Celsius Holdings, Inc.
Q3 2020 Earnings Call Transcript

Published: 12 Nov 2020

[Operator:]

Greetings and welcome to Celsius Holdings Third Quarter Earnings Call. It is now my pleasure to introduce your host, Cameron Donahue, Investor Relations for Celsius. Thank you. You may begin.

[Cameron Donahue:]

Thank you and good morning everyone. We appreciate you joining us today for Celsius Holdings third quarter 2020 earnings conference call. Joining the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, Chief Financial Officer. Following their prepared remarks we will open the call to your questions and instructions will be given at that time. The company filed its Form 10-Q with the SEC and issued the earnings press release pre-market today. All materials are available on the company's website at celsiusholdingsinc.com under the Investor Relations section. As a reminder, before I turn the call over to John, the audio replay will be available later today.

[John Fieldly:]

Thank you. Cameron. Good morning everyone and thank you for joining us today. Our third quarter continued to see the impacts of the COVID-19 pandemic, materially impacting several channels of trade for Celsius including our health and fitness, vending and in foodservice as well as a reduction in food traffic in several other channels. While we did begin to see an improvement in the third quarter with capacity restrictions and reopenings in our distribution channels, this remains significant, uncertain as there potentially could be reclosings with additional cases and increased in our regions of operation and extended closures in some states and countries. The health and safety of our employees, customers, consumers and partners remains our top priority and we continue to monitor the environment and implement contingency plans to mitigate risk to our business. In addition to the COVID disruptions in our retail channels, the entire beverage industry is now being impacted by an aluminum can shortage taking place in the United States. The impact is across the board with major bottlers recently announcing a material shortfall in cans for 2021 and many smaller brands are being turned away. We have been in continual dialog with our suppliers, and while they remain certain to fulfill our base can needs for 2021, they indicated they do not expect to be able to fill our expected growth from our internal projections. While this is a significant issue, we have also found a solution. Being an international company, we have been able to leverage our global relationships and strategic investors and will be securing additional cans needed -- as needed from Europe and Asia to support our growth. While this is great news on all these incremental cans, we are able to source outside of the United States, we will see an increase in our cost of goods over the short-term period through 2021, which will impact our gross profit margins by a few points, but we remain confidence, the company will be at least at a run rate in the low 40s on a gross profit basis.

[Edwin Negron-Carballo:]

Thank you, John. Starting with our third quarter results for the three months ended September 30, 2020 revenue was $36.8 million, a substantial increase of $16.4 million or 80.4% from $20.4 million for the same quarter of 2019. The revenue increase of 80.4% was attributable to continued strong growth of 60.4% in North American revenues reflecting double-digit growth from existing accounts, new distribution and expanded presence in major retailers. European revenue for the three months ended September 30, 2020 was $9.5 million, which translates to a robust increase of 182.3% from 2019 quarter revenue of $3.4 million. The 2020 figures now reflect the full financial impact of the consolidation of Func Food Group, our European distribution partner whom we acquired in October 2019. Asian revenues which basically consist of royalty income from our China licensee were essentially $275,000 for the three months ended September 30, 2020, an increase of 40.8% from $195,000 in the 2019 quarter. Other international markets generated a $145,000 of revenue during the third quarter of 2020, an increase of basically $57,000 when compared to $88,000 for the same quarter in the prior year. The total increase in revenues from the 2019 quarter to the 2020 quarter was mainly related to increases in sales volume as opposed to increases in pricing. For the three months ended September 30, 2020, gross profit increased by approximately $8.9 million or 103% to $17.5 million from $8.6 million for the same quarter in 2019. Gross profit margins for the three months ended September 30, 2020 were very healthy 46.7%, which compared favorably to 42.2% same quarter in 2019. The increase in profit margins delivered an incremental $1.9 million of profitability this quarter. The increase in gross profit is mainly related to increases in sales volume from the 2019 quarter to the 2020 quarter as opposed to increases in product pricing. Sales and marketing expenses for the three months ended September 30, 2020 were $8.3 million, an increase of basically $3.3 million or 68% from $4.9 million in the 2019 quarter. This increase reflects the impact of the full consolidation of the operating results of Func Foods. Thereby, resulting in an increase in our marketing investments of 88% or $1.7 million from the prior year quarter. Similarly, all other sales and marketing expenses give effect to the increases related to the consolidation of Func Food Group's operations. Specifically employee costs, which also includes investments in human resources to properly service our markets increased to $2.3 million or 71% from the prior year quarter. Moreover, due to increase in business volume from the 2019 quarter to the 2020 quarter, our support to distributors and investment in trade activities as well as our storage and distribution costs increased by $705,000 when compared to the prior year quarter. General and administrative expenses for the three months ended September 30, 2020 were essentially $4.6 million. An increase of basically $2.4 million or 108% from $2.2 million for the three months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Foods operations which were not present in the results for the 2019 quarter. As such, administrative expenses for the three months ended September 30, 2020 were $1.3 million, an increase of essentially $866,000 or 182%, from basically $476,000 for the prior year quarter. Employee costs for the three months ended September 30, 2020 reflected an increase of $360,000 or 63%. Not only attributable to the consolidation of Func Food Group's operations, but also reflecting additional investment in resources to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 quarter to the 2020 quarter were approximately $1.1 million. These increases are mainly related to higher stock option expense of $1.2 million, additional depreciation and amortization of $15,000, which were partially offset by net decreases in all other administrative expenses amounting to $122,000. Total net other income for the three months ended September 30, 2020 was basically $45,000, which compares favorably to other expenses of $543,000 for the same period in the prior year. The 2020 quarter results reflect a total favorable impact of approximately $588,000, which includes $155,000 of lower amortization expenses, $143,000 gain related to foreign currency fluctuations, $408,000 gain on the note receivable from China and net other miscellaneous expenses of $63,000, which were partially offset by higher net interest expenses of $55,000. As a result of the above, for the three months ended September 30, 2020 net income was $4.8 million or $0.06 per diluted share, compared to net income of $961,000 or dilutive earnings of $0.03 per share in the year ago quarter. Adjusted EBITDA was $6.9 million compared to a loss of $2.6 million for the third 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, the reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. Now turning to the year-to-date results. For the nine months ended September 30, 2020, revenue was essentially $95.1 million, an increase of $44.1 million or a significant increase of 86%, from $51 million for the same period in 2019. The revenue increase was attributable in large part to continued strong growth of 57% in North American revenues, reflecting double-digit growth in both existing accounts and new distribution as well as expanded presence in major retailers. European revenue was $26.8 million for the nine months ended September 30, 2020, an increase of 251% from $7.6 million in revenue for the 2019 period. The 2020 figures now reflect the full financial impact of the consolidation of Func Food Group. Asian revenues which basically consist of royalty income from our China licensee were $969,000 for the nine months ended September 30, 2020. An increase of 38% from $629,000 for the 2019 period. Other international markets generated $309,000 of revenue during the nine months ended September 30, 2020, an increase of basically $150,000 from $160,000 for the same period in 2019. The total increase in revenue from the 2019 period to the 2020 period was mainly related to increases in sales volume as opposed to increases in product pricing. For the nine months ended September 30, 2020 gross profit increased by approximately $22.3 million, or a robust 105% increase to $43.5 million from $21.2 million for the same period in 2019. Gross profit margins increased to 45.8% for the nine months ended September 30, 2020 from 41.6% for the same period in 2019. The increase in gross profit dollars and gross profit margins is mainly related to increases in volume as opposed to increases in product pricing. Sales and marketing expenses for the nine months ended September 30, 2020, were $23.6 million, an increase of effectively $9.5 million or 68% from $14.1 million for the same period in 2019. This increase reflects the impact of the consolidation of Func Food Group following its October 2019 acquisition by the company. As a result, our marketing investments increased by 77% or $4.2 million from the 2019 period. Similarly, all other sales and marketing expenses reflect the increases related to the consolidation of Func Food Group's operations. Specifically employee cost for the 2020 period, which also includes investments in human resources to properly service our markets increased by $3.6 million or 88% from the 2019 period. Moreover, due to the increase in business volume, our support to distributors investment in trade activities as well as storage and distribution costs increased by $1.7 million from the 2019 period to the 2020 period. General and administrative expenses for the nine months ended September 30, 2020 were essentially $12.5 million, an increase of $5.3 million or 72% from $7.2 million for the nine months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Foods operations which were not present in the results for the 2019 period. As such, administrative expenses reflected an increase of $2.6 million which included an increase of $221,000 in our bad debt reserve to cover potential collectability risks associated with the COVID-19 pandemic. Employee costs for the nine months ended September 30, 2020 reflect an increase of $1.1 million or 59%, not only attributable to Func Foods operations, but also related to additional investments in resources in order to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 period to the 2020 period were $1.4 million. These increases mostly resulted from higher stock option expense of $1.3 million, higher depreciation and amortization of $34,000, and net increases in all other administrative expenses of $59,000. Total net other expenses for the nine months ended September 30, 2020 were $590,000, which reflect a variance of $11.9 million when compared to total net other income of $11.3 million for the same period in the prior year. The variance of $11.9 million is mainly related to the recognition of a gain of $12.1 million pertaining to a note receivable from our Chinese licensee. The note receivable is part of an agreement executed with our China distributor related to the restructuring of our business relationship to a royalty based model, which requires the repayment over five year period of the investment the company made in China during the 2017 and 2018 years. As a result of the above for the nine months ended September 30, 2020, the company had net income of $6.9 million or $0.09 per diluted share. In comparison, for the nine months ended September 30, 2019, there was net income of $11.1 million or $0.20 per diluted share. The net income for the 2019 period included a non-recurring gain of $20.1 million related to the note receivable from our China licensee. Adjusted EBITDA for the first nine months of 2020 was $12.2 million compared to a loss of $3.4 million for 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. As of September 30, 2020 and December 31, 2019, company had cash of approximately $52.2 million and $23.1 million respectively and working capital of approximately $62.2 million and $24.8 million respectively. Cash provided by operations during the nine months ended September 30, 2020 was approximately $3.8 million compared to cash used in operations of essentially $966,000 for the nine month period ended September 30, 2019. Finally, subsequent to the end of the third quarter on October 30, 2020, the company paid off the bonds payable related to the acquisition of Func Foods in the amount of approximately $10 million and is now debt free. That concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

[Operator:]

Thank you. Our first question comes from the line of Jeff Van Sinderen with B. Riley & Company. Please proceed with your question.

[Jeff Sinderen:]

Good morning everyone. First, let me say congratulations on the strong Q3 metrics. Terrific to see. John, maybe you can just touch on, I know you've ramped the DSD network quite a bit. I think you said you're at 147, but maybe you can just speak to which regions you feel are best covered at this point, maybe where you still need to fill in or add DSD partners? And then what is kind of the optimization of your DSD network look like at the next phase based on recent business trends and kind of maybe just review the timeframe of getting to that optimization?

[John Fieldly:]

Yes, no, thank you, Jeff. I really appreciate it. The team did a great outstanding job during the quarter, during these unprecedented times. So, really excited about the results and the momentum we're at, but you're absolutely right. I just stated on the call we're at a right around 147 DSD partners today. We have about 75% of the major metropolitan markets covered. So, that allows us to really activate our retailers. So, our team, our key accounts team is in the process really working with our retail partners and getting plans in place to transition from a direct model to the DSD model where we just see great lift, really gets us much better placement, better activation, better in-store execution and so forth. And that's really what we've been saying that's what we've been seeing as we flip over Target and CVS, 7-Eleven in New York and Ralph's in California as well. So, lots of momentum there. When you look at the areas where we're still working on and need coverage, the team is working very closely with a variety of potential customers is the Mid-Atlantic states, Northern California, we've been working on. And also there is pockets in the middle of the country as well as certain pockets in Texas that we're working on. So, -- but we do have 75% of the major metropolitan markets covered. We can cover a good portion and a good footprint of our existing distribution. So, really just in the process, working with our retailers, we've even talked about Walmart before 50% are currently covered by DSD. We're hoping that will change in the really in Q1 of 2021 as we continue to work with those retail partners and flip over these key accounts. So, we think we're in great position, we're in great standings and a better position than we ever have been on our retail distribution footprint and just really excited, we're seeing these distributors continually reorder products working with us. We have some great team members, field sales team members that are working on activating these distributors. So, we think we're in a really great position as we exit 2020 and head into 2021.

[Jeff Sinderen:]

Okay, great. And then kind of a multi-part question here. Can you speak on how the process of converting Target to DSD has been going? Maybe what sort of lift you're experiencing lately when you convert to DSD. Overall, I think you said something along lines of 50%? And then I think you also mentioned Walmart flipping to DSD in the first part of next year. Maybe you can just elaborate a little bit on that? And then, just curious any more thoughts you have on the C-store channel and how business is growing with Speedway?

[John Fieldly:]

Okay, excellent. Target, we mentioned, we put press releases out, we have worked -- been working on flipping over 1,200 stores. There is a whole process that gets involved there to even get to that point. So, it's making sure you're covering all the stores within a given DMA, making sure that you're -- their vendor numbers have to be loaded, there is a lot of back office work that has to be done. Not only on the Celsius side but also on the retailer side. And once that's all completed, then that needs to be communicated to our distributor partners, activated at retail, we do provide support with our field sales team as well making sure these shelves get set. I've been working on it over the last two months really September and October, getting those 1,200 Target stores set. There is additional Target opportunities to flip as I mentioned, as we head into 2021. In regards to Walmart, we are in about 50% of those Walmart's are currently serviced by DSD, due to COVID and a lot of challenges as we know with these retailers with a lot of back office roles and responsibilities and working from home, has taken a little bit longer. So, we anticipate Walmart will get together with them and we'll continue to work on, move over to DSD, which is the preferred method and we anticipate that to happen sometime in Q1, early 2021. As it relates to convenience. Convenience, we're up to a 16% ACV, outpacing the category growth. Obviously we're into -- getting into the pick of buyer seasons. So, really account calls for 2021. It has been extremely positive as we -- where we sit today and looking into 2021, we're getting a lot of excitement as we did last year at NAICS, as we presented there. We did have a booth there. We got a lot of excitement. We are anticipating a lot of resets in 2020 which had been delayed. But we anticipate those to come around. We're expecting more accounts coming on-board in the convenience channel in that March-April timeframe in 2021. And we'll have more announcements over the next coming quarters of our expansion in existing accounts as well as new distribution coming on-board within that convenience channel. As you look at Speedway, it's process of the first, really the first phase of the relaunch. Initial feedback has been positive on the -- in the 2,700 stores range. So, initial feedback has been positive. We'll continue to monitor, but I don't have anything else to really report on at this time in regards to Speedway, but things seem to be going well.

[Jeff Sinderen:]

Okay, great to hear. Thanks for taking my questions. I'll jump back in the queue.

[John Fieldly:]

Excellent. Thank you, Jeff.

[Edwin Negron-Carballo:]

Thank you.

[Operator:]

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

[Jeffrey Cohen:]

Hi, John and Edwin and Cameron. How are you?

[John Fieldly:]

Excellent. How are you doing today Jeff?

[Jeffrey Cohen:]

Very well, thank you. Just fine. So, few random questions and one more of a macro question. So, could you talk about the, On-The-Go sticks, it's now up to six SKUs. Is that yet become a material portion of the overall business at least in North America?

[John Fieldly:]

Yes, the On-The-Go sticks is a great offering for us, because that expands our usage occasion. So, we see a lot of -- we're seeing a lot of momentum with individuals making it part of their smoothy combinations, also taking it on their travel or travels down. We've seen a lot of offers a lot more portability and we are seeing -- we expect it to be a meaningful part of our business. Obviously the RTDs or drive the bulk of our revenues, but we do see this additional opportunity with the On-The-Go sticks, they're doing well at Publix. We just expanded into Walmart with them. With Vitamin Shoppe we've done really well over the years in our line and HEB has had in for some time, as well as Harris Teeter, so we do get a lot of excitement, a lot of interest on them. We do have some new flavors plans for 2021 and as it will be a meaningful business -- part of our business, it is a piece of our business. And we expect it to deliver revenue and gross profits as we continue to scale and the team has put priority on it as well. But our main focus is the RTDs.

[Jeffrey Cohen:]

Got it. You did mention a couple of new flavors, you said strawberry marshmallow and blueberry frost. Can you tell us what the timing is on that? And if that's the traditional line or the heat line and where we might expect that to pop up?

[John Fieldly:]

Yes, it's in the market now in the Nordics. Great tasting strawberry marshmallow and the frost it's great tasting the blueberry frost, is a limited addition that we just launched at the end of the third quarter. So, locally here in the US, we don't have that slotted to arrive. But it is in the Nordics, if you're traveling over to Sweden, Finland or Norway, you will be able to find that.

[Jeffrey Cohen:]

Okay, got it. And then, next, could you talk about, I know that Func is closed. Could you talk a little bit about the Vitamin channel and if you're seeing any disruptions with the GMC situation?

[John Fieldly:]

Jeff, can you repeat the question. Sorry?

[Jeffrey Cohen:]

Yes, could you talk a little bit about the Vitamin channel specific to this quarter or next quarter?

[John Fieldly:]

Yes, I mean the Vitamin channel has been a channel, especially supplement channel in the gym business. We started to see great reopenings in Florida. We did start to see reopenings in Texas markets and in California we're actually the workouts are outside. We have some outdoor activation to support those local partners. It's very key to our core. We're there to support the fitness channel. Regards to the vitamin specialty, I mean the channel has been has struggled. We've talked about, it was down 23% in the quarter. We anticipate it to come back. We feel health and wellness trends are here to stay. It's -- we don't see that going away anytime soon. It's more important now than ever deep forward to stay healthy, stay fit, stay active. So, we feel the sports nutrition space is going to continue to grow. It's a great way for a consumer to be -- learn about CELSIUS for the first time in that channel as well and they bring a lifelong CELSIUS consumer on board.

[Jeffrey Cohen:]

Okay. And then lastly from me. If you could talk about the situation with the cans. As I understand that you have had four or five facilities, is the limiting factor, the capacity of the current facilities or is the limiting factor the raw materials and the availability of the can manufacturing?

[John Fieldly:]

Yes, we've spoken about the cans. We were notified late in October about availability as we head into 2021. There is a massive can, the physical actual body of the can shortage for 2021. It's anticipated in 2021, the industry in the North America is short about 30 billion cans. So, lots of shortfalls, and that really has to do with the capacity of the manufacturing of the physical can, not the filling of the can. When we talk about filling stations, that's the five filling stations or co-packers we've been working with. We have capabilities to produce the cans, but we, to fill the cans into finished goods, the challenge we have, as we head into 2021 is the physical can body. So, that's where the big shortfall is. All the manufacturers, the larger can manufacturers are all running over capacity and turning brands away, unfortunately. So, as I stated earlier, on the opening remarks of the call, we do have contingency plans in place for that. Being a global company is advantage to us. We were immediately able to start sourcing cans out of Asia, out of Europe as well and immediately put our teams on that task to secure cans to sustain our growth and continue to outpace the category. So, we will have sufficient ample supply as we head into -- as we had through 2021. But it is an industry wide issue. Everyone is going to be dealing with which also can be an opportunity for brands that have cans.

[Jeffrey Cohen:]

Got it, okay. That does it for me. Thanks for taking the questions.

[John Fieldly:]

Excellent. Thank you, Jeff.

[Operator:]

Our next question comes from the line of David Bain with ROTH Capital. Please proceed with your question.

[David Bain:]

Great, thanks. And also my congratulations on the results and thanks for all the data points you covered a lot. So, I'll limit mine to two. Just given the cash on the balance sheet, cash flow generation, I mean, does this change your outlook either on potential M&A activity or brand extensions? I mean looking at the SKU average for your industry leader, you start to add Rain, body fuel to Paradise, Dragon Tea whatever, it's got to be three times, four times, five times yours in the same locations. So, is that an opportunity potentially next year or am I thinking about that the right way?

[John Fieldly:]

Thank you, Dave for the question. There is a ton of opportunity out there for us. No question about it. The key -- lead Celsius is focused execution. We did finish the quarter with $52 million in cash of which right around $42 million if you back out the $10 million paying off that debt, which we are debt free. So, that's been paid off. So, we do have sufficient cash. We are generating cash flow positive. We will be investing in inventories to sustain growth. So, we have funds market for inventory investments. We also have some positive ROI targeted investments, we will be implementing into 2021 with cooler placements. If you're out in California, I know Dave you're out there, if you stop into some Ralph's, we're getting great placement with some really good cooler assets and the ROI is extremely positive. So, we'll be looking to invest in that area into 2021. Opportunities arise every day. We're willing to evaluate them and if we find an opportunity that's accretive to our shareholders, accretive in revenue and gross profits, we will look at it, but at the strategy right now is to continue to stay focused, drive profitable growth and drive Celsius into a major player in the energy category and take share.

[David Bain:]

Fantastic. Okay, and then my follow-up would be, is if it's possible to kind of help us bifurcate 3Q North American revenue growth into buckets like same-store sale, organic growth, SKU growth, door growth, or any way we can kind of look at what the main pillars of the third quarter growth were?

[John Fieldly:]

I mean if you look at the growth in North America like we stated on the call, I mean, on a year-to-date basis we're at a 57% growth rate. Edwin talked about a lot of the new distribution coming on. We did talk about the store count increase there that we saw. So, it's an interesting year as we all know in 2020. So, it's consumer shifting their purchasing patterns and now they're going back. There is a lot of dynamics taking place. So, I don't really want to state anything. We haven't provided guidance. There is momentum behind the company. I did say we had a 50% growth in North America orders in-house as of the end of October. So, that shows some underlying momentum there. But I would not going to provide any forward guidance at this time.

[David Bain:]

No problem, just go ahead.

[Edwin Negron-Carballo:]

Are you going to follow-up?

[John Fieldly:]

No, I mean the underlying if you look at it, the SPINS data, Scan data as I said about is 60% growth rate and that was the latest Nielsen data. In the convenience channel, we're at a 43% growth rate. We have gained some new distribution as well. So, I think, organically we've seen and we stated this publicly about a 30% growth same-store sales and the other growth is coming from new distribution.

[David Bain:]

Got it, okay. Thanks so much. Great quarter.

[John Fieldly:]

Thank you David.

[Operator:]

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

[Anthony Vendetti:]

Thanks. Good morning, Edwin. Good morning John. How are you doing?

[Edwin Negron-Carballo:]

Good morning.

[John Fieldly:]

Good morning. Excellent.

[Anthony Vendetti:]

So, just on because there is a lot of talk about the can shortage across the industry, not just obviously what you are dealing with, but it's just -- it's obviously a big issue and it's excellent that you're able to source this outside. You said it's going to impact margins a little bit. If it can start to impact margins right now, do you need to start sourcing from Europe and Asia now or is that a '21 issue?

[John Fieldly:]

Yes, it's an industrywide issue. We anticipate sourcing in Q4. So, that will start in Q4.

[Anthony Vendetti:]

Okay. But in terms of being able to get the can that you need, based on the fact that you seem like you're ahead of this curve, you don't see it being an issue in terms of being able to meet the forecast you have for the demand, correct?

[John Fieldly:]

That's correct. We already have purchase orders in place. We've already are far along on the processing order procurement process to have sufficient cans as we head into 2021.

[Anthony Vendetti:]

Okay, great. And then as we -- you mentioned Amazon the third after Monster and Red Bull. Just in terms of the corporate gross margin, is that in line, is it a little bit lower margin, when you go on Amazon and just remind me, John or Edwin, what's the percent of revenue that comes from e-commerce or Amazon at this point?

[John Fieldly:]

Just, Anthony, it's roughly around 22% of our revenue for the third quarter, North America. So, if you're looking at the segment there. In regards to gross profit margins, we don't disclose particular accounts, but overall, margins were very good for the quarter. And like we said going forward due to the can, importing of cans, we are looking at the low 40s on a go-forward basis as we go through 2021.

[Anthony Vendetti:]

Okay, great. And on the DSD network Anheuser-Busch, Big Geyser, those are the big ones, but you have DSD agreements with PepsiCo, Keurig Dr. Pepper, MillerCoors Network. Are there any others and how your DSD network you believe can cover 75% of your major metropolitan areas? Are there other DSD partners that you believe you need to increase that penetration or at some point maybe 75%, 80% is about as far as you can go in terms of DSD coverage?

[John Fieldly:]

Great question. And keep in mind the Pepsi and Anheuser-Busch, Keurig Dr. Pepper were dealing with the independents. So, they're not corporate owned. So, this is an independence. The bulk of our distribution is with Anheuser-Busch independent wholesalers. A lot of brands can't even get to 75% major metropolitan covered. So, it is a great achievement where we're at today. But we are looking for full coverage and we'll continue to drive that through. We will -- they we're talking to a variety of additional distributors to help fill some of those boys mainly in the Mid-Atlantic, Northern Tao, Texas, certain parts of Texas and then there are certain regions within the middle of the country that we are looking for additional coverage on. But I think we're in a really good position right now with 75% major metropolitans covered. The opportunity to activate these distributors. We just picked up thousands of new potential sales reps that can be out there helping build the brand for Celsius. And we're looking to partner with them in a big way in 2021. And we've never been in a better position to have the opportunity we had on hand.

[Anthony Vendetti:]

Okay, great. And then just lastly, a few years ago you came out with the HEAT line which was -- it's a different packaging, different product, more caffeine than your standard CELSIUS line. Is there any other lines that you're looking at launching in '21 or is it more going to be just an extension of what you have in additional flavors?

[John Fieldly:]

Yes. We have a great cross-functional innovation team. We have a lot of innovation plan for 2021 and beyond. Some great line expansions, innovative flavors coming to market and one opportunity we've had which we've talked about with the Func Food acquisition is leveraging that fast brand portfolio. So, we're looking to partner with them. We've been partnering and bringing that Fast Protein snack portfolio to North America in Q1, starting to test it and ceded. But there's a lot of opportunities in that category. We do see massive opportunities in the RTD category and that's where we are mainly focused. But look for some great tasting flavor innovation, some line expansions as we head into and through 2021 and beyond.

[Anthony Vendetti:]

Alright. Great quarter guys, thanks. I appreciate it.

[Edwin Negron-Carballo:]

Thank you.

[John Fieldly:]

Excellent. Thank you.

[Operator:]

There are no further questions in the queue. I'd like to hand the call back to John Fieldly for closing remarks.

[John Fieldly:]

Thank you, Doug. Thank you everyone. On behalf of the company, I'd like to take everyone for their continued interest and support. Our results demonstrates the products are gaining considerable momentum. We are capitalizing on today's global health and wellness trends and the changes taking place in the transformation of today's energy drink category. Our active healthy lifestyle position is a global position with mass appeal. We're building upon our core and leveraging opportunities and deploying best practices. We have a winning portfolio strategy and team and a rapidly growing market that consumers want. Our mission is to get Celsius to more consumers profitably. 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 thank our investors for their continued support and confidence in our team. And I thank everyone for your interest in Celsius. Be safe, stay healthy, and have a great day.

[Operator:]

Thank you, sir. And that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. Have a great day.