Flow Beverage Corp. Reports Q3 2022 Financial Results - Business Wire

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TORONTO--(BUSINESS WIRE)--Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (the “Company” or “Flow”), today announced its financial results for the three and nine months ending July 31, 2022 (“Q3 2022” and “YTD Q3 2022,” respectively).

Nicholas Reichenbach, founder and Chief Executive Officer of Flow, stated: “Flow delivered broad based growth across U.S. retail, Canadian retail and e-commerce channels in the third quarter, in addition to achieving contract wins that are expected to enhance distribution and help drive long-term growth. The Company is also beginning to realize improved economics in trade spend, activation programs, capacity utilization and operating expenses that we expect will accelerate our path to profitability.”

“New distribution channels and added benefit from a selective approach to launching new product innovations are expected to maintain net revenue growth rates in Flow brand revenue. Notwithstanding near term changes in discretionary spending by households, consumer demand for sustainable products remains very high, Flow is realizing growth well above growth rates in the premium and functional water categories and we are confident that alignment in ESG best practices will result in new distribution partnerships bringing the Flow brand to consumers across North America.”

Operational Highlights During and Subsequent to Q3 2022

• Maintained market share leadership in carton format and shelf stable water in the United States, increasing its market share in the Multi-Outlet and Natural retail sectors to 43% in Q3 2022 from 39% in Q3 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
• Launched a 1 liter format for two of its best selling flavours, Strawberry Rose and Peach Blueberry, through a national roll-out with Sprouts Farmers Market
• Signed a distribution agreement with WB Canna Co. & Wellness to distribute Flow products across up to 25 Caribbean markets and up to seven Central American markets
• Launched Flow Vitamin-Infused Water line of products in three new organic flavours in the United States through flowhydration.com and over 100 Fred Meyer locations
• Partnered with Ohi Inc. to offer two-hour, same-day, and next-day delivery for key e-commerce sales in New York, Los Angeles, San Francisco and Chicago
• Become the official water partner of Blade Urban Air Mobility in the flat and still water category
• Signed a distribution agreement with Primo Water Corporation whereby Flow Alkaline Spring Water will become available to over 1.8 million subscription customers across its consumer distribution network in the United States
• Expanded retail presence in over 300 Winn-Dixie grocery stores, Winn-Dixie operates in the southeastern United States and is a subsidiary of Southeastern Grocers
• Launched Flow Alkaline Spring in 500ml and 1 litre SKUs across Erewhon Organic Grocer and Cafe locations in California

Company Outlook and Strategic Framework for FY 2022

The Company’s strategy is focused on the long-term profitable growth of the Flow brand. The Company expects industry trends for premium, sustainable and enhanced water to remain favourable over the long-term, and for new distribution agreements and product innovations to drive growth notwithstanding the macroeconomic backdrop. Continued demand for sustainable product formats, investments made into trade spend, and recent contract wins are expected to maintain growth of Flow brand net revenue going forward.

Flow is maintaining its target for Flow brand net revenue growth of 25% - 30% in FY 2022 as compared to the prior year as sell-in rates to distributors and retailers improves, and as the Company benefits from new distribution agreements and product innovations. The Company does not expect to achieve its financial target of net revenue growth for the Flow brand of 45% to 55% in the second half of FY 2022 as compared to the second half of FY 2021. Flow now expects net revenue growth for the Flow brand of 35% to 45% for the second half of FY 2022 as compared to the second half of FY 2021.

Flow plans to maintain the significant improvements it has implemented across its cost structure and management believes that further improvements to profitability will continue. The Company is maintaining its target of 45% to 50% EBITDA improvement and improved capital efficiency for FY 2022 as compared to the prior year.

Financial Results for Q3 2022

Consolidated net revenue was $12.7 million in Q3 2022 as compared to $12.0 million in Q3 2021. Consolidated net revenue was $33.6 million for YTD Q3 2022 as compared to $32.3 million for YTD Q3 2021. Increased Flow brand net revenue from new stores in Canada and the United States, as well as through e-commerce, was offset by net revenue from co-packing, reflecting lower demand from co-packing partners.

Gross margin was 28% in Q3 2022, an increase from 22% in Q3 2021. Gross margin was 23% for YTD Q3 2022 as compared to 28% for YTD Q3 2021. Flow continues to benefit from improved efficiency and utilization as compared to Q3 2021, as well as a more favourable sales mix. For YTD Q3 2021, gross margin reflects lower demand for co-packing services which resulted in the under-utilization of new production lines.

Flow reported an EBITDA Loss of $7.6 million in Q3 2022, a 42% improvement from Q3 2021, and a loss of $24.1 million for YTD Q3 2022, a 39% improvement from YTD Q3 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 $5.1 million in Q3 2022, a 38% improvement from Q3 2021, and a loss of $17.7 million for YTD Q3 2022, a 7% improvement over YTD Q3 2021. The improvements in Adjusted EBITDA Loss are attributable to the same factors that impact EBITDA Loss, removing stock-based compensation.

In Canadian Dollars	Three-month periods ended								Nine-month periods ended
	July 31, 2022				July 31, 2021				July 31, 2022						July 31, 2021
	$		% of		$		% of		$			% of			$			% of
			Revenue				Revenue					Revenue						Revenue
Net revenue	12,717,981		100	%	12,015,514		100	%	33,564,157			100	%		32,326,208			100	%
Cost of revenue	9,109,803		72	%	9,379,303		78	%	25,754,327			77	%		23,164,893			72	%
Gross profit(1)	3,608,178		28	%	2,636,211		22	%	7,809,830			23	%		9,161,315			28	%
Operating expenses
Sales and marketing	1,912,087		15	%	3,427,287		29	%	4,732,909			14	%		7,232,299			22	%
General and administrative	4,587,209		36	%	3,948,278		33	%	12,707,880			38	%		11,078,548			34	%
Salaries and benefits	3,741,646		29	%	4,047,400		34	%	11,236,548			33	%		11,640,152			36	%
Amortization and depreciation	543,945		4	%	498,310		4	%	1,539,710			5	%		1,484,138			5	%
Share-based compensation	1,927,474		15	%	2,995,931		25	%	5,711,957			17	%		15,715,912			49	%
	12,712,361		100	%	14,917,206		124	%	35,929,004			107	%		47,151,049			146	%
Loss before the following	(9,104,183	)	-72	%	(12,280,995	)	-102	%	(28,119,174	)		-84	%		(37,989,734	)		-118	%
Other income	12,943		0	%	(6,976	)	0	%	(2,623	)		0	%		(80,798	)		0	%
Finance expense, net	2,022,637		16	%	1,156,133		10	%	4,665,537			14	%		4,072,466			13	%
Foreign exchange loss (gain)	(255,023	)	-2	%	382,903		3	%	(310,357	)		-1	%		597,899			2	%
Reverse take-over costs	—		0	%	1,791,703		15	%	—			0	%		2,381,112			7	%
Restructuring and other costs	597,110		5	%	—		0	%	620,895			2	%		2,515,293			8	%
Loss before income taxes	(11,481,850	)	-90	%	(15,604,758	)	-130	%	(33,092,626	)		-99	%		(47,475,706	)		-147	%
Income tax expense	—		0	%	—		0	%	—			0	%		—			0	%
Net loss for the period	(11,481,850	)	-90	%	(15,604,758	)	-130	%	(33,092,626	)		-99	%		(47,475,706	)		-147	%
EBITDA Loss(2)	(7,625,439	)	-60	%	(13,039,668	)	-109	%	(24,050,828	)		-72	%		(39,722,899	)		-123	%
Adjusted EBITDA Loss(2)	(5,100,855	)	-40	%	(8,252,034	)	-69	%	(17,717,976	)		-53	%		(19,110,582	)		-59	%
Adjusted Net Loss(2)	(8,957,266	)	-70	%	(10,817,124	)	-90	%	(26,759,774	)		-80	%		(26,435,889	)		-82	%
Loss per share - basic and diluted	$ (0.21	)			(0.35	)			$ (0.61	)					$ (1.14	)
Weighted average number of	54,231,978				45,129,726				53,987,324						41,534,664
common shares outstanding - basic and diluted
Total Assets	102,668,818
Non-Current Liabilities	33,109,079
(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								Nine-month periods ended
In Canadian dollars	July 31, 2022				July 31, 2021				July 31, 2022						July 31, 2021
Consolidated net loss:	(11,481,850	)			(15,604,758	)			(33,092,626	)					(47,475,706	)
Income tax expense	—				—				—						—
Finance expense, net	2,022,637				1,156,133				4,665,537						4,072,466
Amortization and depreciation	1,833,774				1,408,957				4,376,261						3,680,341
EBITDA Loss	(7,625,439	)			(13,039,668	)			(24,050,828	)					(39,722,899	)
Restructuring and other costs	597,110				—				620,895						2,515,293
Share-based compensation	1,927,474				2,995,931				5,711,957						15,715,912
Reverse take-over costs	—				1,791,703				—						2,381,112
Adjusted EBITDA Loss	(5,100,855	)			(8,252,034	)			(17,717,976	)					(19,110,582	)
	Three-month periods ended								Nine-month periods ended
In Canadian dollars	July 31, 2022				July 31, 2021				July 31, 2022						July 31, 2021
Consolidated net loss:	(11,481,850	)			(15,604,758	)			(33,092,626	)					(47,475,706	)
Restructuring and other costs	597,110				—				620,895						2,515,293
One-time debt settlement costs	—				—				—						427,500
Share-based compensation	1,927,474				2,995,931				5,711,957						15,715,912
Reverse take-over costs	—				1,791,703				—						2,381,112
Adjusted Net Loss	(8,957,266	)			(10,817,124	)			(26,759,774	)					(26,435,889	)

Conference Call Information
Date:	September 15, 2022
Time:	8:30 a.m. ET
Conference ID:	07196310
Dial-in:	(416) 764-8646 or (888) 396-8049
Webcast: Replay:	Link (416) 764-8692 or (877) 674-7070
Passcode	196310
Available until	October 15, 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 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 36,000 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.

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