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

• 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--(BUSINESS WIRE)--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.

In Canadian Dollars	Three-month periods ended				Twelve-month periods ended
	October 31, 2022		October 31, 2021		October 31, 2022		October 31, 2021
	$	% of	$	% of	$	% of	$	% of
		Revenue		Revenue		Revenue		Revenue
Net revenue	13,556,028	100%	10,371,339	100%	47,120,185	100%	42,697,547	100%
Cost of revenue	12,194,566	90%	8,225,593	79%	37,948,893	81%	31,390,486	74%
Gross profit	1,361,462	10%	2,145,746	21%	9,171,292	19%	11,307,061	26%
Operating expenses
Sales and marketing	4,026,031	30%	2,678,693	26%	8,758,940	19%	9,910,992	23%
General and administrative	6,057,426	45%	4,621,873	45%	18,765,306	40%	15,700,421	37%
Salaries and benefits	3,309,634	24%	3,984,031	38%	14,546,182	31%	15,624,183	37%
Amortization and depreciation	424,923	3%	478,743	5%	1,964,633	4%	1,962,881	5%
Share-based compensation	11,001	0%	2,575,035	25%	5,722,958	12%	18,290,947	43%
	13,829,015	102%	14,338,375	138%	49,758,019	106%	61,489,424	144%
Loss before the following	(12,467,553)	(92%)	(12,192,629)	(118%)	(40,586,727)	(86%)	(50,182,363)	(118%)
Other income	(158,995)	(1%)	(7,031)	0%	(161,618)	0%	(87,829)	0%
Finance expense, net	1,014,699	7%	2,195,475	21%	5,680,236	12%	6,267,941	15%
Foreign exchange loss (gain)	(134,737)	(1%)	(89,488)	(1%)	(445,094)	(1%)	508,411	1%
Reverse take-over costs	—	0%	207,674	2%	—	0%	2,588,786	6%
Impairment of assets and restructuring	1,426,188	11%	278,500	3%	2,047,083	4%	2,793,793	7%
Loss before income taxes	(14,614,708)	(108%)	(14,777,759)	(142%)	(47,707,334)	(101%)	(62,253,465)	(146%)
Income tax expense	—	0%	—	0%	—	0%	—	0%
Net loss for the period	(14,614,708)	(108%)	(14,777,759)	(142%)	(47,707,334)	(101%)	(62,253,465)	(146%)
Other comprehensive gain (loss)
Item that may be reclassified subsequently loss:
Exchange gain (loss) on translation of foreign operations	2,223,287	16%	(184,971)	(2%)	3,046,047	6%	(2,759,056)	(6%)
Net other comprehensive gain (loss) for the year	2,223,287	16%	(184,971)	(2%)	3,046,047	6%	(2,759,056)	(6%)
Comprehensive loss	(12,391,421)	(91%)	(14,962,730)	(144%)	(44,661,287)	(95%)	(65,012,521)	(152%)
EBITDA loss^(1)	(12,047,354)	(89%)	(10,988,586)	(106%)	(36,098,182)	(77%)	(50,711,485)	(119%)
Adjusted EBITDA loss^(1)	(10,610,165)	(78%)	(7,927,377)	(76%)	(28,328,141)	(60%)	(27,037,959)	(63%)
Adjusted net loss^(1)	(13,177,519)	(97%)	(10,682,208)	(103%)	(39,937,293)	(85%)	(37,118,097)	(87%)

(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 supplementary financial measure.

	Three-month periods ended		Twelve-month periods ended
In Canadian dollars	October 31, 2022	October 31, 2021	October 31, 2022	October 31, 2021
Consolidated net loss:	(14,614,708)	(14,777,759)	(47,707,334)	(62,253,465)
Income tax expense	—	—	—	—
Finance expense, net	1,014,699	2,195,475	5,680,236	6,267,941
Amortization and depreciation	1,552,655	1,593,698	5,928,916	5,274,039
EBITDA loss	(12,047,354)	(10,988,586)	(36,098,182)	(50,711,485)
Impairment of assets and restructuring	1,426,188	278,500	2,047,083	2,793,793
Share-based compensation	11,001	2,575,035	5,722,958	18,290,947
Reverse take-over costs	—	207,674	—	2,588,786
Adjusted EBITDA loss	(10,610,165)	(7,927,377)	(28,328,141)	(27,037,959)
	Three-month periods ended		Twelve-month periods ended
In Canadian dollars	October 31, 2021	October 31, 2020	October 31, 2021	October 31, 2021
Consolidated net loss:	(14,614,708)	(14,777,759)	(47,707,334)	(62,253,465)
Impairment of assets and restructuring	1,426,188	278,500	2,047,083	2,793,793
One-time debt settlement costs	—	1,034,342	—	1,461,842
Share-based compensation	11,001	2,575,035	5,722,958	18,290,947
Reverse take-over costs	—	207,674	—	2,588,786
Adjusted net loss	(13,177,519)	(10,682,208)	(39,937,293)	(37,118,097)
	Three-month periods ended		Twelve-month periods ended
In Canadian dollars	October 31, 2022	October 31, 2021	October 31, 2022	October 31, 2021
Gross profit	1,361,462	2,145,746	9,171,292	11,307,061
Co-packing agreement adjustment	2,200,000	—	2,200,000	—
Inventory reserve adjustment	300,000	—	300,000	—
Adjusted gross profit	3,861,462	2,145,746	11,671,292	11,307,061
Adjusted gross margin	28%	21%	25%	26%

Conference Call Information

Date:	January 30, 2023
Time:	8:30 a.m. ET
Conference ID:	54361078
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	Available until February 28, 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 46,000 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 year ended October 31, 2022. 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 30, 2023.