a busy year for us so far. So we announced the acquisition of Alani Nu. If you're not familiar with it. We do have samples outside, is a female-focused brand. It's inviting, it's approachable and fun flavors, a very inspiring -- and they have some unique flavor profiles. One is Witch's Brew, which is a Halloween theme flavor that's out there. We have some samples to try. It's been doing extremely well and growing first to kick off the integration was April 1. So fully started that integration process in the second quarter. We did put up record revenues and profits, gross profits and EBITDA in the second quarter. And now we just announced a transaction with our North America and Canada distribution partner, Pepsi. So that was on Friday. The company will be a category captain of the energy drink category for Pepsi. We're bringing on Alani Nu into the PepsiCo distribution system. We are acquiring Rockstar Energy within that transaction. And Pepsi has further increased their ownership stake within the company and added a Board seat, which further ties in our strategic position with them, not only from a commercial standpoint, but also at the highest level from an investor stakeholder standpoint. So really exciting times where we sit, and we're going to talk more about that in different areas. But yes, we're glad to be here.

Great. So just focusing on the agreement with Pepsi, I mean, how would you -- what does that really mean though for Celsius' long-term strategy?

Yes. I think when you look at the long-term strategy, really tying into strategic partner is really critical, especially distribution. The name of this game and consumer products. I mean the consumer conference. It's one thing getting a retailer and getting a consumer. It's the whole other thing on getting it to shelf, getting it to -- being able to get it to shelf is so important, especially in the energy category, which is extremely highly competitive. Impulse purchases drive over 50%. So it's all about product placement, cold placement and maintaining stock availability. So when you look at some of the largest brands that are out there that are really successful, like Red Bull and Monster, Red Bull has a dedicated network. You look at Monster with a dedicated network through Coca-Cola. And now with Celsius Holdings with this partnership, we're tied in at a strategic level with 3 great brands that allows us to compete within the energy category, targeting different unique consumer segments within that. We're seeing more females come to the category than ever before. Health and wellness is driving the category and sugar-free is thriving, which is over 50% of the share of the category and growing really is the growth driver. But the route to market is so critical. So this really allows us to really dial in with our strategic partner at the highest level for commercial planning. Priority periods, planograms. I don't know, Toby, you want to talk about some of the planograms that this has. This really opens us up, which is something we -- unique we didn't have access to before, which allows us to really control some of our destiny.

Quite a bit more space within the planograms are going to be allocated towards our entire portfolio. So that means more space for Celsius. A lot of space for Alani and then space for Rockstar as well. And we're going to be able to pick the SKUs that we want in every location in the country. So as John likes to say, we want to put the fast cars on the track. So we want to make sure to put the most efficient flavors on every shelf around the country. So being the captain is going to put us in charge of what flavors are going where within the Pepsi Energy portfolio. And we really think that's going to help drive efficiencies and revenue for the brand.

Okay. So what's changing in terms of your visibility? So being captain, it's a good title. But what changed in terms of your visibility? You told me about the decision-making and the execution, but is it an element of your visibility into like the full data, the full picture? And how does your role with retailers change?

Yes. So I think 1 thing within the distribution, I think, really 2 steps, let's talk about the captaincy, what that means within Pepsi and one piece is the planograms. The other piece is within the retail segment. So we are still -- we're maintaining the call points. We're building on our key accounts team. So historically, we called Tier 1 and Tier 2 accounts. But now being able to control the planograms, there's a lot of independents at Pepsi Services, food service, colleges, universities, restaurants, fast casual. So that really opens that up for us now to have a part of the decision-making process on what products will perform best and where. It's 1 thing to have the Tier 1 and Tier 2 call points, but really being able to control that on a national basis, like Rockstar does really well in the Pac Northwest, but and that planogram would look different versus, say, South Florida or Boston or other markets. So when Toby is talking about really making sure we have the best SKUs, it's really about that optimization on a local level. So we can maximize value, maximize the opportunity there to drive additional sales. As an example, we were talking about earlier in some of the investor meetings is like, as an example, it could be a Marriott. When you go to the Marriott, I know I've been in some Marriotts in like LA, and you see maybe 9 or 8 SKUs of Rockstar and only 2 of Celsius. So is that the right location and the right planogram, we'll have control over that, and we'll be able to really work with our partners to make sure we're maximizing that shelf space. So shelf space is so limited. So we need to make sure every SKU is being maximized to the fullest based on the demographics.

Okay. Great. Sticking with demographics. I was just curious now that you've got Celsius, Alani Nu and Rockstar, all under 1 roof. Like how does this change your ability to service the full spectrum of energy consumers.

Yes, I think this gives us really a total energy -- modern energy approach. I'm really excited about it. It's -- when you look at Celsius, it's that fitness lifestyle brand for you inside and outside the gym, to help you accomplish your goals. You have Alani, I mentioned, the female-focused brands, it's approachable and inviting, comes with great flavors and flavor profiles and inspiring. Being the best, very female focused. And then you have Rockstar going after that traditional energy segment, which still represents right around 50% of the sales is 25 to 35, mainly dominated by male. There is a -- we don't have more of an aggressive tone. If you look at the Celsius and the Alani, and each one of these brands are really living, breathing things, and they have their own personalities. They have their own their own look, their own field, and it's very important you don't stray too far from the brand lines and what these brands stand for. And Rockstar brings is not only incremental in revenue, but based on the consumer segment. So we're really excited and also a lot of the team members I have over -- probably about 30 team members that actually are from the founding team members within Rockstar. So they're really excited, bringing out their old Rockstar hats and the opportunities. We have about 17 employees coming over from Rockstar, and they're really excited about what they're able to do. They've got some great stories, a lot of great heritage. We're going to go back to its core. It's going to -- and we're going to optimize the SKUs. So we do anticipate -- we will optimize the -- there's quite a lot of -- there's a lot of SKUs within the portfolio for its size. So we're going to optimize that. And then we're going to stabilize it and build the base and grow on it. It definitely has a home and allows us to compete now in a total energy approach.

Okay. Great. While we're just on the topic of consumers, I'm just going off topic a little bit, but it's a logical lead-in, which is -- just want to get your read on the consumer backdrop in the U.S. kind of lately what you're seeing or I want to ask everybody this week.

You want to take that Toby?

Yes. Sure. Well, I mean, if you look at the energy category and the energy category remains pretty robust. We're fortunate to be there. I think the category in the last 4 weeks is up 17%, 18% still year-over-year. I think a lot of other categories seem to be a little bit more challenged right now. It's tough for us to really kind of judge some of those other categories because I wouldn't say we're experts within those. We look at the energy category. Red Bull, Monster continue to be on fire. Alani is absolutely on fire and Celsius is back to growth, and we've continued to grow and really, the entire category has been growing for the most part, so -- on a brand-by-brand basis. So we think our category continues to be healthy. You're seeing people maybe if there's some folks challenged right now economically, maybe they're pivoting out of cold coffee and some of these other coffee beverages and into energy, and we're seeing a lot of that right now. So as far as the health of our category, we feel really good about it.

Yes. I think when you -- also we've heard a lot of stories about the restaurant industry having some trouble. And I think to Toby's point, I think, consumers -- if they're looking to cut back, they're going to cut back in other areas before you cut back on maybe an energy product in certain other segments within the consumer segment space. But the category has been strong. The value is there. I think the value when you look at other categories, a lot of pricing has been taking, especially in the beverage category overall. One thing we're seeing, which is maybe some shopping habits, looking from consumers and you look at the over consumer indexes, we're seeing large format playing a larger role than it historically has. So historically, energy drinks have mainly -- over 60% of sales are impulse purchases, right? I need an energy drink right now for the specific need state or usage occasion. But now we're seeing large format play a larger role. Impulse purchases and convenience still drives the category. But you're seeing 12 packs and variety packs becoming more of the mix. And I think that's really good because it's broadening the consumer base. Consumers are buying larger quantities of products, and they're bringing them home and they're part of the pantry, you're part of a lifestyle, you're part of a daily routine. So I think that's a really good sign for the category as it continues to broaden, bringing more consumers in and being part of that daily lifestyle to help you achieve your goals and do all you can do throughout the day.

Okay. And what -- when you mentioned cold coffee, I'm guessing you meant like coffee shop expenses, coffee. So there's a relative value proposition when people are opting for energy?

Yes. Yes. I mean you're -- I don't want to name any specific retailers or anything like that. But just from the data points we've seen -- you're seeing a transition from coffee drinkers and to energy. We've seen that over the last few years. It just seems to be really an area that's driving that transition back into energy.

And I think what makes it actually an easier transition because a lot of these copy houses as well, it's not hot anymore. A lot of it is cold, which even potentially could also further help the can energy drink business continue to grow as people will look for value.

Yes. Hopefully. Okay. Let's talk about Alani Nu for a second. So talk a little bit about the opportunities you see for the brand as you transition into Pepsi's U.S. and Canadian distribution. Maybe any comparisons you want to make into how the transition was for the Celsius brand as well?

Yes. I mean we're really excited. It's going to bring Alani to more places, greater distribution, broader distribution. The Pepsi distribution network is phenomenal. It's a phenomenal group. It's a phenomenal organization. It's 1 customer. They have over 20,000, 30,000 sales reps, merchandisers just all the way through the organization, the data and insights, the capabilities of the system. So it's going to definitely broaden where we are. The biggest opportunities is convenience, small format, restaurants, food service, hospitals, universities. Which you really can't, we couldn't get to that prior even with Celsius within the existing network. There's wholesalers. There's a variety of different other routes, you can go to market, but you're not going to get that high touch and the beverage category and the importance of having cold placements and the high-touch, you really need a sophisticated network like Pepsi that is world-class in their execution oversight and really keep you in stock. Some of the biggest wins, you want to add?

Yes, I would just add to what John said. You look at where Celsius was prior to our Pepsi distribution, very similar ACV and number of SKUs per location within convenience as where Alani is today. They're a little bit further along than where we were in MULO within the big box in traditional grocery. They're really right where we were in the convenience channel. And that's really Pepsi's strength. I mean, they're strong across the board, but convenience, they're going to drive within the track channel, but also the independents. They service over 100,000 independent convenience stores around the country. I think a lot of people have been, maybe not skeptical, but asked, okay, can Alani win within convenience? And I'll just challenge those folks, go look at the data within either Circana or Nielsen, and their velocity is really on par with just about anybody when it comes to convenience right now. So I really think that's a huge opportunity. And John referenced food service. College and university falls within that bucket and certainly I think that's a great opportunity for Alani as well.

And I think the convenience opportunity when you look at it as well, because the latest data we're seeing is showing that actually the female consumer is driving a lot of the energy drink category growth and new to category and increasing consumption rates as well. And I think 1 big thing that when we acquired Alani was that we were going to cannibalize sales. That was a big concern because the Celsius portfolio is 50-50 male female, very gender neutral, really focused. So -- but what we're seeing it's not. The Alani portfolio is growing. Celsius portfolio is growing. And these are really truly fitting 2 different need states within the consumer segment. Convenience is really exciting. We're gearing up in just a few months, we'll be going to Max. So it's the largest convenience store show in the country and where a lot of retailers and buyers are setting their planograms for next year. And when you look at the overarching trends in the category of female consumers coming and increasing consumption occasions, the importance of food pairing. Last year at the conference, all retailers were talking about how do we increase basket ring and with warm foods and hot foods and pairing specials. And that's something we've done with the Celsius portfolio, it's worked really well in some of these pairing offerings. And I think that's going to continue to be some of the trends heading into Max. And when you look at all that with the strength of health and wellness, the flavor profiles and the differentiation, the Celsius and Alani portfolio is really well positioned for next year as we're heading into resets. And with some of the results that we're driving as well, most recently in Q2. And where we stand right now in the quarter, the numbers are looking really well and expect a lot of opportunities ahead.

What pairs best with Alani Nu, what's the food pairing?

Well, I guess it depends what is your flavor. I don't know I guess they've got some -- I was actually, while he was speaking, I was trying to think about which of the Alani flavors pair well with food because they have some more cotton candy type flavor that you wouldn't typically ascribe to that. But then they have a peach flavor that's really good.

Cherry slush is really good.