Good morning, everyone. Welcome to Flow Beverage Corp.'s Fourth Quarter and Year End 2021 Financial Results Conference Call. As a reminder, this conference call is being recorded on January 31, 2022. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at the time for research analysts to queue up for questions. We ask that all callers will limit themselves to two questions and return to queue. I will now turn the call over to Devan Pennell, Chief Financial Officer. Please go ahead, Daven.
Thank you, operator. Good morning, everyone, and thank you for joining us today. Flow's Fourth Quarter and Year End 2021 Financial Result were released this morning. The press release, financial statements, and MD&A are available on SEDAR as well as the company's website, investors.flowhydration.com. Before we begin, I'll refer you to slide two of our presentation, which contains our caution regarding forward-looking statements. I'm joined on the call today by Nicholas Reichenbach, Flow's Founder and Executive Chairman, and Maurizio Patarnello, Chief Executive Officer. I will now pass the call over to Nicholas.
Good morning, everyone, and thank you for joining us today. 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 impact by providing sustainably sourced, naturally alkaline spring water in a sustainable, 100% recyclable and up to 75% renewable plant-based package. Today, the brand is B Corp certified with one of the best-in-class scores of 126.5. Offering a line of diverse health and wellness oriented beverages, naturally occurring alkaline spring water, an award-winning line of organic flavored water, and our collagen infused flavors in size ranges from 330 ml to 1 L. All products contain naturally occurring electrolytes and essential minerals, and support Flow's overarching purpose to bring the wellness to the world through the power of positive water.
Looking back on the fiscal 2021, the Flow brand made tremendous progress, and we achieved several milestones that will propel our company through the next leg of its growth. In addition to record revenues in 2021, we also achieved an incredible operational milestone, over 100 million packs produced. This is a remarkable achievement by our team and demonstrates the traction of the Flow brand and that our infrastructure is in place to support future growth. As you all know, we also became a public company in July 2021, listing on the Toronto Stock Exchange after successfully raising CAD 98.9 million. Once again, we would like to thank our shareholders for their support. Every day we fuel to make the progress improving Flow's KPI and driving shareholder value. We ended 2021 with almost 25,000 points of distribution across North America.
While our store count isn't the primary metric we use to measure the success of the business, it does indicate that our DSD, direct store delivery strategy we implemented in April 2021, is quickly gaining traction. Our DSD strategy is meant to complement Flow's internal sales team to reach thousands of grocery, drug, convenience, and franchise stores located across North America that are not currently carrying our products. Remember, a key pillar of our strategy is adding these products into traditional grocery and convenience locations. Our DSD partners added over 4,000 locations across the United States of America in 2021. A big contribution in less than a year with most of these partners. Additionally, our increasing brand recognition in Canada has driven higher and higher rates of sales velocity, which has allowed us to enter into gas and convenience channel in a significant way.
The execution of our strategy is being led by Maurizio, who we appointed as the Chief Executive Officer in early 2021, having been recently or previously appointed as the CEO and Executive Director of Nestlé Waters. With over 30 years experience in CPG and 20 years running highly successful bottled water operations, Maurizio is the right person to lead the team as we scale. Maurizio will provide more details on our operational progress later in the presentation, but I would like to highlight that he has been very successful at driving velocity at sales, which means we have more and more repeat buyers of Flow products. He is also responsible for our strategic framework, which gives our team clear goalposts for how we measure the success and where we focus our efforts. Looking forward, our opportunity remains abundant. We have only scratched the surface on accessing traditional retail channels.
We have a very strong innovation pipeline to access new segments of the water market. Our e-com business is going very well, and the macro trends supporting our growth will continue unabated. With that, I will pass the call over to Maurizio.
Thank you, Nicholas, and good morning, everyone. I'll begin my presentation today with an overview of our financial highlights for fiscal year 2021 and Q4 2021. Flow remains one of the fastest growing brands in North America. Recent data shows that Flow brand grew 83% in the U.S. multi-outlet channels in 2021, and 92% in the Canadian food and drug and mass channel. The driver of the growth in the U.S. multi-outlet market is increasing velocity as we focus our resources in-store activations and promotions and introduce new multi-unit SKUs. In Canada, higher all commodity value, ACV, drove our results.
Since we have been in the Canadian market a couple of years more than in the U.S., our brand has developed a lot of consumer recognition, and this makes it easier to enter gas and convenience stores and hit the ground running. In fiscal year 2021, net revenue increased 86% as compared to prior year, and net revenue increased 74% in Q4 2021. Net revenue growth was driven by Flow-branded product sales in retail and e-commerce channels across North America, and a very strong year for co-packing, especially in Q2. Net revenue growth of Flow-branded products is one of the most important metrics to measure our success. Flow-branded retail and e-commerce net revenue increased 47% in fiscal year 2021. This growth rate accelerated into Q4, increasing 69% as compared to the prior year.
The drivers contributing to accelerated net revenue growth in the retail channels are velocity in the U.S. market and growth in Canada through increased all commodity value, ACV. Our e-commerce sales benefited from improved direct-to-consumer performance in both the U.S. and Canada. We made significant gross margin improvements relative to 2020 as well, increasing to 26% in fiscal year 2021 and to 21% in Q4. With the high growth volume for Flow products and co-packing, we were able to improve asset utilization, and we are getting more efficient on production runs. Additionally, our unit costs are remaining stable. We first shared our strategic framework during our Q3 call, and I will now take you through some updates, including our updated financial targets for fiscal year 2022.
We have increased our target for Flow-branded products revenue in fiscal year 2022 from a range of CAD 35-CAD 45 to CAD 45-CAD 55. We are very encouraged by the performance of the brand in both Canada and the U.S. through both retail and e-commerce channels. In Q4, we saw an increase in number of doors and a significant increase in velocity across the U.S. In fiscal year 2022, our plan is to drive ACV growth to over 30% in the U.S. as a result of three drivers, increasing the number of large format natural and food, drug, mass retailers, increasing penetration with independent regional retailers through GSE relationships, and continued penetration of the convenience store channels in both the U.S. and Canada. Going forward, we'll be approaching co-packing on an opportunistic basis.
We're convinced that the real value in the Flow is in the Flow brand. The co-packing business is a separate business model, but we do have capacity to employ in order to help absorb fixed costs as long as the margins are appropriate. We are confirming our target to reduce EBITDA losses by 45%-50% in fiscal year 2022. This is a top strategic priority for our company, as it will be driven from increased gross profit and a focus on disciplined cost management. Lastly, we are also focused on improving capital efficiency. This has two components. First, we expect to improve net trade working capital through discipline in accounts receivable and inventory management. Second, we are being very selective in capital expenditure, especially considering that our infrastructure is already in place. Next, I'll turn to some trends in the shelf-stable water in our key channels.
I'm happy to report that all key trends continue to be favorable for Flow. The shelf-stable water market in North America is currently over CAD 14 billion, and it grew over 10% last year. The fastest growing segments within shelf-stable water are enhanced and flavored. This is where Flow competes. These two segments are growing 19% and 13% respectively, and these trends are expected to maintain in 2022. We have said before that Flow is benefiting from strong tailwinds in the premium, sustainable, and functional enhanced water segments. Growth in all these three segments has further accelerated in recent months. The colored lines in the presentation represent the segments that we mentioned, and you can see that premium is growing at a rate of over 20%.
Sustainably packaging water is growing now at over 50%, and functional enhanced water is growing at a rate close to 20%. These three trends are very encouraging for our outlook for the Flow brand and support our increased outlook for net revenue growth. Moving on to our performance with our core channels. As I stated earlier, Flow grew 83% in the U.S. multi-outlet channels, and this is all velocity driven from increased brand awareness, in-store activations, promotions, and our multi-pack product SKUs. Flow is growing at almost double the rate as the next highest growing guided competitor's brand in this channel. Our ACV was flat in the U.S. multi-channel, and I will discuss this shortly. Flow's growth in the U.S. natural channels has also rebounded to become in line with its primary competitors. Again, velocity is the big contributor here.
The natural channel has been a challenge in the last few years as people have migrated outside urban areas where natural stores are generally located as those customers change their purchasing habits online. Turning to Canada, Flow is also showing solid progress. In Canada, ACV is the driver as our brand recognition has allowed us to pick up big retailers wins in the gas and convenience channel. Looking at some key metrics with Whole Foods, this shows also an example of how increased SKU per door drive results. As you can see, for the 52 weeks ended in December, Flow experienced 31% growth in value versus 21% growth in volume. This is a function of introducing a multi-pack to a market that is already familiar with our single serve SKU to drive incremental sales.
We are also very encouraged by the velocity of Whole Foods, which grew 84%. As Nicholas mentioned, we ended 2021 in almost 25,000 points of distribution. We had a number of new authorizations in the year, and we are very encouraged by the success at Target and Publix in particular. We are also in over 50 BJ's locations as well. The reason why our ACV was unchanged in the U.S. multi-channel was that we experienced some losses over the year. In 2022, we had three months listing with Sam's to run a short-term promotion for flavored products. Similar situation with Albertsons Safeway. Both short-term listings were not renewed in 2021, but we are actively discussing with Sam's and Albertsons on how to approach the relationship in a more structured way over the long term.
Looking at Walmart, we went from 1,000 stores in 2020 to approximately 400 in 2021. When we first launched in 2020, we noticed velocity was not consistent across the points of distribution. Flow tended to perform better more in urban areas, so we kept the products on shelf in those higher performing locations. In Q3 2021, we took the initiative to get out of stores with lower velocity, particularly rural locations. We have regrouped with Walmart to support new stores through merchandising and brand in-store activation where we can maintain elevated velocity. In Canada, we had very strong performance in the convenience stores and gas channel, adding Circle K and Couche-Tard in Quebec.
This represented over 2,400 additional doors in 2021, and we reiterated our success in the gas and convenience channel is because we have developed a brand that is gaining awareness so that we can enter these small locations and deliver high velocity without strong in-store activations. Here is the breakdown of our current store count. We have highlighted the contribution of just over 4,800 stores in the U.S. that we can attribute to the DSD, direct store delivery, rollout. In Q2, we introduced our direct store delivery strategy, and this was really important because in 2021, the larger accounts have generally been slow with the new authorization due to COVID. Our DSD partners have been very effective at adding new and smaller locations that we would not otherwise be able to cover without our DSD partners.
Again, in Canada, you can see how important were the convenience stores as a driver contributing almost 2,500 additional locations in 2021. Looking forward, we have three pillars that will drive our growth. First, as I mentioned earlier, ACV in the U.S. is expected to be the big driver in 2022 because of increasing the number of large format natural food, drug, and mass retailers, increasing penetration with independent regional retailers through DSD relationships, and continued penetration of the convenience store channels in both U.S. and Canada. Velocity will also be a factor in the U.S. multi-outlet channel in Canadian food and drug and mass. Similar to 2021, we expect a continued impact from multi-pack SKUs in store activation and brand awareness initiatives. Turning to e-commerce. We have two sub-channels, Amazon and direct-to-consumer through flowhydration.com.
We plan to increase subscribers through paid media, generating high traffic and partners like New York City Marathon, Life Time and SoulCycle. We also have plans to increase average order value through bundling and other upsell tactics, encouraging customers to buy higher amounts of our products. Lastly, we are introducing loyalty programs and promotions as well as perfecting the service experience to drive repeat purchases. Our third pillar of growth is new opportunities. We still believe there is a big opportunity to add doors in the food service channel as customers are planning to replace plastic products with more sustainable packaging. Similar to other retail partners, these larger organizations have been a bit slower at introducing new products because of COVID, but we are still very optimistic because of our value proposition. Our other new growth opportunity is through innovation.
This includes launching vitamin water in April and introducing our 1 L flavor SKUs. Our infused vitamin water will be launched in three SKUs, citrus, blueberry, and cherry. These are great-tasting organic flavor and sugar-free products with an immunity claim to add the vitamin C and zinc. We are planning to introduce our vitamin water in the national and convenience store channel first, starting from mid-April. We have said in the past that we are focusing our marketing strategy on retail activation, events, and strategic partnerships. The priority is, here is activation. We will have significant awareness campaigns around Earth Day, which aligns very well with the values of our brand, and we will be using influencers to help amplify our awareness. We will also be driving traffic through activation with a variety of initiatives over the very busy summer months.
We are very excited for our sponsorship with the New York Road Runners and the New York Marathon. We have a very solid plan through 2022 to activate our partnership, which will lead us to be in front of millions of participants in a number of events. Before passing the call over to Devan to review the financial results in greater detail, I would like to show you some examples of our retail activations. These displays are very important in driving velocity at new locations. You can see a display at Target in Dallas where we had great traction. You can also see displays in Publix locations in Boston, Miami, and Tampa. On the top right you can see a pallet display of Flow Water in BJ's location in New York. I will now pass the call over to Devan. Thank you.
Thank you, Maurizio, and good morning, everyone. I'll now take a few minutes to walk you through our overall revenue performance by category of revenue. Flow increased net revenue 86% in fiscal 2021, compared to CAD 42.7 million, and increased net revenue 74% in Q4 of 2021 to CAD 10.4 million. Overall net revenue growth for both periods is a result of increased sales of Flow branded products in both retail and e-commerce channels, as well as increased co-packaging revenue. On a more granular level, Flow experienced high growth rates for Flow branded products, increasing 47% on the year and accelerating 69% on the quarter, which is consistent with our focus on continuing to grow our portfolio of Flow branded products.
Our co-packing business was also a large contributor in both periods, particularly in Q2, when we benefited from large orders from one customer in particular. Although we have large multi-year contracts, the revenue profile of our co-packing business is subject to the inventory needs of our co-pack partners. Our results in 2020 also included sales through our partner channel, which did not recur in 2021, and we do not expect to utilize this channel going forward. The increased net revenue translated to increased gross profit to CAD 11.3 million for the fiscal year 2021, or a gross margin of 26%. Our gross margin improved significantly from the prior year as the higher sales of Flow branded products and the co-packing business improved utilization. We became more efficient on production runs, and we've been successful at stabilizing our unit costs.
Turning to operating expenses, sales and marketing increased as we supported our DSD rollout with marketing campaigns and in-store activations, as Maurizio just showed you. These costs were highest in Q2 and Q3, in line with our busiest seasons of retail and the activation of our new DSD partners. Our general and administrative includes increased professional fees that we've incurred as we transition to a public company, which partially offset improvements in our warehousing and other operating costs during the period. Share-based compensation expenses also increased as we rolled out an RSU plan at the beginning of fiscal 2021. The expense recognized in the year in relation to this plan is accounted for under IFRS using grade adjusted, which front loads the expense over the three-year vesting period. As a result, the expense going forward will be reduced substantially in conjunction with overall reductions in new grants.
We have factored this increased discipline into our overall EBITDA guidance, as we want to make it clear that our focus on all lines of the P&L. On an adjusted basis, we realized adjusted EBITDA loss of CAD 27 million for fiscal year 2021. Adjusted EBITDA excludes the impact of RTO costs, termination fees, and share-based compensation. Turning to our quarterly results. Consistent with our fiscal year results, increasing gross margin is attributable to Flow branded sales over our retail and e-commerce platforms, as well as co-packing revenues, which improved utilization, efficiency on product runs, and stable unit costs. Additionally, with respect to gross margin, in Q4 of 2021, we realized elevated shipping costs higher than in Q2 and Q3. This was the result of higher fulfillment costs for a specific contractual obligation with lower order quantities during the period as order volumes recovered from COVID-related impacts.
The factors that influenced operating expenses in fiscal year are largely the same as those that impacted the quarter, and I will add that in Q4 we incurred higher professional fees and insurance costs. Additionally, salaries and benefits also included a higher rate of variable compensation paid in cash versus share-based compensation in the prior year. Additionally, I draw your attention to the run rate for share-based compensation during the quarter, which more clearly articulates the narrative that those expenses will continue to come down period over period. As at October 31st, we had CAD 51 million in cash. With our plan to increase net revenue for Flow branded products, improve EBITDA and capital efficiency, as well as extending the maturity of our debt, we can support our growth for the next 18-24 months. We are also actively considering other funding options to further support our growth.
That concludes our prepared remarks. Operator, you can now open the line for questions.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Once again, if you would like to ask a question, just press star one on your telephone keypad. Our first question comes from the line of Sean McGowan from Roth Capital Partners. Your line is now open.
Good morning, guys. Can you hear me okay?
Yes, Sean. Good morning, Sean.
Great. Thanks. A couple of questions. How steady do you think we'll see that 45%-55% growth throughout the year? Or, you know, conversely, will there be some material seasonality or variation in that growth as the year goes on?
You know, I think it's gonna be relatively steady, right? Now there is some seasonality in these categories, you know, very well shown. We don't see a big difference going forward, quarter by quarter. We see that this should come, let's say, at this range throughout all the year.
Okay, thanks. That's helpful. I mean, I imagine that saying that on the last day of the first quarter, you know, is a sign that we shouldn't be looking for things, you know, to be materially different from that range. I know you probably don't wanna get into quarterly guidance, but we are pretty deep in the quarter. Next question. I know that you've said many times that, you know, co-packing is both opportunistic and outside of your control, but you must have some kind of sense internally of what to expect there. Should we be looking for, you know, a significant, like a big drop in income or, I mean, revenue from that or a sizable increase? You know, just it would be helpful to have some kind of sense of where you're expecting there.
Well, first of all, let me reconfirm that strategically, in our strategic framework, Flow is the priority. We wanna create value through Flow and the increased guidance we are giving to Flow branded sales is confirming that our focus is on Flow. Now, it's a bit hard to give you a very precise direction about co-packing. We consider co-packing an important part of our business as long as it is in line with the margins of Flow, so we will not go after volumes that do not have margins in line with what we have with Flow. We continue to consider an important part of this business.
Some of our customers do not have an exact alignment in terms of quarters because they have different periods compared to us, so it's hard to give you a view about co-packing. If we continue to have opportunity to grow the co-packing, we will do, but at this point in time, it's a little bit difficult to give you a number for the co-packing. Rest assured that as long as we find co-packing volumes that are in line with our technologies and are in line with our margins, we will certainly take it on board as it's part of our business today.
Okay. Thank you.
You're welcome. Thank you.
Our next question comes from the line of Martin Landry from Stifel GMP. Your line is now open.
Hi, good morning, guys.
Good morning, Martin.
Good morning, Martin.
Good morning, Martin.
would like to know a little bit more details on what's driving the increase in your revenue guidance. It sounds like your multi-packs are doing well. It sounds like your ACV is strong, a little stronger than what you had anticipated. Maybe if you can just give us a bit of color as to what changed versus September in your outlook that's driving your increase in your revenue guidance on Flow brand products.
Let's say the key drivers are those that we have highlighted in our strategic framework. ACV in the U.S., large formats on one hand, where it's a little bit slower to get authorization because of COVID, and at the same time, the importance of the DSD regional retailers that we will reach through our DSD network. It's the number one pillar. Velocity is coming from the activations, the brand awareness increase, the activations of the brand, both in the U.S. and Canada, and at the same time, as you mentioned, Martin, the SKUs per store, especially the multi-pack SKUs that comes naturally with the evolution of the brand. The brand is introduced in the U.S. with a single serve.
First of all, Flow, you create brand awareness, and then naturally comes the repetition, and the repetition comes together with the multi-pack. These are the three drivers. Of course, ACV also in Canada, especially, we see a good acceptance in the convenience store channel, which is made of thousands of new doors or points of distribution. What is encouraging us to increase the guidance is we see that our strategy is well accepted by both the retailers and the consumers. We see the results of it. We are seeing an acceleration in Q4 of both the velocity and the ACV, especially in Canada.
We have seen that we have a good response by the strategy or the multi-pack. This acceleration, together with the plan and the three pillars that I mentioned before, is what is giving us the confidence to grow and increase our guidance for the rest of the year.
Okay. You're still assuming an ACV penetration of 30%-40%. This doesn't change. I was trying to get a bit of understanding what's changed. You know, you're expecting a little better penetration and growing velocity, right?
I think we again stated our target is to get at least 30% ACV in the U.S., right? While in Canada, we are already at the higher level of ACV, mostly due to the convenience stores. We consider the velocity still very important. We have seen the velocity growth, especially in the multi-outlet channels. Also, we were very encouraged through the comeback of the natural channel, both, let's say excluding Whole Foods and including Whole Foods. I think it's the combination of these three factors that give us encouragement. We have not changed our view about ACV nor velocity. Also we see that the strategy on the multi-pack is paying off.
Okay. In your presentation, you had an interesting slide that talks about your changes in your point of sales, 2020 to 2021 and, you know, like Sam's Club, some were short-term promotions that have dropped off. I'm wondering, currently in your. You know, when you list your fiscal 2021 locations, are there any short-term promotions ongoing right now that could be at risk of dropping in the coming months?
No, there aren't. The reason is exactly that we see that establishing a relationship with large retailers is a strategic move that requires having all the key drivers in place. Having a what we call in the market and let's say in-out promotion as the one we had with Sam's, it's very beneficial for our sales, but it's not establishing a long-term relationship with these big retailers. We will move structurally and strategically when we enter and we penetrate large retailers with a full strategy, including a clear activation, a clear portfolio range, to make sure that once we enter, we have velocity, and we can build with these retailers.
In the plan for 2022, there are no these kind of short-term relationships.
Okay. That's helpful. Maybe one last question from me. On your co-packing business, have you been able to add new clients in recent months? Is this a segment where you're prospecting to get new clients? Just a bit of understanding on maybe also where your capacity utilization is at this point.
Let me start with the last one. As Nicholas alluded, we produce 100 million packages, essentially represent one third of all our total capacity, right? Now as we are a fast-growing company, I mean this obviously, it's good because we are ahead of the curve. On the other hand, let's say we wanna make sure that we fill this capacity as fast as possible. As you know, the co-packing business is a very particular business. It requires a specific business model, including adding multiple technologies, which is not our case. Of course, we continue to do business development, provided this business development fits well with our technologies, which is pack of parts essentially, and at the same time provide us a comparable margins to Flow.
Yes, we continue to do business development there. We continue to look at new customers. We see opportunities there. We will not go in technologies where they would require additional investments. We will stay with our technology. Within this range, there are opportunities to grow other to bring new customers. We continue to consider this business as part of our let's say revenue opportunities. Simply, I would say, as I said, the focus is more on Flow.
Yeah. Martin, just to answer your first questions very clearly. Yes, we have onboarded new customers in our co-packing business and new verticals in product innovation, including plant-based protein drinks that are coming out in market in the U.S. We're very actively making sure that the capacity is filled as well as, you know, obviously prioritizing Flow, but also prioritizing our other branded manufacturing partnerships to produce amazing products in market. We'll continue to do so throughout 2020, but also supporting our core contractual relationships with some of the other branded products.
Thank you.
Okay.
Important point of reference there is for co-pack, where we have large material contracts for co-pack. Those contracts are set up in such a way as to support a recovery on the CapEx deployed to service them. I think that's an important notion is that having long-term contracts with fixed commitments allows us certainty over cash flows, but also the inverse, which is not deploying capital for purposes of co-pack without having a concept of an ROI on that, and then further creating the capacity to grow into that with our Flow branded products.
Okay. Can you just give us your capacity utilization right now?
It's 1/3. Currently it's 100 million packs. The last year was at 1/3 of our capacity, so 300 million packs. But we have to take into account, Martin, the seasonality of our productions. You know, in the middle of the winter, is co-packing production as high as in the middle of the summer? The answer is no. We take into account utilization and seasonality with our co-packing partners. There'll be some point in time, you know, in the middle of a summer that we'll be at full capacity and some point in time that we'll be at a lower capacity. Currently, right now, as of last fiscal period, we're at 1/3 utilization across the entire year, moving into 2022.
Perfect. Okay. Thank you.
Okay. Thank you, Martin.
Your next question comes from the line of David Haegelin from BlackRock. Your line is now open.
Thanks for taking my question, guys.
Good morning, David.
Could you-
Morning, David.
Morning, guys. I have quite a few sort of very near-term questions that you've given us some color on, so thank you for that. Can we zoom out a little bit, and can you guys talk to us about how you're thinking about the strategy from here, from a big picture, 2022 and beyond? That'd be really, really helpful. Thank you.
Yeah. Thank you for the question because this allows me to re-articulate and reconfirm our strategic framework that we shared with you in Q4 and I think more clearly even articulated now in Q4. Our strategic framework is start from, let's say, our strong focus on growing Flow as one of the fastest growing brands in the three spaces where we compete, which we see are the fastest growing segments. First of all, the sustainable packaging, you're seeing how is growing fast and the premium, because we are a premium water and at the same time, functionally enhanced, which also growing very fast.
Focus is growing Flow as the first pillar of our strategic framework in these three channels through essentially expanding ACV in the U.S., both I would say in what we call the conventional big retailers, at the same time with our regional deployment of the DSD. This is the first pillar of our strategic framework. That's why we felt encouraged to increase the guidance to CAD 45-CAD 55. The second is being very disciplined in terms of cost management. I want to reconfirm that here we don't see a trade-off between cost, let's say on one hand, and growth, right? That's why we talk about being very disciplined in cost management. We will not cut in our opportunities for growth.
We will be cost disciplined to make sure that we are efficient in the operations and at the same time efficient in management of our general and administrative costs. This is what is leading us to give a guidance on reducing our EBITDA losses by the guidance of which we say 45%-50%, which is a substantial improvement, which will come once again, first of all, for increasing our gross profit as a result of the growth and on the other hand, in parallel of being very cost disciplined. The third element of our strategic framework is the capital deployment. We have again a very strong disciplined approach to net trade working capital, both in accounts receivable and especially inventory.
Today we have the confidence of our operations to be able to reduce our line of sight of inventory, which will improve our net trade working capital. At the same time, as we mentioned more than once on more occasions, we have an infrastructure which is in place which works very well and therefore we don't see the need for further CapEx or we will be again very disciplined in deploying our CapEx throughout 2032. The combination of these three pillars is what is making our strategic framework. I think this is what. Today we are very clear and we are focusing on the execution in a disciplined way of this strategic framework.
Okay. Thanks so much for that. Just one follow-up before we go. Could you just, I might have missed it when you went through your prepared remarks earlier, but can you just remind us where you are with cash burn and what kind of sort of line of sight you have from here and what kind of-
I will just give you a general view and then I hand over to Devan, right? Who will give you more colors. I think we, as a result of the strategic framework and at the same time reducing our losses and the capital efficiency, we feel confident that we are going in the right direction. Also, you're seeing in the press release that we extended the maturity of one of our unsecured debt. We feel we are going in the right direction, but I prefer that Devan will give you more colors about it.
Yeah, absolutely. Thank you very much, Maurizio. I think Richard's clear articulation of the strategy is the primary driver for the confidence that we deliver in terms of our cash burn rate. I think one thing that's important to note with regards to our business is as we move through Q1 and Q2 and then transition into Q3 and Q4, as a manufacturing business, we're scaling up production through those periods, and then recovering that cash as we sell through, and ultimately sell out, for the increase in sales that we would expect coming through in Q3 and Q4. Just be mindful of that.
With all that said, with that increase in cost discipline, we expect to be reducing our cash burn rate quarter-over-quarter, with the biggest improvements being in Q3 and Q4. Paired with that, the note that was added to the top of the press release or to the bottom of the press release, which is that we're in the process of extending our debt. That will significantly extend the timing on the ultimate settlement of debt and, as a result, increase our cash flow supporting our operations in the short- to medium-term.
David, just to be clear, the management team feels with all of that being mentioned, that we'll have enough to support our growth over the next 18-24 months.
That's right, Dave. Thank you, Dave, for visiting for me.
Thanks a lot, David, for your questions.
We have a follow-up question from the line of, Sean McGowan from Roth Capital Partners. Your line is now open.
Thank you, Jen. Yeah, a couple of comments or questions on outlook. First on kind of non-operating stuff. Could you give us some guidance on what to expect on interest given, you know, sort of a fluctuating interest rate environment? Should we look for that line to be considerably more in 2022? And also, how does the stock-based compensation expense fluctuate with the stock price? Like, what's the mechanic on that? Thanks.
Devan, maybe you wanna give that call out there.
Yeah, absolutely. With regard to interest, Sean, our exposure from an interest rate standpoint is less so on interest rate fluctuations as most of the rates are fixed, sort of biggest portions of our debt. The expectation around increases in interest rates impacting overall interest expense won't be material. Obviously, as we close out our potential extensions on our debt round, that will impact the profile versus what was expected if those were to be paid out. Net-net, I would say that interest rates should be relatively stable as we move forward in terms of the impact on the PNL. On stock-based compensation, there's a number of components to the stock-based compensation. The biggest one again is those RSUs.
The RSUs are because of graded vesting, so they're priced at grant date and the expense is based off of grant date. Stock price does not impact the fluctuations on those items. As it relates to other aspects of stock-based comp, which would be significantly less material, the impact and movements on the stock or the volatility of the stock will have an impact. I don't expect that to be material and overall we expect a significant reduction in stock-based comp as we move through fiscal 2022.
Okay. Thank you. On a more of an operating line, the discounts and promotions that you're seeing required, is that? Are we in an environment where that's increasing or, you know, conversely, just the fact that you're better able to supply some of your customers than maybe suppliers with aluminum can constraints or whatever, or is there less need for you to have promotions, you know, kind of in the current environment? Can you talk a little bit about that?
Look, the trade spend, it's a combination of multiple factors, including the customer needs, right? We, let's say most of our trade spend goes into activations, right? Activations to generate velocity, and most of them, they are oriented towards activation of shelf. We create the traction and the velocity by moving, you know, experience of this business, moving the product off the shelf. Moving the product off the shelf creates a significant lift, up to 150%. That requires, of course, also having the promotional activity. This is part of our plan to increase velocity. We of course, let's say, the brand awareness helps to, let's say, create velocity without promo activity, and this is important.
At the same time, this is part of our marketing strategy to create this activation in the stores, especially this off-shelf promotion that generates high velocity. We do not anticipate a significant reduction of these activities.
Okay. Thank you.
I think in addition to that, it's an area of enormous focus for the business to ensure that all of the trade-related activities that we deploy are directly in line with driving that growth. An area that the business is closely watching and looking to improve our overall efficiency in terms of how we deploy.
Okay. Thank you.
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