Celsius Holdings Inc (CELH) 2019 Q2 法說會逐字稿

Greetings, and welcome to Celsius Holdings Q2 2019 Earnings Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Cameron Donahue with Hayden IR.

Please go ahead, sir.

Thank you and good morning, everyone.

We appreciate you joining us today for Celsius Holdings second quarter earnings conference call.

Joining me on the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, 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 its Form 10-Q with the Securities and Exchange Commission today and issued a press release also this morning.

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.

Please also be aware that this call may contain forward-looking statements, also based on forecast, expectations and other information available to management as of today, August 8, 2019.

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 disclosures contained in today's press release and our quarterly filings with the SEC for additional information.

With that, I'd like to turn the call over to our President and Chief Executive Officer, John Fieldly, for his prepared comments.

John?

Thank you, Cameron.

Good morning, everyone, and thank you for joining us today.

Our first half results for 2019 are highlighted by record revenues of $30.6 million, an increase of more than 40% over the first half of last year, as we executed to our strategies of positioning Celsius as a global beverage leader for health-minded consumers.

During the quarter, we made significant progress on our North American expansion with household name retailers such as Target, CVS, Rite Aid, Food Lion and 7-Eleven, where we further expanded our distribution presence.

In addition, we continue to add new premier distribution partners like Big Geyser in New York, and we are further penetrating Anheuser-Busch, Keurig Dr. Pepper and Pepsi, independent bottler networks.

We continue to deploy best practices with targeted marketing campaigns aimed at building our brands awareness and trial.

Once again, we have demonstrated our ability to enter new channels, onboard new distribution partners and optimize our routes to markets, ensuring product availability, all while continuing to focus on controlling costs, optimizing efficiencies and maximizing the returns on our investments.

In Europe, we continue to drive market share with targeted marketing campaigns and innovative on-trend flavor launches.

And in Asia, we have completed the realignment of our China business operations.

Each of these accomplishments are contributing to meaningful improvements in our financial results, with revenue growth across all geographies, improving operational margins and more efficient use of our working capital.

And just as important, our gross margins remain in excess of 40%, as we drive growth on higher volumes.

Domestically, in the second quarter, we signed a new distribution agreement with Big Geyser, New York's largest independent nonalcoholic beverage distributor serving the five boroughs of New York City and the counties of Nassau, Suffolk, Westchester and Putnam.

Big Geyser serves more than 20,000 locations in the massive New York City metropolitan area and has been instrumental in building numerous brands.

Starting in the third quarter, Big Geyser will be our preferred distributor to service all 7-Elevens in the territory, which will significantly increase our New York City market presence.

Also, on the expansion front, during the second quarter, we launched placements with premier convenience store chain, QuikTrip.

Under the agreement, Celsius should be located on the top shelf of the energy door with a full shelf authorized in every market, except for Arizona, where we'll have a half shelf.

The convenience store channel continues to represent the largest energy drink market in the country, with more than $9 billion in annual sales.

The latest SPINS third-party data, as of July 14, 2019, shows Celsius is growing at a 38.6% year-over-year increase for our portfolio in the energy convenience channel compared to an impressive 9.4% overall growth in the energy drink category, while Celsius is holding a 10.9% ACV, all accumulated volume.

Industry-backed third-party data continues to validate our positioning as a healthy functional fitness drink that's resonating with today's health-minded consumer.

And we are confident that Celsius will continue to drive these sales metrics even higher as we continue to increase our ACV distribution in the channel through additional launches with national retail chains and distribution partners.

This third-party data shows and warrant that Celsius warrants additional shelf space, and our team is working hard on executing.

Our pursuit towards a national distribution network now includes more than 50 regional direct store delivery DSD partners, many of which are premier distributors.

Expanding to a national distribution direct store delivery network will increase our in-store experience, our in-store presence, the execution in the trade and it will expand our availability and will eliminate the out of stocks we are currently seeing at Target and CVS and many other retailers across the country, as Celsius is outselling the retailers' internal replenishment systems.

We expect to achieve a full coverage across the country in the next 12 to 15 months, if not sooner.

We are rapidly leveraging our new regional distribution partners, creating significant opportunities to further build upon our core across all markets trade, especially in the convenience channel, where we are significantly outpacing many established competitors in the sales growth metrics.

We continue to garner significant interest from the best distributors in the country, further supporting our momentum and broadening our retail availability and accessibility of our portfolio.

We have experienced the most significant expansion within independent Anheuser-Busch wholesaler network, which has increased from 6 distribution partners within the wholesale networks to 23 partners since February of this year.

In addition, we have expanded within the MillerCoors, Pepsi and Dr. Pepper -- Keurig Dr. Pepper affiliated wholesalers.

With the accelerated expansion, we are very excited to now have approximately over 1,500 wholesale sales representatives now selling Celsius nationwide on our behalf.

Through our dedicated innovation team, we continue to expand our portfolio with on-trend delicious flavors.

In the quarter, we launched our newest flavor, the ninth SKU, a great tasting sparkling Fuji Apple Pear in the fitness and vitamin specialty channels within GNC, with a mandatory 1,800 locations in authorizations and all sets.

In addition, Fuji Apple Pear is now also available at select 7-Elevens and through Amazon.

Across the country, in the fitness channel, national distributors, Europa Sports and Muscle Foods are now carrying Celsius and the new flavor in top-tier fitness retailers nationwide at Gold's Gym, 24-Hour, Crunch Fitness, Xsport Fitness, Smoothie King, Youfit, Equinox via Earthbar, In-Shape Fitness and Las Vegas Athletic Club will now be selling Celsius, and it's quickly become one of their top-selling flavors.

In addition to great-tasting line extensions, our innovation team has been working on developing offerings targeting new verticals in adjacent categories, which are posed to expand our usage occasion and further increase our portfolios' breadth.

The team has been working on a planned launch in the back half of this year, which we are very excited about.

And as we get closer to the launch date, we will be providing additional details.

Our mission, which we are delivering on, is to become a global leader of a branded portfolio, which is proprietary, innovative, clinically proven and [offers] for significant health benefits.

And these new offerings will build upon our mission, expanding our reach and portfolio breadth.

In Europe and the Nordics, revenues grew nearly 70% in the second quarter as new flavor introductions earlier in the year continued to gain momentum.

Our Sparkling Peach Vibe and Sparkling Passionfruit have been a great addition to the portfolio and continue to exceed expectations.

In addition, we launched a new line, a Celsius unlimited nootropics line with a great tasting, great Fruit Breeze and a Strawberry Breeze flavor profile.

This new tropics line extension expands our usage occasion with a lower-caffeinated offering and is developed with yerba mate, turmeric, vitamin D, vitamin B12 and antioxidants.

In addition, the line improves mental focus.

We are very encouraged by the traction of the new line and the momentum of our core portfolio in the region.

In Asia, the execution of a royalty licensing agreement in China at the beginning of the year provides us with a vehicle to recoup our $12.2 million in prior year's in-country investment, while still reaching the critical and enormous market.

As a reminder, in March, we closed a definitive agreement to establish a royalty licensing and repayment on invested capital agreement with Qifeng Food Technology, our local distributor and partner in the China market.

This created a risk-mitigated method to advance our business in China and grow our share in the important market.

Under the agreement Qifeng Food Technology has exclusive rights to manufacture, market and commercialize Celsius branded products in China.

In exchange, we will be receiving a licensing royalty fee of $6.9 million over the next 5 years.

At which point, it will transition to a volume-based royalty fee structure on the sixth year.

Through this agreement, we have created a strong collaborative relationship between the companies to capitalize on the considerable opportunity in consumer demand in the region.

Qifeng Foods has been instrumental in our success and growth in the market.

Through their experience, relationships and network of distribution partners, Celsius is now available in over 63 cities and over 65,000 locations across China, with 4 flavors Raspberry Acai, Cola, Orange and recently launched Cucumber Lime.

In Hong Kong, we continue to expand our consumer base, driving trial and awareness in the region.

And during the quarter, we further expanded in Southeast Asia into Malaysia, with an initial launch and distribution expansion and up to 2,000 7-Elevens with our Sparkling Orange and Peach Mango Green Tea, and we're very excited about the opportunities in the market.

Functional beverages have emerged as one, if not the fastest-growing category in the beverage industry.

Busier lifestyles and a focus on health and wellness are driving the need for convenient alternatives that give consumers a way to manage their well-being, while they're on the go.

We are uniquely positioned at the forefront of this global health and wellness trend with a strategy that will enable us to capitalize on today's health-minded consumer seeking beverages that will help them achieve their health, fitness and wellness goals.

In support of our growth, we continue to develop and roll out targeted marketing initiatives that highlight and reinforce our brand recognition, emphasize the functionality of our beverages and target specific targeted markets and audiences effectively.

During the quarter, we executed targeted marketing programs at key retailers and attended large consumer and trade events, including Europa Expo in Dallas, Europa Games in Florida and the Arnold Classic in Ohio.

During the second quarter, we were named as the official energy drink partner to Echo Fox, a premier esports organization and media company.

Echo Fox is home to some of the world's top esports athletes and field teams across a variety of titles, including League of Legends.

The organization focuses on player development, competitive achievement and effective training practices aligned directly with our mission to provide functional healthy fitness drinks to a new generation of athletes.

It is estimated that esports reached 335 million people worldwide in 2017 and is predicted to grow to over 600 million consumers by 2023.

This signing represents our first venture in the esports arena.

We also remain active with Tough Mudder, a series of competitive events for a targeted athletic ability.

Through these relationships, we are in the process of providing samples to more than 200,000 health-minded consumers in 23 cities across the U.S., reaching new markets and new consumers.

And in other regions as well, we continue to target active lifestyle fitness activities and events.

In addition, we are conducting guerilla marketing sampling activities in key markets and interacting with consumers where they live, work and play.

Staying the course and remaining focused on expanding our distribution relationships while going deeper with existing accounts have been our key to our success in 2019.

We remain committed to this strategy and are increasingly optimistic about our prospects as our products continue to gain considerable momentum.

I will now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer, for his prepared remarks.

Edwin?

Thank you, John.

For the 3 months ended June 30, 2019, revenue was $16.1 million, a significant increase of $6.8 million or 73% when compared to $9.3 million for the same period last year.

The revenue increase of 73% was a result of increased sales across all geographies, including strong growth of 69% in North American revenue, driven by double-digit growth in existing accounts and new distribution expansion.

Revenue in Europe grew a solid 64% year-over-year, primarily as a result of the launch of new flavors.

Revenue growth in Asia is the net result of the traction we're gaining in the regions outside China, which was partially offset by the change in our business model to a royalty and license fee agreement in China, which was completed at the start of 2019.

In line with our historical trend, the overall increase in revenues from 2018 to 2019 was mainly related to increases in sales volume as opposed to increases in product pricing.

Gross profit for the 3 months ended June 30, 2019, increased by $2.8 million or 70% to $6.9 million for the second quarter of 2019, up from $4 million in the year ago quarter.

Profit margins remained mostly unchanged and within our expected range at 42.6% for the 3 months ended June 30, 2019, compared to 42.8% for the same period in 2018.

The increase in gross profit dollars is mainly related to increases in sales volume as opposed to increases in product pricing.

Sales and marketing expenses for the 3 months ended June 30, 2019, were $5.6 million, an increase of $1.5 million or 37%, up from $4.1 million for the same period in 2018.

The increase is mainly due to costs for trade show activities in support of our expanded distribution network as well as investment in marketing activities and employee resources, which were partially offset by no direct marketing investments being incurred in China, as a result of the change in our business model.

General and administrative expenses for the 3 months ended June 30, 2019 were $2.4 million, a decrease of $708,000 or 23% compared to $3.1 million for the 3 months ended June 30, 2018.

The decrease was primarily due to an accrual in the second quarter of 2018 of $944,000, pertaining to the settlement of a territorial dispute with a former distributor.

Excluding this impact, on a more comparative basis, general and administrative expenses increased by $237,000 due to increases in legal fees, insurance, rent and employee costs.

Total other expense increased by $303,000 to $345,000 for the 3 months ended June 30, 2019, compared to $42,000 for the same period last year.

The increase is mainly related to the amortization of discounts on those payables of $93,000 and a loss of $220,000 related to China assets that will not be realized, partially offset by a reduction of interest expense in the amount of $10,000.

The net results for the 3 months ended June 30, 2019, was a loss to common shareholders of $1.5 million or $0.03 per basic and dilutive share based on a weighted average of 57,336,117 shares outstanding.

In comparison, for the 3 months ended June 30, 2018, the company reported a net loss of $3.3 million and after given effect to preferred stock dividend of $43,000, a net loss available to common shareholders of $3.4 million or $0.07 based on a weighted average of 51,003,803 shares outstanding.

Adjusted EBITDA for the second quarter of 2019 was a loss of $15,000.

Our calculation of adjusted EBITDA for the 3 months ended June 30, 2019 includes favorable adjustments for depreciation and amortization of $110,000, net interest expense of $31,000, stock-based compensation expense of $1.1 million and a loss of $220,000 related to China assets that will not be realized.

Adjusted EBITDA for the second quarter of 2018 amounted to a loss of $2.1 million, which included the onetime expense of $1 million pertaining to the settlement of a territorial dispute with a former distributor and the net investment in Asia of $834,000.

As such, the adjusted net non-GAAP EBITDA for the second quarter of 2018 was a loss of $261,000, which is comparable to the $15,000 loss for 2019 since we did not have any one-timers or Asia investment in this quarter.

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 have been included in our earnings release.

Now turning to our year-to-date results.

For the first half of 2019, revenues increased by 43% to $30.6 million, up from $21.4 million in the first half of 2018.

The increase of 43% was attributable in large part to 55% growth in revenue from U.S. domestic sales, primarily attributable to double-digit growth in existing accounts and new distribution expansion.

Europe delivered 30% growth in sales, which was driven in large part by the launch of new flavors.

The increases in North America and Europe were marginally offset by a decline in Asia as a result of the change in our business model.

Most of the year-to-date decline was experienced in the first quarter because, as I mentioned in my earlier remarks, sales in Asia were actually up in the second quarter.

Gross profit increased by $3.9 million or 44% to $12.6 million in the first half of 2019 compared to $8.7 million for the first 6 months of 2018.

Gross profit margins increased to 41.1% for the first half of 2019 compared to 40.9% for the first half of 2018.

The increase in gross profit dollars is primarily attributable to increases in sales volume.

Sales and marketing expenses decreased by 6% to $9.2 million for the first 6 months of 2019 when compared to $9.7 million for the first 6 months of 2018.

The decrease is mainly due to the change in business model in China, which does not require direct marketing investments.

On a comparable basis, marketing spend was down by $2.8 million, which is partially offset by increases in other sales expenses, including incremental spending in trade show activities to support our expanded distribution network, incremental storage and distribution costs and incremental employee and broker costs.

General and administrative expenses for the first 6 months of 2019 were $5.1 million, a slight decrease of 2% when compared to $5.2 million for the first 6 months ended June 30, 2018.

The decrease was mainly due to an accrual of $945,000 in the prior year period that pertain to the settlement of a territorial dispute with a former distributor.

Excluding this impact, general and administrative expenses increased by $857,000, basically as a result of incremental stock option expense of $504,000 as well as modest increases in legal costs, insurance, rent and employee costs.

Below the operating line, other income was up significantly to $11.9 million for the first 6 months of 2019 when compared to $80,000 of other expense in the prior year period.

This increase is basically the result of the gain related to the note receivable from our China distributor that was signed at the beginning of this year.

As a reminder, per the licensing agreement, we will be receiving the net investment we have made in China over a 5-year period.

As a result of the above, for the first 6 months of 2019, the company had net income of $10.2 million or $0.18 per share, based on a weighted average of 57,267,622 shares and after adding back interest expense on convertible notes of $243,000 and the amortization on discount on notes payables of $179,000, a diluted net income available to shareholders of $10.6 million or $0.17 per share based on weighted average shares outstanding of 61,817,621.

Operating expenses for the first half of 2019 included noncash charges for depreciation, amortization and stock-based compensation of $2.7 million compared to $2.2 million for the same charges for the first 6 months of 2018.

Adjusted non-GAAP EBITDA for the first 6 months of 2019 was a positive $863,000 since it includes the $12 million gain from the note receivable from our China distributor, which compares to a loss of $120,000 in the year ago period.

By excluding the onetime charges of $1.1 million incurred in the first half of 2018, which mainly pertain to the settlement of a dispute with a former distributor and the net investment in Asia of $3 million, the adjusted net non-GAAP EBITDA for the first half of 2018 was a loss of $120,000, which is also comparable to the $863,000 gain since we did not have any onetimers or Asian investment in this period.

As of June 30, we had cash of $4.8 million compared to $7.7 million as of December 31, 2018.

Additionally, we had working capital of $23.2 million as of June 30, 2019, compared to $19.6 million as of December 31, 2018.

Cash used in operations for the first 6 months ended June 30, 2019 was $4.5 million compared to $5.8 million for the first 6 months of 2018.

The use of cash during the current period reflects investments in prepayments and deposits as well as the settlement of accrued expenses pertaining to the change in the China business model, which were partially offset by a reduction in inventories.

That concludes our prepared remarks.

Operator, you may now open the call for questions.

Thank you.

(Operator Instructions) Our first question today comes from Jeffrey Cohen of Ladenburg Thalmann.

Hopefully, you can hear me okay.

So I guess 3 questions I wanted to drill into a little bit.

So can you talk about any other sizes or flavors for North America coming?

Or what's kind of your thinking there?

And can you give us also a more color on the powder packs?

Do you expect that you're going to see sort of uptick in the powder packs?

Or any plans to bring on more flavors to your line such as the nootropics to North America?

Excellent.

Thank you, Jeff.

In regards to flavor innovation, that seems to be working very, very nicely for us as well.

It brings excitement to the retailers and some of our established accounts.

We will bring in -- we do have plans.

Our innovation team does have plans for additional SKU innovation as well.

We'll be conducting some rationalization.

Right now, our Kiwi Guava has really moved to our #1 position on flavor in many accounts across the country.

So this flavor combination seem to be working very well at retail.

And our Fuji Apple Pear on its initial rollout has been extremely -- really recepted well by -- not only by buyers, but also from consumers.

So our goal is to continue to stay on trend with innovative flavors, and we are cognizant of the turns as well that's required, really monitoring the market and we will be first to market.

And regards to the powder product, most recently, we've seen a great increase in sales online as well as through the fitness channel with our powder products.

And we do have plans as well to bring innovative flavors to that line.

We're very optimistic about it.

We see a lot of other usage occasions, Celsius on the go with its powder offering.

So it's -- you can take that anywhere on the plane when you travel.

And also, we're noticing a lot of our influencers and brand ambassadors are taking the product and adding it to smoothies.

So it's another opportunity for us to further leverage the Celsius brand into other medium.

So very excited to have that line there.

And then in regards to nootropics line, as I mentioned, we do have a planned launch this year in the back half, which will expand us to additional verticals and adjacencies within our categories.

And the nootropics line that we initially launched in 7-Eleven really expands our offering.

It's a lower-caffeinated product and allows -- really goes after a much wider consumer and additional usage occasion for the brand.

So I think as we look forward, you will see additional offerings, brand innovation coming through Celsius here.

That's great.

Okay.

And then second question, any studies or clinical work out there that you're aware of that's being conducted in any geography?

We do not have any active studies currently -- taking place currently, but it is something that we always are exploring as well as we look at additional lines, bring additional lines out and additional innovation to the table.

It is one thing Celsius is science based, science backed.

We're going to continue with that trend.

But we don't have any ongoing studies active today.

Okay.

And then, thirdly, could you talk a little bit about seasonality for the upcoming quarter and the back half of the year and just kind of walk us through and remind us of 2018 Q2 and the Q3 and kind of any bigger picture trends that one would anticipate?

Yes.

I think when you look at it, the trends for Celsius are phenomenal.

When you look at our most recent, as I mentioned, our SPINS data, which is third-party registered scan data, has Celsius continuing to build momentum each and every quarter over the last -- go back several years.

We're maintaining our most recent data on a 52-week basis shows we're turning at the register over 38.6%.

So truly outpacing the category, and the category continues to expand toward healthier, better-for-you options.

So we see a lot of opportunity.

Traditionally, in the beverage industry, there is seasonality that takes place in beverage season as it's called during the summer months.

We do -- we are affected by that.

But it is being offset by new retailer listings that are taking place.

So although our baseline business in existing accounts will -- are affected by that seasonality in beverage season during the summer months, it is offset due to the new distribution and expansion we're receiving with many retailers.

So looking at on a go-forward basis, I think looking at past history and continuing to move forward with some of our growth metrics, it's something that definitely could be -- should be looked at.

When you're looking at Q2 and 2018, we did have $1.2 million on our North America business, which moved from Q2 2018 to Q2 -- Q3 2018 due to timing of production, but that was the timing, so -- but we do have considerable momentum as you can see with our Q2 results.

The next question is from Jeff Van Sinderen of B. Riley.

Let me say congratulations on the terrific growth and strong Q2 metrics.

John, you're getting really good shelf space that you didn't have previously.

Can you speak to that evolution?

What's driving that?

And maybe some of the recent highlights?

Yes.

No.

Thank you, Jeff.

There is considerable momentum taking place and really disruption in the energy category.

The traditional better -- traditional energy drinks, you're seeing a transformation.

If you look at a lot of the SPINS data, third-party data, a lot of these brands Full Throttle, NOS, Rockstar, they're seeing decreases.

Consumers want healthy, better-for-you options.

And just last night on Monster's earnings call, Rodney Sacks indicated and really clarified what's happening in the energy drink category as well.

There's really a real transformation taking place.

And retailers are reacting now to add additional shelf space to this category of performance energy.

And Rodney indicated that brands like Celsius will be gaining additional shelf spaces as retailers are updating their sets to really align with today's health-minded consumers looking for some better-for-you choices.

So we're seeing a lot of momentum ahead of us.

As you -- you're seeing out there, further expansion in existing accounts, and we have a lot of meetings taking place right now over the next several months as we are preparing for category review meetings for all of these retailers.

So we are very optimistic.

Our team is very optimistic for 2020 and the back half of this year as we continue to expand.

And that is a prime reason really why we're seeing these DSD partners today taking us on.

You're seeing Anheuser-Busch, Keurig Dr. Pepper and Pepsi distributors, these premier distributors taking on Celsius because they see the opportunity as well, so as well as Big Geyser taking us on in New York City.

So there is definitely a transformation happening in the energy drink category.

And you're seeing that in the great growth as well.

More consumers are coming to that category because it's growing at over 9.4%.

So we are well positioned for the future.

Good to hear.

On the build-out of the DSD network, which regions are left to go -- kind of are left to go after, I guess?

And based on your plan this year, where should we expect the biggest impact from DSDs added in the second half?

Maybe you could just speak to that.

Yes.

Our biggest -- when you look at our DSD coverage, our biggest coverage right now is in the Southeast.

We do have a couple of voids, which we're working on filling to have full DSD coverage.

So we'll be able to cover particular zones from some of our retailers, i.e.

7-Eleven, CVS and Target.

Once we are able to build out and cover these warehouses that are currently servicing many of these retailers through the replenishment systems, we'll be able -- we're working with the buyers, and we'll be able to flip these retailers over to this DSD really model, which that will allow us to gain additional ACV distribution and better execution in the trade, keeping us in stock and keeping us on the shelves.

So right now, when you're seeing, you're seeing we have a good presence in the southeast, also the Texas regions as well, Michigan, New York, we are up in New England market, we have that covered as well, California, Vegas.

And while we do have considerable voids as we look to really turn over a lot of these retailers and that's what the team is working on right now.

So there's a lot of runway ahead.

When you're looking at additional DSD expansion, we're about 50 right now with these key premier distributors and we're going to continue to expand on that.

So really looking forward to the runway ahead and then the partnership that we're forging.

We're seeing great momentum and great excitement with these new partners, just servicing the independents, not activating the traditional retailers today.

Okay.

Great.

And then one more on international, if I could.

The Nordic business is turning around.

And it would seem that you have a major opportunity to expand into other regions of Europe.

Can you touch on that potential?

And maybe how you're thinking about approaching growth in some of those EU regions that are newer to you?

Yes.

I think there's a lot of opportunity for us, as we're capitalizing on these global health and wellness trends.

I think the key is expanding, which we are focused on profitable growth.

So it's very key on that model.

There is opportunity to further expand throughout Europe coming out of that Nordics with a good presence and awareness that we have.

The next phase, we're still activating Finland and Norway.

We're about to gain additional listings there with some of the key marquee retailers in-country and then further penetrating throughout the Nordics would be the digression.

Also Spain, we're speaking with opportunity in Spain as well as Germany as well.

So there's a lot of opportunities going ahead, but we want to make sure the model is correct on the expansion.

(Operator Instructions) Our next question is from Anthony Vendetti of Maxim Group.

I just wanted to ask a little bit about the marketing spend.

We expected it to tick up and it did.

And I know you're sponsoring more of these Tough Mudder-type events and so forth.

Is that expected to continue at that level, continue to grow as we move into the back half of the year?

And then what events specifically have you increased spending on?

And where have you put your marketing dollars?

I think in regards to our spend, we've stated before we were driving -- our goal is to drive profitable growth.

We're working hard and towards that path.

We're focused on driving additional gross profit dollars and EBITDA dollars into marketing to continue to drive top line revenue to capitalize what's taking place right now in the energy drink category.

So we're reinvesting our additional EBITDA dollars and marketing sales initiatives.

We just hired a round of additional sales reps to help us manage -- key sales reps in key regions to help manage the DST.

And we also are investing in particular verticals.

The food service business is a great opportunity.

We've seen tremendous growth over the last several years there.

We're expanding in that area.

So in regards to direct marketing, we did have a lot of Tough Mudder activation.

We also did a lot of guerrilla and demo sampling, which drove up additional costs and also online-targeted advertising.

So those type of activities will continue, but -- so I think we are in line.

Q3 is going to be an active quarter as well, but we're very cognizant on continuing to grow at that -- at close to breakeven level, reinvesting our dollars.

Okay.

And then just on the distribution expansion, you -- obviously, you announced a number of agreements, can you tell us a little bit about what the end customer, what in terms of the pipeline, what's the opportunity as you expand your distribution?

What are some of the new customers you think are in the pipeline for this year, next year that could really move the needle for you?

Yes.

I mean, we have a great roster currently of existing accounts -- existing retailers when you look at where we are.

One thing that the company has been very good at through our -- through this process is really optimizing those retailers.

So just on our existing retailer list, we have so much opportunity still available to maximize these partners.

As an example, when we first went into Sprouts, we started on the dry shelf.

We continued to show results.

We went to the cold cooler.

The cold cooler starts, you have more velocity, higher velocity rates, where we are able to expand and really grow that account to the point where they moved us to the front checkout coolers, further increasing the velocity numbers.

So as an example, when you look at some of really our national accounts like Target, we currently have 3 SKUs in the energy set on the dry shelf.

There's further opportunities to add additional SKUs and also gain cold availability and then check out -- front checkout coolers.

So we're working on the same trajectory and really grooming and really activating our retail partners.

Also in the convenience store channel, we talked about CVS with the 500 store cap nationwide rollout for better -- in the energy door with 3 SKUs in all locations.

That rollout has been completed.

We have additional opportunities to expand our portfolio to 4, 5, 6 and full-shelf execution, where we know when we increase additional SKUs, the velocity numbers not just increase by 1 SKU, they increase on a multiplier effect, which is great.

So a lot of opportunity to further leverage CVS and gain also front checkout and really maximize that.

The other opportunity we have is in Rite Aid, where we just received notification that we have been one of the top-selling beverages in the GNC cooler set that they have for better-for-you beverages.

We just received the green light that we will now be added to the energy door.

So that will further expand the opportunity at Rite Aid.

And then we can go and further expand with SKUs and optimize that retailer.

So some new retailers that we see a lot of opportunity that we're targeting is Walgreens and Duane Reade in New York City, there's a lot of opportunity there.

Also, the convenience channel dominates the energy drink category.

So we're working very hard to continue to increase our ACV in the energy drink category.

We're only at 10.9 today.

So there's a lot of runway ahead of us.

Speedway is a great account we're talking to.

Then there are so many others that we're actively talking to as well.

Okay.

Great.

Just lastly, obviously, there's a lot of misinformation out there and a lot of noise about CBD.

You're an energy company, but is there an opportunity to maybe have a recovery drink based on CBD?

And if so, what would that look like in terms of time line, in terms of planning for your portfolio going forward?

Absolutely.

Our innovation team, we're looking at adjacent categories, additional verticals.

CBD is definitely something we've been working on for some time.

We do have a CBD product in our portfolio ready.

We are watching the regulations.

And as the government goes through the process, the legalities are being able to sell the CBDs and our existing routes to market.

Whatever we bring to market, we want to be able to drive efficiencies and leverage our sales organization and our routes to market.

So we do have a product ready, but we need to make sure that when we bring it to market, we're able to maximize the opportunity and our relationships and routes to market.

So we are watching closely.

We don't have a definitive time line today, but we will be ready.

There are no additional questions at this time.

I'd like to turn the call back over to John Fieldly for closing remarks.

Thank you.

On behalf of the company, we'd like to thank everyone for their continued interest.

Our second quarter results demonstrates our products are gaining considerable momentum.

We are capitalizing on today's global health and wellness trends and the transformation taking place in today's energy drink category.

Our active healthy lifestyle position is a global position with mass appeal.

We are building upon our core and leveraging opportunities and deploying best practices.

We have a winning portfolio and strategy and a large, 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.

On a final note, our management team will be presenting at the upcoming B. Riley FBR Consumer Conference in New York City on October 3, and we look forward to seeing many of you at this upcoming conference.

Thank you, everyone, for your interest in Celsius, and have a great day.

This concludes today's conference.

You may now disconnect your lines.

Thank you for your participation.