The Alkaline Water Company Inc. (WTER) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to The Alkaline Water Company Fiscal 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce (ph), Director of Investor Relations. Thank you, you may begin.
Unidentified Company Representative: Good morning, everyone, and thank you for joining us for The Alkaline Water Company's Fiscal 2021 Earnings Conference Call. Shortly, you will hear from Ricky Wright, our President and CEO; and David Guarino, 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.
Richard Wright: Thank you, Jeff . Hello, everyone, and welcome to The Alkaline Water Company's Fiscal 2021 Conference Call. We are excited to share with you another great year and our positive expectations for fiscal 2022. Despite the obvious challenges faced by the entire beverage industry during fiscal 2021, this was our seventh consecutive year of record sales. Our revenue was approximately $46 million. This represented a year-over-year growth of approximately 20%.
David Guarino: Thanks, Ricky. Before I begin, I'd like to encourage interested listeners to review our press release announcing our financial results, and our Form 10-K that we filed earlier today with the SEC, for a more detailed explanation of some of the year-over-year variances as I'll be highlighting just a few. Our revenue from sales of our products in the fiscal year ended March 31, 2021 was $46 million an increase of approximately 20% generated primarily by the sales of our Alkaline water. This increase reflects organic growth with our existing retailer and the expanded distribution of our products to additional retailers throughout the country. Gross profit for the fiscal year ended March 31, 2021 was approximately $16.4 million, a 25% increase over the $13.1 million in the prior year. Net loss for the year ended March 31, 2021 was approximately $16.4 million compared to the $14.8 million loss in the year ended March 31, 2020. The increase in year-over-year loss was primarily due to an increase of approximately $4.6 million in general and administrative expenses. Specifically, non-cash G&A expenses was $3.5 million in the year ended March 31, 2021. There was a net loss per share of $0.24 in the year ended March 31, 2021 compared to a net loss per share of $0.34 in the prior year. Our cash and cash equivalents on March 31, 2021, was approximately $9.1 million. Net cash provided by financing activities for the year ended March 31, 2021 was approximately $19.4 million, as compared to approximately $7.6 million for the year ended March 31, 2020. The increase in net cash provided by finance activities was due to proceeds from the sale of common stock and the exercise of warrants. While we have not yet established an ongoing source revenue sufficient to cover our operating costs, we believe the cash on hand plus the anticipated warrant exercises, our line of credit, and the sale agreement with Roth Capital Partners LLC will adequately fund our current planned operations and capital needs for next 12 months. However, if our current plan has changed or accelerated, or we choose to increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors. The consolidated statement operations for the prior year ended March 31, 2020, has been corrected for the following. Depreciation expense related to assets utilized in the production inventory of approximately $1 million has been reclassified to cost of goods sold and an adjustment to reclassify sales and marketing expenses of approximately $2.7 million as reduction of revenue as such amounts were related to consideration payable to a customer, which the company determined was not for the same goods or services received. These questions had no impact on total operating loss and net loss. Before I turn it back to Ricky, I'd like to reiterate our full year guidance for the fiscal year ended March 31, 2022. We expect to deliver revenue of approximately $52 million with an estimated gross profit of 38%. We expect our top line to be driven primarily by the momentum we are carrying forward, which should allow us to organically grow with our existing retail clients and expand distribution to additional retailers throughout the country. With that, I'd like to turn the call back over to Ricky. Thank you.
Richard Wright: Thanks, David, and thank you for all attending. In closing, we believe over the next three years we have the plan and the personnel to exceed market's expectations. As a company, we are fortunate to know who we are and who our consumers are. Like us, our customers represent a broad cross section of our society and our culturally diverse health and environmentally conscious and care about their families, communities and the world we live in. As a nimble, innovative, publicly traded lifestyle company, The Alkaline Water Company is uniquely positioned to continue to take advantage of established and emerging markets. Our stated goal remains to become a household brand, and the largest Alkaline Water Company in the world. We are well on our way to realizing most of the company's strategic initiatives that we started in fiscal 2021. Clearly each one is substantial in its own rights and can have a major impact on the company's enterprise value and shareholders return. The addition of Shaquille O'Neal and Authentic Brands Group should accelerate our successes. Now I'll hand the call back over to the operator for questions and answers. Thank you all for attending.
Operator: Thank you. . Our first question is coming from the line of Luke Hannan with Canaccord. Please proceed with your questions.
Luke Hannan: Yes, thanks. Good morning, everyone. I just wanted to start with the performance on fiscal 2021. Ricky, I think the guidance for the year was between, that you're looking for revenue between $48 million and $52 million and it came in at $46 million. So I'm just curious, maybe what caused that sort of divergence. And then also sort of as a follow-up to that, what gives you the confidence that you're going to hit that $62 million that you have forecasted through fiscal 2022?
Richard Wright: Yes, I think some of it candidly, Luke had to do with some of the changes we had in the accounting procedures that we had undertaken this year and so we had some additional costs go against our revenue side that we had not anticipated as we've grown so quickly. We've added a number of different programs, including digital couponing and BOGOs that go against marketing dollar or go against revenue directly as opposed to marketing dollars. If we'd done those through other channels, they would have gone against the marketing revenue or marketing expense only. Coming up with Shaq now, we're going to shift those marketing dollars away from the revenue side and into the marketing side. So we're going to get back on track in terms of that slight reduction in revenue based on how we account for the general accepted accounting principles are for marketing dollars and consumer goods. It's kind of a unique way they account for it. If I spend the same dollars outside on an ad, it goes against marketing dollars. If I spend it in store on an ad, it goes against the revenue. So we're moving away from that and that's one of the reasons we brought in the national talent of Shaquille O'Neal. In terms of the forecast in the future, why I think this year, besides that small item, I think that this year, we're looking for great growth in the sense of two things. One, again we had huge news today. I don't know if you guys have had a chance to read it yet, but Shaquille and our Chairman led a financing today. We raised $5 million, so we've cashed up and Shaquille has put $1 million of his own money in which I don't know, if you can speak any higher of our company's potential when both your Chairman and the A-listed celebrity that you brought on, both have that kind of confidence in the company. But number two, and more empirically, we continue to just crush it on the Nielsen side. I was looking at data this morning and overall, as we've talked about in the actual release today, those numbers have accelerated. I mean, we are growing quicker than we've ever grown. When I was looking at some of the regions that we're in, we own about 4.5% of the West region, we're about 3% in the East or Southeast region, and in the Northeast and the Midwest combined, we're less than 1%. So we know that our huge amount of growth opportunity exists in those two regions, we know that we've gained market share in every region this year, and we know that we're outperforming the enhanced water category by a significant amount. So we believe that with the power of our A-listed celebrity with a national marketing program, some of the innovation of products we're bringing on that we can just crush it this year. We also know that the number of cases sold in this current quarter exceeds anything but the pandemic stuffing there. So we see great, great, great, momentum.
Luke Hannan: Understood. And then I guess, as sort of a follow up to that, too, on the gross margin guidance that you have, I think, if I had to do the quick math, it implies basically 200 basis points of margin expansion between this past year and then fiscal 2022. What are -- like what's baked into those assumptions? I'm sure that there's some contributions from higher margin products like you'll get some mix benefits, there'll be some operating efficiency benefits as well. And then also, the price increase that you guys just took will factor into that as well. So I'm curious if you can just shed some light on each of those different buckets and what the magnitude of each of those have sort of in that gross margin guidance?
David Guarino: So, we've got the other one too going against us. Okay? So we are picking up some gross margin capabilities and increase gross margins through bringing our supply chain closer to our plants. We will also bring up some gross margins by working out some additional arrangements with our co-packers in terms of pricing concessions based on volume. So that's coming in our favor. However, raw materials, I think overall, and this is no news to the industry, some of our raw materials are up 140% this year already. And so that's driving it the other way, Luke and I think that's probably the major impact in terms of coming in at 38 relative to prior years we're at 40. So we've picked up some of the damage done by the price increase and some of these efficiencies we've built with our supply chain, but until the country levels off a little bit on the inflationary pressures, I think the 38 is a good solid number for us.
Luke Hannan: Okay, understood. Last one from me and then I'll pass the line. On those price increases, I'm curious Ricky, if you can shed any sort of light on the pricing dynamics, you kind of touched on it a little bit there. But sort of where do you see your product relative to others in the space? And, how much room do you see, I guess, for you to be able to take further price increases to sort of maintain that margin, assuming these sort of inflationary effects persist for a little while longer here?
Richard Wright: Yes, good. Good question Luke. We did some studies on one of our top clients. We already had a, I think it was probably about an 8% increase at the store level, at our largest clients, unrelated to our pass along, but something they chose to do on their own. And we're actually up 17% of that particular client this year. So we believe that that shows that we have some room to move some pricing into the marketplace. But I think more importantly, is that we also know that of 20% of the time, and some of our major accounts were out of stock. Now because candidly, their stock force can't stock fast enough some days and so we know that, there's an opportunity for us that even with a little bit of a price increase, I don't think the demand is going to hurt us. I think there'll be an opportunity for more people to see the product on the shelf and more people to pull it off. So we've looked at, we've done some gap studies between us and the private labels that have come into our space. We believe we're positioned well, and we believe that a 5% or 10% increase at the store level is not going to affect our momentum one iota. In fact, I am hopeful with Shaquille putting more eyes on the brand this year driving people to the consumers, that we will actually increase our sales substantially with a slightly better margin.
Luke Hannan: Okay, I appreciate all the comments. Thanks.
Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Ricky Wright for any closing remarks.
Richard Wright: Yes, I think it's a great day to be Alkaline88, Alkaline88 shareholder. We really have just begun the journey with Shaquille and Authentic Brands Group. They are two powerhouses in the consumer arena. Shaquille is absolutely the perfect ambassador for this brand. The fact that he was willing to come in today with our Chairman and bring some additional of his own capital into this brand cannot speak more highly of their confidence and our capabilities to perform. I do believe that this year, we will see some of those initiatives that we've put together in fiscal 2021. A lot of people have viewed fiscal 2021 as a kind of a waste year. I know there's some consumer product goods companies that aren't even counting it as a year when they do their comparables, but we managed to not only get through the year, but we actually excelled through the year. So I'm very proud of the team. I do believe that you'll see some tremendous announcements coming up over the next month or so. We have a lot of stuff in the pipeline that we've kind of forecast within our talk today that should enhance our shareholder value significantly. And I want to thank everybody that has stuck with us as we continue to grow our story. We are now the #1 independent Alkaline Water Company in the country. I do believe that we can become a household name with all our brands, and all the extensions that we've had over the past two years and we're just going to begin to see the fruits of those efforts and endeavors. Thanks again for your time. Everybody, have a great day.
Operator: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.
