Celsius Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 7, 2023

Key Takeaways

  • Celsius achieved record Q3 2023 sales of $385 million, up 104% year-over-year, driven by North American revenue growth of 107% and earning a 10.5% U.S. energy drink market share (vs. 4.4% last year).
  • Partnership with PepsiCo expanded distribution to 95.6% ACV (from 72.1%) and unlocked new channels, including availability at over 2,000 Jersey Mike’s locations and authorization in more than 3,000 Dunkin’ Donuts.
  • Profitability improved sharply, with gross margins rising ~860 basis points to ~50.4%, non-GAAP EBITDA up 318% to $104 million (27% of sales), and net income of $70.5 million versus a prior-year loss.
  • Innovation and international rollout are accelerating, highlighted by the launch of Cosmic Vibe and the new 16-oz Celsius Essentials line, and plans to enter Canada in Q1 2024 with further global expansion over the next 3–5 years.
  • Digital and club channels remain growth engines as Celsius became the best-selling energy drink on Amazon (21.4% share), #1 on Instacart, and drove club channel sales to $63.2 million (up 83.3% YoY).
AI Generated. May Contain Errors.
Earnings Conference Call
Celsius Q3 2023
00:00 / 00:00

There are 12 speakers on the call.

Operator

Greetings, and welcome to Celsius' Third Quarter 2023 Financial Results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cameron Donahue, Investor Relations for Celsius Holdings.

Operator

Thank you. You may begin.

Speaker 1

Thank you, and good morning, everyone. We appreciate you joining us today for Celsius Holdings' 3rd 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 at that time. The company released its Q3 earnings press release earlier this morning, and all materials are available on the company's website, celsiushorningsinc.com, as well as in the SEC's website, sec.gov.

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 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 November 7, 2023. These statements involve numerous risks and uncertainties, including many 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 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

Additionally, management will share operating results on both the GAAP basis and on a non GAAP basis. Descriptions of those non GAAP financial measures that we use, such as non GAAP Adjusted EBITDA and reconciliations of these measures to our results as reported in accordance to GAAP are detailed in our earnings press release for the Q3 of 2023. 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 morning, everyone, and thank you for joining us today. Celsius achieved record sales in the Q3 that totaled approximately $385,000,000 up 104% from $188,000,000 for the prior year Q3. This was driven predominantly by North America revenue, which increased 107% to $371,000,000 up from $180,000,000 for the prior year Q3. Celsius continues to be the top driver of growth in the energy category, Last 52 weeks per IRI total U.

Speaker 2

S. MULARC Energy category data ending October 8, 2023, growing approximately $950,000,000 incremental dollars, up 144% versus year ago, while representing percent of all category dollar growth. In addition, our unit growth totaled 289,200,000 incremental units, an increase of 114% versus a year ago and totaled 39% of all category unit growth. Per IRI, in the 4 weeks period ending October 8, 2023, in Mulox, Celsius is the number 3 energy drink brand in the U. S.

Speaker 2

With approximately a 10.5 share market share, more than doubling its 4.4 share in the same period last year. This Dollar growth on 10.5 share has not been achieved in the last decade. We continue to see growth across all channels, both tracked and non tracked, With our club channel sales totaling approximately $63,200,000 for the quarter ending September 30, up 83.3 14 weeks ending September 30, 2023, Celsius is now the best selling energy drink On Amazon, with approximately a 21.4 share in the energy category, ahead of Monster at an 18.6 share and Red Bull at a 13 share. Our Q3 2023 Amazon sales totaled approximately $22,200,000 versus 15 point 6000000 for the year ago period, an increase of approximately 42%. Celsius is now the number one energy drink brand on Instacart and continues to outpace that category growth as a largest and fastest growing brand on the platform.

Speaker 2

We continue to expand growth opportunities in non track food service channels and are gaining more distribution points at colleges, universities, Hospitals, hotels, eateries, casinos and more. Overall, food service continues to exceed approximately 10 percent of our PepsiCo revenues, and we see this area as an opportunity for further growth in scale. We are extremely happy with our PepsiCo partnership, And we believe there is a long runway ahead of growth across a variety of channels, including expanding at retail, convenience and at foodservice. During the quarter in foodservice, I'd like to highlight that Celsius is now available in over 2,000 Jersey Mike locations across the United States, and we've now gained authorization in over 3,000 Dunkin' Donuts nationwide. This illustrates the many unique usage occasions that we are seeing and our customers are enjoying our Celsius products.

Speaker 2

As highlighted in our earnings supplement, per IRI, For the 4 week period ending October 8, 2023, we have increased our market share in MULARC by approximately 138% to a 10 point 5 share, which has not been achieved in the energy category over the past decade versus a 4.4% share in the prior year period. In Moolock, Celsius grew its ACV to a 95.6% versus 72.1% year over year. Inconvenience, Celsius gained an additional 22.6% of ACV growth versus the prior year period ending and resides at approximately 95.6 percent of ACV, compared with the 73% of ACV in the prior year. This provides tremendous opportunities as we continue to grow customer awareness and our national availability. National sales grew approximately 56% in the 3rd quarter, totaling $13,600,000 compared to $8,700,000 in the Q3 of 2022, Driven in large part by successful innovation launches, increased velocity and brand awareness.

Speaker 2

The first major international market In which we plan to expand to under the PepsiCo umbrella is Canada, expected to launch in the Q1 of 2024. We believe there are significant opportunities for growth over the next 3 to 5 years as we execute our international expansion blueprint in a handful of countries in 2024. With opportunities for further expansion in 'twenty five, 'twenty six and beyond. We expect to provide additional details as we get closer to these dates. Beyond new markets, we are very excited about a number of our innovative launches that our team has created and been working through, including our recent launch of our newest Vibe flavor, Cosmic Vibe, a great tasting sparkling fruit punch flavor, which is out of this world and is now available at Circle K.

Speaker 2

In addition, just recently in November, we launched a new 16 ounce line, Celsius Essentials, which is exclusively available initially at 7 through the remainder of 2023 with a nationwide rollout planned in 2024. Celsius Essentials is Formulated for fitness enthusiasts looking to elevate their performance. Each can of Celsius Essentials contains 270 milligrams caffeine, our central aminos as well as our proprietary blend, providing you with the combination of enhanced physical performance and cognitive benefits. This new line Comes in 4 great tasting flavors, Blue Crush, Cherry Limeade, Dragonberry and Orange Sickle. Net income attributed to common shareholders totaled $70,500,000 in the quarter or $0.89 per diluted share compared to a net loss of 186.5 or a net loss of $2.46 per diluted share.

Speaker 2

The prior year losses were primarily driven by termination expenses as we move from Our prior distribution network to the PepsiCo distribution system. Non GAAP adjusted EBITDA increased 3 18 percent to $104,000,000 in the quarter compared to $25,000,000 in the prior year period, driven substantially by revenue growth and increases in margins and our continued leverage across Our record non GAAP adjusted EBITDA in the 3rd quarter represented approximately 27% of sales. This was driven by Gross margin improvements of 8 60 basis points from the prior year ago to approximately 50.4% gross profit 3% adjusted for distributor termination expenses in the prior year period. G and A, general and administrative Expenses totaled approximately 6% in the Q3 compared to 14.6% of sales in the prior year period. Jared will cover these items in more detail shortly.

Speaker 2

Our distribution partner, PepsiCo, continues to facilitate ACV expansion, supporting new customer acquisitions across broad demographics and New usage occasions. Going forward, we expect that our key incremental growth drivers are expected to be increasing our SKUs, our flavors and facings at retail, improving shelf placements, more placements in stores, secondary placements And Celsius branded cooler placements as well as expanded the independent convenience expansion initiatives, as well as food service and increasing our In recent calls, I've also cited South Florida as an example of what a more developed Sure market can look like. Over the last 4 weeks as of October 8, 2023, per IRI, Celsius in South Florida market share was 17.7. This shows the strong market share and growth that Celsius brand has achieved in the South Florida market as well as the opportunities that we see in a broader Market as we look for national U. S.

Speaker 2

Availability as we continue to roll out into further locations and improve our placements at retail as well as our velocities. To conclude my prepared remarks, Celsius continues to lead both on a dollar and unit growth basis in the energy category. The leverage And our operating model is becoming more apparent with incremental growth highlighted by our 104% sales growth in the 3rd quarter delivering over a 300 And adjusted EBITDA growth. Our customers have been growing the category, both in demographics and usage occasions, increasing their dollar spent on Celsius. I also want to highlight the Celsius team and the amazing job they're doing.

Speaker 2

We have added over 200 new full time and part time employees during the 3rd Developing our world class team continues to position Celsius to execute against our growth opportunities that we see in

Speaker 3

Thank you, John. Thank you all for joining us this morning. It was another great quarter where we continued to exceed both internal and external Expectations. Not only are we continuing to benefit from the distribution system of Pepsi, but we are also delivering on increased SKU count, Increased displays and continuous improvement within velocities. We plan to continue investment in our growth in Q4 and beyond.

Speaker 3

In addition, we have seen the benefits of leverage across our business with gross margins, operating margins and EBITDA margins all improving. As we announced last week, the company initiated a 3 The 3 months ended September 30, 2023 was approximately $385,000,000 an increase of 104% from 100 $88,000,000 from the same period in 2022. North American 3rd quarter revenues were 3.70 $1,000,000 an increase of 107 percent from the same period in 2022. International revenue grew 56% to $14,000,000 as we Including a successful integration into the Pepsi distribution system, which has resulted in broader availability, increased SKU mix and improved We're also benefiting from robust expansion in our traditional distribution channels and club channels with SKU increases and placement improvements all contributing. Moreover, our products are now found in several new channels within CNG and Foodservice.

Speaker 3

As discussed in the prior year, there was a As a result, inventory was not a significant component of the year over year percentage increase. Increased related to promotional activity across our footprint and evaluated this data in conjunction with recent trends and activity, which resulted in improvements adjustments to our promotional allowance accrual. As a result, despite increasing our promotional activity during the 100 days of summer campaign as a As a percentage of revenue, the promotional spend was consistent with the prior year period. Gross profit for the Q3 increased 147 to $194,000,000 up from $79,000,000 in the prior year period. Gross profit margins in the quarter Approximately 50% of revenues compared to approximately 42% for the prior year Q3.

Speaker 3

The improvement is attributed to lower package and raw Material costs as well as improved waste and freight lane efficiency. Sales and marketing expenses for the quarter were approximately 73,000,000 A decrease of approximately 63% compared to the Q3 of 2022. The decrease was due to prior year costs associated with Termination of legacy distributors as a part of the transition to the Pepsi network. Adjusting for last year's termination expense, marketing and sales investment increased In the quarter, while SKU count distribution and velocity budgets outperformed delivering good leverage across the sales and marketing expense lines. As a percentage of Sales and marketing was 19% compared to 23% in the prior year adjusted for distributor termination expenses.

Speaker 3

We plan Continue investment in our sales and marketing with increased planned spend as a percentage of sales in the 4th quarter to execute strategic Seasonal investment programs with our distribution partner. General and administrative expenses for the quarter were approximately 23,000,000 dollars, a decrease of 17% relative to Q3 2022. This decrease was due to the impact of timing of legal settlements and the Funk Foods Brands impairment in Q3 2022. Moving to a few comments around quarter Over quarter activity to provide some additional insight into our recent activity, revenue for the Q3 increased sequentially by 18%, driven by distribution gains across tracked and untracked channels as well as SKUs per location and SKU placement. In addition to these drivers, We benefited from some inventory building within our primary distributor as well as from adjustments to our promotional allowances with some offsets to our growth as a result of mix within Roughly $20,000,000 Gross profit dollars increased by 22% and gross margin improved by 165 basis points sequentially from the 2nd quarter, driven by Positive adjustments to our promotional allowance accounts as we maintained our leverage across raw materials, freight and scrap rates.

Speaker 3

Excluding the promotional allowance benefit, we would have had gross profit Margins consistent with Q2. Looking at the 1st 3 quarters of the year, revenue for the 9 months ended September 30th was approximately 971 dollars, an increase of 104 percent from $476,000,000 for the 9 months ended September 30, 2022, driven by North America year to date revenues were $931,000,000 an increase of 108% from the same period in 20 Percent to $467,000,000 up from $192,000,000 in the prior year period. Gross profit margins in the 9 months were approximately 48% of revenues compared to approximately 40% for the prior year period. The improvement in gross profit margin is attributed to lower package and raw Material cost and improved freight lane efficiency. As things stand today, we would expect Q4 gross profit margin to be consistent with the Q2 As a percentage of sales, sales and marketing was 19% in the 1st 9 months of 2023 compared to 22% in the prior year period adjusted for distributor termination expenses.

Speaker 3

G and A expense as a Percentage of sales was 8% for the 1st 9 months of 2023 versus 11% in the prior year. Focusing now on liquidity and capital resources, As of September 30th, we had cash in excess of $760,000,000 and net working capital in excess of $879,000,000 Cash flows Provided by operating activities totaled $136,000,000 for the 9 months ended September 30, which compares to $171,000,000 in net cash provided by operating activities for the same prior year period. The change in cash generation was driven by an increase in net income, offset by working capital and timing benefits associated with the Pepsi share purchase and distribution agreement in 2022. Looking at inventory, total inventory in the Q3 of 2023 ended 199,000,000 up approximately $46,000,000 from the quarter ended June 30, 2023. This was driven in large This concludes our prepared remarks.

Speaker 3

Operator, you may now open the call for questions. Thank you.

Operator

Thank you. Our first question comes from the line of Mark Aschen with Stifel. Please proceed with your question.

Speaker 4

Yes, thanks. Good morning, everyone. I guess maybe to start on distribution points, any sort of benchmark you can give? Obviously, the growth has been Significant, but how do we think about it in terms of where it can go? Like if you look at where Celsius' total distribution points are versus Monster and Red Bull, they're about 50% of those two brands.

Speaker 4

If you look at convenience stores as an example, your current distribution footprint is about 20% less than where Bang was at peak distribution. So any sort of color you can give on kind of where you think the right level of distribution can be, maybe longer term holistically and Sort of shorter term line of sight as you head into 'twenty four, particularly given fall and then spring resets? Thanks.

Speaker 5

Yes. Thank you, Mark. When you look at the distribution points, we look at kind of the peers that we're looking up to, obviously, it's Monster and Red Bull. Over time, that is our goal and objective is to achieve those maximum distribution points, which the 2 leaders have in the category. We're still in the earlier phase in the as we in the growth cycle and the opportunities will continue to evolve upon resets As we continue to evolve through 2024 and beyond, I think when you look at the average points of distribution, we look at we're right around 95.6.

Speaker 5

Really need to continue to work on the total breadth within the distribution points. And, we just got finished with the NACS, last month, which was a great show, Probably the best show in company history, a lot of excitement around some of our new innovation of our core flavors as well as Further expansion upon our VIBE flavors, as well as the launch of our Celsius Essentials line. So, that's our Peer group, we expect over time and our goal and objectives to have the same points of distribution as Rebel and Master.

Speaker 4

Got it. Okay. That's helpful. And then looking at the Amazon Costco sales in the quarter, Yes, they were a little bit slower, I think sequentially in terms of rate of growth than they were in 2Q. I guess it's a bit of a challenge to try to model that from where we all fit.

Speaker 4

But anything that you can call out there that may have played into that would be helpful too, please?

Speaker 5

Yes. I think I mean, you got to look at each customer somewhat differently in different channels. They also you're looking at a singular customer versus A category or a channel, so I think modeling it out, it does get a little bit challenging. In regards to Amazon, when you look at the lumpiness that was in the quarter From Q2 to Q3, when we dove into the data, it really was looking at a prime somewhat of a prime build in Q2, due to prime taking Place June 11th 12th, which was really successful for us. So, we did have some lumpiness there, when looking at Amazon specifically.

Speaker 5

And then when you look at You know, the club channel, which is mainly Costco, and Sam's, because these days have been reported through IRI. When looking at that specifically, there is some lumpiness between the two customers on load ins. It could be some seasonality at the end of the quarter. But both of our businesses are extremely strong in both those channels. And on Amazon, we actually gained over 2 points of share, which is, Last quarter when we reported in the second quarter, we finished our share number at 18.6 and we just came in at 21.4.

Speaker 5

So almost within a Quarter, we gained over 200 basis points in share. So that's a really great achievement. The teams have been working really hard and we had a great Prime Day as well. So That's great to see. Also, on the club business continues to be a really strong business and we don't really see that slowing down.

Speaker 5

We see great opportunities to further leverage Additional pack sizes as we continue to scale within the club channel.

Speaker 4

Got it. Thank you.

Speaker 5

Thank you, Mark.

Operator

Our next question comes from the line of Gerald Pascarelli with Wedbush. Please proceed with your question.

Speaker 6

A little over a year now, it looks like you've built inventory in 3Q. Just some color on what you to happen with these inventory levels in the Q4 as we approach a low seasonality quarter ahead of winter. Do you Expect any changes in their number of days on hand or is there nothing to suggest that there will be any incremental changes in their current inventory levels? Thank you.

Speaker 5

Yes, Gerald, that's a great question and we're on our really cycling our first full year with them with PepsiCoat selling their first case in October. I'll turn that question over to Jared.

Speaker 3

Yes, good morning. As we look last year, it was difficult to really kind of peg whether inventories were pulled down or It was just a matter of seasonality. As we look now, we do have some innovation that we filled the pipeline with, so we are ready from that perspective. But at the end of the day, the Pepsi team would have to determine if they're going to do any kind of management around the inventory as they're going into Q1. I will say we are excited as we move into 2024, but there's no guarantees in terms of the inventory management from that perspective.

Speaker 6

Understood. Thank you. Next question is just on gross margin. Obviously, it looks like you're going to end the year in The high 40s. Jared, I know you've previously referenced a mid to high 40s Kind of medium term outlook, does this outperformance that we've seen in the last two quarters maybe change your medium term outlook on how to think about gross margin?

Speaker 3

Yes. I think as things stand today, knock on wood, from a raw material perspective, we have captured a lot of savings this year. And So that's been pretty consistent for the last few quarters. We have also maintained, our outbound freight number For the last few quarters, obviously, we know that fuel costs can spike at any point in time that can cause some pain down the road. So I don't know that I'm ready to call the fuel or the outbound freight line as a lock.

Speaker 3

We are pretty comfortable where Commodities stand today with what we've seen from a raw material perspective. So I think our raw material costs in kind of Q2 and Q3 Should remain steady as we go into 2024. There is still that freight line though that that could cause some fluctuations. I think the Operations team did a fantastic job this year and really cleaning up the scrap and any kind of waste. Really have done a great job with the aged inventory, really did a great job really tightening up the cost of raw materials, and they've really managed the freight lanes, especially the last two quarters superbly.

Speaker 3

So hats off to those guys for that. And our goal is to keep it up. Not sure how much more we can squeeze out of where we were going into 'twenty four. We'll definitely shoot for it, but There's no guarantees, but we are really in great shape as we're moving into 'twenty

Speaker 6

Super helpful color. Thanks a lot guys.

Operator

Thank you. Our next question comes from the line of Vivien Azer with TD Cowen. Please proceed with your question.

Speaker 7

Hi, thank you. Good morning. Earlier in the Q and A, you commented on the importance of resets as one of the factors to drive continued growth and leverage the Pepsi relationship. Last quarter, you commented that the conversations were early into 2024 and you talked about a couple of different categories Where energy might be sourcing share, I was hoping you could just provide an update on your conversations with key retailers around shelf resets for 2024? Thank you.

Speaker 5

Yes, yes, Vivian. Morning. And it's it was we're still retailers are still defining their sets for But we had probably one of the most successful NACs, you know, that the company has had in history. There's a lot of great excitement. I think When you look at what just happened currently this week, when you look at 711 taking 4 SKUs of our Celsius Essentials line, It just shows you nationwide, chain wide.

Speaker 5

Also, if you go to a 711 right now, you'll see signage in front of every 711 as well as gas pump activity as well. So, really excited with the way the partnerships are going with our key accounts. We've been So, we have a great key accounts team, best in class. We've had early conversations with every one of our major retailers. So, we're pretty excited on where we sit heading into the new year on resets.

Speaker 5

We expect to gain distribution expanded distribution in Our existing flavors as well as further expanding the new innovation we have in store for 2024. So the teams have been working really hard. We've been working Really closely with Pepsi as well to make sure we're going to have really this is really heading into our 1st year of a strategic partnership, Really launching our innovation on a nationwide basis versus if you go back last year, keep in mind, we just started with Pepsi late in Before, our plans and strategies weren't really aligned with their AOP process. We came in on the very tail end of that. So, we were really trying to make up ground all year on the innovative launches.

Speaker 5

So, we're looking to have strategic prioritization periods Within PepsiCo, focus within quarters months. So I think it's going to be really successful. Time will tell. We'll have to wait until probably about March, April To be able to see start to see the additional expansion show up in the IRI scan data, but the team feels Pretty excited on where we stand and there's a lot of great excitement being the number one driver of both dollars and units in the category It's really impressive to see in a brand like Celsius.

Speaker 7

Absolutely. Thank you for that very comprehensive response. Just as a follow-up, 2023 was supposed to be back half weighted in terms of expanding your headcount. Can you just update us on the hiring kind of where you guys On plan in the Q3, should that accelerate in the Q4? Any incremental detail would be helpful.

Speaker 7

Thanks.

Speaker 5

Yes. We actually we have a Actually, our National Sales and Marketing Conference is taking place this week in Miami. We'll have all of our team members are currently Jared and I are heading down right after Our earnings call and we have about 3 days of great presentations, really getting all of our team members excited. Our plans and budgets for next year is to continue to Bring on talented team members, really building out the breadth, within our organization, within all departments, Within HR, further expansion in finance, logistics, operations, sales, marketing, and Really focusing and expanding upon our drill deep markets as well. I know we've talked about that over the years.

Speaker 5

And, currently, we're focusing on a drill deep strategy within 23 markets, and we'll be expanding that next year to over 30. So we're building out our field teams, our sales teams, And we're seeing great results in ROI return when we place these individuals and expand these positions. So that's another thing we're monitoring really closely as well as we're applying assets, making sure we're driving that value and that overall return. So, you expect us To continue, we are hiring, and we have a lot of job postings up on LinkedIn as well. So, we expect that to continue.

Speaker 5

We're monitoring it closely though.

Speaker 7

Terrific. Thank you.

Operator

Our next question comes from the line of Michael Lavery with Piper Sandler, please proceed with your question.

Speaker 8

Thank you. Good morning.

Speaker 5

Good morning, Michael.

Speaker 8

Just was wondering if you could unpack some of the margin drivers. You had called out last quarter the Sequential dip you were expecting from the higher promotional activity and higher marketing spending. This is EBITDA margins obviously. But then it went up instead. You touched a little bit on some of the promotional dynamics not coming through quite as you had expected and being That's a minimal or not a tailwind, I mean, a headwind.

Speaker 8

But can you just help us understand some of the other factors in part just to Get an idea of what is sustainable and how to think about looking ahead?

Speaker 5

Yes, I'll let Jared dive into some details there. But I think on a higher level, when you look at some of the expanded distribution that we've had, We've expanded into really like food service and some other independent locations that Just historically when the cases come through are somewhat of a lower promotional allowance or cost of doing business in those channels. But we did see See some leverage there and there was also, we had some timing, in the quarter as well. But I'll throw that over to Jared to further provide additional details and answer that question.

Speaker 3

Yes. So there's, as you said, a handful of things to unpack. I'm going to start from the bottom and work my way up. But I'll start within The kind of well, I guess the middle of the P and L. So if you look at G and A, we did see some really good leverage there.

Speaker 3

We benefited from some of that outsized Top line growth relative to the spend we have. As we look out into 2024, we on On 9 month basis, I believe our G and A is about 7.9%. I think we were paying roughly 8% for the year. So we did track a little bit better in Q3, probably where we land on a full year basis next year. Obviously, this year, it'll be somewhere in between those 2, But next year would be kind of in between there.

Speaker 3

Is it going to be in that 7% to 8% range On a full year basis in 'twenty four where we'll see some leverage come through, but good leverage coming through on the G and A line. I think a lot of that's sustainable. There's probably a little bit as we continue to build out our teams that will give back As we continue to scale and really try to set our business up, there's also some international expansion we've been talking about and things like that where there'll be some investment upfront That will drive some costs and so you won't see the full leverage, but we will see good leverage in the G and A line. On the sales and marketing line, we've been averaging kind of that 19% to 20 This year, historically, we've probably been in the 22% to 24%. So we've seen a bit of leverage there.

Speaker 3

As we look out into next year, we don't think that the competition is going to get any easier. So we will continue to invest into the market And look to continue. We don't have exact numbers. We do have our budget, but we don't really give out Specific numbers along the way, especially since we don't give the sales guidance out, but we would look to continue to invest into the business and really drive the growth of the business. But we have seen some leverage there throughout the year.

Speaker 3

If you go up to the gross profit line, we did just talk about that where After Q1, you saw the benefits of really the improvements you've seen in commodities across the board, across both us Also, we had rolled off of the international cans, whereas in Q1, we had international Can still in the system by the time we got to Q2 was a clean view. And so we've really seen some benefits come through the raw materials. And also you've seen really the benefits of the freight lanes that were established. I think we were running about on a year to date basis 4.9%, whereas last year it was 5.9%. So we got 100 basis points just out of running better from a freight lane perspective.

Speaker 3

And actually, if you look to Q3 and Q2, it's been a little bit better than that number. So we've seen kind of benefits on Each line along the way really driving that EBITDA margin across the year.

Speaker 8

That's helpful. Can I just also follow-up on the Canada launch? And I know you said it's in the first Should we expect pipeline fill for that in 4Q or would it be a little bit later in the Q1? I guess the follow-up is really kind of 4Q minded. Maybe one, is there a Canada impact we should keep in mind?

Speaker 8

And then maybe any color on How it's looking quarter to date that you can give us?

Speaker 3

Yes, I mean, Canada will be from a build and an impact in 2024, it It'll be kind of inconsequential. We expect good growth. We expect to get in there and start capturing market share. We expect to put forth the investment that's needed To really kind of seed in and grow fast in 'twenty four, but it won't be a huge driver of inventory or growth In Q4 or Q1, and the rollout will happen in Q1, but it won't be a oneone launch.

Speaker 8

Okay. Thanks so much.

Operator

Our next question comes from the line of Peter Grom with UBS. So

Speaker 6

I kind of wanted to follow-up on that, just kind of the international Can you maybe just help us understand how you evaluate Various international opportunities, which markets, timing, etcetera. Are these markets where you're going to be fully aligned with PepsiCo and their partners or are there Other partners you're considering? And then I guess I would be curious from a profit perspective, as you start to And further outside the U. S, how should we think about the impact to margins?

Speaker 5

Yes. Thank you, Peter. We've talked about this on a variety of other calls in the past as well. I mean, we're looking at the largest energy drink markets in the world. So that's those are the biggest When you look at those, you're looking at the U.

Speaker 5

K, you look at Germany, you look at Japan, Australia, A lot of big opportunities out there and Pepsi partnerships are really our priority. There will be other markets where we do see other opportunities with other partners, so we can evaluate those as we continue to move forward. The first market that we're Partnering with is in Canada, so the teams are really focused on that. And we have spoke about other markets that we're working on To further rollout into 'twenty four and 'twenty five, so I think we're a little bit too early to talk about, a lot of those structures. There's a lot involved to make sure you have the right value chain, the right opportunity for exactly what you're talking about, the longevity of profitability as we go forward in these markets.

Speaker 5

So, we're using Monster International Structures and P as a guideline for us as we look forward to really partnering with our partners and expanding together in these new markets. But That's we have a variety of markets we're looking at, but currently we're rolling out into focused on Canada as the biggest opportunity at our hands at the moment.

Speaker 6

Got it. And then Jared, I apologize, you were kind of running through some of these items a bit quickly. But I think you mentioned there was, call it, a 20 dollars benefit to 3Q revenue. Can you maybe just run through that again? Like how much was a promotional allowance?

Speaker 6

Did you build inventory ahead of what you were lapping a year ago? So, yes, if you can just unpack that a little bit, I think that would be helpful. Thanks.

Speaker 3

Yes. So it was if you look at Q1 or sorry, Q3 of 'twenty two versus Q3 of 'twenty three, we talked about there was a bit of a pipe fill From inventory last year and then if you look this year, we had a bit of a pipe fill, probably somewhere in between that $10,000,000 to $15,000,000 range. And so it wasn't a significant factor in terms of the year over year growth percentage from an apples to apples perspective. If you looked at Q2 to Q3, it was a benefit from Q2 to Q3 within the revenue figures. So that's the inventory piece.

Speaker 3

Ani, we're starting to see leverage come through the promo lines. So we did see a benefit and We have updated our estimates around promotional allowance. Just a lot of that John mentioned is about the we've had significant AC growth, ACV growth, we've been moving into a lot of, call it, non tracked channels, but a lot of areas where you don't see promotional activity as deep. And so you start to see that benefit. And if you look at Monster as an example, historically, you can see where their Promo as a percentage of gross revenue or gross dollars improved over time and so we're starting to see that as well.

Speaker 3

Now we did invest or add additional incentives in Q3, but the leverage allowed us More or less have a percentage of revenue or a percentage of gross revenue consistent year over year when you're looking at Q3 3 2022 to Q3 2023, and so that's where that was called out.

Speaker 6

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

Operator

Thank you, Peter. Our next question comes from the line of John Anderson with William Blair. Please proceed with your question.

Speaker 5

Hey, good morning, everybody.

Speaker 9

Thanks for the question. I wanted to ask first about the rollout in foodservice. You mentioned the 2,000 Jersey Mike's And then I think you mentioned authorizations in over 3,000 Dunkin' Donuts nationwide. What's the timing of that with Dunkin' Donuts? And what are your expectations for Further rollout in eateries as you move forward this year and next?

Speaker 5

Yes, John, great question. I think You know, the we do see a huge opportunity in foodservice. I think when you look at and we've talked about this with Celsius, which is unique As that consumers really, are enjoying Celsius and consuming Celsius outside of that Energy drink consumption occasion, which I think is a huge unlock for the brand and the portfolio. When you look at Jersey Mike's, We're really using that and really focused on that as a proof of concept. This is really our 1st nationwide Fast casual chain, so, an initial feedback has been positive, but we're really, really early.

Speaker 5

I mean, you look at it probably only 4 to about 4 weeks in, But initially, it has been fairly excited on the partnership, and we're going to continue to see how that goes. I think that's So if that's successful, we'll be able to roll that out to other fast casual restaurants and eateries that Pepsi has access to. And Pepsi has vast Our orange flavor, which tastes great and refreshing. I have heard feedback from a variety of new customers to the portfolio that they've actually found Celsius and The franchise and the portfolio, we are in about 3000 to 4000 Dunkin' Donuts currently. There's a lot more Dunkin' Donuts further leverage and grow upon.

Speaker 5

So, it's really that proof of concept and also getting more flavors in. Jersey Mike's, we have about 3 flavors right now and Dunkin' Donuts is 1. So, we're still in the early phase. But I think when you see the success of our revenue, our PepsiCo revenue, approximately 10% is food service, which is universities and hospitals, I think we're all really excited about the opportunity that lies ahead.

Speaker 9

Absolutely. You've mentioned Essentials as a key innovation for 2024. How is that product line differentiated within your portfolio? And is that really a key element of achieving the greater shelf space and facing that you talked about That you expect in 2024, is that going to be more limited to select retailers such as 711 initially?

Speaker 5

Yes, it's going to the essentials Celsius essential line is going to be limited to particular retailers initially. We're really focused on further building out our core portfolio. So that's our When you look at prioritizations, our prioritization is number 1, our core and VIBE offerings, flavor profiles and then secondary will be our Celsius Essentials that's going after that Performance Energy segment. Initial feedback has been extremely positive, and it is designed to be incremental On top of the games that we're already anticipating we're getting in 'twenty four, so and we've aligned with, our partners on this as well. So and feedback has been initially well received.

Speaker 9

And last one for me. As you think about You mentioned kind of the secondary placements, and I think part of that is leveraging relationship with PepsiCo in terms of coolers and part of it is your own effort to establish branded cooler locations. Where are you with respect to Celsius coolers this year? I know you had set a target earlier in the year. Are you on track to deliver that?

Speaker 9

And how much more opportunity is there on that front as you look ahead? Thanks.

Speaker 5

Yes. No, John, that's a great question. It's something the teams are extremely focused on We're not only within our core team members but also within the PepsiCo sales organization. So, our cooler initiative and program is part of our perfect stores, Our strategy, so that's a way we KPI the team as well. So you're going to get warm placement, your cold placement, secondary placement, that could include an end cap.

Speaker 5

And then also, cold placement upfront as well as the perfect store has a Celsius branded cooler. You know, our goal was approximately around 15,000 to be placed this year. We're working towards that. You know, we'll see if we're going to be able to achieve it. We only have a few months left.

Speaker 5

The coolers, you know, the biggest win we're working on now is gaining, chain wide, National authorization in front checkout coolers at major retailers, where we can really close a 1000, 2000, 3000 Store locations, as an example, we just entered public stores with expanded distribution in the front end cap front checkout coolers. So that was a big win. Although not a Celsius branded cooler, we do have great placement in those checkouts and that's going to allow us to continue to Increase our availability, increase trial, and take advantage of those impulse purchases that we know Celsius can capitalize on.

Speaker 9

Thanks so much.

Speaker 5

Thank you.

Operator

Our next question comes from the line of Eric Saroda with Morgan

Speaker 6

First a quick housekeeping question. I know you talked about Selling and marketing expense as a percentage of sales being up in the 4th quarter. What about promotional allowance? Are you guys in the short term looking for any material changes in promo allowances versus where you were in the Q3 post The adjustment that you made and then I'll have a bigger picture question.

Speaker 3

For the promos, I'd look more to the year to date Percentage, as we look to Q4. But John, do you want to jump on the sales and marketing, you want me to jump on that one?

Speaker 5

Yes. I think go ahead.

Speaker 3

Yes. So sales and marketing, obviously, it's a little trickier in October, November, December. You've got Halloween, Thanksgiving, Christmas. So You have to come up with a little bit different incentives and different programs. So we're working those through the system.

Speaker 3

And Obviously, we're looking to hit the ground running with a number of the sponsorships that we've picked up that we've press released over the last 6 months. So we are looking to continue to spend into the holiday season. We found it to be very successful last year When we spent into the holiday season, part of that was also because our ACV went from a 65 to a 90 pretty quickly. We've been sitting at that 90 all year. So the goal is to really help build those velocities as we work our way into 2024 from a sales and marketing perspective.

Speaker 5

And especially also leading into buyer reset window.

Speaker 6

Great. And that sort of leads into my next question, which is on velocities. I think One of the big positive surprises over the past year, certainly the past 6 to 9 months has been the acceleration in Velocities as you've rapidly expanded distribution, how are you thinking about the scope for velocity growth over the next, Call it 12 to 24 months. On the one hand, some new distribution you're adding maybe a little bit less productive, but You are seems to be getting some billboard effect and some broader awareness. So big picture, how are you thinking about potential for Velocity over The coming year or 2?

Speaker 5

Yes. I think, Eric, when you look at it, that's something that we're really focused on. And It's going to come from a variety of different areas in order to continue to drive forward. We are entering uncharted territories at north of a 10 share, which Hasn't been achieved in the energy category in over a decade. But when you look at some of the great what has taken place over the last 9 months, This year, it's just really a great achievement to the team and our partners.

Speaker 5

I think one exciting news piece we just got recently is From numerator and the way we're tracking household penetration, and our household penetration, more than doubled. So we were right around a 25% Household penetration versus 11.1% in the year ago period, when we tracked it last time per numerator. And we were Celsius was the number one growth brand in all of sports and energy. So, you know, we're getting some really good traction there. The teams have been doing really great on, You know, leveraging our marketing strategies, I think there's a lot of opportunity to further drive ROI out of our marketing programs, within our sales programs as well.

Speaker 5

So, Where velocities go from here, that is, that's really, somewhat an unknown, but we're working to continue to drive that forward. I think On the resets coming in, when you look at the expansion, that we anticipate getting additional, shelf space, That's going to allow us to have better presence. That's going to further build out that billboard effect, to be able to, engage with the shopper at the point of purchase, which is So time will tell. I guess we'll find out as we continue to evolve quarter over quarter on future calls. Great.

Speaker 6

Thanks. I'll pass it on.

Speaker 5

Thank you.

Operator

Our next question comes from the line of Jim Celera with Stephens, please proceed with your question.

Speaker 10

Hi, everyone. Congrats on the good quarter and thanks for taking our question. I wanted to follow-up on the foodservice piece because it seems like that would be An end market that would traditionally be for kind of carbonated soft drinks or teas, do you have a sense for Are those consumers in food service switching from drinking a Pepsi to drinking a Celsius or drinking a tea to a Celsius? And if that's the case, are you able to track that into switches from soft drinks or tea at retail as well?

Speaker 5

Jim, that's the great question. That's a huge unlock that we're working on. I think we need a little bit more data coming in as we expand into foodservice. What we're seeing with the Celsius consumer, what I think is fascinating, we saw this inconvenience and we see this where our consumer is Number 1, we're incremental to the category and also our consumer, we've seen them have a bigger basket ring, I. E, Purchasing Celsius with a water or a food item or a snack, which I think is another competitive advantage when looking at the Celsius consumer.

Speaker 5

Within food service, we have a hypothesis that our consumer is actually getting water or not getting a beverage because they're ordering on Potentially delivery dudes are another platform, where they're not getting the fountain drink. So we're not competing with the fountain, but we need more data on that. What we do see is, within some of the apps that initial feedback has been on our set, is that We are being incremental to these eateries and fast casual restaurants on the within the beverage purchase.

Speaker 10

Great. That's helpful color. And you might have already kind of addressed this, just saying it's still early days. But just thinking about the implications that that As moving forward, do you think there's a possibility that if you do see those You know, tea or carbonated soft drink consumers buying Celsius but not participating in other energy buys That you could find yourself outside of the energy category in retail and really be placed kind of throughout the store, Unlike some of the other traditional energy drinks?

Speaker 5

We're seeing that now in certain locations within our given stores like Ralphs are placing us, where you have grab and go. I know and Several Publixes and Kroger's were placed in we have secondary placements in the grab and go section, so where people are getting food and grabbing food items. So, I think that's a huge opportunity for us. I know, you know, I see tons of people. We have a cafeteria or a small eatery right next to our office.

Speaker 5

And You see people having sandwiches and bowls and they sell a lot of Celsius there. So, I think there's a huge opportunity and unlock as we go forward Just that Celsius plays outside of traditional energy and that opens up a bigger TAM opportunity. Also, when you look at the Some of the latest data points coming out and you look at, total beverage brands, Celsius just made it into the top 10 Within total beverages, within the LRB, which is liquid refreshing beverages in the overall category, which is another great achievement that the portfolio has been able to achieve in the 3rd quarter.

Operator

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

Speaker 11

Good morning, everyone. Just wanted to touch on Sort of the fact that you've got ongoing distribution elevation and SKU expansion. And I guess, how are you thinking about seasonality for Q4 this year, keeping in mind the

Speaker 5

Thanks, Jeff. When you look at seasonality, it is something in the category That has happened. We start we saw that last year. There is going to be some seasonality. We should all anticipate Some seasonality within the quarter and what that looks like as we go into finalize the quarter, we need to evaluate that.

Speaker 5

But, also you have another we've talked about it earlier, a potential inventory reduction of inventory at within our Pepsi Partner which is our main supplier at this point. So in addition to that and the seasonality, We anticipate some type of pullback in the Q4 at just traditional seasonality levels.

Speaker 11

Okay. That's helpful. And then aside from the Essentials line, is there other substantial innovation you have Plans for 2024? Or is the Mint Innovation Engine Essentials for 2024? Or maybe if you could just touch on further innovation plans for 2024?

Speaker 5

Yeah, absolutely. Innovation for 'twenty four, we have been working really hard. The team has been working really hard. We're going to continue to build out our portfolios Between our core fruit flavor offerings, we have some new great flavors coming in. We'll announce those shortly.

Speaker 5

We have new vibe flavors coming out, Where we're going, due to the success is CosmicVI, we're going to continue with that theme through a trilogies. We'll have some great flavors on that. Did talk about on the call our Celsius essentials line, our 16 ounce line, really going after that performance energy category. And then a great opportunity we have, and it's something we don't really talk about too much, is our powders and On the Go and really going beyond the bottle or beyond the can. We think that's a great opportunity.

Speaker 5

We have been getting a lot of interest, further interest from retailers on that portfolio, and we will be bringing out our VIBE flavors into Our powder product offerings into 24. So, we'll see further expansion with all of our portfolios and the The team is really excited. We got some great flavors. I know you'll enjoy them, Jeff, as you've always been a big fan. So but we're excited where we stand.

Speaker 11

Can't wait to try and thanks for taking my questions.

Speaker 5

Thanks, Jeff.

Operator

That is all the time we have for today. I'd like to hand the call back to John Fieldy for closing remarks.

Speaker 5

Thank you, Doug. On behalf of the company, I'd like to thank everyone for their continued support and interest. Our results demonstrate our products are gaining considerable momentum in capitalizing on today's global health and wellness trends, expanding the energy category and driving growth in both dollars and units. I'd like to take this time to thank our investors for their continued support and confidence in our team. The company will be attending several upcoming investor conferences throughout the month Of November December, including Stephens, Jefferies, Morgan Stanley, ROTH Capital Investor Conferences.

Speaker 5

We look forward to seeing many of you there. Thank you for your interest in Celsius. Stay healthy and live fit.

Operator

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.

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