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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