Mr. Nicholas Reichenbach reports

FLOW BEVERAGE CORP. REPORTS Q2 2023 FINANCIAL RESULTS

Flow Beverage Corp. has released its financial results for the fiscal quarter ended April 30, 2023 (Q2 2023), as well as its plans for a cross-functional restructuring. The company also intends to divest of its Aurora production facility through a non-brokered process. All currency amounts are stated in Canadian dollars unless otherwise noted.

Nicholas Reichenbach, chairman and chief executive officer of Flow, stated: "Our team's focus on diligently executing our plans for Flow brand growth and bottom-line improvement continues to produce strong results and transform the business. Expanding retail distribution and launching food service is paying off, with a 98-per-cent increase in Flow brand revenue in Q2 2023. Food service and new retail partners are bringing new customers to the brand, and our expanding channel network provides them with more places and occasions to enjoy Flow's delicious taste, sustainable benefits and unique product innovations, allowing Flow water to outperform incumbent water brands. We are also moving steadily towards our asset-light and streamlined operating model, now taking steps to leverage the value of the Aurora production facility, as we did with the sale of the Verona facility, and position the company for profitability, financial flexibility and further investment into revenue acceleration."

Trent MacDonald, chief financial officer of Flow, added: "As previously disclosed, Flow's path to profitability has four components: the sale of the Verona production facility; securing financing; simplifying and optimizing our entire operation; and executing the most accretive strategic alternative for our Aurora production facility. With the first two steps complete, we are now executing on our third priority, recently launching an entirely new IT ecosystem, and today completing a company-wide, cross-functional restructuring. We are also in the final stages of simplifying our logistics, shipping and warehousing path to market. We anticipate the benefits of these initiatives to be realized in the back half of fiscal 2023 and into fiscal 2024. Further, in relation to priority four, we have recognized assets held for sale on our balance sheet as we evaluate strategic alternatives for the Aurora production facility, which we believe has a much higher value than the Verona facility we divested in November of 2022. As we continue to execute our plans, we strengthen the company's position and move forward on our path to profitability. It's very encouraging to see the results speak for themselves."

Financial results for Q2 2023

Consolidated net revenue was $14-million in Q2 2023, as compared with $9-million for the fiscal quarter ended April 30, 2022. Consolidated net revenue includes 98-per-cent growth in Flow brand revenue to $9.5-million. The increase in Flow brand revenue was due to new food service contracts, 74-per-cent growth in retail locations and innovations performing ahead of expectations. Net co-packing revenue increased 7 per cent to $4.5-million, as compared with $4.2-million in Q2 2022.

Gross margin was 18 per cent in Q2 2023, up from 12 per cent in Q2 2022. The improvement in gross margin reflects the sale of the Verona production facility, which was underutilized in Q2 2022, and lower relative trade spend. Offsetting these improvements to gross margin were a temporary change in sales mix comprising a greater proportion of food service contracts, which, while a lower-margin channel, is strategically used to promote trial and bring customers into higher-margin channels over time. There were also increased costs attributable to the ramp-up of production in the company's Aurora facility.

Flow reported an EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $7.1-million in Q2 2023, as compared with an EBITDA loss of $8.5-million in Q2 2022, resulting primarily from the increase in gross profit and decreased stock-based compensation. EBITDA loss also includes $300,000 of general and administration expenses relating to the company's operational transformation.

Flow reported an adjusted EBITDA loss of $6.6-million in Q2 2023, as compared with an adjusted EBITDA loss of $6.9-million in Q2 2022. The adjusted EBITDA loss is attributable to the same factors that impact EBITDA loss, removing stock-based compensation and restructuring charges.

In April, 2023, the company made a strategic decision to pursue the sale of its production facility in Aurora, Ont., in order to allow the company to focus on pursuing growth of the Flow brand and to simplify its operating structure. The company is actively marketing the sale of the Aurora production facility and expects the sale to be completed within the next 12 months. Accordingly, Flow recorded $14-million in assets held for sale on its balance sheet as of April 30, 2023, and a corresponding liability of $8.3-million.

Flow reported $13.3-million of cash as of April 30, 2023. The cash balance as of April 30, 2023, was impacted by timing of non-cash working capital items of $4-million, notably a temporary increase in accounts receivable of $6.6-million from Jan. 31, 2023, to $16.4-million. Flow also invested in operational improvements during Q2 2023 in advance of its restructuring announcement.

Cross-functional optimization

The company has streamlined several corporate functions, resulting in a 30-per-cent reduction in the number of non-production and logistics corporate roles. Flow now anticipates overall cost savings of $22-million to $26-million relative to fiscal 2022, up from an earlier estimate of $20-million to $22-million. This range includes $13-million from the divestiture of the Verona production facility, $7-million to $9-million from logistics, shipping and warehousing, and $2-million to $4-million in general and administrative costs, as well as salaries and benefits.

Conference call information

Date: June 15, 2023

Time: 8:30 a.m. ET

Conference ID: 89693858

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

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

Passcode: 693858; available until July 15, 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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