Celsius Holdings, Inc. (NASDAQ:CELH) shares plunged on Thursday as a $246.7 million distributor termination overshadowed a top-line beat in the third quarter.

• CELH is among today's weakest performers. Check the analyst take here

Investors also balk at a sharp rise in long-term debt and warnings that inventory shifts tied to the PepsiCo, Inc. (NASDAQ:PEP) transition could distort near-term results.

"We strengthened our long-term partnership with PepsiCo and united CELSIUS, Alani Nu, and Rockstar Energy under one total energy portfolio," said CEO John Fieldly.

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The company reported third-quarter adjusted earnings per share of 42 cents, beating the analyst consensus estimate of 28 cents.

Quarterly sales of $725.100 million (up 173% year over year) outpaced the Street view of $712.156 million.

Alani Nu

Celsius Holdings' retail sales rose 31% year over year. The gain was driven by Alani Nu's 114% sales surge and double-digit growth for the CELSIUS brand.

During the quarter, the company recorded $246.7 million in distributor termination costs related to transferring a significant portion of Alani Nu's distribution to PepsiCo in the U.S. and Canada, as well as acquisition and transition costs.

Alani Nu posted record sales of $332 million in the third quarter, driven by innovative limited-time offers and organic growth in core flavors. Celsius brand revenue rose 44%.

"As we transition a large portion of the Alani Nu business into our largest distributor, inventory movements will affect reported results, as the company primarily recognizes revenue upon delivery to its distributor partners and retailers," the company said.

The company stated that PepsiCo has agreed to fund the termination fees associated with integrating a significant portion of Alani Nu into the PepsiCo distribution system, resulting in a net neutral cash position for the company.

North America Surge

Sales in North America gained 184% to $702 million. Celsius said it captured a 20.8% U.S. energy drink market share.

International sales increased 24% to $23.1 million, driven by growth in the Nordics and continued momentum in expansion markets, including the UK, Ireland, France, Australia, New Zealand, and the Benelux region.

Profit Up, But Debt Soars

Quarterly gross margin expanded to 51.3% from 46% in the year-ago period. Gross margin improvements were driven by lower net portfolio promotional spend, a favorable pack mix, a favorable channel mix, and scale benefits on raw materials resulting from higher volume.

Adjusted EBITDA jumped 4573% to $205.6 million. Adjusted EBITDA Margin expanded to 28.4% from 1.7% in the year-ago period.

The company exited the quarter with cash and equivalents worth $805.955 million. Long-term debt jumped to $861 million (from $0 a year earlier).

CELH Price Action: Celsius Holdings shares were down 21.99% at $46.74 at the time of publication on Thursday, according to Benzinga Pro data.

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