Greetings, and welcome to Celsius Holdings Q2 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. I would now like to turn the conference over to your host, Cameron Donahue with Hayden IR. Please go ahead, sir.

Thank you, and good morning, everyone. We appreciate you joining us today for Celsius Holdings second 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 Securities and Exchange Commission today and issued a press release also this morning. All materials are available on the company's Web site 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, August 8, 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 duties 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?

Thank you, Cameron. Good morning everyone and thank you for joining us today. Our first half results for 2019 are highlighted by record revenues of $30.6 million. An increase of more than 40% over the first half of last year as we executed our strategy of positioning Celsius as a global beverage leader for health-minded consumers. During the quarter, we made significant progress on our North America expansion with household name retailers such as Target CVS, Rite Aid, Food Lion, and 7-Eleven where further expanded our distribution presence. In addition, we continue to add new premier distribution partners like Big Geyser in New York, and we are further penetrating Anheuser-Busch, Keurig Dr. Pepper, and Pepsi independent bottler networks. We continue to deploy best practices with targeted marketing campaigns and are building our brand's awareness and trial. Once again we have demonstrated our ability to enter new channels, onboard new distribution partners, and optimize our routes to market ensuring product availability all while continuing to focus on controlling cost, optimizing efficiencies, and maximizing the returns on our investments. In Europe, we continue to drive market share with targeted marketing campaigns and unabated on trend flavor launches. And in Asia, we have completed the alignment of our China business operations. Each of these accomplishments are contributing to meaningful improvements in our financial results with revenue growth across all geographies, improving operational margins, and more efficient use of our working capital. And just as important, our gross margins remain in excess of 40% as we drive growth on higher volumes. Domestically in the second quarter, we signed a new distribution agreement with Big Geyser, New York's largest independent non-alcoholic beverage distributor serving the five boroughs of New York City and counties of Nassau, Suffolk, Westchester, and Putnam. Big Geyser serves more than 20,000…

Thank you, John. For the three months ended June 30, 2019. Revenue was $16.1 million, a significant increase of $6.8 million or 73% when compared to $9.3 million for the same period last year. The revenue increase of 73% was the result of increased sales across all geographies including strong growth of 69% in North American revenue driven by double-digit growth in existing accounts and new distribution expansion. Revenue in Europe grew a solid 64% year-over-year, primarily as a result of the launch of new flavors. Revenue growth in Asia is the net result of the traction we're gaining in the regions outside China which was partially offset by the change in our business model to a royalty and license fee agreement in China which was completed at the start of 2019. In line with our historical trend, the overall increase in revenues from 2018 to 2019 was mainly related to increases in sales volume as opposed to increases in product pricing. Gross profit for the three months ended June 30, 2019 increased by $2.8 million or 70% to $6.9 million for the second quarter of 2019 up from $4 million in the year-ago quarter. Profit margins remain mostly unchanged and within our expected range at 42.6% for the three months ended June 30, 2019 compared to 42.8% for 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 three months ended June 30, 2019 were $5.6 million an increase of $1.5 million or 37% up from $4.1 million for the same period in 2018. The increase is mainly due to costs for tradeshow activities in support of our expanded distribution network as well as investment in marketing…

Thank you, sir. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question today comes from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.

Hi, John and Edwin. How are you?

Excellent, Jeff. Good morning.

Good morning. Very well.

Hopefully you can hear me okay. So I guess three questions I wanted to drill into a little bit. So can you talk about any other sizes or flavors for North America coming or what's kind of your thinking there? And can you give us also a little color on the power packs. Do you expect that you're going to see sort of uptick in the power packs, or any plans to bring on more flavors or lines such as the [indiscernible] to North America?

Excellent. Thank you, Jeff. In regards to flavor innovation, that seems to be working very nicely for us as well. It brings excitement to the retailers in some of our established accounts. We will bring, and we do have plans. Our innovation team does have plans for additional skew innovation; as well we'll be conducting some rationalization. Right now our kiwi-guava has really moved to our number one position on flavor in many accounts across the country. So these flavor combinations seem to be working very well at retail. And our Fuji Apple Pear on its initial rollout has been extremely, really recepted well by, not only by buyers, but also from consumers. So our goal is to continue to stay on trend with innovative flavors. And we are cognizant of the churns as well that's required, really monitoring the market. And we will be first to market. In regards to the power product, most recently we've seen a great increase in sales online as well as through the finished channel with our powder products. And we do have plans as well to bring innovative flavors to that line. We're very optimistic about it. You see a lot of other usage occasions, Celsius On-the-Go with its powder offering. So you could take that anywhere on the plane when you travel. And also we're noticing a lot of our influencers and brand ambassadors are taking the product and adding it to smoothies, so it's another opportunity for us to further leverage the Celsius brand into other mediums, so very excited to have that line there. And then in regards to the nootropics lines, as I mentioned, we do have a planned launch this year in the back-half, which will expand us to additional verticals and adjacencies within our categories. And the nootropics line that was initially launched in 7-Eleven really expands our offering. It's a lower caffeinated product, and allows -- really goes after a much wider consumer and an additional usage occasion for the brand. So I think as we look forward you will see additional offerings, brand innovation coming through Celsius here.

That's great. Okay, and then second question, any studies or clinical work out there that you're aware of that's being conducted in any geography?

We do not have any active studies currently taking place currently, but it is something that we are always are exploring as well as we look at additional lines -- bring additional lines out, and additional innovation to the table. It is one thing, Celsius is science based science backed, and we're going to continue with that trend, but we don't have any ongoing studies active today.

Okay. And then thirdly, could you talk a little bit about seasonality for the upcoming quarter in the back-half of the year, and just kind of walk us through and remind us of 2018 Q2 and the Q3, and kind of any bigger picture trends that one would anticipate?

Yes, I think when you look at it; the trends for Celsius are phenomenal. When you look at our most recent, as I mentioned, our SPINS data, which is third-party registered scan data, had Celsius continuing to build momentum each and every quarter over the last, go back several years. We're maintaining our most recent on a 52-week basis shows we're turning up the register over 38.6%, so truly outpacing the category. And the category continues to expand toward healthier, better-for-you options. So we see a lot of opportunity. Traditionally, in the beverage industry there is seasonality that takes place in beverage season, as it's called, during the summer months. We are affected by that, but it is being offset by new retailer listings that are taking place. So, although our baseline business and existing accounts are affected by that seasonality in beverage season during the summer months, it is offset due to the new distribution and expansion we're receiving with many retailers. So, looking at on a go-forward basis, I think looking at past history and continuing to move forward with some of our growth metrics, it's something that definitely should be looked at. When you're looking at Q2 and 2018, we did have $1.2 million net on our North America, which moved from Q2 2018 to -- or Q3 2018 due to timing of production. But that was a timing, so -- but we do have considerable momentum, as you can see with our Q2 results.

Perfect. Okay, thanks for taking the questions. And those are for me.

Thank you, Jeff.

Thank you.

The next question is from Jeff Van Sinderen of B. Riley. Please go ahead.

Hi, good morning. And let me say, congratulations on the terrific growth and strong Q2 metrics. John, you're getting really your shelf space that you didn't have previously. Can you speak to that evolution, what's driving that, and maybe some of the recent highlights?

Yes. Thank you, Jeff, and good morning. There is considerable momentum taking place and really disruption in the energy category. The traditional energy drinks you're seeing a transformation. If you look at a lot of the SPINS data, third-party data, a lot of these brands, Full Throttle, NOS, Rockstar, they're seeing decreases. Consumers want healthy, better-for-you options. And just last night, on Monster's earnings call, Rodney Sacks indicated and really clarified what's happening in the energy drinks category as well. There's really a real transformation taking place, and retailers are reacting now to add additional shelf space to this category of performance energy. And Rodney indicated that brands like Celsius will be gaining additional shelf spaces as retailers are updating their sets to really align with today's health-minded consumers looking for some better-for-you choices, so we're seeing a lot of momentum ahead of us. As you're seeing out there, further expansion and existing accounts. And we have a lot of meetings taking place right now over the next several months, as we were preparing for category review meetings for all of these retailers. So, we are very optimistic. Our team is very optimistic for 2020 and the back half of this year as we continue to expand, and that is a prime reason really why we're seeing these DSD partners today taking us on. You're seeing Anheuser-Busch, Keurig Dr. Pepper and Pepsi distributors, these premier distributors taking on Celsius as they see the opportunity as well, so as well as Big Geyser taking us on in New York City. So there is definitely a transformation happening in the energy drink category, and you're seeing that in the great growth as well. More consumers are coming to that category because it's growing it at 9.4%. So we are well positioned for the future.

Good to hear. On the build out of the DST network, which regions are left to go, kind of lower left to go after, I guess. And based on your plan this year, where should we expect the biggest impact in DST added in the second-half? maybe you can just speak to that?

Yes, our biggest, when you look at our DST coverage, our biggest coverage right now is in the southeast, we do have a couple of boys, which we're working on filling to have full DSD coverage. So we will be able to cover particular zones from some of our retailers, i.e. 711, CVS and target. Once we are able to build out and cover these warehouses that are currently servicing many of these retailers through the replenishment systems, we will be able, we're working with the buyers and we'll be able to look these retailers over to this DSD really model, which that will allow us to gain additional ACD distribution and better execution in the trade, keeping us in stock and keeping us on the shelves. So right now when you're seeing, you're seeing, we have a good presence in the -- in the southeast, also the Texas regions as well, Michigan, New York, we were up in the New England market, we have that covered as well, California, Vegas. And we do have considerable voids as we look to really turn over a lot of these retailers. And that's what the team is working on right now. So there's a lot of runway ahead. When you're looking at additional DSD expansion, we're about 50 right now with these key premier distributors. And we're going to continue to expand on that. So really looking forward to the runway ahead, and then the partnership that we're forging, we're seeing great momentum and great excitement with these new partners, just servicing the independence, not activating the traditional retailers today.

Okay, great. And then one more on international if I could, the Nordic business is turning around and it would seem that you have a major opportunity to expand in other regions of Europe. Can you touch on that potential? And maybe how you're thinking about approaching growth and some of those regions that are newer to you?

Yes, I think, there's a lot of opportunity for us, the capitalizing on these global health and wellness trends. I think the key is expanding, which we are focused on profitable growth. So it's very key on that model, there is opportunity to further expand throughout Europe coming out of that Nordics with that with the good presence and awareness that we have. The next phase, we're still activating Finland and Norway, we're about to gain additional listings there with some of the key marquee retailers in country and then further penetrating throughout the Nordics would be the aggression. Also Spain, we're speaking with an opportunity in Spain, as well as Germany as well. So there is a lot of opportunities going ahead, but we want to make sure the model is correct on the expansion.

Terrific. Thanks for taking my questions and continued success.

Thank you, Jeff.

Thank you.

[Operator Instructions] Our next question is from Anthony Vendetti of Maxim Group. Please go ahead.

Thanks. Good morning, guys.

Good morning.

Good morning Anthony.

I just wanted to ask a little bit about the marketing spend. I -- we expected it to take up and it did and I know you're sponsoring more of these tough motor type events and so forth. Is that expected to continue at that level, continue to grow as we move into the back half of the year, and then what events specifically have you increased spending on and what where have you put your marketing dollars?

I think in regards to our spend, we've stated before we're driving. Our goal is to drive profitable growth. We're working hard and towards that path. We're focused on driving additional gross profit dollars and EBITDA dollars into marketing to continue to drive top line revenue to capitalize what's taking place right now and the energy drink category. So we're reinvesting our additional EBITDA dollars in marketing, sales initiative, we just hired a round of additional sales reps to help us manage key sales reps in key regions to help manage the DSD. We're also investing in particular verticals; the food service business is a great opportunity. We've seen tremendous growth over the last several years there. We're expanding in that area. So in regards to direct marketing, we did have a lot of tough motor activation. We also did a lot of grower and demo sampling, which drove up additional costs, and also online, targeted advertising. So those types of activities will continue, but so I think we know we are in line Q3 is going to be an active, an active quarter as well. But we're very cognizant on continuing to grow at that at close to break-even level reinvesting our dollars.

Okay. And then just on the distribution, expansion. Obviously, you announced a number of agreements. Can you tell us a little bit about what the end customer what, what, in terms of the pipeline? What's the opportunity, as you expand your distribution? What are some of the new customers you think are in the pipeline for this year, next year that could really move the needle for you?

Yes, I mean we have a great roster currently of existing accounts, existing retailers, when you look at where we are. One thing that company has been very good at, through our, through this process is really optimizing those retailers. So just on our existing retailer list, we have so much opportunity still available to maximize these partners as an example. When we first went into sprouts, we started on the dry show. We continue to show results, we went to the cold cooler, the cold cooler starts, you have more, more velocity, higher velocity rates, where we're able to expand and really grow that account to the point where they moved us to the front checkout coolers, further increasing the velocity numbers. So as an example, when you look at some of a really our national accounts like Target, we currently have three SKUs in the energy set on the dry shelf. There're further opportunities to add additional SKUs and also gain cold availability, and then check out front check out cooler. So we're working on the same trajectory, and really, really grooming and really activating our retail partners. Also in the convenience store channel, we talked about CVS with the 500-store test. Nationwide and roll out for better in the energy door with three SKUs and all locations, that role has been completed, we have additional opportunities to expand or expand our portfolio to 2, 4, 5, 6 and full shelf execution where we know when we increase additional SKUs the velocity numbers not just increased by one SKU, they increase on a multiplier effect, which is great, so, a lot of opportunity to further leverage CDS, and gain also from checkout and really maximize that. The other opportunity we have is in Rite Aid, where we just received notification that we have been one of the top selling beverages in the GNC cooler set that they have for better for you beverages. We just received the green light that we will now be added to the energy door. So that will further expand the opportunity at Rite Aid. And then we can go and further expand with SKUs and optimize that retailer. So, some new retailers that we see a lot of opportunity that we're targeting, as Walgreens and Duane Reade in New York City, there's a lot of opportunity in there. Also, the convenience channel dominates the energy drink category. So we're working very hard to continue to increase our ACV and the energy drink category. We're only at 10.9 today. So there's a lot of runway ahead of us. Speedway is a great account where we're talking to then there's so many others that we're actively talking to as well.

Okay, great. Just lastly, obviously there's a lot of misinformation out there and a lot of noise about CBD. You know, you're an energy company. But is there an opportunity to maybe have a recovery drink based on CBD. And you know, if so, what would that look like in terms of timeline, in terms of planning for your portfolio going forward?

Absolutely. Our innovation team, we're looking at adjacent categories, different additional verticals. CBD is definitely something we've been working on for some time, we do have a CBD product in our portfolio ready, we are watching the regulations. And, as the government goes through the process, the galleries are being able to sell the CBDs and our existing routes to market. Whatever we bring the market, we want to be able to drive efficiencies and leverage our sales organization and our routes to market. So we do have a product ready, but we need to make sure that when we bring it to market, we're able to maximize the opportunity and our relationships and routes to market. So we are watching closely. We don't have a definitive timeline today, but we will be ready.

Okay. Excellent, guys. Thanks. I appreciate it.

Thank you.

Thank you, Anthony.

There are no additional questions at this time. I'd like to turn the call back over to John Fieldly for closing remarks.

Thank you. On behalf of the company, we'd like to thank everyone for their continued interest. Our second quarter results demonstrate our products are gaining considerable momentum. We're capitalizing on today's global health and wellness trends. And the transformation taking place in today's energy drink category. Our active healthy lifestyle position is a global position with mass appeal. We are building upon our core and leveraging opportunities and deploying best practices. We have a winning portfolio and strategy and a large, rapidly growing market that consumers want. Our mission is to get Celsius to more consumers for profitably. I'm very proud of our dedicated team, as without them our tremendous achievements and significant opportunities we see ahead would not be possible. In addition, I thank our investors for their continued support and competence in our team. On a final note, our management team will be presenting at the upcoming B. Riley FBR Consumer Conference in New York City on October 3, and we look forward to seeing many of you at this upcoming conference. Thank you everyone for your interest in Celsius and have a great day.

This concludes today's conference. You may now disconnect your lines. Thank you for your participation.