Celsius Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 13 speakers on the call.

Operator

Greetings. Welcome to the Celsius Holding, Inc. 1st Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator

Please note this conference is being recorded. It is now my pleasure to introduce your host, Cameron Donahue, Investor Relations for Celsius. Thank you, Cameron. You may begin.

Speaker 1

Thank you, operator, and good afternoon, everyone. We appreciate you joining us today for Celsius Holdings First Quarter 2023 Earnings Conference Call. Joining me on the call today are John Fieldly, President and Chief Executive Officer and Jared Langans, Chief Financial Officer. Following the prepared remarks, we'll open the call to your questions and instructions will be given at that time. The company released the earnings press release earlier this afternoon and all materials will be available on the company's website, celsiushoiringsinc.com.

Speaker 1

As a reminder, before I turn the call over to John, an audio replay will be available later today and can be accessed with the same live webcast link In our conference call announcement and earnings press release. 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 May 9, 2023. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. Except to the extent as required by 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 statements contained in today's press release and our quarterly filings with the SEC for additional information.

Speaker 1

With that, I'd like to turn the call over to President and Chief Executive Officer, John Fieldly for his prepared remarks. John?

Speaker 2

Thank you, Cameron. Good afternoon, everyone, and thank you for joining us today. We achieved record sales for the Q1 of approximately 260,000,000 An increase of 95% from last year's Q1 of $133,000,000 exceeding the $200,000,000 revenue threshold for the first time in company And we saw a sequential increase from the Q4 of sales of $178,000,000 exceeded it by 82,000,000 Our 46% growth sequentially. Our North America revenue increased 101% for the quarter to $249,000,000 Up from $124,000,000 in the year ago quarter. Celsius continues to be the top driver of growth within the energy category Was the number 1 dollar growth brand in total U.

Speaker 2

S. MULAC Energy for the last 52 weeks ending as of March 26, 2023, Growing approximately $552,000,000 in increased retail sales and contributed to 23% of category growth on an overall increase of 139.6% versus the year ago period. Per IRI, in the last 4 weeks ending as of March 26, 2023, in total MULARC Energy, Celsius is the number 3 energy drink brand in the United States, reaching a new market share record totaling 7.5%, Doubling its 3.7% share a year ago. As Celsius and Pepsi continue to synchronize our organizations, We continue to see opportunities for future efficiencies. In the Q1, we experienced an inventory build quarter over quarter from December 31, 2022.

Speaker 2

We expect this increase was due to anticipated retailer resets and to build inventory levels. We will continue to work with Pepsi To make sure there is adequate inventory and update shareholders quarterly if there is any significant deltas that impact the warehouse In center inventory levels, Jared will provide additional details shortly. We continue to see growth across all channels, including those non tracked With the club channel sales totaling over $47,000,000 for the quarter ending March 31, 2023, up 77% compared to $26,000,000 in the Q1 of 2022. We also just hit a new record on Amazon. Celsius is now the 2nd largest energy drink brand with a 19.1 share of the energy category As of the last 4 week period ending April 22, 2023 per Stackline Energy Drink Category Total U.

Speaker 2

S. Data. In addition, we continue to expand growth opportunities and non track foodservice channels and are gaining more distribution in colleges, universities, hospitals, hotels, eateries and casinos and more. Overall, foodservice represented approximately about 10% of our PepsiCo revenues and we see significant opportunities to scale and grow over time. We have been extremely happy with our PepsiCo partnership and see a long runway of growth ahead of us across a variety of channels, including expanding in retail, convenience and foodservice.

Speaker 2

As highlighted in our earnings supplement, for the 4 week period, Per IRI spends total energy data ending March 26, 2023, as stated in Mulak, Celsius is the number 3 energy drink brand in the United States, now has a 7.5 market share, doubling from its 3.7% share a year ago, reaching an all time new high. In addition, in Mulak, Celsius grew its ACV to a record 95.4% versus 69.5% in the year ago period, which is a tremendous achievement by both our teams and our partner, Pepsi. And in convenience, Celsius has gained an additional 37.7 points of ACV growth versus the prior year To end the period at a 93.4% compared to 55.7% of ACV in the prior year. This provides a tremendous opportunity as we have gained greater availability across the country in the convenience channel and are now gaining more awareness with consumers. Internationally, sales grew 15% growth rate for the quarter, totaling $11,400,000 compared to $9,900,000 in In the Q1 of 2022, we believe there is significant opportunity for international growth going forward with PepsiCo, while we just began our distribution partnership with Pepsi And our initial focus has been on the U.

Speaker 2

S. Distribution transition to their network. We have begun initial discussions And we see significant opportunities to capitalize on global scale in the future, reflecting the changes in consumer preferences for better for you offerings. While the U. S.

Speaker 2

Transition has taken a majority of our focus to date, we do expect to announce additional international expansion details in the future. With that said, we look forward probably likely to early 2024 for opportunities to roll out internationally with 2023 being the year Planning around logistics, production, distribution and marketing. The company achieved a record non GAAP adjusted EBITDA A $48,700,000 for the Q1, representing over an 18% of sales for the period. This was driven by not only a record sales, but we also saw benefits across the timing of marketing and sales programs as well as the results of gaining operational leverage across G and A. Although we saw some very good leverage across our SG and A, We would expect our investments to increase during the summer season of Q2 and Q3 of this year as we continue to drive growth, awareness profitably and are entering into a number of campaigns designed to grow brand awareness.

Speaker 2

The company sees opportunities to drive incremental efficiencies through In addition, we see additional leverage opportunities as we scale to drive further efficiencies in our SG and A. To close my prepared remarks, we achieved the highest quarterly dollar sales growth in company history in the Q1 And as previously our previous recorded highest quarterly record revenue was in Q3 of 2022, we exceeded by over $70,000,000 We are gaining market share at the fastest pace in company history, while at the same time drove the highest quarterly EBITDA margin of over 18%, Devastating the leverage in our operating model. We believe we have significant runway ahead of us and are excited about the Spring resets driving additional shelf space in both new and existing customers while optimizing our placements. Celsius is now an established leader in the energy category, driving growth in the entire category with incremental opportunities for further growth as we continue to scale and leverage our partnership. I will now turn the call over to Jared Langans, our Chief Financial Officer for his prepared remarks.

Speaker 2

Jared?

Speaker 3

Thank you, John. Turning to our Q1 financial results, revenue was approximately $260,000,000 an increase of 95% From $133,000,000 driven by our North American business, our first quarter revenues were $249,000,000 an increase of 101% from the same The primary factors behind the increase in North American sales volume were related to our integration into the Pepsi distribution system, Where we saw increases across the board, including continued strong growth in traditional distribution channels, including SKU increases, as well as distribution across a number of new channels within CNG and Foodservice. We've also seen our velocity increase post our significant ACV growth. During the quarter, we saw an increase in the days inventory outstanding within the mixing centers relative to the end of 2022, which equated to roughly $20,000,000 to 25 We would anticipate that this build would be sustained through the summer selling season as we continue to see steady growth across our footprint. Gross profit for the quarter increased 111 percent to $114,000,000 up from $54,000,000 in the year ago quarter.

Speaker 3

Gross profit margins in the Q1 were approximately 44% of revenues compared to approximately 40% for the prior year Q1. The improvement in gross profit margins was due to lower average can prices and leverage of our Orbit model, offset in part by increased freight and a few $1,000,000 of inventory write offs. Q1 was the 2nd quarter that we were operating within our new distribution system and we continue to drive efficiencies and optimization within the system while maintaining our number one goal of keeping the shelves stocked in order to meet the consumer demand. And looking out across the year, we continue to believe that we will operate With gross margins in the mid-40s, with some pressure during the first half of the year, while we fully integrate into our new distribution system and begin to better optimize our supply chain with Sales and marketing expenses for the 3 months ended March 31, 2023 were approximately $48,000,000 An increase of approximately 51%. Although we saw increased marketing investment during the quarter in line with historical spend, This was offset by less expense within sales due to timing of our activation.

Speaker 3

As a percentage of sales, sales and marketing was 18.3% Compared to 23.7% in the prior year, on a full year basis, we continue to expect our sales and marketing expenditures to remain consistent with historical run rates. As noted, this quarter benefited by timing as well as some inventory builds within our mixing centers. General and administrative expenses for the 3 months ended March 31, 2023 We're approximately $21,000,000 an increase of 75% relative to Q1 2022. This increase was due to increased employee costs associated with building a back shop that can scale as we grow, including stock based compensation as well as administrative fees such as legal, audit and other consulting fees. G and A expense as a percentage of sales was 8% for the Q1 of 2023 versus 9% in the prior year, which is in line with expectations.

Speaker 3

We'd expect to see this area begin to leverage against our growth during 2023. Moving to our back office build out, we have significantly expanded our back office team over the last year, adding a number of team members across IT, T, FP and A, controlling, legal and HR driving great improvements, consistency in processes and transparency across the business. We look forward to the many successes that these team members will assist us with as we look to deliver an effective control environment for 2023 and drive further value with our operations, sales and marketing teams. From a legal perspective, we have closed on the settlement proceedings with our can label and are pleased to have that behind us. In regard to the SEC review, we continue to cooperate with any inquiries or requests that are received.

Speaker 3

With that said, we do not have any further updates at this point in time. Focusing now on liquidity and capital resources. As of March 31, 2023, we had cash of approximately $634,000,000 and net working capital of approximately $801,000,000 Included within the Q1 cash balance was approximately $38,000,000 which is primarily balances due to Pepsi representing excess funds provided by Pepsi For our distributor transition. Cash flows used by operating activities totaled $14,000,000 for the Q1, which compares to $9,000,000 in net cash provided by activities in Q1 last year. Overall, we saw some cash usage associated with our growth as well as the timing of working capital.

Speaker 3

As we look to Q2, we would expect to return the excess funds to Pepsi, while also improving on our DSO. Overall, we would expect that excluding timing impacts of cash Transactions associated with the Pepsi transaction, we will continue to generate cash year over year. Looking at inventory, total inventory ended at roughly 150,000,000 Down versus the prior quarter, this was driven in large part by the significant increases that we saw in our sales volume. As we look to the busy summer months, We will see production increase significantly to accommodate the demand of the market. Going forward, we look to we would look to carry additional inventory in In order to make sure that we are able to keep up with the significant growth we are experiencing, at the same time, we do see opportunities to drive efficiencies in our DIO as we move through 2023.

Speaker 3

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

Operator

At this time, we'll be conducting a question and answer A confirmation tone will indicate your line is in the question Our first question is coming from Mark Astrachan from Stifel. Please proceed with your question.

Speaker 4

Hey, thanks. Good afternoon, guys. Man, I'm still writing down some of that stuff that you just breezed through. That is a fast transcript. Anyway, I guess to start, maybe give us a bit of an update on how the spring resets look from a shelf standpoint, how much is an existing energy doors?

Speaker 4

How much is coming in or going into new doors and kind of overall expectations for incremental space for the year?

Speaker 5

Yes, Mark, great question. I think we had a we're really excited about the resets that started off this year, especially started In January, we saw a good increase in the quarter. What we're looking at is we saw a lot of great expansion, as I kind of mentioned on the call, in the convenience channel. We saw the biggest really ACV gains when you go from over a 37.7% really increase in points of distribution and convenience. So That's a really big win for the company.

Speaker 5

It's really the last channel of expansion for us into trapped channels. So We're really excited about that. I think we're seeing good velocities in the convenience channel as well. We're seeing them grow. So that was a that's a big win.

Speaker 5

Also in overall, LULAC getting to that 95.4 percent of ACV, most recently as of the March 26 data Coming out of the IRI spends data. So I think we have some more expansion there, but we really grew significantly on the resets. Also the number of items carried on average per store increased as well. So right now, we're looking at about Average at the last 4 weeks as of March 26, really at the end of the quarter, we went from an average of about 13 point 6 items per location in a recorded channel versus the prior year was at 8.6. So we saw a really good growth in the number of units.

Speaker 5

We got some more resets ahead of us. I think the biggest opportunity we have as well as in track channels is really gaining better placements in locations, More cold availability, more cooler placements and those type of execution. So maybe not a large increase in number of doors being at the 95 At the end of the quarter, but really the breadth in each retailers, they have massive opportunity for us.

Speaker 4

Got it. That's helpful. And maybe just on the doors. So existing doors versus New doors, do you still want to be in the legacy energy door? And then somewhat related to that, I think many folks have been surprised that the velocity is being not only as strong as they've been, but actually accelerating with all the incremental points of distribution.

Speaker 4

How much of that is just higher velocity C stores versus just overall brand awareness? And how do you think about that number through the summer?

Speaker 5

Yes. I think when you look at our, I guess, as you call them legacy doors, that's mainly in the food. When you look at the food channel, We still maintain in the HCC section in a variety of stores, including Publix and Kroger in those. But majority of the stores outside of those are in energy. So we do great business in the food We do extremely well at Publix, doing extremely well at Kroger.

Speaker 5

So it's really about gaining those additional off shelf placements, those additional coal placements, cooler placements. And so I mean, we're not going to change that strategy within the food in our existing business at this time.

Speaker 6

But when

Speaker 5

we look at the distribution ahead, there is opportunities for additional SKUs. We see that. We've got some great innovation planned for this summer. I I think you saw some great innovation come out in the Q1 with new flavor innovation, our lemon lime, our green apple cherry flavor at 711 was a great win for us. So there's a lot of great innovation coming this summer that we'll be able to add some additional breadth within the retailers.

Speaker 4

Great. And just on the velocity? Thank you.

Speaker 5

Yes. I mean, we're seeing velocity increase, Mark. I think there's opportunity Sure to go further north on that. We've got some great marketing programs ahead of us, and we think summer is going to be a great summer for us. We're watching it closely.

Speaker 5

I think We don't provide any forward guidance, but something to look at and we're monitoring it closely all around, especially as we've increased such an exponential increase in ACV.

Speaker 7

Got it.

Speaker 4

Thanks, guys.

Speaker 5

Thanks, Mark.

Operator

Thank you. Your next question is coming from Jeff Van Sinderen from B. Riley. Your line is

Speaker 8

live.

Speaker 9

Hi, everyone. And let me add my congratulations on the strong quarterly metrics. I wonder if we can kind of circle back to and delve a little bit more into how much of the Q1 re Lower region of growth was initial channel fill for new stores, new doors, call it, added SKUs, Etcetera versus reorders derived from sell through at retail. Just trying to get a better sense, I guess, of how much the initial channel fill Impacted in new doors, new SKUs in the quarter and then maybe what impact that phenomenon might have in Q2. I think you alluded to a little bit of that or Jared did in his prepared comments, maybe just how we should think about growth acceleration from here.

Speaker 5

Yes. No, thanks, Jeff. We did gain some distribution with the resets that taken place. And I think As we're starting to see velocity increase, that is a really good sign that we're cycling through whatever pipe sales we had for the quarter. So The increase in distribution didn't slow the overall velocity.

Speaker 5

So the sales are moving quicker out of the register. So I think that puts us in a good position. We feel really confident. It's hard to say exactly what the pipe fill was. We did talk about in the quarter How we saw Pepsi increase inventory levels, which Jared talked about earlier in regards to approximately $20,000,000 to $25,000,000 we feel is the average impact for the quarter With the increased inventory levels, but I think seeing the velocity increase, I think we're getting a really strong feeling that we're seeing repeat purchases out there.

Speaker 9

Okay. That's helpful. In quantifying the inventory with Pepsi. And let me ask you this, as you're going into some of the I mean, you've got a great ACV now. So you're going into some, I guess some C stores, for example, that might be lower volume, some other stores within various retailers that might be Perhaps a little bit lower volume.

Speaker 9

Just wondering what you're experiencing there as far as sell throughs? And then, overall, what's your outlook Your business in the C channel.

Speaker 5

Yes, I mean, that's a great question. I mean, we did gain a lot of Tier 3 and Tier 4 convenience distribution, especially with the expansion since October with the Pepsi system, We had a lot of Tier 1 and Tier 2s. It's really building out a further breadth within those within our convenience where we're seeing starting to see velocities Increase. I think when you look at the smaller Tier 3, Tier 4s, the lower velocity, It's difficult to get the true reporting on that, on the velocity. I think we're looking at the overall velocity as a good number on indication and How the overall health of the portfolio is performing, and I think we're really confident in convenience.

Speaker 5

I mean, we know this brand performs well. We're seeing usage occasions expand outside of energy, and we're just really excited on where the brand is and where the portfolio and where we're headed. So It's something we're monitoring closely. But FoodserviceNow, when you look at Foodservice opportunity, which is 10% of Celsius' business, It just shows you the broad brush of the portfolio and how it's resonating with a broad brush to consumers today.

Speaker 9

And it sounds like you're gaining more you feel like you're gaining more Tracking in foodservice and some of the other channels as well that are not reported or not tracked?

Speaker 5

That's correct. We see great opportunity in non tracked channels as well.

Speaker 9

Okay, terrific. Thank you for taking my questions. I'll take the rest offline. Continued success.

Operator

Thank you.

Speaker 5

Thank you, Jeff. Our next

Operator

question is coming from Kevin Grundy from Jefferies. Your line is live.

Speaker 6

Hey, great. Good evening, guys. Good evening, Kevin. Hey, question, John, for you. Just In terms of the ambition now with items per store, so the ACV progress has been fantastic.

Speaker 6

I remember a conversation you and I had in the fall and it was a 10% market share was kind of an ambition at that point. If we can get 92% ACV, if we can get 15 items per store, if we can maintain current velocity and you're kind of checking all the boxes At this point, so around 7.5% share, this path to 10% is very, very near and present now. So as you kind of take a step back, what do you think is possible now in the Pepsi system? The 10% again seems like It's very attainable and near term. What do you think is possible now for this brand as you look at the strength and the reach Of the Pepsi system as well as what you guys have done with the brand?

Speaker 6

Yes.

Speaker 5

I think, Kevin, I mean, it's a great question. I think we're just seeing this ACV, and we're quite amazed with how quickly the ACV has come together at a 95%. Internally, we thought we were going to at least take potentially another 12 months, 18 months to get to that 95% ACV. So Totally really give hats off to our sales team, our key accounts team, and also all the partners at Pepsi has done just an amazing job. I think they see the opportunity we have here with Celsius that it's bringing in new consumers to the category.

Speaker 5

And I think when you look at it, we have a lot to learn over the next probably a quarter or 2 to see how this product, this portfolio performs in the channels that it's Especially in the convenience channel so quickly. So I think we'll have a better view of that probably the end of next quarter and especially at the end of Q3. But When you look at the number of items per store, we're at 13.6. And when you look at some of the current velocity numbers we had on our first few items And you look at gaining 15 to 17 items per store by the end of the year, that's a potential, that gets you close to that 10% 10% a share in the category. So we're really excited to hit the 7.5 share Most recently at the end of the Q1 and there's lots of opportunities to

Speaker 6

add. Got it. Thanks, Sean. And then just a follow-up, I feel like Probably be remiss if we did not touch on some of the competitive launches in the space, including Monster 0 Sugar, Rainstorm, which I think is not lost on you for a moment, kind of looks remarkably from a packaging perspective like your product, Prime in sports and energy. So there's been a lot in a fairly short period of time, and I know it's still very early days with 0 Sugar and Rainstorm, which you're kind of just hitting.

Speaker 6

Thoughts there in terms of how worrisome those competitive launches are? Anything you're seeing very early days Where there's some overlap with Celsius, anything you can give there in terms of market share, velocity, etcetera, I I think it would be helpful to folks. I can pass it on. Thank you.

Speaker 5

Yes. Kevin, great question. I mean, There's competition every day. An energy category is about as fierce as they come. Tons of new competition every day.

Speaker 5

And I think where the opportunity lies, what we're looking at, when you talk about where Celsius can go and like in Miami, when you look at the Miami Fort Lauderdale Market in Mulox, the last 4 weeks ending as of April 23, 2023, we have about a 21.7 share In the market, so there's a lot of opportunities. We're number 2 brand now on Amazon. We compete with a lot of different brands in the category. I'm not going to comment on any other brand out there. There's a it's a big category.

Speaker 5

We wish every brand luck on operating their business. We're really excited where our portfolio It is where it's resonating with consumers, excited about our partner, Pepsi, and just see a lot of opportunities At this time, we're really excited about moving forward.

Speaker 6

Okay, very good. Thanks guys. Continued success.

Speaker 5

Thank you.

Operator

Thank you. Your next question is coming from Peter Grom from UBS. Please proceed with your question.

Speaker 10

Thanks, operator, and good evening, everyone. So Jared, I just had a few questions on gross margin. Maybe just first, can you just help us understand how much Tory write off impacted GM this quarter. And then second, I recognize you still expect Gross margin for the year in this mid-forty percent range. And I may have misheard you, but I thought you mentioned that you expect 1 half gross margins to be under I mean, is that just relative to the mid-forty percent range?

Speaker 10

Is that year over year? Just any color on that comment would be helpful.

Speaker 8

Yes. No, we were we've been consistent with saying we're going to be in the mid-40s. If you looked at the run rate we left Q4, we did see some additional write offs on inventory as we are building out the supply chain and driving some efficiency Within that channel, as I mentioned on the call, it's a couple of $1,000,000 So not a huge amount, but enough to impact the margin a little bit. We also had a little bit higher freight costs within the quarter. So as we get to the back half of the year, we'll You're looking to clean up the freight lanes and make sure we got the supply chain operating as efficiently as possible and making sure we're fully optimized.

Speaker 8

So that It was really just around the inventory and the freight in terms of what would have driven margins really from a Q4 to a Q1 perspective. But we're still confident in the mid-40s and we see the opportunity for upside in the back half of the year as we get fully integrated into our new distributor.

Speaker 10

Okay, super helpful. And I

Speaker 5

guess just I would love

Speaker 10

to get some more details on kind of this international discussion. And I recognize that it's likely to prove to be a 'twenty four narrative. But Can you maybe just help us understand the work you've done that informs the decision that the brand can resonate and do well in these markets? What markets are you targeting initially? Is this going to be some broad based multi market rollout?

Speaker 10

Is it going to be more gradual? Just any Initial color you can provide would be super helpful.

Speaker 8

Yes. I think we've talked about this on Some of the conferences we've been in back in March, but from our perspective, we look to hit markets that are obviously Already well defined energy markets, so we're not going into a new market that we have to train the customer on what is energy. So if you look around kind of think of APAC in Europe, the different markets that are popular energy drink markets, we'd look to roll into those 1st, we're not going to do a shotgun approach. We'll look to go into a handful of markets first and learn And partner in most instances with Pepsi or Pepsi Partners and really use that as a tool to learn To build the model, and then from there, we would look to roll into more markets over the coming years. But I would say for kind of a 2024 launch, we're We're looking at a handful of markets to really get into, understand them, learn them, but they're going to be the bigger energy markets across Europe and APAC.

Speaker 8

We do see some opportunities in some smaller markets where we can kind of roll in Because they're close to co packers and they're ready, but those wouldn't really move the needle. So there are some core markets we'll learn at and most people know what those markets would be if you look in Europe and in APAC in terms of What are the big energy drink markets? So that's really this year, it's all about planning. It's about getting aligned with the partners. It's about Creating market launch plans and then looking to roll out in 2024.

Speaker 10

Got it. Thanks so much. I'll pass it on.

Operator

Thank you. Your next question is coming from John

Speaker 11

Hey, everybody. Congrats on the quarter. I just wanted to drill into the foodservice commentary you guys had. If I heard correctly, that was 10% of sales in the quarter. And I'm just wondering maybe what the impact As Pepsi kind of brought in that inventory to sell, what that what the pipe fill for foodservice might have been in 1Q?

Speaker 5

Yes, John, great question. That is this is correct myself there. 10% of our Pepsi sales approximately is coming From the foodservice business. So, we've been working on that since October. So, when we first launched initially partnered with Pepsi.

Speaker 5

So, We've been expanding distribution in a variety of outlets and college, universities, hospitals, just expanded into a variety of hotels. So it is not really a pipe fill in the quarter, I would say. We just continue to continue to build upon the momentum. We are gaining more distribution, but we're seeing good reorders and strong reorders within the channel. And we think that can be a really meaningful growth opportunity for us As we go forward and gain more distribution, we just really as we look ahead, the distribution opportunities is At eateries and within fast casual restaurants, we feel there's a great opportunity there, and that's really has been untapped.

Speaker 5

So It definitely tells you the brand resonates with an extremely broad consumer, just to see the sales mix at the Pepsi system Of approximately 10% of sales today. So it gets us really excited.

Speaker 11

Great. Just one follow-up. I guess looking at the Nielsen data, this is a boring question that got asked a lot last quarter. But I have 1Q growth in scanned channels about 138%. If we use that and sort of apply to what 1Q was in 2022, It implies something like $290,000,000 It's about a $45,000,000 difference, whereas if you do the same math on in 4Q, it's about a $50,000,000 difference.

Speaker 11

Is that the same kind of like The lag between scanned and reported that we should kind of expect, is it going to be is there any line of sight you guys have to some lumpiness or More or less or any kind of swings in that regard?

Speaker 5

Yes. I mean, what you're getting on stand data is coming out of the register. So when you look at it, I think there's There's probably some lumpiness in regards to the kind of the value chain as it's going through the Pepsi mixing centers and then into their sales barns and then into The customers are then cycling through, but it's something we watch. You also have the mix of our Amazon business as well as our club business, And there's that's in there. It didn't grow at those faster rates.

Speaker 5

So I think it's a mix of all those items and probably a little bit of timing.

Speaker 11

Okay. Thank you.

Operator

Thank you. Your next question is coming from Gerald Piscarela from Wedbush Securities. Your line is live.

Speaker 5

Hey, guys. Good evening. Thanks very much for the question. Obviously, very strong revenue growth here. It sounds like distributor inventory levels are Going to remain elevated at least over the next few months.

Speaker 5

So just on your supply chain, can you speak to your ability to continue to service this type of demand maybe over the longer Term in particular as it relates to your aluminum can supply, which is now back to being sourced domestically, which has obviously had a big benefit to your margins. So just I guess any kind of high level color you could provide on your thoughts there would be helpful. Thanks.

Speaker 8

Yes. From a raw material perspective, we're in great shape. We've got multiple partners In the U. S, like you mentioned from a can perspective, no issues there. From a capacity perspective, we've got the ability to Quickly double in terms of capacity and in terms of production.

Speaker 8

We've got our orbit model built, but we've got a Number of co packers that we can flex to and we have capacity at our current co packers that we can utilize as well. So we're in great shape In order to meet the demand we're seeing or even demand outsized relative to what we're seeing. So from a supply chain and production perspective, we're in good shape.

Speaker 5

Perfect. Thanks, Jared. Appreciate it. Next one for me is just on the club channel. If you could just provide maybe a refresher Of where we are kind of on the 18 pack transition, I know you were in the midst of rolling out a second variety pack to your legacy stores.

Speaker 5

And then finally, on the BJ's Roll out, just where we are with that. I know that, that was taking place over the course of this quarter. Thanks. Yes, Jarrod, it's John. We've Pretty much have moved into the 18 pack within all of the club channels, and we've started to expand from our core Variety pack.

Speaker 5

In addition, you'll see incremental placements at a variety of club channels with our 5 pack that went in. So, and it's been doing both packs have been doing extremely well. And I think there's opportunities to get further Flavor combination and or single flavors in that channel since we're seeing great success there. Perfect. Thanks very much for the color guys.

Speaker 5

I'll pass it on. Thank you.

Operator

Thank you. Your next question is coming from Michael Lavery from Piper Sandler. Your line is live.

Speaker 7

Thank you. Good afternoon.

Speaker 5

Good afternoon.

Speaker 7

Just wanted to come back to the $20,000,000 to $25,000,000 inventory you mentioned for the Pepsi system that The inventory build with the ACV running ahead of your expectations and velocities as well. Is there a good portion of that that's really just an adjustment to faster sell through and kind of a reset to normalized levels that are above what they Would have initially expected or is that really some cushion that's volume that's pulled forward? Can you Kind of dissect it out of that amount if there's a bit of both?

Speaker 8

Yes. So There's a bit of a build for the summer selling season, so to get ready for it and to meet the expected volume. So to your point, a bit of that is In anticipation of Q2 and Q3, we've also got a number of activations in a number of sales and marketing Programs that we've got ahead of us over summer. So, I would say it's partially well, in large part, it's preparation of what's to come. Okay.

Speaker 7

That's helpful. And just on the SG and A run rate, it's been in roughly the same neighborhood the last 3 or so quarters. Looking ahead, I know you've talked about stepping up the marketing a little bit, but you also get some operating leverage benefits From the revenue growth, how do we think about just how that might look over the rest of the year?

Speaker 8

Yes. So our plan is or at least our expectation is if we have the opportunity to continue to drive velocity, We want to maintain our kind of historical run rate. I think on our last call, we talked about kind of 22% to 24%. I think historically, we've been more in that 23%, 24% range. So we were talking about can we shave off a couple of percent this year.

Speaker 8

We did just over 18% in the quarter. We did benefit with some of that Inventory build, but also with the speed at which our revenues are growing and the ability that our marketing team has been able to really drive that The sales team has been able to drive the ACV with Pepsi. So we have been benefiting and seeing leverage there. We are going to we've got 100 days of summer program. We've got activation and a number of things we'll be doing over the summer.

Speaker 8

So we do look to increase our marketing and sales spend. And so at least for the summer period, The goal is to stay consistent with history, but there is opportunities with the rate we're seeing the revenue We'll continue to leverage and I think the goal for the year was to end the year roughly at that kind of 22% marker. Can we do better? If we have the opportunity, we will. But at the same time, we want to make sure that we're putting the right money into the right investment and making sure those velocities continue to grow.

Speaker 7

Okay, great. Thanks so much.

Operator

Thank you. Your next question is coming from Thomas McGovern from Maxim Group. Your line is live.

Speaker 12

Hey, guys. Thanks for taking my question. So just to start, I just Have a question on the back office build out. So given your summer launches, which you guys have mentioned quite a few times and then This presumed transition into the international markets, just want to get an idea of how you guys are looking at it. Do you think it's a sufficient build out for the near term?

Speaker 12

Or do you expect to continue to build On your back office throughout 2023?

Speaker 5

Well, I think when you thanks, Thomas, for the question. I think when you look at the back office, as Jared was talking about, We've been building it out really on our finance, IT that he's referencing as well as our GL teams As well as our legal teams. So when you look at back shop office there, we've built out a great team, probably have a few more hires here that we're working on. But we've been really investing as well in addition to Jared's departments that we're just referencing on specific finance, HR, legal areas. We also are investing in operations department as well.

Speaker 5

So we'll have some additional hires there as we scale and gain more, really and open up additional co packers And have greater runs taking place to drive more efficiencies with logistics and so on. But we have also been investing and continue to plan to invest and grow our sales Teams and marketing teams as we build out. I think you're going to start see you're going to see leverage opportunities, especially when you look at building out the human resources. And I think we're going to get better leverage on our marketing investments, especially now that we have much broader distribution on hand and have reached that 95% ACV in the U. S, now when we build out internationally and the plans we're working on, we will be investing in these new markets.

Speaker 5

We'll have more details on that as we continue to get further and in the back half of 'twenty three and 'twenty four, but there will be initial investments that will be required to enter

Speaker 12

Great. Thanks for that color. And then Just my last question real quick is if you guys are still providing these metrics, I was curious to know how many branded coolers there are at the end of the quarter, How many coolers you're in total? And then just kind of where you guys are at in terms of penetrating Pepsi's? I believe it was 50,000, Pepsi owned Energy Coolers

Speaker 5

Yes. We've eliminated some of those Specific details that we were due to competitive competition coming on the category vigorously. So We still have a big presence and a big push for coolers, and that's a big opportunity for us gaining more coal placements. We see that opportunity. Now the number of coolers we're investing, we made a decision not to disclose that specific number On a go forward basis, but we are investing in coolers.

Speaker 5

We're investing additional placements, off shelf racks and those types. And you think there's a lot of opportunities. In the past, in the last call, we said we were working towards and planning to have place by the end of the year of approximately 20,000 Celsius branded coolers, but That's we're not going to provide any additional color on that.

Speaker 12

All right, understood. I appreciate you taking the time to answer my questions and congrats on the great quarter.

Speaker 5

Excellent. Thank you.

Operator

Thank you. Your next question is coming from Sean McGowan from Roth. Your line is live.

Speaker 5

Thank you, guys. Yes, I had a couple of questions. One on freight. Have you seen And is any of the higher cost of

Speaker 8

Hello? Sean,

Speaker 5

are you there? No. We've seen you drop the signal? I must be having a problem with the signal. I'll just talk to you guys later.

Speaker 8

Okay. Okay.

Operator

Thank you. That concludes today's conference. We have reached the end of our question and answer session. I will now turn the call over to management for closing remarks. Please go ahead.

Speaker 5

Thank you, Matt, and thank you, everyone. On behalf of the company, I'd like to thank everyone for their continued interest and support. Our 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 lifestyle position is a global position with mass We're building upon our core business, leveraging opportunities and deploying best practices.

Speaker 5

We have a winning portfolio, Strategy and team in a rapidly growing market that consumers want. I'd like to thank all our investors for their continued support and confidence in our team. The company will be attending several upcoming investor conferences the week of May 22, including Goldman Sachs and B. Riley. And in June, we will be attending Stifel, Evercore and Jefferies investor conferences, and we look forward to meeting and seeing many of you there.

Speaker 5

Thank you, everyone, for your interest in Celsius. Stay healthy and live fit.

Operator

Thank you, everyone. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Celsius Q1 2023
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