Celsius Holdings Reports Second Quarter Financial Results

Celsius Holdings, Inc., maker of the leading global fitness drink, CELSIUS®, today reported financial results for the three and six month periods ended June 30, 2018.

Second Quarter 2018 Highlights:

• Revenue of USD 9.3 million, down 9percent compared to USD 10.2 million in the year ago quarter
  • Domestic revenue increased 29percent to a record USD 8.5 million, up from USD6.6 million in the year ago quarter.
    • Driven by continued strong double-digit growth in traditional channels of trade
    • USD 1.3 million in orders shifted from Q2 to Q3 due to manufacturing delays
  • International revenue decreased 79percent to USD 766,000, from USD 3.6 million in the year ago quarter
    • Our Nordic distribution partner People’s Choice, decreased revenues by 78percent to USD 768,000, due to timing of new flavor launches and reduction of inventory levels
    • China distributor delayed orders during the period due to timing of new accounts and current inventory levels. As of June 30^th 2018, Celsius was in over 25,000 locations which came on later in the quarter than originally planned
• Gross profit of USD 4.0 million represents a decrease of 13percent compared to USD 4.6 million in the year ago quarter
  • Gross profit margins total 42.8percent (55.5 percent excluding outbound freight) of revenues
• Net loss to common stockholders of USD 3.4 million compared to a positive net income to common stockholders of USD 380,000 in the year ago quarter; mainly as a result of USD 835,000 in Asian market expansion initiatives, USD 1 million in distributor settlement costs associated with a territorial dispute and investments in human resources and marketing programs
• Non-GAAP Adjusted EBITDA* loss of USD 2.1 million, inclusive of USD 834,000 of expenses related to the company’s product launch in Asia and USD 1 million in distributor settlement costs associated with a territorial dispute, compared to a profit of $1.1 million in the year ago quarter. Excluding Asia investments and one-time charges, Celsius delivered a non-GAAP adjusted EBITDA loss* of USD 261,000.

2018 First Half Highlights

• Revenue of USD 21.4 million, up 32 percent compared to USD 16.2 million in 2017
  • Domestic revenue increased 45 percent to USD 16.6 million, up from USD 11.4 million in 2017
    • Driven by strong demand in existing channels of trade and expansion with highly esteemed retail partners
    • Domestic revenues were impacted by USD 1.3 million in sales moving from Q2 to Q3 due to manufacturing delays
  • International revenue decreased 1 percent to USD 4.7 million, from USD 4.8 million in 2017
    • Our Nordic distribution partner People’s Choice, reflected a decrease in revenues of 30percent to USD 3.3 million, due to timing in new flavor launches and reduction in inventory levels to improve working capital needs
    • China launch revenues totaled USD 1.4 million and Celsius is now in 25,000 locations
• Gross profit of USD 8.7 million increased 26 percent compared to USD 6.9 million in the prior year
  • Gross profit margins total 40.9 percent (51.8 percent excluding outbound freight), versus 42.8 percent in the prior year. Gross profits were impacted by increases in promotional allowances supporting the BCAA new product launch in Sweden and lower margins received from initial Asia sales
• Net loss to common stockholders of USD 6.4 million compared to a net loss to common stockholders of USD 1.6 million in the prior year; mainly as a result of USD 3.0 million in Asia expansion initiatives, USD 1 million in accrued legal settlement, and investments in human resources and marketing programs
• Non-GAAP adjusted EBITDA* excluding one-time charges net loss of USD 3.1 million, inclusive of USD 3.0 million of expenses related to the company’s product launch in Asia, compared to a positive non-GAAP adjusted EBITDA* USD 805,000 in the prior year. Excluding Asia investments, Celsius delivered loss of USD 120,000 in non-GAAP adjust EBITDA.

Other Highlights

• Named Edwin Negron-Carballo as Chief Financial Officer
• Joined the Russell 3000® and Russell Microcap® Indices
• China market presence expands to over 25,000 location with over 11,000 Key Accounts, Now in 45 cities supported by 147 sub-distributors.
  • Accounts include Circle K, Lawson, Carrefour, RT-Mart, Vanguard, Metro, Centry Mart, Jusco, & Alibaba’s Hema supermarkets. Online retailers JD.com & TMall.com
  • Marketing activities during the quarter included samplings, digital, and events targeting consumers living active lifestyles and driving interactions and trials
  • Large scale events included X-Mudder, an event series in China similar to Tough Mudder
• Domestic Expansion continues
  • Launched in Target & CVS exceeding expectations with additional flavors planned
  • C-Store expansion continues with WaWa, 7-Eleven, Sunoco, Circle-K and many others
  • Military continues to exceed expectations, currently at 50,000 units/week and growing
  • Vending channel opportunity showing strong growth since launch, dedicated team focused on growing channel
  • Trend forward functional energy brand has gained momentum as CELSIUS® is growing faster than the category, at a reported 41.5 percent, year to date (Last 52 Weeks Ending 7.15.2018, SHELF STABLE FUNCTIONAL BEVERAGES, SPINSscan Conventional Markets: TOTAL US – CONV)

“Broader and deeper placement of our products continued in the second quarter with significant expansion across a number of top retailers, convenience stores and fitness channels, reinforcing our position and accelerating momentum for product placements in the second half of the year,” said John Fieldly, President and Chief Executive Officer. “Our strategy of positioning Celsius as the global beverage leader for health-minded consumers remains our top priority. Many of our retail partners are planning for additional flavors and signaling signs for top-line growth. In addition, we continue to optimize our cost of goods and strategically leverage our sales and marketing dollars to best position our products for consumers.”

“Our domestic business was a record USD 8.5 million and grew by 29 percent year-over-year in the second quarter, despite production challenges that caused a shift in sales from the second quarter to the third quarter,” continued Fieldly. “We have worked through our production delays and are now at record levels of distribution. The second quarter financial results delivered strong double-digit growth and our distribution momentum continued to accelerate with significant placements in key retailers. During the quarter, we entered new channels of trade with great success in the drug store channel initially in 550 CVS stores nationwide and placement on the energy drink shelves in 1000+ Target stores which started to rollout during the quarter.”

Fieldly added, “In Asia we nearly doubled the number of stores where our products are placed and are now in over 45 cities.  The primary retail distribution push for the selling season occurred during the second quarter with orders and channel fill flowing largely to the third quarter. We have already received reorders in July from our distribution partner as our push into the Asia market gains additional traction.”

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Revenue

Revenue for the three months ended June 30, 2018, revenue was approximately USD 9.3 million, a decrease of USD 0.9 million or 9.0 percent from USD 10.2 million for same period in the prior year. The decline of 9.0 percent was mainly attributable to lower than anticipated international revenue at 21.0 percent of prior year results of $3.6 million.  Both Asia and Europe reflected shortfalls in performance for a total revenue decrease of USD 2.8 million when compared to the same quarter in the prior year. The Asia revenues shortfall of (USD 40,000) was associated with timing of orders and promotional discounts provided in the 2018 quarter when compared to the 2017 quarter. European revenue shortfall of (USD 2.8) million was associated with our principal customer lowering inventory levels and reducing orders in the 2018 quarter when compared to the 2017 quarter. These shortfalls were partially offset by strong performance in U.S. domestic market sales, which reflected revenue for the three months ended June 30, 2018 of USD 8.5 million or an increase of 29.0 percent from the 2017 quarter.  The increase in revenue from U.S. Domestic sales from the 2017 quarter to the 2018 quarter was primarily attributable to an increase in sales volume, as opposed to increases in product pricing.

Gross profit

Gross profit was USD 4.0 million, or 42.8 percent of revenue, in the three months ended June 30, 2018 compared to USD 4.6 million, or 44.6 percent of revenue, for the same period in 2017. The decreases in gross profit dollars and margin are primarily attributable to lower revenue and the profitability in the international markets being affected by slotting fees and other similar charges.

Total Operating Expense

Selling and marketing expenses for the three months ended June 30, 2018 were USD 4.1 million compared to USD 2.4 millionfor the three months ended June 30, 2017, an increase of 72 percent. The increase is due primarily to marketing program investments, as well as investments in employee costs. General and administrative expenses for the three months ended June 30, 2018 were USD 3.1 million compared to USD 1.6 million for the year ago period, an increase of 94 percent. The increase was primarily due to expenses of USD 945,000 pertaining to the settlement of a territorial dispute with a former distributor, an increase of USD 598,000 for option expense and an increase in research and development costs of USD 67,000, which were partially offset by savings in other areas of approximately USD 110,000.

Total Other Expense

Total other expense increased slightly to USD 42,000 for the three months ended June 30, 2018, up from USD 38,000 for the same period in 2017 as a result of lower dividend interest and a gain in foreign currency, which were partially offset by higher interest expense.

Net Income (Loss)

As a result of the all above, for the three months ended June 30, 2018, Celsius had a net loss of USD 3.35 million, and after giving effect to preferred stock dividends of USD 43,164, a net loss available to common stockholders of USD 3.39 million or (USD 0.07) per basic and diluted share based on a weighted average of 51,003,803 shares outstanding. In comparison, for the three months ended June 30, 2017, the company had a net income of USD 471,000, and after giving effect to preferred stock dividends of USD 91,000, net income available to common stockholders of USD 380,000 or USD 0.01 per basic and diluted share based on a weighted average of 44,650,052 shares outstanding.

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Revenue

Revenue for the six months ended June 30, 2018 was USD 21.4 million compared to USD 16.2 million for the six months ended June 30, 2017, an increase of 32 percent. This increase was driven in large part by 45 percent growth in US-Domestic revenue primarily attributable to double-digit growth in existing accounts and new distribution expansion. Domestic growth was partially offset by a 30 percent decline in European sales mainly as a result of timing of reorders on the core Celsius line, which was partially offset by the launch of a BCAA Celsius line extension in Northern Europe and growth in revenues from Asia of 100 percent mainly as a result of the initial product line launch in China. The increase in revenue from the 2017 period to the 2018 period was primarily attributable to an increase in sales volume, as opposed to increases in product pricing.

Gross Profit

Gross profit was USD 8.7 million, or 41.0 percent of revenue, in the six months ended June 30, 2018 compared to USD 6.9 million, or 42.8 percent of revenue, for the same period in 2017. The increase in gross profit and the decrease in gross profit margins from 2017 to 2018 are primarily attributable to the increases in revenue while margins are being affected by increases in promotional allowances and slotting charges.

Operating Expenses

Selling and marketing expenses for the six months ended June 30, 2018 were USD 9.7 million compared to USD 4.6 million for the six months ended June 30, 2017, an increase of 213 percent. The increase is due primarily to marketing program investments of USD 4.3 million, as well as increases in human resource investments in both, the marketing and sales areas. General and administrative expenses for the six months ended June 30, 2018 were USD 5.1 million compared to USD 3.7 million in the year ago period, an increase of 46 percent. The increase in general and administrative expense was primarily due to expenses pertaining to the settlement of a territorial dispute with a former distributor of USD 945,000, an increase in option expense of USD 586,000 and in increase in research and development costs of percent 117,000, which were partially offset by lower investor related expenses of percent 435,000 and savings in employee costs & other administration expenses for a net reduction of percent 103,000.

Other Expense

Total other expense decreased to USD 80,000 for the six months ended June 30, 2018, down from USD 87,000 for the same period in 2017 as a result of a decrease in interest expense.

Net Loss

As a result of the all above, for the six months ended June 30, 2018, Celsius had a net loss of USD 6.2 million, and after giving effect to preferred stock dividends of USD 126,000 a net loss available to common stockholders of USD 6.4 million, or (USD 0.13) per basic and diluted share based on a weighted average of 48,952,357 shares outstanding. In comparison, for the six months ended June 30, 2017 the company had a net loss of USD 1.4 million, and after giving effect to preferred stock dividends of USD 181,000, a net loss available to common stockholders of USD 1.6 million or (USD 0.04) per share based on a weighted average of 43,234,159 shares outstanding.

Liquidity and Capital Resources

As of June 30, 2018, the company had cash of USD 8.5 million compared to USD 14.2 million as of December 31, 2017. The company had working capital of USD 16.3 million as of June 30, 2018 compared to USD 20.6 million as of December 31, 2017.

Cash used in operations during the six months ended June 30, 2018 totaled USD 5.8 million. The company incurred a net loss of USD 3.1 million during the three months ended June 30, 2018, increasing the accumulated deficit to USD 68.1 million as of June 30, 2018.-Medical Buyer Bureau