Celsius Holdings, Inc. (NASDAQ:CELH) Q1 2024 Earnings Call Transcript

Celsius Holdings, Inc. (NASDAQ:CELH) Q1 2024 Earnings Call Transcript May 7, 2024

Celsius Holdings, Inc. beats earnings expectations. Reported EPS is $0.273, expectations were $0.2. CELH isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day. My name is [Elli] (ph), and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Celsius Holdings, Incorporated First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to hand over the conference call to Paul Wiseman. You may begin.

Paul Wiseman: 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 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.

John Fieldly: 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 four weeks period ending April 14, according to Circana. This is a full point higher than the Q4 2023, and four points higher than one year ago. These results on their own are very strong, especially after growing at a triple-digit for the past three consecutive years.

Even so, our first quarter revenue would have been higher, except that it was adversely affected due to inventory movements by our largest customer, which is beyond our control. The year-over-year inventory variation is attributive 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 were planned in 2023. However, no such first quarter restocking and spring reload in 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.

All 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, stocked high with a 98.4% ACV. And our category across all tracked channels and untracked 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 one-third complete at the end of the quarter.

And once concluded we’re expecting our best shelf space gains in the company history. The importance of these space gain increases, and placements, and improvements cannot be overstated. The visual impact of multiple full shelves of cold CELSIUS in convenience stores and coolers, and in the grocery shelves 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 number one energy drinks 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 four-week data, as of April 14, as stated, was 11.5 share, an increase of approximately four points compared to 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 15 share in several additional markets.

With our growth and expansion, we’re 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’re expecting to have three 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 drive 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 drive trial. And the reduced pricing and scanner data reflects 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 will 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 infrastructure and the commodity environment across the back-half of 2024, and into 2025. Celsius new product innovation this year is 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 retailers supporting our initiatives rolling out our 16-ounce line of CELSIUS Essentials, which now has reached approximately 54.5% ACV as of mid April with availability increasing across the country.

CELSIUS ON The Go powders continues to perform well with a recent innovation with refreshing strawberry coconut and blueberry lemonade being our top two performers. We have more CELSIUS On The Go powder innovation plan for this year and continue to see great opportunities with this line. Non-tracked channels including club, ecomm, and foodservice continue to be 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 $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-weekd data ending March 30th,2024.

Approximately 12% of Celsius sales through Pepsi in the quarter was through 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 launched in Canada, which began in January, continues to exceed expectations. And, we recently achieved a 5.5 share to the first two periods of 2024 according to Nielsen. In the first quarter, Celsius announced plans to expand in Australia, France, Ireland, New Zealand, and United Kingdom, executing our stated strategy to pursue measured international growth, balancing investment levels in new markets. I am 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 [spaced] (ph) expansion across the countries in 2025. Finally, we produced some fantastic marketing activations recently including Celsius Cosmic Desert event in Coachella, which hosted celebrities and influencers as well as performance by leading artists. Celsius was also featured in a recent Saturday night live opening skit, making clear 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 1 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.

Jarrod?

Jarrod Langhans: Thank you, John. Celsius delivered another record selling quarter, exceeding our expectations and producing strong returns while we grew the business and levered in certain areas. Revenue for the three months ended March 31st, 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, ecommerce, 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 four 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 cost. First quarter freight cost as a percentage of net invoice sales decreased 120 basis 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 fuel cost which has been rising, other commodity cost 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 was very achievable, but that we are not ready 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 three 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 reminder of the year, we would anticipate some ebbs and flows within G&A, but 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 and 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 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 and our fleet to drive further growth, but we do see a greater 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.

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Q&A Session

Operator: We are now opening the floor for the question-and-answer session. [Operator Instructions] Our first question comes from Kaumil Gajrawala from Jefferies. Your line is now open.

Kaumil Gajrawala: Hey, thanks, guys. Good morning. A question on inventories as we’re thinking about 2Q, may be how business is progressing on a consumption perspective in 2Q, but also are inventories now tight and low as we’re going into another two-thirds of shelf resets? Do maybe some of the 20 million reverse in 2Q, could you just give some context around that?

John Fieldly: Yes, good morning. And no, great question. And we did state that in 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, we’ll see how that evolves. If you look at our inventory levels over the last 15 months looking at, 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 shelves stocked most importantly, and 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 moves is just really difficult for our partner. I don’t know, Jarrod, if you have any other comments to add?

Jarrod Langhans: Yes, 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.

Kaumil Gajrawala: Okay, got it. And then margins were quite substantially ahead of plan. Is there anything one-time in there or is it just sort of the leverage off your growth?

John Fieldly: Yes, Jarrod, why don’t you talk about the margins?

Jarrod Langhans: I mean, you know I always point the freight as something that fluctuates from quarter to quarter, and that’s definitely been something that, if you look back over the last three years, it has been — we’ve been able to keep it within a kind of set of guardrails, but we did see some good freight rates this quarter. We’ll continue to look to optimize that, but some of that will be dependent upon fuel costs as we look out into the back-half of the year. We have seen some good activity in terms of leveraging our business and our scale around raw materials. But that’s — same time, we are moving into a much higher promotional time period with the 100 Days of Summer. So, that’s why we kind of said we’re not ready to put the line in the sand at the rate we were able to deliver in Q1.

We’re always going to try to deliver that or better. And we do have a long-term that we’re looking to get to. But I would say, as we look out to Q2, Q3, Q4, we’re sticking with what we said at the end of February, which was kind of that high end of the 40s, and not quite locking into the 50s yet.

Kaumil Gajrawala: Got it. And thank you.

John Fieldly: Thank you.

Operator: Mark Astrachan from Stifel. Your line is now open.

Mark Astrachan: Hey, and morning, guys. I wanted to go back to that last question, so the one that we’re getting a lot today as far as the timing of this inventory stuff. So, if I do some rough math, looks like you’ve under-shipped demand per scanner data decently the last two quarters. 1Q, obviously 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 that, meaning that we can all see where in demand is versus what your sales are, and your sales were 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 out of stocks, and whatnot, and 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?

John Fieldly: Yes, and Mark, I’ll get the beginning of the question. When you look at the inventory levels, I think our partners are at really good inventory levels right now. We’re maintaining deliveries. We’re keeping product in stock. We’re seeing scan data. We just broke a record on the share gain, to 11.5, so product is flowing. I think we’re both getting — learning about each other, our supply chains, and looking to further optimize. So, I can’t speak for our partner, but they are maintaining supply levels, servicing customers. We have greater ACV. The resets have gone well, the ones that have been reset so far, so. And we’re further working on programs for the 100 Days of Summer, working on further displays and end-cap programs.

So, I think we — we feel really good where we’re at. You’re going to see some optimization on both sides. Like I said to Kaumil is that we are — we did optimize our inventory as well about $47 million in the last 15 months, if you look at the cash flow statement. So, in regards to shelves, we’re not seeing out-of-stocks. You’re always going to have some, that’s just part of the business. But always — there’s ways to further optimize. And I think we’re in a really good place. We have good inventory levels now. We feel confident in our inventory levels, and confident in the Pepsi inventory levels supporting our growth.

Mark Astrachan: 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 continues 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 through Pepsi? And I guess just how do you think about that progress through? And then, you talked about April being a little bit weaker. So, I guess, sort of related to the first question, but how does the timing of that work through? Did they hold more beginning of the quarter and less at the end of the quarter?

John Fieldly: Yes, I think 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. And we’re going to have to see how this plays — how the quarter unfolds. I think that with optimizing inventories, we’re getting more efficient. We’re able to ship product and in less number of days. Prior, we run in 14 days. And now, in many cases, we’re shipping within seven. So, we’re just finding further ways to optimize our supply chain, so that’s going to impact some of our — some of the revenue recognition standards 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 got good momentum heading in, especially the 100 Days of Summer, double the sales staff, great, refreshing innovation, and a bunch of great marketing assets and activities. I don’t know, Jarrod, if any more color you want to add on that.

Jarrod Langhans: 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, that’s what we’re most concerned with.

Mark Astrachan: All right. Thank you.

Jarrod Langhans: Thank you.

Operator: Our next question comes from Jeff Van Sinderen from B. Riley. Your line is now open.

Jeff Van Sinderen: Hi, good morning, everyone. 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.

John Fieldly: Yes, Jeff, great question. It’s really exciting that now we’re in 12 markets, major metropolitan markets in the U.S. right now that are over a 15 share. And then, we have several additional markets that are getting close to that range. So, what we’re seeing is just really the further collaboration with our Pepsi partners, further building out our sales team and marketing teams and really using our methodological approach to marketing and activation, which has worked well. It’s activating the consumer where they live, work and play, disrupting the path to purchase, building that awareness, getting that trial. And we have such great flavors and a great product and a great brand that we build that loyal consumer. And we’re seeing our Celsius consumers further increasing their consumption levels as we’ve further built out our availability.

We’re seeing category growth or driving category growth, about 47% of the category growth is coming from new to category and Celsius is creating that, so really exciting. It’s really about gaining that additional distribution and really closing the gap with inconvenience. And we’ve talked about that for many years and we’ve done well in large format and online and with gyms and health clubs. And now really next phase is really closing the gap and convenience and getting better placement. You’re seeing the share numbers start to increase there.

Jeff Van Sinderen: 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 skews, spacings, quality of shelf locations, that sort of thing.

John Fieldly: Yes, I think when you look at the resets, we’re really excited. It’s going to be convenience is a big 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 HBC to the energy category and the energy set. And we’ve gained further placement in front checkout coolers. 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. This key accounts team has been extremely positive this year.

Jeff Van Sinderen: Okay, great. And then, just as a follow up to that, as far as the coolers go, what are the plans for coolers this year? And also, is there an opportunity to get into a lot more coolers that are maybe not Celsius coolers at this point?

John Fieldly: Yes, I think that’s a huge opportunity, and that’s really partnering with PEP Energy and working really closely with our Pepsi partner, gaining more distribution and availability and 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 there’s 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.

Jeff Van Sinderen: Okay. Thanks for taking my questions and continued success.

John Fieldly: Thank you, Jeff.

Operator: The next question comes from Jonathan Keypour from Bank of America. Your line is now open.

Jonathan Keypour: Hey, everybody. Good morning. Sorry. And thanks for the question. 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.

John Fieldly: Yes, Jonathan, I’ll turn it over to Jarrod.

Jarrod Langhans: 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 skews. We continue to get more space, et cetera. So, just a clarity there. That was more of a days on hand comment more than anything. In terms of the aluminum, you’re seeing some fuel costs go up. We have locked in a lot of our aluminum pricing. So, we were in pretty good shape there. So, we tend to lock that in around Q4 of every year.

Jonathan Keypour: Okay, cool. On margins again, just in terms of the amendment to the agreement, I guess what are the implications to the margin from here? What is there a benefit? Is it likely dilute or anything like just a sense of what it may or may not do to margins?

Jarrod Langhans: Yes. So, the incentive program is for Pepsi. It’s incentive based, right? So obviously we’re going to get something for it. So, the idea is to really drive what our priorities are, what their priorities are across energy. We want to be the number one energy brand in the world. It’s also really to drive alignment. And so, from that perspective, it’s an incentive program. So, the idea is to really push us to the next level. There is obviously it’s an incentive program. So, there is obviously a cost to that program. So, it’s something that I would look to see ramping up across call the first six, seven, eight months of the year and to really be cruising by the time we get to the back part of the year.

Jonathan Keypour: Cool. Thank you. And if it’s all right, just a couple more on revenue, I guess specifically in Costco that became a bit light on foodservice. Just wondering about the sequential decline in Costco and the flats and foodservice and drivers there that you can point to or what to expect going forward?

Jarrod Langhans: Yes. So, Costco, really the club channel, we probably should have called that out last quarter, but we did see a really good Thanksgiving week and Black Friday. So, we had the team really activated phenomenally there. So, we did get a bit of a bump there in Q4 versus Q1. Q1 does also tend to be a little slower in the club channel. What was the other part? The foodservice, foodservice remains strong. That can be a little lumpy at times, but being up at that 12, 12-ish range is pretty good for us. And we do we are seeing gains in areas like convenience. So, we’re seeing gains in some of the other areas that are from a scale perspective bigger. So, as we see gains there, you may not see the same percentage growth from a percent, but we are seeing dollar growth.

Jonathan Keypour: Cool. And then, just the last one on the shelf reset coming up, so it sounds like one third done already, two-third coming, so basically a doubling of what’s already been put in there — more than a doubling of what’s been put in the trade already. I guess in the Nielsen, you can see that the TDPs and the average number of items looks great. But if it’s going to keep moving up from there, I guess, is that going to be, 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?

John Fieldly: Yes, I think the goal is to gain double, triple facings. So, a lot of the resets items, average items per store might not increase, show up in the scanner data, but we’re gaining those secondary third placements and better placements within retailers. So, as an example, like within, I mentioned Publix moving from HPC into the energy aisle, also gaining additional availability and placements in cold checkouts. That’s an example of a transitional move. And also we’re looking at other retailers as well. So, we do have innovation coming in this year, which we’re launching. We launched CELSIUS Essentials. We got a Galaxy Vibe, a variety of other great flavors, but we’re really, I think the bulk of the resets, you’re going to be seeing them by double, triple facing within stores and gaining secondary placements.

Jonathan Keypour: Great. Thanks very much.

John Fieldly: Thank you.

Operator: Our next question comes from Michael Lavery from Piper Sandler. Your line is now open.

John Fieldly: Thank you. Good morning.

Michael Lavery: Good morning. I 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 de-stocking? I know you said the inventory levels feel about right, but how low could it go? Is that something we should watch out for?

John Fieldly: Yes. I mean, I can’t control, I can’t control that or we can’t control that. I think it’s sales are flowing; sales are strong at the register. So, it seems to be like the balancing has been finalized, but who knows what next week or the week after happens. But I think right now it seems somewhat stable as we ended the ending March.

Michael Lavery: Okay. Thanks. And just back on the incentive plan, you’ve given some color on that. I know you don’t want to be too specific, but can you maybe touch on what the rationale was, what prompted you what problem was it fixing, because obviously there was great momentum in place, what does this change qualitatively that makes it seem like it’s kind of worth changing the terms?

John Fieldly: Yes, I think when you look at the partnership, we’re heading in, we’re really at a great point where within the, where Celsius is within the energy category we just broke that 10th share. You’re looking at ways to further partner and incentivize our distributor and our partners. And we do that with our employees, we do that with retailers and our distributors. So, this is like a standard practice we’ve done in the past. So, I don’t think it’s out of the, anything out of our standard course of business. We’ve done variety incentive programs. And this further aligns us with additional prioritizations within PEP Energy also solidifies this as more incentives, we both win together and it really achieves our long-term goals. We feel really confident in where we are and what better way to incentivize both parties to continue to drive Celsius forward. I don’t know, Jarrod, if you want to add anything else.

Jarrod Langhans: No, 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 number two and number one players in the market. We need to do it together.

John Fieldly: Yes.

Michael Lavery: Okay, great. Thanks so much.

Jarrod Langhans: Thank you.

Operator: The next question comes from Peter Grom from UBS. Your line is now open.

John Fieldly: Peter, are you there? Can we go to the next question?

Operator: Our next question comes from John Andersen from William Blair. Your line is now open.

John Andersen: Hey, thank you for the question. I just wanted to ask about the category growth that you’re driving. I mean, you’re driving half of the growth in the category, energy category. And I’m curious to know to what extent you’re seeing that come through as new consumers into the category, to what extent you think you’re driving buy rate through new occasions, and then how the brand is performing overall from a household penetration and the kind of repeat rates you’re seeing, so, just digging into some of the metrics underpinning the growth that you’re seeing, both for the category that the brand is driving, but also your brand. Thanks.

John Fieldly: Yes, great question. It’s exciting because when you look at brand shifting, we’re not seeing a substantial amount of our growth coming from brand shifting. It really is incremental and it’s increasing the user intensification. Our core consumers are consuming more. And then, it’s about 35%, the latest data we had, is intensification of more consumption of our core or base. And then, new to category for us was 42%. And this was as of the end of March, so, really seeing then 23% brand shift, so we’re expanding the category. We’re changing the way consumers think about energy as well. And we’re seeing that, talk about Jersey Mikes and Dunkin’ Donuts and really the partnership with Pepsi allows us to take advantage of this opportunity we have with some of the most refreshed, we feel we have the most refreshing energy drinks in the world.

And it’s showing. We’re bringing new consumers. We’re growing a category. We got a lot of great attributes within the brand. We look at better for you trends. Celsius has over seven essential vitamins. You look at how we all want our foods and beverages to have more function. Celsius delivers on that with our thermogenic properties. And then, you also look at fitness, this health and wellness trend, and we’re all about living fit and living life to the fullest. So, I think we’re really well positioned. And we haven’t really seen that change within the user intensification, as well as the increase to new to category over the last six to almost a year now.

John Andersen: Right. That’s helpful. And on these 33 or so drill down markets, can you talk about what you’re doing there that are 31 drill deep markets, what you’re doing there that’s different at present, and kind of what you’re expecting in terms of I guess maybe share results as a measuring stick. Thanks.

John Fieldly: Yes. Yes, I think, well, you talked about household penetration and that shows as we’ve continued to drive forward with our targeted marketing programs and as well as our distribution games, our household penetration has reached an all-time high most recently at a 29.7% household penetration. So, really proud of the team and all the hard work they’ve been doing. We take an approach of a drill deep strategy. We’re not going to get into specific strategies because a lot of competitors are listening on the call, but we have a proprietary blend of a special formula here, which starts with the employee and a great product that we promote and market. And it’s all about touching consumers where they live, work, and play, creating awareness, creating trial, and then creating loyalty.

John Andersen: Thanks.

Operator: Our next question comes from Peter Grom from UBS. Your line is now open.

Peter Grom: Hey guys, can you hear me now?

John Fieldly: Yes, we can hear you.

Peter Grom: Excellent. All right, cool. So, I guess just a couple of follow-ups here. Just in terms of the inventory dynamic, Jarrod, can you just remind us what we’re kind of comping against from a year-ago perspective? Like, I get you might not have visibility on what Pepsi might do or how to manage it sequentially, but when we just think about how this dynamic evolved last year, I think it was kind of held in 2Q, grew again in 3Q. So, just should we expect kind of this gap versus standard data to kind of continue as we move through the year, or would you expect it to kind of be more aligned at this point?

Jarrod Langhans: Yes, I mean, remember we were just getting started last year, and so we’re still learning each other. And obviously as everybody in CPG, it’s all about optimizing the supply chain to make sure we’re spending our dollars wisely. So, we did see some buildup in Q1, like we talked about, roughly $25 million. Across Q2 and Q3, we saw some minor buildup, and it kind of stuck steady for kind of Q2, Q3, Q4. To Mark’s earlier point, there was some innovation in there, so that could have maybe there would have been some inventory taken down in Q4 if it weren’t for that, and as they were optimizing. And then, across Q1, clearly there’s been some optimization occurring. Again, no issue with having product on the shelf, and we do have KPIs that we work together to maintain in terms of service standards.

And so, we have no complaints there. And we’re fully — I believe they’re fully committed. We’re fully committed. So, we’re very happy with how things are going there. But if there’s opportunity to optimize, like John said, we’ll do it. And they’re welcome to do it too. So, I think what I mentioned with April is the days on hand that we saw kind of in March kind of were maintained in April, but the consumer’s there. If they can maintain inventory levels and keep the product on the shelf, then that’s — we’re comfortable with that.

Peter Grom: 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 a third of the shelf resets were done by March. I mean, when did those actually take place in one queue? I’m just trying to understand whether there’s a benefit including kind of these four-week share figures that you mentioned on the four-queue call. I think it was the same 11.5% that you mentioned in the latest four weeks today. So, shares kind of on a monthly basis 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 benefits 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? Thanks.

John Fieldly: Yes, so I think jumping to 11.5%, I think the last pull maybe been the last couple 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 really see where we are once we get to early July, once everything’s 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 we’ve had in the history of the company. We’re super excited about it. We’re — our key account team and our sales guys 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.

Peter Grom: Thanks so much. I’ll pass it on.

John Fieldly: Thank you.

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

John Fieldly: 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 for all of our partners, especially to our employees who have worked so hard. Your passion and [drive] (ph) 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.

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