ALKALINE WATER Co INC (WTER)·Q2 2023 Earnings Summary

Executive Summary

• Record revenue of $19.6M (+28.3% YoY) with sequential growth of ~16%; gross margin improved to 23.6% (up ~300 bps QoQ) as cost-reduction initiatives took hold .
• Operating expenses fell 37% YoY to $9.7M; operating loss improved ~50% YoY to ($5.1M); net loss improved ~$2M YoY to ($8.4M); EPS loss ($0.06) vs ($0.11) prior-year quarter .
• Management reiterated FY2023 revenue guidance of $70M and introduced margin guidance: GM 26–27% in Q3 and 29–30% in Q4; identified total ~$20M of savings/margin enhancements (up from ~$15M) .
• Retail momentum strong: Nielsen shows trailing 52-week retail sales ~$90M (+36.6% YoY) and trailing 13-week retail sales >$26M; convenience channel cases +2.5x 1H FY23 vs prior year; freight cost/case down ~20% YoY and ~6% QoQ .
• Liquidity actions: executed term sheets for $6–$7M non-dilutive financing anticipated by year-end; cash ~$2.3M at 9/30/22; investment runway supported by cost reductions and financing plans .

What Went Well and What Went Wrong

What Went Well

• Record quarterly revenue ($19.6M) and sequential margin expansion to 23.6%, reflecting freight optimization, vendor renegotiations, and inventory reductions: “Our gross margin improved by nearly 300 basis points sequentially…” .
• Opex discipline: operating expenses down $5.7M (37% YoY); G&A down ~$2.7M (51% YoY) with non-essential G&A frozen; sales & marketing down ~30% YoY .
• Retail velocity and footprint: trailing 52-week retail sales ~$90M (+36.6% YoY); >11,000 new locations YTD; SKU expansion in ~18,000 locations; c-store cases +2.5x; freight cost/case down ~20% YoY and ~6% QoQ .

Quoted management highlights:

• “We have now identified an additional $5 million, bringing our total to approximately $20 million worth of cost savings and margin enhancements.”
• “Our freight cost per case shipped in Q2 went down approximately 20% year-over-year. Freight cost per case shipped also decreased more than 6% sequentially compared to Q1.”
• “Alkaline88® grew 36.6% year-over-year in retail sales for the trailing 52 weeks with sales totaling almost $90 million.”

What Went Wrong

• Gross margin lower YoY versus prior-year quarter, driven by elevated raw material and shipping/handling costs (despite sequential improvement) .
• Continued net loss ($8.4M) and cash constraints (cash ~$2.3M) requiring external financing to extend runway; non-cash other expense of ~$3.0–$3.1M impacted GAAP net loss .
• Near-term dependence on inventory turnover before full benefit of renegotiated raw material pricing flows through COGS; margin enhancement timing staggered .

Financial Results

Estimates comparison

• Wall Street consensus (S&P Global) for Q2 FY2023 was unavailable due to access limits; therefore, no estimate comparison is provided. Values unavailable via S&P Global.

KPIs and Operating Metrics

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our gross margin improved by nearly 300 basis points sequentially over the first quarter of the fiscal year to 23.6%.” — Frank Lazaran, CEO .
• “We have now identified an additional $5 million, bringing our total to approximately $20 million worth of cost savings and margin enhancements.” — Frank Lazaran, CEO .
• “Our freight cost per case shipped in Q2 went down approximately 20% year-over-year… decreased more than 6% sequentially.” — Frank Lazaran, CEO .
• “For the three months ended September 30, 2022, we have reported our best quarterly revenue ever of approximately $19.6 million… gross margin improved from 20.7% in Q1 to 23.6% in Q2.” — David Guarino, CFO .
• “We reiterate our revenue guidance of $70 million… we project our gross margins will be between 26% and 27% next quarter and 29% and 30% for the last quarter of the fiscal year.” — Frank Lazaran, CEO .

Q&A Highlights

• The transcript provided contains prepared remarks and did not include a Q&A section; therefore, no additional Q&A clarifications were available .

Estimates Context

• Wall Street consensus (S&P Global) for Q2 FY2023 EPS/Revenue/EBITDA was unavailable due to access limits, so an estimates comparison cannot be provided at this time. If estimates remain unavailable, models should anchor on company guidance ($70M revenue; GM progression to 26–27% in Q3 and 29–30% in Q4) and observed quarterly run-rate improvements .

Key Takeaways for Investors

• Sequential margin expansion and demonstrable cost-lever reductions suggest the margin guidance for Q3/Q4 is achievable as renegotiated raw materials flow through after inventory turns .
• Opex discipline is driving operating loss improvement; continued enforcement of frozen non-essential G&A and optimized freight should sustain bottom-line progress even amid macro cost pressures .
• Strong retail velocity (+36.6% YoY trailing 52 weeks; >$26M trailing 13 weeks) and footprint growth (>11,000 new doors; ~18,000 SKU expansions) underpin topline resilience and support FY2023 $70M guidance .
• Liquidity remains a watch item (cash ~$2.3M); successful close of $6–$7M non-dilutive financing is a near-term catalyst for runway extension and execution of margin roadmap .
• Near-term trading: positive skew on execution headlines tied to financing closure, margin beats to guidance ranges, and ongoing retail expansion; risk skew from raw material/COGS timing and macro fuel/diesel trends .
• Medium-term thesis: if GM reaches 29–30% in Q4 and opex discipline persists, pathway to materially lower operating losses is credible; monitoring conversion of cost actions to sustainable GM and FCF is key .
• Watch for consistency in freight cost/case reductions and c-store distribution scaling (weighted distribution <5% with top-15 brand status implies runway) .