Greetings and welcome to the Celsius Holdings, Inc. First Quarter 2020 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. It is now my pleasure to introduce your host, Cameron Donahue with Hayden IR. Thank you, Mr. Donohue, you may begin.

Thank you, and good morning everyone. We appreciate you joining us today for Celsius Holdings first quarter 2020 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 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 May 12, 2020. 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 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 to turn the call over to President and Chief Executive Officer, John Fieldly for his prepared remarks. John?

Thank you, Cameron. Good morning everyone and thank you for joining us today. First, our thoughts and prayers are with all of those who have been impacted by COVID-19. And I want to thank all of our Celsius team members and partners for their dedication, efforts, and support. We are incredibly proud of our team who have maintained the integrity of our operations and performance. The macro environment during the first quarter of 2020 was unlike any other we have seen in recent history, challenging organizations to respond in new and creative ways to manage and grow their business. At Celsius, we rose above the challenges and set another new sales record, with quarterly revenue of $28.2 million, an increase of 95% over last year. North America revenue was up 70% and Europe was up exponentially, due in part to our accretive acquisition of Func Food Group late in 2019 and Asia was up as well. Consumer demand in the beverage industry continues to trend toward the pursuit of healthier alternatives versus conventional beverages. Although consumer traffic and purchasing patterns have been severely disrupted, traditional shopping habits gave way to tremendous increases in online ordering, curbside pickup, pantry purchasing while consumers complied with the stay at home orders. To meet consumer demand, we secured additional distribution agreements with partners in our primary U.S. networks including Anheuser-Busch InBev, PepsiCo, Keurig Dr. Pepper and Monster, MillerCoors distributors, which further expanded availability to new regions. We are continuing our quest to build a national distribution network, which now includes more than 100 regional DSD or direct store delivery partners. Our DSD partners also provide us with additional routes to market for incremental points of growth. In addition, we transition Target and 7-Eleven from the wholesale network to our DSD partner Big Geyser, in…

Thank you, John. For the three months ended March 31, 2020 revenue was a record high, $28.2 million, an increase of $13.7 million or 95% compared to $14.5 million for the same period last year. The overall increase in revenues was due to increases in sales volumes as opposed to increases in product pricing. By geography, the 95% revenue increase was attributable to continued strong growth of 70% in North America, reflecting double-digit growth from both existing accounts and new distribution expansion including expansion at world-class retailers. Consequently, North American revenue delivered a record $19.4 million for the quarter or an $8 million increase when compared to the prior year quarter. Revenue from the European markets was $8.5 million or an increase of $5.5 million compared to the first quarter of 2019, reflecting the full impact of consolidating the results of our European operations. Asian revenue totaled $268,000 compared to $53,000 in the year ago period. Asian results for the first quarters of 2020 and 2019 are now comparable, both periods reflect the change in our China business model to a royalty and license fee arrangement effective January 1, 2019. Revenue from all other areas amounted to $57,000. Gross profit increased by $7.3 million or [127%] to $13 million in the first quarter of 2020, up from $5.7 million in the year ago quarter. Gross profit margin for the first three months ended March 31, 2020 was 46.1%, which compares favorably to 39.5% for the 2019 quarter. The increase in gross profit margin and dollars reflect the impact of the consolidation of the European operations and the result of the increase in sales volumes across all geographies, as opposed to increases in product pricing. The increase in gross profit margin translated to an incremental $1.9 million of profitability in this…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of David Bain with ROTH Capital Partners. Please proceed with your question.

Great, thank you. And congratulations on a great first quarter. I'm hoping you could opine further on the broader functional energy segment activity and potential repercussions for Celsius, you kind of touched on in the prepared remarks, but when we look at the moves by Pepsi such as acquiring Rockstar and becoming distributor for Bang, away from one of your partners Anheuser, all this seems to leave more and more holes for distributors in the segment. I guess the question is, is segment activity potentially shifting distribution conversations to a larger, more acute deals in the wake of kind of the industry trend?

Actually Dave, thank you for the question. When you look at it there is a lot of opportunity here, especially what transpired, most recently during the quarter and I touched on it briefly in the prepared remarks in regards to Bang providing that notification and moving out of an independent network, which comprised mostly Anheuser-Busch distributors to 100% Pepsi. So we're already seeing those transitions taking place right now in markets where Bang was self-distributing and we're hearing word over the next, really 60 days there'll be making the transition from the other distributors over to Pepsi. So there is a lot of disruption where there is disruption there is opportunity. Switching networks has always been very disruptive for brands. So we are very eager to take advantage of the disruption in the marketplace. So there has been a lot of changes in the -- and out -- even within what's going on within brands when you look at what's taking place with Bang, but also with COVID-19, which has also affected a tremendous amount of channels, being one in the energy drink category the convenience channel, has been extremely effected with traffic and also fitness and foodservice. So there is a lot of changes taking place right now. We feel we're in a good position, we're already up to 100 distributors and the ones we were talking with and had conversations ongoing and dialog, it was really a challenge because Bang had exclusivity in a lot of contracts that were in place with these distributors. But now that has opened we have discussions ongoing. We feel we're in a really good spot. Some of the distributors that are releasing Bang are very excited for the opportunity to work with Celsius. And we think we're like well positioned on the other side of this to capitalize on the health and wellness trends that are here today, not going away.

Great. Now it sounds like it's opened up some things and you mentioned disruption as a competitor switches major distribution. Alternatively, do you think that Pepsi may add a little bit to be more promotional here with Bang?

I think so. I think you're going to see a lot of activities and promotional activities happening in summer beverage season. We're already talking with many key retailers to be included in those programs and really the July August timeframe retailers want to get consumers back into store, they're looking for new innovation, they're looking for special pricing, promotions to drive traffic back into retail. And we've been through this whole process with our repivoting our teams to work on online to partner with our retailers on online activation customer pickups, those type of things, we feel we built a really good relationships, to be included in some of those programs. As an example, we're working with CBS and Target right now, as well as 7-Eleven on some really big off shelf programs to drive additional awareness of Celsius and to take advantage of the opportunities on partnering with these retailers. So you're going to see a lot of pricing opportunities and promotional activity once we head into summer beverage season, which it seems to be aligned with many retailers, but I think the category overall on pricing remains strong and we have a premium position in the category that is not going to change. We are driving a premium position as this category continues to grow and evolve that is better for you, functional performance energy category that every retailer in the country is looking to expand on. And Celsius is a major component of that category.

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

So great read out, I will keep my questions to four, five. So can you talk about the spike in European volume specifically outside of the Nordics, where are you seeing that tremendous growth from?

Sure. When you look at the European volume, you're seeing that the full quarter of revenue recognition, due to the --with the acquisition of the accretive nature. So we did see good revenue growth within the Nordics as I mentioned Sweden was one. Within Sweden, Celsius was one of the fastest growing energy drink brands in the -- during the quarter according to the Nielsen. The other markets, mainly where the sales are derived from is Norway and Finland. And keep in mind that market was very challenged during the quarter due to the lock downs that which took place. So really the growth was pretty much all driven by the Swedish market, the Swedish market has taken a different approach versus other markets and countries around the world. So that's why we're just finding much of the growth there.

Got it. And could you talk about the introduction of the Peach Vibe limited edition, and besides online where is that being sold?

Just announced our Peach Vibe, our newest flavor, bring excitement to many retailers. Just rolling out right now, we'll have it authorized in many retailers around the country over the next several months as planogram's get reset. Right now, it's available on Amazon and other retailers and soon to be to a fine retailer near you.

Perfect, got it. And can you talk about the closing of Func? And any update as far as snacks and bars in North America?

Yes, I think the acquisition has gone extremely well. We have a really good team over there, we've been working cross functionally within organization, sales -- and a lot of initiatives, a lot of collaboration. And there's further synergistic opportunities as we continue to scale. We're working on renegotiating contracts, warehouses, suppliers, a lot of good things, work from [indiscernible] and margin as well as we grow. We had looked at bringing over the fast protein bar line in North America. Due to the COVID situation we have delayed that some. We're currently still evaluating that and we'll have more to share with you in the quarters to come.

Okay, got it. And then lastly, I think for you, Edwin, can you talk about the inventory and the inventory build? It looks like your comments were about $5.5 million in increase. So where does that lie and how does that relate to the number of counters you're using at least domestically? And is it specific to region or territory or product line?

Yes, thank you. Very good question. Absolutely, yes. The increase of $5 million, $5.5 million and yes mainly here in the U.S. that translates, just to give you some perspective to about 130 days of inventory. And what we did is make sure that we increase our inventories, so that if there is any disruption in the supply chain that we were able to address it. So from that perspective, it was something that we plan for, strategic move, we wanted to make sure coming into the summer selling season that we had good levels of inventory and obviously not have any disruptions. So, yes, absolutely it was something that we did knowingly. And then obviously when you look at inventory levels, we have to look not only at the historic demand but also plan for the future demand as well.

Our next question comes from the line of Jeff Van Sinderen with B. Riley FBR. Please proceed with your question.

You mentioned Walmart as roughly 50% DSD at this point, I believe. Can you give us more color on what you're seeing at that retailer? Maybe touch on converting to more DSD there, how that is expected to go? Then maybe give us a sense, latest sense of how your business is trending with Target and where you are with DSDs there?

Yes, absolutely. Thank you, Jeff. We are working with every single one of our key retailers to flip them over and move them over from a wholesaler direct model over to the DSD partners. Just due to the velocity, we're seeing better in-stocks, better placements, better execution, Celsius is just turning at such a high rate we really need that additional touchpoints at retail. So at Walmart we have -- the stores are being serviced by DSD and we're seeing great results there. We're seeing it in coolers, in addition to the dry shops and seeing good rotation in velocity. The other stores that are going through the warehouse. They're not serviced as well. We're seeing out of stocks and poor execution in retail, so we're supplementing that in certain markets with merchandisers. But what we are also doing is working on flipping those over to the DSD as we build out these territories. So we've been working very closely with the buyers and we feel confident in the back half of this year, we'll have more Walmart's really moved over to this preferred route to market. And the same thing with Target right now. The Targets in the New York metropolitan market are serviced by Big Geyser. We're seeing great velocity there moving from warehouse over to DSD. And we are working with them diligently on flipping over key markets. We already have five markets identified where we have coverage. We're going to be flipping those over in the next few months as we rotate warehouses, and we're also working on other key markets, especially with the Bang news and our further progression on signing up distributors for a national DSD network. So also, we have a big program kicking off with them as I alluded to earlier with Jeff's question, in regards there is some big promotional activity that is planned in July with Target. So that will drive additional volume, placements, execution and move -- allow us to move quicker over to the DSD model where we're seeing great momentum. Target's a great account for us, we're already up to five flavors and we're looking to be a big player in their energy drink category at Target.

Okay, great. And then I know it's early, but any color you can give us on what you're seeing in some of the regions in the U.S. that are starting to reopen and then what are you anticipating in your businesses more as the country reopens?

With everything going on, it's very uncertain as we talked about, it's hard to say what the future holds. With the current environment and some countries open and closed and you're seeing the gym channel come back. Starting to see some businesses reopening, restaurants in key markets, it's really hard to say in the current environment. I will say, which we said publicly that orders in April were up 38%, but it's really a week by week situation many CPG companies and other companies are pulling estimates and forecasts. We don't provide guidance, but we do feel based on initial results in April, we are still maintaining good momentum. What the future holds is to be determined, but we do feel in the overall broader energy drink category, we're in a really good position with everything that's taking place in the macro environment for healthy better for you functional beverages and what's taking place in the energy category.

Okay and then just one more follow-up if I could add to that. Any more color you can give us on how you're evolving marketing plans for the near term and how you are thinking about flexing as plans -- as plans for the U.S. to reopen.

Yes, I mean we've really through the first quarter we really reengineered, a lot of our all the sales and marketing teams to realign them to current opportunities. That's one thing that's great about being a nimble organization. We repositioned our fitness team, and repositioned our foodservice team to help out retail during the pantry loading and they were further working on integration on online integrated programs with our key regional grocery stores, mass market merchants and vitamin specialty stores, which are still open as well. So a lot of integration. It's going to be a lot of social media, e-commerce, I touched on the most recent data point we got, Celsius is the third largest brand on Amazon in the energy drink category that's amazing achievement for our team. It just shows you the momentum we have, we need to further leverage that and move into other segments as well, continue to drive momentum, but we're going to continue to provide emotional engagements with our consumers and continue to build out our fan base and our communities, which is so critical and key to our long-term success. And then, we'll continue to move to back into some online activation, as the markets permit being very cautious and safe through the process, but our goal is to help people live healthy better lifestyle and we want to be there to support them.

[Operator Instructions] Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Thanks. I just wanted to follow up a little bit John on the Amazon point you made number three in terms of energy drinks on Amazon. Can you talk about this quarter specifically whether you were -- you believe you were positively impacted due to COVID-19 for this -- for this quarter on your total online? And if you could just tell us what the growth was online or at Amazon for the quarter?

Yes, our online -- thank you Anthony, the online business has over the years has been a very strong area of growth for Celsius even going back the last five years, six years, if you look at the overall internal online business that we've been able to generate. Yes, there were spikes in our online sales as really shopping pattern shifts, but it was, it was great to see that the tide lifted with Celsius at the same velocity rates as some of the other. And we outpaced the growth in many other brands including Monster and Red Bull. So the growth has been strong what was great to see lot of brands also we're seeing some products are an impulse buy. What we've been able to see with really the fitness channel closing, convenience and foodservice we saw a lot of volume transition over to other channels and Celsius is part of a daily routine. I think that's very critical for the opportunity we have here. We're not just an impulse buy, we're part of a daily lifestyle. That's what we've been building over the last several years, that's what we are continuing to build and that shows you the opportunity we have.

Okay. Then just one last follow-up on the COVID-19. I mean, obviously there has been some positive benefits that you've seen from that. Can you talk a little bit about the, just the positives and negatives and if your prepared, in terms of down the road, any supply chain interruption, what sort of contingency plans do you have, if you the supply chain gets constrained at some point?

I mean positive, I don't think there's really many positives, this is terrible situation we're all in that we need to help everyone, it's heartbreaking what's going on with small businesses -- taking place I think communities. We pivoted and pivoted as quickly as we can, we have samplings and demos that we were doing that we weren't able to do so we pivoted and supported to hear us around the country where Celsius as given out thousands of cases to over 450 hospitals around the country. We pivoted to help consumers and to help small businesses, trainers personal trainers to give them a platform to hopefully they can build and scale their consumer base and their client base with our SWEAT WITH CELSIUS campaigns and repositioned our sales organizations. As Edward mentioned on inventory, starting in January, we really has set contingency plans up in each department going from accounting, to operations, to sales, to marketing, and constantly reviewing those and altering those as we're going through this process. So contingency plans in place. We've implemented we've increased inventories throughout the whole quarter. We've also placed blanket purchase orders for further out periods than we've ever had before, to make sure we have a sufficient supply. We expanded the co-packer networks. So we have availability at multiple co-packers in case there is a situation where our co-packer had to go down for several weeks, which we've heard stories about those. There's just been a lot that the company has done in the organization as we continue to pivot and shift through the current environment. But I do think the company and the employees have reacted really well and been very nimble. Has it been stressful for many? Absolutely. Transitioning many to work from home, it went seamlessly, but it has been difficult, it's not as seamless as working as a cohesive organization as we've done. But in this -- considering the circumstances and the results the team has been able to put up, they've done an amazing job.

Our next question is a follow-up question from the line of David Bain with ROTH Capital Partners. Please proceed with your question.

Great, thanks. If I could just quickly shift back to the distributor relationships and industry dynamics. It just seems like if -- it seems like the options for these distributors are becoming more limited finding a functional energy category company with [indiscernible] growth anywhere near like a Celsius. Just looking at the historical partnerships, though, we found that a lot of them a lot of the distributors would look to take a position in the company itself. Just any kind of thoughts on these types of partnership structures and then also any considerations on aligning more with one major player versus more bifurcated or fragmented distribution structure?

Thank you, Dave. There is a lot of relationships out there. We're working on a variety of them we're going to do what's best for our shareholders and best for the organization, investor, the company, for Celsius to drive to Number 1. That's our goal. We're reviewing a variety of opportunities, we're looking at distributors making sure we are with and aligned with the best distributor possible for that market to drive the best velocity and opportunity. So not going to get into specifics on contract negotiations with given distributors, but we are very much aligned with shareholders interest going to do what's best to put Celsius in the best position possible as we continue to maximize the opportunity we have at hand.

Our next question comes from the line of Shawn Boyd with Next Mark Capital. Please proceed with your question.

Real quick, if you can just help us a little bit, and forgive me if this is a fairly a naive question, but what percentage of your sales are from bricks and mortar retail versus online right now?

We -- historically we used to disclose that information, to be quite honest with you, it's a little fragmented because many of our retail partners are all offering online services. So we've expanded when you look at online we're on walmart.com, we are on Amazon.com, we are on bodybuilding.com, vitaminshoppe.com. There is -- there is many, many.com business is out there. We have a team dedicated to leveraging our retail partners through at pickup services, we're leveraging Instacart, there is so many different mediums now to drive online purchases and home delivery. I don't want to take out one customer, if you're calling online Amazon or Walmart.com, we do not sell direct, we partner with our retail partners on our online business. So there online businesses is our online business. So specifically, I can't really answer that question, because it is -- it is a broader component.

Okay. I hear you on that. Let me let me go to the heart of this, not as in thinking about the impact of you flipping over to the DFDs, maybe another way to come at it would be, what percentage of your retail doors are currently serviced by DSDs? You've talked about the number in the past. And then the number today I think you've [indiscernible] over 100, but if you can help us just sort of how far are we on this shift right now and how quickly would that change, say over the next 12 to 24 months?

Yes, I mean, right now we're at, at the end of the year, we announced roughly approximately 65,000 locations in North America. And today, less than 10% of those doors are serviced by DSD. So the opportunity is massive, the key is all about covering this particular DMAs of the warehouses that are serviced by these key accounts and that's what we've been integrating and working on. And many of these retailers will be flipping over in the back half of this year to this preferred method. But I would say approximately right now you're probably looking at about 10% with DSD coverage.

Okay, very helpful. And that 40% lift that you commented on with the stores in New York, has that been consistent across other geographic markets?

It has. Actually in certain areas it's been even higher. So probably the 40% lift versus going direct to these key accounts seems like a good benchmark on top of the 30% growth rate we've been seeing in existing accounts. So there is a great opportunity by having the DSD coverage because you're getting that sales person in the store on a frequent rotation to make sure the product in stock is properly priced and is available and taking advantage of additional points of disruption and a given outlet and it's all about placements and trade activation.

Really good to hear. Last one from me. Your comment about April orders up 38% year-over-year. Given that we're now an environment where we're starting to see additional states with reopening plans and we understand it's going to be gradual, but as we move forward here, is it fair to assume that is a low mark for the month. I know that's just the first month, but would you -- is it fair to assume we continue, we see those monthly sales growing from here?

Yes, I'm not going to talk about future on what I don't know, I mean there's a lot of questions there. How quickly this traffic return to normal in some of these channels. So I can't really comment on that.

There are no further questions in the queue, I'd like to hand the call back to management for closing remarks.

Thank you. On behalf of the company we like to thank everyone for their continued interest. Our results demonstrates our products are gaining considerable momentum as we are capitalizing on today's health and wellness trends. We are building upon our core and leveraging opportunities and deploying best practices. We have a winning portfolio and strategy and a rapidly growing market that consumers want. Our mission is to get Celsius to more consumers 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 want to thank all of our investors for their continued support and confidence in our team. We wish everyone well. Please stay safe in this current environment. Thank you for your interest and have a great day.

Ladies and gentlemen this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.