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 nine-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 COVID-19 Pandemic on the Company's Business
See "Part II - Item 1.A. Risk Factors" for disclosure with respect to the
potential effects of the COVID-19 pandemic on the Company's business and
additional risk factors with respect thereto.
Results of Operations
Three months ended September 30, 2020 compared to three months ended September
30, 2019
Revenue
For the three months ended September 30, 2020, revenue was approximately $36.8
million, an 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 distribution to
major retailers. European revenue for the three months ended September 30, 2020
was $9.5 million, an increase of 182.3% from 2019 quarter revenue of $3.4
million. The 2020 results now reflect 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 (which
primarily consist of royalty revenues from our China licensee) for the three
months ended September 30, 2020 amounted to $274,532 an increase of 40.8% from
$194,982 in the 2019 quarter. Other international markets generated $145,415 of
revenue during the third quarter of 2020, an increase of $57,015 when compared
to $88,400 for the same quarter in the prior year. The total increase in revenue
from the 2019 quarter to the 2020 quarter was primarily attributable to
increases 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 September 30, 2020 and 2019:
Three months ended
September 30,
Revenue Source 2020 2019 Change
Total Revenue $ 36,839,150 $ 20,423,848 80.4 %
North American Revenue $ 26,891,527 $ 16,765,598 60.4 %
European Revenue $ 9,527,676 $ 3,374,868 182.3 %
Asian Revenue $ 274,532 $ 194,982 40.8 %
Other $ 145,415 $ 88,400 64.5 %
Gross profit
For the three months ended September 30, 2020, gross profit increased by
approximately $8.9 million or 103.4% 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 47.6%, which compared favorably to 42.2% for the same quarter in
2019. The increase in gross profit is mainly related to increase 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 September 30, 2020 were
approximately $8.3 million, an increase of approximately $3.3 million or 67.9%
from approximately $4.9 million in the 2019 quarter. This increase reflects the
impact of the consolidation of the operating results of Func Food following its
October 2019 acquisition by the Company, which resulted in an increase in our
marketing investments of 88.3% or $1.7 million from the 2019 quarter to the 2020
quarter. Similarly, all other sales and marketing expenses give effect to
increases related to the consolidation of Func Food's operations. Specifically,
employee costs, which also includes investments in human resources to properly
service our markets, increased to $2.3 million or 70.9% from the 2019 quarter to
the 2020 quarter. 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, our storage and distribution costs increased by $705,000 from
the 2019 quarter to the 2020 quarter.
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General and administrative expenses
General and administrative expenses for the three months ended September 30,
2020 were approximately $4.6 million, an increase of approximately $2.4 million
or 107.7%, from $2.2 million for the three months ended September 30, 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 for the three months ended September 30, 2020 were $1.3
million, an increase of $865,700 or 181.9% from $475,797 for the prior year's
quarter. Employee costs for the three months ended September 30, 2020, reflected
an increase of $360,307 or 63.0%, not only attributable to the consolidation of
Func Food's operations, but also reflecting additional investments in resources
in order 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 mostly resulted from higher
stock option expense of $1.2 million and, additional depreciation and
amortization of $15,000 which were partially offset by net decreases in all
other administrative expense of $121,744.
Other income/(expense)
Total net other income for the three months ended on September 30, 2020 was
$45,300, 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 $588,300 which includes $155,000 of lower amortization expenses,
$143,000 gain related to foreign currency fluctuations, $407,600 gain on note
receivable from China and net other miscellaneous expenses of $62,800 which were
partially offset by higher net interest expenses of $54,500.
Net Income/(Loss)
As a result of the above, for the three months ended September 30, 2020, net
income was $4.8 million or $0.07 per share based on a weighted average of
70,473,351 shares outstanding and dilutive earnings per share of $0.06 based on
a fully-dilutive weighted average of 74,848,239 shares outstanding, which
includes the dilutive impact of outstanding stock options to purchase 4,374,888
shares. In comparison, for the three months ended September 30, 2019, the
Company had net income of approximately $961,042 or a $0.02 per share, based on
a weighted average of 59,307,404 shares outstanding and a dilutive earnings per
share of $0.03 based on a fully-dilutive weighted average of 62,532,510 shares
outstanding.
Nine months ended September 30, 2020 compared to nine months ended September 30,
2019
Revenue
For the nine months ended September 30, 2020, revenue was approximately $95.1
million, an increase of $44.1 million or 86.3% from $51.0 million for the same
period in 2019. The revenue increase of was attributable in large part to
continued strong growth of 57.4% in North American revenues, reflecting double
digit growth in both existing accounts, new distribution and expanded
distribution to major retailers. European revenue was $26.8 million for the
nine-months ended September 30, 2020, an increase of 251.0%, from to $7.6
million in revenue for the 2019 period. The 2020 results now reflect the full
financial impact of the consolidation of the results of operations of Func Food.
Asian revenues (which primarily consist of royalty revenues from our China
licensee) for the nine months ended September 30, 2020 were $868,915 an increase
of 38.1% from $629,028 for the 2019 period. Other international markets
generated $308,706 of revenue during the nine months ended September 30, 2020 an
increase of $149,586 from $159,120 for the same period in 2019. The total
increase in revenue from the 2019 period to the 2020 period was primarily
attributable to increases in sales volume, as opposed to increases in product
pricing.
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The following table sets forth the amount of revenues by category and changes
therein for the nine months ended September 30, 2020 and 2019:
Nine months Ended
September 30,
Revenue Source 2020 2019 Change
Total Revenue $ 95,061,265 $ 51,031,426 86.3 %
North American Revenue $ 67,083,888 $ 42,607,433 57.4 %
European Revenue $ 26,799,756 $ 7,635,845 251.0 %
Asian Revenue $ 868,915 $ 629,028 38.1 %
Other Revenue $ 308,706 $ 159,120 94.0 %
Gross profit
For the nine months ended September 30, 2020, gross profit increased by
approximately $22.3 million or 105.3% 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
Sales and marketing expenses for the nine months ended September 30, 2020 were
approximately $23.6 million, an increase of approximately $9.5 million or 67.8%
from approximately $14.1 million for 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. As a result, our
marketing investments increased by 77.4% or $4.2 million from the 2019 period to
the 2020 period. Similarly, all other sales and marketing expenses give effect
to increases related to the consolidation of Func Food's operations.
Specifically, employee costs for the 2020 period, which also includes
investments in human resources to properly service our markets, increased by
$3.6 million or 87.9% from the 2019 period. Moreover, due to the increase in
business volume, our support to distributors, investments in trade activities
and storage and distribution costs increased by $1.7 million from the 2019
period to the 2020 period.
General and administrative expenses
General and administrative expenses for the nine months ended September 30, 2020
were approximately $12.5 million, an increase of $5.3 million or 71.9%, from
$7.2 million for the nine months ended September 30, 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 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 58.9%, not only
attributable to the consolidation of Func Food's operations, but also 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, depreciation and
amortization of $34,000 and net increases in all other administrative expenses
of $59,000.
Other Income/(expense)
Total net other expense for the nine months ended on September 30, 2020 was
$590,000, which reflects a variance of $11.9 million when compared to net total
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 the 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 a five-year period, pursuant to an
unsecured, interest-bearing note, of the investment the Company made in the
China market during 2017 and 2018.
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Net Income
As a result of all of the above, for the nine months ended September 30, 2020,
the Company had a net income of $6.9 million or $0.10 per share based on a
weighted average of 70,184,071 shares outstanding and $0.09 per share based on a
weighted average of 73,524,209 shares outstanding, which includes the dilutive
impact of outstanding stock options to purchase 3,340,138 shares. In comparison,
for the nine months ended September 30, 2019 there was net income of $11.1
million or $0.19 per share based on a weighted average of 58,023,685 shares
outstanding, and after adding back interest expense on convertible notes of
$348,493 and the amortization on discount on notes payable of $707,286, a
diluted net income of $12.2 million or $0.20 per share based on a weighted
average of 62,050,032 shares outstanding, which includes the dilutive impact of
the stock options of 1,223,700 shares and the dilutive effect of the convertible
notes of 2,802,647 shares.
Liquidity and Capital Resources
As of September 30, 2020, and December 31, 2019, we 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 in
operations during the nine months ended September 30, 2020 was approximately
$3.8 million and cash used in operations was approximately $966,000 for the
nine-month period ended September 30, 2019, mainly reflecting investments in
inventory, pre-payments and 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 a
private placement of 1,437,909 shares at a price of $15.30 completed on August
25, 2020 and 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 nevertheless; we do not contemplate obtaining additional financing.
Off Balance Sheet Arrangements
As of September 30, 2020, and December 31, 2019, we had no off-balance sheet
arrangements.
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CELSIUS HOLDINGS, INC. 
