Despite announcing lower margins and decreased revenue in its fourth quarter earnings this week, Canadian alkaline water company Flow Beverage Corp. expressed optimism that its recent co-manufacturing contracts will buoy upcoming results.
The company is “on the road to profitability” after a year of organizational restructuring and a “complete operational transformation,” said Flow CEO and chairman Nicholas Reichenbach in a statement.
Flow reported net revenue was about CAD$9.7 million in Q4, a 29% decline from the same period 2022. On the back of improved operating expenses and restructuring costs, the company’s gross margin dropped slightly to 9% during the quarter versus 10% in Q4 2022.
The company expects cost improvement between CAD$23 to CAD$27 million during FY2024 and ending the year with adjusted EBITDA and operational cash flow positive.
In FY2023, Flow reported an EBITDA loss of CAD$38.1 million, rising 6% year-over-year. The 27% net revenue growth for the year was described as “a little disappointing” by Flow CFO and EVP of operations Trent MacDonald during the question-and-answer portion of the call.
Flow brand net revenue decreased 9% due to over $2 million in one-time contractual fees owed to distribution partners paired with a significant decline in ecommerce sales during the back-half of the year from competing resellers online.
Although the company is “holistically focused” on its Flow branded products, company leadership focused on its co-manufacturing gains as the silver-lining to the results.
Over the past year, Flow has made the divestiture of its TetraPak-optimized Aurora, Ontario production facility a key piece of its shift to an asset light model; to that end, the company has aggressively sought to fill capacity at the plant to boost its curb appeal on the open market. Flow entered a manufacturing agreement with BioSteel Sports last week in a deal that is expected to net about CAD$19.3 million over the three-year term. The “take-or-pay” deal commits Biosteel to purchase 12 million units within the first four months and a cumulative minimum of 24 million packs for additional two years.
Prior to that, Flow signed a three-year contract with Joyburst Hydration in October guaranteeing 45 million units and a five-year pact with boozy punch maker BeatBox in November.
But with production capacity now maxed out, the company announced yesterday that a sale of the Aurora facility was still possible but “no longer believe it is an absolute necessity to achieving long term goals,” MacDonald said in prepared remarks.
“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,” Reichenback said.