The Alkaline Water Company Inc. (WTER) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to The Alkaline Water Company to discuss Fiscal 2021 Second Quarter Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a remainder this conference is being recorded. I'd now like to turn the conference over to your host Sajid Daudi, Director of Investor Relations. Please go ahead, sir.
Sajid Daudi: Good afternoon everyone and thank you for joining us for The Alkaline Water Company's second quarter fiscal 2021 earnings conference call. Shortly, you will hear from Ricky Wright, our President and CEO; and David Guarino, our Chief Financial Officer.
Richard Wright: Thank you, Sajid. Hello, everyone, and welcome to the Alkaline Water Company's second quarter fiscal 2021 conference call. Our team is doing a great job of executing and challenging COVID environment. During our second quarter, we continue to outperform our competitors in the value-added water space and made substantial progress in growing our other A88 lifestyle brands. For the first half of fiscal 2021, our revenue grew by approximately 21% compared to the same period last year.
David Guarino: Thank you, Ricky. Before I begin, I'd like to encourage listeners to review the 10-Q that we filed with the SEC for more detailed explanation on some of the quarter results I will be highlighting today. As Ricky mentioned, our growth during the quarter was mainly impacted by the reduced orders at a large distributor driven by the COVID-19 pandemic. For the three months ended September 30, 2020, we reported revenue of approximately $10.8 million, which increased 3% year-over-year. For the first six months of our fiscal year we delivered growth over 21% compared to the same period last year. Our end market demand remains healthy and we saw improving demand throughout the quarter. Our gross profit from sales in the quarter ended September 30, 2020 was approximately $4.43 million versus gross profit of $4.49 million in the quarter ended September 30 2019. Our gross margin percentage of 41% declined compared to the prior year quarter, primarily due to higher cost of goods sold driven by raw material costs. Total operating expenses for the three months ended September 30, 2020, was approximately $8.7 million, compared to approximately $7.3 million in the prior year quarter. This increase in total operating expenses was primarily due to an increase in general and administrative expenses. Specifically for the three months ended September 30, 2020, sales and marketing expenses were approximately $5 million, comparatively approximately $4.8 million in the prior year quarter. The increase in sales and marketing expenses resulted from higher freight and promotional expenses due to the increased sales. During the same period of general administrative expenses were approximately $3.5 million compared to the approximately $2.2 million in the prior year quarter. G&A expense of approximately $3.5 million in this fiscal quarter ended September 30, 2020 consisted primarily of three items, approximately $1.6 million of professional media and legal fees, approximately $800,000 of non-cash stock option expense, and approximately $700,000 of wage and wage related expenses. Net loss per share on the quarter ended September 30, 2020, was approximately $0.06 per share, improving approximately 14% from the quarter ended September 30 2019. The net loss per share was negatively impacted by roughly $3.8 million in non-cash items, including 1.86 million in prepaid expenses. This resulted in a negative three tenths impact on our bottom line. Cash used by operations during the three months ended September 30, 2020, was approximately $8.1 million as compared to approximately $2.7 million in the prior year quarter, primarily due to an increase in inventory related our A88CBD line, an increase in net loss and an increase in accounts payable. Importantly, our cash position as a September 30, 2020, was approximately $3.7 million. Specifically, we believe the cash on hand as of September 30, 2020 are expected conversion of outstanding warrants and availability for our credit line. We will have sufficient cash to sustain operations at least through September 30, 2021. Next, I'll quickly cover guidance for the remainder of our fiscal year ending March 31, 2021, before turning it back to Ricky. As noted in Ricky's prepared remarks, we're introducing full year guidance for fiscal year 2021. We now expect to deliver revenue of approximately $48 million to $52 million, with an estimated gross profit of approximately $19 million to $21 million. This represents growth of approximately 17% to 27% for the full year. We expect all of our lifestyle brands to help drive the top line with strong contributions from our A88CBD line in the fourth quarter. And with that I'll turn it back to Ricky. Thank you.
Richard Wright: Thanks David. Once again, I would like to thank you all for participating in our call today. We've done an excellent job navigating through an uncertain and unpredictable macro environment. Despite the challenges, we have made significant progress towards our strategic goals and our shareholder value creation actions positions us for long-term success. We remain focused on execution with our sights into some large growth opportunities and access to the various sales channels. I'm very proud of our performance during the fiscal year. Our team has received multiple accolades, and we have been awarded for our ability to deliver during this unprecedented time. The goodwill created bodes well for our brand extensions, and we believe will pay significant dividends in the years to come. We're excited about our future and our track record. And the consistency of our delivery of our best in class products has made us a favorite amongst both retailers and the consumers. We continue to scale all the elements for successful presence. We have sufficient capital, a great management team, a great business model, superior products with all-natural ingredients, great channels to distribute to, great taste profiles, and an increasing market driven consumer demands for each of our respected lifestyle products. Our fully executed ecommerce platforms, our channel expansion to hospitality, convenience, specialty retail combined with organic new and new store growth and total US Food channel should result in substantial growth over the foreseeable future. I would like to thank our shareholders and our board for their continued support. We are making great strides and making A88, A88-Infused and A88 CBD the most trusted lifestyle brand in America.
Operator: At this time, we will be conducting a question-and-answer session. Your first question comes from line of Luke Hannan with Canaccord Genuity. Please proceed with your question.
Luke Hannan: Yeah, thanks. Good afternoon, guys. First question I had just on the cash position at the end of quarter. You guys talked about between - and the expected warrant exercise you expect to be able to operate over the course the year and I'm just curious on the warrant exercises, are those callable at any - are they callable? Or is it solely at the warrant holder discretion whether those words get exercised?
Richard Wright: At this time, they're not legally callable. But we've had had discussions with the warrant holders and we believe that they will be exercised if not in this quarter by the end of this fiscal year.
Luke Hannan: Okay. The second question I had is on the guidance, specifically the gross margin guidance. I know, Ricky, I think correct me if I'm wrong, but when you've spoken in the past about the CBD opportunity, I believe CBD products in general are higher margin than the gross margins associated with your traditional alkaline water products. So included in that guidance, what should we be factoring in as far as revenue mix? I guess, is it - the guidance would imply that it will be less CBD than expected? Is that the right way to think about it?
Richard Wright: The guidance includes some CBD, but probably about two thirds of what was the expectation level. The resets are a little slow. But the good news is candidly that two weeks ago, as you talked to me about who is going to take in ingestibles this year, I would have told you probably primarily the CBD specialty stores. But as of two weeks ago, we began to get tremendous activity from more standard retail locations. And they seem to be going state-by-state following our pattern of using a dietary supplement and selling in states in which they're allowed to sell, so pretty exciting in terms of our sales group relative to the ingestibles for the remainder of the year.
Luke Hannan: Okay, that's it for me. Thanks.
Richard Wright: Thank you.
Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Mr. Richard Wright for closing remarks.
Richard Wright: Thank you. Thank you all for attending today's conference. Again, I can't stress enough how proud I am of the company and the way that we performed during the COVID environment. It is literally the toughest business environment I've been through in 43 years. And yet, somehow we've been managed - we have managed to expand not only in our current customer base, but also in our lifestyle brands, which is very tough to do when you don't know who's going to be open and who's not and we've done a really, really great job in getting it done and getting after it, and I see nothing but blue skies in the future. I want to thank you all for your patience today.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
