Mr. Nicholas Reichenbach reports

FLOW BEVERAGE CORP. REPORTS Q4 AND FISCAL 2023 FINANCIAL RESULTS, PROVIDES STRATEGIC UPDATE AND FY 2024 OUTLOOK

Flow Beverage Corp. today released its financial results for the fiscal quarter and year ended Oct. 31, 2023 (Q4 2023 and FY 2023, respectively). All currency amounts are stated in Canadian dollars unless otherwise noted.

Financial results

• Flow brand net revenue was $33.7-million in fiscal 2023, an increase of 27 per cent as compared with fiscal 2022;
• Flow brand net revenue was $7.2-million in Q4 2023, a decrease of 9 per cent as compared with Q4 2022;
• Consolidated net revenue was $46.7-million in fiscal 2023, a 1-per-cent decrease as compared with fiscal 2022;
• Consolidated net revenue was $9.7-million in Q4 2023, a 29-per-cent decrease as compared with Q4 2022;
• EBITDA (earnings before interest, taxes, depreciation and amortization) loss was $11.3-million in Q4 2023 and $38.1-million in fiscal 2023, and includes $4.7-million and $9.9-million in non-recurring costs, respectively.

Strategic update and outlook for fiscal 2024

• Flow has recently signed several take-or-pay co-pack contracts with committed minimum volumes which, if met, are expected to provide more than $148-million of revenue over the term of the respective agreements.
• Restructuring of all functional areas is complete and transition to third party logistics is materially complete.
• Additional fourth production line in the company's Aurora production facility will be operational in February.
• Flow now expects to reach adjusted EBITDA and operational cash flow positive by the fourth quarter of fiscal 2024.
• Flow is still exploring potential opportunities for a divesture of the Aurora production facility, however, given the improved path to profitability, the company no longer considers the divesture a requirement to meet its strategic goals and objectives.

Nicholas Reichenbach, chairman and chief executive officer of Flow, stated: "Our recent momentum in co-pack contract wins has improved our outlook towards Flow's profitability, having achieved over $148-million in minimum contracted revenue from BeatBox, Joyburst and BioSteel. Consumers, retailers and our food-service partners are all showing continued demand for premium, functional and sustainable beverages, and those factors helped the Flow brand achieve 27-per-cent net revenue growth in fiscal 2023. Our Q4 2023 and fiscal 2023 results reflect a year of complete operational transformation and we believe we have sufficiently restructured the organization on the road to profitability, with Flow now expecting adjusted EBITDA profitability and positive cash flow from operations in Q4 2024. The entire Flow team is focused on meeting the expectations we've set for ourselves under our new operational model and look forward to delivering much improved results throughout fiscal 2024."

Trent MacDonald, chief financial officer and executive vice-president of operations of Flow, added: "In fiscal 2023, we executed on our operational transformation plan which, while difficult and expensive, has provided the company with a foundation on which to grow efficiently and profitably. Fiscal 2023 results, and especially those of Q4 fiscal 2023, contained several non-recurring costs that will begin to dissipate into fiscal 2024. Our expectation is that we can achieve up to $23[-million] to $27-million in cost savings throughout fiscal 2024, which will help drive adjusted EBITDA profitability and positive cash flow from operations in Q4 2024. Our team has come a long way over the past year and our confidence in achieving our goals is bolstered by the outlook for demand for the Flow brand, significant contract wins for our co-pack business and our much leaner operating cost base. With my recent additional appointment to EVP operations, I will be focused on operational execution and effectiveness to help achieve our goals and objectives."

Financial results for Q4 2023 and FY 2023

Consolidated net revenue was $46.7-million in fiscal 2023, as compared with $47.1-million for the fiscal year ended Oct. 31, 2022 (FY 2022), and includes Flow brand net revenue of $33.7-million. Flow brand net revenue increased 27 per cent, driven by growth in retail sales. Co-pack revenue decreased to $13.0-million due to the divestiture of the Verona production facility in November, 2022.

Consolidated net revenue was $9.7-million in Q4 2023, as compared with $13.6-million for the fiscal quarter ended Oct. 31, 2022 (Q4 2022), and includes Flow brand net revenue of $7.2-million. Flow brand net revenue decreased 9 per cent, principally due to contractual fees owed under a distribution agreement that Flow anticipates will no longer have a material impact after Q1 2024. Flow brand net revenue was also impacted by competing resellers of Flow brand products through e-commerce channels. Flow has partially mitigated some of this impact in Q1 2024 and believes it will be fully mitigated by Q2 2024. Flow brand gross revenue increased 15 per cent in Q4 2023, driven by growth in Canadian retail. Co-pack revenue decreased to $2.5-million, from $5.7-million in Q4 2022, due to the divestiture of the Verona production facility.

Gross margin was 14 per cent in fiscal 2023, as compared with 19 per cent in fiscal 2022. Gross margin was 9 per cent in Q4 2023, as compared with 10 per cent in Q4 2022. The variance in gross margin in both periods reflects the impact of the contractual fees and competitor reselling described above, as well as other non-recurring charges. The company does not believe that FY 2023 gross margin is reflective of what can be achieved in FY 2024.

Flow reported an EBITDA loss of $38.1-million in fiscal 2023, as compared with an EBITDA loss of $36.1-million in fiscal 2022. Sales and marketing expenses decreased 15 per cent and salaries and benefits decreased 13 per cent as compared with FY 2022, due to the company's restructuring and operational improvements. General and administration expenses include $7.9-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 the company's 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, true-up costs related to the sale of the Verona facility, and legal costs associated with financing arrangements.

Flow reported an EBITDA loss of $11.3-million in Q4 2023, as compared with an EBITDA loss of $12.0-million in Q4 2022. Sales and marketing expenses decreased 33 per cent and salaries and benefits decreased 48 per cent as compared with Q4 2022. General and administration expenses includes $3.9-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 the company's Aurora facility, a one-time write-off of an accounts receivable and increase to the allowance for doubtful accounts, true-up costs related to the sale of the Verona facility, and legal costs associated with financing arrangements.

Flow reported an adjusted EBITDA loss of $34.1-million in FY 2023, as compared with an adjusted EBITDA loss of $28.3-million in FY 2022. Adjusted EBITDA loss was $10.5-million in Q4 2023, as compared with $10.6-million in FQ4 2022. The adjusted EBITDA loss is attributable to the same factors that impact EBITDA loss, removing stock-based compensation and restructuring charges.

Strategic update

On June 15, 2023, the company announced it had entered into a non-brokered process to sell the Aurora production facility. Since that announcement, Flow has announced co-manufacturing agreements with BeatBox, JoyBurst and, most recently, BioSteel. Together, these contracts are expected to provide a combined minimum total revenue of $148-million over the term of the respective agreements. These contracts have materially changed the outlook for Flow's path to profitability relative to when the sale of the Aurora production facility was announced. In FY 2024, Flow expects cost improvement between $23-million to $27-million, and to be adjusted EBITDA and operational cash flow positive in fiscal Q4 2024.

While Flow is still considering the possible divesture of the Aurora production facility, the company's improved financial outlook means the divestiture is no longer considered a necessity to deliver on the company's strategic goals.

Conference call information

Date:  Jan. 30, 2024

Time:   8:30 a.m. ET

Conference ID:  05942003

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

Replay:  416-764-8692 or 877-674-7070

Pass code:  942003

The webcast will be available until Feb. 29, 2024.

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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