Greetings, and welcome to The Alkaline Water Company's second quarter fiscal year 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Wright. Thank you, Jeff. You may begin.
Good afternoon, everyone, and thank you for joining us for the Alkaline Water Company's second quarter fiscal 2022 earnings conference call. Shortly, you'll 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. 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 was filed today, and its other reports filed with the SEC on EDGAR and with Canadian securities regulators on SEDAR. In addition, such forward-looking statements and any projections as to the company's future performance represent management's estimates as of today, November 9, 2021. The company does not undertake to update any forward-looking statements or projections except as required by applicable laws, including the securities laws of the United States and Canada.
Actual results could differ materially from those contemplated by any forward-looking statement as a result of certain factors, including 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 a Form 10-Q with the SEC. 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 the results discussed on today's call. I will now turn the call over to our CEO, Ricky Wright, who will give you an overview of the company's second quarter fiscal 2022 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 again, providing closing remarks. We'll then open up the call for Q&A after management's updates. Now I'd like to turn the call over to Ricky.
Thank you, Jeff, and good afternoon, everyone, and thank you for joining us today. Welcome to the Alkaline Water Company's second quarter fiscal 2022 conference call. Our record second quarter results are attributed to the hard work and excellence of our employees, suppliers, retailers, and the consumers' love for the most deliciously smooth water on the planet. I'm pleased to report another outstanding quarter for the Alkaline Water Company. Reported sales of $15.2 million, a 50% increase over last year's comparable quarter. This quarter, our projected fiscal year numbers put us squarely back into the growth rate of 35%-50% that we were experiencing pre-COVID. We expect this kind of growth for the foreseeable future as we activate our first-ever national marketing campaign with Shaq and continue expanding into other important channels.
Later in this call, David Guarino, our Chief Financial Officer, will have additional comments on this quarter's results. I would also like to reiterate our full revenue guidance of $62 million for the fiscal year 2022. We have been very fortunate that over the past two years, we've taken action to strengthen and grow our infrastructure and logistical capabilities. These steps paid off for Alkaline88 and our retailers pre, during, and post-COVID. As a result of our planning and execution, we have been able to fulfill orders when many of our competitors have left the store shelves empty. These achievements required not only excellent performance from our operational team, headed by Nick Salimbene, but also foresight to make sure that our co-packers and raw material suppliers had the availability and capacity to meet demand.
We continue to add capacity, warehousing, redundant suppliers, finished and raw goods inventory that should allow us to meet our growth goals in fiscal 2022 and beyond. Our continued growth is most evident when we look at our performance in the Nielsen data, which I'd like to highlight for you here. For the Nielsen total U.S. food data for the 52-week ending October 9, 2021, we have outpaced the value-added category growth by 17.5% in dollar volume and 25.2% in unit volume. If you look at the more immediate growth, the Nielsen data for the four-week period ending on the same date, we outpaced the category by 29.7% in dollar and an incredible 47.6% in units.
Our continued growth and outperformance of our peers has propelled us to the seventh-largest value-added brand by dollar volume in that period. We've worked hard, and we're proud to be the leader in the alkaline water category. Just last week, The Beverage Strategist, published by Beverage Marketing Corp, highlighted the category's growth from $95 million in 2015 to over $1 billion in 2021. It's also projected the growth will continue at a compounded rate of 8.8% through 2026, making it a $1.5 billion category.
The article recognized Alkaline88 as one of the three brands that, and I quote, "Dominate the category." We believe that we will continue our domination and significantly outpace the category's projected 8.8% compounded annual growth rate with our target range of 35%-50%. Based on the momentum we continue to see and the catalyst for growth that we already have in place, management has an expectation that our target range of 35%-50% will be met at a minimum for the rest of this year and fiscal 2023. These catalysts include a number of major factors affecting our brand. First is organic growth. If you look back over the last 18 months, we have consistently experienced 10% and 30% growth organically within many of the largest retailers that we've had for years.
This type of enduring organic growth allowed us to be the only major value-added water to grow double digits every comparable monthly period since 2019. The third-party data, including Nielsen, Catalina, and others, confirmed that our growth is accelerating and our consumer count is increasing steadily within these same stores. Second, retail resets are returning to normal. During 2020 and early 2021, retailers forwent adding new SKUs and our new products in much of their beverage sets. With the return to normalcy, we are earning new space with new existing clients and will be part of new retail planograms in the coming quarters. Sam's Club and GNC are two recent announcements that highlight our ability to earn new space in the water sets of premium natural retailers. We're currently in about 75,000 retail locations across the country.
We expect to see 15%-20% increase in store count over the next 12 months. Much of that coming in the first quarter of fiscal 2023. Thirdly, sales of our single-serve size is exceeding our expectation. This is being driven by a number of factors, including increased C-store presence, but also inventory turns in our existing retail. This speaks strongly to the consumer's loyalty to Alkaline88. Over the past few months, we've shared with the market how various single-serve offerings from our flavored infused to our aluminum bottles, to our 1- 2 L multi-packs have all performed well. Our single-serve growth is over 180% year- to- date. Recent wins like Sam's Club with our 1 L 12 pack and two single-serve size that are being added to nine major airports are only going to accelerate this growth.
Most of our SKU expansion with current retailers for the next year is also in single serve. These factors lead me to believe that our single serve will account for between 20% and 25% of the company's fiscal year 2023 sales. Fourth, our expansion to hospitality and e-commerce has accelerated as well. They are both billion-dollar beverage markets, and we are now positioned with brand recognition and launching of our marketing efforts to take advantage of these markets. We made the decision to bring in two new people to head these areas, and their efforts are beginning to bear fruit. We expect to start to see significant growth in fourth quarter fiscal 2022.
Fifth, we are also very pleased with our new direct store distribution model that we rolled out in test markets of Arizona, Nevada, and the upper Midwest through Hensley, Nevada Beverage, and Mahaska, respectively. Combined, they have added close to 1,000 new locations at some of the most recognizable convenience stores in their respective territories. These include Maverik, Circle K, and QT. Just last week, I saw over 100 bottles of water on display in a QT store in the Phoenix area. We are literally beginning to saturate the C-store market in our own backyard. Nationwide, there are over 125,000 convenience stores that we can attack in a similar fashion over the next few years. This is a major initiative and catalyst for growth, with lots of green space still available to our brand and our brand extensions.
Sixth, our expansion into functional beverages beyond superior hydration was recently launched with A88CBD functional waters powered by Vessl Technology. Our timing could not have been better as our new markets for CBD ingestible products, including Texas, New York, and California, are now open for business. These three states alone have over 50 million adults. These new products with their superior delivery system are just our first movers into functional hydration products. We will not only continue to provide the market with ionized Alkaline88 products, our core brand, but we will also add to that base with additional functionality through the Vessl Delivery System. Last, we have an extra boost of confidence that we'll meet our sales objectives over the next several years as we have just begun to activate our omni-channel marketing asset featuring our advisory board member and brand ambassador, Shaquille O'Neal.
This is a three-year deal, and we've barely begun to see the true impact of Shaquille O'Neal and Authentic Brands Group involvement in driving consumers to our products. We've been fortunate to have great branding and great products that has allowed retailers to sell over $200 million worth of our deliciously smooth Alkaline88 without the support of traditional marketing. Now we have the best brand ambassador in the world behind Alkaline88, increasing our brand awareness around the country. We expect to share more Shaq related news over the next eight to 10 weeks, and we will see more of his presence and impact in Q4 of fiscal 2022.
Frank Chessman, Executive Director of National Sales, always shares a Ray Kroc quote, "No one of us is good as all of us together." It's tough to understand how special the Alkaline Water Company is unless you understand what makes us special. The strength of Alkaline88 continues to be our dedicated and experienced employees' abilities to adapt rapidly to the needs of the marketplace and to our customers. I'd like to share a quick example. Much to the delight and the panic of our company during the second quarter, Sam's asked us to present a number of different products and package sizes for immediate inclusion in their stores, and also requested Alkaline88 send water for victims of Hurricane Ida. In record time, Alkaline88's team sent four truckloads of water to Sam's Club warehouses whose members were affected by the hurricane.
To be able to get the water delivered and have it available to customers so quickly was truly an inspirational moment in the company's history for me. Secondly, within 45 days of our initial conversation, we worked diligently to launch a brand-new 1 L 12 pack to 587 Sam's Clubs across the country. It's not uncommon for CPG companies to take up to two years from the initiation of, "Hey, that's a good idea," until it can be seen in the marketplace. Because we're nimble and we're capable, Alkaline88 has consistently been able to bring new packaging and innovative ideas to market in six-nine months. This year's innovation includes Shaq Paq, 2 L six pack, the club warehouse-ready 1 L 12 pack, the 750 milliliter white aluminum bottle, and the A88CBD functional waters powered by Vessl.
During the second quarter, under the guidance of our new Chief Marketing Officer, Tom Hutchison, we launched the biggest initiative in the company's history, the production of our first omni-channel marketing campaign featuring our Brand Ambassador and Advisory Board Member, Shaquille O'Neal. Last month, the first of these 30 and 15 second commercials were launched as part of our omni-channel marketing campaign, driving consumer awareness of our brand. Apart from the television time, we know that at least 225,000 people have seen Shaq as Al Kaline, the Alkaline88 truck driver, when Shaq posted our big rig commercial on Instagram and received over 200,000 views within hours. Since Shaq joined Alkaline88's team, our social media following has grown approximately 35%. This is new territory for us.
It's only the beginning, and we have over two and a half years of our contract with Shaq and Authentic Brands Group remaining. The Shaq Paq is now available for sale at samsclub.com, and we expect to have it into thousands of stores within the next six months. We also celebrated major wins in hospitality, e-commerce, C store, and internationally. At the beginning of the second quarter, we were able to hire Gary Bliss, former executive and six-time sales performer of the year at Nestlé. Gary, with the help of sales team, was already able to land two major hospitality wins with nine major international airports and 800 gym and fitness centers. He's working hard on building on many of the established relationships in the industry to set the stage for more tremendous success in the hospitality industry.
We expect to be able to announce in the fourth quarter of this fiscal year a major deal with one of the company's largest hospitality providers. We are ideally postured with our innovative products, including our 750 milliliter white aluminum bottle, to have immediate success within this channel. Chris Pitman, formerly in Essentia, where he led their e-commerce success, joins us in the second quarter as well. He has been able to secure services from several outstanding providers and has completely reworked our e-commerce strategy, where the ROI can already be seen in our recent announcement to give Alkaline88 two-hour delivery in the two largest markets in the country through Ohi. Nick Salimbene, our Director of Operations, brought this amazing opportunity to the company. He knew that instant commerce continues to grow as a consumer habit.
Consumer packaged goods companies are always working to improve delivery time of their products. This partnership with Ohi makes our deliciously smooth water more quickly and widely available to consumers in the biggest metropolitan markets in the country. It improves our distribution, brand awareness, last mile logistics, and sustainability initiatives, which all contribute to the growth of the Alkaline Water Company and our brand. As Chris works with our e-commerce team, our timeline for full launch and our aggressive strategies are set for fourth quarter fiscal 2022, and we should see significant revenue impact on fiscal 2023. We're seeing great growth in the C store channel compared to last year when product reviews and resets were limited. We didn't waste that time, though.
The work that our Director of National Sales for Convenience Store and Distribution, Jim Vigna, did during that time has allowed us to accelerate growth through fiscal 2022 and into this present quarter. We've added numerous premium C store accounts and our first DSD agreements, including with the Hensley Beverage Company right here in Arizona, which is contributing significantly to that growth. As the store resets occur in the next 30 days, we expect to share major wins in the C store channels. Internationally, just last week, we announced that we've begun to enter into the Canadian markets for the first time through a newly announced partnership with R&M Royal Palms Beverage Company This partnership was made possible by Ryan Chessman, our National Director of CBD, who made the introduction to our Alkaline88 sales team.
Teamwork allows us to now introduce our deliciously smooth Alkaline88 to our Canadian neighbors. Royal Palms has a network of thousands of retail locations to which they will market and sell our products. They also reach beyond their established networks to tens of thousands of locations where they will also market our brand. Previous to that, we've been moving Alkaline88 products well into Mexico's Free Trade Zone through our relationship with Tiendas Sindicales, who serves millions of customers a month. With distribution agreements we announced earlier this year for our products to be sold in Puerto Rico and the Caribbean, we're making significant strides towards making Alkaline88 available in this part of the world. At the very beginning of Q3, we made two very significant announcements regarding two channels that we have been targeting for revenue growth, warehouse club and specialty retailers.
As I already mentioned earlier, we now have our 1 L 12 pack in 587 Sam's Clubs nationwide. This is our first foray into clubs, a major mover of bottled water, and it's been very successful so far as we've already received several reorders. At specialty retail, we recently announced that Alkaline88 is debuting in 350 premium GNC locations around the country. We look forward to providing a great new water option and earning new loyal customers from among GNC's millions of health-conscious customers. The future in all our new and existing channels looks bright. Our sales group have targeted over 85,000 new locations where they hope in the next 12 months we will be able to see Alkaline88 on their shelves or in various venues.
We are activating more and more the power of our relationship with Shaquille O'Neal and Authentic Brands Group that I believe will help us close a lot of these potential targets. As I mentioned before, the category buyers also see Shaq as the Alkaline88 brand ambassador on their televisions and digital screens, and believe me, we are getting their attention that we're a serious brand. National awareness is just around the corner with big things planned between now and the Super Bowl. Finally, all the great initiatives are only possible if we can deliver our deliciously smooth Alkaline water on a timely basis. That can only happen if we are supported by an outstanding operational plan and execution of it.
This year, our operational team, led by Nick Salimbene, has done an outstanding job, not only in securing additional production capabilities through new co-packers, raw material suppliers, but also managed to keep our on-time delivery numbers near or at the top of the charts for water companies. Although challenges still exist every day, they amaze me with their resiliency and perseverance to fight through supply chain problems and issues that allow the kind of rapid growth we are experiencing. None of us is as good as all of us together. Now I'd like to turn the call over to David for a brief financial overview. David?
Thank you, Ricky. Before I begin, I'd like to encourage interested listeners to review the 10-Q that we filed with the SEC for a more detailed explanation on some of the quarter results I will be highlighting today. For the three months ended September 30, 2021, we reported a record revenue of approximately $15.3 million compared to the $10.2 million for the three months ended September 30, 2020. This represents a 50% increase in sales. Our gross profits for the quarter ended September 30, 2021 was approximately $5.2 million compared to the approximately $3.6 million for the quarter ended September 30, 2020. The decrease in our gross margin percentage was attributed to an increase in raw material and freight costs.
Total operating expenses for the three months ended September 30, 2021 was approximately $15.4 million compared to approximately $7.8 million in the prior year quarter. Total operating expenses increased primarily due to higher freight costs to our customers and additional promotional expenses relating to our new brand ambassador. Net loss for the quarter ended September 30, 2021 was approximately $10.4 million compared to the net loss of $4.4 million in the quarter ended September 30, 2020. Net loss per share in the quarter ended September 30, 2021 was $0.11 per share.
Cash used by our operations during the nine months ended September 30, 2021 totaled approximately $18.7 million as compared to $8.1 million of cash used by operations in the nine months ended September 30, 2020. The increase in cash used by operations is primarily due to our increased net loss and an increase in cash used to fund our working capital. We believe that cash on hand, which was approximately $10.4 million at September 30, 2021, plus our line of credit and the sales agreement with Roth Capital Partners detailed on our 10-Q, will adequately fund our current planned operations and capital needs over the next 12 months. With that, I'll turn it back to Ricky. Thank you.
Thank you for all your time today. I've often heard people say that they have prepared their whole life for this moment. I know that over the past 18 months, the employees of Alkaline88 have prepared for the significant growth that is upon us. Going into and coming out of COVID, our brand, Alkaline88, has been the benefactor of their hard work. It really feels like this is our moment. It's now. We are prepared. With the investments we've made in our infrastructure and co-packing network, with our theoretical capacity now over $250 million wholesale, with all the opportunities that are in front of us, we have the ability to grow, support, and meet demand. Now that we added Shaquille and the omni-channel marketing program to the mix, I truly believe this next year that the sky is the limit for The Alkaline Water Company.
I appreciate your patience and confidence in me and our management team. We are truly creating something special here that will bring tremendous value in the near future. Thank you again, and have a great rest of your day. Now I will turn it back to our host for questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Hello?
Thank you. Our first question is from Aaron Grey with AGP. Please proceed with your question.
Good afternoon. This is Andrew Vaughan on the line for Aaron Grey. Thank you for taking our questions.
First question.
Good afternoon. First question is just on California CBD. With the California CBD bill now being passed, can you speak to your path to market and how you plan to sell your CBD water in more traditional brick and mortar, particularly as other large competitors look to do the same? Thank you.
Yeah. Well, again, going back to, you know, we prepared for this for a long time. We actually were prepared for the farm bill in 2018. We began that journey clear back in June 2018. If you look at who we sold to, we are now the seventh largest, at least the last four weeks data, the seventh largest value-added water in the grocery channel, which is all the traditional channels that, as you've just spoken to. Those buyers are traditionally the category buyers for our CBD water as well. Those doors are wide open to us. Our brokers know that we are also looking for those opportunities now that the CBD is being taken justifiably in California, and we are ready to take advantage of those relationships.
We've already had numerous inquiries, and we know that we'll be on the shelves very shortly in California. We did in fact double-check our compliance with our attorneys, and we talked to actually the California Liquor Board to make sure that we're in full compliance with even on the distribution side. We're ready to roll. We have a great delivery system in this Vessl. One of the biggest issues is that the CBD tends to go bad if it's set out in light and our CBD sits in an airtight container for up to five years with little or no degradation. We think we have a fresher product, fresher ingredients, better tasting, and we think that we have something that the consumer in California and New York and Texas will step up to the plate and buy.
Great. Thank you. That's really helpful detail. How should we think about spring shelf resets at retail and the opportunities to increase your ACV during the period? Do you feel like retailers have returned to a sense of normalcy in terms of resets?
Yeah, it's something that we worked very hard at. Of course, last year we were disappointed, but I guess, you know, when you're growing as well as we did in organically, you know, we still did better than I think any of our competitors. You know, that was a good feeling last year because of the organic growth. We absolutely believe that we're getting resets. I mean, the first example of that is obviously Sam's Club. The second example was GNC. If you listen closely, I've indicated there are 85,000 places that we are looking to place additional product this year, either in an SKU increase, a SKU increase and/or brand new customers. You know, I think in one of my press releases, I gave some guidance on where we expect to go from 75,000.
I think it was 90-110. We do expect a big increase over the next 12 months in store level count.
Excellent. That's it from our side. Thanks very much.
Thank you.
Thank you. Our next question comes from Kevin Dede with HCW. Please proceed with your question.
Hi, Ricky. Hi, David. Thanks for taking my call.
Hi, Kevin. How are you today?
Doing well and always happy to see good numbers. Quick question on Vessl. The CBD is enclosed in that cap, and will that cap only mate with your bottles, or could someone use it with others? How do you sorta control that? Then how does your-
What?
How does your customer, you know, refill that bottle? I just looked on their webpage.
Once it twists to the right or to open up, it. That's when it infuses, and then it's a one and done. But there's no change in behavior. You simply unwind it, untwist it off and put the cap down, and then you're drinking the beverage. There's no mixing, no shaking. You know, a lot of these activate type of products that you push down and shake up, you get floaties. No floaties. Everything starts as a liquid, ends as a liquid. 110 pounds of pressure, instantly done. Kevin, you asked a good question on innovation. We are looking to put together a cap that when you put it onto the product. It will open up. In that case, you would be able to use it in some other areas.
We're looking to maybe create a different size cap and give you a fully recyclable bottle. You know, we would again be working towards our sustainability efforts and cutting down the carbon footprint by being able to send. I think you can send 31 truckloads equivalent of water. Then, of course, we give everybody a coupon for delicious Alkaline88 that they could pick up at their local store. We're moving in both innovations on that, Kevin, but it's a one and done at the moment.
You offered great color on introducing CBD in California, but your prepared remarks referenced Texas and New York. How should we look at timing there?
Texas and New York. Our attorneys got back to us on New York just this week in terms of we just need to make a few tweaks on our labeling. Then Texas, we're preparing that same kind of overall critique just to make sure our labels are compliant. We've asked the attorneys for that input this week. The big impetus was once AB-45 passed. Yeah, I'm getting scan signals here, Kevin. Sorry. We just decided to go full bore with the Vessl and full bore into California because it's our backyard, and that's where we started. I would say that, you know, we've been in that market for nine years.
We continue to grow an amazing 20-some percent a year in that market with our Alkaline88 water, and most of those buyers literally love us. We had one guy last year say that during COVID, we literally saved his ass because we were the only guys delivering water. I apologize for my profanity, but it's a direct quote. I would never talk that way.
Right. Well, you know, people that have donkeys, they need water.
Yes.
I get it. I think the big question, I mean, for me, Ricky, is just how to sort of sift through all the initiatives underway and prioritize them from your operational perspective and in terms of what you think they'll contribute to growth. As.
Sure.
I mean, I know I'm kind of shooting here, and it might be.
I can give you color, though.
A tough one to answer.
I can give you color, though, Kevin. I'm just doing
'Cause you got the Caribbean, Canada, Mexico, CBD, you know, 75-90,000 doors. Yeah. Thanks.
Yeah. I'll give you some color on that, Kevin. You know, some of it has to do with, you know, we used to run this business with very lean staff. I mean, I think two years ago you talked to us, we were doing 19 people and averaging over $2 million revenue per employee, slightly better than Apple at the time. Now, of course, we're up to, I think, 44 employees total, looking to add to that and staff up. Some of it just has to do with the fact that I and the management team has lightened the load with respect to what the top-level management's been doing. We brought in a Director of Operations. We brought in, too, a Chief Marketing Officer.
We brought in a specialist only in hospitality and a specialist only in e-commerce. All those areas used to kind of fall under the top two or three guys in the company, and now we've got seven or eight. I think, first of all, even though it looks like we've got a lot of initiatives, we have staffed up for those initiatives. That would be the first thing I would say in, as part of that answer. To give you some color where we think it's going to be over the next 12 months, and particularly the biggest impact next year, you know, it's a crapshoot in one sense, but I think it's easy to look to the extent that Shaq and the Shaq Paq, our 2 L, we do believe that'll be a leading sales product next year.
We have a ton of interest in that, and we see that as a major benefit, you know, adding $several million to our overall top line. We see for the first time in literally 18 months, the stores that we have been pounding on the doors, and I can't give you names right now, but, you know, let's just say there's 20-some thousand retail brick-and-mortars or more that we're pounding on. We see those opening up. Candidly, Shaq is helping some of that. You know, he does make us a legitimate brand. It does make us look like a major brand, and we are, by the way. But it gives us some gravitas that we did not have previously with the buyers.
You know, Shaq will work that in for us. He actually does calls. He does Zoom calls for us. He does, you know, tapes for us. Shaq is very, very active in that process with us. We see those resets happening in the first quarter, most of them. We see, you know, we say our normal growth is 20%-25% on our normal. Say that I'm gonna get 15% from that. Say that I'm gonna get another couple from Alkaline88 in terms of new product SKUs, maybe a tiny bit more. Then the two wild cards for us this year, or really three now that AB-45 has started. CBD has a great chance of being a great product, and we've got plenty of Vessl now ordered. They're on the water coming over.
We've got a bunch in stock here in the U.S. We're using, if you didn't notice, and I think this is a huge nuance to the people listening. Is that we're using Alkaline88 as the base water, which avoids a huge stink, Kevin. It avoids us having to go to a hot fill and allows us to produce this in plants that we're already operating in. Huge change to our supply chain. You know, it's a tremendous shift for us. Allows us to go into other functional hydration areas as well. That's the one. I would say the biggest wild cards are e-commerce, and bringing a guy in from Essentia was critical to us because we wanted somebody who knows the category. We wanted to understand somebody that had the relationships. We didn't want to start from scratch.
We began with bringing Chris Pitman in, and he's only been there a couple of months. The onboarding for that's about a 12-week period. We'll see the benefits of that beginning first quarter. You take somebody like Essentia. I think last year they did over $50 million. I think Hint did $40 million in e-commerce. These are records I pulled off the public records. I think Flow did $5 million or $6 million in e-commerce. We did nowhere near those numbers, and so that's a big area for growth. I think we can get another 10% there. Then hospitality, you know, coming out of pandemics, Gary Bliss is what I would call an elephant hunter.
Gary gives me, you know, pause to just look and say, okay, everything that he's looking at and everything he's going after is in the 10, 15, 20 thousand headcounts in terms of locations. We see there being some big answers. I don't know what the impact of that could be. Excuse me. Got to take a quick sip there, Kevin. I don't know what the impact of that will be, but those two are kind of the wild cards for us that could push us and accelerate at least to that 50% growth factor that we think we're on that trajectory right now.
Okay. That helped a lot. Thank you. A quick question for David. The expense trajectory's been pretty severe through the first half of this fiscal year. Granted you got some big hitters, you know, to help drive the business. I'm just wondering how you think we should look at that line, going forward?
Like the increase that we've had for the first two quarters, we don't expect that for the next two quarters because, A, one of the main drivers was freight costs significantly went up, the freight from our plant to our customers, which is in sales and marketing expense. That was a significant increase in the first two quarters. We're seeing that expense stabilize and hopefully by the fourth quarter of our fiscal year, we'll actually start to get back to normal. Then in the second quarter, we had some significant marketing costs, specifically production costs relating to the Shaquille O'Neal commercials that Ricky talked about. Those expenses will not be in the next two quarters, but we will have some traditional marketing expense relating to playing those commercials.
you know, hopefully that will have a effect with our sales as well. you know, in the first quarter and second quarter, we did have one-time expenses relating to first the Shaquille O'Neal endorsement contract and then also just the production expenses.
Right. David, you
Yeah, sorry. Go ahead, Ricky.
Kevin, another way that you know one of the reasons we pushed so hard to open these plants, you know, we had plenty of water. We were very, very fortunate to bring a lot of our production stateside two years ago. Again, we weren't looking at tankers sitting off the coast of California, hoping that something got unloaded. We were producing and still are and getting stuff to our customers. Some of that, we've gone from like 3.3% last year in the Southeast in terms of market share. I just looked at the report before I came in. The last four weeks we were over 5% share. All of a sudden, you know, the Southeast just has blown up for us.
Thank you, Publix and Whole Foods and Winn-Dixie, et cetera, Food Lion. We didn't anticipate that kind of growth so rapidly. It's a pleasure to have. A lot of what we had to send, we had to send from our East Coast facilities. David and I talked last week, and we will save literally hundreds of thousands of dollars next quarter because we've opened up the new plant last month or a month and a half ago in North Florida. Those are the kind of things that are gonna help us equalize some of those costs as well.
Okay. If I remember correctly, you were trying to open distribution in the Northeast too. Can you sort of give us a rundown on your plans and distribution centers, the count and maybe how that's changed over the past year?
If I told you, I'd have to kill you. No. We're on our way there, Kevin. You're gonna have to wait a couple more weeks for those announcements. You know, we never announce anything till we get the PO. It's never done until the PO comes in, but we have some news there. Hopefully, you know, knock on wood, that does occur. We do have some DSD networks that have offered to come in and help us, and we've recently changed brokers there too as well help us in some of the major areas of growth. You will also see some pretty big things happening for us in the Northeast on the marketing side as well. I don't know when those will announce, certainly before Thanksgiving.
You'll see some huge announcements, I think, in the Northeast that will continue to drive our traffic. The Ohi one was brought to us, and that's kind of a cool thing. That's a distribution that you get two-hour delivery for our product that's happening, opening up in L.A. and New York. We have the Ricky Wright model, where we send full truckloads in, so we're not shipping 52 x to a single, you know, different places and using all that carbon footprint. We're able to make a profit on it, and then they're delivering within two hours. That's one of the reasons that we're throwing some marketing dollars into the New York City because we're gonna have that opportunity to drive traffic there as well. You're gonna see a bunch of good stuff in the Northeast.
We're still only about 1% of that market, Kevin. Obviously, you know, if we could get to a 3.5% or 4% share, you know, it'd be another $10 or $15 million, $20 million in sales just there alone.
I misarticulated my question, Ricky. I meant in your own production plants.
Well, we've got openings already. You know, one opened up two weeks ago in Western Pa. They are New York licensed, so that's good news. Virginia's still operating like a charm. We are looking for an additional location in the Midwest/Mid-Atlantic area. You know, it just depends on, you know, where you draw that line. But it's close to borders, but right on major freeways. We're shoring up the entire East Coast. We just opened a major one in Florida that has tremendous capacity as well. Yes, we've done a really good job, my operations team, in locating, installing. We've entered into an agreement to make sure that we don't lose our machines, that we have exclusivity there now that I don't know that it's a material event, so we never announced it.
We did lock up an exclusivity with our machine manufacturer for the next two years. We're in pretty good stead across the production lanes.
Could you give me a rough count on the number of production sites you have now versus a year ago?
Yeah, I think last year we were at 8. I think we're at 12 today.
Okay.
We have at least two more coming online.
Okay.
So we'll be.
I think that.
13, 14.
I'm sorry, go ahead, Ricky.
We've hit that 13-14 mark, and we look every day, Kevin. That's one of the things that, you know, we're headed out every day to make sure that we're in the locations that make the most sense logistically and that we can get the most efficient operations as well. That not just means it's full charge, but also based on where, you know, we now have redundant suppliers. We now have East Coast, West Coast suppliers. We wanna try to make sure our plants are also close to who's bringing in the raw materials.
David, you mentioned fourth quarter sort of returning to normal, and I'm sort of buzzing here trying to figure what normal looks like. The past.
I.
Yeah, the past three or five quarters have been up and down. Just on the selling and marketing line.
Yeah, I thought I used the word hopeful. Hopefully, we would return to normal.
Okay.
I was specifically talking about the freight costs, which, you know, the past two quarters have been, you know, dramatically almost double the first quarter and more than double this quarter than the prior year. I was kind of using that specifically. Hopefully, freight would come back to normal. Maybe that's a little bit too much hope than not. I mean, we certainly have not seen the increase now as we saw the previous six months.
Then Kevin, the other thing that I don't think that, you know, we mentioned in this call, but I think it is important for people to understand that we did implement our first ever price increase to our retailers, which is not in full effect across all companies yet. You know, a lot of these guys we had year-long deals with. So some of those are coming off and I think on average, it was about 9%, David?
Right.
you know, we will get some of the pressure on the margins reduced because we'll have additional margin that the retailers will pick up and pass on to the consumers.
Well, that's a really interesting point, Ricky, given inflation bearing down on consumers. How do you think your price change pits you against the major competitors that you see? I guess if you could, you know, dive in a little bit on, you know, convenience versus big box.
Yes. Kevin, you, I'll answer both of those. You know, we've done a bunch of elasticity demand studies in the past. We still see, you know, I can give you empirical data, but on our direct-to-warehouse and some of our major brands, you know, we're out of stock, let's call it 10%-15%. I know that retailers say, hey, our customers go there and say, I don't have any on the shelf. Well, believe me, it's not because we're not hitting the warehouse. Okay. We're hitting the warehouses at some of the best rates in the country, almost 100% on-time deliveries. That's not the issue. I see this, to me, the elasticity demand that we could actually increase price and not lose any customers. That's the first answer.
Then with respect to our competitors, we still kinda have, at least in the emerging brands, you know, we don't use a DSD model at all, Kevin, in most of our places. So we still have that DSD margin that we haven't reached yet, so we're still a great value to the consumer. Finally, in terms of C stores, C stores was you know a long haul for us to get the momentum we now have. And Hensley and Nevada Beverage and Mahaska and have really shown us, at least at the C store channels, that this is a real opportunity for growth.
I think I said in my speech, I walked into a QT, which is a pretty big brand, a pretty big C store group here, and saw 100 bottles sitting on the floor, which, you know, warmed my heart. I've been to a number ever since and we've got really good displays. I don't have the numbers yet on all the pull-through, but I know that our DSD partners are reordering at a pretty frequent rate, which bodes well for our future and maybe bodes well for that Northeast model we've been continuing to try to pound the rock and finally break through on.
Thanks, Kevin, for entertaining all my questions. I really appreciate it.
Good. Have a great day.
Thank you. There are no further questions at this time. I would like to turn the floor back over to Ricky Wright for any closing comments.
Again, thank you very much for having faith in the team and the management. You know, it's great to be part of the Alkaline88 team here. We've got a great board. We've got great employees. We've got great new add-ons in the past 12-18 months, and we have probably the world's best brand ambassador in Shaquille O'Neal. We see growth in every place we're looking. We see organic growth. We see growth by new adds, new retailers, new hospitality areas. You know, in the Northeast, as Kevin asked, you know, we see the beauty of being in three of the largest airports in the world, in LaGuardia, JFK, and Newark, and having plans to make some noise in New York City over the next year and a half with our brand ambassador.
We see that as a huge upside for us. We see this company returning to hyper growth, which I've always defined as 35%-50%. You know, with our movement in the CBD and in the e-commerce and the hospitality, coupled with all the other things we're doing, we could really have a tremendous year next year. I still believe we're one of the most undervalued stocks on Nasdaq. Our upside is so great. If you look at what just happened with BODYARMOR, of course, they're valued at $8 billion. I'd love to have that number. You look at what's happened to Celsius in the last couple years. Ironically, our U.S. sales is about two years behind where their U.S. sales were. We're looking for that kind of growth and that kind of opportunity.
I wanna thank everybody for taking the time to spend this time with us today. Thank you, Mr. Host, for making this happen as well. Have a great day, everyone.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.