Q1 2022 Alkaline Water Company Inc Earnings Call
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Greetings and welcome to the alkaline water company first quarter fiscal year 'twenty 'twenty two earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this call.
Is being recorded it is now my pleasure to introduce your host Jeff Wright Director of Investor Relations. Thank you, Jeff you may begin.
Good afternoon, everyone and thank you for joining us for the airplane water companies first quarter fiscal 2022 earnings Conference call. Shortly you will hear from Ricky right, our president and CEO of David Gordon, Our Chief Financial Officer.
During the call, we will be making forward looking statements within the meaning of the safe Harbor provisions U S security laws and we may make additional forward looking statements. During the question and answer session forward looking statements involve risks and uncertainties and undue reliance should not be placed on such statements.
Certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from those expressed or implied in such statements.
For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward looking statements. Please consult the company's Form 10-Q, which was filed today and its other reports filed with the SEC on Edgar and the Canadian security regulators on SEDAR.
In addition, such forward looking statements and any projections as to the Companys future before rents represent managements estimates as of today August 16th 2021. The company does not undertake to update any forward looking statements or projections, except as required by applicable law, including the security laws of the United States and Canada.
Actual results could differ materially from those contemplated by any forward looking statements as a result of certain factors, including but not limited to general economic business conditions competitive factors changes in business strategy or development plans ability to attract or retain qualified professionals as well as changes in legal and regulatory requirements.
The company issued a press release announcing its financial results and filed our Form 10-Q with the SEC. So participants on this call who may not have already done so may wish to look at those documents as the company will provide a summary of the results discussed on today's call.
In addition, because of the results for the first quarter of fiscal 2020 one were significantly impacted by COVID-19. This presentation will also include certain comparisons to results in the first quarter of fiscal 2020.
I will now turn the call over to our CEO Mickey Wright, who will give you an overview of the company's first quarter fiscal 2022 results falling Ricky's comments, David Guarino, Our Chief Financial Officer will provide an overview of the company's operating results Ricky will follow David again, providing closing remarks, then we'll open the call for Q&A after managements property.
And now I would like to turn the call over to Ricky.
Thank you, Jeff Hello, everyone and welcome to the alkaline water companies first quarter fiscal 2022 conference call.
Been a very exciting quarter as we have continued to expand our presence throughout the country.
We remain one of the fastest growing alkaline water companies in the country was even bigger and better days ahead.
He used to announce that we delivered another record quarter of strong growth.
Even with last year's pantry loading, we were able to achieve our 33rd straight comparable quarter of record sales.
As highlighted in last month's call billion dollar markets. We are targeting this year and beyond continue to be big box club and specialty retailers E Commerce hospitality convenience stores international in CBD.
With alkali Ath current brand equity in grocery coupled with our new partnership with Shaquille O'neal and authentic brands group, we expect describing each of these channels.
As always these objectives can only be met because we have a great team of dedicated employees and executives executing against plan.
David will discuss our quarterly results in greater detail more materially.
I am pleased to announce our sales for our first quarter of fiscal 2022 were $14.1 million.
This represents growth of approximately 5% year over year.
And on a two year stack basis. This represents 19, 6% growth.
We reported a loss of $7.4 million this quarter, which included over $4.2 million of nonrecurring expenses associated with corporate sales and marketing and stock compensation.
It also reflects a $1.3 million increase in expenses from our supply chain and logistics related to the aftermath of COVID-19.
To help offset rising costs, we implemented our first ever wholesale price increase which should partially offset.
Just some of the impact of these expenses beginning third quarter fiscal 2022.
Many of the nonrecurring sales and marketing expenses were planned based on her enough partnership with Shaquille O'neal and authentic brands group. We view this partnership as a strategic investment in the future growth of our company.
Despite some significant one time expenses, our cash position at the end of the first quarter of fiscal 2022, plus $4.5 million. We believe our cash position will be stronger at the end of our second fiscal quarter based on our anticipated $5 million in pumps from a private placement and with Shaquille O'neal and our chairman personally invested in for.
Funds from the warrants exercised during the second quarter.
Furthermore, we also still have a $20 million H T M with Roth capital partners from which we have not taken down any money.
Our strong balance sheet will allow us to continue to optimize our new partnership and accelerate our growth over the next 12 months as we launch our first ever Omni channel marketing campaign.
With the resources and personnel in place we are reiterating our guidance for full fiscal year 2000, $20 million to $62 million in revenue, which would represent a year over year growth of 35%.
We've had a tremendous amount of positive activity and marketing since our July call.
Last month, we hired our first ever Chief Marketing Officer, Tom Hudson, Thomas and exceptional talent and he was he was brought in to develop our overall brand and marketing strategy to maximize our new partnership with Shaquille O'neal.
Thomas T and completed our first commercial production work with Shaq.
After a full day's production in Las Vegas, we are all incredibly pleased with the quality and quantity of what we captured.
We can now begin postproduction.
That will create content across all digital media channels work.
He was shack is great not only using you an incredible challenge and businessmen.
There's also a delight to have on the set any elevated the spirit of the entire production company.
Thanks to him and his team for joining us on this journey.
As you look forward Tom is just starting to get acquainted with authentic brands group and all the value that they bring to the equation yeah.
But ALLETE marketing capabilities in general in over six years of data and insights from managing Shack brand.
They will be invaluable to us in delivering world class marketing and ROI and the shack partnership.
It's been great.
Starting to work with Shaquille on a B G. M. A sales initiative, we are thrilled about the direction. We're headed the momentum we are gaining and its future impact to our brand. It's exciting to think that the power of shack has yet to impact our sales numbers, we're very excited for what's to come.
Yet even without our new marketing campaign activated our current growth trajectory can be clearly seen in third party debt back data.
Nelson data for all channels for the 13 weekend of July 17, 2021 shows dollar sales have increased 32.5% and unit sales were up 32.4% and the value added category.
Nielsen total U S data for the same period shows that we are now the ninth best selling brand on the value added water by dollar volume, surpassing lightwater a pepsi products.
Finally, the Catalina hub 360 data also shows that our momentum has continued for the four week period ending on August seven 2021 based on reporting stores. Our sales were up 32, 7% and our market share has increased <unk>, 7% and only the last four weeks as anticipated shack.
Panic brands group are opening up doors for alkali and 88 in both traditional and specialty retailing.
The recently announced shack pack, which should be the market in the next 30 days, it's been loved by virtually every retailer and our sales teams have introduced it to when called upon check has been amazing at assisting our our sales group.
Do you keep up with increased anticipated and rising demand.
We have continued to expand our supply chain bring.
Bringing on a new co packer and strengthening our current relationships by the end of September we should have three new co Packers fully operational with additional strength to our supply chain expected next quarter.
We have also continued to reach new customers through our brokerage and distribution partnerships. We've had major wins already this quarter in traditional banners, including C. B S. Harris teeter in convenience stores.
We're also finalizing the implementation of a new ERP system and will continue to strengthen our abilities to achieve rapid long term growth.
We will more than double the size of our employee team in the past 18 months. The rapid assimilation of this talent pool, including a new board member the Chief Marketing Officer Director of operations Director of Hospitality director of ecommerce controller director of DSD, and director of CBD sales and director of Investor relationships and many other challenging members.
Allowing us to bring structure necessary for long term growth of the company over.
Over the next 12 months, the neutrals and employees will help us design long term strategies for sustained growth profitability and cash flow positivity.
As product reviews, and resets returned to a normal cadence and retailers. We expect to see continued growth in our existing banners are raw sales have never been stronger and our major retail customers.
We are also expected to see more and more new clients added across various channels.
Includes grocery, especially retail and convenience.
As a sign of growing customer demand for our client 88 for the first time in our company's history, our single serve products, including our new aluminum bottles are outpacing growth of our bulk products I'll say it again. This is all before reactivated single market assets with shack, our first product with Shaq Shack pack a two liter.
<unk> Pak will be perfect for big box in club stores and should be a huge hit with consumers.
We feel very good about our core brand out by 88 and how it is positioned in the marketplace and are looking forward to driving continued growth and exceed our existing customers and new customers expectations over the coming year.
We are also looking to continue to stick out our claim.
In other high potential channels like big box clubs specialty retail hospitality ecommerce international CBD.
Before I turn the call over to David I'd like to discuss some of the progress we've made in the last 40 days in each of these areas.
For Big box club and specialty retailers and we've had a number of very productive meetings with some of the largest retailers in the country.
We have been able to successfully use our relationship with shaq to see either directly through participating on phone calls with buyers or through video Greediness center specific targets encouraging them to either expand their skus are bringing our product flying for the first time it to their stores we.
We hope to see the first tangible benefits around this time next quarter.
At hospitality, we hired Gary Bliss hospitality veteran with a phenomenal track record in the industry. Gary has been extremely active sending out samples to his contacts and developing a plan of action that should allow us to penetrate the $1 billion plus on premise market.
We are excited to have developed a product for Gary a 750 milliliter white aluminum bottle there will be ideal for its eco friendly targeted markets.
Consumers will soon be able to enjoy smooth hydration hotels bars restaurants, gyms and other popular onsite venues as we roll out our first ever traditional marketing campaign, we know the customers will demand this eco friendly offering.
In ecommerce, we hired Chris Pittman as director of ecommerce Chris comes to Us from a major competitor and has successfully help them grow their ecommerce strategy to account for more than 20% of their revenue.
We feel confident that Chris has a knowledge contacts and leadership skills that will allow them to bring similar success satisfy 88 for international we continue to work towards expanding our international outreach in the last 40 days, we have begun to enter into discussions with a manufacturer distributor in Mexico and continue exploring our opportunities in Canada too.
Manufacture, both our alkaline 88, and 88 CBD beverages.
Finally for CBD, we also have big plans for our company's future and the functional CBD water category.
Last call I mentioned that we have developed our functional CBD water formulations I can now now so we have finished the product design and coding and packaging technology.
Will allow us to have the freshest ingredients and flavor on the market as an established beverage company that has been earning the trust of his clients for years and delivering what we expect to quickly find shelf space for this new CBD functional waters. When it comes available in the next month or so I look forward to sharing more specific details with you about this virus.
Soon.
CBD remains a very promising market for us because of the enormous amount of untapped potential in it.
The BD S. A market forecasts cited in the August 11th edition of beverage strategy showed that while non dispensary sales of CBD beverages are projected to be $250 million. This calendar year. They are expected to be 1.9 billion by just 2026.
Regulations continue to change and the market continues to evolve and this is why we plan on bringing more CBD functional flavored and non flavored beverages to consumers in the future.
Now I'll turn the call over to David for the financial overview of the first quarter of fiscal 2022, David.
Thank you Ricky before I begin I'd like to encourage interested listeners to review the Form 10-Q that we filed with the FCC for a more detailed explanation on some of the quarter results I will be highlighting today.
For the three months ended June 32021, we reported a record revenue of approximately $14.1 million a 5% increase from the three months ended June 32020, and approximately 39% increase from two years ago our.
Our gross profit in the quarter ended June 32021 was approximately $4.8 million almost even with the quarter ended June 32020.
Total operating expenses for the three months ended June 32021 was approximately $12.1 million compared to approximately $7.7 million in the prior year quarter sales.
Sales and marketing costs for the three months ended June 32021 was approximately $7.2 million compared to $3.7 million for the prior year quarter.
The increase in sales and marketing expenses was primarily due to higher sales and marketing costs higher freight cost to customers and initial nonrecurring expenses related to our partnership with Shaquille O'neal and authentic brands group.
General and administrative expenses for the three months ended June 32021 was approximately $5 million compared.
Compared to the approximately $4 million for the prior year quarter. The increase was primarily due to increased corporate expenses.
Net loss for the quarter ended June 32021 was approximately.
Seven $4 million compared to a net loss of $3 million for the quarter ended June 32020.
Net loss per share in the quarter ended June 32021 was approximately eight cents per share.
Cash on hand was approximately $4.5 million at June 32021.
Detailed in our Form 10-Q.
Since then $5 million in escrow from a private placement released which is pending stockholder approval and we have received approximately $6 million from the exercise of warrants, we believe with the couch on hand, the release of the escrow.
The warrant exercises our line of credit and the sales agreement with Roth Capital partners we.
We will be able to fund hopefully our current planned operations and capital needs for the next 12 months.
We expect for the current fiscal year ending March 31.2022.
We will have revenue of approximately $62 million with an estimated gross profit of approximately $23 million. This represents revenue growth of approximately 35% for the full year.
We expect our topline to be driven primarily by the momentum we're carrying forward, which has resulted in a <unk> expansion are gaining traction of our single serve and significant organic growth within our existing retail customers.
This momentum should also allow us to see expanded distribution to additional retailers throughout the country.
And with that I'll turn it back to Ricky Thank you.
Thanks, David once again I would like to thank you all for participating in our call today.
As rapidly as we have grown in the first eight years.
Just in the USA alone there are still over 1 million locations that alkaline 88 should be in.
It's partnerships like the ones, we have with shack and AVG and our distributors.
It will help us get there in my opinion, there's an amazing opportunity for the alkaline water company to become one of the most successful startup beverage companies in history.
We are young and hungry company that has an incredible team of talented people advisors and business partners to help us successfully right that story.
Thank you and I now turn you back to the operator for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is from Luke Hannan with Canaccord Genuity. Please proceed with your question.
Yes, good afternoon.
Ricky I'm, just curious to know I guess Nicky Europe.
David just curious to know if you guys can share a little bit more color on the topline growth that you saw in the quarter was that if you can just give a little bit more insight on whether that was pre.
Primarily new account add how does that.
More shipments to your existing customers, maybe even just channel specifically youre seeing growth I'll start there.
Most importantly, though I think from a from a surprise standpoint from our our little group here is that.
We ended up really blowing it out in terms of the small cells. I think are smalls are up about 200% in that quarter and I've looked at the smalls and seen that we'd be like the 14th largest based on what we're currently doing them and smalls.
In the U S. If we only did small so I think the single serve has really picked up the other thing Thats I think some people have questions on what stacked accounting.
We're talking about and that is something that CPG companies have done to kind of take out the impact of Covid. If you look at David.
Discussion. He says were up 39% from two years ago. We just took the average of the.
Two years ago, the average of last year and that's how we came up with our 19%. So excellent excellent growth I want to spend a couple of seconds on the fact that we do have a bunch of new clients coming on.
Over the next couple of quarters here.
Were getting confirmation daily almost.
We will grow if you look at the 5% actual growth year over year from prior quarter Youll see that we have to average close to 46% the rest of the year. So I want people to understand it's not all going to hit in one quarter, but will be someplace between I think $30.50, each quarter, they end up hitting that 40.
6%. So that's a hyper growth I think thats, probably the most important message and this by the way is before we see the impact of Shaquille O'neal and AVG group.
Okay.
Good.
And then maybe actually if we just transitioned into the waters I saw the commentary in the press release and I think you touched on it in your prepared remarks as well.
Which channels are these can be found in initiatives it convenient.
Yes.
Color on that.
Yeah really good question again look yes that will be primarily a convenient although it's not announced yet we will have one of the.
Major companies.
Switching COVID-19 consider traditional grocery that has agreed to take it and we're not quite there yet we are finishing up.
Some of our paperwork, there, but that will happen and it's become and state specific I think we will see more and more of that as we see more and more bills introduced into Congress and people feel better about the direction. The CBD is taking place in our country I think right now there's three bills in front of Congress that would allow for some sort.
Sort of.
Definition by FDA to give the green light for CBD.
Yeah.
Got it okay.
I saw that in the <unk>.
Gross profit guidance for the year Hasnt changed as well I appreciate it.
And obviously with everything being influx from a supply chain perspective.
All right.
It sounds like just based on that that maybe that you guys had a fairly good visibility materials and energy supply chain. It seems like it's purely because that you gave.
Archie can you maybe just maybe this is speaking.
Some color on how we should be thinking about how your gross margin is going to progress through the balance of the year.
Yes, I think that our gross margin did take a little bit of squeeze that obviously in the first quarter. Some of that I mean, all of it candidly driven by some of the inflationary figures that we're hearing out there in the marketplace. We did do our first ever pricing wholesale price increase that will begin to take effect in the third quarter and then.
We've done some efficiency things within within the group.
Again, some of that has been pushed back because of Covid. It's amazing we're probably about three months behind but I think September will be the the month in which everything comes together.
And I really believe that you know we will see the call the co Packers, the raw material supplier or new product intro in the ERP system finally, all in place.
After months and months waiting for people to get their final piece or part that was precluded them from from opening up for us So I see that allowing us to continue to move our.
Gross margins back up to where we were prior to Covid. So I think we'll be a net about 42% generally David.
Yeah.
Got it one more.
And now I'll pass the line is there so I mean after instituting that price increase you mentioned it is just the first one that you've done so I'm curious if you've done.
And examining the channel and maybe your customers' appetite to be able to take on another price increase I guess, there is there capacity to be able to do that.
So I guess is it going to be necessary, just given the inflationary pressures that youre continuing to see.
On the supply chain as well.
Really good really good question again.
The answer there is going to be on the elasticity of demand.
I'm, a really big believer in that we've always tried to keep our prices at a certain level, because we know where to play off the shelf. We also know because we've taken a different model than most of my.
Contemporaries, we are direct to warehouse with most of our business. So we know that theres a little out outage on the shelves because we don't use DSD in the grocery channel or at least not extensively.
And therefore, I don't think we're going to get hit at all with respect to the amount of water. We ended up pulling off the shelves, but it'll be interesting and we will be up and there is a bunch of new products out there that always compete with us, but if you looked at my numbers. This week and the last couple of weeks in terms of what the data shows us we can.
To blow the doors off I think we were up 32, 7%.
In front of me.
And the last 13 weeks and I think last week alone I think we were up 39% based on some limited data that we get from from some of our data sources. So Catalina.
Specifically came from so I just see our growth is still tremendous and we see these new stores coming on over the next 12 months.
And we get the shack impacts in the shack pack impact in our new hospitality.
And our new ecommerce Diana and I just see now this is the year that I guess, we grew up as a beverage company.
Always run this very very lean and mean.
But we've more than doubled the staff over the last 18 months I think to compete we needed to bring talent on like time, and Gerry and Chris just to get us to that next level and they all come from <unk>.
Very very good positions in the industry with years and years and years decades of experience on both some of them.
Okay I appreciate all the comments all of us.
Hi.
Thanks again Luke.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Eric.
Erin.
Thank you. Our next question comes from Aaron Grey with Alliance Global Partners. Please proceed with your question.
Hi, good evening and thank you for the question.
So first one for me Ricky.
The new hire with E. Commerce, you know would love to get some color in terms of some of the initiatives.
You'd like to have in place there and maybe if you had a target in terms of revenue mix you'd like to have on the E. Commerce side I know might be difficult just because you have a lot of growth drivers on the brick and mortars, too, but just in terms of any color or maybe you know objective you have in terms of the new hire on the ecommerce side there. Thank you.
Yes, it's a great question Aaron Thank you.
First of all.
The eye opener for US has been we've always been.
Centric.
Ah mortar and Theres a lot of reasons for that some of it just had to be that.
At a certain time in the history of this country was really hard for people to think about ordering water because it was heavy with freight costs online COVID-19 kind of changed all of that so we've kind of reenergize that whole process. We've had a fairly decent amount of success relative to where we were over the last 12 months, but now its just time to take it up I think if you look at some.
The stats that I've been made aware of.
I think hint does about 40% of their total sales online, which would put them in the $30 million to $40 million range. I think it was slow came out and these are all public they came out with they're doing about $5 million, we would not not approached either one of those numbers, we do decent but we don't go into those numbers so really about.
Three months ago, we began the search for the Guy Chris comes with excellent credentials I know he's grown the company. There was just with in the past about $26 million in their sales over a two year period. So we feel very good that he can come on in here and hopefully contribute $2 million at least this year for the rest of the fiscal year.
And hopefully.
Blow past that next year, when we finally figure out all the little nuances that we are just learning about to make us successful in that chain.
Okay. Thanks for that color. That's helpful. And then just second question me turning to the brick and mortar.
Just because of the impact with Covid right and the usual kind of.
Shelf resets that you would usually have can you talk about any impact that might've had on timing and when that would kind of come opportune for you guys scale to capture more shelf space and how your conversations with those retailers kind of have been going thank you.
Yeah, Great question again.
Think that Theres two things that are impacting that first of all and I don't want to under aura overemphasize. It but it just is a fact I haven't shaquille O'neal on the AVG groupon on with us.
Check has gone above and beyond I think in some of his.
Interplay with US we expect to hit pay dirt for lack of a better word.
And those opportunities in the coming 90 days.
So we see I don't know if its going to be 10, or 15000 stores between now or 20000 between now and next April but there will be a big add on.
We kind of got stock last year between 70, and 75 and that was primarily due to what you just said erinn the resets did not happen.
We got a little love right. After Covid, because we were the only company in the country candidly that.
Actually supplied water during that period on a consistent basis and because of that some of our some of the guys that were in.
Q with us when and actually did a reset just because we were the only ones out there that seem to have the water necessary the infrastructure necessary as we discussed.
And that as we've discussed before missed that words.
We moved most of our production on all of our raws to the U S. A right before Covid hit So we had dual international and U S supply chain and because we were a U S. We just were able to beat everybody else to that launch.
Okay, great. Thank you for that detail I appreciate the color and best of luck next quarter.
Thank you.
Yeah.
Thank you there are no further questions at this time I would like to turn the floor back over to Ricky Wright for any closing comments.
I just wanted to say that it's again as usual a great time to be part of the <unk> 18, but even even more exciting is the fact that I do believe this is a year that we finally took that next step as a beverage company.
<unk> got talent on here that we've never dreamed of having we have a an ambassador that I don't think anybody in this room, even short six months ago would have believed that they would be part of our team.
Not only easy incredibly credibly talented but he's also a great businessman I've had the opportunity to spend a couple of hours with him on a on a one on one basis and pick his brain and listen to them talk and he is he's an absolute.
Goldmine for this company in terms of his business acumen as well.
In addition to that all of that is already going on the projections, we've given and everything that the insights that we've given so far this year were based on pre shack.
And I, just say that lepton does his job no pressure Tom.
That we certainly have an opportunity to blow this out this year and I want to thank everybody for continuing to support.
This company and our efforts that we are a young company, we've been around less than 10 years and in the water company business. That's a very very young company and I think this year is the year that we take that next step.
Thanks for your time today and have a great week.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.