Celsius Holdings, Inc.

Greetings and welcome to Celsius Holdings' first quarter earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cameron Donohue, Investor Relations for Celsius. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate you joining us today for Celsius Holdings' first quarter 2021 earnings conference call. Joining me on the call today are John Fieldly, President and Chief Executive Officer, and Edwin Legrand, Chief Financial Officer. Following the prepared remarks, we'll open the call to your questions and instructions will be given at that time. The company filed its Form 10-Q with the SEC and released a press release pre-market today. All materials are available on the company's website, celsiusholdingsinc.com. under the investor relations section. As a reminder, before I turn the call to John, an audio replay will be available later today. 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 May 13, 2021. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. Except to the extent as required by applicable law, Delcius 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. With that, I turn the call to the 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. The company achieved a record first quarter, exceeding $50 million in sales, which was derived by over 100% growth in North America sales from continued strong demand for our portfolio and a 25% growth in international sales. International sales growth was primarily derived from a 22% growth from our Nordic operations. Even with the record quarter, we are still dealing with the impacts of COVID-19 in several channels, international markets, and experiencing increased costs in raw materials and transportation. Channels of trade we operate in and which we continue to see these effects include our health and fitness, vending, food service, as well as reduced foot traffic and several additional channels. However, we are starting to see improvements through the first quarter, but still not fully normalized. In addition, our EU, Middle East, Southeast Asia, and Australia operations remained adversely affected by COVID-19 pandemic. While we have started to see sequential improvements over the last few quarters, with capacity restrictions as well as reopenings and hardest hit channels. There remains uncertainty as their potential could be reclosings due to case increases in our regions of operations, what could force extended closures in some states and countries. The health and safety of our employees and partners remains our top priority, and safety precautions have been implemented, which we have developed and adopted in line with guidance from public health authorities. In addition to increases in transportation costs, we are experiencing Another COVID impact. It is an aluminum can shortage, which has impacted the entire industry. The large can manufacturers in the U.S. have initiated major expansion projects, which expect to be completion time somewhere starting in the back half of 2021 and potentially through 2022 and 2023. Celsius immediately implemented contingency plans last fall by sourcing cans internationally. We received our first orders in March of 2021. The company anticipates 50% of can supply for 2021 will be derived from imported and wrapped cans, which should decrease in late 2021 and through 2022 as more U.S. capacity comes online. In the first quarter, we saw a higher proportion of wrapped cans versus imported cans, but expect that mix to change to a higher proportion of imported cans going forward. RAP cans have a higher cost, so that represents a slight margin improvement going forward with the change in mix. In addition, the team is expanding warehouse distribution sites, implementing contingency plans to further source raw materials with minimum floor stock programs, blanket purchase orders, second and third supplier alternatives. The team continues to quickly adapt to the new COVID environment and are focused in driving efficiencies and operational performance. As outlined in our last call, this will impact the gross profit margins by a few points, but we remain confident that the company will run at approximately in the low 40% gross profit range through 2021, which is right in line with our first quarter results. We continue to explore additional opportunities as they may become available to shorten the duration Celsius is impacted by the canned shortage, and there's potential for improvement in the back end of this year. In addition, the company is optimizing its promotional architecture and strategies, partially mitigating these inflationary increases in raw materials and transportation. The company remains generally available throughout the quarter, but did experience shipping delays because of can shortages, as well as the Texas freeze, which shut down two co-packers and one of our warehouses for over two and a half weeks during the quarter. But they have been fully back online at the end of the first quarter. On the convenience channel side in North America, which represents the largest energy drink market in the country with over $9 billion in annual sales, the latest SPINS data shows a 77% year-over-year increase for Celsius product portfolio in the convenience channel compared to a 7.5% overall in the energy drink category, while only holding a 16.8% ACV. We have added over 13,500 convenience stores to the last 12 months, with additional accounts expected through spring resets. In addition, we recently achieved the second highest dollar growth in the category when compared to the top 10 energy drink competitors. According to Spin, Shelf Stable, Energy and Functional Beverages Convenience, 12 weeks ending March 21st, 2021. Our first new spring reset win began in late March with the national launch of Murphy USA in 1,500 locations, which will initially be serviced, approximately 80% of stores will be serviced by DSD with six flavors authorized. Industry-backed third-party data continues to show accelerating growth and metrics, and we are confident that the Celsius portfolio will continue to drive sales even higher as we further increase our ACV in the channel through additional launches with national chains and transitioning existing accounts to our DSD network. Consumer demand for Celsius has grown even stronger through 2021, with the most recent reported Nielsen scan data as of April 24, 2021, showing Celsius sales are up 218% year-over-year for the two-week period, 220.3% for the four-week period, and 151.4% for the 12-week period, as well as 88.6% for the 52-week period, with achieving a 1.2% share in the last four weeks. The next highest comp for the most recent two-week data was Red Bull, which grew at a 29% and 37.2% for the two- and four-week timeframe. In our e-com channel, according to Stackline, which tracks energy drink sales on Amazon in the United States for the four weeks ending April 17, 2021, sales and dollars in the energy drink category by Amazon, including energy shocks, grew at 160.1% growth the same period a year ago. Celsius sales increased 265% and our share increased by 4.5 points to 15.5% share of the category which puts Celsius as the second largest energy drink brand on Amazon behind Monster Energy at a 35.6 share and now above Red Bull which is at a 13.7 share. We continue to see acceleration through all channels of trade and are now beginning to see the additional lift from the conversion of accounts to our DSD network. Additionally, we secured additional distribution agreements with key partners, further expanding availability to new regions as Celsius builds out its national distribution network, which now includes over 180 regional direct store delivery DSD partners and distribution centers covering approximately 85% of major metropolitan markets. Recent additions have predominantly been filling distribution gaps outside of the major metropolitan markets. Transition to DSD continues with Target, CVS, Walmart, Racetrack, 7-Eleven, and others with additional regions and retail partners plan to transition to DSD throughout 2021. Today in the United States, our total door count now exceeds 92,000 locations nationally, up approximately 10,000 locations since the beginning of 2021. We expect this number to grow even further in the coming quarters as retailers execute their planogram resets, which were delayed due to the COVID-19 pandemic. On our co-packing front, we continue to expand our partners and scale at existing locations, improving line time priority. Our total U.S. co-packer footprint is now eight locations that are active, which will help protect the future of our stocks and support our massive growth. In Europe, we further integrated and leveraged synergistic benefits from the acquisition of Funk Food, a Nordic wellness company that was immediately accretive to earnings and is an important step in our strategy in building out global dominant brands. Europe operations were impacted by COVID and additional lockdowns in the first quarter, which were largely impacted by the fast protein snack portfolio, which was partially offset by growth in sales in Celsius in the region. We continue to see great opportunities and momentum in these markets. We continue to evaluate additional European expansion, primarily in the UK and Germany, in addition to working with Amazon Europe to further expand our e-commerce opportunities throughout Europe. In China, we maintain a licensing royalty model in the market where our distributor covers approximately 76 cities and serves approximately over 60,000 locations of distribution. Our other international markets have started to back up Balto off a small base. Australia sales resumed through our distribution partner in the market, and in Malaysia, we maintain a direct relationship with a local distributor. We maintain approximately 2,000 retail locations. with plans to re-enter gyms, vitamin specialty locations, additional retail partners as the recovery continues. As with Europe and the United States, we see significant opportunity to capitalize on a global scale, reflecting the changes in consumer preferences for better-for-you offerings in the enormous market of Asia. Now moving on to marketing. On the marketing front, we continue to activate, target new consumers and existing consumers where they live, work, and play, being meaningful connections and emotional connections. through robust, integrated marketing programs, even while consumers are at home. Specifically during the quarter, despite COVID-19 restrictions, we sponsored targeted events, both in person and in virtual, and sampled thousands of cans and hands during the quarter in key markets that were open. And we continued to support our first responders, nurses, doctors, COVID testing sites, and reactivated the Live Fit Tour, which is an integrated experiential sampling tour. and we further leveraged and built out our brand ambassador program, influencer program, reaching more consumers in a meaningful way. Our momentum is accelerating. Our brand is resonating with a diverse consumer base, expanding the category demographics. Health and wellness is beyond a trend. Functional energy is recognized throughout the industry as a driver of future growth with retailers. We hit not only a record for sales in North America, but we also achieved a record growth rate of 100%. with third-party data reporting continued acceleration in the second quarter. Our national DSD network is in place and only at the forefront of recognizing the incremental growth we will drive. Our team is ready. Our infrastructure is in place to support our growth, and we expect to continue to grab market share on an expedited scale. I will now turn the call over to Edwin Negron Caballa, our chief financial officer, for his prepared remarks. Edwin?