Q2 2022 Alkaline Water Company Inc Earnings Call
Greetings and welcome to the alkaline water company second quarter fiscal year 2022 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 conference is being recorded it is now my pleasure to introduce your host Jeff right. Thank you Jeff you may begin.
Good afternoon, everyone and thank you for joining us for the alkaline water companies second quarter fiscal 2022 earnings conference call.
Shortly you'll hear from Ricky rate, our president and CEO and David <unk>, Our Chief Financial Officer.
During the call, we will be making forward looking statements within the meaning of the safe Harbor provisions of U S Securities 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 with Canadian Securities regulators on SEDAR.
In addition, such forward looking statements and any projections after the company's future performance represent managements estimates as of today November nine 2021. The company does not undertake to update any forward looking statements or projections, except as required by applicable laws, including the security laws of the United States and Canada.
Actual results could differ materially from those contemplated by any forward looking statement as a result of certain factors, including but not limited to general economic and 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, the results discussed in today's call.
I will now turn the call over to our CEO Ricky right.
We'll give you an overview of the company's second quarter fiscal 2022 results falling Ricky's comments, David Green, Our Chief Financial Officer will provide an overview of the company's operating results Ricky will follow David again, providing closing remarks, we'll then open up the call for Q&A after management's update.
And now I'd like to turn the call over to Ricky.
Thank you, Jeff and good afternoon, everyone and thank you for joining US today welcome to the alkaline water companies second quarter fiscal 2022 conference call.
Our record second quarter results are a tribute to the hard work and excellence of our employees suppliers retailers and the consumers love for the most deliberately smoothed water on the planet I am pleased to report another outstanding quarter for the alkaline water company reported sales of $15 2 million, a 50% increase over last year's comparable quarter.
This quarter and our projected fiscal year numbers put us squarely back into the growth rate of 35% to 50% that we were experiencing pre COVID-19. We expect this kind of growth for the foreseeable future as we activate our first ever national marketing campaign with Shack and continue expanding into other important channels later in this call David Greener.
<unk>, our Chief Financial Officer will have additional comments on this quarter's results.
I would also like to reiterate our full revenue guidance of $62 million for the fiscal year 2022.
We have been very fortunate that over the past two years, we've taken action to strengthen and grow our infrastructure and logistical capabilities. These stuff's paid off roughly an 88 and our retailers' pre during and post COVID-19 as a result of our planning and execution, we've been able to fulfill orders when many of our competitors have left the store shelves empty.
This achievement required not only excellent performance from our operational team headed by <unk>, but also for site to make sure that our co Packers and raw material suppliers had the availability and capacity to meet demand. We continue to add capacity warehousing redundant suppliers finished and raw good inventory that should allow us to meet our growth.
Goals in fiscal 2022 and beyond.
Our continued growth is most evident when we look at our performance in the Nielsen data, which I'd like to highlight for you here for the Nielsen total U S. Food data for the 52 week ending October 9th 2021, we've outpaced the value added category for growth by 17, 5% and dollar volume.
And 25, 2% and unit volume if you look at the more immediate growth the Nielsen data for the four week period ending on the same date, we outpaced the category by 29, 7% in dollar and an incredible 47, 6% in units our continued growth and all.
The performance of our peers has propelled us to the seventh largest value added brand by dollar volume in that period.
We've worked hard and we're proud to be a leader in the alkaline water category just last week. The beverage strategy just published by beverage marketing Corp highlighted the categories growth from 95 million in 2015 to over $1 billion in 2021.
It's also projected the growth will continue at a compounded rate of eight 8% through 2026, making it a $1 5 billion dollar category.
The article recognized definitely 88 is one of the three brands that and I quote dominate the category.
We believe that we will continue our dominant action and significant outpaced the category is projected eight 8% compounded annual growth rate with our target range of 35% to 50%.
Based on the momentum we continue to see and a catalyst for growth that we already have in place management has an expectation that our target range of 35% to 50% will be met at a minimum for the rest of this year and fiscal 2023.
These catalysts include a number of major factors affecting our brand first is organic growth.
If you look back over the last 18 months, we have consistently experienced.
And 30% growth organically within many of the largest retailers that we've had for years. This type of enduring organic growth allowed us to be the only major value added water to grow double digits every comparable monthly periods since 2019.
Third party data, including Nielsen Catalina and others confirm that our growth is accelerating and our consumer couch is increasing steadily within these same stores.
Second retail resets are returning to normal during 2020 and early 2020, Ron one retailer for weren't adding new skus and new products and much of their beverage sets.
With a return to normalcy, we are earning new space with new existing clients and will be part of new retail plan O grams in the coming quarters Sams club and GNC are two recent and commenced that highlight our ability to earn new space and the water sets of premium national retailers.
We're currently at about 75000 retail locations across the country, we expect to see 15% to 20% increase in store count over the next 12 months many of that coming in the first quarter of fiscal 2023.
Thirdly sales of our single serve sizes exceeding your expectation. This is being driven by a number of factors, including increased store presence, but also inventory turns in our existing retail. This speaks strongly to the consumer's loyalty to outline an 88.
Over the past few months, we shared with the market how various single serve offerings from our flavored infused to our aluminum bottles toward wanted two liter multi packs have all performed well.
Our single serve growth as over 180% year to date recent wins like Sam's club with our one liter 12 pack and two single serve sizes that are being added to nine major airports are only going to accelerate this growth.
Most of our SKU expansion with current retailers for the next year is also in single serve these factors lead me to believe that our single serve will account for between 20 and 25% of the Companys your fiscal year 2023 sales.
Fourth our expansion into hospitality and e-commerce has accelerated as well there.
They are both billion dollar beverage markets and we are now positioned with brand recognition and launching of our marketing efforts to take advantage of these markets.
We made the decision to bring in two new people to head these areas.
And their efforts are beginning to bear fruit, we expect to start to see significant growth in fourth quarter fiscal 2022.
Fifth we are also very pleased with our new direct store distribution model that we rolled out in test markets of Arizona and Nevada in the upper Midwest through Hensley, Nevada beverage in my house, because respectively combined they have added close to 1000 new locations.
At some of the most recognizable convenience stores in their respective territories. These include Maverick circle K in Q T. Just last week I saw over 100 bottles of water on display in the Q T store in the Phoenix area. We are literally beginning to saturate the C store market in our own backyard nationwide there once.
125000 convenience stores that we can attack in a similar fashion over the next few years. This is a major initiative in catalyst for growth with lots of green space still available to our brand and our brand extensions six our expansion into functional beverages beyond superior hydration was recently launched with 688 CBD functional waters.
Powered by vessel technology, our timing could not have been better as our new markets for CBD Ingestible products, including Texas, New York and California are now open for business. These three states alone have over 50 million adults.
These new products with their superior delivery system are just are first movers into functional hydration products.
We will not only continue to provide the market with ionized out 88 products, our core brand, but we will also add to that base with additional functionality through the vessel delivery system. Lastly, we have an extra boost of confidence they will meet our sales objectives over the next several years as we have just begun.
Gone to activate our omni channel marketing asset featuring our advisory Board member and Brandon bass or Shaquille O'neal.
It's a three year deal and we barely begun to see the true impact of Shaquille and authentic brands group involvement in driving consumers to our products.
We've been fortunate to have great branding and great products that has allowed retailers to sell over $200 million worth of our delicious police smooth outlined 88 without the support of traditional marketing.
Now we have the best brand ambassador in the World behind out my age increasing our brand awareness around the country.
We expect to share more shack related news over the next eight to 10 weeks.
And we will see more of his presence and impact and Q4 of fiscal 2022.
Frank Chestman executive director of National sales always shares of Ray Kroc quote no one of us as good as all of us together.
It's tough to understand how special the alkaline water company is unless you understand what makes us special.
The strength of alkali NDA continues to be our dedicated and experienced employees ability to adapt rapidly to the needs of the marketplace and to our customers.
I'd like to share a quick example, much did a light and the panic of our company during the second quarter sounds they asked us to present, a number of different products and package sizes for immediate inclusion in their stores and also requested that was 188 send water for victims of a hurricane Ida.
In record time alkali 80, eight's team sent for truckloads of water to Sam's club warehouses, whose members were affected by the hurricane.
To be able to get the water delivered and have it available to customers. So quickly was truly an inspirational moment in the company's history for me.
Secondly, within 45 days of our initial conversation we worked diligently to launch a brand new one liter 12 pack to 587 Sam's clubs across the country.
It's not uncommon for CPG companies to take up to two years from the initiation of Hey, that's a good idea until it can be seen in the marketplace. Because we're nimble and were capable alkaline 88 has consistently been able to bring new packaging and innovative ideas to market in six to nine months.
This year's innovation include Shack pack two liter six pack the club warehouse ready one liter 12 pack the 750 middle ear weight aluminum bottle and the 88 CBD functional waters powered by vessel.
During the second quarter under the guidance of our new Chief Marketing Officer, Tom Hudson, We launched the biggest initiative in the company's history. The production of our first Omni channel marketing campaign, featuring our brand Ambassador and Advisory Board members Shaquille O'neal last month. The first of these 30 and 15 second commercials were launched as part of our <unk>.
The channel marketing campaign, driving consumers' awareness of our brand.
Apart from the TV time, we know that at least 225000 people is seen shack as al collide. The alkali 88 truck driver when shack posted a big rig commercial lines to Graham and received over 200000 views within hours.
Shaq joined alkaline 80 eight's team our social media following has grown approximately 35%. This is new territory for US. It is only the beginning and we have over two and a half years of our contract with shack and authentic brands group remaining.
The shack deck is now available for sale at Sam's club Dotcom, and we expect to have it into thousands of stores within the next six months.
We also celebrated major wins in hospitality ecommerce C store and internationally.
At the beginning of the second quarter, we were able to hire Gary Bliss former executive is six times sales performer of the year at Nestle's, Gary with the help of sales team was already able to land two major hospitality wins with nine major international airports in Asia, or Jim and fitness centers.
He's working hard in building on many of the established relationships in the industry to set the stage for more tremendous success in the hospitality industry.
We expect to be able to announce in the fourth quarter of this fiscal year, a major deal with one of the company's largest hospitality providers.
We are ideally postured with our innovative products, including our 750 milliliter weight aluminum bottle to have immediate success within this channel.
Chris Pittman Formula and essential where he led their E. Commerce success joined us in the second quarter as well he has been able to secure service of several outstanding providers and has completely reworked our E. Commerce strategy early ROA can already be seen in our recent announcement that gives alkaline 88, two hour delivery and the two largest markets.
The country through Oh, Hi, Nick sell a beanie our direction reparation and brought this amazing opportunity to the company.
He knew that instant commerce continues to grow as a consumer habit consumer package. Good companies are always working to improve delivery times of their products. This partnership with Oh, Hi makes are deliberately smoothed water more quickly widely available to consumers in the biggest metropolitan markets in the country. It improves our.
Distribution and brand awareness last mile logistics, and sustainability initiatives, which all contribute to the growth of the alkaline water company and our brand.
As Chris works with our ecommerce team our timeline for full launch and our aggressive strategies are set for fourth quarter fiscal 2022, and we should see significant revenue impact on fiscal 2023.
We're seeing great growth in the C store channel compared to last year when product reviews, and resets for limited we didn't waste that time, though but.
Work that our director of National sales for convenience store and distribution Jim Vineyard did during that time has allowed us to accelerate growth through fiscal 2022, and then to this present quarter. We've added numerous premium C store counts and our first D. S D agreements, including with the Hensley beverage company right here in Arizona.
Which is contributing significantly to that growth is the store resets occur in the next 30 days, we expect to share major wins in the C store channels internationally, just last week, we announced that we'd begun to enter into the Canadian markets, where the first time through our newly announced partnership with R&M Royal Palms beverage company.
The partnership was made possible by Ryan Chestman, our National director of CBD, who made the introduction to our alkali 88 sales team.
Teamwork it allows us to now introduce our delicious the smooth offline 88 to our Canadian neighbors Royal Palm has a network of thousands of retail locations to which they will market and sell our products. They also reach beyond their established networks to tens of thousands of locations, where they will also market our brand previous to that.
We've been moving up only eight products well into Mexico's free trade zone through our relationship with T. M to send the call US who serves millions of customers a month and with distribution agreements, we announced earlier this year for our products to be sold in Puerto Rico, and the Caribbean, we're making significant strides towards making alkaline.
88 available in this part of the World.
At the very beginning of Q3, we made two very significant announcements, we gotta do choose to channels that we have been targeting for revenue growth warehouse club and specialty retailers.
As I already mentioned earlier, we now have our one liter 12 pack and 587 Sam's clubs nationwide. This is our first foray into clubs a major mover of bottled water and its been very successful so far as we've already received several reorders.
Especially retail we recently announced it out 98 his debut in and 350 premium Shea.
I N C locations around the country, we look forward to providing a great new water option and earning new loyal customers from them on Gnc's millions of health conscious customers.
The future in all of our new and existing channels looks bright our sales group have targeted over 85000, new locations, where they hope in the next 12 months, we will be able to see alkaline and 88.
On their shelves or in various venues.
We are activating more and more of the power of our relationship with Shaquille O'neal and authentic brands group.
That I believe will help us close a lot of these potential targets as I mentioned before the category buyers also see shack as the alkali 88 brand ambassador on their TV and digital screens and believe me we are getting their attention that were a serious brand.
National awareness is just around the corner with big things planned between now and the Super Bowl.
Finally, all the great initiatives are only possible if we can deliver our doshi smooth alkaline water on a timely basis.
That can only happen.
If we are supported by an outstanding operational plan and execution of it.
This year, our operational team led by next element and he has done an outstanding job not only in securing additional production capabilities through new co Packers raw material suppliers, but also managed to keep our on time delivery numbers near or at the top of the charts for water companies.
Although challenges still exist everyday they amaze me with their resiliency impressive reference to fight through supply chain problems and issues that allow the kind of rapid growth we are experience.
None of us.
As good as all of Us together.
Now I'd like to turn the call over to David for a brief financial overview David.
Yeah.
Thank you Ricky before I begin I'd like to encourage interested listeners to review the 10-Q that we filed with the SEC for a more detailed explanation on some of the quarterly results I will be highlighting today.
For the three months ended September 32021, we reported a record revenue of approximately $15 3 million compared.
Compared to the $10 2 million for the three months ended September 32020. This represents a 50% increase in sales.
Our gross profit for the quarter ended September 32021 was approximately $5 2 million compared.
Compared to the approximately $3 6 million for the quarter ended September 32020.
The decrease in our gross margin percentage was attributed to an increase in raw material and freight costs.
Total operating expenses for the three months ended September 32021 was approximately $15 4 million compared to the approximately $7 8 million in the prior year quarter.
Total operating expenses increased primarily due to higher freight costs to our customers and additional promotional expenses relating to our new brand ambassador.
Net loss for the quarter ended September 32021 was approximately $10 4 million compared.
Compared to a net loss of $4 $4 million in the quarter ended September 32020, net loss per share in the quarter ended September 32021 was <unk> 11 per share.
Cash used by operations during the nine months ended September 32021, total approximately $18 7 million as compared to the $8 $1 million of cash used by operations in the nine months ended September 32020.
The increase in cash used by operations is primarily due to our increased net loss and an increase in cash used to fund our working capital.
We believe that cash on hand, which was approximately $10 4 million at September 32021.
Our line of credit and the sales agreement with Roth Capital Partners detailed on our 10-Q will adequately fund our current planned operations and capital needs over the next 12 months.
And with that I'll turn it back to Ricky Thank you.
Thank you for all your time today I have often heard people say that they have prepared their whole life for this moment.
I know that over the past 18 months the employees of alkaline 88 have prepared for the significant growth that is upon us.
Going into and coming out of Covid, Our brand alkylating 88 has been the benefactor of their hard work.
It really feels like this is our moment. It's now we are prepared.
With the investments we've made in our infrastructure and co packing network with a theoretical capacity now over 250 million wholesale with all the opportunities that are in front of us we have the ability to grow support and meet demand.
Now that we added Shaquille and the omni channel marketing program to the mix I truly believe.
This next year that the Sky is the limit for the alkaline water company.
I appreciate your patience and confidence in me and our management team.
We are truly created something special here that.
That will bring tremendous value in the near future.
Thank you again and have a great rest of your day.
I will turn it back to our hosts for questions.
Thank you we will now be conducting a question and answer session. If you'd 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.
One moment, please while we poll for questions.
Hello.
Thank you. Our first question is from Aaron Grey with AGP.
Please proceed with your question.
Good afternoon. This is Andrew bond in line for Aaron Great. Thank you for taking our questions.
The first question.
Good afternoon.
First question is just on California, CBD with the California, CVD Bell now being passed can you speak to your path to market and how you plan to sell your CVD water and more traditional brick and mortar, particularly as other large competitors look to do the same thank you.
Yes that was it.
Again going back we prepared for this for a long time, we actually were prepared for the farm Bill in 2018, we began that journey clear back in June 2018.
If you look at who we sold to where now the seventh largest released the last four weeks data the seventh largest value added water in the grocery channel, which is all the traditional channels, but as you've just spoken to.
And those buyers are traditionally the category buyers for our CVD water as well. So those doors are wide open to us our brokers know that we are also looking for those opportunities now that the CBD is been taken adjusted Lee in California.
Continues to increase your ACB during the period do you feel like retailers have returned to a sense of normalcy in terms of reset.
Yeah.
Something that we were very hard out of course last you were disappointed but I guess when you are grown as well as we did in organically.
We still did better than I think any of our competitors. So.
That was a good feeling last year because of the organic growth. We absolutely believe that we're getting resets I mean, the first example that is obviously Sam's club. The second example was GNC if you listen closely I've indicated there are 85000.
Places that we are looking to praise place additional product this year either in a S. Q U increase askew increase and or brand new customers and I think in one of my press releases I gave some guidance on where we expect to go from 75000 I think it was 90 to 110. So we do expect a big increase over the <unk>.
12 months in in store store level.
Count.
Excellent that's it from our site thanks very much.
Thank you.
Thank you. Our next question comes from Kevin D D with HW. Please proceed with your question.
Hi, David Thanks for taking my call.
Hi, Kevin order today.
Doing well doing well and always happy to see you good numbers.
So quick question.
Eastern on vessel the CVV is enclosed in that cap and will that cap only meet with your bottles or could someone use it with others. How how do you sort of control that and then how does your how does your customer.
Refill that bottle I just looked on their web page.
So it's it's once it twists to the right.
Or to open up it that's when it infuses and then it's a one and done so but there's no change in behavior simply on an unwind it and twist it off and put the cap down and then you're drinking a beverage there's no mixing no shaking and a lot of these activate type of products that you pushed down and shake.
<unk> you get <unk> no flowed is everything starts as a liquid into the liquids 110 pounds of pressure instantly done Kevin you ask a good question I innovation we are.
Looking to put together a cap that when you put it onto the product. It will it will open up and so in that case, you would be able to use it in some other other areas, but we're looking to maybe create a different size cap and give you a fully recyclable bottles. So we would again be working towards our sustainability efforts and.
Cutting down.
The carbon footprint by being able to <unk> said I think he can send 31 truckloads equivalent of water and then of course, we give everybody a coupon for delicious outline 88.
That they could pick up at their local store. So we're moving in both innovations on that Kevin, but it's a one and done at the <unk> at the moment.
So.
Though you offer great color on introducing C V D in California, but your prepared remarks reference, Texas and New York, So how should we look at timing there.
Texas and New York, New York Attorneys are attorneys got back this on New York just this week in terms of we just do need to make a few tweaks on our labeling and then Texas. We were preparing that same kind of overall critique just to make sure our labels or compliance. So we've asked the attorneys for that.
That input this week the big impetus was once 84 past.
R. A P 80, or 80 545 past, yeah, I'm getting some hand signals here Kevin sorry.
45.
Asked.
We just decided to go full bore with the vessel and full bore into California, because it's our backyard and that's where we started and I would say that we've been in that market for nine years, we continue to grow at an amazing 27% a year in that market with our alkaline 88 water and most of those buyers literally love US we had.
One guy last year say that during COVID-19 religiously saved his <expletive>, because we were the only guys delivering water and I apologize for my profanity, but.
It's a direct quote I would never talked that way.
Right well you know.
People that have donkeys need they need water, so, yes, but I I get it.
The I think the big question I mean four.
For me Ricky is just had.
Sort of sift through all the initiatives underway and prioritize them from your operational perspective and in terms of what you think they'll contribute to growth.
But I mean, I I know I'm kind of shooting here.
And might get any color to answer.
I can have your color the calf.
You got the Caribbean, Canada, Mexico C V D.
You know 75 to 90000 doors.
Yeah.
Thanks.
Yeah, I'll give you some color on at Kevin and suddenly it has to do with you know we used to run this business with the very very very lean staff I mean, I think two years ago, you talk to US. We were two of 19 people in an average and over $2 million revenue per employee slightly better than Apple at the time now of course, we're we're all.
Do I think 44 employees total looking to add to that and staff up and so some of it just has to do the fact that I have them and the management team has lightened the load with respect to what the the the top level management has been doing rebroadcast and a director of operations, we brought into chief marketing Officer.
We brought in a specialist only in hospitality and a specialist only in.
N e-commerce, and so all of those areas used to kind of fall under the top two or three guys in the in the company and now we've got seven or eight so I think first of all even though it looks like we've got a lot of initiatives. We have staffed up for those initiatives. So that would be the first thing I would say it as part of that answer.
Then to give you some color, where we think it's going to be over the next 12 months and particularly the biggest impact next year.
Yeah, it's a crap shoot and in one sense, but I think it's easy to look to.
The extent that shaq and the Shaq pack or two later, we do believe that it'll be a leading sales product next year, we have a ton of a ton ton a ton of interest in that and we see that as a major major benefactor, adding several million dollars to our overall top line, we see for the first time.
And literally 18 months.
The stores that we have been pounding on the doors and I can't give you names right now, but you know, let's just say there's 20, some thousand retail brick and mortars are more that we're counting on we see those opening up.
Candidly Jackie is helping some of that.
He does make us a legitimate brand he it does make us look like a major brand even and we are by the way, but it gives us gives us some gravitas that we did not have previously with the buyers.
And.
Jack will work that and <unk> actually does cause he does zoom call as far as he does.
<unk>. So shaq is very very active in that process with us we.
We see those resets happening in the first quarter most of them. So we see you know call that another they are normal growth of 2025 on our our normal say that I'm gonna get 15 from that say that I'm gonna get another couple from alkaline 88 terms of new product goes scuse, maybe a tiny bit more.
And then at the two Wildcards for a six year are really three now that a D.
A P. 45 is started CVD is a great chance of being a great product can we we've got plenty of vessels now ordered there on the water terminal over we've got a bunch of stock here in the U S.
We're using if you didn't notice and I think this is a huge nuanced total people listening is that we're using alkaline 88 at the base water, which avoids that you think Kevin it avoids us having to go to a hotmail.
And allows us to produce assistant plant.
There were already operate.
Q2 changed our supply chain.
You know, it's a it's a tremendous chick-fil-a allows us go into other functional hydration areas as well.
That's the one that they always say the biggest wildcard sir.
E Commerce.
And we're going to go ahead and pull the sofa.
Was critical to us because we wanted somebody that category. We wanted to understand somebody that had the relationships we didn't want to start from scratch.
So.
With two creams.
<unk> and he's only been a couple of months the on boarding for that it's about a 12 week period will see the benefits of that began at first quarter, but you take somebody like essentially I think last year. It over $50 million I think hinted $50 million or 40 million E. Commerce is a records I pulled off a public records I think floated five or six.
Man ecommerce, we did nowhere near those numbers and so that's a big area for for growth I think we can get another 10% there and then hospitality coming out.
Is Gary Bliss is what I would call an elephant honor excuse me Oliphant Hunter.
And Gary gives me.
Pause to just look and say, okay, everything that he's looking at and everything he's going after.
Is in the.
10, 15 20000.
Head count in terms of locations and so we see there being some big answers I don't know what the impact of that that could be excuse me captain Cook's up here Kevin.
I don't know.
The impact of that will be but those two are kind of the wildcards for us that could pushes an accelerated at least to that 50% growth factor that we think we're on that trajectory right now.
Okay.
That helped a lot. Thank you a quick question for David.
The expense trajectory has been pretty severe through the first half of this fiscal year.
Grand and you've got some big hitters, you know to to help drive the business I'm. Just wondering how you think we should look at that line.
Going forward.
The increase that we have for the first two quarters, we don't expect that for the next two quarters because a one of the main drivers was freight costs Snickering went up the frame from our plants. So our customers glitches in sales and marketing expense. So that was a snapping to increase from the first.
Two quarters, we're seeing that expense stabilize and hopefully by the fourth quarter or fiscal year will actually start to get back to normal and then in the second quarter, We had some Smith can't uhm.
Marketing costs, but specifically production costs relating to.
The Shaquille O'neal commercials about Ricky talked about so those expenses will not be in the.
Next two quarters, but we will have some traditional.
Marketing expense relating to playing those commercials, but you know hopefully I will have a effect with ourselves as well, but you know in the first quarter and second quarter. We did have one time expenses relating to first the Shaquille O'neal endorsement contract and then also just the production expenses.
Alright, so David <unk>, Yeah, sorry go ahead breaky, Kevin another way that one of the reasons, we pushed so hard to open these plans.
We have plenty of water, we were very very fortunate to bring a lot of our production state side two years ago. So again, we weren't looking at tanker sitting off the coast of.
California, hoping that something got unloaded we were producing and still are in getting getting stuff to our customers, but some of that we've gone from like.
Like three <unk>, 3% last year in the southeast in terms of market share I just looked at the report before I came in the last four weeks, we were over 5% share.
And so all of a sudden you know the southeast just as blown up for us. Thank you publics and and whole foods and win Dixie et cetera food Lion.
That we didn't anticipate that kind of grow so rapidly. It's a pleasure to have so a lot of what we had to send we had to send from or east coast facilities, David and I talked to last week, and we will save literally hundreds of thousands of dollars next quarter, because we've opened up the <unk>.
The new plant last month or month, and a half ago and southern Cal are mutants in north Florida. So those are the kinds of things that are going to help us equalize some of those costs as well.
Okay. So.
If I remember correctly, you were trying to open distribution in the northeast too.
Can you sort of give us a rundown on on your plants and distribution centers account and maybe how that's changed over the past year.
If I told it to kill you know we're doing we're on our way there Kevin you're going to have to wait a couple of four weeks for.
For those announcements, we never know so anything until we get we.
We get the P. O. So it's never done until till the P. O comes in but we have some news there hopefully knock on wood that that does occur. We do have some DSC network should've offered to come in and help us and we recently changed brokers there too as well help us in some of the the major areas.
There's a growth.
You will also see some pretty big things happening for us in the in the northeast on the marketing side as well so I don't know when those little now certainly before Thanksgiving, but you'll you'll see some huge announcements I think in the northeast. It will continue to drive our traffic. The Oh, Hi, one was brought to us and that's kind of a cool thing that's a distribution that you.
Get two hour delivery for our product that's happening in opening up in L a and and.
In New York, we have the the Ricky right model, where we sinful truckloads in so we're not shipping 52 times to a single different places and use and all that carbon footprints were able to make a profit on it and then their delivery within two hours and so that's one of the reasons that we're throwing some marketing dollars into the.
New York City is because we're going to have that opportunity to drive traffic there as well so you're going to see a bunch of good stuff in the northeast, we're still only about 1% of that market Kevin.
So obviously, if we could get two or three and a half or 4% chair you know it would be another 10 or 15 million and $20 million in sales just there alone.
I Miss articulated my question Ricky I meant in your own production plants.
Well, we've got we've got openings or one opened up two weeks ago.
In Western P. A they are New York license. So that's good news, Virginia still operating like a charm, we are looking for an additional location.
In the Midwest Slash.
Mid Atlantic area, just depends on where you draw that line, but it's close the borders but right on major freeways. So we are we're showing up the entire east coast. We just opened a major one in Florida that has tremendous capacity as well. So yes, we've done a really good job my operations team and low key.
<unk> installing we've entered into an agreement to make sure that we don't lose our machines that we haven't through 70, there now, but I don't know that <unk> is there a material event. So we never announced it but we did we did lack of inclusivity with our machine manufactured for the next two years. So we're in pretty good stead across the production line.
<unk>.
So could you give me a rough count on the number of production sites, you have now versus a year ago yeah.
Yeah, I think last year, we were at eight I think we're 12 today.
Okay and.
And then we have we have at least two more coming on board online.
Okay.
So let me <unk>.
I'm sorry go ahead.
We've got 13 14, Mark and we look every day.
And that's one of the things that you know.
We're headed out every day to make sure that work around the locations that makes the most sense logistically and we can get the most efficient operations as well that means that not just means.
Total charge, but also based on where we now have redundant suppliers, we know east coast West Coast post suppliers. So we want to try to make sure. Our plants are also close to who's bringing in the raw materials.
So David you mentioned fourthquarter sort of return in a normal and.
Sort of buzzing here trying to figure what normal looks like the <unk>.
Yeah.
Three or five quarters of an up and down so just on the selling and marketing line.
Yeah, I I thought I use the word helpful. Hopefully, we will return to normal.
Hey, how is definitely talking about the freight costs, which you know in the past two quarters have been you know dramatically almost double the first quarter and more than double this quarter than the prior year. So I was kind of using that specifically hopefully afraid would come back to normal uhm, maybe that's a little bit too much hope or not but.
I mean, we certainly have not seen the increase now as we saw the previous six months so.
And then Kevin the other thing that I don't think that we mentioned in this this call, but I think it is important for people to understand that we did implement our first ever.
Price increase to a retailer's, which is not in full effect across all all companies yet at all a lot of these guys. We had your long deals with them. So some of those are coming off and and I think on average it was about a 9% David correct. So we will get some of the pressure on the margins.
Reduced because we'll have additional margin.
But the retailers will will pick up and pass envelope consumers.
Well, that's a really interesting point Ricky given.
Inflation bearing down on consumers, how do you think your price change.
Pits you against the major competitors that you see.
And I guess, if you could if you could dive and a little bit on you know convenience versus big box.
Yeah. So have you you you you.
I'll answer both of those <unk>.
We've done a bunch of elasticity of demand studies in the past, we still see I can give you empirical de la <unk> on a direct direct the warehouse and some of our major brands.
France.
Broadest stock, let's call it 10% to 15% I know that retailers to hear our customers go there and they don't have any on the shelf well believe me, it's not because we're not hitting the warehouse.
Okay, we're hitting the warehouses and at some of the best rates in the country almost 100% online deliveries.
So that's not the issue so I see this to me that that see demand that we could actually increased price and not lose any any customers. So that's the first first answer and then with respect our competitors, we still kind of have at least in the emerging brands.
We don't use a D S D model at all Kevin and most of our places.
So we still have that D. S. T margin that we haven't we haven't reached yet, but we're still a great value to the consumer and then finally in terms of of see stores.
<unk> was was still a long haul for us to get the momentum, we now have and Hensley N, Nevada beverage and masker and have really shown us at least at the C store channels that this is a real opportunity for growth.
I think I said in my speech I walked into Q T, which is a pretty big brands are pretty big c-store root beer and saw 100 bottles sitting on the floor, which warmed my heart and I've been to a number ever since and and we've got really good displays I don't have the numbers yet on all the pull through but I know.
That our GST partners reordering at a pretty frequent rate, which bodes well for our future and maybe bodes well for that northeast model, we've been continuing to to try to pound the rock and finally breakthrough.
And then for entertaining all my questions I really appreciate it.
Good have a great day.
Thank you there are no further questions at this time I would like to turn the floor back over to Ricky right for any closing comment.
Again, thank you very much for having faith in the team and the management.
It's great to be part of the outline 80, a team here, we've got a great Board. We've got great employees, we've got great new add ons in the past 12 to 18 months and we are probably the world's best branded bastard or you Shaquille O'neil.
We see growth in every place we're looking we.
We see organic growth, we see grove by new ads, new retailers, new hospitality areas. This no no northeast is Kevin asked we see the the beauty of being in three of the largest airports in the world and Laguardia JFK in Newark, and having plans.
To make some some noise in New York City over the next.
Near a year and a half with our brand ambassador so we see that as a huge upside for us.
We see this.
This company, returning to Hypergrowth, which I've always defined as 35% to 50% and with our movement and the C. V. D. N e-commerce in the hospitality coupled with all the other things were going we could really have a tremendous year next year I still believe or one of the most undervalued.
<unk> stocks on NASDAQ are upside is so great you look what just happened with body armor of course, they're valued at 8 billion I'd love to have that number you look what's happened to Celsius in the last couple of years. Ironically R. U S. Sales is about two years behind where they're U S. Sales were so we're looking for that kind.
Of growth and that kind of opportunity I want to thank everybody for taking the time to spend this time with us today and thank you Mister host for making this happen as well have a great day everyone.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.
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