Earnings Call: Q2 2018

Aug 9, 2018

Greetings, and welcome to the Celsius Holdings Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Cameron Donohue with Hayden IR. Thank you. You may begin. Thank you. Good afternoon, everyone. We appreciate you joining us today for Celsius Holdings' 2nd quarter 2018 earnings conference call. Joining me on the call today are John Fieldly, President and Chief Executive Officer and Edwin Negron Caballo, Chief Financial Officer. Following prepared comments, we will open the call to your questions and instructions will be given at that time. We will file a credit report with the SEC and issued a press release today. All materials are available on the company's website at celsiesholdingsinc.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, which are based on forecasts, expectations and other information available to management as of today, August 9, 2018. 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 or 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 President and Chief Executive Officer, John Fieldly, for his prepared remarks. John? Thank you, Cameron. Good afternoon, everyone, and thank you for joining us today. Before I get started, I'd like to welcome Edwin Negron Tabala, our newly appointed Chief Financial Officer, who joined us last week. He brings more than 30 years of financial and operational experience to our organization. Edwin is well versed in U. S. GAAP, International Financial Reporting Standards, having worked as a CPA for many years with significant experience in mergers and acquisitions. We are pleased to have you join our team and look forward to applying your experience to our operations. Edwin, welcome. Now turning to our Q2. We further advanced our distribution and expansion strategy across all of our regions. A number of large retailers, convenience stores and new channels of distribution were brought online both domestically and internationally, further increasing our availability and visibility for our portfolio of premium fitness beverages. With innovative products and compelling packaging, we have reached more and more consumers each and every day. Our target sales strategies are bringing Celsius to new channels, increasing product availability and our targeted marketing strategies are introducing new customers who are embracing and enjoying our great taste and proven fitness strength. Our strategy of positioning Celsius as a global beverage leader for health minded consumers remains our top priority. Domestically, Celsius continues to gain great acceptance. Revenue increased nearly 30% trade record $8,500,000 in the 2nd quarter, where we continue to see strong growth in existing accounts. Despite a temporary production delay, which caused a significant shift of nearly $1,300,000 in sales from the Q2 of 2018 to the Q3 of 2019. We managed through these timing delays and production and delivery of our product has stabilized. In addition, domestically, we were focused on ensuring we can support our explosive growth in the U. S. Market as we continue to optimize our supply chain with multiple co packers. We are extremely encouraged by the number of new high quality customers we added to our domestic lineup, including Target, CVS, Food Lion, Hannaford's, Menards, Wawa, Circle K, as well as many others. We also had notable expansion in adding over 300 new Planet Fitness locations, further penetrating the fitness channel. And we expanded our Celsius heat to over 25% of all 711s nationwide, where our core line is in approximately 50% of national distribution today. We also rolled out a healthy vending micro market initiative with a focused dedicated team where we are seeing great opportunity targeting app work locations and healthy vending opportunities in this growing channel. We've entered this new channel with great success and are seeing extremely high velocity rates at these at work locations. We are very excited about the future of this channel, which further aligns with our strategy of continuing to target health minded consumers where they live, work and play. In our military channel, all three of our product varieties are now sold in more than 800 exchanges worldwide, including the Army, Navy, Marine Corp and Coast Guard. Total growth through this channel is now up to 50,000 units per week at the end of the second quarter, where just over a year ago, units were running on average about 10,000 units per week in the same period. Our sanctioning target further establishes a nationwide platform for widespread availability. Initially, we launched and gained authorization for 3 FKUs, sparkling orange, peach mango and sparkling watermelon and more than 1,000 locations of the 1900 Target stores on the Andean Energy shelf in the Q2 where the restart started to take place. As the resets took place, we have received reorders. We have received positive feedback and strong consumer demand. And we now expect to add additional flavors in the back half of twenty eighteen. Our relationship with Target is a clear sign of the change in consumer demand as shopping patterns in the grocery and mass channel energy sets continue to shift. Retail buyers are seeking brands that drive traffic and increase sales. Many buyers are carving out new, healthy and functional energy sets. We are capitalizing on this evolving trend. To that end, our IRI spin data as of July 15 validates the demand for our products And with retailers that are adding Celsius to the product lines, the convenience store market had over a 42% growth over the trailing 12 months. We're outpacing the category by 12.5 times with only a 10% ACV. These results demonstrate our products are in demand and we are being accepted by today's health minded consumer. In addition, the momentum demonstrates our products have mass appeal. In the Nordic region, the month of May was the best sales month our partner has had since first entering the region. The quarter, however, was impacted by orders to Celsius due to timing of flavor launches and a reduction of inventory levels as they transition to a refreshed new look and feel. We are on track for solid growth we're on track for a solid Q3 as production and delivery has returned to more normalized levels. We are encouraged by the near term prospect of adding several new retailers and to expand our distribution in Finland and Norway in the back half of twenty eighteen, which will further our penetration in those markets. In China, we had a highly successful selling season by our primary distributor. Due to timing of retailer resets, the channel fill will flow mostly to the Q3 as the Q2 distribution was still primarily from inventory sold to our partner in March of Q1. Supporting this growth, we have received reorders and have already fulfilled orders for the Q3 to our distribution partner. In China, we have nearly doubled the number of stores since last quarter to more than 25,000 locations and we added over 11,000 key accounts. We are now in 45 cities supported by 147 sub distributors, including key accounts such as Circle K, Lawson's, Carrefour, RT Mark, Vanguard, Metro, Century Mark and Alibaba's new Hema Supermarkets in Beijing. We are also selling well on jd.com and Tmall. Our marketing activities during the quarter in China included sampling, digital and events targeting consumers with an active healthy lifestyles, driving trial and interaction. Such new events included Pet Smarter, an event series in China similar to Tough Mudder, our U. S. Partner. In China, we have a distinct advantage. We are producing in country, sourcing all materials locally and we are supported by local investors and partners. With operations localized, we're able to reduce the impact of tariffs, have a competitive priced innovative product able to gain mass appeal with local partners, we're able to leverage their experience and networks to increase our speed to market, capitalizing on today's health minded consumer with our trend 4th fitness beverage. We are driving tremendous progress across all of our regions of our business, reaching a broader audience with more products through an increased number of distribution channels. We're very optimistic about our future and the direction we are headed. In addition to the incremental momentum and expansion, we are also very active in gaining consumers and driving awareness and trial. Our Tough Mudder sponsorship is in full swing in the U. S. During the Q2, we toured Miami, Texas, Philly, Michigan, Kentucky, Virginia and Boston. And on average, we sampled over 25,000 to 30,000 people each and every weekend, while touring these cities and also through our gorilla sampling events, which continued across the U. S. In addition to consumer sampling, the team also sampled heavily in the trade, attending several events and trade shows targeting vending, colleges and universities, health and fitness and retail partners. Our digital team continues to leverage our assets and are increasing engagement on all social platforms. In addition, we launched our CELSIUS Lifer Brand Ambassador program with great success, receiving great interest and support for the program. We currently have a team of over 300 passionate ambassadors throughout the nation signed up for the program and many are being onboarded further more are being onboarded as we speak. This is going to increase our reach, engagement and influence. Additionally, in the second quarter, our newest flavor to our core wine, a great tasting kiwi guava was well received and made into the shelves in many retail outlets in the 2nd quarter, including 711 and many fitness locations. In addition, the new flavors gained interest from many of our customers for its crisp taste, great flavor and is perfect and refreshing for the hot summer days. Also in the quarter, we finalized and introduced in July 2 new flavors for our convenient omni go powered sticks. The tuning flavors combined with our clinically proven functional formula adds coconut and cranberry lemon flavor to our existing powder lineup of orange and berry. These new flavors are available online as well as fitness locations and other fine retailers and adds additional points of availability. Our delicious Omegostix, loved by Celsius fans, allows consumers to enjoy Celsius anywhere. We are a leading organization capitalizing on today's health and wellness trends with our innovative portfolio of products with mass appeal. Our brand is resonating with today's consumer and it's gaining considerable momentum. Our future has never looked brighter. I'll now turn the call over to Edwin Negron Pravalla, our Chief Financial Officer, for his prepared remarks. Edwin? Thank you, John. Total revenue for the Q2 of 2018 $9,300,000 compared to $10,200,000 in the Q2 of 2017. The 9% shortfall was mainly attributable to the timing of sales, as John discussed earlier. Looking now at the results by geography, North American sales were up a robust 29% year over year due to growth in existing accounts and new distribution expansion. In Europe, the normalizing of inventories translated to a 78% slowdown in sales as our customer reduced orders in the Q2 of 2018. And in Asia, sales decreased due to the timing of orders and the application of promotional discounts provided in the quarter. While the gross profit for the Q2 of 2018 reflected a decline of $585,000 or 13% to $4,000,000 our margins remain very healthy at 42.8 percent of revenue. This compares to $4,600,000 of gross profit in Q2 2017, which also delivered healthy profitability of 44.6%. The decline in gross profit dollars was a result of lower volume, while profitability was affected by the slot in fees and other similar charges in the international markets. Selling and marketing expenses for the quarter ending June 30, 2018, were $4,100,000 compared to $2,400,000 for Q2 in 2017, an increase of 72%. The increase is primarily due to investments in marketing programs to continue to build out our brand and employee investments in order to have a solid infrastructure for growth. General and administrative expenses for the Q2 of 2018 were $3,100,000 compared to $1,600,000 for the Q2 of 2017, an increase of 93%. The increase was primarily due to a nonrecurring charge of $945,000 related to the settlement of a territorial dispute with a former distributor and an increase of approximately $600,000 for recognition of auction expense as well as a slight increase in research and development costs of $67,000 which were partially offset by savings in other areas of approximately $120,000 Net loss to common stockholders for the Q2 of 2018 was $3,300,000 or $0.07 per basic and diluted share compared to net income of $380,000 or $0.01 per basic and diluted share for the corresponding period last year. Net loss and net income attributable to common stockholders includes preferred stock dividends. For the Q2 of 2018, the net loss included preferred dividends of approximately $43,000 And for the Q2 of 2017, the net loss included preferred dividends of approximately $91,000 The savings in preferred dividends is associated with the conversion of our preferred B shares to common stock during the period. Operating expenses for the Q2 reflected noncash charges, including depreciation, amortization and stock based compensation for a total of approximately $1,200,000 compared to $585,000 for Q2 2017. Adjusted EBITDA for the Q2 of 2018 was a negative $2,100,000 compared to a positive $1,100,000 in the Q2 of 2017. Now by excluding other onetime charges and the net investment in Asia, we obtained non GAAP adjusted EBITDA results, which are very close to breakeven, at a negative 261,000 in the Q2 of 2018, which is comparable to a positive $1,100,000 for the corresponding period in 2017. We believe that the information reflecting adjusted EBITDA and non GAAP financial aspects enhances the overall understanding of our performance. To that effect, a reconciliation of our GAAP results to non GAAP figures has been included in our earnings release. Now turning to our year to date results. For the 1st 6 months of 2018, revenues increased a robust 32% to $21,400,000 as a result of excellent growth in North American sales of 45%. Similarly, Asia reflected a strong increase of approximately $1,300,000 which were partially offset by a decline of 30% in European sales of $1,400,000 The decline in European sales mainly pertains to the timing of reorders on our core Celsius line, which was partially offset by the launch of our BCAA Celsius line in Northern Europe. The increase in total revenue was primarily due to an increase in sales volume as opposed to increases in product pricing. Gross profit for the 1st 6 months of 2018 increased by a solid 26% to $8,700,000 delivering a strong gross profit margin of 41% compared to $6,900,000 a year ago, which also delivered a healthy 42.8% gross profit margin. The increase in gross profit dollars is primarily attributable to increases in revenue, while gross margin profitability was by incremental promotional allowances and slotting charges. Operational expenses for the 1st 6 months of 2018 increased 77% to $14,900,000 up from $8,300,000 in the prior year. This increase was driven by investments in sales and marketing initiatives of $5,200,000 and a $1,400,000 increase in general and administrative expenses. Regarding other expenses, there was a decline of 7.5 percent to $80,000 in the 1st 6 months of 2018 compared to $87,000 in the 1st 6 months of 2017 as a result of lower interest expense. The company's net loss attributed to common stockholders for the 1st 6 months of 2018 was $6,400,000 or $0.13 per basic and diluted share compared to a net loss of $1,600,000 or $0.04 per basic and diluted share for the comparable period in 2017. Operating expenses for the 1st 6 months of 2018 included noncash charges for depreciation, amortization and stock based compensation totaling approximately $1,900,000 compared to $1,600,000 last year. Adjusted EBITDA for the 1st 6 months of 2018 was a loss of $4,200,000 compared to a positive adjusted EBITDA of $47,000 in the year ago period. By adjusting for other nonrecurring charges and investments in Asia, we once again obtained very good results close to breakeven, reflecting a non GAAP adjusted EBITDA for the 1st 6 months of 2018 of a negative $120,000 compared to a positive adjusted EBITDA of $805,000 for the comparable period last year. Now turning to our balance sheet. As of June 30, 2018, the company had cash of approximately $8,500,000 and working capital of approximately $16,300,000 This compares with $14,200,000 in cash and $20,600,000 of working capital as of December 31, 2017. We believe our current cash balance is sufficient to meet our anticipated cash needs through the next 12 months. Cash used in operations for the 1st 6 months of 2018 totaled $5,800,000 compared to $2,700,000 in the 1st 6 months of 2017. The increase in use of cash in 2018 is mainly related to the net loss from operations as the net use of cash related to operational assets and liabilities was actually $1,200,000 lower in 2018 than in 2017. That concludes our prepared remarks. Operator, you may open the call for questions. Thank you. Our first question comes from Jeff Van Sinderen with B. Riley FBR. Please proceed with your question. Hi, everyone. So maybe you can give us a little better understanding. In domestic, it seems that demand temporarily outstrips supply and you had about, I think, $1,000,000 or $1,300,000 I think you said in order that shifted into Q3. Was that how much of that I guess was because you were filling the channel for Target and CVS? And then also can you tell us more about the sell throughs at CVS? I think you said there was a reset there in terms of where they were where they have the product in stores. Also, is CBS rolling to more stores? Are they adding more flavors? So just trying to get a sense of that. And then maybe just kind of where you stand now in terms of inventory and production capacity? Do you think the stock outs are behind you now? And we can start with those. Sure. Thank you, Jeff. I appreciate the questions. In regards to the degree of delayed shipment of about 1.3, we had some temporary really production delays in regards to working with 1 of our largest co packers. That set us back several weeks. Unfortunately, we did have we weren't fully out of stock on all of our SKUs, but we did have about 2.5 weeks of out of stocks on timing of shipments to certain customers throughout our channels. The accumulation of those that crossed over from the last week in the quarter to the 1st week of Q3, the total was $1,300,000 which has now shipped in the Q3. In regards to the procurement of the product and the production, as you recall, over the last several quarters years, we've continued to work on solidifying our really our production. We are now running product at multiple co packers. We feel that our inventory has stabilized. We have plans in place to continue to execute, and we have our co packers back online. We actually added another co packer online in the Q3. So we feel we have a sufficient amount of supply. We're continuing to build more inventory as we continue to move forward. But at this point in time, we are shipping orders and we have sufficient inventory for growth. When you look at your question in regards to CVS, as you recall, we went into in the Q1, early Q2, we entered 550 open air front checkout coolers at CVS. We have received reorders, strong reorders from CVS, and we are extremely optimistic as we continue to partner with them. As we mentioned before last call that we would there would be a review taking place somewhere around September for the resets coming up. So based on the momentum and volume of reorders we're receiving from these CVS locations, we're very excited about the opportunity. In Target, we were authorized with 3 SKUs, as I stated, in 1,000 stores. So through the quarter, the second quarter, we were going through that process with reorders. The great news that we were very excited as well as Target with regards when the product hit the shelf in regards to the reorders we were receiving. So we're very excited about the momentum there. And we stated earlier in the call that we are very optimistic on gaining additional SKUs of additional placement in the back half of this year due to the initial success of the product. So we're really excited about that partnership at Target. And we are we look forward to a very prosperous future as we move forward with that. Okay. Well, those sound like great launches. And then maybe if we can shift a little bit to the Nordic region. If you can help us understand better what was behind the decline in the Nordic region. I know you mentioned a couple of elements there with new flavor launches and so forth. But I think you also said that in May, you had a really strong month. So just trying to parse those out, maybe just touch on the sell throughs, how sell throughs have been in that region? And if it sounds like maybe there's a disconnect between the sell throughs and the orders you've received in Q2? And then maybe just give us a sense of what you're expecting in Q3 from that region? Yes. Thank you, Jeff. Out of the Nordics, we look at the Nordics, we're talking about Sweden, we're talking about Finland and Norway as the opportunity there with our strategic distribution partner. When you look at the prior quarter in 2017 to 2018, there was a variety of new SKU launches which took place in that quarter. So we're cycling those. In addition, we mentioned our distribution partner is bringing inventories down to more of a more manageable volume. So as a result of that, and they're going through this transition of a new packaging refresh of a new look and feel, we are very confident that these orders will be more normalized as we move forward. We already have orders in place that are under production as we speak for the Q3. So it was really a timing in regards to replenishment orders with our customer in the Nordics. In regards to May, I stated May was a great sales month. Speaking with our distribution partner over there, their sell through in the month of May was very strong. They had a variety of programs where they had pallet drops and a variety of the co op locations. And they were very motivated for the main momentum. So we expect this to be a timing as we move forward and get back to more normalized levels. The other positive news that's coming out of the Nordics in regards to Finland and Norway is we're getting information that we are further expansion into the co op locations in those outlets. There's a great opportunity as resets take place in the back half of 2018, early 2019, we'll be able to gain additional national distribution with the other key accounts in the market. Okay, great. And then just one more for me. On China, I think you said you're now in about 25,000 doors, which is great. You've increased the door count a lot there. Can you give us a sense of how the sell throughs are trending there? Maybe what you expect in terms of the trajectory of your business there in the near term? Absolutely. In regards to China, it was and we look at the quarter, the second quarter, we had a considerable amount of product that shipped in March. So the in addition to that, our team anticipated the resets taking place earlier in the Q2 than they did post Chinese New Year. A lot of the retail sets resets were taking place on key accounts further back towards the back end of the quarter. And as a result of that, we lost several really several weeks of sell through opportunity. But at the end of the quarter, as you mentioned and stated on the call, we had ran over 25,000 locations and 11,000 key accounts, which is really key to our success there. We are in some monumental accounts. The sell through has been extremely positive in these accounts. When we're seeing the initial take rates, which we've been in there now about 4 to really several weeks now. So we are getting reorders. We have a reorder in July that we produced and have sold to our master distributor. And we're gearing up for another order to come in for August any day now. So the product is turning and we're gaining more feedback, more ground data to understand further how Celsius is performing. But we are getting great placement in the stores and we're seeing some great execution by our distribution partner. Okay. That's great to hear. Thanks for taking my questions and I'll take the rest offline. Thank you, Jeff. Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question. Hi, Edmond and John. This is actually Destiny on for Jeff. Can you hear me okay? Yes, we can, Destiny. Thank you. Okay, great. So I just had a couple of questions. I think I'd like to start with any trends within the fitness and energy drinks segment on including flavors. I know that you had introduced a coconut one because coconut water has become so popular. Are you seeing any other trends similar to that one? Yes, that's a great question. And we had a variety of great momentum in the Q2 with our flavors. And one of the big interest in our flavor, which was one of our new flavors was the Kiwi Glava. We got excellent feedback, excellent distribution from our distribution partners. It was really embraced by the fitness channel as well. And we got a substantial offtake in regards to that product turning. And we expect that Kiwi Guava flavor to gain additional authorizations in our key accounts as we continue to move forward for the next planogram resets. When you look at, as you mentioned, the coconut, our coconut, which is our powder product, we just launched it in July, as well as our cranberry lemon, which is great flavor. It really is an excellent product. Everyone loves it. And that is just now rolling in through really the fitness channel. Okay, got it. And then also I think you mentioned that you had expanded into about 300 Sanit Fitness locations. Is that both the Heat line and your original line? Or are you aiming more towards one or the other? Okay. When you look at our Heat Line, our Heat Line initially launched in the fitness channel and we look at the distribution of the Heat Line currently, it is mainly in the fitness channel and we do have 2 SKUs authorized nationally at 711, but we have about 25% ACV distribution throughout the nation today. Our teams are focused on expanding that because we do have national authorization with those 2 SKUs. But specifically speaking to Planet Fitness, you're going to see a combination of our original line as well as our Celsius Heat line in those Planet Fitness locations, as well as through all the fitness channels. You'll see a combination of our core lines as well as the CELSIUS Heat and both lines are performing extremely well in that fitness channel. Okay, great. That's very helpful. I also was wondering if you could talk a tiny bit about the vending micro market initiatives. Could you provide a little more color on that? Absolutely. The vending micro market opportunity is extremely exciting for us. When we look at how Celsius goes to market, we're targeting consumers where they live, work and play, and this is full encompassing. So this micro market, we have a dedicated team focused on the opportunity that's really addition to micro markets, it's healthy vending as well as colleges and universities as well. And the micro markets, which we went in, started to roll into that channel in the second quarter, which is really at work locations, we're seeing an extremely high off tinge in regards to the number of sales running through on a weekly basis out of these micro markets. It is a great opportunity for us. So you're going to see us at your at work location. You'll see us at your health club, you'll see us in your vitamin specialty store, you'll see us in your drug channel, you'll see us in your NASH channel and you'll also be able to purchase this online. So we're available for consumers. We're going to continue to expand that distribution. That is a major focus, which aligns nicely with our marketing strategies as well to continue to target consumers where they live, work and play. Okay. Thank you. And I just kind of wanted to ask one more related to your online presence. I remember from last quarter, you had started the ambassador program and I guess you said you had about 300 with more onboarding by the minute. I'm curious, can you stack clicks from your ambassadors' posts to your website? And if so, are you seeing any additional volume from those clicks? That's a good question. We have very passionate fans of the brand. We have onboarded over 300 more as we're speaking. We are seeing more social engagement. We do have some additional software we use to be able to track the engagement that's out there, not only on our sites, but other third party sites as well. And we're seeing increases in the overall engagement. So this program is really a great opportunity for us to really continue to attract our core fans, to really spread Celsius. People are very vocal. They're excited. It is a great product. It's an experiential product. And this platform allows them to get additional benefits for being a fan of the brand. So really excited about that. And it's all incremental. Okay, got it. I think that does it for me. Thank you so much for taking the questions. Thank you so much, Stephanie. Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question. Thanks. Yes, I was just wondering, John, if you could just go a little bit more into what's the situation with the Nordic distribution partner. Just trying to understand if it was partly timing or other factors there. And same thing with China, that one seems like it's more timing. Sure. Thank you, Anthony. The Nordic partner, when you look at the overall revenues, I think you get a clearer picture. When you look at the quarterly run rate on revenues in 20 17, they had large revenue orders in Q2 and Q3 with some of the new flavors that they brought on board. And it's taking some time for those flavors to cycle through and get inventories down to more normalized levels. So that's one thing they are focused on. Our partners are focused on improving their working capital. So they are bringing inventories down to really a more manageable just in time system, which we've been working with them. And that's something we've been working on for some time now, really bringing on those 2 additional co packers. So we've been working on a variety of different synergies on trying to be able to provide them orders in a more timely manner so that improves their working capital needs. We have received orders for the Q3. We have produced orders for July. We have orders in August September. We actually have an order in house for October as well. Is moving towards more normalized levels as they work through that inventory. Plus they had a repackaging and a refresh that they were going through really fifling down some of their inventory levels. When you look at China, you are correct, it is truly a timing issue there in regards to the recognition of revenue because when we produce the product just like in the Nordics and just like in China, we're selling full production runs to our master distributor. So a lot of those orders in China took place late in the quarter. And as a result of those resets really taking place later in the quarter that affected the sell through. And as a result, we did not get reorders in the quarter, but we do have orders in house for July and we should be getting another order momentarily for August production as well. Okay. So you mentioned also, so the 2 you have 2 co packers that are back online, which should enable better just in time inventory, correct? Yes. Well, that's in the Nordics. We have 2 co packers in the Nordics, 1 in Holland and 1 in Germany that we've had, we brought online for some time. And we're really working with our partner to streamline a lot of that inventory and the flow of that inventory as well. And then they're bringing down their inventory levels for additional working capital. Okay. Yes, no, that's what I meant. I'm sorry, I flipped back to the Nordic. Okay. And then I don't know if you provided an update on 711, But if you could just talk about how that rollout is going? Absolutely. I mentioned on the call, 711 is a great opportunity for us. We are focused on 711. We are right around on our really our core line, we're right around a 50% ACV at 711. We are coming through the national wholesaler network at McLean, but we've been able to maintain our position. We're seeing increases each and every month on the increase in really ACV as we go forward as well as the volume per outlet. So we're really optimistic, very excited about that partnership. It continues to forge this relationship. We are attending a lot of the FOA Franchise Association meetings to gain additional distribution. It is a continual work in process because 711 is a franchise owned really retailer. So we have to go door by door in order to sell additional distribution. So we're doing a variety of different tactics to continue to grow within 711. We're in about 50% of our core line, 25% with our Celsius heat line and a tremendous amount of opportunity as we continue to grow and increase our ACV. But the and that's just going to take time, it's going to take effort and we're focused on it. With these stores continuing to perform well and sales increasing on a monthly, quarterly basis as we continue to build the brand base, these other retailers are going to the other stores will come online, very optimistic about that and they are a great partner for us. Okay. And then just two last quick ones. Vending machines, I know that that's a relatively new opportunity for you, but can you talk about the traction there? Yes. The traction there has been very successful. We have currently have 2 team members that are truly focused on this initiative. We are in I'll have updated numbers on the next call in Q3. I can provide further detailed numbers on our update, how many hypermarkets, micro markets we are in as well as additional vending machines. But initially throughout the quarter, we feel confident we gained an excess of about 1,000 vending machines and micro market locations through at work and healthy vending machines. And the opportunity is exponential out there. There is a great opportunity for us. And the turns we're seeing at these at work locations and in these healthy vending machines is extremely positive. Okay, great. And then just the last question. There was a it looks like a $1,000,000 legal settlement with a former distributor. Can you just refresh our memory on what that was about? And is that completely resolved now? Yes. We did have a legal dispute, territorial dispute with a distributor that we had ongoing in the LA court system for some time. It was last year it was filed. We've gone through the process. With time, effort, we moved through a settlement to move forward. We have great opportunities in our business to continue to grow and that settlement is behind us and we are focused on growing the business. Okay, great. All right, John, thanks a lot. Appreciate it. Thank you very much, Anthony. Our next question comes from Richard Tilly, a Private Investor. Please proceed with your question. Good afternoon, gentlemen. My name is Richard Tilly. I'm a stockholder for 11 years, having bought my first Celsius stock in June of 'seven. Now I buy my Celsius product at the Harris Teeter store in Southern Pines, North Carolina. So my comments can only be related to what products they carry. The first is a Celsius can that has a black top. My flavors I like are watermelon and grape. They also carry the heat product. And finally, they carry other products with an aluminum top. Can you tell me why there's such a drastic difference in the taste between the black top Celsius and the aluminum top Celsius can? I'm anxious to hear what you have to say because there is a dramatic difference in taste. Thank you, Richard. First off, I truly appreciate your long term commitment as a shareholder to this company. And I can assure you the management team and employers are working very hard and diligently each and every day. To answer your question to Harris Teeter, the black top cans in our core line are contain our sparkling are all of our sparkling flavors. It's a differentiation to our products. The aluminum top colored cans on our core line is our non carbs, which is a raspberry acai e and a peach mango green tea. So those are our 2 key flavors in the core line. We also have in Harris Teeter, our naturally sweetened wine and naturally caffeinated wine, which is sweetened with a stevia and aripetal. So there will be some flavor profile differences from our core line to our natural line with that contains that naturally sweetens line with that contains the Stevia and erythritol. But I will assure you our natural line, which has just entered Harris Teeter, is doing extremely well in the natural channel in Sprouts and Fresh market, and we're seeing a lot of demand for that product as well. Our next question comes from Diane Nagy, a Private Investor. Please proceed with your question. Yes. I'm a long term investor as well. And my first question is, how do you see the tariffs affecting the bottom line for the coming quarters? Thank you, Diane. I appreciate you joining the call and thank you for your long term support. In regards to the tariffs in China, I touched on that briefly on the call. And one thing that sets us apart, which is very different than a lot of other countries a lot of other companies that are importing into China. We are not importing into China. We are actually producing locally. So it's local production, locally sourced raw materials. We have a local team and we have an entity structure where we have a local company that's registered in Beijing. So we are not affected by the tariffs today because we are not importing products into China. I see. The other question I have is a practical one. I'm wondering why you don't seek cheaper quarters. The quarters you are in right now are pretty expensive. And I think that would help the bottom line if you were to seek more reasonable rents. Okay. Our goal has been to continue to grow this business as effectively and efficiently as we can as a management team. And I can assure you each and every one of our employees are dedicated to that, driving top line revenue growth, improving gross profit and ultimately improving the bottom line. We are very diligent on all of our expenditures where we gain additional quotes and we push vendors and suppliers to gain the best price for Celsius. As we continue to grow in scale, we will be able to gain additional efficiencies throughout our supply chain and throughout our other marketing and SG and A expenses. And we continue to focus on that. On a year to date basis, taking out one time charges and the investments that were made in Asia, we are at a close to breakeven and reinvesting those dollars into marketing with considerable investments in North America, where we're seeing strong top line revenue growth. Hope that answers your question on that. We're very diligent on controlling and monitoring expenses. Ladies and gentlemen, we've reached the end of the question and answer session. At this time, I'd like to turn the call back to management for closing comments. Thank you. Our underlying second quarter results demonstrates our products are gaining considerable momentum. As we are capitalizing on today's global health and wellness trends. Our active healthy lifestyle position is a global position with mass appeal. We are building upon our core business and leveraging opportunities and deploying best practices. I am very proud of our dedicated team and I thank our investors for their continued support. Thank you everyone for your interest in Celsius and have a great day. This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.