Flow Beverage Corp. Reports Q4 and Fiscal 2022 Financial Results - Continued Growth & Cost Improvement

Flow Beverage Corp. Reports Q4 and Fiscal 2022 Financial Results.

Highlights:

* Flow brand net revenue increased 38% in Q4 2022, and 26% in FY 2022

* EBITDA Loss increased 10% in Q4 2022, and improved 29% in FY 2022

* Gross margins were 10% in Q4 2022 and 19% in FY 2022, normalized gross margins of 28% in Q4 2022 and 25% in FY 2022 exclude the impact of one-time items

* Recent strategic initiatives expected to improve profitability without compromising Flow brand growth

* Continued momentum in Flow brand net revenue growth expected from recent contract wins with Starbucks Canada, Foodbuy, Primo Water and Vitamin-Infused Water launch

TORONTO-Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (the 'Company' or 'Flow'), today announced its financial results for the fourth quarter ('Q4 2022') and fiscal year ended October 31, 2022 ('FY 2022'). All currency amounts are stated in Canadian dollars unless otherwise noted.

Nicholas Reichenbach, Chairman and Chief Executive Officer of Flow, stated: 'We are pleased with the growth in Flow brand revenue over the course of FY 2022, with continuing high sales velocity across our North American retail partner network, recent contract wins adding thousands of new stores, new channel growth in the food service industry, and early uptake of our most recent innovation, Flow Vitamin-Infused Water. Looking to FY 2023, we expect further improvement in profitability as we continue to execute our transformation plan, accruing full benefits from the sale of the Verona production facility, and further cost savings from ongoing internal restructuring and operational efficiency opportunities we have identified. With over $26 million in cash today, we have substantial runway to streamline our operating model and are sharply focused on delivering profitable growth of the Flow brand.'

Operational Highlights During and Subsequent to FY 2022

Increased Flow brand market share in the U.S. Multi-Outlet and Natural retail sectors to 44% in Q4 2022 from 40% in Q4 2021, maintaining U.S. market share leadership in carton format and shelf stable water

Increased total number of stores selling Flow to over 46,000, from 24,500 in December 2021, an 88% increase

Launched a 1 liter format for two best-selling flavors, 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

Entered into a distribution agreement with Foodbuy, the largest food procurement organization in North America, with over 11,000 points of distribution

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

Signed an agreement with Norwegian Cruise Line ('NCL') for Flow to become NCL's official water; NCL is a leading global cruise line operating a fleet of 28 ships

Signed a distribution agreement with Starbucks Canada for Flow water to become available in over 1,000 locations across the country

Signed a distribution agreement with Primo Water Corporation, whereby Flow will become available to over 1.8 million subscription customers across its consumer distribution network in the United States

Launched Flow Vitamin-Infused Water in Canada with 22 retail partners, representing over 800 locations

Launched the Flow Vitamin-Infused Water line of products in three new organic flavors in the United States through flowhydration.com, and over 100 Fred Meyer locations

Closed the sale of the Verona production facility to BioSteel for USD $19.5 million

Financial Results for Q4 and FY 2022

Trent MacDonald, Chief Financial Officer of Flow, commented, 'We exited FY 2022 and entered FY 2023 with a simplified operating model, a stronger balance sheet, and improved visibility on the trajectory of our profitability and cash flow. Moreover, we have secured lower cost of goods sold going forward and a greater pathway to gross margin improvement and stability. Our Q4 and FY 2022 results reflected a business that was operating well below optimal capacity, and not yet reflective of the significant strategic initiatives we have undertaken and those that we are prepared to implement. In fiscal Q1 2023, we will begin to see some of the financial impact of the $17 million in cash savings we expected from recent strategic initiatives. We anticipate more significant improvements in our financial metrics will develop through fiscal Q2 and Q3 of 2023, as we endeavour to achieve positive cash flow from operations.'

Consolidated net revenue was $13.6 million in Q4 2022 as compared to $10.4 million in Q4 2021, a 31% increase. Consolidated net revenue was $47.1 million for FY 2022 as compared to $42.7 million for FY 2021, a 10% increase. Growth in net revenue for both periods was driven by the Flow brand growth in retail and e-commerce channels in North America, while co-packing revenue contributed to growth in Q4 2022, Flow experienced reduced customer demand for co-packing services in FY 2022 as compared to FY 2021. The Company achieved Flow brand net revenue growth of 26% in FY 2022, as compared to its financial target of 25% - 30%, and 37% in the second half of FY 2022, as compared to its financial target of 35% - 45%.

Gross margin was 10% in Q4 2022, as compared to 21% in Q4 2021. Gross margin was 19% in FY 2022 as compared to 26% in FY 2021. Normalized gross margin was 28% in Q4 2022 and 25% in FY 2022, adjusting for $2.2 million in take-or-pay payments that would have been payable under a previous co-packing agreement and $0.3 million of inventory reserve.

Flow reported an EBITDA Loss of $12.0 million in Q4 2022, a 10% increase from Q4 2021, and a loss of $36.1 million for FY 2022, a 29% improvement from FY 2021. The improvement in EBITDA Loss is attributable to a significant reduction in stock-based compensation and cost discipline in both periods, offset by the factors impacting gross margin, higher warehousing and logistics costs, and higher trade marketing expenses in Q4 2022. Included in Q4 2022 EBITDA Loss is $2.8 million in non-cash charges related to inventory, trade credit reserves and accrual for doubtful accounts. The 29% improvement in EBITDA in FY 2022 compares to Flow's target for an overall reduction in EBITDA Loss of between 45% - 50%.

Flow reported an Adjusted EBITDA Loss of $10.6 million in Q4 2022, an 34% increase from Q4 2021, and a loss of $28.3 million for FY 2022, a 5% increase over FY 2021. The increase in Adjusted EBITDA Loss in both periods are attributable to the same factors that impact EBITDA Loss, removing stock-based compensation.

Conference Call Information

Date:

January 30, 2023

Time:

8:30 a.m. ET

Conference ID:

54361078

Dial-in:

[phone] or [phone]

Webcast:

Link

Replay:

[phone] or [phone]

Passcode: 361078

Available until February 28, 2023

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