Celsius Holdings, Inc. (NASDAQ:CELH) Q4 2023 Earnings Call Transcript
Celsius Holdings, Inc. (NASDAQ:CELH) Q4 2023 Earnings Call Transcript February 29, 2024
Celsius Holdings, Inc. beats earnings expectations. Reported EPS is $0.17, expectations were $0.16. 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: Greetings and welcome to Celsius’ Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Paul Wiseman, Investors Relations for Celsius. Thank you. You may begin.
Paul Wiseman: Thank you and good morning, everyone. We appreciate you joining us today for Celsius Holdings fourth quarter 2023 earnings conference call. Joining me on the call today are John Fieldly, Chairman and Chief Executive Officer; and Jarrod Langhans, Chief Financial Officer. The call will open to questions following the prepared remarks. The company released its fourth 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 in our conference call announcement release. 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 fourth quarter of 2023.
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 and welcome everyone to today’s call. Also welcome to Paul Wiseman, who recently joined Celsius as our Senior Vice President of Communications. Celsius had a stellar 2023 fourth quarter, the best earnings year in our company’s history. We have achieved nearly complete distribution coverage in the United States topping 98% ACV which is a major achievement, putting our products in reach of more consumers and more consumption occasions with greater flavors and size options than ever before. In 2023, Celsius set a new yearly revenue record, growing more than 102% or $664 million in sales to finish the year at just over $1.3 billion. Celsius is now truly a $1 billion brand. Our impressive share gains in 2023 have resulted in Celsius becoming the first company to break the 10 share barrier in more than a decade.
According to Circana, IRI’s recent 4-week read ending February 11, 2024 in total energy U.S., Celsius held a new record of 11.5 share nationwide in MULOC. The energy drink category is now a 3-team race. As of January 2024, Celsius had exceeded a 15 share in over a dozen U.S. markets and a few of those, we are within just a few points of our next closest competitor or have already taken them. Our strong innovation pipeline continues to delight consumers whose taste for zero sugar energy drinks has nearly tripled the overall category sales to a zero sugar majority. Although this year, we have launched two new core SKUs, Sparkling, Raspberry Peach and Fizz Free Blue Raspberry Lemonade. In addition, two new Celsius Vibe flavors, Astro Vibe and Galaxy Vibe, which has taken our Space Odyssey Trilogy even further with the launch of our Cosmic Vibe in 2023 in Circle K.
Celsius also launched Celsius Essential’s product line, which has proven essential performance energy with essential aminos. We are executing our plans to grow the business internationally, taking a methodical approach in each new market we enter. We are very pleased with our sales in Canada after 2 months in the country. Consumer enthusiasm and acceptance has exceeded our expectations. We are pursuing disciplined growth in our best-in-class sales and marketing organizations. And just 2 weeks ago, Celsius was recognized with the 7-Eleven’s prestigious 2023 Supplier of the Year award in the non-alcoholic category. This is a tremendous achievement, and I want to thank all our dedicated team members on achieving this great top industry award.
Best-in-class teams drive best-in-class results. With nearly full distribution, we are focusing on driving growth through three areas: increasing total distribution points at each location, growing in non-tracked channels and international expansion over the long-term horizon. Celsius was again the top driver of the energy category in dollars and units sold in MULOC, ending in the fourth quarter, up 126.6% and up 140.2% for the full year of 2023, supporting a 30.6% of all the energy category growth for the year. Already this year, we have launched several new and exciting innovations as well as a brand update to our line of fizz-free beverages, which have a strong and loyal consumer base. A new fizz-free multi-pack available now in Target stores brings together refreshing selection to our consumers who prefer the non-carbonated energy drinks.
Sales of Celsius Essentials, our new line of performance orientated energy, a 16-ounce beverage products launched in the fourth quarter at 7-Eleven stores across the United States and our two new flavors sparkling, Mango Tango and Sparkling Fruit Burst bring the Celsius Essential line to 6 unique SKUs. As of January 2024, Celsius Essentials has achieved a record 40% ACV. Year-to-date, February 18, it’s at 49% ACV, continuing to see greater acceptance across retailers across the country. Also in January, our Celsius on-the-go powders claimed the number one position in the energy powder category according to Circana’s IRI commanding a 23.1 share, having increased 5.6% compared to the prior period. We have several new on-the-go powder innovations plan for this year and see great opportunities with our virtual on-the-go product line.
In 2024, spring resets began in January and typically run through May. We are very pleased with the incremental space we’re gaining, which will be reflected across the first and second quarters of 2024. As a reminder, planograms used for most of 2023 when our dollar sales grew 140% were created while we were holding and held approximately a 4.5 share in the category. For 2024, shelf space planning was conducted with retail partners in Q3 of 2023 when we held a digital – double-digit share position. Celsius is also now fully integrated into PepsiCo’s annual planning cycle and we anticipate ongoing close collaboration with our primary North American distribution partner and expanded key accounts team. Our pursuit of our perfect store resulted in a 60% increase in display activity across the United States and we placed more than over 10,000 Celsius branded coolers in 2023 and an increase of over 300% year-over-year.
We intend to continue growing our base of branded coolers throughout this year. Non-tracked channels continue to be a tailwind for us as well. Club sales for the fourth quarter were $77.1 million, up 64% year-over-year. Club sales for the full year 2023 were $254.6 million, representing an $83.6 million increase year-over-year. We achieved the number one energy drink position on Amazon in 2023, finishing the full year revenue at $100.1 million, a 72.9% increase year-over-year. Our refreshing great tasting products are deal for the meal occasion, and today, more than 12.5% of our PepsiCo sales is to the foodservice channel. For example, in 2023, we gained distribution in over 2,000 Jersey Mike stores and are authorized to sell in more than 3,000 Dunkin’ Donut locations nationwide.
We believe there is incremental growth opportunities for Celsius and non-tracked outlets, such as vending, hospitals, corporate cafeterias and college campuses and more. Turning to international. We began distribution in sales in Canada through Pepsi in mid-January. As we had previously signaled, after approximately 1 month of sales, we are very pleased with the results and even more so to delight our Canadian consumers who have embraced our products. International sales reached $14.6 million in the fourth quarter of 2023 and $54.7 million for the full year. Also in January, we announced a sales and distribution agreement with Suntory Beverage for Great Britain and Ireland. We expect sales in the United Kingdom to begin gradually starting in the finished channel in the second quarter.
We expect additional international expansion this year. And as previously stated, we are taking a methodical approach to our international growth and we will be following our international growth playbook in each new market we enter. Before I hand it over to Jarrod to discuss financial highlights for the quarter and the full year, we have several exciting marketing developments and achievements to be proud of. Celsius recently announced a renewed multiyear global team sponsorship with Formula One’s iconic Ferrari racing team. Major League Soccer kicked off its regular season last week and Celsius is a proud league partner as well as key sponsor of multiple teams and players across the United States and Canada. These strategic investments placed our premium brand in the forefront of consumers who share our passion to live fit.
With that, I’ll pass it over to our Chief Financial Officer, Jarrod Langhans, to discuss our fourth quarter and 2023 full year financial results. Jarrod?
Jarrod Langhans: Thanks, John. It was another great quarter in which we continued to exceed both internal and external expectations. Not only are we continuing to benefit from Pepsi’s distribution system, but we are also delivering on increased SKU count, improved placement, increased displays and continuous improvement within velocities. As we look to Q1 and beyond, we will continue to invest in our growth. Turning to our fourth quarter financial highlights, revenue for the 3 months ended December 31, 2023 was approximately $347 million, an increase of 95% from $178 million for the 3 months ended December 31, 2022. Driven by our North American business, where fourth quarter revenues were $333 million, an increase of 97% from the same period in 2022.
International revenue grew 68% to $15 million as velocity continued to increase. As it relates to days on hand with our primary distributor, our inventory turns relative to depletions was consistent with our Q3 2023 turnover. We attribute our sales volume growth for the quarter compared to 2022 to several key drivers, including successful integration into the Pepsi distribution system, which has resulted in broader availability, increased SKU mix and improved placement. We are also benefiting from robust expansion in our traditional distribution channels and club channels, with SKU increases and placement improvements contributing significantly. Moreover, our products are now found in several new channels within CNG and foodservice. Gross profit for the 3 months ended December 31, 2023 increased 110% to $166 million, up from $79 million in the year ago quarter.
Gross profit margins in the fourth quarter were approximately 48% of revenues compared to approximately 44% for the prior year fourth quarter. The improvement in gross profit margins is attributed to efficiencies in raw material sourcing, product waste reduction and benefits from improved leverage across promotional allowances. Q4 was the fifth consecutive quarter that we were operating within the Pepsi distribution system and we expect to continue driving efficiencies while maintaining our number one goal of keeping the shelf stock to meet strong consumer demand. Sales and marketing expenses for the quarter were approximately $80 million, a decrease of approximately 11% compared to the fourth quarter of 2022. The decrease was due to prior year cost associated with the termination of legacy distributors as part of the transition to the Pepsi network.
We continue to invest behind our growth in Q4, incurring sales and marketing costs in line with historical rates. As a percentage of sales, sales and marketing was 23% compared to 29% prior year adjusted for distributor termination expenses in 2022. We plan to continue investment in our sales and marketing and plan a similar spend as a percentage of sales in the first quarter of 2024. General and administrative expenses for the 3 months ended December 31, 2023 were approximately $27 million, an increase of 24% relative to Q4 2022. As a percentage of sales, G&A was 8% compared to 12% in the prior year as we continue to leverage our G&A against our significant growth. And looking back at prior periods, even with historical growth rates, we do tend to see some seasonality within the fourth quarter relative to the third quarter.
We saw similar activities in the fourth quarter, whereby we are not able to capitalize on the great work from our sales and marketing teams as it relates to displays on hand and other promotional activities that we are able to take advantage of during the summer selling season. Even with this, we ended the year strong and have since well exceeded the 10 share marker as noted by John earlier in the call. Looking at the full year 2023, as you will see in the 10-K issued this morning, we made great progress in our remediation efforts around our internal control environment. We were successful in remediating the prior period controls associated with IT general controls as well as creating and delivering a much more robust co-sell environment. Although we made huge strides in 2023, there are still a handful of areas where components of larger areas of the control environment needs some additional time to fully remediate.
With that said, I’d like to thank the entire Celsius team for the great effort and in particular, our finance and IT teams for their focus and dedication to this matter in 2023. I look forward to our continued progress in 2024. Now to the results. Revenue for the 12 months ended December 31, 2023 was approximately $1.3 billion, an increase of 102% from $654 million for the 12 months ended December 31, 2022 driven by our North American business. North America full year 2023 revenues were $1.27 billion, an increase of 105% from the same period in 2022. International revenue grew 52% to $55 million in 2023 relative to full year 2022. Gross profit for the 12 months ended December 31, 2023, increased 134% to $633 million, up from $271 million in the prior year period.
Gross profit margin in the full year of 2023 were approximately 48% of revenues compared to approximately 41% for the prior year period. The improvement in gross profit margins is attributed to lower package and raw material costs. As things stand today, we would expect ‘24 gross profit margins to be fairly consistent with the Q4 and full year margin profile, confident in maintaining the great progress that was made in 2023. We are always shooting for the moon but with the uncertainty around the macro environment from both an operational and promotional perspective, we believe that it is prudent to give ourselves some additional time into 2024. As a percentage of sales, sales and marketing was 20% in the 12 months of 2023 compared to 24% in the prior year same period, adjusted for distributor termination expenses.
This demonstrated the leverage that we can contain within our sales and marketing costs. We made great progress in 2023, but we are now moving to the next level and the next target beyond 10% market share. And to do that, we will need to continue to invest in our growth and our brand, as seen with the multiple Super Bowl activations that we did in February, our recently announced multiyear partnership with Ferrari within Formula One as well as our multiyear MLS partnership. G&A expense as a percentage of sales was 8% for the 12 months of 2023 versus 12% in the prior year same period. We will continue to invest in our back shop and build out a team that is value-added to operations, sales and marketing programs. There will be opportunity to further leverage G&A in 2024 and beyond, but it will be at a thoughtful and methodical pace.
Focusing now on liquidity and capital resources. As of December 31, 2023, we had cash in excess of $755 million and net working capital in excess of $928 million. Cash flows provided by operating activities totaled in excess of $140 million for the 12 months ended December 31, 2023, which compares to $108 million in net cash provided by operating activities for the 12 months ended December 31, 2022. We will continue to invest in our business.
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