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  • Brett Schafer

Not So Deep Dive: Celsius Holdings Stock

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Show Notes

(Ryan) What they do: Celsius develops, markets, and distributes a line of energy drinks. A lot of people use them as a fitness supplement, but it’s a standard energy drink so it’s kind of up to the consumer when they want to drink it. And they’ve got a few different product lines as well. They have their Celsius Original (which comes in 9 flavors), then they’ve got Celsius HEAT which is designed to be more intense, they have a celsius Stevia (natural sweetener) line, and then they have powder packets that can be mixed with water.

They don’t actually do their own manufacturing. They buy most of the ingredients but they partner with a 3rd party co-packer which fills the bottles and cans. So the co-packers have the expertise in the production process, and Celsius focuses more on the formula and sales process.

Celsius products are now in 135,000 stores in the US and they have 2% market share of the energy category overall for the last year.

(Ryan) History: Not a ton of information on the company’s history, so I’ve pieced together what little I can. Carl DeSantis founded a vitamin company in 1976 which he sold for $1.8B in 2000. After selling it, he started a family office and invested in a mom and pop energy drink company based in Florida which I believe was called EliteFX at the time. Shortly after he invested, Elite was acquired by Celsius Holdings which was a public shell company. But after 3 years of losses they were delisted from the NASDAQ and forced to trade OTC.

At that time, DeSantis replaced the CEO and extended another $3M line of credit for further investment. Eventually they began to gain traction and in the last few years they’ve caught lightning in a bottle. For reference, in 2016 Celsius had $22M in revenue. This year, they had more than $300M in revenue. More than 10x in 5 years.

(Brett) Industry/Landscape/Competition:

  • Carbonated drink market is massive

  • Global energy drink sales were in between $50 - $60 billion in 2020

  • Monster Energy: $5.5 billion in sales last year (they may have some other products)

  • Competitors: Coca-Cola, Pepsi, Dr. Pepper, Snapple, Monster Energy, Red Bull, Vitamin Water, Bang Energy

(Brad) Management and Ownership:


  • CEO is John Fieldly

  • CFO from 2012 to 2018 before being promoted

  • Former financial leadership role at various other firms

  • Current CFO is Edwin Negron Carballo (current)

  • CFO of a firm called Concurrent Manufacturing Solutions for 5 years

  • Controller at Energizer for 5 years

  • Senior Consultant at KPMG for 4 years

  • The EVP of sales was the former SVP of sales at Rockstar

  • SVP of operations was a VP of operations at Monster and head of operations at Rockstar before then


  • John Fieldly owns 1.6% and together all execs and directors own 13.2% of the company mainly paid out in equity awards in 2019 and 2020. Interesting to note Edwin Negron was issued about 500,000 shares over the same period and owns just 150,000 shares outright today.

  • Early investor Carl DeSantis owned 25.8% with three other investors together owning about 22% more of the company overall

(Brett) Valuation:

  • Market cap of $4.4 billion, ticker CELH

  • P/GP of 34

  • I don’t think you need any other metric at this point

  • Monster converts approximately half of GP to EBIT

  • Share count has gone from 20 mil to 75 mil since 2016, so you want to track rev/s growth (also options don’t look to be that crazy going forward)

(Ryan) Earnings:

  • FY Revenue: $314M, up 140% YoY

  • 41% gross margins

  • They report Adj. EBITDA margins of just over 10%, but they had negative $96M in OCF for 2021 due to them bolstering their inventory to try and mitigate the supply chain problems. That should stabilize and get closer to that EBITDA figure over time.

  • Highlight from the quarter: 20% market share of the energy drink category on Amazon. Surpassed Redbull, 2nd only behind Monster.

(Brad) Balance sheet and liquidity:

  • $16 million in cash on hands with another $38 million in receivables, $200 million in inventory for about $250 million in liquid assets

  • Balance sheet is extremely clean. Mainly funded through equity at this point.

  • Were profitable in 2020 but not 2021 as G&A and S&M both more than doubled


Anecdotal Evidence:

  • Brad – nothing

  • Ryan:

  • Brett: “Functional Energy” sounds like a bunch of nonsense that people will love

Future growth opportunities:

  • (Ryan) Better IR site. International expansion. In 2019, they acquired a company called Func Food which was a distributor of beverage supplements and protein bars in Finland, Sweden, and Norway. Func Foods owns a few brands over there including FAST, FitFarm, and CocoVi, but they’ve used the acquisition to expand the Celsius brand as well. Celsius has gained market share in Sweden, but growth is still slow overall in Europe. They also have a licensing royalty deal in China. They say this is one of the fastest growing energy markets in their 10-K, but it’s only $2.5M in royalty revenues for the year.

  • (Brett) The DSD network, or direct delivery. Still slightly confused on exactly what it is but I believe it is when retailers become long-term partners with Celsius and Celsius prioritizes them for distribution. Category grew 400%+ in Q4 and a lot of that must have come from Costco (maybe). The more tight relationships they have with retailers the better.

  • (Brad) This may sound weird but doesn’t it make sense for them to have a non-carbonated drink? Hard for runners or athletes to drink bubbles in the heat of the moment. I could see them leveraging this traction to create healthy gatorade without all the sugar and chemicals.

Highlights and lowlights:

  • (Ryan) Highlights: They seem to have found product market fit. There are certainly some growing pains, but market share and sales data are really strong. US store count growth up 65% in 2021. Lowlights: They understated their stock-based compensation for the 6 months ending September 30th by about $15M. That’s a fairly significant number (~13% increase to operating expenses). They’ve grown rapidly, so it’s not too crazy to think maybe they lacked accounting resources, but the concern is that there are more cockroaches under the rock since the audit is still ongoing.

  • (Brett) Highlights: Great category, long runway to grow within North America, and impressive strategy when it comes to growing the business. Lowlights: Well run competitors, accounting issues, SEC investigation, unclear on long term margins, inconsistent cash flow generation which is a bit risky given their inventory build. Reliance on Costco is a concern to me

  • (Brad) Highlight has to be the impressive top line growth this company has been able to deliver. They’re clearly gaining significant traction. Lowlight is that CPG is just such a tough space. Brand equity is so important so unless it can build a cult following, marketing spend will likely to continue quickly growing and with CPG gross margins operating leverage could be tough to find. Supply chain concerns shorter to medium term is also very real for this company specifically (and all CPG/manufacturing based firms).

Bull Case:

  • (Ryan) I’ve got no idea what the ceiling looks like for this business. Is it just replicating Monster? If so, they’ve got plenty of room to grow cash flow.

  • (Brett) I think you have to expect them to become the next big energy drink brand.

  • (Brad) This becomes ubiquitous with energy drinks as younger consumers seek out healthier options. It’s Red Bull 2.0

Bear Case:

  • (Ryan) They just aren’t able to fulfill their valuation. Or the momentum they’re seeing now slows and they can no longer just outgrow their problems.

  • (Brett) P/GP of 34. Share dilution. I don’t think there is anything else except the obvious ones

  • (Brad) Competition continues to weigh on its moat and margins and this never churns all that compelling of a free cash flow margin.

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Disclosure: The author and podcast guests are not your financial advisors. Ryan Henderson and Brett Schafer are general partners and portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this show.

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