Flow Beverage Corp. Reports Q2 2023 Financial Results

Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (the “Company” or “Flow”), today announced its financial results for the fiscal quarter ended April 30, 2023 (“Q2 2023”), as well as a cross-functional restructuring and its intent to divest of its Aurora production facility through a non-brokered process. All currency amounts are stated in Canadian dollars unless otherwise noted.

Nicholas Reichenbach, Chairman and Chief Executive Officer of Flow, stated: “Our team’s focus on diligently executing our plans for Flow brand growth and bottom-line improvement continues to produce strong results and transform the business. Expanding retail distribution and launching food service is paying off, with a 98% increase in Flow brand revenue in Q2 2023. Food service and new retail partners are bringing new customers to the brand, and our expanding channel network provides them with more places and occasions to enjoy Flow’s delicious taste, sustainable benefits, and unique product innovations, allowing Flow water to outperform incumbent water brands. We are also moving steadily towards our asset-light and streamlined operating model, now taking steps to leverage the value of the Aurora production facility, as we did with the sale of the Verona facility, and position the Company for profitability, financial flexibility, and further investment into revenue acceleration.”

Trent MacDonald, Chief Financial Officer of Flow, added: “As previously disclosed, Flow’s path to profitability has four components: the sale of the Verona production facility; securing financing; simplifying and optimizing our entire operation; and executing the most accretive strategic alternative for our Aurora production facility. With the first two steps complete, we are now executing on our third priority, recently launching an entirely new IT Ecosystem, and today completing a company-wide, cross-functional restructuring. We are also in the final stages of simplifying our logistics, shipping, and warehousing path to market. We anticipate the benefits of these initiatives to be realized in the back half of fiscal 2023 and into fiscal 2024. Further, in relation to priority four, we have recognized assets held for sale on our balance sheet as we evaluate strategic alternatives for the Aurora production facility, which we believe has a much higher value than the Verona facility we divested in November of 2022. As we continue to execute our plans, we strengthen the company’s position and move forward on our path to profitability. It’s very encouraging to see the results speak for themselves.”

Financial Results for Q2 2023

Consolidated net revenue was $14.0 million in Q2 2023, as compared to $9.0 million for the fiscal quarter ended April 30, 2022 (“Q2 2022”). Consolidated net revenue includes 98% growth in Flow brand revenue to $9.5 million. The increase in Flow brand revenue was due to new food service contracts, 74% growth in retail locations and innovations performing ahead of expectations. Net co-packing revenue increased 7% to $4.5 million, as compared to $4.2 million in Q2 2022.

Gross margin¹ was 18% in Q2 2023, up from 12% in Q2 2022. The improvement in gross margin¹ reflects the sale of the Verona production facility, which was under utilized in Q2 2022, and lower relative trade spend. Offsetting these improvements to gross margin¹ were a temporary change in sales mix comprised of a greater proportion of food service contracts, which while a lower margin channel, is strategically used to promote trial and bring customers into higher margin channels over time. There were also increased costs attributable to the ramp up of production in the Company’s Aurora facility.

Flow reported an EBITDA² Loss of $7.1 million in Q2 2023, as compared to an EBITDA² Loss of $8.5 million in Q2 2022, resulting primarily from the increase in gross profit and decreased stock-based compensation. EBITDA² Loss also includes $0.3 million of general and administration expenses relating to the Company’s operational transformation.

Flow reported an Adjusted EBITDA² Loss of $6.6 million in Q2 2023, as compared to and Adjusted EBITDA² Loss of $6.9 million in Q2 2022. The Adjusted EBITDA² Loss is attributable to the same factors that impact EBITDA² Loss, removing stock-based compensation and restructuring charges.

In April 2023, the Company made a strategic decision to pursue the sale of its production facility in Aurora, Ontario in order to allow the Company to focus on pursuing growth of the Flow brand and to simplify its operating structure. The Company is actively marketing the sale of the Aurora production facility and expects the sale to be completed within the next twelve months. Accordingly, Flow recorded $14.0 million in assets held for sale on its balance sheet as of April 30, 2023, and a corresponding liability of $8.3 million.

Flow reported $13.3 million of cash as of April 30, 2023. The cash balance as of April 30, 2023, was impacted by timing of non-cash working capital items of $4.0 million, notably a temporary increase in accounts receivable of $6.6 million from January 31, 2023, to $16.4 million. Flow also invested in operational improvements during Q2 2023 in advance of its restructuring announcement.

	Three months ended April 30
In Canadian dollars, except percentage amounts	2023		2022		2023 vs. 2022 Increase (decrease)
	$		$		$		%
Net revenue	13,975,452		8,958,241		5,017,211		56	%
Gross profit	2,473,199		1,118,363		1,354,836		121	%
Operating expenses	10,407,850		11,296,109		(888,259	)	(8	%)
Finance expense, net	1,872,781		1,514,720		358,061		24	%
Restructuring and other costs	330,612		—		330,612		n/m
Net loss	(10,130,334	)	(11,697,815	)	1,567,481		(13	%)
EBITDA loss	(7,116,665	)	(8,532,904	)	1,416,239		(17	%)
Adjusted EBITDA loss2	(6,642,223	)	(6,927,402	)	285,179		(4	%)
Adjusted net loss2	(9,655,892	)	(10,092,313	)	436,421		(4	%)
Gross margin1	18	%	12	%

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 April 30
In Canadian dollars		2023			2022
Consolidated net loss:	$	(10,130,334	)	$	(11,697,815	)
Income tax expense		—			—
Finance expense, net		1,872,781			1,514,720
Amortization and depreciation		1,140,888			1,650,191
EBITDA loss		(7,116,665	)		(8,532,904	)
Share-based compensation		143,830			1,605,502
Restructuring and other costs		330,612			—
Adjusted EBITDA loss	$	(6,642,223	)	$	(6,927,402	)
	Three months ended April 30
In Canadian dollars		2023			2022
Consolidated net loss:	$	(10,130,334	)	$	(11,697,815	)
One-time debt settlement costs		—			—
Share-based compensation		143,830			1,605,502
Restructuring and other costs		330,612			—
Adjusted net loss	$	(9,655,892	)	$	(10,092,313	)

Cross-functional Optimization

The Company has streamlined several corporate functions, resulting in a 30% reduction in the number of non-production and logistics corporate roles. Flow now anticipates overall cost savings of $22-$26 million relative to fiscal 2022, up from an earlier estimate of $20-$22 million. This range includes $13 million from the divestiture of the Verona production facility, $7-$9 million from logistics, shipping and warehousing, and $2-$4 million in general and administrative costs, as well as salaries and benefits.

Conference Call Information

Date:	June 15, 2023
Time:	8:30 a.m. ET
Conference ID:	89693858
Dial-in:	[phone] or [phone]
Webcast:	Link
Replay:	[phone] or [phone]
	Passcode: 693858 Available until July 15, 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 and six months ended April 30, 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.

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The Flow Beverage Stock at the time of publication of the news with a fall of -6,73 % to 0,485CAD on Toronto stock exchange (14. Juni 2023, 23:00 Uhr).