Greetings, and welcome to Celsius' Third Quarter 2023 Financial Results. 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, and good morning, everyone. We appreciate you joining us today for Celsius Holdings Third Quarter 2023 Earnings Conference Call. Joining me on the call today are John Fieldly, President and Chief Executive Officer; and Jarrod Langhans, Chief Financial Officer. Following the prepared remarks, we'll open the call to your questions at that time. The company released its third quarter earnings press release earlier this morning, and all materials are available on the company's website, celsiusholdingsinc.com as well as on the SEC's website, sec.gov. As a reminder, before I turn the call over to John, an audio replay will be available later today and can be accessed with the same live webcast link in our conference call announced in our press release. Please also be aware that this call may contain forward-looking statements, which are based on forecasts, expectations and other information available to management as of November 7, 2023. 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 and disclaims 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. Additionally, management will share operating results on both a GAAP basis and a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use such as non-GAAP adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings press release for the third quarter of 2023. With that, I'd like to turn the call over to our President and Chief Executive Officer, John Fieldly, for his prepared remarks. John?

Thank you, Cameron. Good morning, everyone, and thank you for joining us today. Celsius achieved record sales in the third quarter that totaled approximately $385 million, up 104% from $188 million for the prior year third quarter. This was driven predominantly by North America revenue, which increased 107% to $371 million, up from $180 million for the prior year third quarter. Celsius continues to be the top driver of growth in the energy category, both in dollars and units through tracked channels. Celsius is the number one dollar and unit growth brand over the last 52 weeks per IRI total U.S. MULOC energy category data ending October 8, 2023, growing approximately $950 million incremental dollars, up 144% versus a year ago while representing 28% of all category dollar growth. In addition, our unit growth totaled $289.2 million incremental units, an increase of 114% versus a year ago, and totaled 39% of all category unit growth. Per IRI, in the four-week period ending October 8, 2023, in MULOC, Celsius is the number three energy drink brand in the U.S. with approximately a 10.5% market share, more than doubling its 4.4% share in the same period last year. This dollar growth on 10.5% share has not been achieved in the last decade. We continue to see growth across all channels, both tracked and non-tracked, with our club channel sales totaling approximately $63.2 million for the quarter ending September 30, up 83.3% year-over-year compared to $34.5 million for the prior period third quarter. Per stacked line on Amazon, over the last 14 weeks ending September 30, 2023, Celsius is now the best-selling energy drink on Amazon with approximately a 21.4% share in the energy category, ahead of Monster at an 18.6% share and Red Bull at a 13% share. Our third quarter 2023 Amazon sales totaled approximately $22.2 million versus $15.6 million for the year-ago period, an increase of approximately 42%. Celsius is now the number one energy drink brand on Instacart and continues to outpace that category of growth as the largest and fastest-growing brand on the platform. We continue to expand our growth opportunities in non-tracked food service channels and are gaining more distribution points at colleges, universities, hospitals, hotels, eateries, casinos and more. Overall foodservice continues to exceed approximately 10% of our PepsiCo revenues, and we see this area as an opportunity for further growth and scale. We are extremely happy with our PepsiCo partnership, and we believe there is a long runway ahead of growth across a variety of channels, including expanding at retail, convenience and foodservice. During the quarter in foodservice, I'd like to highlight that Celsius is now available in over 2,000 Jersey Mike locations across the United States, and we've now gained authorization in over 3,000 Dunkin' Donuts nationwide. This illustrates the many unique usage occasions that we are seeing and our customers are enjoying our Celsius products. As highlighted in our earnings supplement, per IRI, for the four-week period ending October 8, 2023, we have increased our market share in MULOC by approximately 138% to a 10.5% share, which has not been achieved in the energy category over the past decade versus a 4.4% share in the prior year period. In MULOC, Celsius grew its ACV to 95.6% versus 72.1% year-over-year. In convenience, Celsius gained an additional 22.6% of ACV growth versus the prior year period ending and resides at approximately 95.6% of ACV compared with a 73% of ACV in the prior year. This provides tremendous opportunities as we continue to grow customer awareness and our national availability. International sales grew approximately 56% in the third quarter, totaling $13.6 million compared to $8.7 million in the third quarter of 2022, driven in large part by successful innovation launches, increased velocity, and brand awareness. The first major international market in which we plan to expand under the PepsiCo umbrella is Canada, expected to launch in the first quarter of 2024. We believe there are significant opportunities for incremental growth over the next three to five years as we execute our international expansion blueprint in a handful of countries in 2024, with opportunities for further expansion in '25, '26, and beyond. We expect to provide additional details as we get closer to these dates. Beyond new markets, we are very excited about several of our innovative launches that our team has created and have been working through, including a recent launch of our newest Vibe flavor, Cosmic Vibe, a great tasting sparkling fruit punch flavor, which is out of this world and is now available at Circle K. In addition, just recently in November, we launched a new 16-ounce line, Celsius Essentials, which is exclusively available initially at 7-Eleven through the remainder of 2023 with a nationwide rollout planned in 2024. Celsius Essentials is formulated for fitness enthusiasts looking to elevate their performance. Each can of Celsius Essentials contains 270 milligrams of caffeine, our essential aminos as well as our proprietary blend, providing you with the combination of enhanced physical performance and cognitive benefits. This new line comes in four great-tasting flavors: Blue Crush, Cherry Limeade, Dragonberry, and Orangesicle. Net income attributed to common shareholders totaled $70.5 million in the quarter or $0.89 per diluted share compared to a net loss of $186.5 million or a net loss of $2.46 per diluted share. The prior year losses were preliminarily driven by termination expenses as we moved from our prior distribution network to the PepsiCo distribution system. Non-GAAP adjusted EBITDA increased 318% to approximately $104 million in the quarter compared to $25 million in the prior year period, driven substantially by revenue growth, an increase in margins, and our continued leverage across our SG&A. Our record non-GAAP adjusted EBITDA in the third quarter represented approximately 27% of sales. This was driven by gross margin improvements, up 860 basis points from the prior year ago to approximately 50.4% of gross profit versus 41.8%. In addition, we saw a combination of leverage across our sales and marketing totaling approximately 19.1% of sales in the third quarter compared to 23% adjusted for distributor termination expenses in the prior year period. G&A, general and administrative expenses, totaled approximately 6% in the third quarter compared to 14.6% of sales in the prior year period. Jarrod will cover these items in more detail shortly. Our distribution partner, PepsiCo, continues to facilitate ACV expansion, supporting new customer acquisitions across broad demographics and new usage occasions. Going forward, we expect that our key incremental growth drivers are expected to be increasing our SKUs, our flavors and facings at retail, improving shelf placements, more placements in stores, secondary placements and Celsius-branded cooler placements as well as expanded independent convenience expansion initiatives as well as foodservice and increasing our velocities at shelf. In recent calls, I've also cited South Florida as an example of what a more developed mature market can look like. Over the last four weeks, as of October 8, 2023, per IRI, Celsius in South Florida market share was approximately 24.1%. At the beginning of January of 2023, our market share was 17.7%. This shows the strong market share and growth the Celsius brand has achieved in the South Florida market as well as the opportunities that we see in a broader market as we look for national U.S. availability as we continue to roll out into further locations and improve our placements at retail as well as our velocities. To conclude my prepared remarks, Celsius continues to lead both on a dollar and unit growth basis in the energy category. The leverage in our operating model is becoming more apparent with incremental growth, highlighted by our 104% sales growth in the third quarter, delivering over a 300% adjusted EBITDA growth. Our customers have been growing the category, both in demographics and usage occasions, increasing their dollar spend on Celsius. I also want to highlight the Celsius team and the amazing job they're doing. We have added over 200 new full-time and part-time employees during the third quarter. Developing our world-class team continues to position Celsius to execute against our growth opportunities that we see in front of us while driving operational leverage to unlock greater shareholder value. I'll now turn our call over to Jarrod Langhans, our Chief Financial Officer, for his prepared remarks. Jarrod?

Thank you, John. Thank you all for joining us this morning. It was another great quarter where we continued to exceed both internal and external expectations. Not only are we continuing to benefit from the distribution system of Pepsi, but we're also delivering on increased SKU count, improved placement, increased displays and continuous improvement within velocities. We plan to continue investment in our growth in Q4 and beyond. In addition, we have seen the benefits of leverage across our business with gross margins, operating margins, and EBITDA margins all improving. As we announced last week, the company initiated a three for one forward stock split, and we expect that the common stock will trade on a split-adjusted basis commencing with the opening of trading on the NASDAQ capital market on November 15, 2023. Turning to our third quarter financial highlights. Revenue for the three months ended September 30, 2023 was approximately $385 million, an increase of 104% from $188 million from the same period in 2022. North American third quarter revenues were $371 million, an increase of 107% from the same period in 2022. International revenue grew 56% to $14 million as we saw a recovery from the challenging environment that existed in the prior year. We attribute our sales volume growth for the quarter compared to 2022 to several key drivers, including a successful integration to the Pepsi distribution system, which has resulted in broader availability, increased SKU mix, and improved placement. We're also benefiting from robust expansion in our traditional distribution channels and club channels with SKU increases and placement improvements all contributing. Moreover, our products are now found in several new channels within CNG and foodservice. As discussed in the prior year, there was a pipe fill in Q3 2022. We also had growth in inventory at our distributor in Q3 of 2023, which was an offset to the prior year pipe fill. As a result, inventory was not a significant component of the year-over-year percentage increase. Increased product availability has improved the success rate of our promotional activities. For the third quarter of 2023, the company received updated information related to promotional activity across our footprint and evaluated this data in conjunction with recent trends in activity, which resulted in improvements and adjustments to our promotional allowance accrual. As a result, despite increasing our promotional activity during the 100 Days of Summer campaign as a percentage of revenue, the promotional spend was consistent with the prior year period. Gross profit for the third quarter increased 147% to $194 million, up from $79 million in the prior year period. Gross profit margins in the quarter were approximately 50% of revenues compared to approximately 42% for the prior year third quarter. The improvement is attributed to lower package and raw material costs as well as improved waste and freight lane efficiency. Sales and marketing expenses for the quarter were approximately $73 million, a decrease of approximately 63% compared to the third quarter of 2022. The decrease was due to prior year costs associated with the termination of legacy distributors as part of the transition to the Pepsi network. Adjusting for last year's termination expense, marketing and sales investment increased in the quarter, while SKU count distribution and velocity budgets outperformed, delivering good leverage across the sales and marketing expense lines. As a percentage of sales, sales and marketing were 19% compared to 23% in the prior year, adjusted for distributor termination expenses. We plan to continue investment in our sales and marketing with increased planned spend as a percentage of sales in the fourth quarter to execute strategic seasonal investment programs with our distribution product. General and administrative expenses for the quarter were approximately $23 million, a decrease of 17% relative to Q3 2022. This decrease was due to the impact of timing of legal settlements and the Func Food's brands impairment in Q3 2022. Moving to a few comments around quarter-over-quarter activity to provide some additional insight into our recent activity. Revenue for the third quarter increased sequentially by 18%, driven by distribution gains across tracked and untracked channels as well as SKUs per location and SKU placement. In addition to these drivers, we benefited from some inventory building within our primary distributor as well as from adjustments to our promotional allowances with some offsets to our growth as a result of mix within our SKUs and channels. An estimate of the impact of inventory, promos and SKU channel mix compared to Q2 would have been roughly $20 million. Gross profit dollars increased by 22% and gross margin improved by 165 basis points sequentially from the second quarter, driven by positive uses to our promotional allowance accounts as we maintained our leverage across raw materials, freight and scrap rates. Excluding the promotional allowance benefit, we would have had gross profit margins consistent with Q2. Looking at the first three quarters of the year, revenue for the nine months ended September 30 was approximately $971 million, an increase of 104% from $476 million for the nine months ended September 30, 2022, driven by our North American business. North America year-to-date revenues were $931 million, an increase of 108% from the same period in 2022. International revenue grew 46% to $40 million in the first nine months of 2023. Gross profit for the first nine months of this year increased 143% to $467 million, up from $192 million in the prior year period. Gross profit margins in the first nine months were approximately 48% of revenues compared to approximately 40% for the prior year period. The improvement in gross profit margin is attributed to lower package and raw material costs and improved freight lane efficiency. As things stand today, we would expect Q4 gross profit margin to be consistent with the Q2 and full year margin profile. As a percentage of sales, sales and marketing were 19% in the first nine months of 2023 compared to 22% in the prior year period, adjusted for distributor termination expenses. G&A expense as a percentage of sales was 8% for the first nine months of 2023 versus 11% in the prior year. Focusing now on liquidity and capital resources. As of September 30, we had cash in excess of $760 million and net working capital in excess of $879 million. Cash flows provided by operating activities totaled $136 million for the nine months ended September 30, which compares to $171 million in net cash provided by operating activities for the same prior year period. The change in cash generation was driven by an increase in net income, offset by working capital and timing benefits of transactions associated with the Pepsi share purchase and distribution agreement in 2022. Looking at inventory, total inventory in the third quarter of 2023 ended at $199 million, up approximately $46 million from the quarter ended June 30, 2023. This was driven in large part by increases that we saw in our sales volume in addition to increases associated with innovation inventory building ahead of January launches. Going forward, we will continue to monitor inventory to ensure we are able to keep up with the growth we are expecting. At the same time, we do see opportunities to drive efficiencies in our DIO as we move into 2024. This concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

Our first question comes from Mark Astrachan with Stifel. Please go ahead with your question.

I guess maybe to start, just on distribution points, any sort of benchmark you can give? Obviously, the growth has been significant. But how do we think about it in terms of where it can go? Like if you look at where Celsius' total distribution points are versus Monster and Red Bull, they're about 50% of those two brands. If you look at convenience stores as an example, your current distribution footprint is about 20% less than where Bang was at peak distribution. So, any sort of color you can give on kind of where you think the right level of distribution can be, maybe longer term holistically and sort of shorter-term line of sight as you head into '24, particularly given fall and then spring resets? Thanks.

Thank you, Mark. When we consider distribution points, our primary benchmarks are obviously Monster and Red Bull. Our long-term goal is to reach the same distribution levels as these two industry leaders. Currently, we are still in the early stages of our growth cycle and recognizing new opportunities. We'll continue to make adjustments as we move through 2024 and beyond. Presently, we are at approximately 95.6% of average distribution points, but we need to enhance our overall reach. We recently participated in NACS last month, which was our best show to date, generating excitement around our new core flavors, expansions in our Vibe flavors, and the launch of our Celsius Essentials line. Our aim is to eventually achieve distribution points on par with Red Bull and Monster.

Got it. Okay, that's helpful. And then looking at the Amazon, Costco sales in the quarter, they were a little bit slower, I think, sequentially in terms of rate of growth than they were in 2Q. I get it's a bit of a challenge to try to model that from where we all sit. But anything that you can call out there that may have played into that would be helpful, too, please.

Yes, we need to consider each customer differently across various channels. Evaluating a single customer compared to a category or channel can be quite complex. Regarding Amazon, the fluctuations we observed from Q2 to Q3 were largely influenced by Prime Day on June 11 and 12, which was very successful for us. This created some irregularities in our results for Amazon. Similarly, in the club channel, particularly with Costco and Sam's, there were inconsistencies in load-ins, possibly due to seasonality at the end of the quarter. However, both areas of our business remain very strong. Notably, we made significant progress on Amazon, gaining over two points of market share. Last quarter, our share stood at 18.6%, and we have now increased it to 21.4%. Achieving an increase of over 200 basis points within a single quarter is a major accomplishment, and our team worked diligently to achieve this, especially during Prime Day. Additionally, our club business continues to perform robustly, and we do not anticipate any slowdown. There are excellent opportunities for us to further expand by introducing additional pack sizes as we grow in the club channel.

Got it. Thank you.

Our next question comes from the line of Gerald Pascarelli with Wedbush. Please proceed with your question.

Great. Thank you very much, good morning. I just had a question on Pepsi's current inventory levels. You've been in the system for a little over a year now. It looks like you built inventory in 3Q. Just some color on what you expect to happen with these inventory levels in the fourth quarter as we approach a low seasonality quarter ahead of winter. Do you expect any changes in their number of days on hand? Or is there nothing to suggest that there will be any incremental changes in their current inventory levels?

Yes. Gerald, that's a great question. And we're in really cycling our first full year with them with PepsiCo selling their first case in October. But I'll turn that question over to Jarrod.

Yes. Good morning. As we look last year, it was difficult to really kind of peg whether inventories were pulled down or if it was just a matter of seasonality. As we look now, we do have some innovation that we filled the pipeline with so we are ready from that perspective. But at the end of the day, the Pepsi team would have to determine if they're going to do any kind of management around the inventory as they're going into Q1. I will say we are excited as we move into 2024, but there's no guarantees in terms of the inventory management from that perspective.

Understood. Thank you. Next question is just on gross margin. Obviously, it looks like you're going to end the year in the high 40s. Jarrod, I know you've previously referenced a mid-to high 40s kind of medium-term outlook. Does this outperformance that we've seen in the last two quarters maybe change your medium-term outlook on how to think about gross margin? Or do you still expect it to remain volatile, given that focus is to continue to gain market share and stretch rate if you need to, in certain instances? Any color there would be great.

Yes. I think as things stand today, knock on wood, from a raw material perspective, we have captured a lot of savings this year, and so that's been pretty consistent for the last few quarters. We have also maintained our outbound freight number for the last few quarters. Obviously, we know that fuel costs can spike at any point in time. That can cause some pain down the road. So, I don't know that I'm ready to call the fuel or the outbound freight line as a lock. We are pretty comfortable with where commodities stand today with what we've seen from a raw material perspective. So, I think our raw material costs in kind of Q2 and Q3 should remain steady as we go into 2024. There is still that freight line that could cause some fluctuations. I think the operations team did a fantastic job this year in really cleaning up the scrap and any kind of waste, really have done a great job with the aged inventory, really did a great job really tightening up the cost of raw materials. And they've really managed the freight lanes, especially the last two quarters superbly. So, hats off to those guys for that. And our goal is to keep it up. Not sure how much more we can squeeze out of where we were going into '24. We'll definitely shoot for it but there's no guarantees, but we are really in great shape as we're moving into '24.

Our next question comes from the line of Vivien Azer with TD Cowen. Please proceed with your question.

Hi, thank you. Good morning. Earlier in the Q&A, you commented on the importance of resets as one of the factors to drive continued growth and leverage the Pepsi relationship. Last quarter, you commented that the conversations were early into 2024, and you talked about a couple of different categories where energy might be sourcing share. I was hoping you could just provide an update on your conversations with key retailers around shelf resets for '24.

Yes, we're still in the process of defining our sets for next year, but we had one of the most successful NACS in the company's history. There's a lot of excitement. Recently, 7-Eleven has taken four SKUs from our Celsius Essentials line, indicating strong interest nationwide. If you visit a 7-Eleven now, you'll notice signage at every location and activity at the gas pumps. We're thrilled with how our partnerships with key accounts are developing. Our key accounts team is top-notch, and we've had early discussions with all our major retailers. We're optimistic about our position as we approach the new year and the resets. We anticipate gaining expanded distribution in our existing flavors, along with introducing new innovations for 2024. The team has been working diligently, and we've been collaborating closely with Pepsi to ensure a successful launch of our innovations on a national scale. Last year, we partnered with Pepsi late in Q4, so our plans weren't well aligned with their annual operating plan. Now, we're aiming to establish strategic prioritization periods within PepsiCo focused on specific quarters and months. We believe this will lead to success, but we'll need to wait until around March or April to see the results reflected in the IRI scan data. Overall, we're excited about our current position, and it's impressive to see Celsius being the leading driver of both dollars and units in the category.

Absolutely. Very comprehensive response. Just as a follow-up, 2023 was supposed to be back half weighted in terms of expanding your headcount. Can you just update us on the hiring? Kind of where you guys on plan in the third quarter? Should that accelerate in the fourth quarter? Any incremental detail would be helpful.

Yes, we have our national sales and marketing conferences taking place this week in Miami. Jarrod and I will be heading down right after our earnings call. We have about three days of great presentations, and it's really exciting our team members. Our plans and budgets for next year include continuing to bring on talented team members and enhancing our organization across all departments, including HR, finance, logistics, operations, sales, and marketing. We are also focusing on expanding our drill deep markets, which we've discussed over the years. Currently, we're implementing a drill deep strategy in 23 markets, and next year we plan to expand that to over 30. We are building out our field and sales teams and are seeing great results and returns on investment as we add these individuals and expand these positions. We will continue hiring and have numerous job postings on LinkedIn, and we expect this trend to persist while we monitor it closely.

Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Good morning. I was hoping you could explain some of the factors affecting the margins. Last quarter, you mentioned an expected sequential decline due to increased promotional activity and higher marketing expenses, particularly regarding EBITDA margins. However, margins actually increased instead. You briefly discussed that some of the promotional dynamics did not turn out as anticipated and ended up being a minimal headwind. Can you help clarify some of the other contributing factors so we can understand what might be sustainable and how to approach the future?

Yes, I'll let Jarrod provide more details on that. However, at a broader level, we've expanded our distribution into foodservice and some independent locations that typically have lower promotional allowances or costs associated with doing business in those areas, and we observed some leverage there. Additionally, there was some timing impact in the quarter. Now, I'll hand it over to Jarrod for further details to address that question.

Yes. There's, as you said, a handful of things to unpack. I'm going to start from the bottom and work my way up. If you look at G&A, we did see some really good leverage there. We benefited from some of that outsized top line growth relative to the spend we have. As we look out into 2024, our G&A is about 7.9%. I think we were pegging roughly 8% for the year, so we did track a little bit better in Q3. Probably where we land on a full-year basis next year, obviously, this year, it will be somewhere in between those two, but next year would be kind of in between there. Is it going to be in that 7% to 8% range on a full-year basis in '24, where we'll see some leverage come through? But good leverage coming through on the G&A line. I think a lot of that is sustainable. There's probably a little bit as we continue to build out our teams that we'll give back as we continue to scale and really try to set our business up. There's also some international expansion we've been talking about and things like that, where there will be some investment upfront that will drive some costs. And so, you won't see the full leverage but we will see good leverage in the G&A line. On the sales and marketing line, we've been averaging kind of that 19% to 20%. This year, historically, we've probably been in the 22% to 24%. So, we've seen a bit of leverage there. As we look out into next year, we don't think that the competition is going to get any easier, so we will continue to invest into the market and look to continue. We don't have exact numbers. We do have our budget, but we don't really give out specific numbers along the way, especially since we don't give the sales guidance out. But we would look to continue to invest into the business and really drive the growth of the business, but we have seen some leverage there throughout the year. If you go up to the gross profit line, we did just talk about that where after Q1, you saw the benefits of really the improvements you've seen in commodities across the board, across both us and our competition. Also, we had rolled off of the international cans whereas in Q1, we had international cans still on the system. By the time we got to Q2, it was a clean view. And so, we've really seen some benefits come through the raw materials. And also, you've seen really the benefits of the freight lanes that were established. I think we were running about, on a year-to-date basis, 4.9%, whereas last year, it was 5.9%, so we got 100 basis points just out of running better from a freight lane perspective. And actually, if you look to Q3 and Q2, it's been a little bit better than that number. So, we've seen kind of benefits on each line along the way really driving that EBITDA margin across the year.

That's helpful. Could I just also follow up on the Canada launch? And I know you said it's in the first quarter. Should we expect pipeline fill for that in 4Q or would it be a little bit later in the first quarter? I guess the follow-up is really kind of 4Q minded. Maybe one, is there a Canada impact we should keep in mind? And then maybe any color on how it's looking quarter-to-date that you can give us?

Yes. Canada will be from a build and an impact in '24, it will be kind of inconsequential. We expect good growth. We expect to get in there and start capturing market share. We expect to put forth the investment that's needed to really kind of seed it and grow fast in '24. But it won't be a huge driver of inventory or growth in Q4 or Q1. And the rollout will happen in Q1 but it won't be a one, one launch.

Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Thanks, operator, and good morning everyone. So, I kind of wanted to follow up on that, just kind of the international expansion plan. You have Canada in 1Q. I think you mentioned a few other countries. Can you maybe just help us understand how you evaluate the various international opportunities? Which markets, timing, et cetera? Are these markets where you're going to be fully aligned with PepsiCo and their partners? Or are there other partners you're considering? And then I guess I would be curious from a profit perspective. As you start to expand further outside of the U.S., how should we think about the impact to margins?

Thank you, Peter. We have discussed this in previous calls. We are focusing on the largest energy drink markets globally, which present significant opportunities. These include the U.K., Germany, Japan, and Australia, where we prioritize our partnerships with Pepsi. We will also explore opportunities in other markets with different partners as we progress. Our initial partnership is in Canada, and the teams are currently dedicated to that effort. We have also mentioned other markets where we plan to expand in 2024 and 2025. It is still early to discuss specific structures, as we need to ensure we establish the right value chain and opportunities for sustained profitability in these markets. We are using Monster’s international frameworks and P&Ls as a benchmark as we collaborate with our partners and grow in new markets. While we are looking at various markets, our immediate focus is on Canada as our primary opportunity.

Got it. And then, Jarrod, I apologize, you were kind of running through some of these items a bit quickly. But I think you mentioned there was, call it, a $20 million benefit to 3Q revenue. Can you maybe just run through that again? Like how much was a promotional allowance? Did you build inventory ahead of what you were lapping a year ago? So yes, if you can just unpack that a little bit, I think that would be helpful. Thanks.

Yes. Looking at the third quarter of 2022 compared to the third quarter of 2023, we noted that there was some inventory fill from last year. This year, we had a similar inventory fill, likely in the range of $10 million to $15 million. This wasn’t a major factor when considering year-over-year growth percentages from a direct comparison. However, from the second quarter to the third quarter, there was a positive impact on our revenue figures. Regarding inventory, we are starting to see leverage in our promotional expenses. We noticed a benefit and have revised our estimates concerning promotional allowances. As John mentioned, we've experienced significant growth in annual contract value and have expanded into various non-tracked channels, which typically have less promotional activity. This shift has begun to show benefits. For instance, looking at Monster, there has been a gradual improvement in their promotional spending as a percentage of gross revenue over time. We are seeing a similar trend. While we did invest in additional incentives in the third quarter, the leverage we’ve gained allowed us to maintain a consistent percentage of revenue compared to last year when evaluating the third quarters of 2022 and 2023. That’s what I wanted to highlight.

Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

I wanted to ask first about the rollout of foodservice. You mentioned the 2,000 Jersey Mikes, and then I think you mentioned authorizations in over 3,000 Dunkin' Donuts nationwide. What's the timing of that with Dunkin' Donuts? And what are your expectations for further rollout in eateries as you move forward this year and next?

Jon, great question. I think we do see a huge opportunity in foodservice. I think when you look at Celsius, which is unique, is that consumers really are enjoying Celsius and consuming Celsius outside of that traditional energy drink consumption occasion, which I think is a huge unlock for the brand in the portfolio. When you look at Jersey Mikes, we're really using that as a proof of concept. This is really our first nationwide fast casual chain, and initial feedback has been positive. But we're really, really early. I mean, you look at it probably only about four weeks in, but initially has been fairly excited on the partnership, and we're going to continue to see how that goes. I think if that's successful, we'll be able to roll that out to other fast casual restaurants and eateries that Pepsi has access to. Dunkin' Donuts was a great addition. Unfortunately, we only have one SKU currently that is authorized, and that's our Orange flavor, which tastes great and refreshing. I have heard feedback from a variety of new customers to the portfolio that they've actually found Celsius and learned about Celsius because of the distribution gains in Dunkin' Donuts, which was great. So, I think the foodservice could be a great way to also bring new consumers into the franchise and the portfolio. We are in about 3,000 to 4,000 Dunkin' Donuts currently. There's a lot more Dunkin' Donuts to further leverage and grow upon. So, it's really that proof of concept and also getting more flavors in. Jersey Mikes, we have about three flavors right now and Dunkin' Donuts is one. So still in the early phase, but I think when you see the success of our revenue, our PepsiCo revenue, approximately 10% is foodservice, which is universities and hospitals, I think we're all really excited about the opportunity that lies ahead.

Absolutely. You've mentioned Essentials as a key innovation for 2024. How is that product line differentiated within your portfolio? And is that really a key element of achieving the greater shelf space and facings that you talked about that you expect in '24? Is that going to be more limited to select retailers such as 7-Eleven initially?

The Celsius Essentials line will initially be available at select retailers. Our main focus is on expanding our core portfolio, particularly our core Vibe offerings and flavor profiles. The Celsius Essentials line will follow in importance and aims to target the performance energy segment. We're receiving extremely positive initial feedback, and this line is intended to complement the growth we are already projecting for 2024. We have also collaborated with our partners on this, and the feedback has been well received so far.

Regarding Celsius coolers, can you provide an update on your progress this year? Earlier, you set a target for cooler placements, and I would like to know if you are on track to meet that goal. Additionally, what further opportunities do you see in this area as you look ahead?

Yes. No, Jon, that's a great question and something the teams are extremely focused on, not only within our core team members but also within the PepsiCo sales organization. Our cooler initiative and program is part of our perfect store strategy. So that's a way we KPI the team as well. Our goal was approximately around 15,000 to be placed this year. We're working towards that. We'll see if we're going to be able to achieve it. We only have a few months left. The coolers, our biggest win we're working on now is gaining chain-wide national authorization in front checkout coolers at major retailers, where we can really close 1,000, 2,000, 3,000 store locations. As an example, we just entered Public Stores with expanded distribution in the front-end cap coolers. So that was a big win. Although not a Celsius-branded cooler, we do have great placement in those checkouts, and that's going to allow us to continue to increase our availability, increase trial, and take advantage of those impulse purchases that we know Celsius can capitalize on.

Our next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed with your question.

First, a quick housekeeping question. I know you talked about selling and marketing expense as a percentage of sales being up in the fourth quarter. What about promotional allowances? Are you guys in the short term looking for any material changes in promo allowances versus where you were in the third quarter post the adjustment that you made? And then I'll have a bigger picture question.

For the promos, I'd look more to the year-to-date percentage as we look to Q4. But John, do you want to jump on the sales market or you want me to jump on that one?

Yes, go ahead.

Yes. Sales and marketing, obviously, it's a little trickier in October, November, December. You've got Halloween, Thanksgiving, Christmas, so you have to come up with a little bit different incentives and different programs, so we're working those through the system. And then obviously, we're looking to hit the ground running with a number of the sponsorships that we picked up, that we press released over the last six months. So, we are looking to continue to spend into the holiday season. We found it to be very successful last year when we spent into the holiday season. Part of that was also because our ACV went from a 65 to a 90 pretty quickly. We've been sitting at that 90 all year so the goal is to really help build those velocities as we work our way into 2024 from a sales and marketing perspective.

And especially also leaning into the bio reset window.

Great. That leads into my next question about velocities. One of the significant positive surprises over the past year, especially in the last six to nine months, has been the acceleration in velocities as you've quickly expanded distribution. How do you view the potential for velocity growth over the next 12 to 24 months? While some of the new distribution you're adding might be somewhat less productive, there is a noticeable billboard effect and an increase in broader awareness. So, overall, what are your thoughts on the potential for velocity in the coming year or two?

Yes. Eric, we're really focused on this and it's coming from various areas to keep moving forward. We're entering new territory with over a 10% market share, something that hasn't been seen in the energy category for more than a decade. The achievements over the past nine months reflect the hard work of our team and partners. Recently, we received exciting news from Numerator indicating that our household penetration has more than doubled, now at around 25% compared to 11.1% last year. Celsius has become the fastest-growing brand in sports and energy, which shows we are gaining traction. Our teams have been effectively utilizing our marketing strategies, and there’s significant potential to enhance ROI from our marketing and sales programs. The future velocity trends are somewhat uncertain, but we are committed to advancing this. With the anticipated expansion and additional shelf space, we expect to improve our market presence, which is crucial for engaging shoppers at the point of purchase. Time will reveal the outcomes as we continue to progress quarter-over-quarter in future communications.

Our next question comes from the line of Jim Salera with Stephens. Please proceed with your question.

Congratulations on a great quarter. Thank you for taking my question. I wanted to follow up on the foodservice segment, as it seems like a market traditionally focused on carbonated soft drinks or teas. Do you have any insight on whether consumers in foodservice are shifting from Pepsi to Celsius or from tea to Celsius? If so, are you able to track these changes in consumer preferences from soft drinks or tea in retail as well?

Jim, that's a great question. That's a huge unlock that we're working on. I think we need a little bit more data coming in as we expand into foodservice. What we're seeing with the Celsius consumer, what I think is fascinating. We saw this in convenience and we see this where our consumer is, number one, we're incremental to the category. Our consumer, we've seen them have a bigger basket ring, i.e., purchasing Celsius with a water or a food item or a snack, which I think is another competitive advantage when looking at the Celsius consumer. Within foodservice, we have a hypothesis that our consumer is actually getting water or not getting a beverage because they're ordering on potentially Delivery Dudes or another platform where they're not getting the fountain drink. So, we're not competing with the fountain. But we need more data on that. What we do see is within some of the apps that initial feedback has been on our set is that we are being incremental to these eateries and fast casual restaurants within the beverage purchase.

That's helpful color. And you might have already kind of addressed this. Just saying it's still early days, but just thinking about the implications that, that has moving forward. Do you think there's a possibility that if you do see those tea or carbonated soft drink consumers buying Celsius but not participating in other energy buys, that you could find yourself outside of the energy category in retail and really be placed kind of throughout the store unlike some of the other traditional energy drinks?

We're observing this in specific locations within our stores, such as Ralphs. They are positioning us in grab-and-go areas. Additionally, we've secured secondary placements in the grab-and-go section at several Publix and Kroger locations, where customers can quickly pick up food items. This presents a significant opportunity for growth. Celsius extends beyond the traditional energy market, which expands our total addressable market opportunity. Furthermore, recent data shows that Celsius has entered the top 10 among total beverage brands in the liquid refreshing beverages category, marking a notable achievement for our portfolio in the third quarter.

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

Good morning, everyone. Just wanted to touch on sort of the fact that you've got ongoing distribution and elevation and SKU expansion. And I guess, how are you thinking about seasonality for Q4 this year, keeping in mind the comparison to the Pepsi launch last year?

Thanks, Jeff. When considering seasonality, it is a factor we have observed in the past. We noticed it last year, and we should expect some level of seasonality this quarter as well. As we wrap up the quarter, we will need to assess its impact. Additionally, there is a potential inventory reduction from our main supplier, Pepsi. Alongside this and the expected seasonality, we should prepare for some pullback in the fourth quarter in line with traditional seasonal patterns.

Okay, that's helpful. And then aside from the Essentials line, is there other substantial innovation you have planned for 2024? Or is the main innovation engine Essentials for '24? Or maybe if you could just touch on further innovation plans for '24?

Yes, definitely. For 2024, we have been putting in a lot of effort. The team has been working diligently. We plan to expand our portfolios with our core fruit flavor offerings. We have some exciting new flavors coming soon, which we will announce shortly. We are also introducing new Vibe flavors due to the success of Cosmic Vibe, and we will continue that theme through a trilogy of flavors. Additionally, I mentioned during the call our Celsius Essentials line, specifically our 16-ounce line, which targets the performance energy category. There's also a significant opportunity in our powders and on-the-go products, which goes beyond our bottles and cans. We have been seeing increased interest from retailers in that area, and we will be introducing our Vibe flavors into our powder offerings in 2024. We anticipate further expansion across all our portfolios. The team is really enthusiastic about this, and we have some fantastic flavors that I know you'll enjoy, Jeff, as you've always been a big supporter. We're excited about our current position.

Can't wait to try them. Thanks for taking my question.

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

Thank you, Doug. On behalf of the company, I'd like to thank everyone for their continued support and interest. Our results demonstrate our products are gaining considerable momentum and capitalizing on today's global health and wellness trends, expanding the energy category and driving growth in both dollars and units. I'd like to take this time to thank our investors for their continued support and confidence in our team. The company will be attending several upcoming investor conferences throughout the month of November and December, including Stephens, Jefferies, Morgan Stanley, and ROTH Capital Investor Conferences. We look forward to seeing many of you there. Thank you for your interest in Celsius. Stay healthy and live fit.

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.