Flow Beverage Corp. saw a reduction in net revenue due to the exit of unprofitable partnerships, offset by improved gross margins and operating expenses in its Q2 earnings report today.
The Canadian alkaline water company reported its best quarterly adjusted EBITDA – a loss of CAD $3.5 million – since becoming a public company in July 2021, which chairman and CEO Nicholas Reichenback credited to the company’s restructuring and focused operating model.
“With significant year-over-year sequential improvements in our profitability metrics, our Q2 financial results help support our goal of reaching adjusted EBITDA and cash flow from operations in Q4 2024,” elaborated CFO Trent MacDonald in a prepared statement. “This quarter is the beginning of what we expect to be sequential improvements in profitability as we look to unlock significant shareholder value.”
In the quarter ended April 30, net revenue was CAD$7 million, a 26% decrease from the prior year period, reflecting the impact of exiting several commercial U.S. retail and foodservice partners. This was partially offset by strong growth in certain profitable channels and ecommerce, which has benefited from foodservice contracts with companies like Starbucks and Live Nation.
Gross margin was 28% in Q2, compared to 18% in Q2 2023 and -15% in Q1 2024. The improvement was driven by the consolidation of production to Flow’s Aurora production facility, improved production at the plant and a focus on higher margin channels.
Beyond the growth of its branded products, Flow is also focused on its co-manufacturing gains through partnerships with brands like BioSteel Sports, Joyburst Hydration and BeatBox. In the quarter, the company’s co-packing net revenue grew 13% year-over-year.
Flow began its commercial production on BeatBox in its Aurora facility just last week, as it took approximately six months to add the fourth line and additional equipment to accommodate the increased production volume. Though there was no revenue attributed to BeatBox in Q2, the company has begun monetizing the contract in Q3 and it is expected to accelerate in Q4.
“These recently signed co-packing agreements will have a cumulative net revenue to Flow of CAD$148 million over the next five years. We have been very selective in adding our partners, ensuring that it is profitable for the company and provides growth,” Reichenback told investors during today’s call.
Looking ahead, the company still expects to achieve positive adjusted EBITDA and cash flow from operations by Q4 2024 as Flow reaches full production capacity with its fourth production line and completes the restructuring of its functional areas.
In the short term, Flow is slated to launch a summer hydration campaign aimed at expanding its reach across North America. Additionally, the brand will continue rolling out its newly designed sustainable packaging designed to “elevate Flow’s presence within the premium water category.”
“Our strategic growth priorities have not changed over the summer hydration season. We are going to be focused on our trade spend in national grocery in Canada and the U.S. as well as gas and convenience channels in Canada,” said Reichenback, noting that scaling Flow’s co-packing business will also be a “significant initiative.”