Greetings, and welcome to the Celsius Holdings, Inc. Third Quarter 2021 Financial results. At this time, all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cameron Donahue, Investor Relations for Celsius Holdings. Thank you, you may begin.

Thank you. And good morning, everyone. We appreciate you joining us today for Celsius Holdings' third quarter 2021 earnings conference call. Joining in the call today are John Fieldly, Chairman, President, and Chief Executive Officer, and Edwin Negron, Chief Financial Officer. Following the prepared remarks, we'll open the call to your questions and instructions will be given at that time. The Company released our earnings press release pre-market this morning. All materials will be available on the Company's website, celsiusholdingsinc.com, under the Investor Relations section. As a reminder, fortunate the call was adjourned and the other replay will be available later today. Please also be aware that this call may contain forward-looking statements, which are based on forecast, expectations, and other information available to management as of November 11th, 2021. These statements involve numerous risks and uncertainties, including many that are beyond the Company's control. Except to the extent as required by law, Celsius Holdings undertakes no obligations in the same any duty to update any of these forward-looking statements. We encourage you to review in full our Safe harbor statements contained in today's press release, and our quarterly filings with the SEC for additional information. With that, let me turn the call over to Chief Executive Officer, John Fieldly, for opening comments. John.

Thank you, Cameron. Good morning, everyone and thank you for joining us today. In the third quarter, Celsius not only achieved another sales record for the quarter, but beat our previous quarterly record from Q2 by almost 50%, beating by 46% growth on a sequential basis from Q2 2021. The Company accomplished this exponential growth despite tremendous supply chain constraints that continue to impact the industry. To hit the majority of our orders during the quarter, we had to sacrifice efficiencies on the margin side, which we believe are either one-time costs or short-term in nature, with specific identifiable processes we are implementing to improve our margin profile going forward. The largest one-time costs impacting margins during the quarter stemmed from the build out of our 6 orbit distribution warehouse centers, which we announced in the second quarter. We expect to see tangible efficiencies in both miles on cases, freight costs, as well as reduced inventory stock-outs with our distribution partners going forward from this initiative. However, we did have incremental costs in Q3 as we essentially moved from 2 main warehouse centers to 6 while also significantly expanding inventory runs with our co-packers. With this, we incurred excess freight costs as we built out optimized inventory levels across our warehouses, which is reflected in our cost of goods and we estimate impacted margins by approximately 3% for the quarter. In addition, we experienced increased freight costs associated with higher labor fuel costs, which we are monitoring. On average, freight costs have increased industry-wide by 20% versus the prior year per DAT Trendlines, which tracks freight trends nationwide. In addition to short-term margin impacts, we continue to utilize international cans sourced, which carry higher costs. When we placed these can orders, we expected the vast majority to come in and be utilized during 2021. Unfortunately, many are still outside of the U.S. and all are waiting at ports to be unloaded, which have been offset by purchasing spot rate cans from U.S. suppliers. However, with the significant increase in aluminum prices, spot rate increases significantly. A higher spot rate, as well as the higher import cans have impacted margins for the quarter by approximately 5.3%. Thus, we experienced short-term and one-time margin impacts during the third quarter, which totaled approximately 7.5%. When taking this into account, our normalized margins would have been approximately 47.2% for the quarter, including outbound freight. To further optimize our supply chain going forward, we have added 2 new contracts with 2 of the top U.S. can manufacturers for 2022, which will move us away from the higher spot rate purchases and international cans. We believe we have adequate U.S.-sourced cans for 2022 to support our growth. We will likely have to cycle through some of the international cans that have been delayed, depending on when they arrive and get delivered in the U.S. through the first 6 months of 2022. But we expect the vast majority of our cans will be from U.S.-sourced on a contract basis, materially reducing our can costs versus 2021. Some other cost increases we saw in the third quarter, such as raw materials, co-pack fees, tolling fees, and inefficient less-than-load shipping costs, we expect the majority of these will be offset in 2022 as we continue to negotiate better pricing with our scale. While it remains uncertain, the energy category is one of the lone outliers that have not increased pricing. Driven by the top 2 players in the space, we believe the key factor in that decision is due to the rapid growth in consumer demand for functional performance, energy drinks, and the associated increase in new brands coming to market. The smaller-scale new entrants pay significantly higher shipping, raw materials, co-pack fees, and competition, and by not taking price, the top 2 energy drink players place an outsized cost on the new entrants entering the market to protect our share. For Celsius, we reached a critical mass where it will not impact our ability to grow. As evidenced by the record third quarter, the only downside is that some of the expedited scale-based incremental margin improvements are being offset by cost increases that are not transitory. Even with that, longer-term, we expect margin expansion throughout 2022. As stated prior, we have identified one-time and short-term cost increases, and have planned strategies to mitigate as we continue to optimize and transition our stores to DSD distribution with further future scale-based benefits with our current growth trajectory. To conclude, our margin analysis recognizes revenue growth rates more than double in North America to over 200% and continue to accelerate further. We made a cautious decision in the third quarter to ensure that we had the operational infrastructure to support our revenue growth to much higher levels and fully take advantage of the opportunities to take market share at an increased pace. As such, we accelerated initiatives on several operational improvements to position us for exponential future growth, which impacted margins by approximately 7% just from the one-time items in the third quarter. Additional incremental near-term benefits will be recognized if price increases are initiated by the top brands to align with our 2022 expectations. In the meantime, we are implementing and further evaluating our promotional strategies. We wanted to ensure we provided a detailed breakdown on margins, and that our forward expectations of continued leverage remained unchanged before we detail the record achievements accomplished in the third quarter. Our record third-quarter results are representative of the momentum that the Celsius brand is achieving across-the-board. Revenue growth driven by continued new store additions, SKU expansion, cola placements, DSD coverage expansion, as well as continuing to transition existing accounts, brand recognition, influencers organically supporting Celsius are just a subset of the drivers that culminated in the record for third quarter results in North America. Total sales for the quarter totaled $94.9 million, up 158% from $36.8 million in the year-ago quarter. Our domestic sales revenue increased 214% to $84.5 million, up from $26.9 million in the year-ago quarter, with both of these percentage growth rates the highest in our history and North America sales up 58% from the second quarter sequentially. We continue to see two of our hardest-hit channels from COVID, our fitness channel and our vending channel, not only rebound but drive new sales records, reaching triple-digit growth rates and contributing approximately $5.2 million in incremental revenue compared to the prior year. International sales grew 5% to $10.4 million for the quarter and 18% through the first nine months of this year. We're still dealing with the impacts of COVID-19, most pronounced in the European markets, with all markets facing increased costs in raw materials and transportation. Our EU, Middle East, Southeast Asia, and Australia operations remain adversely affected by COVID-19 with varying restrictions and lockdowns in the markets. Overall, we continue to see quarterly improvements quarter-over-quarter with capacity restrictions as well as reopening in the hardest-hit channels. However, there still remains uncertainty as there could be potential reclosing due to new variants during the winter months, and case increases in the regions of operations could force closures in some states and countries. Turning to some additional financial highlights for the quarter, our domestic revenue reached $85.4 million, driven by accelerated triple growth in our channels of trade, expansion with world-class retailers, further activation, and growth from our distribution partners. Our direct store delivery network grew over 429% in revenues compared to the prior year. Also, our club channel continues to accelerate following the expansion roll-out of over 550 plus Costco Stores in late Q2 to Q3. Costco growth now has been listed as just over a 10% revenue customer. We are also now rolling out onto their platform costco.com. In addition to Sam's Club, we're launching in several test markets during the fourth quarter, driven by the strong growth in Walmart. On the convenience channel side, in North America, the latest Spins data shows a growth of 205.5% year-over-year increase for the Celsius product portfolio and the convenience channel, compared to a 13.6% overall growth in the energy drink category as of October 3rd, 2021, last 12 weeks, while during the same period, our ACV increased 118% versus the prior year to 34.7% total ACV average. Industry-backed third-party data continues to show accelerated growth metrics. We are confident that Celsius will continue to drive sales even higher as we continue to accelerate our ACV across channels through additional launches with new nationwide chains and transitioning existing accounts to our DSD network. Consumer demand for Celsius accelerated through the third quarter of 2021 to record levels with the most recent Nielsen scan data as of October 23rd, 2021, showing Celsius sales up over 205% year-over-year for the 2 weeks, plus 213% for the 4 weeks, and plus 204% for the 12-weeks, against the 2 share of the energy drink category overall for the last 4 weeks. This compares to the total energy drink category, which grew 14% year-over-year for the 2 weeks ending and 12% for the 12 weeks ending over the same period. On Amazon, Celsius is the second largest energy drink with an 18.4 share of the Energy Drink Category, 2.88% ahead of Red Bull at 15.5 share and just 7.6 share behind Monster Energy at 25.9 share for the last 4 weeks ending October 30th, 2021, per Stackline Energy Drink Category total U.S. Transitioning to DSD continues to remain the top priority with our retail partners due to the increased velocities that are gained through the preferred route to market. Today, per our latest MULO retail sales data, we estimate that we have transitioned and initially optimized approximately 50% of the stores reporting into Spins MULO channel, and have further plans for expansion with additional DSD partners through the back half of Q4 and into 2022. Some of the key retailers that have transitioned over 75% of their stores include Target, Walmart, RaceTrack, Kroger, Circle K, Speedway, Murphy's USA with CVS and 7-Eleven also expanding in other markets. Historically, it takes an average of 2 to 3 months to optimize stores once they have transitioned to DSD, before we see that increased velocity levels. In addition to transitioning retailers and activating our DSD network, we continue to roll out Celsius branded coolers in the third quarter with an additional 400 coolers placed and over 900 coolers for the first 9 months of 2021. We have also implemented comprehensive tracking tools in place to monitor accelerated growth metrics with our retail partners and we plan additional cooler expansion initiatives through the remainder of 2021 with accelerated rollout in 2022. Today in the U.S., our total door count now exceeds 118,000 locations nationally, growing 38,000 doors or 48% from the beginning of 2021 with additional expansion plans throughout 2021 and into 2022 as retailer resets take place. In Europe, our Nordic sales totaled $9.5 million compared to a similar amount in the prior year. The top-line revenue was impacted by a pullback in inventory fills during the quarter for our new global can launch in September, which also included a great fresh apple flavor. Our relaunch of the Celsius brand on our global uniform can design platform presents a great opportunity for further growth and synergistic alignment globally. Our market share in Sweden did decrease early in the third quarter with the pending can redesign and launch but increased to 9.3% of the total energy market in Sweden in September. In Finland, we launched a mint chocolate bar with a holiday themed wrap highlighted with in-store displays to secure space during the holiday season. We also launched a great tasting new RTD protein line, which is launching in the fourth quarter with initial orders of over 300,000. We believe this is a great test market for our products with additional geographic expansion opportunities. Additionally, the FAST portfolio bar launched in the U.S., sales have been going extremely well and have actually increased 50% in the third quarter from the prior Q2 run rate, validating the opportunity for further U.S. expansion and potentially expanding in the fitness channel in 2022. We've recently also launched on Amazon EU with expansion beginning in the United Kingdom, launching 3 flavors, and 6 FAST bars, and Germany also expanded and launched today, most recently with 3 flavors of the Celsius portfolio. We expect additional EU countries to come online in the fourth quarter and in Q1. In China, we are maintaining a licensing royalty model in the market where distribution covers approximately 76 cities and approximately 60,000 locations, and we see great opportunities in this growing market. Moving to marketing, we continue to accelerate and target new consumers and existing consumers where they live, work and play. They have a meaningful and emotional connection through robust, integrated marketing programs, reaching more consumers each and every day. We're not only driving growth in the energy category, but we're also expanding the demographics while bringing an industry-leading percentage of consumers from outside the category who are new. We have also reached another inflection point in our operations and growth, one which positions Celsius for exponential growth and market share gains. We have committed the resources, both in personnel and operational infrastructure, to maximize this opportunity and support the incremental growth drivers on the national DSD distribution platform that has opened in the convenience store channel in the U.S.. We're also not only seeing significant expansion in ACV across all channels, but doing so while increasing our velocities at retail. We are in a unique position to see material concurrent growth in both due to we're just materially entering the most productive convenience channel in the U.S., while transitioning our existing accounts to DSD network, where we have seen incremental growth post-transition. Our team is ready, our infrastructure is in place to support the sales growth we expect on an expedited basis. I will now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer, for his prepared remarks. Edwin?

Thank you, John. Our third-quarter revenue for the 3 months ended September 30, 2021, was $94.9 million. An increase of $58.1 million or 158% from $36.8 million for the 3 months ended September 30, 2020. 99% of this growth was a result of increased revenues from North America, where third-quarter revenues for 2021 were $84.5 million or an increase of $57.6 million, or a robust 214% from $26.9 million in the 2020 quarter. The balance of the revenues for the 2021 quarter was mainly related to European revenues of $9.5 million, which were similar to the prior-year quarter. Asian revenues, which include royalty revenues from our China licensee contributed an additional $706,000, an increase of 157% from $275,000 for the prior-year quarter. Other international markets generated $177,000 in revenues during the 3 months ended September 30th, 2021, an increase of $32,000 or 22% from $145,000 for the prior-year quarter. Gross profit for Q3 increased by $20.2 million or 115% to $37.7 million from $17.5 million for the 3 months ended September 30, 2020. Gross profit margins reflected a decrease to 40% for the 3 months ended September 30th, 2021, from 47.6% for the 2020 quarter. Excluding freight out, as some of our competitors do not include this charge as the cost of goods sold, our adjusted gross margin for the 2021 quarter was 49.8%, compared to 53.7% in the third quarter of 2020. The increase in gross profit dollars is mainly related to increases in volume, while the decrease in gross profit margins is mainly related to higher raw material costs, ocean freight, transportation costs, and repackaging costs. We estimate that the increase in gross profit dollars of $20.2 million included $28 million related to volume increases, an unfavorable cost impact of $7.4 million, and a favorable currency impact of $31,000. Sales and marketing expenses for the 3 months ended September 30th, 2021, were $22.6 million, an increase of $14.4 million or 174% from $8.3 million for the 3 months ended September 30, 2020. This increase was mainly related to higher marketing investment activities, which resulted in an increase of $7.7 million compared to the prior-year quarter. Additionally, employee costs increased by $2.6 million from the year-ago quarter as we continue to invest in this area in order to have the proper infrastructure to support our growth, as well as incurred additional travel and business expenses since we are now able to resume in-person marketing events and selling activities. Similarly, we experienced increases in other sales and marketing expenses in the amount of $400,000, mainly related to trade marketing activities to support our ongoing DSD network expansion. Lastly, storage and distribution expenses, as well as broker costs, accounted for the remainder of the increase in this area in the amount of $3.7 million from the year-ago quarter. As a percentage of revenue, sales and marketing expenses were 23.8% of revenue in the third quarter of 2021 compared to 22.6% in the third quarter of 2020. General and administrative expenses for the 3 months ended September 30th, 2021 were $11.1 million, an increase of $6.4 million or 134% from $4.8 million for the 3 months ended September 30th, 2020. This increase was mainly related to stock option expense, which amounted to $5.8 million for the 3 months ended September 30th, 2021, an increase of $3.7 million, which accounts for 50% of the total increase in this area compared to the prior-year quarter. Management deems it very important to motivate employees by providing them ownership in the business in order to promote their overperformance. Additionally, employee costs for the 3 months ended September 30, 2021 reflect an increase of $1 million or 108% as investments in this area are also required to properly support our higher business volume. Administrative expenses amounted to $2.6 million or an increase of $1.3 million or 97% compared to the prior-year quarter. This variance is mainly related to an increase in the bad debt reserve of $200,000, and increases in audit costs, legal expenses, insurance costs, and office rent account for the majority of the remaining fluctuation of $1.1 million. Depreciation and amortization increased by $200,000 compared to the prior-year quarter. Lastly, all other administrative expenses, which were mainly composed of research, development, and quality control testing, increased by $235,000 compared to the second quarter of 2020. As a percentage of revenue, general and administrative expenses were 11.7% in the third quarter of 2021, when compared to 12.9% for the prior-year quarter. If we then exclude the non-operational stock option expense, general and administrative expenses for the 2021 quarter would amount to only 6% of revenues. Now turning to other income and expenses. Total net other expenses for the 3 months ended September 30th, 2021 amounted to $353,000, which reflects an increase of $593,000 compared to net other income of $240,000 for the 3 months ended September 30, 2020. The net other expense of $353,000 is composed of foreign currency exchange losses of $328,000, net other expenses of $97,000, interest income of $77,000 related to the note receivable from our China licensee, which were partially offset by other interest expenses of $4,500. Net income, as a result of the above, net income for the 3 months ended September 30, 2021 was $2.7 million or $0.04 per share based on a weighted average of $74.6 million shares outstanding and dilutive earnings of $0.04 per-share based on a fully diluted weighted average of 78.4 million shares outstanding. In comparison for the 3 months ended September 30th, 2020, the Company had net income of $4.8 million or $0.07 per share based on a weighted average of 70.4 million shares outstanding and a dilutive earnings per share of $0.06 based on a fully diluted weighted average of 74.8 million shares outstanding. Focusing now on liquidity and capital resources, as of September 30th, 2021 and December 31st, 2020, we had cash of $61.4 million and $42.3 million respectively. And working capital of $157 million and $65 million respectively with no long-term debt. Cash flows used in operating activities totaled $52 million for the 9 months ended September 30, 2021, which compares to $3.8 million of net cash provided by operating activities for the 9 months ended September 30, 2020. The use of cash is mainly related to the increase in our inventory levels in order to properly service demand for our Celsius products. Inventory increased by $104 million during the 9-month period ended September 30, 2021. Sequentially, inventory increased $58 million from the second quarter of 2021. Without this significant increase in inventory, cash flow from operations for the 9 months ended 2021 would have totaled $52 million. This concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Kaumil Gajrawala with Credit Suisse. Please go ahead with your question.

Hi, everyone. Thank you for joining the call. I have a couple of questions. First, I thought the prepared remarks were a bit quick. Can you clarify whether you mentioned plans to raise prices or if you decided against it due to competition?

Thank you for your question. Right now, we are evaluating it and we're really keeping a close eye on the market. Obviously, there are a lot of top-tier players, but we are doing pricing strategies in regards to promotional strategies as we go forward and pricing architecture within the portfolio. But it is something we're looking at as we go forward. We do feel based on these one-time charges regarding the importing of cans, as well as the freight costs we've seen really moving to the 6 orbit model that we've talked about in the past. We can get back to more of a normalized gross profit once we cycle through the imported cans and move away from the spot rate purchases. But it is definitely something we're looking at as we continue to go forward. We're seeing transitory increases in a variety of other costs. The question is are those permanent or transitory in which we're evaluating.

And just your best guess from what you're seeing in the market at the moment, does it look like the competition is reducing promo, taking price in a way that would make it possible for you guys to follow?

We are seeing that in the marketplace by other players, in regards to promotional strategy. So we're not the anomaly out there.

Got it. And then if I can ask a little bit about maybe dissecting the growth between the incremental contribution while the distribution gains that you're winning versus the equivalent of same-store sales? I don't know if you can give us precise figures, but at least maybe give us some guidance on the growth which has been substantial. Is it 50-50 new distribution versus old? Is it 70-30? Can you give us a rough idea?

Yeah. I think when you look at the numbers, it's quite impressive. The team is doing a great job. Number one, with Coke Energy coming out, we all know that was discontinued. We were able to pick up a lot of incremental points of distribution and taking advantage of that. When you look at the number of stores that the team was able to capture during the period, which keep in mind is outside of normal reset windows, that was a great win for us during the quarter. We're seeing same-store sales further increase as we move to migrate them more over to our DSD network. Our DSD network performed phenomenally during the quarter, with revenue up over 400%. The team is doing a great job; we've got a lot of good processes in place to continue to optimize. We're nowhere near fully optimized within the distribution network where we are putting processes in place and team members. We've hired a variety of great team members that are well experienced and capable to continue to drive revenues here. We also have our cooler placement strategy where we see great opportunities there to further leverage, as when we place a cooler with Celsius, we see exponential growth there in the existing accounts. So lots of opportunities on all fronts and we have strategies in place to leverage.

Okay. And then just finally on what you're seeing in terms of the gyms and fitness business seems to have very notably turned around. We understand there will be a mix effect away from that business, but maybe just what you're seeing in that channel would be helpful.

I really highlighted the fitness channel. Obviously, that's been a core for Celsius since its inception. And it's great to see it continue to rebound there. Lots of opportunities. It's great seeing everyone going back. I think that just goes and further shows you the opportunity we have at Celsius; healthier, better-for-you, fitness-forward position, Celsius is aligned with today's health-minded consumer. The health and wellness trends are even stronger now than ever before, and the transition is taking place and it's affecting the energy category. So we're in a really good spot. I think that's just good indicators to see that channel come back at an even stronger pace.

Okay, great. Thank you, guys.

Thank you.

Our next question comes from the line of Kevin Grundy with Jefferies, please proceed with your question.

Great, thanks. Good morning, guys and congratulations on the continued momentum. Want to pick up on the same line of questioning, just around the U.S. business specifically and the conversion to DSD. We look at the Nielsen data, the distribution gains look great, and importantly, the velocity gains quite good as well. John, I think as you rightly pointed out the brand is still very underrepresented in the convenience channel, which is obviously a huge opportunity. Just a handful of questions here on this topic; just confirm, I think the number is 50% accounts have been switched over to DSD at this point, I think the longer-term goal was 80%. Just confirm those numbers and how quickly you can get to that long-term goal. Relatedly, how has distribution velocity tracked relative to the Company's own internal expectations? And then just lastly in this area, do you have any early reads on shelf space? What those gains could look like as you think about next year? And then I have a follow-up. Thank you.

Yeah, thank you, Kevin. In regards to the 50% number, I put out there in regards to that was MULO reported channels. So right now, we're at 50%. I think 80% would be an ideal number, and we would like that number to go higher, but I think 80% would be a great number for the Company to continue to strive for. We're working on that, as we move into 2022. I think you'll see more of our distribution continuing to convert over, and also all the new distribution coming on that we anticipate is most likely being serviced by our distribution network. When you look at the velocities, the velocities are meeting our internal expectations. Velocities as you've seen in the scan data have continued to increase. So even as we are increasing our ACV, which is a good thing to see there, the brand is resonating well. Regarding 2022 space opportunities, we're really excited about that. We just attended NACS, the largest show in the country in the U.S. in the convenience channel where we had a great booth and a great presence. Some of the initial feedback we got from the show is really positive, and we don't know until resets take place, likely around March, April time-frame, which is usually when they take place in the convenience store industry. But we feel really optimistic there. Initial feedback has been positive. We'll continue to keep everyone updated as we gain more distribution in stores; we won't know until the resets are final, but it was probably one of the best shows we've had in Company history, so really excited about that.

Great. Thanks, John. Just pivoting to the margin outlook, but a little bit more long-term oriented, I guess I would say, I think there's an expectation in the marketplace that the margin potential here could be substantial over time. John and Edwin, for you as well, please. Just your updated thoughts on broadly your vision for this business. How you are balancing the market share opportunity with the substantial skill for margin improvement, understanding those dynamics are not mutually exclusive, but your updated thoughts, there would be helpful. And then I have one last follow-up. Thank you.

Sure, Kevin. I think what's interesting if you look at our average scan on a per can basis has increased on the 12-week and 24. So we have been reducing our promotions. This promotional strategy has been taking place, and it hasn't decreased the velocity levels. We feel there are opportunities there as we scale. Regarding overall margins, where we've historically said that we can get back towards pre-COVID margin profiles with our existing setup, we feel there are further opportunities to leverage our scale as we drive further volume, as well as the synergistic benefits of moving towards our 6 orbit distribution or warehouse model where we can better serve our customers in a more efficient, more effective manner and keep them in stock as well. There's a lot of opportunities there on a go-forward basis. I would agree with you. There is a lot of margin upside and the team is working on strategies to implement that. I'll turn it over to Edwin as well.

Yeah. Thanks, John. Yeah, absolutely, Kevin. I mean, one of the things that I wanted to add; you're absolutely right from my perspective as we continue to gain market share, which translates into additional volume, that's going to drive more synergies. And as we normalize or the supply chain normalizes going forward, that should also benefit. There are significant opportunities from our standpoint. As John said, once we start getting the benefits of those 6 orbits, all those things should have a very good positive effect on margins.

Thank you both. I have one final question before I pass it on. Cash flow is currently negative due to the need for investment in coolers and an increase in inventory that outpaces sales growth. Can you share your updated perspective on your ability to fund the business through internal resources at this time? What are your expectations for this year and next year regarding the capital needed to support your revenue goals? I’ll pass it on. Thank you.

Thank you, Kevin. I'll jump in on the first part of that regarding our cash position. We feel we have sufficient cash to meet our demand, our needs on a going-forward basis. We did increase inventories that were strategic. We spoke about that prior as well. And we feel we're optimized. We're going to continue to invest in the business, in inventory, personnel, and resources as we continue to scale, so we can drive that optimal leverage and reach our goals.

Sure. I'd like to add; if we'd back out the inventory aspect or buildup, we would've delivered over $50 million of cash flow from operations. Even if you back out all the working capital components to have a normalized pro forma cash flow, we would've delivered over $13 million of cash. So I fully agree with John that the business is generating sufficient cash flow going forward, and we did make significant investments in coolers. But, again, that's going to translate into incremental volume as well. There's no doubt going forward that we should be able to generate sufficient cash flow.

In the quarter, if you look at the prepaid balance in inventory, about $40 million, that was strategically done to secure raw materials during the inventory constraints that we faced in the COVID environment in Q2 and Q3. Taking that into account, that should normalize and we shouldn't have significant pre-pays on a go-forward basis as the environment gets more normalized.

Very good. Thank you both. Good luck.

Thank you.

Thank you, Kevin.

Our next question comes from the line of Jeff Van Sinderen with B. Riley, please proceed with your question.

Good morning, and I want to congratulate you on the impressive revenue growth. I would like to follow up on a few points. Regarding SG&A, I know you mentioned one-time items related to the 6 orbit warehouse strategy. Could you elaborate on any unusual costs and expenses you expect in Q4 and early 2022? Additionally, when do you anticipate the impacts of the 6 orbit strategy to become more normalized? Lastly, what kind of contribution to P&L leverage might we expect in 2022 from this strategy?

Yes. Thank you, Jeff. The team's working really hard, and I appreciate the question. Regarding forward-looking information, it's challenging to provide any true forward-looking guidance on leverage, specifically on that. We do see in the short-term our warehouse costs will increase going to the 6 orbit because we're investing ahead of our overall top-line revenue. Just keep that in mind that our warehousing costs will increase as we're moving from 2 warehouses to 6. This will be in place through the full fourth quarter and beyond where revenue needs to scale up to get that margin profile. Also, keep in mind, we are investing in marketing as well, coming back extremely strong in the third quarter and in the fourth quarter. The Company is investing in marketing, really touching those consumers where they live, work, and play. But as we go forward with the growth rates we're seeing, we feel we're making the right moves in infrastructure resources to really be able to continue to drive top-line revenue and market share within the operational channels we're operating in. Edwin, do you want to add any more additional comments?

Sure. Jeff mentioned the G&A area. I noted an increase in the bad debt reserve, about $200,000, which is driven by the higher volume we are experiencing. We want to be conservative in that area. Additionally, we are also seeing some increases in professional expenses to support the business. These factors have impacted our profitability.

Okay, fair enough. And then, it seems like you have a pretty substantial opportunity to grow the business in Europe outside of the Nordics. Just wondering if you could speak more about plans for further rollout into Germany and the U.K.

Yeah, we're really excited to initially start and be able to service those markets through Amazon. So we're really excited about that opportunity, and we're talking to significant larger distributors in those markets as well. When you look at the success of the U.S. that is gaining a lot of interest overseas with substantial potential partners. Our main focus is North America as well. We continue to optimize and grow in the Nordics. But as we see opportunities in additional markets, we'll continue to evaluate. The U.K. and Germany are areas of great opportunity for Celsius and we expect to further optimize our initial rollout with Amazon, and we're looking for partners locally to continue to drive scale.

Yeah, I agree. The key is like John mentioned; we have a light model there. In other words, go through either partners like Amazon or distributors where we don't have to make a significant investment, set up legal entities in the countries, that type of thing. And that's the more profitable model. We can invoice in U.S. dollars and avoid any of the forex exposure.

Okay. And if I could just squeeze in one more, just wondering about the rollout of the FAST bars beyond Amazon and also the protein drink line rollout?

Yes. Regarding the FAST bars, we are taking a careful approach. We are investing in the product as we see increased sales, having initially tested it on Amazon in the second quarter. We have placed more orders for the bars, which have received excellent initial feedback in the U.S. Currently, we are importing the bars from Europe, leading to some supply constraints, but we are collaborating with the manufacturer to start production in the U.S. Moving forward, we are evaluating the business and learning about consumer preferences to effectively and profitably scale our market presence. The initial feedback has been very encouraging, with a 50% increase in sales on Amazon for the FAST protein snack portfolio in the U.S. We are also excited about the launch of a new protein ready-to-drink indulgence product line from our team in Finland, which has received outstanding initial feedback and launched with approximately 300,000 initial orders, marking a significant success. We are assessing this further. We see many opportunities for growth in the protein space, especially in Finland, where the FAST protein snack portfolio is among the top-selling brands. With this new protein line, we are able to enhance our overall margin profile compared to previous products, and the team is doing an excellent job. We will continue to evaluate this as we expand.

Okay, thanks and best of luck in the remainder of Q4.

Thank you.

Thank you, Jeff.

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, John and Edwin, how are you?

Hello.

Excellent, Jeffrey. Doing well.

Just a little follow-up on Jeff's question. Can you talk about the number of SKUs now in installment on the FAST line and then talk about SKUs on the protein line as far as actual numbers? I think you had at the moment, 2 SKUs that you've introduced in the U.S.

Yeah, we have. We have 2 flavors now currently available and online on Amazon. We are also looking at additional flavors to further drive a variety of offerings there. The team is currently evaluating the supply chain of importing them into the U.S. Obviously, it's challenging, so we don't want to drive too much scale. We do want to build our consumer following, and that's what the teams are doing right now. Looking into 2022, we're considering rolling out additional channels of opportunity once we can produce locally and really drive an efficient margin profile to further invest in the brands. The FAST brand in the U.S. Right now in Finland launched a new protein line, which is an indulgence product. It tastes phenomenal. The team is extremely excited about that initial rollout, which has been positive. It comes in three great flavors currently. We will continue to evaluate that; there are synergistic opportunities to further scale in other markets as we grow. Health-minded consumers find this a complementary product to Celsius, and we'll continue to evaluate.

Would you anticipate manufacturing in the U.S. in 2022?

We anticipate manufacturing in the U.S. in 2022 with the protein snack portfolio, which is mainly the bars. We're evaluating the protein RTDs with some of our local production as well. Those are initial businesses in the early emphases in the U.S., but it is definitely something the team is currently evaluating.

Okay, got it. And looking for a little further commentary on the cooler front, any anticipated goals or aspirations for Q4 or for 2022 as far as the aggregate numbers?

In the first nine months of this year, we placed over 900 coolers, with 400 of those in the third quarter alone. We expect this momentum to continue to grow. It’s crucial for us to avoid over-dispersing coolers and instead focus on placing them in the right locations through a careful approach. We’re receiving a lot more requests due to the success we’re seeing; when we place a cooler at a distributor, they experience positive results. This is a partnership where we collaborate to target their top 20% of accounts. We would love to install high-quality coolers in excellent locations. If you spot a Celsius cooler, we have some attractive new designs featuring our logo that are performing very well. Be sure to grab a cold Celsius if you see one.

And then lastly, for us, any updates on U.S. flavors in SKUs, should we expect more, or will they wind it out in future?

Regarding our Vibe line; yes. Our Vibe line has done extremely well. Our Peach Vibe and our Tropical Vibe have been some of our top sellers in the initial launch. We will be rolling out new innovative flavors, and we expect to continue that strategy. A new Vibe is coming this summer; we won't disclose the flavor yet, but do anticipate a new Vibe coming that is going to taste great and amazing. There will be a lot of great marketing strategy behind that, which is innovative and really connects with consumers in a meaningful way.

Super. Thanks for taking the questions. Congrats on the quarter.

Thanks, Jeffrey.

Thanks.

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Thanks. Good morning, John. Good morning, Edwin. How are you?

Good morning. Doing well.

Excellent.

Just a couple of questions on the storefronts or the doors that you're at. Did you say you're at 118,000 at this point, and how many were added this quarter?

Yes, that's correct, Anthony. We're up to 118,000 store fronts. Year-to-date, that number reflects about a 40% increase in the overall store count this year.

Correct.

There are a lot of opportunities for further expansion there and new doors. The team is working hard. We have a great key accounts team that is focused on new distribution in all channels of trade. Obviously, the biggest opportunity we see currently is in the convenience channel, and really leveraging the DSD. Keep in mind, before our key accounts team was handling the national accounts, but now leveraging our DSD partners, we can activate and work with local regional chains where these DSD partners have local relationships. We're excited about that, and this is a big initiative through the rest of this year and into 2022.

Okay. And then just on the DSD front, I believe you have 224 regional DSD partners covering 92% of the U.S. counties that you're currently serving. Is that the right number?

That is correct. That is the right number. We had the largest increase in DSD partners in the third quarter, signing up many distributors. Keep in mind once we sign these distributors, it does take some time to get product to them, products to their warehouse, educate their team members, and really optimize the accounts, networks, and distributors for new product launches. It does take time, but it was the largest quarter for the increase in distribution partners. We're at about 92% of all counties in the U.S. Now covered, so a large portion of the population is covered. The teams are working on converting our key accounts over to DSD. We're in the optimization phase as well as bringing on new accounts. That's why you saw when you look at the great growth, we had in our DSD network; it was up over 400% for the quarter and up sequentially as well. Great opportunities as we execute and optimize.

And then just on the supply chain; I know you talked about the cans and the trouble getting some of those from overseas. You had to source some of those here in the U.S. on the spot market. You said you have enough right now, but what about the freight issue? From what we're hearing, this is industry-wide across a lot of industries, not just the consumer packaged goods industry or the drink industry. How are you planning to deal with that for the rest of this year and into 2022, if it continues to be an issue?

Great question. We have to really scale the business. Obviously, if we were at a larger scale and we weren't seeing our growth rates where they are, we would have a more material effect on our freight that we're seeing on the overall general nationwide cost increases of freight. As mentioned, according to DAT, it was about 20% overall. Keep in mind, we were going from 2 warehouses, migrating to 6 warehouses. When we were running at 2 warehouses and bringing on DSD as well, we were shipping a lot of product via less than a truckload, called LTL, which incurs much higher shipping costs. Once we move to this orbit model and bring in our distributors, they can take full truckloads. Not only are we shipping full trucks, but we're shipping that truck at a lower cost and a shorter distance. There are a lot of synergistic benefits on freight as we continue to scale and grow and gain that leverage versus a more mature business in this current environment with the increases in freight that the overall industries are facing.

No, that’s very helpful. Did you say or did Edwin say there was a one-time cost that impacted this quarter for the movement from these 2 to 6 warehouses?

Yes, I stated that as calculating it roughly around 3%, and that's really associated. When we're moving from 2 warehouses to 6 warehouses, we are really optimizing in the fourth quarter as well. Just keep that in mind. We're not fully optimized in the fourth quarter. We'll continue to optimize in Q1 and Q2, but when we move to six orbit, we increased our inventory levels. We're still shipping longer loads, longer lead times, and longer distances as the inventory really optimizes. We have a variety of flavors, as we all know, so it's very important that we have all the flavors at each warehouse to be able to shift very efficiently. That's why you saw our inventory levels increase at the end of September, and there's further optimization there. Edwin, do you want to add anything?

Yeah, John. I just wanted to add in that sense. As we establish the additional orbits or warehouses, yes, there have been some incremental intra-warehouse rates incurred moving and redeploying some of the inventory to then get the synergies or the benefits going forward. So I think that's what we were alluding to earlier.

Okay. Great. Thanks very much, guys. Appreciate the color.

Thank you.

Our next question comes from the line of Sean McGowan with Roth Capital. Please proceed with your question.

Thank you. Good morning, everyone. I have a couple of questions about what we can expect moving forward. When you mentioned returning to pre-COVID margins, are you indicating that you aim to achieve the same performance as before the first quarter of COVID? Is that your target, or do you believe that the economies of scale and other factors could allow you to exceed that? What do you see as the normalized gross margins now, excluding freight?

I believe our margins factor in freight, so if you view it this way, we expect to return to a margin profile of around 46% to 47%, similar to what we had in 2020. That is the level we think we can achieve. Edwin, would you like to add anything?

Yeah. I agree with that. To me, it's more of the timing because I fully agree with John that we will be able to get to that. It's just more of the timing when that normalization occurs. We start getting all those benefits, perhaps towards the back end of 2022, that type of thing. Without a doubt, we can get to that; it's just more of the timing issue.

All right, that's helpful. And just to clarify, when you give some of those color commentary on what the various puts and takes were to the gross margin, should we be interpreting that as those are like when you say a 3% hit? A 3 percentage point impact on the gross margin, is that the way you interpret that?

Yes, that's correct. The total adjustment reflects the increase in can prices, other input costs, and a 3% rise in freight. That's how we are reaching the overall 7%.

Great. Thank you. And then last thing again, trying to figure out what's normal. To what extent is the inventory build year a way of dealing with logistical and supply chain challenges, as opposed to just feeding consumer demand and retail expansion? How much overbuild is there in the inventory to try to smooth out some of those shipping challenges?

We are not currently building inventory, but in the third quarter, we enhanced our operations to improve margin efficiencies and affirmed our inventory levels to meet demand. We expect these efficiencies to develop in the future, possibly looking towards 2022. Our inventory includes a mix of spot rate and import cans, resulting in higher overall costs per case. We are focused on building our inventories to support and fill the six warehouses we are adding while also optimizing to address the increasing demand and the expected new store openings as we continue to grow, alongside improving our DSD network.

From my perspective, there's always two ways to look at this base, like I'd say, looking back and looking forward. Looking forward, based on hand, some computations, we’re probably around 120 days, so again, something that's still within the range of optimal that we're looking for.

Okay. Thank you very much.

We have run out of time for questions, and I would like to hand the call back to Mr. Fieldly for closing remarks.

Thank you. On behalf of the Company, we'd like to thank everyone today for their continued interest and support. Our results demonstrate that our products are gaining considerable momentum as we capitalize on today's global health and wellness trends and the transformation taking place in today's energy drink category. Our active lifestyle position is a global position with mass appeal. We're building upon our core and leveraging opportunities in deploying best practice. We have a winning portfolio strategy and team, and a large rapidly growing market that consumers want. We believe we'll be able to navigate through the challenges ahead as a result of the COVID-19, and we are well-positioned to thrive in the transformation of today's energy drink categories. In addition, I'd like to thank all of our investors for their continued support and confidence in our team. Thank you, everyone. Have a safe day. Stay healthy, and grab a Celsius.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.