Celsius Holdings Third Quarter 2026 Earnings Conference Call - CELSIUS HOLDINGS INC

Financial Performance:

• Q3 2026 revenue reached $847 million, representing 17% year-over-year growth; included a $20–25 million timing benefit from shipments moved from Q4 into Q3.
• Brand Celsius reported net sales down 6% YoY, with retail track channels declining 7% as the company cycled prior innovation.
• Alani New delivered record net sales of $410 million (+24% YoY), driven by Witch's Brew LTO; core Alani New sales (excluding LTO) grew 50% YoY in track channels.
• Rockstar generated $80 million in net sales (+19% sequentially), though total retail scanner sales remained down 13% YoY due to exited SKUs.
• Gross margin compressed to 46.8% in Q3 (vs. 51.3% YoY) due to elevated aluminum and diesel costs; management expects full-year 2026 gross margins in the high 40s.
• Adjusted EBITDA was $199 million (23.4% margin), up sequentially from Q2; YTD Adjusted EBITDA reached $578 million (23.6% margin).
• SG&A expenses were $221 million (26.1% of revenue); sales and marketing investment increased to support fall programming.
• The company repurchased $45 million of stock in Q3 ($169 million YTD), with $91 million remaining under its $300 million authorization.

Guidance and Future Outlook:

• Q4 2026 reported revenue growth is expected to be below the first three quarters due to the elimination of a $25 million prior-year timing benefit and the pull-forward of $125 million in Q3 shipments.
• Underlying demand remains strong; Rockstar is expected to trend closer to Q1/Q2 2026 performance in Q4.
• 2027 strategic goals include: Brand Celsius returning to growth via robust innovation and portfolio rationalization; Rockstar moving from stability to growth; and Alani New scaling within PepsiCo's DSD system.
• International markets are on track to comprise over 15% of total revenue within five years, with Q3 non-U.S. revenue up 56% YoY.
• Innovation pipeline for 2027 includes new flavors (e.g., Cranberry, Cranberry Apple), new lines (e.g., 8oz, Energy Plus hydration), and permanent SKU additions.
• Revenue growth management (RGM) initiatives for 2027 aim to optimize price pack architecture, brand ladder pricing, and trade investment efficiency, targeting improved gross margins into the low 50s long-term.

Business Segments and Product Lines:

• Organizational structure reorganized into three brand-led business units (Celsius, Alani New, Rockstar & Emerging Growth), each led by a dedicated brand president.
• Alex Zigalera appointed President of Brand Celsius (U.S.); Rishi Dang (formerly CMO) expanded to President of Rockstar & Emerging Growth.
• Celsius: Focused on consumer health and active lifestyle; launched multi-year ESPN College Game Day partnership; facing inventory clearance in track channels but strengthening national SKU sequencing.
• Alani New: Delivered strongest quarter in history; Witch's Brew LTO generated >$130M retail sales, ranking as the 5th largest energy drink in track channels during peak week; core business growth remains robust.
• Rockstar: Stabilization phase complete; focusing on expanding distribution in college towns and deepening engagement in gaming, motorsports, and music; Canada showing strong momentum.
• International: Accelerating growth in Europe (UK, France, Ireland, Netherlands, etc.) and ANZ; Orange flavor is #1 in Australian accounts; Alani New planned for Select International Market launch in 2027.

Market and Competitive Landscape:

• Combined portfolio holds approximately 21% dollar share of the U.S. energy category in track channels.
• Modern energy brands contributed ~28% of zero-sugar energy category growth in Q3.
• Energy category identified as one of the strongest performing beverage sectors; global ready-to-drink energy market in key international regions exceeds $8B with double-digit growth expected.
• Competitors leading price increases, creating room for Celsius and Alani to maintain premium positioning without losing share.
• New consumer acquisition is central to strategy, particularly targeting female consumers (Alani) and next-gen active consumers (Celsius).

Risks and Challenges:

• Commodity inflation: Elevated aluminum prices and diesel costs (highest in years) continue to pressure gross margins.
• Brand Celsius: Underperforming relative to targets due to inventory cycles and lack of 2026 innovation; requires continued focus on shelf presence and consumer connection.
• Rockstar: Continued decline in scanner-based retail sales as the company rationalizes the SKU portfolio; growth dependent on distribution expansion.
• Channel mix: Shift to DSD (Direct Store Delivery) for Alani New increases trade investment, temporarily impacting SG&A and gross margin metrics.
• Inventory timing: Volatility in Q3/Q4 shipments creates reporting discrepancies between sell-in and scanner-based sell-through.

Management Commentary and Tone:

• Tone is confident and focused on long-term portfolio strategy, emphasizing "brand health" and consumer behavior over short-term quarterly fluctuations.
• Management acknowledged the passing of Chief Supply Chain Officer Paul Storey; Seth Nicholas assumed interim leadership for supply chain operations.
• Leadership expressed high confidence in the 2027 innovation roadmap and the ability to leverage the new brand-led structure for speed and discipline.
• Emphasized that 2027 will be the first year to fully execute on a portfolio-level Revenue Growth Management program.

Analyst Questions and Answers:

• Brand Celsius 2027 Outlook: Management expects the brand to return to slight growth/break-even as innovation returns and 2026 inventory rationalization cycles out; weekly run rate in the $50M+ range.
• Gross Margin Recovery: Pricing is not the primary lever; focus is on Revenue Growth Management (pack architecture, promotion discipline) and operational efficiencies. Margin recovery is delayed by commodity prices but expected to improve through 2027/2028.
• Alani New DSD Transition: Expect scans and reported results to align more closely starting Q2 2027 as the full DSD transition and amortization impacts stabilize.
• Q4 Timing vs. Underlying Growth: Q4 will show lower growth rates on a reported basis due to timing headwinds ($50M+ net impact from 2025/2026 timing items), but underlying scanner data for Rockstar and Celsius remains stable.
• Innovation Driver for 2027: Celsius will not rely solely on "Energy Plus" for growth; a broad suite of core flavor innovations and pack configurations (8oz, multi-packs) will drive volume.

Other Key Points:

• Witch's Brew LTO sales included in Q3, with peak performance exceeding double the next best item in company history.
• Retail partners are planning 2027 inventory and launches earlier than ever before, indicating strong confidence in the portfolio.
• Full manufacturing line in North Carolina is now operational; cost benefits expected to fully flow through in 2027.
• PepsiCo DSD integration for Alani New is proceeding as planned, with the brand expected to benefit significantly from expanded distribution in 2027.