BOCA RATON, FL / ACCESSWIRE / May 3, 2017 / Celsius Holdings, Inc. (CELH), the makers of CELSIUS®, a leading fitness drink, today announced that it will release financial results for the first quarter ended March 31, 2017 on Thursday, May 11, 2017 after the market close. Management will then host a conference call that same day at 4:30 pm Eastern Time to discuss the results with the investment community.



Q1 2017 Earnings Call
Confirmation #13661610

Operator: Greetings and welcome to the Celsius Holdings, Inc. Q1 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Mr. Cameron Donahue, Partner of Hayden IR. Thank you. You may begin.

Mr. Cameron Donahue: Thank you, and good afternoon, everyone. We appreciate you joining us today for Celsius Holding’s first quarter 2017 earnings conference call. Joining me on the call today are John Fieldly, Interim Chief Executive Officer and Chief Financial Officer, and Vanessa Walker, Executive Vice President of Sales and Marketing. Following the prepared comments, we will open the call to your questions, and instructions will be given at that time.

We filed the quarterly reports with the OTC Markets and issued a press release today. All materials are available on the company’s website at in 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 this call may contain forward-looking statements which are based on forecasts, expectations and other information available to management as of today May 11, 2017. These statements involve numerous risks and uncertainties including many that are beyond the company’s control. Except to the extent required by applicable 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 disclosures contained in today’s press release and our quarterly filings with OTC Markets for additional information.

With that, I’d like to turn the call over to John Fieldly for his prepared comments. John?

Mr. John Fieldly: Thank you, Cameron, and good afternoon, everyone, and thank you for joining us today. Our financial results reflect a solid start to our ongoing business operations in 2017. Our revenue for the first quarter was $6 million, a 63 percent increase over the first quarter of last year, driven by both solid domestic and international growth.

Domestically revenues increased 81 percent to a record 4.8 million for the quarter, demonstrating strong demand for our products where we saw continued strong reorders from existing accounts and positive acceptance of the launch of our second line in the product portfolio, Celsius Heat.

This new trainer’s grade line launched in late March in Vitamin Shoppe and national fitness channel distributors, major club chains, and local studios. In addition, late in March, we launched a naturally sweetened and caffeinated Celsius line expansion to broaden our reach in the natural channel. We are very excited about these two new lines, which are well-positioned and are being–have received great acceptance by retailers and customers.

Internationally, we continue to maintain our market position as the number one fitness beverage and number two in energy according to Nielsen in Sweden and have continued our expansion into Finland and Singapore. With this growth, we continue our global expansion and are currently preparing for a Hong Kong launch in the third quarter of 2017 with our distribution partner A.S. Watson.

Also during the quarter, our rebranding and repositioning took hold with the addition of adding a global brand mark iconic C to our packaging and tagline Celsius Live Fit. This lifestyle rebranding is resonating well with consumers as we are pioneering our position as the leading global fitness drink designed for the active lifestyle.

In addition, I’m proud to report that Celsius has received its 18th award. Celsius was named Best Functional Drink at the recent 13th Innobev Global Beverage Congress organization by Zenith Global and held in Frankfurt, Germany last month. We are honored to have Celsius selected as the winner among many products from around the world. This award further validates our vision and mission at Celsius. All of this momentum is laying a solid foundation for continued growth in 2017 and beyond.

I am now going to turn the call over to Vanessa Walker, Executive Vice President of Sales and Marketing, to provide an update on our key growth drivers and new product launches.

Ms. Vanessa Walker: Thank you, John.

We had a very exciting first quarter. Our rebranding efforts took hold and the brand experience to surge a positive consumer and trade feedback as the new package debut on store shelves early January. In mature retailers, the year-over-year reorders appear to show double-digit growth, and retailers stand data indicates the same momentum.

The most significant aspect of the rebrand is the move to solidify Celsius’ position as a fitness drink, an on trend lifestyle brand with mass appeal for consumption at any time of day for those who wish to live an active healthy lifestyle versus a quick calorie burning diet drink.

The classification of diet or calorie burner or just healthy energy alone did not communicate the unique clinically proven attributes and brand benefits Celsius’ proprietary formula provides. Just as tagline Live Fit calls consumers to take action to invest in themselves, alternate copy delicious that delivers speaks to the brand’s greatly improved taste profile and clinically proven ability to deliver the claims made on pack.

Our pioneering of the fitness trained category has a clear advantage at retail as the trade is recognizing the consumers’ desires to move beyond traditional sugary or HSCS drinks in all categories. Retailers are seeking new ways to bring cutting edge function to their shelves.

Directionally, the year-over-year sales growth at mature direct ship retail chains, e-commerce and fitness channel drove the growth first quarter last year. However, in addition to the repositioning and repackaging, there were two exciting introductions in the first quarter. The first, the natural line extension of our flagship brand, which is naturally caffeinated and naturally sweetened and available in six flavors, three sparkling and three noncarbonated–the natural line extension debuted at tradeshow Show West Expo in Anaheim, California the first week of March as well as the launch of the second product line in our portfolio 16 ounce Celsius Heat. Also a dietary supplement, Heat includes the Celsius proprietary thermogenic formula MetaPlus Blend, which when combined with exercise is proven to accelerate metabolism, burn body fat and calories and provide energy.

Heat, however, also offers added caffeine and L-Citrulline which is a vasodilator. The new Heat line is available in three flavors – Inferno Punch, Blueberry Pomegranate and Cherry Lime.

We are excited with the initial orders and customer response from our national fitness channel distribution partners, major club chains and local studios. Celsius Heat was developed for athletic trainers, body builders, military personnel and endurance athletes. It is sold outside the fitness channel in the Vitamin Shoppe retail locations and their website, as well.

In preparation for the seeding and selling of the two new product introductions, the team expanded with two new hires, Director of the Fitness Channel, Bryan Alesiano, formerly of Glanbia Performance Nutrition, and the Director of the National Channel, Paula Burke, formerly of the KIND Snack Company. They will spearhead the launches of the new products in their respective channels.

On an international front, Celsius new C logo mark and updated can graphics have been adopted by Singapore and Hong Kong and will be seen in both markets this summer. Plans are underway to work with our Swedish partner Func Foods on evolving the can in the Nordic market to include the global brand market and other distinctive features and future packaging. These changes will bring together a cohesive branded appearance and positioning as a fitness strength, staging Celsius brand for global expansion.

I will now turn the call back to John to provide details on our financial results. John?

Mr. John Fieldly: Thank you, Vanessa.

Total revenues for the first quarter of 2017 were 6 million compared to 3.7 million for the corresponding period in 2016. This 63 percent increase was driven primarily by an 81 percent growth in domestic sales, which was driven by blended growth rates, a big 47 percent growth in retailer accounts, 237 percent growth in health and fitness accounts where the product continues to resonate well. In addition, we saw an 88 percent growth in internet retailer accounts. In addition, our international sales grew at a healthy 18 percent year-over-year.

Gross profit for the quarter was 2.4 million or 39.7 percent of revenue compared to 1.5 million or 41.3 percent of revenues for the corresponding period last year. The increase in gross profit on a dollar basis is primarily due to increases in revenue and reductions in cost of raw materials. The decrease in gross profit as a percentage of revenue is the result of a one-time charge of 235,000 associated with a write-down of old packaging and fees associated with our new label changes. Excluding these one-time charges, gross profit increased 230 basis points or 2.3 percentage points to 42 percent compared to the prior year period.

Operating expenses in the first quarter of 2017 increased 1.6 million to 4.2 million, up from 2.7 million in the prior year period. This increase was driven in part by an increase of 20 percent in sales and marketing from investments in human resources, warehousing costs and certain marketing programs. The increase in operating expense was also driven by an increase in general and administrative expenses, which included an extraordinary level of non-recurring items during the first quarter of 2017.

G&A expense for the first quarter of 2017 were 2.1 million compared to 875,000 in the first quarter of 2016. The increase in the first quarter of 2017 was driven by an increase of option expense of 200,000, investments in human resources, professional fees and increases in research and development costs compared to the first quarter of 2017.

In addition, the first quarter included–first quarter of 2017 included one-time charges of 490,000 for CEO retirement and transition costs and 328,000 of stock-based compensation for directors. The increase in general and administrative expenses was partially offset by reductions in travel expense.

Total other expense was 48,000 for the first quarter of 2017 compared to 57,000 for the quarter in 2016. This modest decrease was the result of lower interest expense on the lower outstanding balance.

Net loss to common shareholders for the first quarter of 2017 was 2 million or a loss 5 cents per share compared to a net loss of 1.3 million or 3 cents per share basic or diluted for the corresponding period last year. Net loss attributable to common shareholders is inclusive of preferred dividends. For the three months ending March 31, 2017 and 2016, the net losses include preferred dividends of 90,000 and 86,000, respectively.

Operating expenses for the quarter included non-cash expense, including depreciation, amortization and stock-based compensation, totaling approximately 787,000 compared to 258,000 last year.

Adjusted EBITDA for the quarter excluding one-time charges was 322,000–a loss of 322,000 compared to a negative adjusted EBITDA of 886,000 for the corresponding period in 2016. Adjusted EBITDA for the first quarter of 2017 excluded non-recurring items, as discussed earlier, the 490,000 for CEO retirement and transition costs and 235,000 for write-downs of old packaging and fees associated with the new label changes.

We believe information concerning adjusted EBITDA, a non-GAAP financial measure, enhances overall understanding of our financial performance. A reconciliation of our GAAP results to this non-GAAP measure was included in our earnings press release.

Turning to the balance sheet, as of March 31, 2017, the company had cash and cash equivalents of 20.9 million and working capital of 24.2 million. At this time, we believe our current cash balance will be sufficient to meet our anticipated cash needs over the next 12 months. Cash used in operations for the first three months of 2017 totaled 861,000 compared to 887,000 in the first three months of 2016.

Before I turn the call over for questions, I would like thank Tim Leissner, one of our board members, for his service to the board and company. Tim’s last day on the board was May 4th. On behalf of the board, management, shareholders, we thank Tim Leissner for his service over the last several years. In the interim to our next Annual Shareholder Meeting, I was appointed to his vacancy.

On another note, we will be presenting at the upcoming 18th Annual B. Riley Company Investor Conference in Santa Monica on Wednesday, May 24th. I encourage you all to attend. We look forward to meeting many of you.

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

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Our first question comes from the line of Paul Johnson [sp], private investor. Please state your question.

Paul, you may be on mute.

Mr. Paul Johnson: I’m sorry, can you hear me now?

Mr. John Fieldly: Yes. Hi, Paul. Good afternoon. Thank you–.

Mr. Paul Johnson: –Yeah. So, I’m wondering if you can just help investors understand why we’ve had fairly sudden departures lately of key people. First it was Gerry and now Tim Leissner. These are people that have been with the company for long time. Tim I think has invested a lot of money in the company. And while I appreciate your thanking him for his help, the elephant in the room is why would he suddenly so quickly. And I think you kind of need to answer those questions?

The second question, maybe related or maybe not, has to do with the expansion to China. I think I had asked on the last call why it’s going to take so incredibly long to go to Mainland China when you have Watson as a partner because distribution is everything, and we already have it.

And the third thing related to that is why do we need all this cash if we’re not going to be expanding into China and other areas. The sales are up big year-over-year, but sequentially, they’ve been flat for the last three quarters. It’s been sort of 6 million, 6 million, 6 million. So, I–anyway, I know those are unrelated questions, but if you want to take them one at a time, that would be great?

Mr. John Fieldly: Sure. Thank you, Paul. On the departures question, just starting off with Gerry, I think Gerry came to the company nearly on his 60th birthday. We all knew that this might be his last turnaround during that time. I’m not sure his retirement was a surprise to some folks. Over the last five years, he really built the first foundation for the company. We do have a solid infrastructure in place, and the company couldn’t be better positioned right now for the future. So, that was–unfortunately, it was–it felt like it was his time. That’s all I can really comment on that.

In regards to the recent Board of Director change with Tim, he stepped down for personal reasons. We do have Chris Lai who’s taking his co-chair role from Horizons. So, we still have a great Horizons presence on board, as well. So–and that’s just personal reasons, unfortunately. So, we’ll continue to move forward with that solid–with the management team that we have in place and our current of Board of Directors.

In regards to your comment in China, in regards to China, we continue to–as I’ve mentioned on prior calls, we will continue to leverage the networks of our investors. As we mentioned earlier, we are preparing for a launch in Hong Kong with A.S. Watson as that is our starting point, and we’ll look at expanding at that point. I’m not going to provide forward-looking information at this point as we continue to move forward, but at this time, we are focused on a successful launch in the third quarter in Hong Kong with A.S. Watson, and then we’ll take it from there at that point.

In regards to the private placement which took place, we are going to–we’re using that to fund our global expansion as well as product innovation as well as our working capital needs. So, portion of that, those funds that were raised through the private placement will be utilize for these expansion initiatives in Singapore as well as Hong Kong and also allocated to some of the product innovation that we just most recently came out with, Celsius Heat and our natural lines and also future innovation. Does that answer–?

Mr. Paul Johnson: –Okay. Yeah, no, you did answer the questions. Thank you. I guess the only other question was just why does–given how well things seem to be doing in all the various retail channels, particularly domestically, why have the sales–I know there’s some seasonality, but why have the sales been sort of flat for the last three quarters?

Mr. John Fieldly: Yeah, we continue to show great growth domestically. So, when you look at our domestic front and you look at the numbers we reported domestically, we continue to show great results domestically, over double-digit growth rates. And I might add that domestically, when you look at some quarter-over-quarter growth, which was mentioned last time on our prior call, domestically, we’ve grown on a quarter-over-quarter basis 37 percent when you look at fourth quarter domestic to first quarter results.

So, we are growing domestically. What is impacting the numbers is our–is mainly our international revenues, which is coming mainly from our Swedish distribution partner over the last several quarters. As we reported, they’ve had some contraction on their inventory levels. We are seeing good results there and expect good–consistent ordering patterns going forward. But, that has really impacted our over top line revenue number as we look at our quarterly growth over the last several quarters. So, when you look at just exclusively the domestic revenues, I think you get a broader picture, much better results on a quarter-over-quarter basis and year-over-year basis.

Mr. Paul Johnson: Fair enough. Thank you. Just one more question about any news on possible NASDAQ up-listing?

Mr. John Fieldly: Not at this time except what we disclosed before. We continue to pursue. We have submitted our application, as has been disclosed prior, and we’ll continue to move through the process. At this point in time, that’s all I have.

Mr. Paul Johnson: Very good. Thank you.

Mr. John Fieldly: Thank you, Paul.

Operator: Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question in today’s call, please press star, one on your telephone keypad.

Our next question comes from the line of David Benson [sp], private investor. Please state your question.

Mr. David Benson: Hello, Vanessa and John. It’s David.

Ms. Vanessa Walker: Hi, David.

Mr. John Fieldly: Hi, David.

Mr. David Benson: So, you’ve taken some significant time to prepare the Hong Kong launch, and I’m assuming a portion of that has gone into a sales and marketing strategy, in particular a digital strategy. Do you feel like you have the digital piece and the advertising piece in place, and is that different from the United States? Could you describe that a little?

Mr. Vanessa Walker: Sure. I’ll field that question.

Mr. John Fieldly: Sure.

Ms. Vanessa Walker: With regard to Hong Kong, I happen to be heading there on Saturday morning, 7:30 in the morning, wheels up on my way to Hong Kong. We do have agencies in Hong Kong, and we have people on the ground in Hong Kong who are looking after the launch. As well, we are partnering with on our connection at Horizon who are helping us with press, public relations and other trade and marketing events on a localized level that would speak more towards specifically the Hong Kong trade in press.

So, we do have a plan in place. We have a Hong Kong launch plan. We have an agency in place. We are localizing those events, and we are creating digital awareness. Next week when I arrive, we’ll be confirming and solidifying some of those plans which will be then put into motion as a teaser, in effect. But, the launch itself should be forthcoming in the beginning of the third quarter. So, we still have a bit of a ways to go. However, we have created plans, and we do have excellent partners, and we feel confident that we will have a nice launch.

Mr. David Benson: Great. And a follow-up question – assuming the launch in Hong Kong goes well, would you then launch in China in total or would you do something like launch in–and I’m gonna mispronounce this–Guangdong which is just north of Hong Kong, which of course is highly populated? How–have you laid any groundwork for how you would proceed in China proper based on what happens in Hong Kong?

Ms. Vanessa Walker: Well, China as a whole is an interesting place in terms of a launch. As you know, they go to business province by province.

Mr. David Benson: Yeah.

Ms. Vanessa Walker: However, we have not made plans as of yet to discuss launch plans or timing for China. I’ll turn that over to John.

Mr. John Fieldly: Yea, thank you.

Mr. David Benson: Okay.

Mr. John Fieldly: And thank you, David, for your question. At this point in time, we’re really just focused on executing Hong Kong at this point. We have to pace ourselves as we continue to move forward. We are looking forward to following, as I mentioned before, our investors’ networks. But, at this point in time, the team is extremely focused on this Hong Kong launch, which we’re very excited about.

Mr. David Benson: Great. Thank you.

Mr. John Fieldly: Thank you.

Operator: Thank you. Ladies and gentlemen, as a final reminder, if you would like to ask a question on today’s call, please press star, one on your telephone keypad.

Our next question comes from the line of Drew Justman with Madison Asset Management. Please state your question.

Mr. Drew Justman: Hello. Thanks for taking my call. I guess I’d like to follow-up on some of the China questions. I haven’t heard much of an update about Madam Wang and her distribution within China over the past couple of conference calls. Is there an update there, or has something changed?

Mr. John Fieldly: No, we continue–as I mentioned before on the last call, I mean, we’re really focused in on Hong Kong at this point, and we’re gonna continue to move through the networks as we move forward. Our main focus at this point is really focusing in on that launch, Hong Kong Macau [sp] launch. We’re still working on–continue to move forward with Singapore, as well. So, at this point in time, we don’t–I’m not gonna provide any forward looking information at this point in time. As information comes readily available, we’ll put that out to the public, but at this point in time, we’re really focusing on Hong Kong.

Mr. Drew Justman: Okay. I guess I’m confused why it was mentioned on prior conference calls then or in the Wall Street transcript. Madam Wang and the huge distribution opportunity in China was highlighted, so–but now, the company is not gonna–doesn’t want to discuss that?

Mr. John Fieldly: We’ll have to double check those transcripts. We are working. We have talks with Madam Wang, and we still continue to move forward, but I don’t have any tangible information to disclose at this time.

Mr. Drew Justman: Okay.

Mr. John Fieldly: We continue to leverage the networks, but there–I don’t have an update at this time.

Mr. Drew Justman: Okay, understood. The placement into Seven Eleven really did a nice job of kind of taking sales to another level higher. Without getting into specifics, is there expectation on the part of management that the Hong Kong launch can do similar like hire?

Ms. Vanessa Walker: I think, with regard to Hong Kong, I believe that it will have a fantastic positive effect for the overall region and the sales of the company and the international sales of the company. And I believe with our contacts, as John mentioned, [unintelligible] distribution partner A.S. Watson will be able to access the many key retail chains through their relationship. So, we are anticipating that we will have a successful launch, and that the product will–I believe your question was are we anticipating that it will do for us what Seven Eleven did for us in United States. We don’t know the answer to that, but we are planning for success.

Mr. Drew Justman: Understood. I just have a few more questions if you don’t mind I’m a little surprised to hear Sweden mentioned being a little bit weak again. I thought maybe that was in the rearview mirror, but sounds like they’ve kind of brought down some of their inventories. Are there plans for them to restock, or is this kind of the going run rate now for Sweden?

Mr. John Fieldly: Thank you. It’s really a timing of orders. We continue to maintain the number two position in energy and number one in fitness according to Nielsen. They actually–based on the last report, they increase their market share and continue to perform very well in the region. So, we expect them to continue to move towards a normalized ordering pattern. They have–they came a little bit below our expectations in Q1, but we anticipate that to continue on as it has in prior years.

Mr. Drew Justman: Okay. Two quick questions for me then – any update on Whole Foods? And I think the product was changed so to get placed in there. Is that still on track?

Ms. Vanessa Walker: Well, Whole Foods has been a target retail account for us, and obviously, it’s the Holy Grail of the natural channel being a key anchor. As we set our sights in creating the natural line extension, we hope that we will deliver the ability to access new consumers, future consumers through the natural channel and anchor the Whole Foods chain nationwide. So, we’re pitching them, and we will continue to set our sites on the buyer and the selling cycle and try to sell that in as part of our overall strategy to tackle the natural channel with the new natural line extension.

Mr. Drew Justman: Okay. Thank you. Last question for me – any general timeline on when a permanent CEO might be named?

Mr. John Fieldly: Thank you, Drew. Just to give an update on that, the Board is currently reviewing their candidates. They’re coming towards more the late rounds. I don’t have exact timing on that, but I know it’s most likely be in the near future.

Mr. Drew Justman: Okay. Great. Thank you for taking my questions. I appreciate it. Have a nice day.

Mr. John Fieldly: Thank you, Drew.

Ms. Vanessa Walker: Thank you.

Operator: Thank you. There are no further questions. That does conclude our question-and-answer session. At this time, I will now turn it back to Mr. John Fieldly for closing comments.

Mr. John Fieldly: Thank you. We are very encouraged by the first quarter 2017 results. We continue to build a firm foundation for our future. We will continue to build upon our core business and leverage opportunities both domestically and abroad. Thank you, everyone, for your interest today in Celsius, and have a good day.

Operator: This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.