Executive Summary

WTER delivered record Q3 revenue of $15.11M (+57% y/y), but operating expenses surged, resulting in a net loss of $10.74M ($0.10/share); gross margin was ~33% as inflationary freight and inputs weighed on profitability .
Management reiterated FY22 revenue guidance of $62M and outlined a ~9% list price increase and structural actions (co-packers, logistics) expected to lift gross margin by 3–5 percentage points in FY23 .
Distribution and brand momentum continued: ~80K stores in Q3 with a path to 90–110K over 12 months, single-serve mix expanding, DSD coverage growing, and omnichannel marketing with Shaquille O’Neal underway .
Street consensus (S&P Global) for Q3 2022 EPS/revenue was unavailable at time of analysis, so no beat/miss can be established; near-term stock catalysts center on margin inflection from pricing and cost actions vs. ongoing cash burn and “going concern” risk flagged in the 10-Q .

What Went Well and What Went Wrong

What Went Well
- Record Q3 sales: Revenue $15.11M (+57% y/y); second consecutive quarter above $15M; distribution and single-serve growth key drivers .
- Distribution and channel expansion: ~80K stores in Q3, with plans to reach 90–110K over 12 months; DSD expanded to 14 states; club, specialty, gym, and airport wins support breadth .
- Pricing and margin roadmap: ~9% broad-based price increase effective in FY23; management targets +3–5 ppt gross margin improvement via pricing, freight normalization, and raw-material contracting .
What Went Wrong
- Operating cost intensity: Q3 total opex rose to $15.91M (vs. $7.58M LY), reflecting freight to customers and marketing investments; operating loss widened to $(10.92)M .
- Net losses and cash burn: Q3 net loss $(10.74)M ($0.10/share); cash used in operations YTD was $(25.94)M with period-end cash of $3.29M, highlighting financing dependence .
- Going concern language: Management disclosed substantial doubt about the company’s ability to continue as a going concern without additional capital, underscoring funding risk .

Financial Results

Metric	Q3 FY2021 (Dec 31, 2020)	Q2 FY2022 (Sep 30, 2021)	Q3 FY2022 (Dec 31, 2021)
Revenue ($USD Millions)	$9.62	$15.25	$15.11
Gross Profit ($USD Millions)	$3.35	$5.16	$4.98
Gross Margin %	34.9% (calc from )	33.9% (calc from )	33.0% (calc from )
Total Operating Expenses ($USD Millions)	$7.58	$15.37	$15.91
Operating Income (Loss) ($USD Millions)	$(4.22)	$(10.21) (calc from )	$(10.92)
Net Income (Loss) ($USD Millions)	$(4.36)	$(10.38)	$(10.74)
Diluted EPS ($)	$(0.06)	$(0.11)	$(0.10)
Cash and Equivalents (period-end, $USD Millions)	N/A	$10.4	$3.29

Notes: Margins and the Q2 operating loss are calculated from cited revenue, gross profit, and operating expense data.

Segment breakdown: Company operates one segment; no segment table applicable .

KPIs and Channel Metrics

KPI	Q1 FY2022	Q2 FY2022	Q3 FY2022
Store Count (approx.)	75,000 stores	~75,000 stores	~80,000 now; 90–110K target in 12 months
Nielsen/Category Positioning	—	7th largest value-added water brand by dollar volume (grocery, 4-week period)	Fastest-growing top-10 brand; 46.4% y/y dollar growth (13 weeks to 1/1/22); strong 2-year stack growth
Single-Serve Mix	—	Single-serve growth >180% YTD; seen as 20–25% of FY23 sales	Single-serves ~20% of Q3 cases sold
DSD/Channels	—	DSD ramp in AZ/NV/Midwest; airports, club (Sam’s), CVS gains	DSD partners expanded to 14 states; BJ’s, Harris Teeter, gyms; continued airport presence

Non-GAAP/Other: Management noted non-cash expenses impacted Q3 net loss by ~($0.03)/share .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2022	$62M (reiterated in Q2)	$62M (reiterated in Q3)	Maintained
Gross Margin (Outlook)	FY2023	—	+3–5 percentage points expected via pricing, freight normalization, raw-material contracts	New outlook/commentary

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 and Q1)	Current Period (Q3)	Trend
Pricing and Inflation	First-ever ~9% price increase planned; freight/inputs inflated; expectation to offset costs	~9% increase in place for FY23; mgmt targets +3–5 ppt gross margin improvement	Positive on FY23 margin trajectory despite inflation
Supply Chain/Co-packers	Added co-packers; capacity/OTD praised; new Eastern US plants; airports/club launches	Continued focus on cost-to-serve optimization; confidence in supply reliability	Stable to improving
DSD/Convenience	DSD started in AZ/NV/Midwest; >1,000 C-store locations; accelerating	DSD partners expanded to 14 states; more C-store and gym coverage	Expanding footprint
E-commerce/Instant Delivery	Ohi 2-hour delivery launched in NYC/LA; e-comm team buildout	Ongoing optimization of web presence; scaling e-comm operations	Building capability
Hospitality/Aluminum Bottle	750ml white aluminum bottle introduced; 9 major airports	Continued hospitality push; presence in 100+ airport kiosks; gym partnerships	Broadening channels
CBD/Functional Beverages	A88CBD functional waters launch; regulatory openings in CA/TX/NY	Continuing selective rollout where compliant; future potential highlighted	Early-stage; regulatory-dependent
Marketing/Shaq	Omnichannel campaign assets produced; Shaq as brand ambassador; Times Square/TV ads	Marketing ramp continues; brand awareness and retail engagement cited	Sustained brand investment
Distribution/Store Count	~75K stores; plan +15–20% over 12 months	~80K current; target 90–110K next 12 months	Upward trajectory

Management Commentary

“We exceeded even our own expectations… sales for the third quarter were $15.1 million… second straight quarter with year-over-year growth in excess of 50%.” — Ricky Wright, CEO .
“We’ve already taken a number of steps that will allow us to begin to increase our margins… an approximate 9% across the board price increase… slight reduction in current freight cost… lock in many… raw material costs… management expects margins to increase between 3% and 5% in fiscal 2023.” .
“Our DSD partners… have led to… major tunings with national C-store chains and military bases… our near term target list includes over 3,100 new stores.” .
“We now estimate that we are in 80,000 stores nationwide, and we expect… 90 to 110,000 stores in the next 12 months.” .

Q&A Highlights

Pricing elasticity: Management believes pricing remains within industry mean; early adoption by banners without noticeable demand elasticity to date .
Retail resets and distribution: Store count expected to grow from ~75K toward 90–110K; many existing banners adding SKUs over next 3–6 months .
Cost drivers and one-offs: Freight to customers and marketing production contributed to elevated opex; some production costs viewed as one-time .
Gross margin outlook: CFO clarified the +3–5 percentage points margin expansion target for FY23, contingent on pricing flow-through and mix .
Supply chain impact: No material negative sales impact cited in Q3; added warehouse space and redundant suppliers to mitigate risks .
International: Existing Mexico footprint; Canada brokerage agreement beginning to bear fruit; more updates anticipated .

Estimates Context

S&P Global (Capital IQ) consensus estimates for Q3 FY2022 EPS and revenue were unavailable at the time of analysis due to access limits; therefore, a beat/miss vs. Street cannot be determined. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

Sequential scale sustained; but profitability remains challenged: Two straight ~$15M+ quarters show demand resilience, yet net losses and opex burden persist, requiring execution on pricing and cost programs to drive margin inflection .
FY22 top-line intact; FY23 margin story is critical: Reiterated $62M FY22 revenue; the main debate is gross margin uplift of 3–5 ppt via pricing, freight normalization, and procurement—watch retailer price implementation timelines and freight trends .
Distribution flywheel still spinning: Store count moving toward 90–110K, with DSD, club, specialty, hospitality, and e-comm broadening exposure; sustained execution could compound category share gains .
Cash and funding risk are non-trivial: Low cash, high operating cash burn, and a going-concern warning point to continued reliance on ATM/warrants/credit facilities until margin and cash generation improve .
Marketing leverage with Shaq can aid velocity and shelf wins: Brand campaigns and high-visibility placements (e.g., Times Square, airports) support sell-through and buyer receptivity, but ROI should be monitored versus spend .
Near-term trading setup: Positive catalysts include confirmation of pricing flow-through, gross margin uptick, and incremental large-banner/club expansions; risks include sustained freight/input inflation, slower price realization, and capital raises .

Additional Sources Consulted

Q3 FY2022 8-K earnings press release and filing details .
Q3 FY2022 10-Q with financial statements and going-concern language .
Q3 FY2022 earnings call transcript (prepared remarks and Q&A) .
Q2 FY2022 earnings release and call transcript for trend context .
Q1 FY2022 earnings release for early-year baseline and marketing/co-packer initiatives .

ALKALINE WATER Co INC (WTER)·Q3 2022 Earnings Summary