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Edited Transcript of WTER.OQ earnings conference call or presentation 16-Feb-21 10:00pm GMT

·40 min read

Q3 2021 Alkaline Water Company Inc Earnings Call SCOTTSDALE Feb 17, 2021 (Thomson StreetEvents) -- Edited Transcript of Alkaline Water Company Inc earnings conference call or presentation Tuesday, February 16, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David A. Guarino The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director * Richard A. Wright The Alkaline Water Company Inc. - CEO, President & Director * Sajid Daudi The Alkaline Water Company Inc. - Director of IR & Corporate Communications ================================================================================ Conference Call Participants ================================================================================ * David Brian Bain ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst * Kevin Darryl Dede H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst * Luke Hannan Canaccord Genuity Corp., Research Division - Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to The Alkaline Water Company's Fiscal 2021 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host and Director of Investor Relations, Sajid Daudi. -------------------------------------------------------------------------------- Sajid Daudi, The Alkaline Water Company Inc. - Director of IR & Corporate Communications [2] -------------------------------------------------------------------------------- Good afternoon, everybody, and thank you for joining us for The Alkaline Water Company's Third Quarter Fiscal 2021 Earnings Call. Shortly, you will hear from Ricky Wright, our President and CEO; and David Guarino, our Chief Financial Officer. During the call, we'll be making forward-looking statements within the meaning of safe harbor provisions of U.S. securities laws, and we may make additional forward-looking statements during the question-and-answer section. 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 is filed today, and its other reports filed with the Securities and Exchange Commission on EDGAR and Canadian security regulators on SEDAR. In addition, such forward-looking statements and any projections as to the company's future performance represents management's estimates as of today, February 16, 2021. The company does not undertake to update any forward-looking statements or projections, except as required by applicable laws, including the United States and Canada's securities laws. Actual results could differ materially from those contemplated by any forward-looking statements as a result of certain factors included 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 the 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 results discussed on today's call. I will now turn the call over to our CEO, Ricky Wright, who will give an overview of the company's third quarter fiscal 2021 results, financial results. Following Ricky's comments, David Guarino, our Chief Financial Officer, will provide an overview of the company's operating results. Ricky will follow David to provide closing remarks, and we will then open up the call for questions and answers. And now I would like to turn the call over to Ricky. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [3] -------------------------------------------------------------------------------- Thank you, Sajid. Hello, everyone, and welcome to The Alkaline Water Company's Third Quarter Fiscal 2021 Conference Call. The momentum we saw over the summer and into our second quarter continued right through the third quarter. Fiscal 2021 has been a challenging, yet very rewarding year for the company. We believe our core business is stronger than ever. Alkaline88 is once again the fastest-growing top 10 value-added water brands in the country. As the fiscal 2022 approaches and the economy normalizes, we are well positioned in our lifestyle products, A88CBD, Alkaline88 flavor-infused and other products to accelerate growth going into our fiscal 2022. Our strategic priorities focus on achieving broader distribution of all SKUs in the grocery, supermarket and drugstore trades, growing the convenience store channel through strategic direct store distributions and expanding our hospitality and food service presence, opening up international markets and accelerating our growth in our direct-to-consumer e-commerce sites, Alkaline88.com and A88CBD.com. Our teams are pursuing clearly defined strategies for each of these growth areas, which I will be highlighting shortly. During our third fiscal quarter, revenue grew approximately 20% year-over-year to a record $10.2 million. The 52-, 26-, 13- and 4-week Scan Nielsen data shows that we exceeded the value-added water category growth, both on a dollar volume and unit basis. In fact, in calendar 2020, Alkaline88 was the fastest-growing non-flavor top 10 brand in the category. For the first 9 months of fiscal year, revenue grew approximately 21% to $35.2 million. Our team has done a great job of executing against our plans and driving growth across all trade channels throughout the fiscal year. Our brand momentum continues to grow with our lifestyle products now available in over 75,000 retail locations nationwide. We expect to add another 9,000 stores by the end of the current quarter. The company is very well positioned for future growth in the value-added water category. This is supported by the latest Nielsen data, January 23, 2021, which shows that in the first 4 weeks of the new year, our brand has continued to outperform the category in both volume and in unit growth by a factor of 2 and 5, respectively. We have also risen to the eighth largest company in the value-added water category. Per a recent beverage marketing corporation's report, the bottled water category continues to gain over the carbonated soft drinks, driven by consumers' preference for healthier options. Per the same report, Alkaline essence water continues to be the growth leaders. Overall, we are pleased with the substantial progress we have made during the first 9 months of our fiscal year. With the health and wellness consumer mind, we have strategically introduced key lifestyle products for our beverage and CBD portfolios over the past 2 years. Today, we offer a robust portfolio of lifestyle brands and have expanded our beverage offerings to 14 SKUs and our CBD portfolio to 24 natural topics and ingestible products. Our lifestyle brands are currently available in over 75,000 retail locations. We see strong demand for our products and specialty discount retailers as well and recently added the 99 Cents Only Stores to our growing base of customers. In addition, we'll soon be launching another leading retailer in this category. They will carry our 700ml and our Alkaline88 flavor-infused waters. Beginning next quarter, our 1 gallon, 1.5 liter and our 500-milliliter eco-friendly aluminum bottles will be on the shelves of a premier Midwest top 15 retail banner. I'm also pleased to announce that an existing customer in the drugstore channel will be adding our 1 gallons in addition to the 3 liter that they already carry nationwide. And we'll also be offering our 1 liter in their open air cooler section across a number of stores nationwide. We continue to see a strong pull-through of small formats. We expect to reach 90,000 to 110,000 stores by the end of our fiscal 2022. We will provide further details on these large wins in the coming months. As we prepare for the strong demand and our strategic objectives of penetrating the c-store channel, we believe based on our dominance in the grocery channel, the timing is ideal for expanding our direct store delivery, DSD strategy. We are pleased to announce that we have entered into an agreement with a premier distributor in the Southwest. This partner is one of the largest and most respected family-owned beverage distributors in the nation. Its customer base includes 9,000 retail locations. This partner will carry the full line of our smooth tasting Alkaline88 water portfolio and our Alkaline88 flavor-infused waters under this agreement. This will be the first time in a major metropolitan market that their company has adopted a DSD model for its entire Alkaline88 line. According to Arizton, an advisory and intelligence research firm, convenience stores are emerging as a key distribution channel for premium bottled water brands and account for over 60% of the distribution network in North America. Additionally, we have added 3 regional DSDs in the Southwest, Mid-Atlantic and East Coast regions, which provide us access to an additional 12,000 customers. In our fiscal 2022, we look to add additional premier beverage distributors and other key U.S. markets. We believe this will accelerate sales for our single-serve offering and our A88CBD products. Management believes that by adopting a direct store distribution model in a number of key markets, we will increase our sales significantly into the c-store channels. We have also made significant progress on expanding our distribution partners for A88CBD lifestyle brands during our third fiscal quarter. We expanded our relationship with KeHE, who will now carry our topical lines, giving us reaching to 12,000 customers and access to 30,000 stores. And we've also added BettermentRS, a CBD focused DSD to drive c-store and grocery store CBD sales growth. We are seeing strong interest from these engagements and recently added incremental 150 stores for our A88CBD portfolio of products. Innovation remains a core focus for our entire A88CBD portfolio. During the quarter, we introduced vegan gummies and sour gummies and gluten-free powder packs in 4 exciting flavors. We believe our A88CBD product line is one of the best in the industry and like all our products, superior distribution, multiple sales channels and trusted products will allow us to continue to gain market share. Based on the changing habits of consumers, we have allocated additional resources to our e-commerce and digital marketing strategies, both in the water and the CBD categories. We have tested and we'll expand on programs that have shown extraordinary ROIs in our test markets. To that end, e-commerce sales for our A88CBD portfolio and water continue to grow. Since the launch of the A88CBD.com in February of 2020, we have already nearly 0.25 million unique visitors and seeing customer retention rates in the 20% range. Some of the best-selling products on A88CBD sites have been muscle salve, Deep Relief Cream and hand and foot cream. Our intangible portfolio, which launched later in the calendar year, has been gaining momentum, both on the e-commerce sites and the brick-and-mortar sites. We have also entered into an agreement with C.A. Fortune to accelerate our growth in the e-commerce water area, specifically helping us work on our Amazon and Amazon distribution. Since inception, The Alkaline Water Company is focused on having the smallest carbon footprint per liter of any major water brand. In the past 52 weeks, we have taken major steps in reducing our carbon footprint. We've already begun to include 25% recycled PET in our bulk sizes. We continue to focus on sustainability throughout our new initiatives, as demonstrated by being the first national water company with an aluminum bottle. We are the clean beverage company and care about not only what goes into our products, but what we can do to minimize our impact on the environment. I'd like to provide a brief update on our international efforts as well. Last quarter, I shared with you that we received FDA approval for exports to key international markets from 3 of our strategically located co-packers. It now appears that our first foray into the international markets will be Mexico. We are currently negotiating with a key partner in the region and expect an exporting agreement to materialize soon. As 2 of the FDA co-packing facilities are on the southern border of the U.S., our logistics to Mexico are less complicated, and it is well-known that Mexico has one of the largest consumption of bottle water per capita in the world. Also, the rebounding hospitality industry should contribute to significant revenue growth during fiscal 2022. In addition to our wins with Dot Foods and IBA Food Services, we are negotiating with one of the largest food service companies in the world that will further cement our presence in the on-premise beverage business. We hope to be able to make that announcement soon. From an operational standpoint, as we prepare for increased demand over the coming fiscal year, we have taken the following steps. We are expanding our co-packing facilities and plan to add 2 new plants. And additionally, we are increasing our process of domestic capacity for raw materials and finished goods. We will be announcing new plants and new raw material providers that should increase our overall capacity and positively impact our gross margins. Our current providers of bottles and handlers are doubling up on capacity by opening up East Coast plants, in addition to increasing our gross margins and capacities, they will significantly decrease our carbon footprint as their new plants will be closer to our East Coast co-packers. We are targeting to open 2 additional co-packers in the next 6 months. Our target is to add a Midwest facility by the beginning of fiscal quarter 1, 2022, and the West Coast plant by fiscal quarter Q2. This will add additional incremental wholesale capacity of $12 million to $15 million and effectively position us for strong growth expected in fiscal 2022 and beyond. Lastly, another key area of focus has been working with the national agency to develop our brand messaging for the coming year and to help us identify an a-list celebrity that shares our brand values. With our growing base of loyal customers who are typically health-conscious and pursue a healthful lifestyle, we believe an ideal celebrity brand partner would be a home run for our family of brands. Overall, I'm pleased with the progress we are making against our strategic objectives and expect substantial returns from the investments we are making. We expect a solid fiscal fourth quarter and a very strong fiscal 2022 for our lifestyle brands. It's a great time for The Alkaline Water Company, which has emerged from a single bulk brand west of the Mississippi to a trusted national and soon to be global brand with multiple in demand lifestyle consumer packaged goods and products. With that, I would now like to turn the call over to David Guarino, our Chief Financial Officer, who will take you through the third quarter fiscal 2021 financial results. David? -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [4] -------------------------------------------------------------------------------- Thank you, Ricky. Before I begin, I'd like to encourage interested listeners to review the Form 10-Q that we filed with the SEC earlier today for a more detailed explanation on some of the quarterly results I will be highlighting. For the 3 months ended December 31, 2020, we reported revenue of approximately $10.2 million, which increased approximately 20% year-over-year. And for the first 9 months of our fiscal year, we delivered growth of 21% compared to the same period last year. The increase in sales is due to continued strength with our existing customers and expanded distribution of our product to additional retailers throughout the country. Our gross profit from sales in the third quarter ended December 31, 2020, was $4.2 million versus gross profit of $3.4 million in the quarter ended December 31, 2019. Our gross margin percentage of 41.2% increase compared to the prior year quarter, primarily due to a positive change in sales mix and lower cost of goods sold. Total operating expenses for the 3 months ended December 31, 2020, was approximately $8.4 million compared to the approximately $6.1 million in the prior year quarter. Specifically, for the 3 months ended December 31, 2020, sales and marketing expenses was approximately $4.7 million compared with approximately $4.1 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, general and administrative expenses were approximately $3.5 million compared with approximately $1.8 million in the prior year quarter. G&A expense of approximately $3.5 million this fiscal quarter ended December 31, 2020, consisted primarily of 3 items: approximately $2 million of professional media and legal fees, approximately $800,000 of wages and wages-related expense and approximately $400,000 in noncash stock option compensation expense. Net loss per share in the quarter ended December 31, 2020, was approximately $0.06 per share, improving approximately 14% from the quarter ended December 31, 2019. The net loss per share was negatively impacted by roughly $700,000 in net noncash items, which resulted in a negative $0.01 impact on our bottom line. Cash used by operations during the 9 months ended December 31, 2020, was approximately $9.6 million as compared to the approximately $8.9 million in the prior year period. The increase was primarily due to increase in inventory, specifically related to our A88CBD line. Importantly, our cash position as of December 31 was approximately $1.7 million. Specifically, we believe that between the cash on hand as of December 31, 2020, our expected conversion of our outstanding warrants and our credit line, we will have sufficient cash to sustain our operations at least through December 31, 2021. And with that, I'll turn it back to Ricky. Thank you. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [5] -------------------------------------------------------------------------------- Thanks, David. Once again, I would like to thank you for participating in our call today. In closing, I would like to say this past year has been an incredible 9 months for us. With the global pandemic in early 2020, the disrupted global economies, we have managed to maintain the company's revenue growth and added exceptional talent. We are coming out of it stronger than our competitors. Our efforts resulted in increased brand awareness with our flagship brand, Alkaline88, emerging as the fastest-growing brand and our product category this past year. As of 01/23/2021's Nielsen report, we continue to be the only top 10 value-added company in the country that has grown double digits on both sales and units every month since December 2019. We have innovated based on consumer demand with new and unique products, gained market share, expanded our omni-channel presence and quickly adjusted to the changing market dynamics. This is a testament to our team, our partners and our resilient business model. I couldn't be more proud of our brand's journey through today and genuinely believe that the best is still ahead of us. I would also like to thank you, our shareholders, and our Board for their contribution and continued support. We are making great strides in making Alkaline88, Alkaline88 flavored-infused and A88CBD, the most trusted lifestyle brand in America. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question is from David Bain with ROTH Capital. -------------------------------------------------------------------------------- David Brian Bain, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- Nice quarter. My first question would be on the hospitality rebound. And I guess what I'm trying to get a sense of is the timing of meaningful revenue generation from the segment. And I guess maybe put differently, when could we see a run rate toward, say, 100,000 cases? And is there anything different with the new potential hospitality partner in terms of revenue cadence now that hospitality is coming out of COVID? If the new partnerships will be structured differently than the first? Any kind of color around that would be great. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [3] -------------------------------------------------------------------------------- David, thanks for attending today. Yes, the hospitality industry is recovering. We are in some, believe it or not, golf courses. We're doing on test with one of the largest golf course groups in the country. Universities are opening up to us as well. We're still a little slow in the restaurant and hotel segment of it. However, our new partner is extremely strong in both of those, our new potential partner, and it's just going to be a great add for us. I was looking at the segment reporting requirements just before the call. I think we're at least a couple of quarters out, David, before we have to do some segment reporting. -------------------------------------------------------------------------------- David Brian Bain, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. That's helpful, actually. Okay. Great. And then international expansion, I know you, Ricky, you have a ton of experience there. First, for Mexico. Is there any kind of TAM we can think about, I guess, we should do our own homework, but if you have something to spoon-feed us, that would be great. And then if you could touch on strategy there, the new partnership you spoke to is that a distributor? Or are there other strategic dynamics for penetration you can help us with? I mean, I don't know if we go into acquisitions or what we're going to be doing to sort of make a big splash in Mexico? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [5] -------------------------------------------------------------------------------- Yes, David, we've actually explored a number of different opportunities into Mexico. I've gotten some help from some of my Board members along those lines excuse me to string smooth Alkaline88 water. And this particular deal, we've -- we're in the final process of negotiations. We're candidly just getting down to final pricing. And we should be able to announce in a week or 2. I believe it will be that quick. It is to a very large group. It's a little different in that we're -- we'll actually be selling into a direct group that has distribution within their current locations. And the details on that. It will be a substantial account, though, which is the nice thing. It's kind of equivalent. If I was to look at the U.S. market, one of our mid-range groups that we already deal with, probably not as big as a public, but certainly as big as some of the change we have with 200 or 300 stores. So it will be a nice -- it will be a very nice add for us. And it will be FOB U.S., which is also a very nice thing for us. -------------------------------------------------------------------------------- David Brian Bain, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6] -------------------------------------------------------------------------------- And lastly, just as a follow-up on that, if you don't mind. In terms of pricing and margins, like per unit pricing and then just margins overall. Is there anything we should think about as you enter that market? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [7] -------------------------------------------------------------------------------- I don't think there'll be much contraction because of the FOB shipping and the -- our ability to make sure that we were priced competitively with our other retailers. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- And our next question is from Luke Hannan with Canaccord Genuity. -------------------------------------------------------------------------------- Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [9] -------------------------------------------------------------------------------- I wanted to follow-up on that point as well, actually on the margins. You talked about on the call, Ricky, that there's -- you expect to see some sort of margin expansion from these new plants and new raw material providers that you guys are going to be adding. Can you quantify at all like what we should be thinking as far as what the margin profile increase would be there and maybe rough timing on when you expect to achieve that? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [10] -------------------------------------------------------------------------------- So just looked at the Excel spreadsheet a couple of days ago, Luke. So internally, it's going to -- some of it's going to be predicated on if we put any working capital towards these arrangements or not from CapEx. We have not to date, but we are considering that as a company to potentially directly invest in some of ours and become a little bit more vertically integrated. We wouldn't run it, but we'd be able to get a little better pricing. The big savings initially, though, will come, frankly, from the freight cost. We are going to pick up on the freight bound end, significant dollars right away, whether that's 1 or 2 points, I don't know for sure. David might be able to better answer that. But it's definitely significant and we've done our ROIs on any potential investment as well. David, anything on what you think it might be? -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [11] -------------------------------------------------------------------------------- Yes. It's still too early to tell from a percentage point of view. But from a timing point of view, we won't pay anything until Q1 fiscal 2022. -------------------------------------------------------------------------------- Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [12] -------------------------------------------------------------------------------- Okay. That's helpful. If we look at -- one of the things that you also talked about is that you're allocating more resources towards those areas where you're seeing really high ROIs in your test markets. Can you elaborate, I guess, on what exactly those sort of ROIs are? Are you referring to just an average customer basket relative to the customer acquisition cost? Can you give maybe a little bit more color on what exactly you're seeing there? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [13] -------------------------------------------------------------------------------- Yes, I can. We started out with some 700% or 800%. We run them now in, I think, 5 markets, David? -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [14] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [15] -------------------------------------------------------------------------------- 5 different markets, very small tests, $5,000, $10,000 a pop, but we're seeing tremendous return on those investments. And I'm going to guess, David, you might have a better -- I think last time we talked, it was close to 300% ROI on the investment. Is that still about... -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [16] -------------------------------------------------------------------------------- A little less than that, but about that. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [17] -------------------------------------------------------------------------------- Okay. So that's why when we look at those, Luke, it does -- it makes all the sense in the world to continue to pursue that until it continues to adjust downward. It won't make any sense. But right now, and that's mainly digital, and it's not so much acquisition. A lot of these are being done well, excuse me, I'll step back for 2 seconds. A lot of those returns and that sort of return have been in the food channel, our grocery channel. So we've done digital at Kroger's now, H-E-B, a number of other big companies that we've worked on in the last year, Food Lion et cetera. And those have all shown tremendous returns for us on the digital side. And then on the cost per acquisition, on the e-commerce sites, we have run a bunch of things on that. We know what doesn't work. And we'll begin to push some additional dollars to bring that cost of acquisition down below where it is today. -------------------------------------------------------------------------------- Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [18] -------------------------------------------------------------------------------- Got it. And then on the CBD front, Ricky, are you noticing how is the Alkaline brand? How do you sort of differentiate yourselves on what's admittedly a pretty crowded field? Like have you noticed anything and the metrics that you're seeing or feedback that you're hearing from customers that your product is actually standing out and sort of differentiating itself? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [19] -------------------------------------------------------------------------------- Luke, the one big thing that I do know when I get it from my sales guys all the time is that we're about a taste profile. And that there's nothing that we've made that people just don't think is absolutely outstanding on the adjustables. Obviously, shea butter and some of the higher cost ingredients on the topicals as well. And then finally, what really is carrying the day, at least on the brick-and-mortar side is that people love Alkaline88. And it just opens those doors. I was shocked to see some meetings taking place this coming quarter that strictly only a result of us being Alkaline88 and just opened the door for the A88CBD sales team. And hopefully, some of those come in, I love this time of year for us because we've had some big wins in the last couple of weeks. We don't usually announce until the PO comes. So that's why you see the kind of obfuscated answers or discussion within our actual release. Those are clear, but they're not in the stores yet. We haven't gotten the firm POs, but we're in line for the planogram, et cetera. And you'll see some of that coming in the CBD arena very quickly as well. So this time of the year, everybody is making their decisions. The buyers are both on the CBD side and the water side, and we're getting a lot of Ws. And so over the next 2 weeks here, 3 weeks, a lot of those Ws will come to fruition. -------------------------------------------------------------------------------- Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [20] -------------------------------------------------------------------------------- Got it. Last one for me, if I may, and then I'll pass the line. With the new administration that's in place now, have you noticed anything in your dealings with potential customers where you're noticing a more positive tone, a more positive outlook on the prospects for some of your CBD adjustable products? Or have you heard anything from the regulators that suggest any incremental positives there? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [21] -------------------------------------------------------------------------------- That so much regulators. Obviously, I read the legislative updates almost every day. There was a bill that passed or went in Congress, but it was same as last year's bill. But obviously, with the administrative change, we do believe there'll be some additional guidance. The good news is that whether we believe it or not, some of the retailers believe it. And there was a much changed after November 6 and the fact that retailers were much more likely to talk to us about ingestibles. I would have said before November 6, we were pretty much 90-10 ingestible or topicals to ingestibles, and now we're no worse than 50-50. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- And our next question is from Kevin Dede with H.C.W. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [23] -------------------------------------------------------------------------------- Kevin Dede. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [24] -------------------------------------------------------------------------------- Hey, Kevin, how are you? -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [25] -------------------------------------------------------------------------------- Can you hear me? I'm good, I'm good. And I was really happy to see your numbers. So congratulations. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [26] -------------------------------------------------------------------------------- Thank you, sir. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [27] -------------------------------------------------------------------------------- I think the big question for me, Ricky, and I defer to my esteemed colleagues who probably already picked up on it. But last year, you were at 8.5%. Now you're at 10.2%. Can you just help us take it apart a little bit? I mean, I apologize, but it all seems kind of lumped in together. It's hard to see what's CBD, it's hard to see what's flavor infused, it's hard to see what was online, what's in the stores. What should we do to try to take a look at some of the parts? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [28] -------------------------------------------------------------------------------- I'm not sure I can -- I've been pretty firm on this, Kevin, that we're not providing guidance -- segmented guidance. That's kind of why I went on today to see what the real answer was there when we're going to push over that line. But what I will tell you is to give you some guidance that January was our best January ever, okay? And the first 2 weeks of February were our best 2 weeks of February ever. And that was not even close second. So the momentum continues to grow with the brand, and it's across all parts of the brand. I just did a survey, 2 weeks ago, actually, my sales group did a survey for me. And one of the things that, again, on a color basis, you can look at where we've penetrated the various 60,000 stores in a strictly the grocery channels. And you can see that, for instance, or 40% administration are 1 liter. And another 20-some percent on the 1.5, 20% on our infused. So those are the kind of things that we metrics this against. And then on the wins coming up because it is that kind of year, we have 11,000 new SKUs scheduled -- 11,000 stores willing and ready to take new SKUs on the upcoming fiscal year. And I think we've said it in the release as we pick up the about 9,000 new stores that will be coming in the new fiscal year. And a lot of the SKU, I did readout today. The one I was focusing on more than anything, Kevin, to be frank again was, I wanted to see how the 2-liter was being accepted. I love that, and it was well over 1,004s that the 2-liter is scheduled to go into. And so if you look at 2 liters our single-serve flavored infused aluminum, well over 3,004s that are picking those up right after the fiscal year and up to 11,000 if you get lockdown if you think. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [29] -------------------------------------------------------------------------------- Okay. That's impressive, Ricky. It's impressive. It's just a little, I guess, to use your verbiage a little obfuscated from our -- at least from my perspective, I'm sure the other guys have a better handle on it. It's just hard to run numbers without sort of seeing a little more detail. I guess, the other thing maybe you can help me with is understanding what's where. I mean, I know the DSD is sort of a new strategic effort for The Alkaline Water Company. And I guess what I'm hoping you can share with us is what you think their focus is in terms of store fronts? And what products are they helping you move? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [30] -------------------------------------------------------------------------------- Good question, Kevin, because it is a new focus for the business. I want to add a little bit of color because I only had 17 minutes on my prepared speech. So I gave myself a little more time on the Q&A. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [31] -------------------------------------------------------------------------------- Yes. No, I appreciate you moving it along, Ricky. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [32] -------------------------------------------------------------------------------- One of the things that you have to understand is that most people pull the trigger on direct store distribution way early. They have a new idea, they have a new concept, they think the only way -- the way to get in there is the higher DSD and that sits on the shelf. We kind of did it the opposite. We're looking only at strategic markets, big, big markets to take in a DSD network. And we have an excellent, excellent reputation in the grocery channel. I look today at the Nielsen reports that came out on 01/23 of this year. And we have a 3% market share in grocery and the enhanced water space, which just shocked the heck out of me, Kevin, because if you look down the list, you'll see a lot of big names that are substantially less than ours that you would think would have that much share, but little Alkaline88 has that amount of share. So the name recognition is out there. That will allow us to go into really the strategy is convenience stores and up and down the street. As of the DSD is really set up to do. We've done an excellent job. Frank Chessman and his team has done an outstanding job of penetrating the grocery channels and some of the major boxes. And now it's time to have a strategy. We hired a guy last year from Essentia. We just had an additional hire in the Northeast. We haven't announced it yet, but he's a DSD guy that actually left I think Boss to come to us. And so we're serious about the efforts. And we think that the ability to penetrate the new stores is essential to growing the brand here in the U.S. and accelerating our growth. I mean, I don't like to use comparatives. But if you looked at 2 years ago, really about 18 months ago, ourselves use to fair second place, the Apple on DSD, they fell flat on their face, and they did it 15 years ago when they didn't have the name recognition. But they took that via the Apple 18 months ago. I think the big guys here was their first one out of New York, and they continue to roll and done very, very well. And so that's a little bit of how we view it, but we think we've just done it smarter. We think we wait until we have the name recognition and then went and had guys that literally 2 years ago wouldn't talk to us negotiating with us where we think we have very, very good DSD agreement. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [33] -------------------------------------------------------------------------------- So the other big question is, what other SKUs can you pull-through once you've established your... yes. So I'm just kind of trying to get my arms around the opportunity. It's all tantalizing. Don't get me wrong. It's hard start to see what's where and what you plan on going... -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [34] -------------------------------------------------------------------------------- I think, Kevin, in most cases, the 1 liter is a no-brainer for these guys, okay? Our sports cap is a differentiation. And so is our aluminum. And then they're all carrying the flavored-infuse as well. So we do have 2 or 3 differentiations in terms of product. I would like to see the 2-liter get on some shelves. And the -- I think that's a good another differentiation that we have. It's a handier size pack, both for the refrigerator and the gym. It's just 4-pound pack. And so I see that as a big differentiation as well. It wouldn't surprise me that at some point in time, we have all three, the gallon, the 3-liter and the 2-liter in some of our grocery channels. And then I see in the convenience store channel, I do see the aluminum being a big item for us because it is a cold pack item. As I said several calls ago, if you drink our aluminum bottle cold, you'll never have a beer again. It's that good. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [35] -------------------------------------------------------------------------------- Well, you're talking to a wrong guy about that, Ricky. I'm wondering though, can't you pull CBD through some of these retail channels as they build? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [36] -------------------------------------------------------------------------------- Yes. We actually hired -- I don't know if you caught the nuance. We hired BettermentRS. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [37] -------------------------------------------------------------------------------- Right. I did hear that. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [38] -------------------------------------------------------------------------------- They're doing a great job for us. Not a good job, a great job. And that's some of the announcements that you'll hear some of the wins that we've recently had that will come out over the next week or 2. We -- again, I don't like to make announcements for flash. I'd like to be able to go out and take a picture someplace, post in social media, so that they can go into their local CVS or Walmart or wherever it is and grab the product. It doesn't help sales. They have a big news flash and not have anything sitting there. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [39] -------------------------------------------------------------------------------- All right. Last one for me, Ricky. I'm sure you just read the big sigh of relief. How many co-packs do you have now? And can you just review your rollout strategy going forward, just so I make sure I have it correct, please? I know you gave it to us on the call. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [40] -------------------------------------------------------------------------------- Yes. I think we have 8 total right now. I don't have the list in front of me, but easy one again, Kevin, we are very, very close to opening one in the East, Midwest type of -- we're in a state, we call it either one, East or Midwest. So we're very, very close to having that open. That will open first quarter probably. I've got the actual open dates in front of me. Let me see what I think it's scheduled for the end of March. Okay, beginning of April. So that one is coming on. The raw material guys, both those plants, I think they went up last week. I don't know how much they're producing it, whether they're still in their test. -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [41] -------------------------------------------------------------------------------- Yes, they're still on a test base. So again... -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [42] -------------------------------------------------------------------------------- QC-ing them. -------------------------------------------------------------------------------- David A. Guarino, The Alkaline Water Company Inc. - CFO, Secretary, Treasurer & Director [43] -------------------------------------------------------------------------------- So you won't see that economical until the Q1. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [44] -------------------------------------------------------------------------------- Yes. We're still QC-ing them because that's probably another 30 days before they're really operational and can face some of that cost of goods sold we talked about and David mentioned will be available for the quarter. And then the West Coast plant we've identified, we visited, we've qualified, but it is a new build. And so they're out another 4.5 months, probably, Kevin, before that happens. -------------------------------------------------------------------------------- Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [45] -------------------------------------------------------------------------------- Okay. Ricky, I appreciate your patience and your indulgence as always. Congrats again. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [46] -------------------------------------------------------------------------------- All right. Stay safe, everyone. I want to thank everybody for taking the time with us today. I appreciate it. And again, I know I try to say this every quarter, but I do see rainbows and unicorns that have for this company. We're as strong as we've ever been at almost every level. We did add a bunch of people this year that have all been a players, and it's just nothing but strengthened our bench, and we get better every day. And I appreciate your faith in the company. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- (Operator Instructions) And the next question is from David Bain with ROTH Capital. -------------------------------------------------------------------------------- David Brian Bain, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [48] -------------------------------------------------------------------------------- Gosh, I'm still back on. Sorry. I did have one follow-up, and I didn't mean to talk over. But if you can indulge me now, just one last one on the international again because I think that's kind of a big initiative. Can you give us kind of a capsulation. I looked up the TAM in Mexico, and it looks fantastic. The growth looks great for bottled water. But I don't see anything on value add, and I'm wondering how prevalent that is in Mexico relative to the U.S. and just putting it in the flag and to the market. Is that enough of the brand building kind of initiative? Or is there going to be a CapEx requirement to kind of proliferate the Alkaline88 brand? -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [49] -------------------------------------------------------------------------------- Well, you asked all good questions. So we can explore both, okay? We think that our first trip into the Mexico and that market will actually be a much easier trip than most people experienced. We've got a unique situation. David, that I think will allow us to actually get immediate sales and immediate return on investment just because of the way we're negotiating and the company we're working with. The second one will take us a little longer. We have had some discussions with different people in Mexico that, obviously, how do you build that brand? We think based on their business model that we would do a co-type of arrangement that maybe they'd help us and we'd help them in the states. So that's really where we're thinking about right now. -------------------------------------------------------------------------------- David Brian Bain, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [50] -------------------------------------------------------------------------------- Got it. Okay. So it would be pretty CapEx-light then, correct? Is that... -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [51] -------------------------------------------------------------------------------- Yes, it will be very CapEx light. Absolutely. -------------------------------------------------------------------------------- David Brian Bain, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [52] -------------------------------------------------------------------------------- All right. Phenomenal. -------------------------------------------------------------------------------- Richard A. Wright, The Alkaline Water Company Inc. - CEO, President & Director [53] -------------------------------------------------------------------------------- All right. Thank you, guys. Thanks everyone. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- This concludes tonight's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great evening.