Celsius Holdings (NASDAQ:CELH) Q2 2020 Earnings Call

0:00 Good morning and welcome to the Celsius Holdings second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cameron Donoghue of Hayden IR. Thank you, Mr. Donoghue. You may begin. Thank you, and good morning, everyone. We appreciate you joining us today for Celsius Holdings' second quarter 2020 earnings conference call. Joining me on the call today are John Fieldly, President and Chief Executive Officer, and Edwin DeGrom, Chief Financial Officer. Following the prepared remarks, we will open the call to your questions, and instructions will be given at that time. The company filed Form 10-Q with the SEC and issued a press release today. All materials are available on the company's website at celsiusholdingsinc.com under the investor relations section. As a reminder, before we turn the call to John, the audio replay will be available later today.

1:07 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 today, August 6, 2020. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. except to the extent as required by applicable law, Celsius Holdings undertakes no obligation and disclaims any duty to update any of these forward-looking statements. We encourage you to review in full our safe harbor statements contained in today's press releases and our quarterly filings with the SEC for additional information. With that, I'd like to turn the call over to President and Chief Executive Officer John Fieldly for his fair remarks. John? Thank you, Cameron. Good morning, everyone, and thank you for joining us today. The second quarter was the first full quarter impacted by the COVID-19 pandemic and undoubtedly posed challenges to all of our stakeholders.

1:59 While the path forward remains uncertain, we remain encouraged by our momentum and the dedication and perseverance of our employees, partners, and customers. These extraordinary times present challenges to all of us, and our condolences go out to all those who have been affected by this pandemic. The health and safety of our employees customers, consumers, and partners remain our top priority, and we continue to monitor the environment and implement contingency plans to mitigate risk through our business. Despite these disruptions, our second quarter performance again demonstrates the momentum we are building in the marketplace and the efforts from our team to reach more consumers through wider distribution, improve margins through cost and operational improvements, and increase are brand recognition globally.

2:51 We set another record quarter with over $30 million in revenue, an increase of 86% over the second quarter of last year, and delivered another quarter of profitable growth of approximately $1.6 million in gap net income. Consumer demand for our functional beverages remains strong, and the most recent reported United States SPINS data for the 52 weeks ending July 12th 2020 confirms that we have significantly outpaced the category across multiple channels, which includes a 46.5% growth in the convenience channel, outpacing the category growth rate by 11.6 times. And in Moolah, our growth is at over 99%. In addition, in accordance to Stackline, which tracks energy drink sales by Amazon in the United States for the 13 weeks ended April 11, 2020, Sales in dollars in the energy drink category by Amazon, including energy shots, grew 80.8% versus the same period a year ago. And Celsius sales increased 118%, and our share increased to 11.4% of the category, which puts Celsius as the third largest energy drink brand on Amazon, just behind Monster Energy at 34.8% share at an 88.8% growth, and Red Bull share of 14.9%, growing at 86.7% growth.

4:24 As we entered the second quarter, traffic and purchasing patterns were severely disrupted, and online ordering patterns, pantry purchasing and curbside pickup became more prevalent in response to the stay-at-home orders and consumer lifestyle shifts. During the second quarter, we began to see impacts in several of our distribution channels. mainly in our health club specialty vending and food service channels. Our health club vitamin specialty channels, which historically represented approximately 20 to 25% of our United States revenue, were predominantly shut down during the quarter. We have always believed that we have a different consumer base, not just an expanded age bracket, and not just a 50% female demographic, but that our consumers are reoccurring, regularly consuming Celsius as part of a daily lifestyle.

5:17 With these two channels shut down, our consumers shifted their purchasing patterns of Celsius to other channels, to online and grocery, where we see the largest incremental increases, which not only replaced the sales in these channels, but also showed record growth, further reinforcing the opportunity we have at Celsius. Celsius is more than just an impulse purchase. We are part of a daily lifestyle, a line for today's health-minded consumer. During the quarter, we made significant progress on further building out our distribution network as our pursuit for a national network to service our key accounts. We secured additional distribution partners with Anheuser-Busch InBev, PepsiCo, Couric Dr. Pepper, and Molson Miller Coor Independent Network Partners, which further expanded our availability of products to new regions.

6:09 Our national distribution network now includes more than 135 regional direct store delivery partners, up from just over 100 direct store delivery partners when we last spoke to you in May. And we have plans for several additional partners in the second half of 2020, where we will have the majority of major metropolitan markets covered by the DSD model in the United States. In addition, during the quarter, we further transitioned over Target and 7-Eleven locations from the wholesaler direct route to market to our DSD partner, Big Geyser, and the New York Metropolitan Market, where we saw volumes more than double in these key accounts. We plan to transition over additional regions to our DSD network throughout the remainder of the back half of this year and into 2021, which will even take Celsius to more points of distribution and more than double our organic growth rate in these top accounts.

7:08 We also launched our newest flavor, Peach Vibe, a refreshing exotic summer flavor, which was very well received. Upon launch, Peach Vibe was ranked as the number one new release in the energy drink category on Amazon, and we anticipate that this new flavor will be a meaningful addition to our portfolio as customers and consumers and retailer planograms resets take place in the back half of this year and into 2021. In the retail space, our U.S. door count now exceeds 75,000 locations nationally, which is up by more than 10,000 since the end of 2019. We expect this number to grow even further in the second half of 2020 as retailers execute planning and resets, which were delayed in the first half of this year.

7:56 From an operational perspective, we continue to refine our contingency plans around production and remain nimble with our sales and marketing initiatives as COVID situation continues to unfold. Our teams are prepared to pivot and adapt quickly to capitalize on opportunities as consumer shopping patterns and behaviors flex with the changes in the environment. Most importantly, we have a culture that embraces flexibility in the midst of uncertainty. In Europe, we continue to capture incremental benefits and synergies from the full integration of Funk Food Group, a Nordic wellness company, into our operations. This business was immediately accreted to earnings and is an important step in our strategy to build a global dynamic brand.

8:43 As in the United States, our Europe operations were impacted by COVID. and saw mainly saw decreases in the fast protein snack portfolio as consumer shopping patterns and habits change to comfort foods. This trend started to take place in the beginning of the second quarter and towards the end of the second quarter, we started to see changes going back and seeing growth in the category. We expect the category to fully rebound in the back half of this year and into 2021. These decreases were partially offset by increases in sales of Celsius in the region where we continue to see great opportunities and momentum. As with Europe and the United States, China and APAC were impacted as well with the COVID-19 recovery continues, where we are seeing and regaining momentum over the summer.

9:30 In China, we maintain a licensing royalty model on the market where our distributor covers over 76 cities and now has over 60,000 points of distribution as of the end of the second quarter. And in Malaysia, where we maintain a direct relationship with a local distributor, We maintain approximately about 2,000 7-11s with plans to re-enter the gym, vitamin specialty channels, and other retailers as the recovery continues throughout the summer. As with Europe and the United States, we see great opportunity to capitalize on the changes in consumer preferences for better-for-you offerings, and we see tremendous opportunities in the enormous market of Asia. On a marketing front, we continue to prioritize with meaningful and emotional connections through robust marketing programs that drive live, integrated programs and competitive activities, even while consumers are at home. On social media, we now have more than 100,000 Instagram followers who actively engage by sharing home workouts and videos that feature our products.

10:30 In addition, with gyms closed, we created a Sweat With Celsius live workout program, which takes place every Monday, Wednesday, and Friday at 12 p.m. Eastern time, and I encourage all of you to attend. We are partnering with local certified trainers to provide a variety of workouts for every fitness level, which allows us to further connect with our community in a meaningful way. In addition, we pivoted our planned sampling programs during the quarter to target first responder locations during the quarter, where we handed out and dropped off thousands of cases of Celsius to over 550 hospitals and first responder locations, supporting the front lines through this pandemic. We remain focused on driving profitable growth by expanding and increasing our distribution networks, nurturing relationships with new and existing accounts, and engaging consumers through a variety of creative mediums. In an industry that is rapidly changing, we are growing exponentially and adapting quickly to grab market share.

11:30 The momentum we are creating reinforces our confidence in the long-term growth and profitability prospects of our business. Heading into the third quarter of 2020, we remain optimistic and are seeing sales orders through July in the United States exceeding over a 50% growth rate versus prior year. I will now turn the call over to Edwin Negron Caballa, our Chief Financial Officer, for his prepared remarks. Edwin? Thank you, John. For the three months ended June 30, 2020, revenue was a record high, $30 million. An increase of $13.9 million or 86% compared to $16.1 million for the same period last year.

12:16 The overall increase in revenues was due to increases in sales volumes as opposed to increases in product pricing. By geography, the 86% revenue increase was attributable to continued strong growth of 44% in North America related to double-digit growth from both existing accounts and new distribution, including expansion at world-class retailers. Consequently, North American revenue delivered a record $20.8 million for the quarter, a $6.4 million increase when compared to the prior year quarter. Revenue from the European markets was $8.8 million or an increase of $7.5 million compared to the second quarter of 2019, reflecting the full impact of consolidating the results of our European operations.

13:14 Asian revenue totaled $326,000 compared to $381,000 in the year-ago period. The modest decline in Asia was primarily a result of currency fluctuations and the impact of the current health crisis. Revenue from all other areas amounted to $107,000, which doubled compared to the quarter a year ago. Gross profit increased by $6.1 million or 88% to $13 million in the second quarter of 2020, up from $6.9 million in the year-ago quarter. Gross profit margin for the first three months and the June 30th, 2020 was 43.3%, which compares favorably to 42.6% for the 2019 quarter. The increase in gross profit margin and dollars reflects the impact of the consolidation of the European operations and the result of the increase in sales volumes as opposed to increases in product pricing.

14:25 The increase in gross profit margin Translated to an incremental profitability of $210,000 in this quarter. Selling and marketing expenses for the three months ended June 30, 2020 were $7.8 million, an increase of $2.2 million, or 39%, from $5.6 million for this same quarter in 2019. The increase is mainly due to the impact of the consolidation of the operations of our Nordics partner, which was not reflected in the 2019 results. Consequently, marketing expenses increased by $930,000 or 40% compared to the second quarter of 2019.

15:10 Similarly, all other sales and marketing expenses reflected the increases related to the consolidation of the European operations and currency fluctuations. Specifically, employee costs increased $1.2 million or 80% from the 2019 quarter to the 2020 quarter and also reflect investments in human resources to properly service our markets. In addition, our support to distributors, investment in trade activity and storage and distribution costs increased by $185,000 mainly related to the increase in business volume year over year. General and administrative expenses for the three months ended June 30, 2020 were $3.6 million, an increase of $1.2 million, or 50%, compared to $2.4 million for the three months ended June 30, 2019.

16:09 This increase similarly reflects the impact of the consolidation of the operations of our Nordics partner and currency fluctuations. As such, administrative expenses were $1 million, an increase of $404,000 compared to the prior year quarter. Employee costs for the three months ended June 30, 2020 increased by $442,000, or 66%, not only related to the consolidation of our European business, but also reflecting investment in resources to support our higher business volume. All other increases for general and administrative expenses amounted to $280,000 when compared to the prior year quarter.

16:56 Below the operating profit line, total other income was $67,000 for the three months ended June 30, 2020, compared to total other expenses of $345,000 for the same period in 2019. The delta between the two periods of $412,000 were partially offset. mainly by higher amortization of intangibles and financial instruments of $310,000.

17:54 As a result of this activity, the company had net income of $1.6 million or 2 cents per diluted share for the second quarter of 2020 compared to a net loss of $1.5 million or a loss of 3 cents per diluted share in the year-ago quarter. Adjusted EBITDA was $2.6 million compared to a loss of $15,000 for the second quarter of 2019. We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance. To that effect, a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release.

18:43 Now turning to our year-to-date results, for the first six months of 2020, revenues increased by a solid 90% to $58.2 million, up from $30.6 million for the six months of 2019. The increase was the result of a strong year-over-year growth in North American sales of 56%, which, similar to the quarter, was driven by double-digit growth in existing accounts and distribution expansion. In Europe, the revenue increase of over 300 percent largely reflects the full financial impact of the consolidation of the results of operations of our European distribution partner. Revenue in the Asian markets for the first six months of 2020 increased 37 percent to 594 thousand dollars.

19:39 This increase was driven by higher sales volume in the first three months, which was partially eroded by foreign currency fluctuations and weaker market conditions as a result of the current global health crisis. Gross profit increased by $13.4 million, or 106%, to $26 million for the first six months of 2020, compared to $12.6 million for the first six months of 2019. Gross profit margin increased by 360 basis points to 44.7% for the six months of 2020 compared to 41.1% in the year-ago period. This increase delivered incremental profitability of $2.1 million.

20:30 Sales and marketing expenses increased by 67% to $15.4 million for the first six months of 2020 and many more. The increase is mainly due to the consolidation of the operating results of Funk Foods. The increase also reflects higher marketing expenses, employee costs and other commercial expenses to support our distributors in light of the higher sales volumes compared to the year-ago period. General and administrative expenses for the first six months of 2020 were $7.9 million, an increase of 55% compared to $5.1 million for the year-ago period. The increase reflects the consolidation of Fun Food's operations, which were not present in the 2019 results, as well as additional resources in order to have the proper infrastructure for business growth. Additionally, administrative expenses included an additional $221,000 related to an increase to our bad debt reserve to cover potential collectability risk associated with the current health crisis.

21:47 Below the operating line, the total other expenses were $635,000 for the first six months of 2020 compared to total other income of $11.8 million in the prior year period. The prior year results included $12.1 million in other income for the recognition of the note receivable from our China distributor that was signed at the beginning of 2019. Based on the aforementioned activity, net income for the first six months of 2020 was $2.1 million, or 3 cents per diluted share, compared to $10.2 million, or 18 cents per share for the first six months of 2019.

22:33 Net income for the 2019 six-month period included the non-recurring gain of $12.1 million related to the note receivable from our China licensee. Adjusted EBITDA for the first six months of 2020 was $5.4 million, which compares to $863,000 in the year-ago period. As of June 30, 2020, the company had cash of $20.1 million compared to $23.1 million as of December 31, 2019. The company also had working capital of $31.8 million as of June 30, 2020 compared to $24.8 million as of December 31, 2019. Cash used by operations during the six months ended June 30, 2020 totaled $4.3 million, reflecting an increase in working capital Mainly related to higher inventory values, prepayments, as well as deposits, and an increase in accounts receivables due to higher sales.

23:41 That concludes our prepared remarks. Operator, you may now open the call for questions. Thank you. Thank you, sir. We'll now begin the question and answer session. If you would like to register for a question, press the 1 followed by the 4 on your touchtone phone. Thank you for joining us. Our first question will come from the line of Jeff Van Sinderen with B. Riley. Please go ahead, sir.

24:36 Good morning, everyone. Let me just first say congratulations on the strong result. John, maybe you can give us a little more color on how the process of adding BSD partners is going since you're now over 130 partners at this point. Maybe speak more about retailers that are expected to flip over to DSD in second half, impact on your business on that. And then kind of given the strong sales growth, how do you feel about inventory levels, production plans, and position to deliver to meet that demand, considering the boost you typically experience from flipping over to major DSDs? Excellent. Thank you, Jeff. I appreciate it. The team has done a great job this quarter, continues to execute extremely well.

25:22 You are correct. We are about 135 DSD partners today. The transition of Bang from majority of Anheuser-Busch independent distributors to Pepsi has really opened up a lot of opportunity for us. So the team's been busy filling in the gaps in several key markets in the United States and the metropolitan areas, really cover the DMAs, so we're able to flip over those key accounts. So As it stands right now, with 135, we have about 70% of all the major metropolitan markets in North America covered. We do have a few gaps that we're working to really close in the back half, really in Q3, but we really have come a long way since the beginning of the year, so really excited about that transition.

26:09 In the past, we talked about Target. and flipping over to Big Geyser in New York and that has gone really well as well as 7-Eleven in that market. We're currently working on CVS as well. We have been giving the green light in the third quarter starting in the back half of this month and into September that we will be flipping over and changing the route to market with Target. So Target will be one of the first really key accounts that will be Taking on more DSD distribution throughout the country. So a variety of key markets in the country will be serviced by DSD with Target. Also, CVS, we're working with CVS extremely closely on doing the same thing. We anticipate the majority of CVSs will be converted over to DSD towards the back half of this year. and Walmart is taking a little bit longer.

27:07 So that will likely take place towards most likely around January of 2021. So we have had a lot of, you know, everyone going through dealing with COVID and a lot of these key accounts. As we all know, a lot has been delayed. We were hoping that a lot of these key accounts would be migrated over in the second quarter. We disclosed that. Some of the delays we were seeing in the first quarter when we released earnings. But we're really optimistic. We're seeing great Great rotation in accounts that are serviced by DSD. And then the new partners that we brought on are extremely excited to get Celsius out into more points of distribution. So we're excited about that as well. And we also saw the store count increase to 74,000 in the United States.

27:52 And that was really driven by a lot of small format locations, regional accounts coming on through the help of our partners, our new partners in the DSD network. As it relates to inventory, Jeff, we've increased inventories. We started to do that in Q1 due to the COVID pandemic. We wanted to make sure we have ample supply in case we have any difficulties with any of our co-packers. We've been such great partners through this all and really supportive of the brand. We do have a new co-packer coming on board. Actually, we're running a test run next week in the southeast, so we're really excited about that. That'll give us additional ample supply as we build out our distribution network. So we feel confident that we'll be able to maintain demand, meet demand with ample inventory and supply.

28:45 We're working every day to get more efficient on that, get cases to our customers and to our distributors at a lower cost, and hopefully The team has done a great job putting strategies in place to accomplish that. Okay, great. And then just to follow up to that, I know that you mentioned Peach Vibe being a success. Maybe you can just touch on some of the resets that are happening in second half with some of the retailers, you know, where you might be adding SKUs, flavors, getting more shelf space. And then if you could just touch on or update us on marketing plans, how those have evolved for second half. Yep, excellent. Hopefully everyone on the call has tried Peach 5. If you haven't, I encourage you to. It's been a great success.

29:31 The team has done a great job really at a time of uncertainty and all the craziness. Our Peach 5 launch was a great thing to bring to people, bringing positive vibes during the summer, much-needed positive vibes, and the team did a great job through a variety of marketing activities to get that out there. We were the number one new release on Amazon for about two weeks, which was a great success. We saw a great rotation. We actually had to go back to production very quickly on that product. We overshot some of our forecasts initially. And a lot of our new distributors that are coming on board, it was a perfect timing. All these new distributors coming on board, bringing us something really exciting, new, that added a possible vibe, and it's cool.

30:17 The team did a great job on the marketing with a variety of influencers and social engagement and activation. Unfortunately, it was delayed with a lot of these resets. It was anticipated to be in more key accounts. We did feel it was time to move forward with it due to our distributors, the number of distributors coming on board and the plans for the summer launch. We did augment a lot of our marketing plans. The offline activation was augmented to online. But it was a great success. So hopefully everyone gets to try it there. It will be listed. It is listed right now at CBS. So we did do a summer display program with CBS in about two weeks. 2800 stores so right now Peach Vibe is in a lot of locations at CVS they took it in in the back half of this year you'll likely see it in a variety of Target locations and many other retailers as we head in to the back half of these resets and into 2021 we think it's going to be a meaning contributor to revenues and another one of our great flavors that our innovation team has put together so staying on the forefront of labor innovation with an experiential offering has driven great success on behalf of the team, so they did a great job.

31:35 Okay, terrific. Continued success, and thanks for taking my questions. Thank you, Jeff. Thank you. Thank you, sir. Continuing on next, our next question comes from the line of David Bain with Roth Capital. Please go ahead, sir. Great. Thank you. I was hoping first maybe if you could speak to the promotional environment. I think Scanner has Red Bull up 10% in the second quarter. They did the summer watermelon flavor and a lot of promotions during COVID. It sounds like Monster may now resume some activities as well and expand with the watermelon product also. As competitors begin to ramp promotions and special items, is there a need to react differently or is this kind of ramp out of COVID pretty much as expected and no real need to adjust?

32:28 Well, thank you, Dave. Appreciate the question. In regards to the category, the category has always been very competitive with a lot of variety of different pricing architectures and promotional strategies. We've indicated on our Q1 earnings call we were going to run really heading post-COVID a lot of retailers. wanted to see some integrated promotional programs really to entice consumers back into retail. We have participated in those. We were selected as an example in the month of July. We ran a BOGO program at 7-Eleven, which was great success, further increasing our penetration in the 7-Eleven chain. and many more. That was great. Also, Target, we have an NCAP program running.

33:24 That was our first time really getting off that warm shelf in the energy aisle. It was great placement. And we've run promotions there. Also, at CBS, we've run some promotions coming out of the COVID through the summer. So, you know, I think the category has always been very promotional driven, especially during the summer months with beverage. What we have done is it's very important we continue this premiumization in the category. Celsius is the premium offering in the new performance energy category. So we won't be just counting down extensively. We're going to maintain our margins, but it's very important we continue to drive premiumization in the new category as it grows and scales. That's the opportunity we have. But you will see targeted promotions to gain trial and gain awareness.

34:12 Okay, great. And just my second one, if I could. On the DSD, I know you gave a lot of good detail. I just want to make sure I understand. Maybe the easiest way for me, at least, would be on the last call you gave us a penetration across your distribution. I think it was like 12%. And based on the color you provided, is there kind of a current maybe 3Q and 4Q contemplation of where that is and goes to? And as you deepen the certain DSD relationships, Will the number of DSDs narrow to just the larger ones? I mean, how do you strategically think about DSD partnerships, you know, that evolution generally? Yeah, you know, the partners we have now are in some of the top-tier distributors in the regions that we're operating in. So, you know, we're looking to build a really long-term partnership. Thank you for joining us.

35:31 Small format locations and also get that better execution in the trade and the higher velocity numbers. So those are some key points that we're really looking to accomplish. I'm building out a national DSD network, and what we're seeing is extremely positive where we stand today. Perfect. Is there a way to sort of encapsulate the percentage penetration at this point? Yeah, I mean, at the last earnings call, we said roughly about 10%, 12% of our stores were currently being serviced by GSD. You know, over the last quarter, a lot of our partners did expand us into additional regional small format, and we did make progress on flipping over, you know, transitioning some more accounts over in key markets. But, you know, we're probably still in the teens at this point. We really need a lot of the bigger retailers to help us as we go through the transitional phase with CVS Target, Walmart, Rite Aid, 7-Eleven, and several of our new customers that we have plans to come on board in the back half of this year. So that will continue to grow.

36:36 We anticipate that number to continue to grow every quarter. Awesome. Congrats. Thank you. Thank you, David. Thank you for your question. Next, we have Jeffrey Cohen with Ladekberg et al. Please proceed with your question. Hi, John and Edwin. How are you? Hello. Excellent. Excellent, Jeff. How are you doing? I'm well. Thank you. Great quarter on the top line. So congrats and a few questions for me. You talk about the channels a little bit. I was listening to Rodney the other day talk about your Nielsen at like 11.3 on the Amazon Direct and thinking about that as well as what's been going on with what they call gas inconvenience as well as gyms. I assume that gyms are probably less than a quarter of your revenue and have taken a leg. But could you talk about the gas inconvenience a little bit? as well as the online and kind of the trajectory that you had through the second quarter?

37:44 Yeah, absolutely. Thank you, Jeff. The channel mix has been quite interesting over the last quarter as we entered the second quarter and then throughout the second quarter. As we all know, gyms and vitamin specialty stores and locations have been closed and reopened and closed back down and A lot of these gym chains have opened, but they're running at like 25% capacity, 50% capacity. So we have experienced a significant decrease in our fitness channel. We're very committed to fitness and working closely with our partners. Also, some of the news on 24 Hour and Gold's Gym as well. So that channel has impacted us. But it has been offset by the growth that we've seen in Amazon, you know, mass, grocery, where we're just seeing, you know, great rotation.

38:36 And it really goes back to what I said earlier about, you know, the opportunity we have here in the Celsius consumer. We're not just an impulse purchase. We're part of a daily active lifestyle. So, you know, you're drinking – consumers that were drinking a product, which we hear a lot of times that we're just a pre-workout, we're more than just a pre-workout. And it's obviously that was, you know – and how the revenue has migrated over. So when you look at gas and convenience, we have a limited exposure there. We are currently about 11%, 12% ACV. We're still growing at about a 50% growth rate. Latest SPINS data coming out on that market with right around a 12%, 12.5% ACV. So a long runway ahead and just seeing great rotation in the accounts we're in.

39:25 We closed additional circle Ks in the quarter, several divisions there, which we're excited about, seeing great rotation at QT, racetrack, and, of course, 7-Eleven has been great for us through the quarter. So, you know, we feel it's going to come back. Obviously, we all know the traffic has been down. Through the quarter, you started to see more traffic come back. It's not where it was pre-COVID, but we feel – that the category is going to come back. It's going to come back in convenience and petrol, and we want to make sure we're going to be a major player in that category as it continues to recover. That's great. Secondly for me, could you just talk a little bit about your demographic and demographics as compared to your supposed competitors out there as far as picking up probably – would be more of the Gen X and Gen Y generation as opposed to Gen Z or boomers, you know, post-millennium. Can you talk about that a little bit for us?

40:29 Yeah, absolutely. Absolutely. You know, that's what's really unique about Celsius and the great opportunity we have and which Edwin and I and our team members here are really excited about the opportunity. We have a much broader consumer base than, say, a traditional energy drink consumer and The energy drink category, when you look at traditional energy, historically, that's been 18 to 24 male has been really the target. The category continues to evolve. The category is aging up. The consumers that were drinking those traditional energy drink products are looking for better for you options. And as we all know, health and wellness is even more important today than it ever was been before. And Celsius, born in fitness, vitamin specialty, We're all about encouraging people to live an active, healthy lifestyle and live fit with Celsius. So it's really resonating well with today's health-minded consumers.

41:25 So, you know, when you look at our demographics, we've always been about 50-50, male-female, which is unique in the category. And also our age demographic has indexed up. We've aged up, you know, in the 45-50 range, actually, in a lot of categories. And I think it has to do with the ingredients. We have green tea, guarana, ginger. Biotin, Chromium, a variety of seven essential vitamins and it tastes great. It's light, it's airy, it makes you feel really good as well and no crash. And we're also seeing the new consumers entering the energy drink category aren't grabbing for mom or dad's Red Bull or Monster. They're grabbing and they're looking for products that align with their active lifestyle and one of your top picks has to be the premium offering and premium Celsius in the category and we're seeing great rotation on that. We're seeing a lot more of Gen X, NZ, and Millennials over index in the category as well, drinking more of these products than the traditional energy drink consumers say five, six years ago.

42:25 So we're excited. And then lastly for me, can you talk a little bit about July versus June and kind of, you know, reopening of some of the economic sectors out there coupled with your traditional summer strength as a Does it feel good where you're situated now into traditionally your strongest quarter versus how you came out of June and Q2? Yeah, I think we came out considering, you know, like you mentioned, 25% of our revenues approximately, you know, 20, actually 28% of our revenues, almost 30 historically have come from vitamin specialty gyms and health clubs. So, you know, having that channel down as well as the momentum we were building in the on-premise Vending, and Micromarket Channel, which has been impacted.

43:17 We're seeing good momentum. We saw good momentum in June. We're seeing good momentum as we head into July. I did state that purchase orders in-house in North America were over 50% versus the prior year. So just looking at the quarter there, we entered and exited July with some pretty good momentum. and that doesn't even really include a lot of the new accounts that are planned to come on board in the back half of this year. It really set us up for a really strong 2021. I think we feel pretty good as an organization. We're working hard and we want to take share in this category. Fantastic. Thanks for taking the questions.

44:04 Thank you, Anthony. Thank you, sir. As a brief reminder, to register for a question, press the 1, followed by the 4. Next, we have Anthony Vendetti with Maxim Group. Please go ahead. Thank you. Hey, John. I just wanted to talk about a little more on the Amazon channel. You said you're third after Monster, Red Bull. Can you talk about the growth in the channel historically? Thank you, Anthony. Number one, I appreciate your question. In regards to Amazon, we've been seeing strong growth over the last Several years on Amazon, we were in the high double-digit growth rates on the Amazon platform. Most recently, I saw latest data from Rodney Sachs at Monster Energy on his earnings call.

45:16 He had the latest Stackline data, which he disclosed, and the category is growing about an 88% growth rate. That was over the last four weeks as of, I think it was July 14th, his cutoff. So, you know, strong growth in the category on Amazon. We are exceeding that growth rate. I think we reported us over a 200% growth rate, I believe. I'll have to double-check that. But it was extremely high, a 180% growth rate versus the 88%. And we increased our share by one point. Red Bull did lose their one-point share. So getting closer to number two position, the... Potentially the second largest energy drink on Amazon. But we've been doing very well, very well.

46:03 You know, that's where consumers are shopping now, at-home deliveries. Their sales are up tremendously. So it's great that we're growing faster than the growth rate, which is key. That's great, John. In terms of the new accounts that are coming on in the second half as it sets you up for 21, how has COVID-19 changed? It doesn't look like it's obviously impacting you, but How has it changed your day-to-day practices for your team? I know there were some additional expenses, but what type of sanitation expenses? Can you talk a little bit about that and how the sales practice has changed a little bit?

46:56 Yeah, no, absolutely. I think everyone's world as an organization, everyone's world is kind of turned upside down. The teams are working hard to continue to stay focused and execute and drive, maximize opportunities and stay nimble. It is a challenge for all of us. We're operating from South Florida. That's where our headquarters is based. So We do have contingency plans in place for most recently. We had a little bit of a scare with a hurricane coming at us. So it is something that we're all always prepared to work remotely. So we have our servers and catfives facilities. We do drills. So we have not really missed a beat, I feel. I think the team has done a great job.

47:44 It is difficult working with a lot of individuals remotely. Many of our team members are working remotely. We're taking extra precautions, cleaning, sanitizing, to your point. Also, our teams on the sales side have not been able to really have those customer meetings. Right now, we're in the midst of entering 2021 buyer seasons. This is the time to sell in additional expansion for 2021 buyers. and a lot of those meetings are happening now through different platforms, video conferencing. So you're missing those touch points. Also, many of our distributors, you know, we're not really able to activate them as we originally planned with support and team blitzes and we're doing the best we can and trying to be as precautious as we can as well. And then our marketing initiatives obviously had to pivot from offline experiential marketing to online. So trying to get creative, think out of the box.

48:41 and, again, in front of consumers and continue to grow the brand and grow our consumer base and stay flexible, which is key. Okay, excellent, excellent. Just maybe if Edwin has the number or if you know off the top of your head, in the quarter that you were in, do you expect that increased expenses due to COVID-19, cleaning, sanitation, sanitizing, whatever – Do you expect that to continue in this quarter, and is it a material expense, or right now it's something that you're doing, but it's not impacting the expense line that much?

49:28 I'll let Edwin take that. Thank you. Yeah, absolutely. We are doing, obviously, those type of efforts, but to your point, it hasn't been material at this point. But we are obviously taking all the precautions and taking all the measures in terms of sanitation and safeguarding, as John mentioned, employees, consumers, and so forth. But not something that at this point is material. Yeah, just like that. I think it's more, Anthony, not really a cost, a material cost to us, but the cost is really an opportunity cost is really what's costing us as an organization because of You know, the limited ability to execute and really activate our new distribution partners and the delays that we're seeing in a lot of these retailer resets.

50:17 So it's more of an opportunity cost, which is the material component. Understood. Excellent. Thanks. Appreciate it. Excellent. Thank you. Thank you. And our next question comes from the line of Aaron Gray with Alliance Global Partners. Please go ahead. Hi, good morning, and thanks for the questions, and congrats on the additional distribution agreements and quarter. Excellent. Thank you, Eric. So first question for me is just around the new distribution agreements and kind of having them more as your brand ambassador, if you will, especially with the retailers. So just kind of curious as to how it's going to help with your shelf placement and then also how we can think about potentially being placed more at the fridges, at checkout as well, to create more additional opportunities.

51:07 and kind of where you see opportunities for that going forward. Absolutely. That's the power of the DSD network. You nailed it on the head. You know, we say kind of internally faces sell cases, and when it's cold, it's sold. So, you know, we have a great product that fits both those. That's where the DSD comes in. It's the power of the people, the power of the teams, activating them and getting more people out there selling Celsius. So we have, you know, a limited team. and through these distributors we're able to educate, excite, motivate and help us continue to build share and also help merchandise which has been key. As we all know there's a lot of going direct to retailers in this high turning category causes a lot of challenges and complexities due to shelf presence taking out some of the activity by other partners in the category at what happens on the street at retail.

52:06 So The manpower is really the key, and that's where we see a great opportunity and benefit. All right, great. Thanks for that. And then just one more from me. Obviously, the category remains very competitive with players looking to innovate. You've come out with your own innovation as well, and there's particularly a lot of competition on the healthy beverages side that we've seen. So just curious to how you think about the competitive landscape, how it's evolving in obviously Celsius has been doing very well so do you feel like it's more of a rising tide lift all boats as you see these other competitors come out with product and the entire energy drink category you know kind of you know gains traction we're just curious to your thoughts on that thank you yeah thank you I mean there's always been a competition beverages fierce the barriers to entry are fairly low the barriers to succeed are extremely high You know, the competitive landscape continues to evolve, and that's important that the teams at Celsius stay on the forefront.

53:07 We continue to build the brand, the brand equity, maintain our distribution, and, you know, this is something that we operate in an extremely competitive environment. That's beverages, especially energy. You're seeing that now in sparkling waters. You're also seeing it in spiked seltzers now, so... But once you build a brand, a strong brand, you continue to attract more consumers. You can really take share in the category, and that's what we're focused on. Great. Thank you, and best of luck. Thank you, Eric. Thank you. I'll now turn the presentation back to our main presenter for his concluding remarks. Please go ahead, Mr. Fieldly. Thank you. I'd also like to thank Reagan Ebert, for her service as a board of director to the company. She has a great opportunity, and I wish her well on her new endeavors at Danone as a senior vice president role.

54:03 In addition, I would like to welcome Caroline Levy, who was recently appointed to our board of directors. She brings over 30 years of consumer industry experience and an extensive network of industry and investor relationships, and we give her a warm welcome and welcome to the team. In addition, I would like to mention on August 14th, we will be participating in a virtual fireside chat hosted by Alliance Global Partners. If you would like to attend, please contact your Alliance Global Partners representative for additional details. And then on behalf of the company, we'd like to thank everyone for their continued interest and support. Our results demonstrate our products are gaining considerable momentum and we are capitalizing on today's global health and wellness trends.

54:49 and the changes taking place in the transformation of the energy category. Our active healthy lifestyle position is a global position with mass appeal and we're building upon our core and leveraging opportunities and deploying best practices. We have a winning portfolio, strategy and team and a large rapidly growing consumer base. Our mission is to get Celsius to more consumers profitably and I'm very proud of our dedicated team as without them our tremendous achievements and significant opportunities we see ahead would not be possible. In addition, I'd like to thank all of our investors for their continued support and confidence in our team. Thank you, everyone, for your interest in Celsius. Be safe and have a great day. Thank you, sir. And that does conclude the conference call for today.

55:36 We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. Have a great day.