Mr. Nicholas Reichenbach reports

FLOW BEVERAGE CORP. REPORTS SUSTAINED FLOW BRAND GROWTH AND TRANSFORMATION ON TRACK

Flow Beverage Corp. has released 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 margin and our transformation initiatives are still expected to reach our cost savings target of between $22-[million to] $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 with $12.7-million for the fiscal quarter ended July 31, 2022 (Q3 2022). Consolidated net revenue includes 21-per-cent 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. Offsetting 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 per cent to $3.4-million due to the sale of the previously held Verona, Va., production facility.

Gross margin was 21 per cent in Q3 2023, as compared with 28 per cent in Q3 2022. Gross margin was impacted by a continuing, 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 margin 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 EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $9.7-million in Q3 2023, as compared with an EBITDA 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 comprise consulting expenses attributable to the company's transformation and the continuing process to divest of its 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 EBITDA loss of $7.7-million in Q3 2023, as compared with an adjusted EBITDA loss of $6.4-million in Q3 2022. The adjusted EBITDA loss is attributable to the same factors that impact EBITDA 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 Oct. 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.

Conference call information

Date: Sept. 14, 2023

Time: 8:30 a.m. ET

Conference ID: 30199371

Dial-in: 416-764-8658 or 888-886-7786

Replay: 416-764-8692 or 877-674-7070

Passcode: 199371; available until Oct. 14, 2023

About Flow Beverage Corp.

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-per-cent 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 millilitres to one 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.

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