When used in this report, unless otherwise indicated, the terms "the Company,"
"Celsius," "we," "us" and "our" refer to Celsius Holdings, Inc. and its
subsidiaries.
Note Regarding Forward Looking Statements
This report contains forward-looking statements that reflect our current views
about future events. We use the words "anticipate," "assume," "believe,"
"estimate," "expect," "will," "intend," "may," "plan," "project," "should,"
"could," "seek," "designed," "potential," "forecast," "target," "objective,"
"goal," or the negatives of such terms or other similar expressions. These
statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Business Overview
We are engaged in the development, marketing, sale and distribution of
"functional" calorie-burning fitness beverages under the Celsius® brand name.
According to multiple clinical studies we funded, a single serving of Celsius®
burns 100 to 140 calories by increasing a consumer's resting metabolism an
average of 12% and providing sustained energy for up to a three-hour period. Our
exercise focused studies show Celsius delivers additional benefits when consumed
prior to exercise. The studies show benefits such as increase in fat burn,
increase in lean muscle mass and increased endurance.
We seek to combine nutritional science with mainstream beverages by using our
proprietary thermogenic (calorie-burning) MetaPlus® formulation, while fostering
the goal of healthier everyday refreshment by being as natural as possible
without the artificial preservatives often found in many energy drinks and
sodas. Celsius® has no artificial preservatives, aspartame or high fructose corn
syrup and is very low in sodium. Celsius® uses good-for-you ingredients and
supplements such as green tea (EGCG), ginger, calcium, chromium, B vitamins and
vitamin C. The main Celsius line of products are sweetened with sucralose, a
sugar-derived sweetener that is found in Splenda®, which makes our beverages
low-calorie and suitable for consumers whose sugar intake is restricted.
We have undertaken significant marketing efforts aimed at building brand
awareness, including a wide variety of marketing vehicles such as television,
radio, digital, social media, sponsorships, and magazine advertising. We also
undertake various promotions at the retail level such as coupons and other
discounts in addition to in-store sampling.
We do not directly manufacture our beverages, but instead outsource the
manufacturing process to established third-party co-packers. We do, however,
provide our co-packers with flavors, ingredient blends, cans and other raw
materials for our beverages purchased by us from various suppliers.
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Potential Effects of the Coronavirus Pandemic on the Company's Business
See "Part II - Item 1.A. Risk Factors" for disclosure with respect to the
potential effects of the Coronavirus pandemic on the Company's business and
additional risk factors with respect thereto.
Results of Operations
Three months ended March 31, 2020 compared to three months ended March 31, 2019
Revenue
For the three months ended March 31, 2020, revenue was approximately $28.2
million, an increase of $13.7 million or 95% from $14.5 million for the first
quarter in 2019. The revenue increase of 95% was attributable to continued
strong growth of 70% in North American revenues, reflecting double digit growth
from both existing accounts and new distribution expansion and expansion at
world class retailers. European revenue growth was 183%, from the three months
ended March 31, 2019, to the 2020 quarter reflecting the full financial impact
of consolidation of the results of operations of Func Food Group, Oyj ("Func
Food"), our European distribution partner whom we acquired in October 2019.
Asian revenues also grew of $215,500 from the comparable quarter in 2019. Asian
results for the first quarters of 2020 and 2019 are now comparable as both
periods give effect to the change in our China business model to a royalty and
license fee arrangement, effective January 1, 2019. The total increase in
revenue from the 2019 quarter to the 2020 quarter was primarily attributable to
an increase in sales volume, as opposed to increases in product pricing.
The following table sets forth the amount of revenues by segment and changes
therein for the three months ended March 31, 2020 and 2019:
Three months ended March 31,
Revenue Source 2020 2019 Change
Total Revenue $ 28,184,889 $ 14,485,650 95 %
North American Revenue $ 19,359,169 $ 11,397,862 70 %
European Revenue $ 8,500,852 $ 2,999,664 183 %
Asian Revenue $ 268,292 $ 52,764 408 %
Other $ 56,576 $ 35,360 60 %
Gross profit
For the three months ended March 31, 2020, gross profit increased by
approximately $7.3 million or 127% to $13.0 million, from $5.7 million for the
same quarter in 2019. Gross profit margins for the three months ended March 31,
2020, were 46.1% which compared favorably to gross profit margins of 39.5%. for
the first quarter of 2019. The increase in gross profit in the 2020 quarter,
from the 2019 quarter reflects the impact of the consolidation of the operating
results of Func Food and is primarily attributable to increases in sales volume
from the 2019 quarter to the 2020 quarter, as opposed to increases in product
pricing.
Sales and marketing expenses
Sales and marketing expenses for the three months ended March 31, 2020 were
approximately $7.5 million, an increase of approximately $3.9 million or 108%
from approximately $3.6 million in the same period in 2019. This increase
reflects the impact of the consolidation of the operating results of Func Food
following its October 2019 acquisition by the Company. Consequently, our
marketing investments reflected a 132% or $1.6 million increase. Similarly, all
other sales and marketing expenses give effect to increases related to the
consolidation of Func Food operations. Specifically, employee costs increased of
$1.5 million or 114% from the 2019 quarter to the 2020 quarter, and also reflect
investments in human resources to properly service our markets. Moreover, due to
the increase in business volume from the 2019 quarter to the 2020 quarter, our
support to distributors and investments in trade activities increased by
$353,000 and our storage and distribution costs increased by $486,000.
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General and administrative expenses
General and administrative expenses for the three months ended March 31, 2020
were approximately $4.2 million, an increase of approximately $1.6 million or
62%, from $2.6 million for the three months ended March 31, 2019. This increase
similarly reflects the impact of the consolidation of Func Food's operations
which were not present in the results for the 2019 quarter. As such,
administrative expenses reflected an increase of $1.1 million, which included an
addition of $221,000 to our bad debt reserve, in order to cover potential
collectability risks associated with the Covid-19 situation. Employee costs for
the three months ended March 31, 2020, reflected an increase of $302,000 or 47%,
not only attributable to the consolidation of Func Food operations, but also
giving effect to investments in resources in order to properly support our
higher business volume. All other increases for general and administrative
expenses were $232,200 from the 2019 quarter to the 2020 quarter. These
increases mostly resulted from higher depreciation and amortization of $110,000,
stock option expense of $41,500 and research and development costs of $20,000.
Other income/(expense)
Total other expenses for the three months ended on March 31, 2020 were $0.7
million, which reflects an increase of $12.9 million as the prior year results
included a gain of $12.2 million mainly related to the recognition of a note
receivable from our Chinese licensee. The note receivable arose in connection
with the change in our China business model to a royalty and license fee
arrangement effective January 1, 2019, whereby our Chinese Licensee agreed to
repay the market investment Celsius made into China over a five-year period,
under an unsecured, interest-bearing promissory note. Furthermore, the results
for the 2020 quarter include amortization expenses of $309,600, interest expense
on bonds payable and financial lease obligations of $273,200, realized foreign
exchange losses of $78,000 and all other items amount to a net expense of
$41,500.
Net Income/(Loss)
As a result of the above, for the three months ended March 31, 2020, net income
was $546,100 or $0.01 per share based on a weighted average of 69,284,307 shares
outstanding and dilutive earnings per share of $0.01 based on a fully-dilutive
weighted average of 70,339,416 shares outstanding, which includes the dilutive
impact of outstanding stock options to purchase 1,055,109 shares. In comparison,
for the three months ended March 31, 2019, the Company had net income of
approximately $11.7 million or $0.20 per share, based on a weighted average of
57,155,445 shares outstanding and dilutive earnings per share of $0.19 based on
a fully-dilutive weighted average of 61.687.409 shares outstanding, which
includes the dilutive impact of convertible debt and outstanding stock options
to purchase 4,531,964 shares.
Liquidity and Capital Resources
As of March 31, 2020, and December 31, 2019, we had cash of approximately $19.1
million and $23.1 million, respectively, and working capital of approximately
$27.4 million and $24.8 million, respectively. Cash used in operations during
the three months ended March 31, 2020 and March 31, 2019, totaled approximately
$3.8 million and $6.8 million, respectively, mainly reflecting investments in
inventory, pre-payments & deposits and increase in accounts receivable.
In addition to cash flow from operations, our primary sources of working capital
have been private placements and public offerings of our securities (including
an underwritten public offering of 7,986,110 shares at an offering price of
$3.60 per share completed on September 16, 2019) and our credit facility with CD
Financial, LLC ("CD Financial"), an affiliate of a principal shareholder of the
Company.
Our current operating plan for the next twelve (12) months reflects sufficient
financial resources, notwithstanding the potential effects of the Covid-19
pandemic and we do not contemplate obtaining additional financing.
Off Balance Sheet Arrangements
As of March 31, 2020, and December 31, 2019, we had no off-balance sheet
arrangements.
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