Celsius Holdings, Inc.

Greetings and welcome to Celsius Holdings' fourth quarter and full year 2021 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the 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 Donahue, Investor Relations for Celsius Holdings. Thank you. You may begin.

Thank you and good afternoon, everyone. We appreciate you joining us today for Celsius Holdings' fourth quarter and full year 2021 earnings conference call. Joining me on the call today are John Fieldly, President and Chief Executive Officer, and Edwin DeGrom, Chief Financial Officer. Following prepared remarks, we'll open the call to your questions and instructions will be given at that time. The company released its earnings press release upon market close this afternoon with its preliminary unearned financial results for the fourth quarter and full year ended December 31st 2021, and all materials are available on the company's website, celsiusholdingsinc.com, under the Investor Relations section. As a reminder, before we turn the call over to John, an audio replay will be available on the company's website later today. Preliminary financial information, financial guidance, and growth disclosures have been prepared by management based on information available to it as of the date hereof and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. Estimated preliminary results are subject to completion of our customary quarterly and annual financial closing, audit, and review procedures that are not comprehensive statements for financial results for the three months ended in fiscal year ended December 31st, 2021, and subject to adjustments as a result of such procedures. Reconciliations of all non-GAAP financial measures can be found on our earnings press release supplement and on our website, celsiusholdingsinc.com. Please also be aware this call may contain forward-looking statements within the meetings of the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995, which are based on forecasts, expectations, and other information available to management as of today, March 1st, 2021. In some cases, you can identify forward-looking statements by the words such as anticipate, expect, intend, plan, potentially, seek, believe, project, estimate, strategy, Future, Likely, May, Should, Will, and similar references to future periods. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. Important factors that cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following. Economic and business conditions, our business strategy for expanding our presence in our industry, anticipated trends in our financial condition and results of operations, The Impact of Competition and Technology Change Existing and Future Regulations Affecting Our Business The Company's Ability to Satisfy in a Timely Manner All Securities and Exchange Commission Required Filings The Requirements of Section 404 of the Sarbanes-Ockley Act of 2002 and the Rules and Regulations Adopted under that section, as well as other risks and uncertainties discussed in the report Celsius Holdings has filed previously with the Securities and Exchange Commission. As to the extent as required by law, Celsius Holdings undertakes no obligation and disclaims any duty to publicly update or revise any of these forward-looking statements, written or oral, whether as a result of new information, future developments, or otherwise. We encourage you to review in full our safe harbor statements contained in today's press release and our SEC filings for additional information. With that, I'd like to turn the call to President and Chief Executive Officer John Fieldly for his prepared remarks. John?

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