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Celsius Holdings, Inc. (NASDAQ:CELH)
Q3 2019 Earnings Call
Nov 7, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Celsius Holdings Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the conference over to your host Cameron Donahue of Hayden IR.

Cameron Donahue -- Head of Investor Relations

Thank you. You may begin. Thank you and good morning everyone. We appreciate you joining us today for Celsius Holdings Third Quarter Earnings Conference Call. Joining on the call today are John Fieldly President and Chief Executive Officer; and Edwin Negron Chief Financial Officer. Following prepared remarks we'll open the call to your questions and instructions will be given at that time. The company follows Form 10-Q with the SEC and issued a press release today. 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 which are based on forecast expectations and other information available to management as of today November 7 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 Celsius Holdings undertakes no obligation to 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?

John Fieldly -- Chief Executive Officer

Thank you, Cameron and welcome everyone and thank you for joining us today. Our third quarter 2019 financial results reflect the outstanding work our team is doing to drive higher volumes through deeper replacements and existing and new accounts as well as leveraging our infrastructure to improve profitability all while demand for Celsius continues to rise. We are capitalizing on the accelerated macro industry trends for healthy better-for-you products that are driven by the growing demand by health mining consumers looking for healthier alternatives to conventional products. We are seeing great demand for the Celsius portfolio and are outpacing many larger more established brands as we position ourselves as a leader in functional energy drinks through our health and fitness routes providing proven functional energy differentiating ourselves from the competition. As we continue our expansion further in traditional retail we are seeing higher velocity rates and greater consumer acceptance in each step we take which is further increasing our optimism. Our active healthy lifestyle position is a global position with mass appeal. For the third quarter of 2019 we delivered a record $20.4 million in revenue with double-digit revenue growth of more than 20% with a positive net income of approximately $1 million or $0.02 per share.

Our record third quarter revenue came in versus a comparable period in 2018 where we had a $1.3 million and sales from the second quarter of 2018 and to the third quarter of 2018 in North America as well as approximately $1.35 million in Asia sales which only totaled $200000 from non-China sales in 2019 due to the shift in a royalty model being initiated in the beginning of 2019. Excluding those items we saw exceptional revenue growth of 45% for the third quarter. North America sales reached a new record of approximately $16.8 million for the quarter. And excluding the $1.3 million shift in sales in 2018 revenues grew 66% for the quarter in 2019 versus the prior year on a normalized basis. Year-to-date revenue growth totaled 52% for the first nine months of 2019 which demonstrates the demand for our portfolio and our ability to execute and drive profitable growth. Subsequent to quarter end we completed the acquisition of Funk Food Group our Nordic distribution partner which is not included in our third quarter results as the transaction took place on October 24 in the fourth quarter. We are extremely excited about the transaction and the upside opportunity this provides Celsius and our shareholders going forward. We welcome the Funk Food team to our family and after Edwin reviews the financial results for the quarter I will be providing additional details on the acquisition. Our revenue for the first nine months of 2019 totaled $51 million which is close to outpacing our full year revenue in 2018 up $52.6 million. Clearly we are on track for another record-setting year. We remain steadfast in our strategy to position Celsius as a global leader for health mining consumers. And in doing so continue to expand our presence increased volume and elevate our brand.

Through our focus and drive we are gaining brand love and acceptance from more and more consumers each and every day as our passion for living better and living fit is motivating to all. This motivation is gaining interest from some of the largest retailers in the country looking to update their planograms to align with today's health mining consumer. And we anticipate Celsius will continue to gain availability heading into and through 2020. Our pursuit toward a national distribution network now includes and totals more than 70 regional direct store delivery DSD partners many of which are -- of which are premier beverage distributors expanding to a national distribution direct store delivery network is designed to increase our in-store presence and designed to improve our execution in the trade and expand our availability and enables us to stronger inventory management in retail stores reducing the out of stocks with our high velocity brand. We expect to achieve majority coverage across the United States in the next 12 months if not summer which is to be a best-in-class accomplishment within a highly competitive beverage industry. We are rapidly leveraging our new regional deliveries distribution partners creating significant opportunities to further build out across all markets of trade. Especially in the convenience channel where we are significantly outpacing many established competitors and the sales growth metrics. According to most recent spins data third-party data in the convenience channel shelf-stable Energy & Functional beverage data set for the prior 52 weeks ending September 8 2019 and shows Celsius is growing at a 41.1% growth rate versus the prior year which is outpacing the category growth by 4.3x.

With only an 11.9% ACV which is all accumulated volume indicating that Celsius has a long growth runway ahead as we further expand in the convenience channel and continue to outpace competitors. We have experienced the most significant expansion in the distribution network within the independent Anheuser-Busch wholesaler network which has increased from 6 distribution partners within the wholesaler network to 31 since February. In addition we have expanded within the Miller Coolers Pepsi and Dr. Pepper affiliated wholesalers. With the accelerated expansion we are very excited to now have approximately 2500 wholesale sales representatives now selling Celsius nationwide on our behalf. In the first half of this year we signed a distribution agreement with Big Geyser New York's largest independent non-alcoholic beverage distributors serving the 5 boroughs of New York City and the counties of Nassau Suffolk Westchester and Putnam. Big Geyser serves more than 20000 locations in the massive New York City metropolitan at market and has been instrumental in building numerous brands. Starting in the third quarter of 2019 Big Geyser will be -- is our preferred distribution partner servicing all 7-Eleven in the territory which will significantly increase our distribution in the New York market. And in addition we are in the process of transitioning target stores over to Big Geyser are in the territory which will further increase our availability and velocities. As we build out our DSD network we will continue to transition accounts over to this preferred route to market which will further increase our in-store presence and velocities at retail. Subsequent to quarter end we signed a national authorization with a business unit of Compass Group North America and the largest Food Service procurement and supply chain solution organization in North America with over 85000 unique customer locations.

Celsius branded drinks are now available nationwide across all Compass Group North America business units. The new channel adds incremental market opportunities for us which include hospitals airports college campuses restaurants and casinos among others and further adds to our momentum in the food service channel. In addition the vending channel we are now available through over 400 vending suppliers who cover over 10000 micro markets and thousands of healthy vending units throughout the United States. The convenience channel continues to be and represent the largest opportunity of the energy drink sales in the country with a more than $9 billion in annual sales. Industry backed third-party data continues to validate our position as a healthy functional fitness drink that's resonating with today's consumer. As stated there's third-party spins data at September 8 2019 shows Celsius is growing at a 41.1% year-over-year increase for our portfolio in the convenience channel outpacing competitors in the category. This demonstrates Celsius warrants additional south shelf space and we are leveraging this data with buyers. We are currently working planogram resets for 2020. Most recently and earlier this year we launched placements with premier convenience store chain QuickTrip and look forward to further partnering in 2020. In addition we recently expanded distribution to an additional 3300 convenience stores where placements will start to take place throughout the third quarter and will continue through the fourth quarter. With most recent expansion including Circle K in the Southeast Convenience Flying J and Pilot as well as additional regional chains with more to coming on board throughout 2020. We continue to expand our portfolio with delicious flavors just subsequent to quarter end in the third quarter we launched our newest flavor great fruit mailing green tea at the 2019 National Association of Convenience Store shows. In Atlanta, on October 2, through the fourth. This is the largest convenience store show in the country.

At the show we received great reviews and interest as our noncarbonated green key offerings which are attracted to new consumers entering the energy drink category looking for noncarbonated offerings. As the energy drink category continues to evolve and gain broader appeal it's attracting new consumers wanting more out of their beverage and noncarbonated offerings are gaining interest from retailers looking to attract these new consumers into the category. The addition of the new flavor highlights the continued growth of our proven functional beverages and demand for healthier energy drinks offering vitamins without sugar and calories down in traditional energy drinks. The food for noncarbonated Green tea flavor is an on trend addition to our current green tea flavors that we believe will continue to appeal to a broader base of energy drink in consumers. The strengthening of our green tea as a flavor profile is a refreshing way to highlight the green tea that is already one of our key ingredients in our proprietary Metaplus formula. This launch came on the heels of the second quarter launch of our ninth flavor great-tasting sparkling Fuji Apple Pear which we launched in the fitness and vitamin specialty channels and throughout GNC with a mandatory 1800 locations improved and authorizations to our emanation aniline The continued growth of our proven functional beverages and demand for healthier energy drinks offering vitamins without sugar and calories found in traditional energy drinks. The noncarbonated Green tea flavor is an on trend addition to our current green tea flavors. That we believe will continue to appeal to a broader base of energy drink to consumers. The strengthening of our green tea as a flavor profile is a refreshing way to highlight the green tea that is already 1 of our key ingredients in our proprietary Metaplus formula.

This launch came on the heels of the second quarter launch of our ninth flavor great-tasting sparkling Fuji Apple Pear which we launched in the fitness and vitamin specialty channels and throughout GNC with a mandatory 1800 locations approved an authorization across all sets. In addition Fuji Apple Pear is now also available at select 7-Elevens and throughout Amazon and is gaining distribution throughout many retailers in the country as well as across the fitness channel. Where we gained distribution in top-tier fitness retailers nationwide including the likes of Gold's Gym 24-hour Crunch Fitness Export fitness Youfit Equinox via Earthbar as well as In-Shape Fitness and many others are now selling sparkling Fuji Apple Pear which has become one of the top-selling flavors at many locations. In addition to the great-tasting flavor line expansions our innovation team is working on developing offerings targeting verticals in adjacent categories which will further increase the breadth of our portfolio. Our mission is to become a global leader of a branded portfolio which is proprietary clinically proven and are innovative in its category and offer significant health benefits. During the third quarter we further expanded our portfolio to include an innovative branched-chain amino acid BCAA functional beverage that fuels muscle recovery. The BCAA product line will was initially launched in the fitness channel and further establishes the company as a leading innovator in the functional beverage market. Celsius BCA recovery drink debuted in September at the renowned 2019 Mr. Olympia before a premier demographic of athletic trainers bodybuilders Endurance athletes and Gym goers.

The Mr. Olympia is the world's most prestigious fitness industry showcase event an international by building competition that is held annually by the international federation of bodybuilding and fitness. Our new BCA recovery line is an extension of our strategy to introduce innovative beverages for today's health mining consumer which comes in 3 great flavors. And has been highly accepted by retail partners and initial reorders have been strong and we anticipate this new line to add meaningful growth in 2020. In North America we have increased the number of retail locations where our products are available by 57% in 2019 to over 60000 locations nationwide. Our expansion into household name retailers such as Target and CVS have greatly increased product availability while our relationship with Kroger the largest U.S. grocery store chain has significantly expanded to include over 1100 locations nationwide. Kroger will initially carry between 4 and 7 flavors of Celsius depending on the region's location of the store. Exponential growth across all channels of trade continues to accelerate in North America. In Europe revenues for the third quarter were down 11% coming in at approximately $3.4 million and slightly down to flat for the first nine months of 2019 due to the timing of new flavor launches promotional programs and timing of orders. Please keep in mind these revenues are derived from Celsius sales to our Nordic partner and are not sales from our Nordic partner to retail locations and consumers i.e. sell in or sell through data. In addition these figures are not consolidated as the function group acquisition took place post quarter-end on October 24. During the quarter our partners saw great demand for our Celsius portfolio with the launch of 2 new great flavors Peach Vibe and Frozen Berry which have been in high demand. We are very optimistic of the team's focus execution and plan for 2020 as they continue to expand into new channels of trade and further increase market share throughout the Nordics.

After Edwin reviews our financial results I'll be providing additional details on the acquisition of the Funk Food Group. Earlier this year we completed a realignment of our China business operations with the signing of a royalty agreement which has further reduced our in-country early market brand awareness investments and reduced our use of working capital. While still providing us with the opportunity to extend the reach of our products and grow revenues through a license and royalty model. As such higher sales with consistent gross margins and lower expenses related to China were the primary drivers of us delivering positive net income in the third quarter of this year. In addition to capturing licensing and royalty revenue by serving the enormous China market the agreement also provides us with a vehicle to recoup $12.2 million of market investments we made in prior years over a 5-year period by our counterparty foods has exclusive rights to manufacture market and commercialize Celsius branded products in China. Through this agreement we have created a collaborative relationship that will serve the benefit for each of us.

As we strive to capitalize on the considerable consumer demand in the region. Qifeng Foods has relationships and a network of distribution partners that brings our 4 flavors of Celsius to 63 cities and over 65000 locations across China. Moving to marketing and supporting our growth in North America we launched our first national Gorilla marketing tour feeding various interactive fitness activities including outdoor classes hosted by popular instructors from around the nation. As well as competitive activities to inspire attendees and influencers to find what motivates them to live an active lifestyle. The lifted tour officially kicked off in New York City on September 7 with a Celsius branded fitness event in Union Square. We are bringing our Celsius lifted toward a 12 cities around the country including Boston Seattle Portland San Francisco Los Angeles San Diego Phoenix Dallas Miami Orlando Tampa and others with a goal of inspiring and creating movement which energizes each city with approximately 300000 samples to be distributed along the way along with a tour we will be stopping at various retailers distributors local events fitness partners like Planet Fitness Gold's Gym 24-hour and others and this program overlays over our distribution and is designed to build consumer awareness and activate the trade and retail partners in key markets.

Through various media platforms, we also remain very active with top a series of competitive events with a range of athletic ability through this relationship we are in the process of sampling to more than 200000 health minded consumers in 23 cities across the country reaching new markets and new communities. In addition we are conducting targeted marketing gorilla campaigns in key markets and interacting with consumers where they live work and play all through a variety of media platforms. We remain committed to our strategy of expanding distribution network through high-quality distribution partnership and growing deeper and broader with existing accounts and leveraging our infrastructure to optimize returns and profitability. I look forward to speaking with you again when we report our results for the full year 2019.

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

Edwin F. Negron Carballo -- Chief Financial Officer

Thank you, John. For the three months ended September 30 2019 revenue was a robust $20.4 million which translates to an increase of $3.8 million or 23% when compared to $16.6 million for the same period last year. The 23% increase was driven by continued strong growth in North American revenue of 48% mainly related to double-digit growth in both existing accounts and distribution expansion. This growth was partially offset by a decline in European revenue of 11% due to product availability aspects which have since been remediated. Asian revenues reflect a change in our business model in China to a royalty and license fee arrangement. Although revenue was lower in Asia. There was also a corresponding decrease in expenses which significantly contributed to improving our profitability in the third quarter. As has been our historical trend the overall increase in revenues was primarily due to increases in sales volume as opposed to increases in product pricing. Gross profit for the three months ended September 30 2019 increased by $1.7 million or 26% to $8.6 million up from $6.9 million in the year-ago quarter. The increase was driven by higher sales volume and revenue. Gross profit margin for the three months ended September 30 2019 also reflected an improvement at 42.2% compared to 41.5% for the same period in 2018. Sales and marketing expenses for the three months ended September 30 2019 were $4.9 million a decrease of $3.8 million or 43% from $8.7 million in the same period in 2018. The decrease is mainly due to lower marketing expenses of $5.1 million related to the change in our business model in China which now does not require any direct marketing investment. This decrease was partially offset by investments of $1.3 million in other marketing initiatives trade activities and higher broker commissions and storage and distribution costs in order to support our higher business volume.

General and administrative expenses for the three months ended September 30 2019 were $2.2 million a decrease of $93000 or 4% when compared to $2.3 million for the three months ended September 30 2018. The decrease was primarily due to lower stock option expense of $253000 and a decrease in other administrative expenses of $33000 which were partially offset by increases in expenses related to the acquisition of our Nordics distributor of $145000 and increases in other general and administrative expenses amounting to $48000 when compared to the same period last year. Total other expenses amounted to $543000 for the three months ended September 30 2019 up from $43000 for the three months ended September 30 2018. The increase is primarily the result of interest expense of $109000 and the amortization of discounts on notes payable of $528000 which was partially offset by interest income related to the receivable from our China distributor of $96000. The net result for the three months ended September 30 2019 was net income to common shareholders of $961000 or $0.02 per basic share based on a weighted average of 59307404 shares outstanding. And after adding back interest expense on convertible notes of $105000 and amortization on discount on notes payable of $528000 a dilutive net income available to common shareholders of $1.6 million or $0.03 per share based on a weighted average of 62532510 shares outstanding which includes the dilutive impact of stock options of 992693 shares and the dilutive effect of the convertible notes of 2232412 shares. In comparison for the three months ended September 30 2018 the company reported a net loss of $4.2 million inclusive of a preferred stock dividend of $44000 or a loss of $0.08 per basic and dilutive shares based on a weighted average of 51098575 shares outstanding. The year-over-year increase in share count was primarily the result of the conversion of preferred stock to common stock at the end of 2018 and the capital raise and the conversion of notes payable to common stock in the current year.

Adjusted EBITDA for the third quarter of 2019 was $2.4 million compared to a loss of $2.9 million in the third quarter of 2018 a significant improvement over last year. Our calculation of adjusted EBITDA for the three months ended September 30 2019 includes favorable adjustments for depreciation and amortization of $549000. Net interest expense of $12500, stock-based compensation expense of $900000 and the impact of a translation loss on the note receivables, from China of $1900. Additionally for the third quarter of 2019 our net non-GAAP adjusted EBITDA amounted to $2.6 million which also compares favorably to the 2018 results of $2.2 million which excluded the impact of the investments in Asia of $5 million. 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 a reconciliation of our GAAP results results to non-GAAP figures have been included in our earnings release. Now turning to our year-to-date results, for the first nine months of 2019 revenues increased 35% to $51 million up from $37.9 million in the first nine months of 2018. The increase was the result of a strong year-over-year growth in North American sales of 52% which similar to the quarter was driven by double-digit growth in existing accounts and distribution expansion. In Europe the revenue increase of 7% was driven in large part by the launch of new flavors which have been very well accepted in the market. Increases in North America and in Europe were partially offset by a decline in Asian revenues related to the change in our business model. Gross profit increased by $5.6 million or 36% to $21.2 million in the first nine months of 2019 compared to $15.6 million for the first nine months of 2018. Gross profit margin increased by 38 basis points to 41.6% for the first nine months of 2019 compared to 41.2% in the year-ago period.

The increase in gross profit dollars is primarily attributable to increases in sales volume. Sales and marketing expenses decreased by 24% to $14.1 million for the first nine months of 2019 compared to $18.4 million for the first nine months of 2018. The decrease is primarily due to the reduction in marketing expenditures in China as a result of the change in our business model in that country which no longer requires direct marketing investments. This reduction basically amounted to $8.1 million. Excluding the China impact and on a more comparable basis marketing spend was up $3.8 million mainly related to increases in marketing investments of $506000 support to our distributors and investment in trade activities of $1.8 million higher broker commissions of $350000 investments in selling and marketing employees of $350000 in higher storage and distribution costs of $1.1 million. These increases are related to higher business volume during the nine months ended September 30 2019 compared to the same period last year. General and administrative expenses for the first nine months of 2019 were $7.2 million a slight decrease of 2.4% compared to $7.4 million for the year-ago period. The decrease was primarily due to the inclusion of an accrual of $945000 in the prior year that pertained to the settlement of a territorial dispute with a former distributor. Excluding this impact general and administrative expenses increased by $764000 primarily as a result of a $250000 increase in stock option expense a $145000 related to the acquisition of our Nordic distributor as well as investments in employee costs to support our continued growth and increases in professional fees insurance and other similar administrative costs which translated to a total increase of $361000 in these areas when compared to the 9-month period ended in September 30 2018. Below the operating line other income was $11.3 million for the first nine months of 2019 compared to other expense of $123000 in the prior year period. Basically as a result of the note receivable from our China distributor that was signed at the beginning of this year. Under the terms of this agreement we will obtain the net investment we had previously made in China.

As a result of the above for the nine months ended September 30 2019 net income to common shareholders was $11.1 million or $0.19 per basic share based on a weighted average of 58023685 shares outstanding and after adding back the interest expense on convertible notes of $348000 and amortization on discount on notes payable of $707000 a dilutive net income available to common shareholders of $12.2 million or $0.20 a per share-based on a weighted average of 62050032 shares outstanding which includes the dilutive impact of the stock options of 1223700 shares and the dilutive effect of the convertible notes of 2802647 shares. In comparison for the nine months ended September 30 2018 we had a net loss of approximately $10.4 million and after giving effect of the preferred stock dividends of approximately $169000 a net loss available to common shareholders of $10.5 million or a loss of $0.21 per basic and diluted shares based on a weighted average of 49675624 shares outstanding. Adjusted EBITDA for the first nine months of 2019 was $3.3 million which compares to an adjusted EBITDA loss of $7.1 million in the year-ago period. Also a considerable improvement over prior year results. Our calculation of adjusted EBITDA for the nine months ended September 30 2019 includes favorable adjustments for depreciation and amortization of $770000. Net interest expense of $72000 stock-based compensation of $3.3 million, and the gain on the note receivable from China, net of translation gain and losses which amounted to $12.1 million as of the end of the quarter. Additionally our net non-GAAP adjusted EBITDA for the nine months ended September 30 2019 amounted to $3.4 million which also compares favorably to the 2018 results of $2.1 million which excluded the impact of the investments in Asia of $8 million.

As of September 30 2019 we had cash of $20.5 million compared to $7.7 million as of December 31 2018. We had working capital of $37.9 million as of September 30 2019 compared to $19.6 million as of December 31 2018. Cash used in operations for the nine months ended September 30 2019 was $966000 compared to $9 million for the first nine months of 2018.

I will now turn the call back to John to provide some additional details on the Funk Foods acquisition.

John Fieldly -- Chief Executive Officer

Thank you, Evan. In Europe and subsequent to quarter end we completed our acquisition of Funk Food our Nordic partner who is a wellness company that markets and distributes beverages protein bars supplements and Super Foods under the brands Celsius Fast Sports Nutrition CocoVi and FitFarm which represents a comprehensive portfolio of well-being products which promotes active and healthy lifestyles for approximately $24.2 million which comprise of about $14.8 million in cash and $9.4 million with the assumption of outstanding restructured debt. This is an important next step in our strategy to build a global dominant brand and solidify our position in the Nordics where Celsius has a dominant presence in Sweden while opening new distribution platforms for the rest of Europe. At the same time this transaction provides us with the ability to bring an entirely new yet complementary product offering to consumers through the innovative fast protein bar business. The acquisition which was valued at a significantly below our revenue multiple of approximately 1x incremental revenue and approximately increases revenue on an annualized basis by over $25 million provides immediate accretion and will improve our cash flows and present incremental opportunities to expand our footprint throughout Europe.

The strategic acquisition provides us with additional scale and is expected to provide a meaningful increase in our top line with the expected pro forma consolidated revenue run rate of approximately $100 million while enabling us to maintain our historical solid gross profit margins extracting significant operational efficiencies that will allow us to reinvest for future growth. Please keep in mind that consolidated revenues will start as of October 24 and will not be included into our -- will be included in our Q4 financial results post the acquisition date. Expansion opportunities throughout Europe include many new markets which we will strategically expand through key distribution partners and retail partners. We see great opportunities to leverage our existing relationships with as who owns several large retail chains throughout Europe. As an example in Germany owns wafering the largest -- the second largest. The second largest drugstore chains in Germany with over 3800 locations. In addition the team has ongoing discussions with several other new markets but our the new market sessions with several other new markets but our focus is to drive profitable growth by leveraging existing partnerships and relationships throughout Europe. In the U.S. we see opportunities to leverage the innovative fast snack bars portfolio and are in the process of establishing a manufacturer partnership to launched brand in the Fitness channel throughout in 2020 and we have already received great interest from our retailers and partners about the brand. We have great confidence in the Funk Food management team as over the last 12 months they have demonstrated their ability to capitalize on market opportunities and have established effective marketing tactics which are driving market share and growth. Over the last 24 months the team has been with working capital demands by being over leveraged which has put significant pressure on the business.

This acquisition provides the necessary capital for the team to focus on market opportunities growth and operational efficiencies to capitalize on the growing demand of the Celsius and portfolio. The division will be led by Robin our Managing Director of Europe. The existing CEO of Funk Food Group has over 15 years of background and various sales and leadership roles and management roles in the beverage industry with such companies as Coca-Cola and. In addition the management team will include brand and Marketing Director of Southeast Europe has a strong marketing background from Coca-Cola and has served as the Head of Energy & Functional Beverages for Western Europe at Coke. And it's been with the company for over three years. In addition our finance team will be led by with Func Food and as prior working relationships and experience with OP which is the largest financial execution bank in Finland. Through this acquisition we are gaining critical access to expanding European markets with a well-established operationally infrastructure and unique marketing platform. In addition it provides us with the ability to bring an entirely new yet complementary product offering to consumers with the fast protein snack portfolio.

This transaction puts Celsius in 2 of the fastest-growing categories in food and beverage energy category and the growing protein snack category with 2 complementary brands. In addition the acquisition solidifies our position in the Nordics and provide additional scale and meaningful increases in our top line revenue which enables us to maintain our historical gross profit margins and extracted significant operational efficiencies that will allow us to continue to reinvest for growth.

That concludes our prepared remarks. Operator you may now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jeff Van Sinderen with B. Riley & Company. Please proceed with your question.

Jeff Van Sinderen -- B. Riley & Company. -- Analyst

Good morning, everyone. First let me say congratulations on the strong metrics the Func acquisition and all the progress you're making as a brand and a company. Looks like your cash flow is about $3 million, through the quarter. Can you just touch on cash generation? And would you expect to generate cash going forward. And just to clarify the cash we see on the balance sheet. That is after the Funk acquisition correct?

Edwin F. Negron Carballo -- Chief Financial Officer

Correct. Thank you, Jeff. Yes absolutely. The cash that you see there the $20.5 million that we ended up with is after the acquisition. And you're absolutely correct. We generated approximately $3.5 million of cash in Q3. And to answer your question yes the expectation as we continue to grow depending on our working capital needs is that we will continue to generate some cash flow. But again it's going to depend on the investments that we make in terms of working capital.

John Fieldly -- Chief Executive Officer

Yes just a further point. Thank you Edwin as well. If you look there is a escrow portion on the balance sheet as long term. The auditors we put that earmarked the funds in escrow for the acquisition. The additional capital when you look at the cash generated we kept inventory fairly tight throughout the quarter as well. We actually just went into large production runs in October November and December will be running fairly heavily heading into the back half of the year as we're seeing historically seen great demand coming in Q1 and Q2. We have a lot of new retailers coming on board as well. So we're excited about that making sure we have full supply. So we will be putting some of that capital to work within the business and our working capital needs.

Jeff Van Sinderen -- B. Riley & Company. -- Analyst

Okay. And then just a follow-up and you mentioned adding new retailers. Obviously you've added a lot of retail doors and dramatically improved shelf space and positioning in a number of retailers. On the retailers you mentioned there are now -- we -- I know some of those may be tests. We've been seeing the product into new places. Maybe you could just elaborate on that where we might start to see the product appear what other retailers might be out there for you to get into?

John Fieldly -- Chief Executive Officer

Yes over the last call it late 2018 if you recall we started to do some tests in retailers in 2018. And then we announced in Q1 target expansion as well as CBS. We currently are testing in a variety of retailers. You'll probably see us in particular retailers in given markets. We have not disclosed those. One thing we're seeing right now is there's a lot of transformation taking place in the energy category that we talked about. And I mean consumers looking for healthy better-for-you options. Consumers react first retailers react second and we're getting a lot of interest that as buyers right now as we speak we're in the midst of buyer season are going through really category rationalizations in their category sets looking at what they should bring in for 2020 and we are one of those top picks on those items. When you look at it given our data our third-party data shows strong growth. We are on trend with our healthy better-for-you offerings and we have the data to validate it. So we're really excited about the position we're at and well positioned for 2020 to really capitalize the evolution of the energy drink category.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Okay great. And then I know you talked a little bit about the progress you're making in building out the DSD network. Can you just touch on any I guess improvement you might be seeing in stock house given that your product seems to pretty much to the shelves. And as part of that what do you think are the next key milestones in building the DSD network? And I guess when we should see -- I think you mentioned target converting to DSD when something like that will happen.

John Fieldly -- Chief Executive Officer

Yes it's going to happen. We've been working with the buyers at Target as well as CS. We actually through 2020 have received authorization we will be flipping from a direct store delivery model versus our current warehouse model as we solidify these regions within each key market. So there is an inherent problem keeping up with a high-velocity demand as the buyer initially put us in through a warehouse fulfillment option as CVS and Target and the product is getting a lot of velocity higher velocity. We're working with the replenishment buyers. But what really fixes this and really be able to leverage this is moving to a DSD network. We anticipate about a 40% lift in some of these outlets and some of these retail markets moving to this this route to market. Now we're up to over 70. We started the year with 3 -- about 6 if you go back looking at -- in February when we announced bringing on some Anheuser-Busch strategic distribution partners. Today we're up to over 70 with the likes of MillerCoors we're really going to the best DSD partners in each market to solidify to really cover the DMAs. So New York City is our first. We have flipped over 7-Eleven to Big Geyser and we're working on flipping Target in November over to Big Geyser. Our next market looks like it would be the Arizona market where we have full coverage. And also in the Michigan market. And we're working on the southeast market as well in those regions. So we're making progress.

We have a lot of interest. It takes time to build the DSD market. What we're doing is a major initiatives. There's a lot of brands that don't even get to this point. We are confident in our ability to have a DSD network over the next 12 months due to the interest that we're receiving from some of these larger houses. What we have seen is moving through the holidays like July 4 of July weekend. Moving into some of these busier holidays, it's really open windows to bring new partners into their DSD networks into their distributors. So we're heading into the holiday here working very vigorously but we'll probably -- we'll continue to make progress as we continue to move on.

Jeff Van Sinderen -- B. Riley & Company. -- Analyst

Okay, great. Thanks for taking my questions and continued success.

John Fieldly -- Chief Executive Officer

Thank you, Jeff.

Operator

[Operator Instructions] Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

John and Edwin, how are you?

John Fieldly -- Chief Executive Officer

Excellent, excellent. I'm doing well. Thank you.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

So just a follow-up with Jeff's line of questions. So on the DSD network what percent do you feel like you're at? I mean does it feel like you're 1/3 there to where you'd like to be over the coming year or 2 or halfway there?

John Fieldly -- Chief Executive Officer

The about 1/3. We anticipate we'll need about 250 to 300 distributors to get international coverage. We do have a very methodical mapped out process on where we have holes and where we need to bring distributors on board to flip over these regions. So to make sure we're covering the DNAs of these warehouses. So we're going to see continual progression into 2020. And the team is working really hard and everyone is focused on this.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Okay got it. And then a couple of questions regarding phone, firstly the -- how did things slip on once you close it all the $9.4 million of debt I guess said and what do you expect as the quarterly cost to carry the debt. I guess the closing date is still scheduled for or was October 24. Is that right?

Edwin F. Negron Carballo -- Chief Financial Officer

Yes. It actually we closed that on October 25. And yes looking at that I think of what was it the quarterly was going to be something like $200000 or $300000 in terms of the interest. So yes we're looking at that. We have good cash to probably service that and we have several other alternatives going down the road to then see if we can obtain some long-term financing given that we don't have any -- basically we have a very clean balance sheet and basically no data side from that.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Got it. And then John could you talk a little bit about the FAS portfolio. I know that you kind of pushed off on the approaching snack portfolios and it sounded like it would be a while. And what I'm hearing now is that no it's not going to be a while. And can you walk us through time lines on that? And when we expect to see introductions in North America and what channels we'd expect to see in 2020?

John Fieldly -- Chief Executive Officer

Yes. I think we do see -- we do see opportunity with the FAS portfolio in protein snack bar category. We are looking for a profitable launch and being very methodical in our approach. To bringing it to North America. We will be testing throughout 2020. Like we start on online initiatives and through the fitness channel as we build out a consumer base and a community for the brand. As we all know we're going into retail is very expensive. And we want to make sure we have built up consumer demand before we enter our retail partners but somebody in specialty retail partners you will likely see it in 2020. But it will be more of a methodical approach making sure we maintain our EBITDA and our focus. And the Celsius portfolio is our new focus.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Yes. Okay got it. And then 1 more question if I may. Could you talk a little bit about any trends or recent activity from online channels as far as where you saw from Q3 and how that may look for Q4?

John Fieldly -- Chief Executive Officer

Yes. Thank you, Jeff. Actually our online activity is -- is listed to where we launched in New York City and now has gone to Hollywood and then we're out in LA markets and/or in San Diego we're seeing a lot of activity just within the Google Analytics as well as what's taking place on online at walmart.com and amazon.com as well as others. So Amazon sales have been extremely strong. They have continued to be extremely strong over the last really call it three to four years. We always had a good presence. We have a high continuity rate which is great. And we actually are even at aligning further with an internal team to further expand our digital and online presence with all of our retail partners now moving to digital offerings.

When you look at shopping apps that's a untapped channel for us. We're going to go and go after that in 2020 to really leverage these new of how consumers are shopping and purchasing products. So we're really excited about what we're seeing on online. It remains a great channel for us. And an exciting time for the company I think that shows you as well as what we're building within the consumer base and community and as the brand continues to get further strength and more awareness and a further household penetration. It's great to see those numbers continue to increase each and every. So we're excited about that.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Fantastic. Okay, great quarter that those are for me. Thanks for taking the questions.

John Fieldly -- Chief Executive Officer

Thank you, Jeff. Thank you.

Operator

Our next question is from Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti -- Maxim Group -- Analyst

Thanks. So just on Funk Food just the acquisition closed on the 25th. I think if we took out the Celsius revenue the rest -- the annual revenue for Funk Foods last year was around $24 million $25 million if I'm correct. I'm just wondering what the run rate is now on a quarterly basis. And should we expect that to start to grow here in the fourth quarter.

John Fieldly -- Chief Executive Officer

Yes. Thank you Anthony. Yes that is correct. We will start to see that grow in the fourth quarter. I mentioned the launches that we had which was our Peach Vibe and Frozen Berry with flawless execution getting a lot of demand so much demand that they actually sold out of the initial runs of both those flavors. So good momentum on the ground. Right now they are heading into the holiday season which is traditionally a slower time in retail where you have a lot of novelties on the retail floors. So it will be in line with historical trends that the Funk Food organization has had but we will start to see the consolidated revenue they saw about -- right around a 20% lift last quarter. So that was really great to see that in the Celsius portfolio and there's a lot of opportunities to further grow of new channels of trade up until this point they really only focused on the hypermarkets very little distribution and convenience. We know the energy drink category performs extremely well in the convenience channel.

We are testing right now in Norway at 7-Eleven and that will be really the first entry into 7-Eleven in the Nordics. So really excited about that opportunity. And then they just expanded into a Finland one of the main retailers in Finland in the energy category. So really excited about initial feedback and the acceptance of Peach Vibe has been really phenomenal. So you're looking at about a $25 million increase conservatively for -- at the consolidated level as it is today. And then I do -- we do feel there is additional opportunities for further growth not really providing forward guidance on what that growth is. But there is upside potential that is embedded in the numbers.

Anthony Vendetti -- Maxim Group -- Analyst

Okay great. And then just a follow-up on international sales I know there was -- as you change the the China model to the royalty model that impacted international sales. If you stripped out that piece of the business and just looked at the remainder of international sales. How would you -- how would you gauge that in general?

John Fieldly -- Chief Executive Officer

Asia was about $2.7 million last year. So if you strip that out then you're talking about -- we're -- in this year we generated about $630000 in Asia. And then we had some other sales of about $160000. So all in all I mean we're growing from that perspective. If you back out the China impact.

Anthony Vendetti -- Maxim Group -- Analyst

Okay OK. But backing up the China impact that remains a small business but the opportunity particularly with Funk Foods is significant to grow that internationally right?

John Fieldly -- Chief Executive Officer

Yes I think we see a lot of opportunity with Funk Food. There's no question about it. In Asia there's still opportunities in Asia. We do have our team in Hong Kong it has been going through the retail market there has been troubling just due to the environment -- the environment they're operating in. We do feel there is opportunities there to continue to grow. And then we did launch in Malaysia and currently really through the quarter we were gaining distribution through over 2000 7-Eleven. So initially getting seeded in that market. So there is very much so slow opportunities for international growth very focused and disciplined and North America is as well as the team's main focus because of the opportunity we have here when you take out some of the onetime charges you look at a normalized growth rate. North America is growing at a 67% growth rate and if you just look at North America sales over the last 4 quarters we're starting to see quarter-over-quarter revenue growth. So really great fundamentals and great growth rates we're seeing within each channel.

Anthony Vendetti -- Maxim Group -- Analyst

Okay. And just a follow-up John. Just on -- you've launched some new flavors some new brands and so forth are there any -- in your portfolio after launching some of these new flavors. They're saying "Hey you know what this is a flavor that maybe we discontinue and focus on the flavors that are working? And then just as a follow-up is there any marketing campaigns new ones planned for the remainder of this year or the first quarter of next year.

John Fieldly -- Chief Executive Officer

Excellent. Yes. You're always looking at flavor SKU rationalization. There is certain flavors within the portfolio obviously that are turning at a lower velocity rate than others. Right now our #1 flavor on a per point basis is that floor flavor is performing extremely well. We do have flavors like Cola which is more of a traditional flavor that's been out there for some time. It does have what's great about some of our flavors and some of our relationships with our co-packers we can conduct smaller runs. And with our online offerings through Amazon walmart.com and several other offerings as long as we're meeting the velocity rates to really provide reorders and able to turn the product due to these other avenues and alternative channels. We have such a great following behind the Cola product that there's really great at maybe it's not for everyone on the flavor profile but we do have a specific fan base for that product. So when you look at a lower velocity item that would be 1 of the flavors.

But at this point we're not looking to discontinue any flavors just because we are meeting all the hurdle rates and demands for the products. So when you look at other other areas we're focused on. We want to be innovative within each category. We want to bring in -- continue to bring innovative flavors out and we will be on trend with our fruit forward position. And as for marketing programs we have a slew of marketing activities planned for 2020 which we're really excited about I think you initially saw that with a list to really interactive experiential sampling in what we do at we're also looking at other properties another thing is currently further building out our community into social digital media influencers and really getting that to a 360 integration with consumers in retail and a big initiative for us is trade marketing which now that we have DSD partners coming on board. I don't know if anyone has been to any of the krogers in Texas and other markets. But we are getting 100 cases displays. We're looking to really build experiential displays in 2020 further driving awareness and trial.

Anthony Vendetti -- Maxim Group -- Analyst

Okay, great. Thank you, john.

John Fieldly -- Chief Executive Officer

Thank you.

Operator

Our next question is from Jerry Harmed [Indiscernible]. Please proceed with your question.

Unidentified Participant

Hi John. I joined the call a little bit late because Katie. So if you covered this my apologies. But seems to line up pretty well with the fitness energy Leader Bank. And I'm just kind of wondering what grow you envision for that particular subline.

John Fieldly -- Chief Executive Officer

Excellent. Thank you Jerry. The heat portfolio we had some experience so really some very tough competition heading into really the second quarter this year. As you know rain launched with the BOGO and Bang with VPX was also doing heavy discounts. So we do see the heat portfolio as a major player in the performance energy category. We're getting interest from many retailers there. And it is definitely major -- going to be a major contributor in our portfolio going forward as well. So there has been a lot of competition in that 16-ounce category. And we expect that the competitive set to continue to be very competitive heading into 2020. But we do have with our differentiated offering we do feel there's a great place for the Celsius heat in our portfolio and in retail buyer shelf space.

Unidentified Participant

Okay, thanks.

Operator

We have reached the end of the question-and-answer session. At this time I'd like to turn the call back to John Fieldly for closing comments.

John Fieldly -- Chief Executive Officer

Thank you Rob. Thank you everyone. On behalf of the company we'd like to thank everyone for their continued interest. Our third quarter results demonstrates our products are gaining considerable momentum as we are capitalizing on today's health and wellness trends and the changes taking place in the energy 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. And our mission is to bring Celsius to more consumers profitably. I'm very proud of our dedicated team and without them our tremendous achievements and significant opportunities we see ahead would not be possible. In addition I thank all of our investors for their continued support and confidence in our team. Thank you everyone for your interest in Celsius and have a great day.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Cameron Donahue -- Head of Investor Relations

John Fieldly -- Chief Executive Officer

Edwin F. Negron Carballo -- Chief Financial Officer

Jeff Van Sinderen -- B. Riley & Company. -- Analyst

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Anthony Vendetti -- Maxim Group -- Analyst

Unidentified Participant

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