U.S. Markets open in 6 hrs

Edited Transcript of CELH earnings conference call or presentation 9-May-19 2:00pm GMT

Q1 2019 Celsius Holdings Inc Earnings Call

DELRAY BEACH May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Celsius Holdings Inc earnings conference call or presentation Thursday, May 9, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Cameron Donahue

Hayden IR, LLC - Regional VP and Partner

* Edwin F. Negron-Carballo

Celsius Holdings, Inc. - CFO

* John Fieldly

Celsius Holdings, Inc. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Aaron Grey

* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* Jeffrey Scott Cohen

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research

* Jeffrey Wallin Van Sinderen

B. Riley FBR, Inc., Research Division - Senior Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings and welcome to the Celsius Holdings First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Cameron Donahue with Hayden IR. Thank you. Mr. Donahue, you may begin.

--------------------------------------------------------------------------------

Cameron Donahue, Hayden IR, LLC - Regional VP and Partner [2]

--------------------------------------------------------------------------------

Thank you and good morning everyone. We appreciate you joining us today for Celsius Holdings first quarter earnings conference call. Joining me on the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, Chief Financial Officer. Following the prepared remarks, we will 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 issued a press release today. All materials are available on the company's website at celsiusholdingsinc.com under the Investor Relations section. As a reminder, before I turn the call over to John, the 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 today, May 9, 2019. 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, Celsius Holdings undertakes no obligation and disclaims any duty to update any of these forward-looking statements. We encourage you to review in full our Safe Harbor disclosures contained in today's press release and our quarterly filings with the SEC for additional information.

With that, I'd like to turn the call over to President and Chief Executive Officer, John Fieldly, for his prepared comments. John?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Cameron. Good morning everyone and thank you for joining us today. 2019 is off to a strong start as we execute our strategy of positioning Celsius as a global beverage leader for health-minded consumers. In the quarter, we made significant progress on important drivers of growth for our business, launching with new customers as well as major national expansion with both Target and CVS, increased distribution and kicked off new marketing programs aimed at building our brand awareness. This progress in conjunction with the accomplishments and achievements in 2018 fueled a 41% increase in North America revenues.

Another important accomplishment on the international distribution front this quarter was the finalization of our China royalty agreement, which will allow us to recoup our $12.2 million investment and which positions Celsius to further grow our market share in this important market at a risk-adjusted basis.

This quarter, we have once again demonstrated our ability to enter new channels, on board new distribution partners and optimize our routes ensuring product availability. Top line performance in the first quarter was driven by continued expansion in North America. In this geography, we announced new high-profile launches and expansions with leading national retailers, including Target, CVS, Rite Aid, Food Lion and DICK'S Sporting Goods. In addition, we made further progress in the fitness, military and vending channels in North America. National rollouts with both Target and CVS are a direct outcome of the accelerating market demand for our portfolio.

After a successful test where we saw strong sell-through, Target has now increased the number of flavors to 3 SKUs, Sparkling Watermelon, Kiwi Guava and Orange as well as non-carbonated Green Tea Peach Mango to over 1,200 of their 1,800 domestic locations. And in April, we will be expanding to over 1,500 locations. Our national expansion in CVS, our first entry into the drug channel, where we tested initially with 550 stores. We are now have expanded to over 7,500 stores nationwide with 3 flavors in the cold door. Both these expansions are underway. Celsius further expands their domestic presence in national drug retail footprint with the addition of Rite Aid during the quarter, where we are currently placed in over 2,300 of their 3,000 stores. Together with CVS and Rite Aid, we now have approximately 11,000 domestic retail locations in the drug channel, representing a significant new opportunity for us to increase our product availability and greater visibility for our portfolio of premium fitness beverages. Additionally, significant opportunities remain with other key drugstore chains in the channel.

I'm also pleased to announce that we secured additional distribution agreements with partners, including Anheuser-Busch, Keurig Dr. Pepper and MillerCoors independent network partners. These new distribution agreements further expand our availability into new regions and will allow us to maintain our shelf presence in key retailers, where we are out selling the warehouse replenishment systems.

In addition, subsequent to quarter end, we signed one of the strongest and most transformative agreements to date, announcing a new distribution agreement with Big Geyser, which will significantly increase our presence in the massive New York City metropolitan area. Big Geyser has been instrumental in building numerous brands over the years. And it's New York's largest independent non-alcoholic beverage distributor serving over 20,000 locations in the market. We are eager to partner with them and build out New York City together, where we already have seen greater brand acceptance in the health, vitamin specialty and fitness channels.

Functional beverages have emerged as one, if not the fastest-growing categories in the beverage industry. Busier lifestyles and a focus on health and wellness are driving the need for convenient alternatives that give consumers a way to manage their well-being while they're on the go. Consumers are increasingly seeking beverage that help them achieve their health and wellness goals.

Celsius is positioned not only at the forefront of this global trend, but also has the ability to benefit across more channels than any other beverage company, including over big-box retail, convenience, grocery, drug store channel, fitness, health and wellness, vitamins specialty, sporting goods, military and healthy vending. Stemming from this opportunity, we have also, for the first time, been recognized by leading industry sell side research analysts and included in both their industry reports as well as in updated reports on larger competitors, such as Monster, which they cover, where Celsius has been referenced as both an industry threat and a competitor to the growing segment.

We are outpacing the category growth in the convenience channel by a measure of 4.3 times, and we see massive opportunity as we continue to expand and further our reach in the category. Per the latest SPINS 52-week ending March 24, 2019 convenience scan data brand CELSIUS grew 38.4% over the prior year and is ranked one of the top 15th brands in the category with only an ACV up 10.8%, that's all accumulated volume, which validates the strong demand for our portfolio. Additionally, we continue to see strong growth in all channels of trade. The military channel continues to perform well. We are very optimistic about further expansion in the channel. Also our dedicated team of professionals and our fitness channel have also delivered higher volumes in key accounts as 24 Hour, Gold's Gym, Planet Fitness, Movie King and many others.

Our vending channel, which is just barely over a year old, is positioned to deliver strong growth in 2019 with expansion to over 10,000 locations nationwide through a dedicated team especially focused on this channel. To date, CELSIUS has been added to the vending machines in micro markets of refreshments solution providers, which include Ac Food, Canteen, First Class Vending, [4 Star service group], Southern Refreshment, and CELSIUS is available for distribution throughout the United States in the vending channel through Vistar. This channel offers significant opportunity and reach, targeting new customers, new consumers, such as work, at-work location environments, universities and travel centers.

Lastly, our e-commerce channel continues to deliver exceptional performance as we continue through our sales efforts targeting consumers where they live, work and play. In addition, during the quarter, we expanded our CELSIUS portfolio lined up with a great tasting sparkling Fuji Apple Pear. This delicious refreshing flavor is perfect for our lineup as we further position the brand as a proven of function healthier alternative to traditional energy drinks out there today. Fuji Apple Pear broadens our appeal and reach, and has quickly become a top-selling flavor in the fitness channel during the first quarter where we initially launched it. We anticipate national roll out and expansion with this new flavor, Fuji Apple Pear, in key retailers on the next planogram resets.

I'd like to thank our dedicated sales team in North America for their ongoing success in expanding our channels of trade, including health and fitness, grocery, broadening our expansion into the drug store, mass merchant, military and vending, as well as increasing the number of SKUs in each channel of trade. I'd also like to acknowledge the success of our team in Europe, where they grew sales at 20% during the quarter from the prior year. New flavors launched in European market have been very well received, leading to channel growth and expansion, and turning around the decline we have previously seen in the region. In January 2019, we launched a new great tasting flavor called Peach Vibe, which has quickly become a top-selling flavor in the region. We have a strong pipeline of planned innovation, supported by key targeted marketing programs to expand and capture more market share in the European market.

In Asia in March, we closed a definitive agreement to establish a royalty licensing and repayment of an invested agreement with Qifeng Food Technology. This creates a risk mitigated method to advance our business in China and grow our share in this important market. Under the agreement, Qifeng Food Technology has exclusive rights to manufacture, market and commercialize Celsius branded products in China. In exchange, we will receive a licensing fee roughly approximately $6.9 million over the next 5 years, at which point it will transition to a volume-based royalty fee.

The initial royalty fee is based on discounting initial anticipated volumes by 50%. In addition to the fixed royalty fees, Qifeng Technology will repay the $12.2 million of invested capital over the initial 5-year term. Through this agreement, we have created a stronger collaborative relationship between the companies to capitalize on the considerable opportunity and consumer demand in the region. Last year, we significantly expanded our presence in China through our existing partnership with Qifeng Foods Technology, who has been instrumental in our success and growth in the region. Through their experience, relationships and network of distribution partners, Celsius is now available in over 63 cities and over 65,000 locations across China.

Moving to our marketing and brand development initiatives. We announced our first partnership in the esports field with [Echo Fox], a premier esports organization and media company who signed Celsius as its official performance energy drink sponsor. Echo fitness is home to some of the world's top esports athletes and field teams across a variety of titles. The organization's focus on player development, competitive achievement and effective training practices aligns with our brand mission to provide functional healthy fitness drinks to a new generation of athletes. Fierce competition has motivated players to adopt strict physical and mental training regimes to stay sharp, and Celsius will help them achieve their peak performance.

Marketing activities uptake continually remain active with local demos, events and programs. During the quarter, we executed over 500 targeted demos at key retailers and attended large consumer and trade events, including health and wellness expos, Arnold Classic, Europa Games, 7-11 Experience and Expo West, just to name a few.

Our marketing programs for net 2019 include an increase in targeted digital social media, and influencer marketing programs and campaigns, as well as expansion of our sampling programs across the country in targeted markets. Starting in April, we remain active with events and programs such as Tough Mudder, a series of competitive events for a range of athletic ability. We will be attending over 23 cities and we'll be providing samples to over 200,000 health-minded consumers across the country further expanding our community. In addition, we will be conducting targeted guerilla programs in key markets and interacting with consumers.

Continued focus on key drivers of growth led to record growth in the first quarter. Revenue grew 20% to $14.5 million, led by domestic growth of 41% to a record $11.4 million during the quarter. International revenues decreased by approximately $900,000 to $3.1 million for the quarter. As mentioned earlier, we had growth in Europe and turned around declining sales in the region, which was, however, offset by a $1.3 million revenue reduction from China as we transition to a royalty licensing model. Consumer demand is very strong in China and we are pleased to shift to this model in the region that allows us to focus our working capital in North America and other emerging markets. We are leveraging our growth drivers, while remaining a lean and performance-driven organization, capitalizing on today's health and wellness trends. Our innovative portfolio of fitness board products is increasingly well positioned to disrupt the energy category. Our brand is resonating with today's health-minded consumer and is gaining considerable momentum. I'm excited for our prospects in 2019.

I will now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer, for his prepared remarks. Edwin?

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [4]

--------------------------------------------------------------------------------

Thank you, John. For the 3 months ended March 31, 2019, revenue was approximately $14.5 million. A considerable increase of $2.4 million or 20% from $12.1 million for the same period last year. The revenue increase of 20% was basically attributable to continuous strong growth of 41% in North American revenues driven by double-digit expansion in existing accounts as well as new distribution. European sales achieved a solid 20% growth, mainly as a result of the launch of new flavors that have been very well accepted in the market.

Asian revenues reflect a change in business model and therefore show a considerable reduction of approximately $1.3 million when compared to the prior year results for the 3 months ended March 31, 2019. The total increase in revenues from 2018 to 2019 was mainly related to increases in sales volume as opposed to increases in product pricing. Excluding the China results, revenue from continuing operations reflected an increase of 35% during the first quarter of 2019.

For the first 3 months ended March 31, 2019, gross profit increased by approximately $960,000 or 20% from $4.8 million in 2018 to $5.7 million for the first quarter of 2019. Gross profit margins remain in line at 39.5% for the 3 months ended March 31, 2019 when compared to the same period in 2018. The increase in gross profit dollars is mainly related to increases in sales volume as opposed to increases in product pricing.

Sales and marketing expenses for the 3 months ended March 31, 2019 were approximately $3.6 million, a decrease of approximately $2 million or 36% from $5.6 million in the same period in 2018. The decrease is mainly due to the change in business model in China, which does not required direct marketing investments. The actual reduction in marketing investments amounted to $2.8 million, which was partially offset by increases in sales expenses of $385,000, storage and distribution expenses of $186,000 and increases in headcount investments of $250,000.

General and administrative expenses for the 3 months ended March 31, 2019 were approximately $2.6 million, an increase of $620,000 or 31% from $2 million for the 3 months ended March 31, 2018. The increase was primarily due to stock option expense, which accounted for 95% of the variance or $588,000. There were increases in other administrative expenses of approximately $103,000, mainly related to insurance expense, professional fees and depreciation, which were partially offset by savings in R&D costs of approximately $18,000 and lower compensation expenses of $53,000 as the prior year results included their retirement compensation for the prior CEO.

Total other income increased by approximately $12.2 million for the 3 months ended March 31, 2019, mainly related to the recognition of the note receivable from our China distributor. As per the agreement, we will receive the net investment made into China over the next 5 years. Additionally, we will also receive interest income, which amounted to approximately $90,000 for the 3 months ended March 31, 2019.

As a result of the above, for the 3 months ended March 31, 2019, Celsius had net income of approximately $11.7 million to common shareholders or $0.20 per share based on a weighted average of 57,155,445 shares outstanding. In comparison, for the 3 months ended March 31, 2018, we had a net loss of approximately $2.8 million and after giving effect to preferred stock dividends of approximately $83,000, a net loss available to common shareholders of $2.9 million or $0.06 per share based on a weighted average of 47,449,553 shares outstanding.

As of March 31, 2019 and December 31, 2018, we had cash of approximately 2.8 and $7.7 million , respectively, and working capital of approximately 23.8 and $19.6 million , respectively. Cash used in operations during the 3 months ended March 31, 2019 and the year ended December 31, 2018 total approximately 6.8 and $4.3 million , respectively, reflecting investments in inventory, prepayments and deposits, as well as the settlement of marketing expenses related to the China change in business model.

As such, adjusted EBITDA for the first quarter of 2019 was approximately a positive $878,000 compared to a loss of $2.1 million in the first quarter of 2018. In arriving to our adjusted EBITDA results for the 3 months ended March 31, 2019, we included favorable adjustments for depreciation and amortization of $107,000, net interest expense of approximately $30,000 and also backed out the gain of $12.2 million related to the note receivable from China. As such, our net non-GAAP adjusted EBITDA for the quarter was $717,000 higher than the 2018 results. Using this apples-to-apples comparison, adjusted EBITDA increased over 400%, a significant improvement year-over-year when compared to the first quarter of 2018. We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance. To that effect a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release.

That concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Jeff Van Sinderen with B. Riley FBR. Please proceed with your question.

--------------------------------------------------------------------------------

Jeffrey Wallin Van Sinderen, B. Riley FBR, Inc., Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

Good morning, everyone and congratulations on the strong results. John, I wonder if you can speak a little bit more about what your new distributor in New York area can mean for your business in that region. And maybe you could update us on the latest trends in business at Target and CVS? I know you had really successful roll out there. And then any other major customer that you feel is worth highlighting?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [3]

--------------------------------------------------------------------------------

Sure. Thank you, Jeff. In regards to the Big Geyser announcement, we're very excited about that opportunity in the New York City metropolitan area. Big Geyser has been instrumental on building brands from vitaminwater by several others in the area. Just really a great team there, dedicated team, and focus and aggressive. They have a very focused sales organization. And we've actually started to kick off -- next week is the official kick off with them. We're really excited. I mean, the challenge we had in New York, we've had limited distribution except outside of the vitamin specialty and health clubs. And although we have authorization in 7-11 and CVS and Target, due to the other DSD brands, we are really having a difficult time keeping product on the shelf, given our ability to use the -- really the only route to market in that region is through the wholesalers and/or through the warehouse of those existing retailers. So we're expecting a great opportunity. Edwin and I were up in New York. We do spend some time up there speaking with investors and I will tell you that everyone is aware of Celsius, Barry's Bootcamp, Equinox, 24 Hour, Gold's Gym and -- want to buy the product and look forward to having it more available throughout the city, so perfect demographic for us as well and we're really excited about that. In regards to Target, I did make some comments on Target and CVS during the prepared remarks. Target is going very well. We have been expanded into 1,500 stores starting in really towards the end of April, May. So we've now expanded. If you recall, we started off with 500 store test and moved to 1,200 and now we're expanding even further, with 1,500. Now I know, last quarter when we had our earnings call, there were questions about out of stocks. We're still seeing out of stocks at Target. Their replenishment systems are having a really hard difficulty keeping up with the movement and the momentum. So, we're actually talking to them currently about looking at other alternatives at moving some regions to a DSD model where we have a DSD presence and coverage. So that is another exciting avenue to give to these new -- and offer to these new DSD partners we're bringing on board, so really excited about Target. We're going to add another flavor and we're talking to them on gaining cold availability as well towards the back half of the year. So we see Target as a great partner for Celsius. CVS has been a great partnership as well. Still early. We're still early with both of these retailers and partners, but we are rolling out nationally in CVS. You'll find 3 flavors and hopefully a store near you shortly, if it's not already on the shelf. Initial feedback has been extremely positive. Last month and in the end of March, we did really a sampling at the headquarter where we sampled over 25 CVS corporate employees and they said, we're one of the most liked brands that have ever been sampled at the headquarters. So really getting a headquarter support behind us, which is key, and we're excited about that offering. This is just the beginning with the 3 flavors in all stores. We're looking for a really a long-term partnership. And then also with Rite Aid now with national distribution about over 2,000 locations of their 3,000 really has opened the door to really put Celsius in the drug channel in a big way. We are talking with Walgreens as well, and we look forward to partnering with them. But lot of opportunity in this new emerging channel for brand CELSIUS in 2019. And regards to new customers, we did mention at the end of [2019's] earnings call, we did have marquee accounts, we would be naming and we have named a few already up to this point. We do have several more, we will be announcing over the next several months as we roll them out, and that's going to be in the convenience channel as well as the grocery channel. So, we are bringing on additional accounts. I think the key is when you look at our overall volumes as well, Jeff, is that it was great to see and we continue to see that SPINS IRI data showing that strong 38% growth, an off-tick coming from the register. So, we're really excited about the momentum we have built and the opportunity that lies ahead.

--------------------------------------------------------------------------------

Jeffrey Wallin Van Sinderen, B. Riley FBR, Inc., Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

Okay. Good to hear. And then could you update us on the co-packer picture. What you have set up there? And I guess how the revised set-up should benefit you during the peak selling season?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [5]

--------------------------------------------------------------------------------

Yes, one thing we're monitoring very closely. Our inventories are up, probably about the highest they've been. That's strategically done to make sure that we can fill the pipe orders and support these new customers coming on board. This is -- right around this time last year is when we started to see a really big pickup as well heading into beverage season. So, we are preparing for that as well. We have solidified our relationships, we had several Refresco in the office, not only a couple of months ago, they were here again. We're building a really strong relationship with Refresco. We do have 4 co-packers that are active. We feel, at this stage, we have an ample supply of product we're going to be able to deliver for 2019 and we're building out our co-packer network for 2020 and beyond.

--------------------------------------------------------------------------------

Jeffrey Wallin Van Sinderen, B. Riley FBR, Inc., Research Division - Senior Analyst [6]

--------------------------------------------------------------------------------

Okay, great. And then, anything else you can give us on the Nordic region. The European region, obviously, saw a good turnaround there, which is better than we're expecting. And then maybe just touch on outside the Nordic region, any plans or any strategy that you can offer on other parts of Europe?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [7]

--------------------------------------------------------------------------------

Sure. Thank you. Regards the Nordics, they did had a really good first quarter, as we mentioned. They had a new launch with a flavor called Peach Vibe, which was really successful. It seems to be the overall downturn we saw in 2017 and 2018 has stabilized. We're working with them really closely to continue to make sure we stabilize that Nordic operations and protect our that revenue that's there. So we're working with them closely. We're really focused at this point on North American expansion. There's opportunities throughout Europe, but with the limited resources we have -- as I mentioned, we're a really lean team. There's so much opportunity right now in North America with the expansions that's going place. We are very much focused on North America. We do have -- through our Nordic partner, there is activities and store expansion going on, taking place in Finland and Norway. But outside of that, at this point, we are really focused on North America. China, we talked about really the change in the business model to a royalty-based model. So that does free up additional resources as well and capital. And during the first quarter, we added over $800,000 positive adjusted EBITDA for the quarter. So we are very excited about that, going back truly driving profitable top line revenue growth.

--------------------------------------------------------------------------------

Jeffrey Wallin Van Sinderen, B. Riley FBR, Inc., Research Division - Senior Analyst [8]

--------------------------------------------------------------------------------

Yes. It's great to see the improvement in EBITDA as well. Thanks for taking my questions. I'll take the rest offline. Continue to success.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [9]

--------------------------------------------------------------------------------

Thank you, Jeff. Appreciate it.

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [10]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [12]

--------------------------------------------------------------------------------

Hi, guys. Thanks for taking the questions. John could you talk about the powder packs out there now. How many flavors are out there and what's your current distribution channels on those?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [13]

--------------------------------------------------------------------------------

Thank you, Jeff. Yes -- we've been experimenting with a variety of new flavors. We actually have a new flavors in the pipeline for our powder products as well. We're going through testing through our innovation meetings and innovation team. We do have 2 flavors that we launched in late 2018. The cranberry lemon and a coconut which is really great flavors. Main distribution outside of the orange and the wild berry is it's mainly in the health vitamin specialty channel as well as health clubs, and it's been doing very well. We got some -- Matt and his team has some very interesting marketing programs around that, further integrating it into smoothies, that's being a big opportunity with us. It actually is doing very well at Smoothie King as well. So we're working with them in conjunction on getting the brand out there more because there's a lot more to do with our powder products; they're great on the go; great flavor. And we do have plans for that on the (inaudible), but we're very much focused on the RTDs where the big opportunity right now on the RTD is driving about 85% of our revenue is the overall arching focus and then also bringing in those powder products as additional points of disruption.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [14]

--------------------------------------------------------------------------------

Okay. I got it. And can you talk a little bit about international and how we should think about on your modeling for international for the year, ex-China. I know that this quarter was very solid. Q2 is a super easy comp off last year's $0.77 million for the second quarter. How should we kind of think about modeling the full year on the international side?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [15]

--------------------------------------------------------------------------------

Yes, I think on a full year on the international side, I think you have to break it out by China and then Europe. Obviously, the China will be more in line with the royalty model, as we continue to ramp volumes as we progress through the launch cycle, as we continue to expand in China. Europe, we've stated prior and within our European market really about stabilization within the region and we anticipate that move to more normalized levels as we stated in the past. We do have a strong presence with ACV there. We don't see a tremendous amount of expansion at this point. We're using all of our capital resources for North America, so more of a stabilization.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [16]

--------------------------------------------------------------------------------

Okay, got it. And then a couple of housekeeping items. The jump in shares from Q4 to Q1, share counts up to 57.1 million, what was that from?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [17]

--------------------------------------------------------------------------------

That was mainly associated with the conversion of the preferred shares at the end of 2018. I'll let Edwin -- move the call over to Edwin.

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [18]

--------------------------------------------------------------------------------

Yes, correct. Yes, basically related to, as John just mentioned, conversion of preferred stock to common stock to the tune of about 6 million shares. So that was basically of the main jump there.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [19]

--------------------------------------------------------------------------------

Okay, I got it...

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [20]

--------------------------------------------------------------------------------

That was Carl DeSantis preferred shares. So now that really cleans up the cap table on the balance sheet. There is no more preferred stock on the balance sheet. So that fairly cleans up that component.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [21]

--------------------------------------------------------------------------------

Got it. And Edwin, so you've got the [12.27] on the gain for Q1. So, we shouldn't see any further gains from the note or we should see some positive interest on that going forward, is that right. How should we are modeled that over the balance of this year and going forward?

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [22]

--------------------------------------------------------------------------------

Correct, correct. Yes. We booked a gain now, which is a biggest portion, obviously, as it relates to booking the note receivable. And then going forward, as John mentioned, we're going to have royalty revenue and then some interest income in the range, I would say, of about $90,000 in that range. Keep it in mind that it's denominated in local currency in China local currency. So there's going to be some variations or translation effects, but we expect that the interest would be in the range of $90,000 to $95,000 on a quarterly basis.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [23]

--------------------------------------------------------------------------------

Got it. Okay and then lastly for me, could you are talking a little bit about the margins out there. I know that you said that they're being driven mainly from volumes, so how should we look going forward? Should we see some improvement, modest improvement, as volumes increase, is that a good way to think about it?

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [24]

--------------------------------------------------------------------------------

Sure. Yes. We're looking to have some improvement in margins. As John mentioned, we are partnering with co-packers and leveraging that. So also when we see those benefits flow through. The fact is well that -- some volume increases are expected as well. We are hoping to be in that same range, 39% to low-40s going forward.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [25]

--------------------------------------------------------------------------------

And I think just to jump in there as well, some of the improvements that we're making, that is more of a long term, that's the long term. In the short term, as Edwin mentioned, I mean we're probably going to be right around that range. We do have these new customers coming on board, especially these new DSD partners where we have launch plans and initiatives to gain immediate shelf space for the product. So we are doing a little bit heavier promotions in the beginning of these relationships to make sure that we're able to get the product shelf appropriately as well as incentive, and those run through the top line revenue number, therefore affecting our gross profit margin. But we are very much focused on improving margins and driving those levers for, again, further efficiencies on an optimal run rate, but we're probably be on the lower end of those ranges as we're going through this growth cycle with some new accounts and distribution coming on board.

--------------------------------------------------------------------------------

Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [26]

--------------------------------------------------------------------------------

Okay. Perfect. Great quarter, guys. Thanks for the update.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [27]

--------------------------------------------------------------------------------

Thank you, Jeffrey.

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [28]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

--------------------------------------------------------------------------------

Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [30]

--------------------------------------------------------------------------------

Thanks. Good morning, guys. How are you?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [31]

--------------------------------------------------------------------------------

Good Morning.

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [32]

--------------------------------------------------------------------------------

Good morning.

--------------------------------------------------------------------------------

Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [33]

--------------------------------------------------------------------------------

Okay. So just a couple of questions on China. So the volume at least in the first quarter, if you want to also give the sales. What was the unit volume, was that up or down versus first quarter '18?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [34]

--------------------------------------------------------------------------------

We haven't really spoken about unit volumes, Anthony, in the past, but overall volume, as Edwin mentioned, revenues were up as a basis of volume, so volumes were up very much in line with overall pricing. We're running at the same overall discounts and allowances as we had in Q1 in the prior year. So the revenue growth we are driving is really driven by -- is the overall volume that you're seeing, especially in North America. The decrease in revenue that you're seeing on a consolidated basis is really to $1.3 million from China that we recognized in 2018 Q1 versus this year we're only recognizing the royalty component.

--------------------------------------------------------------------------------

Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [35]

--------------------------------------------------------------------------------

Got it. Okay. And then on the Geyser contract, obviously, that's a big contract. You mentioned John that that's starting. Can you talk a little bit about the cadence of the roll out. Obviously 20,000 locations is a huge opportunity, but how do you expect that roll out to play out in 2019?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [36]

--------------------------------------------------------------------------------

We have several key employees that are going to be working specifically with Big Geyser in the region. Our first phase of roll out is really to go after the key accounts. So that's going to be the grocery channel, where we already have authorizations, the drug channel, and 7-11. There is a lot of 7-11s throughout the city, so that's going to be a major focus for us to gain that shelf presence in those key accounts. And then from that point, we will backfill the other accounts as well as independents represent a large portion of that number as well. So, it's a combination. It's going to be a journey. Overnight we are not authorized in 20,000 locations. So we're tackling the key accounts first and then we'll be moving through the rest of the account list very strategically, doing route rights, leveraging really empowering and motivating their sales team to further drive Celsius and gain us that shelves presence.

--------------------------------------------------------------------------------

Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [37]

--------------------------------------------------------------------------------

Just as a follow up on that. John, I've heard the Geyser that they are a pretty tough negotiator. Is it safe to say that the gross margin on that is going to be a little bit less than your corporate gross margin but worth it based on the potential sales volume.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [38]

--------------------------------------------------------------------------------

We anticipate our margin to be very much consistent with other distributors. Our overall net margin that we have there, they actually called us through the process. So this is a very mutual benefit, mutual relationship and a really good partnership. So I think we're going to see -- you're not going to see margin deterioration because of Big Geyser by any means. This is a really good opportunity for both companies and we see a great opportunities that lie ahead.

--------------------------------------------------------------------------------

Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [39]

--------------------------------------------------------------------------------

Okay, excellent. Thanks very much. I'll get back in the queue.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [40]

--------------------------------------------------------------------------------

Thanks very much, Anthony.

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [41]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.

--------------------------------------------------------------------------------

Aaron Grey, [43]

--------------------------------------------------------------------------------

Hey, guys. Thanks for the questions and congrats on the continued top line momentum.

--------------------------------------------------------------------------------

Edwin F. Negron-Carballo, Celsius Holdings, Inc. - CFO [44]

--------------------------------------------------------------------------------

Thank you, Aaron.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [45]

--------------------------------------------------------------------------------

Thank you, Aaron.

--------------------------------------------------------------------------------

Aaron Grey, [46]

--------------------------------------------------------------------------------

So, first, I just want to dig a little bit deeper in terms of your market share. Given your ACV still pretty low, can you just give us some color in terms of what your in-store market share is for those stores that you've been in for 12 months. And then, again, how much adding the number of SKUs that a store has can really help to boost that market share? Thank you.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [47]

--------------------------------------------------------------------------------

Yes. Thank you, Aaron. You are correct. Our overall market share ACV at this stage is low. It's on the lower end, single digits in any of the channels that we look at today. And keep in mind, we're on a journey. Celsius was born in the diet nutrition, sports nutrition, coming from vitamins specialty, and really just started this journey really 3 years ago with the initial placements at 7-11 with 2 SKUs. And so we're just now moving out into really new channels for Celsius. If you look at the drug channel is something new for 2019, the mass merchants is new for 2019. So we don't have those type of data points at this phase. Where we do have data points is coming from the SPINS data in regards to the convenience channel where we see that ACV. Last time we reported the ACV number was at the end of the year and we're at a 10.3 ACV. So we have increased the ACV in that convenience channel to 10.8 and we also are sustaining and seeing those increased year-over-year growth rates in the high-30%, 38%, 39% growth rate. So those are really good indicators about how the product is turning. And when you go back and you look at that billboard effect, as you mentioned, adding additional flavors, how does that impact the overall off take of the product. We've been able to -- through a variety of data analytics and also monitoring sell-through in key accounts, by adding an additional SKU of Celsius, going from 2 to 3 not only adds one-third, it actually will almost double sales as you add that billboard. So we noticed several accounts where we're authorized with 2, moving that to a 4 level -- 4 SKUs, we actually quadruple sales in those accounts. So we are very much focused on gaining additional placements in these key accounts. And that's where the DSD strategy comes in, building this national DSD network is very key. That will allow us to gain additional shelf presence and really fight for that shelf space that Celsius warrants and we need to demand. So it's early in the stage to really get a true indicator on the household penetration, which is low and the market share in each one. We are at the early phases, but we are seeing great early indicators as we continue through our journey. Thank you, Aaron. For your question. We really appreciate...

--------------------------------------------------------------------------------

Aaron Grey, [48]

--------------------------------------------------------------------------------

That's really helpful. And just one more if I could. Could you just talk about the overall competitive dynamics and how those are evolving. We've seen some of your competitors come out with new products. I think Dr. Pepper came out with a zero calorie energy. We also seen Amazon come out with their own brand of energy drink, which is obviously a big channel for you guys. So can you just talk a little about how the competitive dynamics have been evolving and how that's been helping with your conversations or impact any conversations you've been having with potential retailers to put your products in?

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [49]

--------------------------------------------------------------------------------

Absolutely, Aaron. That's a great question. And that's truly what's been opening the door for Celsius. When you look at what's happening in the overall category and not only in the energy category, but in really all categories in food and beverage, we just saw -- we're seeing innovation really leading the way the category is going. And energy, people are looking for better for you healthier alternatives and that is allowing Celsius to get placed and gain that placement with our healthy functional position and really our fitness forward position has allowed us to open doors. Competition has been continuing to increase. As you mentioned, Amazon's coming out with products, we have Monster Reign has launched a fitness forward product, we have Bang, that's a company that's out there, doing very well, hasn't been able to gain a considerable amount of shelf space, we have C4. There's a lot of other players out there really going after this space. But Celsius have this authenticity really coming in being born and steeped in science, born in the diet nutrition, sports nutrition channel which is allowing us to take this journey and allowing the placements. Retailers today are more open than they ever been to shelf Celsius. And the reason is because this category is evolving, it's growing. The subcategory is emerging with a performance energy, fitness energy category, which is opening the doors for Celsius like CELSIUS HEAT to compete as well. So it's very exciting time in the category for the opportunities here and we are capitalizing on all these trends which is gaining additional shelf space and also bringing us to key DSD partners that are going to further bring Celsius to retails and further gain our presence in distribution with partners like Big Geyser, independent Anheuser-Busch, Pepsi and Keurig Dr. Pepper partner. So just a really exciting time.

--------------------------------------------------------------------------------

Aaron Grey, [50]

--------------------------------------------------------------------------------

Great to hear and best of luck. Thanks for the questions.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [51]

--------------------------------------------------------------------------------

Thank you very much, Aaron.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

That is all the time we have for questions. I'd like to hand the call back to management for closing comments.

--------------------------------------------------------------------------------

John Fieldly, Celsius Holdings, Inc. - CEO & Director [53]

--------------------------------------------------------------------------------

Thank you, everyone. On behalf of the company, I'd like to thank everyone for their continued interest. Our first quarter results demonstrates our products are getting considerable momentum. Our active healthy lifestyle position is a global position with mass appeal. We are building upon our, leveraging opportunities and deploying best practices. We have a winning product in a large market that consumers love. Our mission is to get Celsius to more consumers profitably. I'm proud of our dedicated sales team. As with them, our tremendous achievements and significant opportunities we see ahead would not be possible. In addition, I'd like to thank our investors for their continued support and confidence in our team. One final note, our management team will be presenting at 2 upcoming investor conferences, first being the B. Riley FBR Conference in Hollywood, California, May 22 and 23, and the Jefferies Consumer Conference in Nantucket on June 17 through June 19. We will also be hosting our Annual Shareholder Meeting on May 16 in Boca Raton. And we look forward to seeing many of you at these upcoming events. Thank you everyone for your interest in Celsius and have a great day.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.