Flow Beverage Corp. Reports Q2 2022 Financial Results, Revises Growth Guidance and Confirms Progress Towards Profitability

Rhea-AI Summary

Flow Beverage Corp (FLWBF) revised its net revenue growth target for FY 2022 to 25% - 30% from an initial 45% - 55%. Despite this adjustment, it maintains a target of 45% - 50% reduction in EBITDA loss for FY 2022. The brand captured 45% market share in the U.S. carton format shelf stable water segment, up from 38% a year earlier. Notable partnerships with Norwegian Cruise Line and Accor were established, enhancing distribution. In Q2 2022, net revenue was $9.0 million, down from $11.3 million in Q2 2021, with an EBITDA loss of $8.5 million, a 49% improvement year-over-year.

Positive

• Flow achieved 45% market share in U.S. carton format shelf stable water, up from 38% in 2021.
• Secured partnership agreements with Norwegian Cruise Line and Accor, expanding distribution.
• Investments in trade spend are expected to enhance revenue growth going into the summer season.
• Improvement in EBITDA loss by 49% year-over-year.

Negative

• Revised net revenue growth target for FY 2022 to 25% - 30%, down from 45% - 55%.
• Q2 2022 net revenue decreased to $9.0 million from $11.3 million in Q2 2021.
• Gross margin dropped to 12% in Q2 2022 from 35% in Q2 2021.

• Revising Flow brand net revenue growth target to 25% - 30% for FY 2022
• Maintaining Flow brand net revenue growth target of 45% - 55% for second half of fiscal 2022, relative to the same period prior year
• Maintaining target for overall reduction in EBITDA Loss¹ by 45% - 50% in FY 2022
• Flow Alkaline Spring Water became the number one carton format brand shelf stable water in the United States, increasing its Q2 market share to 45% in 2022 from 38% in 2021
• Signed food service sector contracts to become the official water partner of Norwegian Cruise Line and Accor hospitality group in North America and the Caribbean
• Added over 10,000 points of distribution in calendar 2022

TORONTO--(BUSINESS WIRE)-- Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (the “Company” or “Flow”), today announced its financial results for the three and six month periods ending April 30, 2022 (“Q2 2022” and “YTD Q2 2022,” respectively).

Nicholas Reichenbach, founder and Chief Executive Officer of Flow, stated: “During the second quarter, Flow brand growth remained strong through our e-commerce platform and in the gas and convenience channel in the Canadian market. During this period, Flow also made investments in trade spend in the U.S. retail market ahead of the revenue growth curve that have added points of distribution. Although the Company has revised its growth targets, we expect velocity at these new stores to improve as our relationships with new partners mature and summer activation programs take effect. Furthermore, the operational efficiencies and cost reductions we have implemented have set us on a path of continued improvement towards profitability.”

“Consumer demand for sustainable products is growing at a rapid trajectory and Flow is fortunate to have been sustainable since day one. Our investments into distribution and continued effort to maintain leading ESG credentials have resulted in adding thousands of points of distribution this year and securing meaningful contracts in the food service sector with reputable partners, leading hotel group Accor and Norwegian Cruise Line. Heading into the seasonally strong summer hydration period, we are excited for new formats of popular flavours and the launch of Vitamin Water.”

Operational Highlights During and Subsequent to Q2 2022

• Flow Alkaline Spring Water became the number one carton format brand shelf stable water in the United States, increasing its market share in the Multi-Outlet (MULO) and Natural retail sectors to 45% in 2022 from 38% in April 2021
• Signed an agreement with Norwegian Cruise Line (“NCL”) for Flow Alkaline Spring Water to become NCL’s official water, NCL is a leading global cruise line operating a fleet of 28 ships under the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands
• Flow became the official water partner of Accor in North America and the Caribbean, Accor is the second largest luxury hotel operator in North America
• Began the launch of Flow to more than 70 luxury hotels operated by Accor
• Flow published its first Sustainability Accounting Standards Board (“SASB”) Report covering the 2021 fiscal year, SASB is one of the most widely accepted voluntary public disclosure frameworks that provides transparent and relevant corporate responsibility information to investors and other key stakeholders
• Launched EcoCart on the Company’s e-commerce platform at www.flowhydration.com, EcoCart makes it possible for Flow to offset carbon emissions on each customer order placed on its website by donating to carbon emission reduction projects and making every order on its site carbon neutral
• Joined The Climate Pledge, a community of more than 300 like-minded companies committed to achieving net-zero carbon by 2040 or sooner
• Activated the Company’s partnership with the New York Road Runners at the United Airlines NYC Half Marathon

Company Outlook and Strategic Framework for FY 2022

The Company’s strategy is focused on the long-term profitable growth of the Flow brand. Industry trends for premium, sustainable and enhanced water remain favourable. Flow has added over 10,000 points of distribution through its DSD strategy in 2022, bringing its total to over 35,600, and has secured several authorizations from large retailers. Elevated demand for sustainable product formats, investments made into trade spend, and recent contract wins, particularly in the food service sector, are expected to help accelerate growth of Flow brand net revenue during the seasonally strong summer hydration season.

The Company remains committed to achieving its net revenue growth target for the Flow brand of 45% to 55% in the second half of fiscal 2022, relative to the same period in the prior year. As a result of investments into trade spend in the U.S. market that increased store count, the Company does not expect to achieve its financial target of net revenue growth for the Flow brand of 45% to 55% for fiscal 2022. Flow now expects net revenue growth for the Flow brand of 25% to 30% for fiscal 2022.

Flow plans to maintain the significant improvements and efficiencies it has implemented across its cost structure. As net revenue increases in the second half of fiscal 2022 and comparable periods reflect the cost structure of a public company, Flow expects to generate continued EBITDA improvements. The Company is maintaining its target of 45% to 50% EBITDA improvement and improved capital efficiency for FY 2022.

Flow will continue to utilize co-packing opportunistically to optimize capacity and absorb fixed costs.

Financial Results for Q2 2022

Consolidated net revenue was $9.0 million in Q2 2022 as compared to $11.3 million in Q2 2021. Consolidated net revenue was $20.8 million for YTD Q2 2022 as compared to $20.3 million for YTD Q2 2021. Increased Flow brand net revenue through e-commerce and new stores in Canada was offset by trade spend costs in the U.S. in advance of in-store activations. Net revenue from co-packing reflected lower demand from co-packing partners.

Gross margin was 12% in Q2 2022, as compared to 35% in Q2 2021, and gross margin was 20% for YTD Q2 2022 as compared to 32% for YTD Q2 2021. Flow continues to benefit from improved efficiency and consistent costs of raw materials and packaging. These factors were offset by lower demand for co-packing services which resulted in the under-utilization of new production lines added in Q4 2021, higher relative shipping costs to service COVID-related re-openings of certain customers in Q1 2021 and factors related to trade spend that impacted net revenue in Q2 2022.

Flow reported an EBITDA Loss of $8.5 million in Q2 2022, a 49% improvement from Q2 2021, and a loss of $16.4 million for YTD Q2 2022, a 38% improvement from YTD Q2 2021. The improvement in EBITDA Loss is attributable to a significant reduction in stock-based compensation, as well as decreases to sales and marketing and salaries and benefits expenses.

Flow reported an Adjusted EBITDA Loss of $6.9 million in Q2 2022, a 2% increase from Q2 2021, and a loss of $12.6 million for YTD Q2 2022, a 16% increase over YTD Q2 2021. The variance in Adjusted EBITDA Loss is attributable to the same factors that impact EBITDA Loss, removing stock-based compensation.

With respect to capital management, capital expenditures have declined by $4.2 million, or 86%, in YTD Q2 2022, compared to YTD Q2 2021.

		Three-month periods ended													Six-month periods ended
In Canadian Dollars		April 30, 2022							April 30, 2021						April 30, 2022							April 30, 2021
		$				% of			$			% of			$				% of			$				% of
						Revenue						Revenue							Revenue							Revenue
Net revenue			8,958,241			100	%		11,289,680			100	%			20,846,176			100	%			20,310,694			100	%
Cost of revenue			7,839,878			88	%		7,319,119			65	%			16,644,524			80	%			13,785,590			68	%
Gross profit(1)			1,118,363			12	%		3,970,561			35	%			4,201,652			20	%			6,525,104			32	%
Operating expenses
Sales and marketing			1,357,227			15	%		2,840,468			25	%			2,820,822			14	%			3,805,012			19	%
General and administrative			4,011,680			45	%		4,431,507			39	%			8,120,671			39	%			7,112,596			35	%
Salaries and benefits			3,830,089			43	%		4,143,188			37	%			7,494,902			36	%			7,592,752			37	%
Amortization and depreciation			491,611			5	%		486,423			4	%			995,765			5	%			985,828			5	%
Share-based compensation			1,605,502			18	%		7,036,876			62	%			3,784,483			18	%			12,719,981			63	%
			11,296,109			126	%		18,938,462			168	%			23,216,643			111	%			32,216,169			159	%
Loss before the following			(10,177,746	)		-114	%		(14,967,901	)		-133	%			(19,014,991	)		-91	%			(25,691,065	)		-126	%
Other income			(24,249	)		0	%		(17,965	)		0	%			(15,566	)		0	%			(73,822	)		0	%
Finance expense, net			1,514,720			17	%		1,130,765			10	%			2,642,900			13	%			2,916,333			14	%
Foreign exchange loss (gain)			29,598			0	%		239,054			2	%			(55,334	)		0	%			214,996			1	%
Reverse take-over costs			—			0	%		457,421			4	%			—			0	%			607,083			3	%
Restructuring and other costs			—			0	%		2,515,293			22	%			23,785			0	%			2,515,293			12	%
Loss before income taxes			(11,697,815	)		-131	%		(19,292,469	)		-171	%			(21,610,776	)		-104	%			(31,870,948	)		-157	%
Income tax expense			—			0	%		—			0	%			—			0	%			—			0	%
Net loss for the period			(11,697,815	)		-131	%		(19,292,469	)		-171	%			(21,610,776	)		-104	%			(31,870,948	)		-157	%
EBITDA Loss(2)			(8,532,904	)		-95	%		(16,793,389	)		-149	%			(16,425,389	)		-79	%			(26,683,231	)		-131	%
Adjusted EBITDA Loss(2)			(6,927,402	)		-77	%		(6,783,799	)		-60	%			(12,617,121	)		-61	%			(10,840,874	)		-53	%
Adjusted Net Loss(2)			(10,092,313	)		-113	%		(9,282,879	)		-82	%			(17,802,508	)		-85	%			(15,601,091	)		-77	%
Loss per share - basic and diluted		$	(0.22	)					(0.48	)					$	(0.40	)					$	(0.80	)
Weighted average number of			53,976,325						40,037,268							53,863,341							39,695,674
common shares outstanding - basic and diluted
Total Assets			111,170,256
Non-Current Liabilities			33,534,732

(1)		Gross margin is a supplementary financial measure and is used throughout this press release. See "Non-lFRS and Other Financial Measures" for more information on the supplementary financial measure.
(2)		This is a non-IFRS financial measure and is used throughout this press release. See "Non-lFRS and Other Financial Measures" for more information on each supplementary financial measure.

		Three-month periods ended								Six-month periods ended
In Canadian dollars		April 30, 2022				April 30, 2021				April 30, 2022				April 30, 2021
Consolidated net loss:		(11,697,815	)			(19,292,469	)			(21,610,776	)			(31,870,948	)
Income tax expense		—				—				—				—
Finance expense, net		1,514,720				1,130,765				2,642,900				2,916,333
Amortization and depreciation		1,650,191				1,368,315				2,542,487				2,271,384
EBITDA Loss		(8,532,904	)			(16,793,389	)			(16,425,389	)			(26,683,231	)
Restructuring and other costs		—				2,515,293				23,785				2,515,293
Share-based compensation		1,605,502				7,036,876				3,784,483				12,719,981
Reverse take-over costs		—				457,421				—				607,083
Adjusted EBITDA Loss		(6,927,402	)			(6,783,799	)			(12,617,121	)			(10,840,874	)
		Three-month periods ended								Six-month periods ended
In Canadian dollars		April 30, 2022				April 30, 2021				April 30, 2022				April 30, 2021
Consolidated net loss:		(11,697,815	)			(19,292,469	)			(21,610,776	)			(31,870,948	)
Restructuring and other costs		—				2,515,293				23,785				2,515,293
One-time debt settlement costs		—				—				—				427,500
Share-based compensation		1,605,502				7,036,876				3,784,483				12,719,981
Reverse take-over costs		—				457,421				—				607,083
Adjusted Net Loss		(10,092,313	)			(9,282,879	)			(17,802,508	)			(15,601,091	)

Conference Call Information

Date:		June 14, 2022
Time:		9:00 a.m. ET
Conference ID:		34018934
Dial-in:		(416) 764-8646 or (888) 396-8049
Webcast:		Link
Replay:		(416) 764-8692 or (877) 674-7070
		Passcode 018934
		Available until July 14, 2022

About Flow

Flow is one of the fastest-growing premium water companies in North America. Founded in 2014, Flow’s mission since day one has been to reduce environmental impacts by providing sustainably sourced naturally alkaline spring water in a sustainable, 100% recyclable and up to 75% renewable, plant-based pack. Today, the brand is B-Corp Certified with a best-in-class score of 126.5, offering a diversified line of health and wellness-oriented beverage products: original naturally alkaline spring water, award-winning organic flavours, and collagen-infused flavours in sizes ranging from 330-ml to 1-litre. All products contain naturally occurring electrolytes and essential minerals and support Flow’s overarching purpose to “bring wellness to the world through the positive power of water.” Flow beverage products are available online at flowhydration.com and are sold at over 35,600 stores across North America.

For more information on Flow, please visit Flow’s investor relations site at: investors.flowhydration.com.

Cautionary Statement

This press release may contain “forward-looking statements” within the meaning of applicable Canadian securities legislation. Such forward-looking statements include, but are not limited to, information with respect to our objectives and the strategies for achieving those objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimates and intentions. Forward-looking statements are typically identified by the use of words such as “may”, “would”, “should”, “could”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe”, or “continue”, although not all forward-looking statements contain these words. Forward-looking statements are provided for the purposes of assisting the reader in understanding Flow and its business, operations, prospects, and risks at a point in time in the context of historical and possible future developments, and the reader is therefore cautioned that such information may not be appropriate for other purposes. Forward-looking statements are based on assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking statements. Those risks and uncertainties include the following: impact and spread of COVID-19; ability to achieve and manage growth; failure to expand sales capabilities; changes in consumer preferences; criticism of packaged water; maintain brand image and product quality; constrained or unavailable spring water sources; inability to package products; increased competition; accurately estimating demand; maintaining relationships with distributors and vendors; changing retail landscape; incorrect product design or development; product information misrepresentation; revenues derived entirely from packaged beverages; increases in costs or shortages of materials; fluctuation of quarterly operating results; no assurance of profitability; fluctuations in foreign currency; changes in government regulation; contamination or recalls of ingredients or end products; loss of intellectual property rights; litigation; future tax rates; catastrophic events; climate change; seasonal business; dependence on key information systems and third-party service providers; ability to securely maintain confidential information; maintaining and upgrading information technology systems; conflict of interest; dual class share structure; potential volatility of share price; no assurance of active market for shares; lack of dividends; global financial condition; publication of inaccurate or unfavourable research and reports; operating history; and management and conflict of interests. Consequently, all of the forward-looking statements contained herein are qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation. Unless otherwise noted or the context otherwise indicates, the forward looking. statements contained herein are provided as of the date hereof, and we do not undertake to update or amend such forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Non-IFRS and Other Financial Measures

This press release makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including “Adjusted EBITDA Loss”, “Adjusted Net Loss”, and “EBITDA Loss”.

The Company uses a supplementary financial measure to disclose a financial measure that is not (a) presented in the financial statements and (b) is, or is intended to be, disclosed periodically to depict the historical or expected future financial performance, financial position or cash flow, that is not a non-IFRS financial measure as detailed above. We use the supplementary financial measure “gross margin”.

These non-IFRS and supplementary financial measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS and supplementary financial measures in the evaluation of issuers. Our management also uses non-IFRS and supplementary financial measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and to determine components of management compensation. For definitions and reconciliations of these non-IFRS measures to the relevant reported measures, please see “How We Assess the Performance of Our Business” and “Selected Consolidated Financial Information” sections of the Company’s Management Discussion & Analysis available on sedar.ca and investors.flowhydration.com.

1

This is a non-IFRS financial measure and is used throughout this press release. See "Non-IFRS and Other Financial Measures" for more information on each non-IFRS financial measure.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220615005044/en/

Devan Pennell, Chief Financial Officer

1-844-356-9426

investors@flowhydration.com

US investors:

Lynne Collier

Lynne.collier@icrinc.com

Canadian investors:

Marc Charbin

investors@flowhydration.com

Media:

Natasha Koifman

nk@nkpr.net

Source: Flow Beverage Corp.

FAQ

What is Flow Beverage's revised revenue growth target for FY 2022?

Flow Beverage Corp has revised its net revenue growth target for FY 2022 to 25% - 30%.

How much market share did Flow achieve in the U.S. carton format shelf stable water segment?

Flow achieved 45% market share in the U.S. carton format shelf stable water segment.

What were the net revenue figures for Flow Beverage in Q2 2022?

Flow Beverage reported a net revenue of $9.0 million in Q2 2022.

What EBITDA loss did Flow report for Q2 2022?

Flow reported an EBITDA loss of $8.5 million for Q2 2022.

What significant partnerships did Flow Beverage announce?

Flow announced partnerships with Norwegian Cruise Line and Accor, enhancing its distribution network.