Celsius Holdings Q1 2010 Earnings Call Transcript

Celsius Holdings Q1 2010 Earnings Call Transcript
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Celsius Holdings, Inc. (CELH)

Q1 2010 Earnings Call

May 13, 2010, 11:00 am (ET)

Executives

Stephen Haley - Chairman and CEO

Geary W. Cotton - Chief Financial Officer

Presentation

Operator

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Good morning and welcome to Celsius Holdings, Inc.'s First Quarter 2010 investor conference call. Joining me on the call today is Steve Haley, the company's Chief Executive Officer and Geary Cotton, the Chief Financial Officer.

During the course of this conference call we will make forward-looking statements regarding future events and the future performance of the Company. We caution you that such statements reflect our best judgment based on factors currently known to us, and that you should not rely on such forward-looking statements since our actual events or results could differ materially as a result of a number of important factors. These factors include general economic and business conditions, trends, the impact of competition, technology and regulations and other risks and uncertainties discussed in the reports we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or other information provided during this conference call.

In adherence to Regulation Fair Disclosure, the Company has provided information in its first quarter 2010 results press release and this publicly announced conference call. We will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.

Stephen Haley

Thanks Bob and thank you for joining us for our First Quarter 2010 investor conference call.

Financial results for our first quarter 2010 were released to the public earlier today in our press release distributed this morning. You can view a copy of the press release on our website at www.celsius.com in the investor section.

So let's get started. Overall, we are pleased with the progress we made on many fronts during the first quarter. We've still got a lot of work to do, but the foundations we laid and the choices we made from a strategic perspective have started to serve us well and our data analysis and research is pointing to a bright future for Celsius. To put our financial performance for the quarter in a nutshell, our case volume was slightly higher than expected but our net sales revenue was a little lower. Scan data shows good month over month growth but it took longer than expected to get onto some of the authorized shelves. We'll explain all of this as we review the results and activities and then Geary and I will open it up for your questions.

Over the last two quarters we've dramatically increased our distribution and we are now starting to get meaningful data regarding actual consumer sales at the store level. So we have more quantitative information to provide on this call than we've had in the past. To help you compile and reflect on this important information, in addition to this live call, we will have the audio recording posted on our website and the transcript will be posted on www.streetevents.com as well as filed with the SEC under cover of a Current Report on Form 8-K.

As we provide a deeper quantitative perspective of our sales and growth, we should first be clear on a few of the terms. On the last call we introduced the description of All Commodity Volume or ACV. ACV is a metric that represents the total annual sales volume of our retailers within the channels of food, drug, club and mass. We plan on updating you on our ACV progress each quarter. We will also now be using Case Equivalents to express our unit volume. This simplifies the analysis because we're now selling various package sizes to different retailers, or channel of trade, so we need a way to normalize or calculate the volume growth company wide. For example Costco sells a case of 15 12oz cans; Sam's Club a case of 12, etc. Our on-the-go packets come in both 7 and 14 count boxes. For all of our calculations a case equivalent is a 24 unit case of 12oz Celsius or 24 individual on-the-go packets.

As we have strategically and significantly increased our marketing investment, it is important to also understand that some marketing costs are deducted when calculating net sales or net revenue. Geary commented on this in the last call but it bears repeating since we have strategically decided to invest in more of these 'above the line' promotions than planned. A key example of sales and marketing expenses that are above the line and deduct from gross revenue are coupons. We like this form of marketing because we only pay for it when a consumer purchases Celsius and redeems the coupon. So you will hear more about above the line marketing costs versus below the line marketing expenses.

Geary will be getting into the financial results for the quarter in a minute but let's first get into some analysis of our volumes. We are pleased with the volume growth that we are experiencing. Celsius sales volume in case equivalents was three times the volume of the same quarter a year ago and comparing this quarter vs. the fourth quarter of 2009 we had an increase of 20%. What we see as more important is the growth of reorders where we more than doubled the case equivalent volumes this first quarter versus Q4 of '09. The sales team did a good job of getting Celsius planned into thousands of new retailer doors or locations over the last couple of quarters. To best understand the strength of the brand and our progress, we separate out the new orders for the initial filling of the distribution pipeline and store shelves from the reorders that follow once sales are pulling through the supply chain. Of course, you can't get the consumer sales until the product is on the store shelves but once there it's the amount of consumer pull through or purchases that matters. We are pleased that the reorder rates from our retailers continue to grow.

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