Greetings, and welcome to the Celsius Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Fieldly. Thank you, Mr. Fieldly. You may begin.

Thank you. Good afternoon, everyone. We appreciate you joining us today for Celsius Holdings Fourth Quarter and Full Year 2016 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'll open the call to your questions and instructions will be given at that time. We filed our annual report with the OTC Markets and issued a press release today. All materials are available on the company's website at celsius.com 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 that this call may contain forward-looking statements, which are based upon forecast, expectations and other information available to management as of today, March 30, 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 please and our annual 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?

Thank you, Cameron. Good afternoon, everyone, and thank you for joining us today. 2016 was an outstanding year for Celsius. Our full year revenue grew to $22.8 million and was a record high for our company, representing a 32% increase over 2015. This growth was driven by both domestic and international performance. Domestic revenue grew 59% year-over-year, and it was a blend of growth from across all of our distribution channels. Retail accounts increased 70%, health and fitness continues to grow, growing 51%, as the product continues to resonate well with health-minded consumers. In addition, our internet retail accounts grew 26%. All channels of distribution continue to grow at double-digit growth rates. As we discussed during the last quarterly earnings call, the increase in sales is being driven by increased volume, not increases in product pricing. This is a strong testament to our growing brands and the strong consumer appeal of our products. With this growth, we continued our global expansion in 2016 by securing international distribution in new markets, including Finland and Singapore and a signing of a distribution agreement with A.S. Watson's for expansion into Hong Kong and Macau planned later this year in 2017. Our distribution in Singapore was marked by an exclusive press-filled launch party with local area retailers and buyers, key distributors and partners of our distribution partner, Yeo's. Our guests included trainers, nutritionists and enthusiasts from our fitness community in Singapore. Our business in Sweden stabilized during the fourth quarter as anticipated, and our distributor in that region, People's Choice, returned to more normalized ordering patterns. In addition, Celsius continues to maintain its market share and also maintains the ranking as the #1 fitness beverage in Sweden. All of this momentum is laying a solid foundation for continued growth in 2017 and beyond. As…

Thank you, John. As you mentioned, the company made a significant investment in early 2016 with not only the addition of myself and Jon McKillop, National Director of Sales for the fitness and military channels, but also with the addition of 3 Zone Directors and 2 National Account Executives prepared to take our domestic retail relationships and distribution pipelines to the next level. The impact and result of these additional human resources was a further focus to expand our distribution channel, which was a critical component to our success in 2016. Domestically, in 2016, we secured national authorizations with 2 major convenience store chains for distribution in up to 8,000 stores nationwide. Each key chain authorization's provide access to their major national wholesaler organizations, McLane and Core-Mark. McLane company operates 21 grocery and 18 food service distribution centers, while Core-Mark has 30 distribution centers located across North America. These new customers are 2 of the largest wholesalers in the nation and provide tremendous opportunity to access multiple channels and thousands of new potential stores, including the vast majority of convenience stores in the U.S. on a daily basis. Aside from new national wholesalers, we secured several new direct store delivery or DSD customers, including Bernex in Minnesota; Golden in Utah, S. Abramson & Sons and Nash Finch throughout the Michigan and Indiana areas; and new fitness distributors, Muscle Foods, Pyro, Elite Nutrition and Park Avenue. Another win within the fitness channel was an opportunity to test in over 100 Planet Fitness corporate locations. Celsius outperformed other energy brands to overtake the top spot and earned a place in cold coolers for all 300 corporate Plant Fitness locations, with an additional opportunity to land the franchisee locations which number over 700. Aside from strides made opening distributor and wholesaler pipeline servicing…

Thank you, Vanessa. Total revenue for the fourth quarter of 2016 was $6.3 million compared to $4.3 million for the corresponding period in 2015. The 47% increase was driven by a 46% increase in international revenues as a result of our Swedish distribution partner People's Choice moving towards a more normalized ordering pattern and shipments as well as the shipment of our initial launch order to Yeo's located in Singapore. Domestic revenue, which also grew, was up 46% for the fourth quarter of 2016. This continued double-digit domestic growth rate was derived from blended growth rates on a 53% growth from retail accounts, a 47% growth from health and fitness accounts, and a 12% growth from internet retailers. Gross profit for the quarter was a $2.6 million or 41% of revenues, compared to $1.7 million or 39.1% of revenues for the corresponding period last year. This 190 basis point improvement in margin was driven by our continued focus on improving promotional allowances and our continued focus on implementing cost of good reductions. Operating expenses in the fourth quarter of 2016 increased $306,000 to roughly $3 million, up from $2.7 million on the prior year. This increase was associated with an increase of a roughly about $350,000 in general and administrative expenses, driven by higher option expense, increased administrative fees, primarily from legal, which was partially offset by lower marketing expenses, driven by our shift of focus toward increased use of social media outlets and lower utilization of digital and print media during the quarter. Total other expense was $51,000 for the fourth quarter of 2016 compared to $58,000 for the fourth quarter in 2015. Net loss to common shareholders for the fourth quarter of 2016 was $510,000 or a loss of $0.01 per share compared to a net loss of…

At this time we will be conducting a question-and-answer session. [Operator Instruction] Our first question comes from the line of Drew Justman of Madison Asset Management.

Two questions. One, can you explain, I guess, the sequential slowdown in revenue growth versus the prior quarter? And then maybe some comments on the long term, when the company hopes to become profitable on a GAAP basis?

Okay, thank you, Justin. On a sequential basis, it's really timing in regards as we look also affecting seasonality of the products and also timing of shipments. We are seeing good growth rates, as we indicated double-digit growth rates, all our channels of distribution are growing versus the prior year. We are quite pleased with what we're seeing in regards to turns and shipments going out, so this is mainly the sequential growth, which is really affected by timing and seasonality within orders as well. As we looked for profitability, as we look to move forward with the investments that we have -- recent investment, we are looking to invest and continue to build upon the overall brand of Celsius, obviously, we know that the focus -- our focus truly is to drive revenue. We've demonstrated back in 2015, we can operate Celsius as a profitable entity, but with the investments today, we're looking to put those investments to work very strategically to continue to build our top line revenue we can take advantage of that growth.

[Operator Instruction] Our next question comes from the line of [ Paul Johnson ], a private investor.

Yes, I have a few questions. First question is, what is the fully diluted share count including the $13 million or so warrant?

Thank you, Paul. In regards to the warrants, we don't have any warrants -- you're referencing options, which are mainly employee options I believe, and if you look at our fully diluted basis, we currently have, with the recent round of financing, roughly around 44 million shares of common stock outstanding. We have about 9 million shares of convertible preferred into common and roughly about 5 million shares in options that are outstanding, and mainly, like I said, those are remaining employee options throughout the organization. So fully diluted shares would to be roughly around $58 million -- or sorry, 58 million shares.

Okay, understood. Second question is, how hard would it be for a competitor, whether, I don't know, Red Bull or Monster or anybody else, to create a product that's substantially similar to your main product?

Well, Paul, I'd like to answer that question in regards to we've been around for 13 years now. We have a first mover advantage. Nestle created a product that burn calories, many years ago when Celsius first launch, called Invega, that was unsuccessful. We have made inroads in traction. Consumers have -- we continue to adopt new consumers to the brand. We do have 7 clinical studies that have validated and published in peer review journals. We feel very confident about our position within the marketplace.

Okay. Well, right. You haven't really answered the question with this how hard would it be for someone to create a similar product, I mean, obviously, a Red Bull or Monster has huge penetration, so getting the products sold wouldn't be an issue for them. It's more -- obviously, there's nothing in particular, proprietary about the ingredients, I'm just wondering. Are you seeing, for example, competition coming up from some of these other companies creating a product that substantially similar?

Not at this time in the space we operate and conduct business in but various competitors in different forms when you look at other products within some of the health and fitness organizations that are out there, like GNCs and vitamin shops. But it's in a form of usually powder or a tablet.

Understood. And the last question is, why can't we accelerate the growth into China. I know that with A.S. Watson and having them investors is awesome. Why can't -- why we're only doing Hong Kong and Macau later this year? Why can't we get in the Mainland China much sooner, given A.S. Watson has, whatever it is, 15,000, 20,000 stores in China?

That's a great question, Paul. We have to -- we are -- as we indicated, with the strategic round of financing, we are looking to leverage our investors' networks, which we will. Our initial move is to focus on Hong Kong and Macau, which is a great opportunity for us where we're able to gain immediate distribution and also will allow us to continually build the brand across Asia. So we are focused on doing that. I mean, the matter is just time as we -- and move towards our execution plan. But right now we're focusing in on Hong Kong and Macau with A.S. Watson with the signing of the distribution agreement, which we're looking to launch later this year.

Which is very exciting. And again, I understand, if you're taking it sort of piece by piece, but is sort of the goal, if all goes well, to go in the Mainland China with Watson?

Right now, we're just focusing on Hong Kong and Macau.

Our next question comes from the line of [ John Acevedo ], a private investor.

Yes. I'm a private investor, and I wanted to know what role Madam Wang is going to be playing in the next 24 months? And also, have you achieved saturation in terms of distribution domestically, for example, in all the 7-Elevens and all the ShopRites and all those main stores nationally?

Okay, thank you, John. Actually I'm going to turn that over to Vanessa who can talk about the sales and marketing components there. So, Vanessa?

Okay. Great, thank you so much. Your first question about the sales and marketing saturation of 7-Eleven, 7-Eleven is, as you know or may not know, 90% franchise-owned, so our saturation level has not been met at 100%. In fact, we're nowhere near, but we are doing so well in 7-Eleven that over the fall, they introduced us into a healthy case study that management will be following. Additionally, they announced over the summer that we have made it into the fall set for the winter, and then this year, they announced we would -- they would be with us again all year this year in the planogram, which is a shelf space dedicated for Celsius. So we're doing quite well there, but as you know, in a franchise-owner organization, there's many doors to knock on, so we still have coverage and gains to be made by penetrating even more of the stores. With regard to Maine, I believe that was your question was -- Shaws, is that correct? Or there was another supermarket you asked about the Maine?

No. New Jersey, the ShopRite and then, of course, I mentioned the what -- I asked what role Madam Wang will have in the Asian distribution?

Okay. So in New Jersey, with regard to ShopRite, we have been selling well in ShopRite. We've just gone on an appointment in ShopRite that we'll be able to talk about the future of 2017, as we report the first quarter in 5 weeks. But I think with regard to penetration in the New Jersey area, our team is getting up and running, and we have a dedicated selling organization in the northeast now that we mentioned in terms of staff and putting a staff in place and dedicating human resources over the past year, so we're putting our bodies in place, so that we can open up more distribution points to penetrate more of the northeast market. The answer is we still have quite a ways to penetrate, a lot of upside.

John, just to answer -- your last question regards to the distribution partners throughout Asia, as we look here, we're still solidifying those at that time -- at this time. So really the focus of us right now is leveraging A.S. Watson's network as we look to launch in Hong Kong and Macau.

We have a follow-up question from the line of [ Paul Johnson ].

Yes. Just a follow-up on what the prior caller asked about in terms of saturation. Have we had any success getting into Costco, for example or Walmart or any of the larger national chains?

So the Walmart chain would not be a place that I would suggest that a brand at this stage in their life cycle would approach. Walmart will tell you on an appointment in beverage that we don't build brands, we sell them in volume, so their first question would be how many years old is your brand, what percentage of ACV do you have throughout the United States and if we brought you on tomorrow and our pipeline order was 10 million cases, what percentage of your business would that represent? They would be hesitant to bring on a brand where they would be 40% of their business or more right off the bat. So we have a ways to go before I would approach Walmart. A strategy before approaching Walmart would be to seed ourselves well in the natural channel, because the natural channel retailers, they want to know that your product does not carry at Walmart before they bring you on board. And there's a timing and sequencing there that would serve us better than approach Walmart now. Additionally, with the club channel, as we're rebranding and we repositioned and we're getting out there and we're building our brand image, we would have to be very selective as to the clubs where we could sell in bulk to meet their minimum threshold and hurdles, because the case pack is so large. So as people are coming into the brand franchise every day and finding Celsius for the first time, they may try that single serve can, but it would not be an advantageous time at this point in the brand life cycle to attempt to sell in bulk in Costco. That would again be something for a little bit later on in the brand life cycle.

Our next question comes from the line of [ David Benson ], a private investor.

I have a question about your relationship with People's Choice in the Sweden and Finland market. Is there a way to leverage that relationship and the strength of your brand in Sweden and Finland in order to reach Germany and the rest of northern Europe?

Dave, thank you for calling in. That is a great question. And we're looking at a variety of opportunities here as we look to continue to grow this brand as a global organization. As we stand here today, we have a lot of opportunities to leverage our partners' networks, and that's one thing we're working towards is aligning our distribution with our partners to allow for a global expansion so that is a opportunity for us that we are looking at.

Wonderful. Can I ask a follow-up question?

Sure.

The CELSIUS HEAT product, I love that. Is that going to help you in the convenience chain 7-Eleven, Sunoco, et cetera? Have they shown an interest in bringing the CELSIUS HEAT product into those channels?

That's a great question. I'll turn that over -- back over to Vanessa to talk about our new HEAT product line extension.

We are very excited about HEAT, so thank you very much for bringing that up. Our initial launch plans include rolling out to the fitness and military segment as well as in the vitamin specialty segment, which has been core to our business on the original Celsius line. We're going to follow that and walk before we run, we want to see the take rates, the reorders, the preferences of flavors. Selling season for the convenience store channel is really August through December. By the time that we get to selling season for 2018 planogram sets, we should have the answers to those, and we will create a selling strategy and plan to launch in convenience where it makes sense. But our initial plans will be to cover off the fitness channel, military and vitamin specialty.

[Operator Instructions]. We have no questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

Thank you. 2016 was a pivotal year. We built the firm foundation to build upon our future. We'll continue to build upon our core business and leverage opportunities both domestically and abroad. Innovation and execution will define our future. Thank you, everyone for your interest in Celsius, and thank you for your time today.