Alkaline water brand Flow Beverage Corp. continued its rapid sales growth in Q3, reporting a net revenue increase of 79% to $12 million compared with the previous quarter. Nevertheless, the company is still far from profitable, with net losses widening for the quarter and for the year.
The Toronto-based company has been one of the most buzzed names in CPG over recent years: according to a press release, Flow is the fastest-growing brand in the premium natural water category (excluding ionized water brands like Essentia and Smartwater), as it has scaled operations in its home country and in the U.S. while bringing in a caravan of investors, ranging from celebrity names to experienced VC firms focused on the natural space. Behind the scenes, the brand brought on former Nestle Waters CEO and chairman Maurizio Patarnello as CEO in March.
According to documents filed with Canadian securities regulators, Flow is currently partnered with over 35 distributors and has coverage in more than 20,000 stores across North America. In addition to producing its own branded line, which includes flavored and collagen-infused SKUs, the company also offers co-packing services from its production facilities in Ontario, Canada and Virginia.
In terms of net revenue, Flow’s Q3 2021 performance built upon the gains made over the past year: net revenue nearly doubled, going from $6.7 million in Q3 2020 to $12.0 million, while year-to-date net revenue increased by 90% compared to the same period last year. A majority of that quarterly revenue — approximately $8 million — came from the US, though Canada represents the bulk of Flow’s income.
Over the first nine months of 2021, net revenue increased by 90% to $32.3 million, compared to $17 million for the same period in 2020.
The company showed significant gross margin improvement; it now represents around 28% of net revenue YTD, an increase of 22 points from the first nine months of the previous year. Cash flow increased significantly from the 2020, with the company ending the first nine months of the year with $67.9 million, compared to $13.4 million in 2020.
The company is projecting a net revenue increase of 35% to 45% for the full fiscal year 2022, which will be driven by “increasing [ACV], sales velocity, e-commerce subscriptions and new product SKUs,” according to a release.
“Flow has experienced tremendous success at establishing category leading growth as a premium and functional water brand in North America,” said Patarnello in a press release. “To take this company through the next phase of its evolution, we have implemented a focused strategic framework. We believe we can maintain a high growth net revenue trajectory while taking a disciplined approach to cost and capital management. With a brand that customers adore and industry trends providing strong tailwinds, we are very confident our elevated levels of growth can continue.”
While its revenues are growing, Flow is recording significant losses on its way to achieving those numbers. The company reported a 2% increase in adjusted EBITDA loss during the quarter, totaling $8.3 million. Net loss increased by 5% during the quarter to $15.6 million, compared to a loss of $14.9 million last year. Year-to-date, net losses have climbed 33% ($11.9 million) from the same period in 2020, rising to $47.5 million.
However, YTD adjusted EBITDA losses were down 12% to $19.3 million for 2021. The company is projecting EBITDA losses to decrease by 45% to 50% in the fiscal year 2022 as compared to 2021.
Sales and marketing expenses increased by 380% to $3.4 million during the quarter (representing 29% of revenue), as the company deployed some of its star investors such as LA Lakers guard Russell Westbrook and Oscar-winner Halle Berry.
The company’s interim financial statements show a $2 million expenditure, paid in two installments, in April to terminate an exclusive agreement with an unnamed U.S. distributor.
As referenced in its earnings release, Flow’s growth has largely been driven by its aggressive pursuit of distribution growth in retail, both with broadeners and DSD, and online. Last month, the company signed on with three divisions of Honickman covering 25,000 doors stretching from New York to the Mid-Atlantic.