Flow Beverage Corp. Reports Sustained Flow Brand Growth and Transformation on Track

Rhea-AI Summary

Flow brand net revenue 21% higher than Q3 2022, increased to $10.5 million in Q3 2023. Consolidated net revenue 8% higher than Q3 2022, increased to $13.8 million in Q3 2023. Gross margin of 21% in Q3 2023, as compared to 28% in Q3 2022. EBITDA Loss of $9.7 million in Q3 2023 includes $3.8 million in non-recurring costs, compared to $8.9 million in Q3 2022. The Company maintains its anticipated cost savings from optimization initiatives of $22-$26 million relative to fiscal 2022. Planned sale of the Aurora production facility is advancing through a brokered process.

Positive

• Flow brand net revenue increased by 21% in Q3 2023. Consolidated net revenue increased by 8% in Q3 2023. Anticipated cost savings of $22-$26 million. Planned sale of Aurora facility progressing well.

Negative

• Gross margin decreased to 21% in Q3 2023. EBITDA Loss increased to $9.7 million in Q3 2023. Non-recurring costs of $3.8 million in Q3 2023.

• Flow brand net revenue 21% higher than Q3 2022, increased to $10.5 million in Q3 2023
• Consolidated net revenue 8% higher than Q3 2022, increased to $13.8 million in Q3 2023
• Gross margin of 21% in Q3 2023, as compared to 28% in Q3 2022
• EBITDA Loss of $9.7 million in Q3 2023 includes $3.8 million in non-recurring costs, compared to $8.9 million in Q3 2022
• The Company maintains its anticipated cost savings from optimization initiatives of $22-$26 million relative to fiscal 2022
• Planned sale of the Aurora production facility is advancing through a brokered process

TORONTO--(BUSINESS WIRE)-- Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (the “Company” or “Flow”), today announced its financial results for the fiscal quarter ended July 31, 2023 (“Q3 2023”). All currency amounts are stated in Canadian dollars unless otherwise noted.

Nicholas Reichenbach, Chairman and Chief Executive Officer of Flow, stated: “We achieved a significant milestone in Q3 2023, reaching over $10 million in Flow brand net revenue for the first time. Our most recent successes in Flow brand sales have been from adding new retail stores, expanding the food service channel with partners like Starbucks and Live Nation, and a meaningful impact from our latest innovation, Vitamin-Infused water. Strategically, we feel we are in the final stages of our transition to an asset-light business model. While not without its challenges, our operational transformation is nearly complete and the sale process for the Aurora facility is progressing well. We expect the monetization of the Aurora facility will bolster our balance sheet and provide the necessary capital to position Flow for profitable growth, making this transaction a significant value unlocking milestone for Flow shareholders.”

Trent MacDonald, Chief Financial Officer of Flow, added: “We have a clear path towards normalized gross margin¹ and our transformation initiatives are still expected to reach our cost savings target of between $22-$26 million from fiscal 2022 levels. Our profitability was impacted by $3.8 million of non-recurring costs in Q3 2023, and the quarter only included a partial impact from our recently announced restructuring. Part of our non-recurring costs were also incurred to support Flow’s transition to third-party logistics, a project which has been ongoing since the beginning of Q3 2023 and should be complete in Q4 2023. We believe our four-pillar plan can be executed without compromising our growth trajectory, although the cost savings are now expected to be realized in the fiscal fourth quarter of 2023 and into fiscal 2024.”

Financial Results for Q3 2023

Consolidated net revenue was $13.8 million in Q3 2023, as compared to $12.7 million for the fiscal quarter ended July 31, 2022 (“Q3 2022”). Consolidated net revenue includes 21% growth in Flow brand revenue to $10.5 million. The increase in Flow brand revenue was due to new retail locations, new food service contracts and innovations performing ahead of expectations. Off-setting the Flow brand growth in part was the impact of the Company’s technological transformation to its e-commerce business, which resulted in service interruptions to U.S. subscribers in the months of May and June. Net co-packing revenue decreased 19% to $3.4 million due to the sale of the previously held Verona, Virginia, production facility (the “Verona Facility”).

Gross margin¹ was 21% in Q3 2023, as compared to 28% in Q3 2022. Gross margin¹ was impacted by an ongoing, but temporary, change in sales mix in favour of food service customers as the Company continues to convert new customers into higher margin channels. Also impacting gross margin¹ were the costs associated with a change in fulfilment methodology related to a significant portion of the Company’s e-commerce sales, which has since been rectified, along with the service interruptions to U.S. e-commerce subscribers in May and June.

Flow reported an EBITDA² Loss of $9.7 million in Q3 2023, as compared to an EBITDA² Loss of $8.9 million in Q3 2022, primarily from increased general and administration expenses, which includes $3.8 million in non-recurring costs. The non-recurring costs are comprised of consulting expenses attributable to the Company’s transformation and the ongoing process to divest of our Aurora facility, temporary logistics costs as Flow transitions to third-party logistics, a one-time write-off of an accounts receivable and increase to the allowance for doubtful accounts, and true-up costs related to the sale of the Verona Facility.

Flow reported an Adjusted EBITDA² Loss of $7.7 million in Q3 2023, as compared to an Adjusted EBITDA² Loss of $6.4 million in Q3 2022. The Adjusted EBITDA² Loss is attributable to the same factors that impact EBITDA² Loss, removing stock-based compensation.

Flow reported $7.6 million of cash and $12.3 million of working capital as of July 31, 2023, up from cash of $2.3 million and working capital of $9.7 million as at October 31, 2022. The cash balance as of July 31, 2023, was impacted by timing of non-cash working capital items notably a temporary increase in accounts receivable of $7.9 million through Q2 2023 and Q3 2023, to $19.8 million, mostly related to the Verona divesture.

		Three months ended July 31					Nine months ended July 31
		2023	2022	Increase			2023	2022	Increase
In thousands of Canadian dollars, except percentage amounts		$	$	(Decrease)	%		$	$	(Decrease)	% Variance
Net revenue		13,780	12,718	1,062	8.4%		37,607	33,564	4,043	12.0%
Gross profit		2,958	3,608	(650)	(18.0%)		8,350	7,810	540	6.9%
Operating expenses		13,031	12,712	319	2.5%		32,849	35,929	(3,080)	(8.6%)
Finance expense, net		1,570	2,023	(453)	(22.4%)		3,833	4,666	(833)	(17.9%)
Restructuring and other costs		354	597	(243)	(40.7%)		1,236	621	615	99.0%
Net loss for the period		(11,549)	(11,482)	(67)	0		(29,378)	(33,093)	3,715	(11.2%)
EBITDA loss		(9,692)	(8,915)	(777)	8.7%		(23,815)	(26,887)	3,072	(11.4%)
Adjusted EBITDA loss		(7,684)	(6,391)	(1,293)	20.2%		(20,525)	(20,554)	29	(0.1%)
Adjusted net loss		(9,541)	(8,958)	(583)	6.5%		(26,088)	(26,760)	672	(2.5%)
Gross margin		21%	28%				22%	23%

(1)		Gross margin is a supplementary financial measure and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on the supplementary of financial measure. See “How We Assess the Performance of Our Business” for an explanation of the composition of such measure.
(2)		This is a non-IFRS financial measure and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS financial measure. See “How We Assess the Performance of Our Business” for an explanation of the composition of such measure.

	Three months ended July 31							Nine months ended July 31
In thousands of Canadian dollars, except percentage amounts
		2023			2022				2023			2022
Consolidated net loss:	$	(11,549	)	$	(11,482	)		$	(29,378	)	$	(33,093	)
Finance expense, net		1,570			2,023				3,833			4,666
Amortization and depreciation		287			544				1,730			1,540
EBITDA loss		(9,692	)		(8,915	)			(23,815	)		(26,887	)
Share-based compensation		1,654			1,927				2,054			5,712
Restructuring and other costs		354			597				1,236			621
Adjusted EBITDA loss	$	(7,684	)	$	(6,391	)		$	(20,525	)	$	(20,554	)
	Three months ended July 31							Nine months ended July 31
In thousands of Canadian dollars, except percentage amounts
		2023			2022				2023			2022
Consolidated net loss:	$	(11,549	)	$	(11,482	)		$	(29,378	)	$	(33,093	)
Share-based compensation		1,654			1927				2,054			5,712
Restructuring and other costs		354			597				1,236			621
Adjusted net loss	$	(9,541	)	$	(8,958	)		$	(26,088	)	$	(26,760	)

Conference Call Information

Date:		September 14, 2023
Time:		8:30 a.m. ET
Conference ID:		30199371
Dial-in:		(416) 764-8658 or (888) 886-7786
Webcast:		Link
Replay:		(416) 764-8692 or (877) 674-7070
		Passcode: 199371
		Available until October 14, 2023

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 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, collagen-infused and vitamin-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 54,000 stores across North America.

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

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.

Forward-Looking Statements

This press release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (“Forward-Looking Statements”). The Forward-Looking Statements contained in this press release relate to future events or Flow’s future plans, operations, strategy, performance or financial position and are based on Flow’s current expectations, estimates, projections, beliefs and assumptions. Such Forward-Looking Statements have been made by Flow in light of the information available to it at the time the statements were made and reflect its experience and perception of historical trends. All statements and information other than historical fact may be forward‐looking statements. Such Forward‐Looking Statements are often, but not always, identified by the use of words such as “may”, “would”, “should”, “could”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe”, “continue”, “expect”, “believe”, “anticipate”, “estimate”, “will”, “potential”, “proposed” and other similar words and expressions.

Specific Forward-Looking Statements contained in this news release include, but are not limited to, statements regarding Flow’s business strategy or outlook and future growth plans, expectations regarding the elevated pace of revenue growth, potential operational efficiencies to be realized and anticipation of profitability.

Forward-Looking Statements are based on certain expectations and assumptions and are subject to known and unknown risks and uncertainties and other factors, many of which are beyond Flow’s control, that could cause actual events, results, performance and achievements to differ materially from those anticipated in these Forward-Looking Statements. 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 should not be read as guarantees of future performance or results. Readers are cautioned not to place undue reliance on these Forward-Looking Statements, which speak only as of the date of this press release. Unless otherwise noted or the context otherwise indicates, the Forward-Looking Statements contained herein are provided as of the date hereof, and the Company disclaims any intention or obligation, except to the extent required by law, to update or revise any Forward-Looking Statements as a result of new information or future events, or for any other reason.

The following press release should be read in conjunction with the management’s discussion and analysis (“MD&A”) and consolidated financial statements and notes thereto as at and for the three months and nine months ended July 31, 2023. Additional information about Flow is available on the Company’s profile on SEDAR at www.sedar.com, including the Company’s Annual Information Form for the year ended October 31, 2022 dated January 29, 2023.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230914221346/en/

Trent MacDonald, Chief Financial Officer

1-844-356-9426

investors@flowhydration.com

Investors:

Marc Charbin

investors@flowhydration.com

Media:

Natasha Koifman

nk@nkpr.net

Source: Flow Beverage Corp.