Greetings, and welcome to the Celsius Holdings Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Cameron Donahue. Thank you. Please begin.

Thank you. Good afternoon, everyone. We appreciate you joining us today for Celsius Holdings Third Quarter 2018 Earnings Conference Call. Joining me on the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, Chief Financial Officer. Following prepared comments, we will open the call to your questions and then instructions will be given at that time. We have filed our quarterly report 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 forecast, expectations and other information available to management as of today, November 8, 2018. 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 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 the SEC for additional information. With that, I'd like turn the call over to President and Chief Executive Officer, John Fieldly, for his prepared comments. John?

Thank you, Cameron. Good afternoon, everyone, and thank you for joining us today. During the third quarter, we achieved new record volume levels, and we further increased our footprint with increased distribution and expansion in a multiple other regions across multiple channels, expanding our reach and availability. Our focus and targeted investments in sales and marketing provided returns in the form of increased sales volumes, increased brand awareness and increased availability of our products as we continue to maintain premium pricing. This record volume level demonstrates our products are in demand, and our growing consumer base has never been stronger. For the third quarter, revenue increased 54% to a record $16.6 million. North America revenues increased 92% to a record $11.4 million, and international revenues increased 7%, driven by reorders in Asia, which were partially offset by a 15% decrease in European revenues, mainly as a result of our Swedish distribution partner returning to more normalized ordering patterns as they have optimized their inventory levels and are cycling new flavor launches when compared to the prior year. North America growth was driven from reorders from new accounts such as Target, CVS and Wawa, which we began sell-through during the quarter. In addition, we experienced strong growth from existing accounts as a result of the expansion in our consumer base and demand for our products. Our production has returned to more normalized traditional levels, following the challenges we face during the second quarter as we continue to add additional co-packers to alleviate bottlenecks and lay the foundation for accelerated growth. Third quarter reflects strong demand as we continue to capitalize on today's global health and wellness trends, targeting active health-minded consumers. These growing trends are present in every market, and the continued solid execution of our strategy to increase demand through…

Thank you, John. Total revenue for the third quarter of 2018 was a record $16.6 million compared to $10.8 million in the third quarter of 2017, which translates to a significant increase of 54%. By geography, North American sales were up a robust 92% year-over-year from $5.9 million in the third quarter of 2017 to $11.4 million in the third quarter of this year. This increase was mainly due to growth in existing accounts and distribution expansion. In Asia, sales also increased considerably from $362,000 in the year-ago quarter to $1.4 million in the current period, an increase of 273% due primarily to the recent modern trade launch that John discussed. The strengthening of North American and Asian sales was partially offset by a slight decrease of - in revenue of 3% pertaining to other international regions and a 50% decrease in revenue in Europe as a result of our principal European distributor lowering their inventory levels, timing delays regarding launch of new flavors and discontinuation of certain other flavors. The net increase in revenues was driven by higher sales volumes as opposed to increases in product pricing. Gross profit dollars for the third quarter of 2018, increased by a healthy 47% to $6.9 million, up from $4.7 million in the year-ago quarter. In contrast, gross profit margin slightly decreased to 41.5% in 2018 when compared to the prior year results of 43.3%. The increase in gross profit dollars was mainly attributable to increase in sales volume, while the decrease in gross profit margin was mainly attributable to increases in promotional allowances, slotting charges and increase in production and repackaging costs. Selling and marketing expenses for the quarter ended September 30, 2018, were $8.7 million compared to $4.7 million in the year-ago quarter, an increase of 84%. The increase is…

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

Hi, everyone and congratulations to your team on the strong metrics.

Thank you, Jeff.

John, can you speak a little bit more about the domestic sell-through trends? Maybe delve into the rollout with CVS and Target, and I guess how those are going, and how the door count might evolve in the future there?

Yeah. Absolutely, Jeff. For the quarter, we saw great sell-through. Fairly all of our channels are showing extremely strong sell-through, and Target and CVS has been a great opportunity for us this year in 2018, where we initially launched, as we call it, a smaller test last quarter in regards to about 500 stores. Target has expanded us further. We're in over 1,000 stores today. There is a lot of opportunity to continue to scale in 2019. We see Target as a great partner for us, a great national footprint to capitalize on. And we're getting great interest and seeing good takeaways on the product. So we see Target as a great long-term partner. We had very strong sell-through throughout the quarter, and the same goes with CVS. CVS, we're in 500 - about 550 locations and growing. We do have buyer resets coming up. We've gone through the year-end reviews, and it looks extremely positive to continue to partner with them towards 2019 as we look to move forward. And we're also actively speaking with other vendors in that drug channel as well, where we see great opportunity, really targeting that health-minded consumer.

Okay, great. And then I know you added marketing count recently. Just wondering any early thoughts on how you might evolve your marketing plans?

Yeah. We did bring on Matt Kahn to the marketing team. He has over 20 years of experience as I previously stated. He is a great addition to the team. He has a proven track record of building brands, driving innovation and really motivating teams to deliver exceptional results. So we'd look - you won't see anything drastic, any changes. We have a firm foundation that has been laid. Vanessa Walker, just thank her for her services and dedication to the company. We have a great foundation that has been laid to build upon. So you're going to see more from us as we continue to scale along. In 2019, you're going to see more consumer activation, more trade activation as well. But we're not going to move away from our core. We are targeting consumers, health-minded consumers with a live, work and play through a variety of initiatives from social media to key ambassador and influencer programs as well as events and guerilla sampling plans through 2019.

Okay, great. And then if I could squeeze in one more. I think in your prepared comments, you said production is normalizing. Given the increased volumes you're running, maybe you can speak to how your co-packer setup is evolving and how that should benefit you going forward.

Yeah. As we continue to grow in scale, co-packer availability out in the North America has been challenging. There's a lot of growth in the sleek can business. We are operating and producing at these co-packers throughout the country. Currently, we're operating at four co-packers. We are in talks currently with four other co-packers for 2019 as we continue to build out the supply chain. At this point, we are bringing inventory levels back up to more normalized levels to really support the growth as we look to continue this momentum into 2019. There is availability out there. You're starting to see we have - there is some talk about cans being - having supply issues, but we have good relationships with our can manufacturer, and we have not been affected with that. They've been working with them very closely as well. They were just in the office two weeks ago, and they are committed to partnering with CELSIUS and ACV to manage upsides. So really working solidifying those relationships with our partners and suppliers as this is a joint effort as we build this brand together. So we see great opportunity and availability for 2019 to support the growth that we're seeing and the interest and the demand that has been created.

Okay, great to hear. Thanks for taking my questions and best of luck for the rest of Q4.

Thank you, Jeff.

Thank you. [Operator Instructions] Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed.

This is actually Destiny on for Jeff. How are you guys doing?

Excellent Destiny, thank you for calling in.

No problem, I just like to echo the congratulations on a phenomenal quarter. I had a few questions. Could you just explain a bit more some of the strategic partners we're evaluating in China? What areas do you think they will be in and things like that?

Sure. We currently - as we continue to scale throughout China, we are looking to leverage - further leverage our strategic networks as the last two rounds of financing brought in influential strategic investors that are located in China. We're also talking to a variety of other strategic investors that we would be able to leverage further to really drive CELSIUS further, quicker and to a broader audience. We're talking a variety of different strategics, which are also within retail segment as well as with - that can help also with advertising as well. So I don't have any further information I can share at this point, but we are talking to a variety of local strategic investors to help us penetrate further into the market.

Okay, got it. And then it sounds like you're having some great success or early success with the vending channels. Do you think you'll be able to replicate that in China as well or is there really no interest there? And then I have follow-up on the vending channel.

Yeah, absolutely. That's - we are replicating our same strategy in North America as well as in the Nordics as well in China. We see great opportunity in healthy vending in micromarkets within office buildings. And that's been a great success for us. We initially rolled that out and partner with Vistar as well as Canteen and several other large national vending wholesalers. And the initial rollout started in the second quarter, and it's really turned out very successful in the third quarter. And we see that continuing to build throughout 2019. We see great opportunities, and we're working at - we see the same opportunities as well in Hong Kong, where you're seeing a lot of office buildings as well. Cold availability, and there's nothing best than a healthier - a healthy CELSIUS energy drink next to healthier products in these healthier vending alternatives.

Okay, got it. And then I also believe that I've read that all the original products are available to be implemented into a vending machine. How are your distributors determining which ones to put in? Does it go by geography or based on demand, things like that?

We have a - well, we have a standard planograms that are set up. You will see variances out there in the marketplace based on the operator that's managing those vending machines. So you will see inconsistencies throughout the market around different flavor availability, but you will see a lot - mainly our core flavors that we're pushing this time of the year, entering summer. We have Kiwi Guava as a new great flavor with great acceptance, Raspberry Acai, and the Orange is a great flavor as well, as well as all our other favors that we offer. But all favors - you are correct that all flavors are available through the vending. It does get limited on the number of slots of availability so you will see a variance out there in the marketplace.

Right. Okay. And then I thought - or I heard that you also mentioned premium pricing. So what types of pricing trends are you seeing as compared to last year, even last quarter?

Well, what we are doing are maintaining our pricing. We're driving strong revenue growth maintaining our gross profit margins, and we are not discounting price. We are driving our premium pricing in the marketplace, and this growth is not coming from discounting products. I think that's what we are trying to clarify early in the earlier comments, that this growth is organic growth from consumers, from reorders, on a great trajectory, and it's not driven by discounted products. This is sustained growth.

Okay, thank you for clarifying that. I believe that does it for me. Thank you for taking the questions.

Excellent, thank you for your time.

Thank you. [Operator Instructions] And our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed.

Thanks, good afternoon guys.

Good afternoon Anthony.

So I just want to understand the launch in China and how much more money is going in there. Because the sales and marketing expense for the quarter was a lot more than we were looking for. Was that mostly due to the investments in China or was there something else there?

Yeah. During the quarter with the investments in China, that probably is higher than you anticipated, we did do a lot of activation in the quarter as we are entering the planograms for resets or the planogram discussions as all the retailers are planning out 2019. So there was a lot of activation that took place during the quarter as we're setting the stage in China for 2019 as we continue discussions with these key accounts to further the penetration within the market.

And John, I think - or Edwin, I think I missed the number for how much was invested specifically in China. It was a combination of people and marketing, I guess, you said. What was the increased expense? Because I heard one number but I don't know how - what time, just for the quarter?

Yeah, you're talking of - for the year-to-date, it was $8 million, about $8.1 million of investment in China.

That's what I heard, year-to-date. And for the quarter, how much was it?

For the quarter, it was about $5.1 million.

For this quarter, it was $5.1 million, okay. That wasn't just in sales and marketing. You have sales and marketing and then there were some other investments in the quarter, right, in China?

That's correct. We had sales - obviously, we invested in North America. We had a variety of activation going on. As mentioned, we were very active in the third quarter in North America at a variety of trade shows, consumer events, Tough Mudder events. We hit it out, thousands, hundreds of thousands of cans, a lot of activation, and getting great feedback with the targeted marketing.

And so just as we go forward though, this was more of a - based on all the things you just mentioned, John, it was more of an anomaly for this quarter than it is in the go-forward expectation, correct?

That would be correct.

Okay. And then I don't know if I missed it, but did you give an update on 7-Eleven?

Just briefly touched on 7-Eleven, 7-Eleven is doing extremely well. We are seeing good turns. We're partnered with McLane. And things are moving along very nicely with 7-Eleven. We see them as a great partner. They allow us to have national broad distribution. We're using them as a great example of what's our CELSIUS can perform within the convenience channel. And that's allowed us to expand this year throughout Wawa, further expansion within racetrack, our QT and Circle K as well in key regions.

Okay. And then just in Norway. Are those timing issues, inventory issues, all of that is that pretty much resolved right now? Or is there still some lingering issues there?

In the Nordics, we're starting to see that inventory move to more normalized levels. We mentioned that last quarter that we would see more normalized. This quarter we saw it being more normalized. We will still see and experience historical, I guess, seasonality effects, but we do see normalized level of revenues or inventories on their side. The product is still growing in the market, and we are very confident to continue to move forward with further expansion. As we mentioned, Norway and Finland are good opportunities. We continue to move further into those grocery outlets as well as hypermarkets within the region.

Okay and then just lastly on SKU expansion. I know you said you have three brands and 1,000 of the 1,800 Target stores. When for most of these stores are the resets going to take place where maybe you can get additional SKUs into whether be it CVS or Target or -

Yeah. Traditionally, the meetings take place in the back half of the year, so a lot of meetings have already taken place, and some are still taking place as we speak. And a lot - and the retailers usually will update their sets, their planograms usually towards the back half of Q1 to Q2, you'll start to see some resets taking place. So very confident to further expand in all of our channels with the momentum that we're experiencing currently.

Okay, thanks guys.

Thank you, Anthony.

Our next question comes from the line of Jerry David a private investor. Please proceed.

Hi, John, I just wanted to make a couple of comments. First, congratulations to you and the entire team. Hitting that $16.6 million top line revenue is absolutely critical in the beverage industry. And I'm so excited about you hitting that number because all the beverage companies are really being measured on that. So congratulations on that and the tremendous growth. And also the investment in China, it's just that, to me, it's a golden egg waiting, and you guys are just doing a great job there with your alignments and so forth in China. And the last thing I will comment is Matt Kahn, what a great pick you got there. He is a great guy with a great background, and I can see him really taking - helping take CELSIUS to the next level. I just want to congratulate you, such a great job to you and the rest of the team.

Thank you, Jerry. We truly have a very strong and dedicated and passionate team, a focused team. And we look forward to continuing to drive further success. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of Peter Sheffield [indiscernible] Productions. Please proceed.

Good afternoon gentlemen.

Good afternoon, Peter.

So what I really wanted to kind of just touch base on was the China expansion. And as of the last earnings call, at that time, to my understanding, the product was located in 25,000 locations at that time. So over the last quarter here, the revenue of $1.4 million, I was kind of crunching the numbers real quick, when I look that, about $60 in products per location. Is that a number that we are aiming for? Is that above what we're looking for or below? What is that for?

Excellent question, we're not really using same-store sales data. We have not done that in the past. A lot of those stores came on late in the quarter. We are in about 127 subdistributors that are servicing those locations and about 15,000 key accounts. So the 25,000 was through the quarter, and then we closed the additional accounts towards the back half of the quarter.

Okay. And then just in regards to kind of future revenue and cash. What are you anticipating that the continued investment in China and the additional locations that we'll be adding would in turn result to revenue growth in the future?

We're looking to move our investment into more normalized levels as we move forward, to be further in line. We have investment in the initial year of launch, which was this year. And we're looking for - as we moved through Q4 and then towards 2019, we're looking for more normalized P&L. There will still be investments, but they'll be more normalized.

Okay, I appreciate gentlemen. Thank you.

Thank you.

Thank you. We have reached the end of our Q&A session. I would like to turn the floor back over to management for closing remarks.

Thank you. On behalf of the company, I'd like to thank everyone for their continued interest. Our third quarter result demonstrates our products are gaining considerable momentum. We are capitalizing on today's health and wellness trends. Our active healthy lifestyle position is a global condition with mass appeal. We're building upon our core business and leveraging opportunities and deploying best practices. I am very proud of our dedicated team, and I thank our investors for their continued support. On December 5 and 6, management will be available and will be presenting at LD Micro. We look forward to seeing many of you there. Thank you everyone for your interest in CELSIUS, and have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.