Good day. My name is Ali, and I will be your conference operator today. I would like to welcome everyone to the Celsius Holdings, Inc. First Quarter 2024 Earnings Conference Call. Thank you. I'd now like to hand over the conference call to Paul Wiseman. You may now begin.

Thank you, and good morning, everyone. We appreciate you joining us today for Celsius Holdings First Quarter 2024 Earnings Conference Call. Joining me on the call today are John Fieldly, Chairman and Chief Executive Officer; Jarrod Langhans, Chief Financial Officer; and Toby David, Chief of Staff. The call will open to questions following the prepared remarks. The company released its first 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, an audio replay of this call will be available later today and can be accessed with the same live webcast link used to join today's call. Please be aware that this call may contain forward-looking statements, which are based on forecasts, expectations and other information available to management at this time. 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 in our quarterly filings with the SEC for additional information. Additionally, management will share operating results on both a GAAP and non-GAAP basis. Descriptions of the 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 release for the first quarter of 2024. With that, I'd like to turn the call over to Chairman and Chief Executive Officer, John Fieldly, for his prepared remarks.

Thank you, Paul. Good morning, everyone. Thank you for joining us today. This morning, Celsius reported a 37% year-over-year increase in revenue for the first quarter of 2024, totaling $355.7 million for the period, a new first quarter revenue record for the company. Celsius alone was responsible for approximately 47% of the entire energy drink category growth year-over-year in the first quarter. And as we reported in this morning's press release, Celsius now holds an 11.5% share in MULOC for the 4 weeks period ending April 14, according to Circana. This is a full point higher than Q4 2023 and 4 points higher than one year ago. These results, on their own, are very strong, especially after growing at a triple-digit rate for the past 3 consecutive years. Even so, our first quarter revenue would have been higher, except it was adversely affected due to inventory movements by our largest customer, which is beyond our control. The year-over-year inventory variation is attributable to elevated first quarter 2023 restocking, which we believe was meant to compensate for the fourth quarter 2022 destocking and to prepare for a robust spring reset that was planned in 2023. However, no such first-quarter restocking and spring reload was observed this year. Absent these effects, we would have seen a higher growth rate. Ongoing inventory fluctuations may be expected in subsequent quarters because our largest distributor constitutes approximately 62% of our total North America business during the first quarter of 2024. While these inventory fluctuations caused noise in our sequential quarterly revenue figures, what's important to focus on here is that Celsius is constantly on shelves, stocked cold, stacked high with a 98.4% ACV. And our category across all tracked channels and on track channels continues to grow. We introduced several new flavor innovations since the beginning of this year, including Galaxy Vibe, which may be our most refreshing and delicious flavor yet, as well as the CELSIUS Essentials line, which began its national distribution in January and has now achieved a 54.5% ACV and a 5.5-point share increase since we last reported in February. We estimate that retailers' spring resets were approximately 1/3 complete at the end of the quarter. And once concluded, we're expecting our best shelf space gains in the company's history. The importance of these space gain increases and placements cannot be overstated. The visual impact of multiple full shelves of cold Celsius in convenience stores and coolers and in the grocery shelf is a powerful in-store billboard and showcases our portfolio. The full effect of these shelf resets is expected to be reflected in the scanner data beginning in July. In March, we launched a new incentive program with Pepsi that further aligns our shared interest within the energy category, including alignment around priorities and delivering a program that will contribute to our long-term goal of becoming the #1 energy drink brand in the world. As we prepare for our 100 Days of Summer campaign, we are well-positioned with the best in-store presence in company history, the most refreshing products, and some great marketing initiatives, which I'll discuss later in the call, and, as just noted, a strong aligned partnership with our North America distribution partner. Celsius' share in MULOC in the most recent 4-week data as of April 14 was 11.5 share, an increase of approximately 4 points compared to the year-ago period. We're pleased with our continued share growth across all tracked channels. As we shared on our last earnings call, there are 12 major U.S. markets where Celsius maintains a 15-point share or greater, and we are within just a few points of that in several additional markets. With our growth and expansion, we are adding more talented people. And already this year, we've increased our sales and key accounts team by approximately 85%. By the end of this year, we are expecting to have 3 times as many sales staff compared to this time last year, supporting our growth and the opportunities we see ahead. Our world-class operation teams continue to optimize efficiencies to reduce freight and raw material cost savings this quarter, contributing to our highest gross margin to date at 51.2%. Turning to pricing, we have generally maintained flat pricing on a per volume basis across our portfolio while strategically promoting our new 16-ounce line of CELSIUS Essentials to drive trial. Additionally, reduced pricing and scanner data reflect CELSIUS Essentials' promotions and the increased mix of variety packs into our overall sales, which come with a lower per-ounce cost. We continue to consider strategic pricing and promotional opportunities that allow us to maintain our premium position in the category while maintaining velocity. With that said, we continue to review and monitor both our distribution and infrastructure and the commodity environment across the back half of 2024 and into 2025. Celsius' new product innovation this year contains the best-tasting and most refreshing beverages we've ever created. A new favorite here is CELSIUS Galaxy Vibe, which joins other excellent 2024 additions in our 12-ounce line, including Blue Raspberry Lemonade, Sparkling Raspberry Peach, and Astro Vibe. We are very pleased with the strong retailer support for our initiatives rolling out our 16-ounce line of CELSIUS Essentials, which has now reached approximately 54.5% ACV as of mid-April, with availability increasing across the country. CELSIUS On the Go powders continue to perform well with our recent innovation, with a refreshing Strawberry Coconut and Blueberry Lemonade being our top 2 performers. We have more Celsius On the Go powder innovation planned for this year and continue to see great opportunities with this line. Non-tracked channels, including club, e-commerce, and foodservice continue to act as tailwinds to our overall growth. Club sales in the first quarter increased 36% to $63 million compared to $46.5 million in the same period in 2023. Sales on Amazon increased 30% year-over-year to $28 million in the first quarter, up from $21.8 million in the prior period. Celsius ended the first quarter with a 20.2 share compared to Monster with a 20 share and Red Bull with a 12.3 share according to Stackline 12-week data ending March 30, 2024. Approximately 12% of Celsius' sales through Pepsi in the quarter were to the foodservice channel, with especially strong sales in restaurants, recreation, lodging and gaming locations. International sales, which do not include Canada, increased 42% in the quarter to $16.2 million. Celsius' launch in Canada, which began in January, continues to exceed expectations, and we recently achieved a 5.5 share through the first 2 periods of 2024, according to Nielsen. In the first quarter, Celsius announced plans to expand into Australia, France, Ireland, New Zealand, and the United Kingdom, executing our stated strategy to pursue measured international growth, balancing investment levels in new markets. I'm excited to say that as of April, Celsius is now officially available in select gyms and retailers across the United Kingdom and Ireland. Sales in Australia and New Zealand, as well as France, are planned to gradually begin in the fourth quarter of 2024, with phased expansion across the countries in 2025. Finally, we produced some fantastic marketing activations recently, including the Celsius Cosmic Desert event in Coachella, which hosted celebrities, influencers, and performances by leading artists. Celsius was also featured in a recent Saturday Night Live opening skit, emphasizing that Celsius is the top-of-mind functional energy brand in pop culture. And just last weekend, we activated our global partnership with Ferrari at the Formula One Miami Grand Prix. Congratulations to the Ferrari team for their podium finish. I'll now turn the call over to Celsius' Chief Financial Officer, Jarrod Langhans, to discuss our first quarter financial results. Jerry?

Thank you, John. Celsius delivered another record-setting quarter, exceeding our expectations and producing strong returns while we grew the business and leveraged certain areas. Revenue for the 3 months ended March 31, 2024, was approximately $355.7 million, an increase of 37% from $259.9 million in the prior year period. To put this growth rate into historical context, when Monster Energy achieved $1.3 billion in net sales, they grew revenue 30% the following year. Adjusted for the inventory fluctuations John mentioned previously, Celsius would have grown at an even higher rate in the first quarter of 2024. North American revenue, which includes the United States and Canada, was $339.5 million, an increase of 37% from the same period last year. International revenue grew 42% to $16.2 million as velocity continued to increase. We attribute our sales volume growth for the quarter to several key factors, including our ability to drive increased consumer demand, strong innovation, and excellent in-store execution by our key account and field sales teams. Continued growth in the club, e-commerce, and foodservice channels also served as a solid driver of our revenue growth in the quarter, as did strong year-over-year share gains of more than 69% or 4 points in the convenience and gas channel. Gross profit in the first quarter increased 60% to $182.2 million, up from $113.8 million in the prior year period. Gross profit margins in the first quarter were 51.2% of revenues compared to 43.8% for the prior year period. The improvement in gross profit margins is attributed to reduced freight and raw material costs. First quarter freight costs as a percentage of net invoice sales decreased 120 basis points year-over-year, and cost of goods sold decreased 470 basis points. As we look to the remainder of the year, we have a number of key drivers that we are monitoring, including rising fuel costs; other commodity costs, such as aluminum; and our promotional calendar. As a result, we are taking a conservative approach to the remainder of the year and continue to stick with our commentary from February, where we noted that gross margins in the high 40s were very achievable, but that we were not ready to move too far from that expectation until we got further into the year. Sales and marketing expenses for the quarter were 21% of revenue. We have hired a significant number of new team members and are on track to fill the remaining open positions by the end of Q2. But based on timing, we did see some benefit in Q1, which was slightly below where we expected to be and 3 points higher than the same period in 2023. We will continue to invest and plan to maintain investment in this area as we expand further into our 31 drill-deep markets and internationally. As we continue to grow, our investment in sales and marketing will remain within the 20% to 23% range. General and administrative expenses for the first quarter of 2024 were approximately $23.2 million, an increase of 9% relative to Q1 2023. As a percentage of sales, G&A was 7% compared to 8% in the prior year period as we continue to leverage and due to lower third-party costs, such as legal fees. As we look across the remainder of the year, we would anticipate some ebbs and flows within G&A, but we remain confident that we will be able to leverage this area in 2024. Non-GAAP adjusted EBITDA increased 81% to approximately $88 million in the first quarter compared to $48.7 million in the prior year period, driven substantially by revenue growth, an increase in margins, and our continued leverage across SG&A. Net income attributed to common shareholders increased 106% to $65 million in the quarter or $0.27 per diluted share compared to $0.13 in the prior year period. We ended the quarter with approximately $879.5 million of cash on hand, which continues to accrue interest and remains available for strategic growth initiatives. Cash flows provided by operating activities totaled $135 million in the first quarter, which compares to negative $14 million in net cash provided by operating activities in the prior year period. We will continue to invest in our working capital as well as CapEx around coolers in our fleet to drive further growth, but we do see a great opportunity to continue to drive strong cash flow growth across 2024. This concludes our prepared remarks. Operator, you may now open the call for questions.

A question on inventories as we're thinking about 2Q, maybe how businesses progressed from a consumption perspective in 2Q. But also our inventories are now tight and low as we're going into another 2/3 of shelf resets to maybe some of the $20 million reverse in 2Q. Can you just give some context around that?

Yes. Great question. We did state that in our prepared remarks in regards to some of the inventory fluctuation with our partner. We don't control the inventory levels, but we do feel that everyone is optimizing inventory levels as we move forward, and we'll see how that evolves. If you look at our inventory levels over the last 15 months, looking at the especially the cash flow statement, we've optimized our inventory levels as well, about $47 million. So I think every business is going to be optimizing. I think, really, the most important thing when we look at it is keeping the shelf stocked, most importantly keeping the shelves cold, and just preparing for this the reset season that's underway as we continue to progress forward. And the scan data is really strong, especially last week at the register, according to Circana. So we feel like we're in good shape. But to predict where inventory levels move is just really difficult for our partner. I don't know, Jarrod, if you have any further comments to add.

Like John said, depletions are really good. They're rock solid. But as I look at April, I'd say this is kind of a new normal for us at the moment. We'll see where our partner goes from here, but I wouldn't bake in a reversal of what we've seen.

I wanted to go back to that last question, the one that we're getting a lot today as far as the timing of this inventory stock. So if I do some rough math, it looks like you've undershipped demand, per scanner data, recently in the last 2 quarters. 1Q, obviously, when you're lumping in the rollout into Canada. Would you state that even more pronounced? So I guess the question is, a, what do you say to that? Meaning that we saw kind of see where end-demand is versus what your sales are, and your sales are a lot lower. And two, as you think about how Pepsi is managing shelves, does this have an impact? Have you seen any impact from a service-level standpoint on how to stock and whatnot? And kind of how do you work with them to make sure that you prevent that, assuming that you haven't seen it yet, but may, given where trends seem to be moving?

Yes, Mark, I'll address the initial part of your question. Looking at our inventory levels, our partners are currently doing well. We are sustaining deliveries and keeping products stocked. The latest scan data shows we've achieved a record share gain of 11.5. Therefore, product availability is strong. We are both learning about each other's supply chains and aiming for further optimization. While I can't comment directly on our partner's situation, they are managing supply levels and servicing customers effectively. Our annual contract value has increased, and the resets completed thus far have gone smoothly. Additionally, we are working on programs like 100 Days of Summer and enhancing displays and NCAP initiatives. Overall, we feel confident about our position, and you can expect optimization efforts from both sides. As I mentioned to Kaumil, we have optimized our inventory by approximately $47 million over the last 15 months, as reflected in the cash flow statement.

Got it. Okay. And then I guess just staying on the point, was there any change in the inventory levels that Pepsi held through the March quarter that was notable? I say that in part just out of curiosity and partly with the view that distribution points continue to expand. Obviously, you talked about what you did through March 31, implying a pretty substantial increase in distribution points as you head to summer. So it would just be odd to me that you would reduce the amount of inventory for Pepsi. And I guess just how do you think about that progression through? I know you talked about April being a little bit weaker. So I guess, sort of related to the first question, but kind of how does the timing of that worked through? Did they hold more at the beginning of the quarter and less at the end of the quarter?

Yes. I mean we haven't spoken about April being weaker. I think Jarrod was talking about maintaining inventory levels with our partners, maintaining as we enter the second quarter. We're going to have to see how this quarter unfolds. I think with optimizing inventories, we're getting more efficient. We're able to ship product in fewer days. Prior, we're running 14 days. And now, in many cases, we're shipping within 7. So we're just finding further ways to optimize our supply chain. So that's going to impact some of the revenue recognition standards in order as we continue to progress forward. But I think the most important thing to really look at is what's taking place within the scanner data for the end user and the end customer, which continues to maintain. It seems to be extremely strong, and we've got good momentum heading in, especially the 100 Days of Summer, double the sales staff, great refreshing innovation and a bunch of fantastic marketing assets and activities. I don't know, Jarrod, is there any more color you want to add on there?

I'm aligned with you. I think we're in good shape. We haven't seen any service issues as they optimize their system. As long as they're getting product on the shelf, that's what we're most concerned with.

I wanted to circle back to a comment you made on markets where you're getting close to a 15% market share. Maybe any more color you can add on that? I guess what specifically you've done in those markets to achieve that and plans to apply those initiatives to other markets?

Yes, Jeff, that's a great question. It's exciting that we're now in 12 major metropolitan markets in the U.S. that have surpassed a 15% market share, with several additional markets nearing that level. We're experiencing further collaboration with our Pepsi partners, expanding our sales and marketing teams, and applying our methodical approach to marketing and activation, which has been effective. We are engaging consumers where they live, work, and play, disrupting the purchasing process, raising awareness, and encouraging trials. Our diverse flavors and strong brand loyalty are driving consumption among Celsius users as we expand availability. This growth is also contributing to overall category development, with approximately 47% of the growth coming from new entries in the category, and Celsius is spearheading that. We're focused on increasing distribution and bridging the gap in convenience stores, which we've discussed for many years. We've seen success in larger formats, online, and fitness centers. The next step is to improve our positioning in convenience stores, and we are witnessing an increase in market share in that segment.

Okay. Great. And then I just wanted to circle back to spring resets as well. Maybe you could just speak a little bit more about where you're seeing the most significant gains. Maybe touch on that in terms of SKUs, spacings, quality of shelf locations, that sort of thing.

Yes. I think when you look at the resets, we're really excited. It's going to be convenience is the biggest opportunity. So we're expecting some pretty good growth within the convenience channel as well as our existing accounts. As an example, in Publix, we just moved over from the HPC to the energy category and the energy set. And we've gained further replacement in front checkout coolers, and we're working with several other retailers. More to come on that. We expect full resets to be done by the end of June, but really looking to gain further placements in all accounts. The key accounts team has been extremely positive this year. Yes, I think that's a huge opportunity, and that's really partnering with Pepsi and working closely with our Pepsi partner, gaining more distribution and availability in cold placements. Our key accounts team is working on branded Celsius coolers; that's a big initiative. We're not going to put a number out, but they're a substantial number we're looking to place. And in regards to the first quarter, I think the team's placed almost 3,000 coolers. But lots of opportunities with coolers we expect to really continue the momentum as we go forward.

I've got a couple on margins and then a couple on sales. I guess on margins, just looking at the chart on aluminum, I think it's up pretty meaningfully year-over-year. Can you guys give us any kind of magnitude of COGS exposure to aluminum and, I guess, a sense of timing about maybe where those higher costs will flow through?

Yes, Jon, and then I'll turn it over to Jarrod.

Yes. So a couple of things. Let me jump on an inventory question that was asked. Just to clarify, when I was talking about April, I was talking about days on hand is consistent from March into April. So that wasn't a knock on what we're seeing. In April, as we continue to see our resets happen, we're doing very well and you can see the consumer data. We continue to get more SKUs. We continue to get more space, et cetera. So just clarity there. That was more of a days on hand comment more than anything. In terms of the aluminum, you've seen some fuel costs go up. We have locked in a lot of our aluminum pricing. So we're in pretty good shape there. So we tend to lock that in around Q4 of every year.

Okay. Cool. On margins, again, just in terms of the amendments to the Pepsi agreement. I guess what are the other implications to the margin from here? What is likely diluted? Anything. Like just a sense of what it may or may not do to margins.

The incentive program for Pepsi is performance-based, meaning we expect to gain from it. The intention is to align our priorities with theirs, especially in the energy sector, as we aim to become the leading energy brand globally. This program is designed to drive us forward and, as it is incentive-based, there will be associated costs. I anticipate seeing this program ramp up during the first 6 to 8 months of the year, with significant progress by the latter part of the year.

Cool. And sorry, just a couple more on revenue. I guess, specifically in Costco, that became in a bit light, same as on foodservice. Just wondering about the sequential decline in Costco and the flat foodservice, any drivers there that you can point to or what to expect going forward, please?

Yes. We should have highlighted the club channel last quarter. We experienced a strong Thanksgiving week and Black Friday, and the team performed exceptionally well during that time. This resulted in a slight increase in Q4 compared to Q1, which is normally a slower period for the club channel. Regarding foodservice, it remains robust, although it can be inconsistent at times. Achieving around 12% growth is positive for us, and we are seeing improvements in areas like convenience. While the percentage growth may not seem significant, we are experiencing growth in terms of revenue.

Cool. And then just last one on the shelf resets coming up. So it sounds like 1/3 down already, 2/3 coming, basically a doubling of what's already been put in the trade already. I guess, in the Nielsen, you can see that TDPs in the average number of items looks great. But if it's going to keep moving up from there, I guess, does that kind of imply new flavors or innovations coming to market by the end of the year? Or is it going to be like double, triple facing, that kind of thing?

Yes. The goal is to achieve double or triple placements. Although the average items per store may not show an increase in the scanner data, we are securing secondary and better placements within retailers. For example, at Publix, we are moving from the HPC section into the energy aisle and also gaining more visibility in cold checkouts. This represents a strategic shift. We are also exploring opportunities with other retailers. We have innovations launching this year, including CELSIUS Essentials and Galaxy Vibe along with a variety of other flavors. I believe the majority of the resets will lead to double or triple placements in stores and additional secondary placements.

Just wanted to come back to the inventory for a minute. And I think you've been clear not to expect a snapback or an inventory restocking. But should we expect any more destocking? I know you said the inventory levels feel about right, but how low could it go? Is that something we should watch out for?

Yes, I can't control that. Sales are flowing and strong at the register, which suggests that the balancing has been finalized. However, we can't predict what will happen next week or the week after. For now, it seems somewhat stable as we ended March.

Can you elaborate on the reasoning behind the incentive plan? What issue was it addressing, considering there was already strong momentum? How does this change qualitatively justify altering the terms?

Yes. I think our partnership is at a great point within the energy category. We just surpassed a 10 share. We're exploring ways to further collaborate and incentivize our distributors and partners, including our employees. We've engaged with retailers and distributors similarly in the past, so this is consistent with our standard business practices. We've implemented various incentive programs that align us with prioritizing Pep Energy. This solidifies mutual incentives where we both benefit and helps us achieve our long-term goals. We feel very confident in our position and believe this approach effectively motivates both parties to continue driving Celsius forward. Jarrod, do you want to add anything else?

I agree with you. It's really about making sure we're all fully aligned together to take that next step and to really go after the #2 and #1 players in the market. We need to do it together.

Can you hear me now?

Yes, we can hear you. Excellent.

I have a couple of follow-up questions. Regarding the inventory situation, Jarrod, could you remind us what we are comparing against from last year? I understand you may not have visibility on specific types or how you will manage it in the short term. However, when considering how this situation developed last year, it seemed to stabilize in the second quarter and then grow again in the third quarter. Should we expect this gap compared to standard data to continue as we progress through the year, or do you anticipate it becoming more aligned at this point?

Yes, we were just getting started last year, and we are still getting to know each other. As with everyone in consumer packaged goods, optimizing the supply chain to spend our dollars wisely is crucial. We did see an increase in Q1 of about $25 million. In Q2 and Q3, the buildup was minor, remaining stable throughout Q2, Q3, and Q4. There was some innovation during this time, which may have affected inventory levels in Q4 if it hadn't occurred as they worked on optimization. Throughout Q1, we clearly saw further optimization. There's no problem with product availability on the shelves, and we have key performance indicators we collaboratively strive to meet regarding service standards, so we have no issues there. We are both fully committed and satisfied with our progress. If there are opportunities to optimize, as John mentioned, we will pursue them, and they are encouraged to do the same. Regarding April, the inventory levels we observed in March continued into April. The consumer demand is present; as long as we can maintain inventory levels and keep products available, we are comfortable with that.

Okay. Great. And then just following up on kind of the shelf resets and kind of the market share metrics you mentioned. I think you said 1/3 of the shelf resets were done by March. I mean when did those actually take place in 1Q? I'm just trying to understand whether there is a benefit, including kind of these 4-week share figures that you mentioned on the 4Q call. I think it was the same 11.5% that you mentioned in the latest release today. So shares, kind of held steady. And then I think as we look ahead, is there anything you can share in terms of the phasing of the benefits? I know you touched on but we won't see the full benefit until July. But kind of where are we now in the first week of May? What's really the progression look like? And is there really any way to put into context what you actually expect in terms of track growth or market share performance as these resets happen?

Yes, I think jamming to 11.5. I think the last poll, maybe been in the last couple of weeks is more like 11.8. So we do continue to see the number climb as we go through April and into May. So we are seeing good progress. As those resets continue to happen, we'll benefit. Once they're fully baked in, we'll really see where we are once we get to early July, once everything is baked in. So we continue to be on track. There's been some rumblings out there that it's been a little slower in terms of resets this year versus prior years. But we're going to have the best space gains that we've had in the history of the company. We're super excited about it. Our key account team and our sales teams are working diligently with all of our customers. And we're going to have a phenomenal back half of the year once we get all these resets in place.

We have reached the end of the question-and-answer session. I'd now like to hand back the call over to John Fieldly for final remarks.

Thank you, operator, and thanks for everyone for joining us this morning. We've heard your feedback from our investors and analysts about the earlier start time. So starting next quarter, we will begin to start this call a little bit earlier. Thank you to all of our partners, especially to our employees who have worked so hard. Your passion and drive is what makes Celsius special. Celsius will be participating in several upcoming conferences, and I look forward to seeing each and every one of you there. A full schedule of the upcoming conferences will be posted shortly. Until then, stay healthy and live fit. Make it a great day, and grab a refreshing Celsius.

Thank you so much for attending today's conference call. You may now disconnect. Have a wonderful day.