Greetings, and welcome to Celsius Holdings Fourth Quarter and Full Year 2021 Financial Results. At this time, all participants are in a listen-only mode. A 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 afternoon, everyone. We appreciate you joining us today for Celsius Holdings' fourth quarter and full year 2021 earnings conference call. Joining me on the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, Chief Financial Officer. Following prepared remarks, we'll open the call to your questions, and instructions will be given at that time. The Company released its earnings press release upon market close this afternoon with the preliminary unaudited financial results for the fourth quarter and full year ended December 31, 2021, and all materials are available on the Company's website, celsiusholdingsinc.com, under the Investor Relations section. As a reminder, before turning the call over to John, an audio replay will be available on the Company's website later today. Preliminary conditions, financial guidance and growth disclosures have been prepared by management based on information available to it as of the date hereof, and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. Estimated preliminary results are subject to completion of our customary quarterly and annual financial closing, audits and review procedures and are not comprehensive statements of financial results for the three months ended and fiscal year ended December 31, 2021, and subject to adjustments as a result of such procedures. Reconciliations of all non-GAAP financial measures can be found in our earnings press release supplement and on our website, celsiusholdingsinc.com. Please also be aware that this call may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, which are based on forecasts, expectations and other information available to management as of today, March 1, 2021. In some cases, you can identify forward-looking statements by the words such as anticipate, expect, intend, plan, potentially, seek, believe, project, estimate, strategy, future, likely, may, should, will and similar references to future periods. These statements involve numerous risks and uncertainties, including many that are beyond the Company's control. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: economic and business conditions, our business strategy for expanding our presence in our industry, anticipated trends in our financial condition and results of operations, the impact of competition and technology change, existing and future regulations affecting our business, the Company's ability to satisfy in a timely manner all Securities and Exchange Commission required filings, the requirements of Section 404 for the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted under that section as well as other risks and uncertainties discussed in our reports Celsius Holdings has filed previously with the Securities and Exchange Commission. Except as to the extent required by law, Celsius Holdings undertakes no obligation and disclaims any duty to publicly update or revise any of these forward-looking statements, written or oral, whether as a result of new information, future developments or otherwise. We encourage you to review in full our safe harbor statements contained in today's press release and our SEC filings for additional information. With that, I'd like to turn the call over to President and Chief Executive Officer, John Fieldly, for his prepared remarks. John?

Thank you, Cameron. Good afternoon, everyone, and thank you for joining us today. Our record fourth quarter and full year 2021 financial results mirror our industry-leading growth metrics from third-party data providers, indicating that Celsius is grabbing more market share at an accelerated pace across all channels. For the first time in the Company's history, we delivered over $100 million in sales, and we did this in the fourth quarter. In addition, annual revenues exceeded over $300 million for the first time, which is truly an exciting accomplishment for the team. This is exemplified by our initial material penetration in the convenience channel, where we grew our store locations by over 95% to over 29,000 locations during 2021, now totaling just under 60,000 doors, while at the same time, driving club channel revenue, and we grew Amazon revenue to new records for the Company. This material expansion in historically underrepresented channels in the convenience channel and club channel has not impacted growth in other channels. Our growth is exemplified not only in sales, but also in our customer demographics. We further diversified our industry-leading consumer base over the past year, historically in the 24 to 44 age range, with our fastest-growing segment in the 18 to 24 age bracket, driving new female energy drink consumers into the category while we maintained our historical 50-50 male-female split. This is in conjunction with driving 20% of our sales from both male and female consumers new to the energy drink category. Our market share over the past year has been historic, even with the top two revenue customers, Amazon and Costco, not incorporated into tracked metrics as well as our fitness channel and vending channel. In third-party tracked channels, our share reached 2.1% share of the total energy drink category, growing 163% in the prior 52 weeks ending January 23, 2022, per IRI, MULO plus convenience data, total U.S. This is in our first full year of leveraging our national DSD network. Our future opportunity can be best exemplified by our market share on Amazon, where we are on an even playing field in terms of distribution. As of February 1, 2022, Celsius is the number two brand with over a 20% share of the energy category. These metrics further validate Celsius as a player in the energy category. And looking at the last four weeks' data, scan data, as of January 23, 2022, per IRI total energy U.S., Celsius' share in the energy category increased to a 3.2% share in the category, further demonstrating the momentum behind the portfolio. With this growth in revenue, we have also transitioned from a microcap company to a current market cap of over $4 billion over the past 18 months. Our investments in building out our world-class team and operational infrastructure during this time have been just as important as our sales growth. In conjunction with our internal team, we have also made significant investments expanding our Board of Directors as well as engaging Ernst & Young as our new auditor, which we announced in the second quarter of 2021. Over the last several quarters, we have accelerated this transition by implementing best practices recommended and brought on by BDO as our internal auditor consultants to assist with this transition. This process has been all-encompassing, and unfortunately, we have multiple weeks in January and early February, where a majority of our finance team was out with COVID. In addition, we have had multiple open positions, and we have been vigorously recruiting top talent into the Company's finance area to support our operations and our strong growth in our business, which was impacted by our ability to finalize the Ernst & Young first full year audit. We filed for an extension on our Form 10-K with the SEC earlier this evening and expect to file our 10-K during the 15 calendar day extension period as the final audit and internal control procedure work are performed and completed. We have been able to finalize the majority of the pending items prior to our call today, including as reported today in an 8-K filing, a prior period error correction has been made to the non-cash stock expense in our second and third quarter financial results for 2021 totaling approximately $2.7 million and $12.6 million in additional non-cash stock expense for those periods, which was the result of prior stock grants that were awarded to foundational individuals, which were modified to allow for continual vesting past their contracted service dates. This was an error of interpretation of a Class III modification rule, technical rule, which resulted in immediate mark-to-market adjustments for the prior periods' stock grants as a non-cash expense. We highlighted this financial impact in our full-year updated totals on our flash results table at the beginning of our earnings supplement as well as the financial statements on the earnings supplement included in the 8-K filing today, which outlines the prior period of changes reflected in the non-cash stock expense for those periods. In addition, in light of this error, our management has concluded that a material weakness existed in the Company's internal controls of our financial reporting for the Company's disclosure controls and procedures, which were not effective as of December 31, 2021, which was disclosed in our 8-K filing earlier today and which will be further discussed in our upcoming filing. To close these non-operational updates in regards to our previously disclosed SEC investigation, the matter is ongoing, and we are continuing to cooperate with the SEC staff. There have been no material developments in the investigation since the last disclosure. Now moving to the financial highlights for the fourth quarter. As stated, sales hit another quarterly record, and this was our first quarter to total over $100 million, which is a major accomplishment for the Company. Revenue growth was driven by continued new store count additions, SKU expansion, cold placements, DSD coverage expansion as well as the continual transition of existing accounts to DSD and the underrepresented channel growth in the convenience, club and vending. Total sales for the quarter of $104.3 million, up 192% from $35.7 million in the fourth quarter of 2020. Our domestic sales increased 238% to a record $95.9 million, up from $28.4 million in the fourth quarter of 2020. With both of these percentage growth rates being the highest in our history, we continue to see our two hardest-hit channels from COVID in 2020, our fitness and vending channel, not only rebound but drive growth in sales. Fitness was up 91% for the year, and vending was up 186%, which when combined contributed approximately $14.7 million of incremental revenue for the full year. International sales grew 15% to $8.3 million for the quarter and 17% for the year, with record annual revenues from the Nordics. Our gross profit margins continue to be impacted as we previously addressed in our third quarter results. We made a strategic decision in late 2020 and early 2021 to import cans to fulfill our demand, sacrificing some efficiencies on the margin side. As a result, we are seeing the impacts of these one-time short-term impacts as we run through these higher-cost sourced cans. We anticipate margins will continue to be impacted through the third quarter of 2022 as we process through these sourced cans. As we move forward, we are confident that U.S.-sourced cans, making up the majority of our production, will be normalized to our can input cost going forward. In addition, we are experiencing inflationary costs in our operations, which is further impacting our business from increased cost of freight and raw materials. We have implemented promotional pricing strategies to mitigate some of these immediate changes in our business environment, which will start to realize in the coming months. In addition, we further optimized our warehouse supply chain to reduce miles on cases to better service our customers and reduce costs. We anticipate when cycling through the imported cans, our margin will normalize to full-year 2020 levels based on current volume run rates. To conclude our margin analysis, as we recognize revenue growth rates more than double in North America to over 200%, we made a conscious decision to ensure that we had operational infrastructure to support our revenue growth and take full advantage of the opportunity to take share at an increasing pace. As such, we accelerated initiatives on several operational improvements to position us for future growth, which would impact our margins in the short term. Additional incremental near-term margin and benefits will be realized through pricing and promotional strategies, operational efficiency gains through our supply chain and a move to locally sourced cans on a go-forward basis. The Company continued to improve our order fill rates toward normalized levels through the fourth quarter from an 80% fill rate at the end of Q1 to the end of this year at a 97% fill rate in the fourth quarter and expect to maintain normalized levels even with accelerated growth rates due to the improvements in our warehousing expansion to a six-orbit infrastructure model, which will be put in place into the third quarter and expansion in our inventory, which is key as we enter the spring resets and anticipate material new placements as well as further expansion into the club channel. Some additional highlights for the fourth quarter. Our domestic revenues of approximately $96 million were driven by accelerated triple-digit growth in traditional channels of trade, expansion with worldwide retailers and further activation and growth from our distribution partners. The direct-store-delivery, DSD, network delivered over 400% growth rate versus the prior year in our distribution revenues. We secured additional distribution agreements during the quarter, expanding availability into new regions as Celsius continues to build out its network, now totaling over 276 regional direct-store-delivery service centers, covering approximately 98% of the U.S. population. We began 2021 with only 150 direct store partners and 80% coverage. We made substantial improvements throughout the year. Our vending channel grew over 210% in the fourth quarter. We added over 1,200 vending machines in micro markets in '21, increasing the number of locations by 96% for the year, and expect that growth to continue in 2022. In the fitness vitamin specialty channel, Celsius launched with Lifetime Fitness and is now available in over 150 of their locations and their Life Cafe. We also signed partnership agreements with Cycle Bar as their official energy drink and expect more clubs than ever to join before as the country continues to reopen in 2021 as we gain more awareness and placements in the fitness channel. Our mass club channel will accelerate growth following the rollout of 561 Costco stores in Q2. Costco's fourth quarter established a new record, growing over 1,100% for the fourth quarter versus the prior year. We're also seeing significant opportunities in the club channel in other markets, including Sam's Club and BJ's through 2022. In the convenience channel, our convenience channel store locations increased by 95%, as I said, to over 29,000 locations for the full year, totaling 60,000. We recently signed a national contract with Circle K, which will drive further expansion in the channel in 2022. The convenience store channel has the largest growth in number of doors in 2021 and expect similar growth trends to continue through 2022. Industry-backed third-party data continues to show Celsius' accelerating growth metrics, and we are confident that Celsius will continue to drive sales even higher as we increase our ACV across channels through additional launches with new nationwide retailers and further transitioning existing accounts to our DSD network. Consumer data for Celsius accelerates through the fourth quarter of 2021 and through February of 2022 to record levels, with the most recent Nielsen scan data as of February 12, 2022, showing Celsius sales were up 233% year-over-year for two weeks, up 234% for the four weeks, up 227% for the 12 weeks, with a 3% share of the energy category over the last two weeks. And on Amazon, as I said, Celsius is the second-largest energy drink with a 20% share of the energy category, approximately 7% share ahead of Red Bull at a 13% share and moving closer to the number one spot, just four share points behind Monster at a 24% share. This is according to the last four weeks' data ending February 12, 2022, stack line energy drink category, total U.S. In addition, Celsius has a year-over-year growth rate of about 94% compared to Amazon's energy growth rate of 37%, which is just over 2.5 times the category for the last four weeks ending February 12, 2022, and according to Stackline. Our U.S. store count now exceeds 135,000 locations nationally, growing over 53,000 doors or 65% from 82,000 at the beginning of 2021, with additional expansion plans throughout 2022 as retailer resets take place. On our co-packing front, we continue to expand with our partners in scaling at existing locations, improving our line time priority. Our total U.S. co-packer footprint now totals over 13 that are active, which will help protect against future out-of-stocks and support our massive growth as we continue to improve efficiencies in our supply chain. In the fourth quarter, Europe mainly derived from Nordics totaled $7.4 million compared to $6.9 million in the fourth quarter of 2020, an increase of 7%. Our market share in our largest market, Sweden, increased through the fourth quarter to just over 10%. For the full year, sales in Europe reached a record with an annual growth rate of 13% for 2021. We recently launched on Amazon EU, starting with Great Britain, which was launched with three SKUs of CELSIUS and six FAST protein bars. In Germany, we launched with three great flavors of CELSIUS. We are also expanding to additional EU markets, including France and Italy launching in early 2022. In China, we maintain a licensing royalty model in the market with a fixed royalty rate through 2024, which then becomes a volume-based royalty starting in the first year of 2024 with a minimum royalty of $2.2 million annually. In our international markets, additionally, the end of 2021 drove about $3.2 million, an increase of 109% from $1.5 million in the prior year period. Material markets include Malaysia, Hong Kong, Korea and Singapore where we saw great growth. Now moving to the marketing. On the marketing front, we continue to activate, targeting new and existing consumers where they live, work and play, building meaningful emotional connections through robust integrated marketing programs. Our momentum is accelerating, and our brand is resonating with a robust consumer base, expanding the category demographics. Focus on health and wellness is beyond the trend now. Functional energy is recognized throughout the industry as a driver of future growth with retailers and customers. We are driving and leading growth in the energy category across all channels, expanding the demographic while bringing an industry-leading percentage of consumers from outside and new to the category while accelerating our share in the growing energy market. We have committed the resources, both in personnel and operational infrastructure, to maximize our opportunity. I'll now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer, for his prepared remarks.

Thank you, John. I wanted to start by providing additional clarity on the adjustments that John highlighted regarding the non-cash stock compensation expense. During Q2 and Q3, the Company calculated and recognized non-cash stock-based compensation expense related to options and RSUs held by former foundational employees and retired directors ratably over their vesting period. However, because the options and the RSUs were allowed to continue to vest after the employees separated and the directors retired from the Company, those awards were deemed to have been modified. And the expense should have been calculated and recognized using the fair market value of the stock as of the date of termination or retirement. This led to the adjustments that John discussed, which resulted in the understatement of the stock compensation expense in Q2 in the amount of $3.1 million and $12.1 million for Q3. These aspects are further detailed in the 8-K that we filed today. As a result of this situation, the Company's management and the Audit Committee of its Board of Directors have determined that the Company's previously issued interim unaudited financial statements contained in the Company's quarterly reports on Form 10-Q for each of the affected quarters should no longer be relied upon. The Company's management has also concluded that in light of this situation, as previously described, a material weakness existed in the Company's internal control over the proper valuation of stock compensation expense regarding the modifications performed to stock awards for some former employees and retired directors. Now turning to our fourth quarter financial results. We had a record fourth quarter revenue for the three months ended December 31, 2021, of $104.3 million, an increase of $68.6 million or a strong 192% increase from $35.7 million for the three months ended December 31, 2020. Approximately 98% of this growth was a result of increased revenues from North America. For 2021, fourth quarter revenues were $96 million, an increase of $67.5 million or a robust 238% increase from $28.4 million in the 2020 quarter. The balance of the revenues for the 2021 quarter was mainly related to European revenues of $7.4 million, or 7% higher when compared to $6.9 million in the year-ago period. Asian revenues, which included royalty revenues from our China licensee, contributed an additional $680,000, an increase of 203% from $224,000 from the prior year quarter. Other international markets generated $265,000 in revenues during the three months ended December 31, 2021, an increase of $148,000 or 127% from $117,000 for the prior year quarter. Gross profit for Q4 increased by $24.2 million or 139% to $42.4 million from $17.4 million for the three months ended December 31, 2021. Gross profit margins reflected a decrease to 39.9% for the three months ended December 31, 2021 from 48.9% for the 2020 quarter. Excluding freight out, as some of our competitors do not include this expense as part of cost of goods sold, our adjusted gross margin for the fourth quarter was 48.4% compared to 57.2% for the fourth quarter of 2020. The increase in gross profit dollars is related to an increase in volume, while the decrease in gross profit margins is mainly related to an increase in costs pertaining to imported cans, higher raw material costs, ocean freights and transportation costs and repackaging costs. Sales and marketing expenses for the three months ended December 31, 2021, were approximately $24.6 million, an increase of approximately $13.4 million or 119.2% from $11.2 million for the three months ended December 31, 2020. This increase was primarily attributable to higher marketing investment activities, which resulted in an increase of $8.2 million when compared to the prior year quarter. Additionally, employee costs increased by approximately $1.5 million from the year-ago quarter as we continued to invest in this area in order to have the proper infrastructure to support our growth as well as incurring additional travel and business expenses since we are now able to resume in-person marketing events and selling activities. Additionally, storage and distribution expenses as well as broker costs accounted for the remainder of the increase in this area in the amount of $4.2 million from the 2020 quarter, basically related to the increase in business and revenue volume. Lastly, there were slight offsets in other sales and marketing expenses in the amount of $487,000, mainly related to savings in trade marketing activities. As a percentage of revenue, sales and marketing charges amounted to 23.6% for the fourth quarter of 2021 compared to 31.5% for the fourth quarter of 2020. General and administrative expenses for the three months ended December 31, 2021, were $14.2 million, an increase of $8.4 million or 147% from $5.7 million for the three months ended December 31, 2020. This increase was mainly related to stock option expense, which amounted to $7.8 million for the three months ended December 31, 2021, an increase of $6.2 million, which accounts for 74% of the total increase in this area when compared to the prior year quarter. This increase is mainly related to the non-cash expense adjustments that I mentioned at the beginning of my prepared comments. Additionally, employee costs for the three months ended December 31, 2021, reflected an increase of $804,000 or 53.8% as investments in this area are also required to properly support our higher business volume and commercial and operational areas of the business as well as the increased travel and expenses that are now being incurred. Administrative expenses amounted to $3.5 million, an increase of $2.1 million or 153% when compared to the prior year quarter. This variance includes an increase in the bad debt reserve of $425,000 as well as increases in other costs, legal expenses, insurance cost and office rent, which account for the majority of the remaining fluctuation of $1.7 million. Depreciation and amortization decreased by approximately $222,000 when compared to the prior year quarter. As a percentage of revenue, G&A costs amounted to 14% for the three months ended December 31, 2021, compared to 16% in the prior year. However, excluding the non-cash stock option expense for both periods, G&A decreased as a percentage of revenue for the fourth quarter of 2021 to 6.1% compared to 11.5% for the fourth quarter of 2020. Other income and other expenses. Total net other income for the three months ended December 31, 2021, amounted to $250,000, which reflects a decrease of $350,000 when compared to the total net other income of $600,000 for the three months ended December 31, 2020. The prior year quarter included a foreign exchange gain of $730,000, which accounts for the majority of the variance from the 2021 four-quarter. The net other income of $250,000 for the fourth quarter of 2021 is composed of foreign currency exchange gains of $175,000 and interest income of $77,400 related to the note receivable from our China licensee, which were partially offset by miscellaneous other interest expenses of $2,100. Net income. Our net income for the three months ended December 31, 2021, was $11.9 million, which included a tax benefit of $8.8 million, mainly related to the release of valuation allowances regarding prior year tax losses. As such, earnings for the three months ended December 31, 2021, were $0.16 per share based on a weighted average of 74.8 million shares outstanding and diluted earnings per share of $0.15, based on a fully diluted weighted average of 78.4 million shares outstanding, which includes the dilutive impact of stock options to purchase 3.6 million shares. In comparison, for the three months ended December 31, 2020, the Company had fourth quarter net income of $950,000 or $0.01 per basic share, and diluted share based on basic of 71.9 million shares and 76.5 million fully diluted shares. Now focusing on liquidity and capital resources. As of December 31, 2021, and December 31, 2020, we had cash of approximately $16.3 million and $43.2 million, respectively, and working capital of approximately $169 million and $66.8 million, respectively, with no long-term debt. Cash flow used in operation and operating activities totaled $95.8 million during 2021, which compares to $3.4 million provided by operating activities for the year ended December 31, 2020. The use of cash in the 2021 year was primarily driven by higher inventory levels in order to properly service our demand for our products, support our new six-orbit warehouse model and mitigate the impact of supply chain inefficiencies and inconsistencies as well as anticipate our upcoming spring resets. Specifically, our net inventory value increased $172.8 million from $18.4 million in the fourth quarter of 2020 to $191.2 million for the year ended December 31, 2021. Excluding the significant increase in inventory, cash flow from operations for the full year, December 31, 2021, would have totaled approximately $84.3 million. Our current cash position, together with the expected results from operations, should provide us with sufficient cash to operate our business as we're also normalizing and optimizing our inventory levels, which should release significant funds over the next 12 to 15 months. This concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question.

First, just a housekeeping question on the control issue. Can you just confirm that the issues here, as you wait for the audit to wrap up as best you know, are just going to be exclusively isolated to the stock-based comp accounting?

That's the expectation. Hi, Kevin, this is Edwin. Yes, that's the indication right now. But yes, as you well pointed out, we're still going through the audit and obviously internal control system making effect of what's remaining. So that's the expectation, but we'll see what happens.

Okay. Fair enough, Edwin. Two more quick ones for me. John, you were pretty optimistic on the shelf-space resets, which is encouraging. I think the comment was you expect material new placements and expansion in the club channel. Maybe just spend a little bit of time on that. And John, I guess, within the answer, we can see the really positive trends in Nielsen scan data at about 2% market share. Maybe as part of your response, just talk a little bit about how you expect distribution velocity to kind of play out here, and where you expect that share to go within scanned channels over the next 12 to 36 months?

Yes, Kevin, you're absolutely right. The scan data has been extremely strong, as we discussed earlier on the call. It's interesting that as we expand into these reported channels, we're seeing significant increases in velocity in the club channel, particularly at Costco and on Amazon. We expect this to eventually level off as we gain broader distribution, but the initial feedback looks really strong, especially looking at the most recent February data. The performance of our product in the club channel took us by surprise in 2021. We're currently in discussions with Sam's Club and hope to find opportunities with them in 2022, as well as with BJ's. A major achievement for us in the convenience channel is securing a national distribution agreement with Circle K, reaching about 6,000 stores. We will continue to expand; we had a great NACS event, one of the best I've attended with the Company. Overall, we feel we're positioned well. Our key accounts team has been working tirelessly, and we expect to see the results of their efforts in the coming months.

Got it. Just one more question from me, and then I'll pass it on. I have several questions we can discuss later. Regarding the gross margin, Edwin, I understand you typically don’t provide guidance, but could you share at a high level what the expectations are given the pressure from commodity costs? You mentioned having higher-cost cans in inventory, and we’ve seen a significant increase in inventory days as we approach the fourth quarter. Can you provide some direction on how you anticipate gross margins will trend in 2022? Additionally, considering this near-term pressure, which is more pronounced for new investors, there is a significant long-term opportunity for margin growth that could potentially bring you closer to Monster-like EBITDA margins. Could you help clarify the near-term expectations in relation to the potential for substantial margin expansion in the long run? Then I'll pass it on.

Thanks, Kevin. Sure. As we've mentioned before, there are several factors at play here. One of the key elements is the difference between locally sourced cans and those sourced from the U.S., which come at a higher cost. This will clearly affect our costs, and we expect this to impact our cost of goods sold, at least through Q2 and possibly beyond that. Additionally, we're facing supply chain challenges related to freight, and the overall macroeconomic factors like oil prices also contribute. We'll need to monitor how these transportation costs evolve. At one point, we saw container freight costs approaching $20,000. There are many variables to consider, making it difficult to predict outcomes right now. The mix of local versus foreign cans will also be significant as we cycle through inventory. Regarding EBITDA going forward, we anticipate that once the situation stabilizes, the inflation we're experiencing may be temporary. After normalization, we expect to return to the gross profitability levels we had in 2020 and to leverage our volume to improve our EBITDA margin further.

Yes. I'll just chime in. When we look at our internal forecast, we're expecting to cycle through the import cans, sourced cans currently sometime in the third quarter. So expect that to be more normalized to 2020 levels as we cycle through it. And we are working on a variety of pricing promotional strategies to offset some of this inflationary pressure that we're currently seeing.

Our next question comes from the line of Mark Astrachan with Stifel. Please proceed with your question.

I guess, first, just following up on the stock-based comp commentary. Edwin, I think you said that's the expectation, that it was just specific to that. So are you saying that there's nothing else that you're aware of that could potentially come up, at least at this point? I respect the fact that it could potentially come up over the next 15 days. But are you saying there's nothing else that you're aware of beyond that? And then related to that, was this in any way related to the SEC investigation?

First of all, it's important to note that this is a first-year audit. Having been on the auditing side before, I know that first-year audits involve a lot more scrutiny. We're now working with Ernst & Young, which is a significant step up. While there may be potential issues that could arise, we aren't seeing anything of that nature at this moment. However, it's always wise to keep the possibility open because they are conducting a very thorough review, as we expect. Regarding your other comment, I'm not entirely sure how it connects, but the situation pertains to some awards that needed to be properly valued at fair market value for employees who have been separated, as well as for some Board members who retired.

I want to address some points regarding the employees. There is a technical issue because some are still working under contract services. This created a misunderstanding concerning their stock awards. It was definitely an oversight that has been corrected. Management is very confident in the preliminary numbers we've released. While we acknowledge that unexpected issues can arise, we wouldn’t have put out these preliminary numbers if management didn’t trust the figures shared today.

Got it. Okay. That's helpful. And then switching over to the business, John. If you looked at your market share on a state-by-state basis, it's pretty interesting that your home state share is something slightly in excess of 10% relative to current national share. It's somewhere in the mid-3s based on the latest data that we've seen. So I guess I'm curious if you could talk a bit about how you think about those two numbers sort of ultimately working in unison. And is there anything that would potentially prevent your state market share from improving in some material way once you get more distribution? And I guess, sort of related to that, maybe you could talk about the state of distribution the further you move away from Florida from just an overall penetration standpoint.

The share count you mentioned in Florida is impressive. The Company has been putting in significant effort there, and you can clearly see the strength of the DSD network. Florida has been comprehensively covered for nearly two years now, resulting in greater availability and an increase in ACV. Additionally, we secured partnerships with Circle K in the Southeast, along with 7-Eleven and other major accounts, including Publix. Our performance in Florida has been outstanding, which suggests that, with the same opportunities, CELSIUS can match or even outperform the competition. Florida, along with Texas and California, has proven to be a strong market for us, and we're witnessing an uptick in share in several other states as we expand the DSD network and activate key accounts for greater distribution.

Got it. Okay. I just want to clarify one thing, going back to the SEC. So Edwin, is the SEC investigation related to this? Or are they separate items?

Again, they're completely separate aspects here. I mean, this was more, yes, an internal aspect.

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

So just wanted to follow up on the Circle K contract, what we're looking at there as far as the rollout. And then also, I wanted to follow up just on the DSD expansion, kind of where we are now in overall percentage. And then what you think is a reasonable target by the end of fiscal '22?

Yes, Jeff, thank you. When we consider our position with Circle K, it's a significant opportunity for us. We have been long-term partners with 7-Eleven, and Circle K presents an exciting chance for expansion. We have been running tests in various regions, and securing this national contract is a big step forward. This will enable us to reach approximately 6,000 locations nationwide, each offering around four flavors, fueling our direct store delivery network. It is a crucial addition to our distribution capabilities, with more key accounts in the pipeline that will help us fill the gaps in our coverage. As I mentioned earlier, we've successfully closed some direct store delivery gaps in 2021 thanks to our team's efforts, despite the challenges involved. We now have over 270 direct store delivery warehouses operating efficiently, covering about 98% of the population. We are actively working to close the remaining gaps in certain states, aiming for full coverage to support all our key accounts across the country by the end of 2022. Our immediate focus for 2022 is to activate our distribution network, enhance our distribution, increase sales velocity, and attract new consumers to our product range.

Okay. Great. And then if we could just turn to the six-orbit warehouse model. Can you give us more detail on, I guess, where you are on ramping that up, what the next milestones are that you're targeting there, time frame around that? And then if you could speak more about what level of benefit you anticipate once the six orbit system is fully optimized.

Yes, we initiated the six-orbit model in the third quarter and are currently developing the warehouses. We have increased our inventories, as reflected in our balance sheet, and believe we are at an optimal inventory level that allows us to take action. Our focus for the fourth quarter is on optimizing inventory levels and establishing the right servicing lanes within our logistics supply chain. We are collaborating with some of the largest logistics providers to secure the best rates for servicing our customers, which will help reduce service times and lead times, while also enhancing efficiency in our networks through strategies like full truckloads and full pallet deliveries. This will enable us to lower our freight costs and improve our margins. By the end of the first quarter, our goal is to achieve further optimization, and we are committed to continual improvement. Therefore, by the end of Q1 2022, we expect to be well optimized for the year ahead.

Our next question comes from the line of Kaumil Gajrawala with Credit Suisse. Please proceed with your question.

Could you clarify how many of those accounts have been converted out of the 98%? I recall you provided several examples of specific accounts, but do you know if you're currently at 60% or 70% converted? I'm not sure if I missed that information or if it was never shared.

Thank you, Kaumil. The 98% refers to our population coverage. If all our key accounts transitioned to our DSD network, we would be able to serve about 98% of the population. This is what we mean by the 98%. Currently, approximately 65% of our MULO and convenience stores are now serviced by DSD, indicating there's still significant optimization needed. Our teams are focused on this in 2022. New accounts are being added through DSD, and we are also working on converting some of our established accounts. As I mentioned in previous calls, this process takes time; it's not just a matter of flipping a switch. There are steps involved, and our teams are dedicated to this transition. We understand that having Celsius serviced by DSD increases sales velocity within the stores, ultimately benefiting store owners, distributors, and us.

That MULO+C number is representative of your overall, does that sound fair, 65-ish percent?

Yes.

Yes. Okay. The next question on margins. Can you give maybe a little more context on what the perhaps the spread is on the imported cans versus the domestic cans? We look at how much gross margins were down. Would they have been down half as much if you were sourcing domestically 1/3? Can you maybe just give some context of as you work through that inventory, we have a sense of where margins or margin should look like?

Yes. As we assess the margins, we indicated that once we move past the international cans, we expect to return to margins closer to what we saw in the full year of 2020. This is our current expectation based on the existing run rate. However, regarding the international sourced cans, the costs for containers have been around $20,000 each, but we are beginning to notice a slight decline in container prices. We still have more imported cans on the way, which is why we expect to cycle through them by the third quarter of 2022, according to our internal forecast. The impact of these imported cans on margins is approximately 3% to 4%, which is significant. Additionally, we are facing some temporary increases in freight and raw material costs, which we are addressing through pricing and promotional strategies that we have put in place.

Okay, great. Finally, could you share your thoughts on marketing spend? As you aim to achieve that 98%, how should we view your marketing and sales expenditures?

We are making investments in advance of revenue, reflecting our position in both our lifecycle and growth cycle. We are hiring diverse staff across all departments including finance, sales, marketing, and operations, to build out our team. Specifically, we are adding resources in marketing and taking a strategic approach as we re-engage with events. We are seeing exciting activation and increasing distribution, which is crucial as we grow our presence in the market. Our strategy involves continuing to market and support the brand to attract new consumers and maintain retail velocity. We're aiming for greater efficiencies over time. For our current quarter, we plan to sustain our spending levels through 2022. When examining our general and administrative expenses, removing some stock-based compensation from the fourth quarter reveals a rate of about 6% to 6.1%. Additionally, this figure accounts for increased costs related to accounting, legal fees, and consulting services. There is definitely potential for leverage within our model as we experience growth.

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

I wanted to ask a quick question. Is all of the stock-based compensation expense included in the general and administrative line? Is it 100% in that category?

Correct. Yes.

For the fourth quarter, do you believe that the level we see will be typical for each quarter, or could there be some catch-up from the issue you've mentioned, leading to a decrease in that level over time?

I mean it should be around what you're seeing now or what we commented on going forward.

Okay. Then shifting to a housekeeping on taxes. Can you give us what the dollar amount was of that deferred tax credit reversal in the release?

Yes, I think it was around $8 million, $8.5 million.

That's the whole thing then. What would you expect would be the tax rate going forward then?

We still have some NOLs, and we are working through the calculations for the provision. Yes, we will continue to have a small amount of NOLs going forward.

Okay. But it should be higher, I mean, some significantly higher rate than what we've been showing, right?

Yes, obviously, yes, depending on the profitability and profit. But yes.

Yes, feel free to join in. Regarding our inventory days, we need to look forward. We prepaid a significant amount for raw materials, around $60 million to $70 million, specifically for cans and other materials. The raw materials environment remains challenging, but we strategically made these prepayments to secure our supply as we enter 2022, especially as we prepare for seasonal resets and the summer beverage season. This strategy helps us maintain our stock levels. With the growth we're experiencing, particularly in North America where growth rates are upwards of 200%, it's crucial to closely monitor inventory levels. We aim to maintain a higher inventory as we move forward with these growth rates, ideally at about 90 to 120 days’ worth. Currently, we're ending the year at a higher inventory level due to significant production runs we completed in December, positioning us well for 2022.

Okay. Then final question on international. We've talked quite a bit over the course of last year about North America being the focus because that's where there's so much low-hanging fruit and opportunity. Is there anything else that's constraining international sales from being higher? Can we expect that growth rate to accelerate?

I believe we are currently taking a somewhat cautious approach to international markets, although we recognize there are numerous opportunities available. We've started to expand in the Nordics and have entered the Amazon marketplace in Great Britain, the U.K., and Germany. We also see significant potential in Southeast Asia. However, we are being very deliberate as we grow. As our momentum increases, we will invest more, but for now, we are maintaining a careful and conservative strategy.

Yes. What we've said in international, the key aspect is to identify good partners. You own master distributors so that then you avoid having a large footprint. And again, even things like currency exposure and things of that nature. So, like John said, it's always about identifying those key partners in those different markets.

Our next question comes from the line of Sean King with UBS. Please proceed with your question.

I guess I said just looking at how strong growth was in the quarter and thinking about some of the difficult comparisons in the back half of 2022, like how should we be thinking about sort of bumping up against production constraints? And I guess the confidence that you have that you can keep up this level of growth.

Yes. I believe that considering our growth so far, we are looking to maintain our inventory levels. We expect to sustain momentum and increase our market share. As we noted, we have 13 active co-packers and are in discussions with several others. Last year, we brought on Paul Storey, who has extensive knowledge of the beverage industry, particularly in co-packing and energy drinks. We feel very well-positioned as we expand. We have sufficient capacity, and we are encouraging our sales team to outpace production, fostering internal competition. Overall, I think we are in a strong position and ready to continue scaling our operations.

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

If I could follow up a little bit as far as the co-packers, up to 13 now. How does that pace look over the third quarter? And what would you anticipate domestically for '22?

Currently, we are operating with six orbits. Our goal is to enhance efficiencies while keeping our supply chain and warehouses within these orbits. It's essential not to ship outside of an orbit to achieve efficiency. Presently, our volume is at a six orbit. However, as we scale, we will develop more orbits, which will further enhance efficiencies within our model and supply chain. This will depend on the speed at which we scale, and we're actively developing our plans, which will soon be visible. We are also engaging with various additional co-packers strategically located across the country, as well as expanding warehouse facilities. Our aim is to minimize the distance transported for cases to maximize efficiency. We believe we are in a strong position given our current growth and volume levels.

I wanted to follow up on the inventory build. How much of that is attributable to inflation? Also, where do you anticipate the inventory levels will be in 12 months?

Yes, please feel free to jump in. When we assess our days of inventory, it's important to look both back and forward. We have made significant prepayments on raw materials, approximately $60 million to $70 million for cans and other materials. The raw materials environment remains challenging, but we've strategically secured these prepayments to prepare for 2022 and the upcoming summer beverage season. This strategy allows us to maintain our stock levels effectively. As we look ahead, with growth rates in North America reaching upwards of 200%, it is crucial to closely monitor our inventory levels. We aim to keep our inventory around 90 to 120 days on hand. Currently, we are above that target due to substantial production runs we completed in December, positioning us well for 2022.

Okay. And when we think of inventory, could you give us a sense of what percent that is of cans as opposed to fully finished products?

Yes, we're probably about 15% to 20% of our inventory is probably currently within our packaging components. We do have some additional raw materials in there as well, packaging materials.

Got it. Okay. And the balance is finished products.

Yes.

Got it. Can you provide any insight on how challenges related to labor and logistics might impact the difference in gross profit between outbound freight and overall gross profit in the future? Do you think it has reached its peak, or is there a chance it could continue to diverge slightly?

There are many macro factors occurring right now, such as gas prices and the current environment, which leaves us in a fairly uncertain situation moving forward. We are making efforts to manage these challenges as much as possible. In terms of labor, we are still facing significant shortages. We have open positions and are actively seeking well-qualified talent to join the company. Many companies are experiencing similar issues with logistics and a shortage of trucking labor. Although I don’t have the exact numbers right now, previous discussions indicated a large number of open driver positions, and gas prices are expected to keep rising. This puts us in a somewhat challenging position that will affect everyone.

Yes, the gap in outbound freight has always been around 8% to 10%. So yes, who knows again, with the gas prices and all that, how that's going to further perhaps make that gap broader. But that's what it's been in the past historically.

Okay. Got it. And then lastly for us, on the CycleBar exclusive, is that with all the national CycleBars? I think there's a couple of hundred out there.

There are currently a couple of hundred out there. It's a great partnership for us, a great brand, and we're looking forward to a successful year with them. We have many plans, including events and cross promotions, and it should be exciting.

This is all the time we have for questions. I'd like to hand the call back over to John Fieldly for closing remarks.

Thank you. On behalf of the Company, I'd like to thank everyone for their continued interest and support. Our results demonstrate the product is gaining considerable momentum. We're capitalizing on today's health and wellness trends and transformation taking place in the energy category. Our active lifestyle position is a global position with mass appeal. We're building upon our core and leveraging best practices. We have a winning portfolio, strategy and team in a rapidly transforming category. We see great opportunities. We believe we will navigate through the challenges ahead, and we are well-positioned to thrive in today's energy drink category. Thank you, everyone, for your time today and confidence in the team. Stay safe, stay healthy and lifted. Thank you.

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.