Good afternoon. Thank you all for joining us today for the Lytham Partners Fall 2024 Investor Conference. My name is Joe Dorame, Managing Partner of Lytham Partners. I would like to welcome Flow Beverage Corporation, one of the fastest-growing premium water companies in North America. The ticker symbols are F-L-O-W on the Toronto and F-L-W-B-F on the OTCQX. Presenting from the company today is Trent MacDonald, Chief Financial Officer. As a reminder, management will be available for one-on-one virtual meetings. If you'd like to sign up, please visit lythampartners.com/fall2024 and click the Investor and Attendee Registration button. Now, I'd like to turn the presentation over to Trent MacDonald, Chief Financial Officer of Flow Beverage. Trent?
Hey, Joe. Thanks a million for having us here. Always glad to be part of these conferences. They've worked out well for us in the past, so thank you once again for inviting us this time again.
Of course. Glad to have you.
Yeah, let's just jump in and talk a little bit about who we are and what we're trying to achieve in the marketplace. I'll probably touch a bit on where we came from, where we are now, and where we're going. So at that, Flow is a premium water company. Our story is that we were started by Nicholas Reichenbach, who's our current CEO and Chair of the Board. It was founded in Ontario, Canada, in 2014, off the back of a wonderful aquifer-fed artesian spring that has just some premium, beautiful water that our CEO, founder, thought should be provided to the masses, and if doing so, it should be provided to them in the most sustainable packaging on the planet, and that was the impetus behind it.
Our water, again, is naturally spring water, with a high pH level, naturally alkaline. It's actually a mineral water, so it's natural mineral spring water. It has functional benefits because of that alkalinity, but it's also, as people may not know, because of the mineral makeup, it has almost as many electrolytes as many sports hydration drinks, except it's naturally occurring, so lots of functional benefits that come with our actual water. We take a portfolio approach, so we have flavored waters, Cucumber + Mint, Strawberry + Rose, Blackberry + Hibiscus, among others. In addition, we have just announced, and we'll talk about this a bit more, very excited about it, sparkling mineral spring water, which will come in an extremely innovative packaging format.
It will come in the form of an aluminum bottle, and again, brings with it a tremendous focus on sustainability. And I should go back, 'cause our water, when I say we're in the most sustainable package, we're in a Tetra Pak, and you can see it here, and anybody who knows Flow will have had this before. But it's, you know, recyclable. It has a high degree of natural, renewable materials that make up the packaging itself. The cap, which looks and feels like plastic, is actually made of sugarcane and is completely biodegradable. So we...
As a result of that, as an ESG score, you know, we are one of the highest-rated companies in the world or in the top, you know, top 5% of the actual world in ESG B Corp certified organizations, and we're the highest when it comes to water companies. So we're very proud of that, and we look to continue to build on that momentum as we go forward by not resting on our laurels and making ourselves even more sustainable as an organization. We have done a lot of work on our actual consumer within the marketplace, to whom we sell. And again, so you can see, we're in sustainable, we're in functional, and we're in premium water.
The folks who tend to fall into those three categories is pretty wide, and it's a pretty large group. But our best consumer, the one that buys the most, that we really focus on, is that twenty-five to forty-five-year-old, very mindful, balanced person with a great social life, family life, health-conscious, eco-friendly. And you know, as a result of those folks, among many others, who purchase our products, we have a very high promoter score at 79, which is, for us, something else we are very proud of. In 2024, and we're wrapping up 2024, our fiscal year ends October 31st, so we're about to enter our very final month of the twelve-month fiscal period. But we recently announced our Q3 results just a couple of weeks ago.
Some of the milestones that we've had to date, you know, we completed some private placements. We're getting very close to profitability. You see what we've done, you know, over the last, call it, six quarters, through an enormous restructuring of the organization. The last two quarters, we've been able to meet some pretty big milestones. In Q2, we were the most profitable we've ever been by minimizing the EBITDA loss to the degree that we've never done in the history of this organization, and then in Q3, we did it again and beat Q2. Our goal is to get to, you know, EBITDA positive in the very near term, and then eventually, fully cash flow positive within the not-so-distant future, and, you know, call it three to five quarters.
So we have a lot of great things that we've done through the restructuring, and, and so a lot of that, you'll see coming into our, our results, which we'll talk about a little bit. But even beyond the, you know, the corporate, things we've done, we had, you know, a lot of work done on the, summer hydration launch program. We optimized our portfolio as part of a restructuring to really simplify the company and get to the grassroots of who we are. We announced the Flow Sparkling Mineral Water, and you can see that in our, in our deck. You know, it's a beautiful, innovative bottle, made of aluminum. You can see it. It's something that we are very excited to bring to the marketplace.
We've had tremendous reaction from our retail partners and our food service partners, and we anticipate that that's just going to grow over the near term, and we just come out of the Toronto International Film Festival. It's one of the biggest film festivals in the world, and we were there not only activating Sparkling, but moreover, we were there with our Tetra. You know, Tetra obviously is who we are, and the sustainability goes with that, and TIFF was profoundly successful for us. It's always nice to see such famous people walking around with a Flow water in their hand, and that happens all the time anyway. You wouldn't believe how many photos I get sent to me of very famous people walking around with our water, so it's really nice to see that.
We also are very focused on co-packing and getting our utilization and capacity utilization up in the plant that we've consolidated all of our production into a plant here in Aurora, Ontario. As a result of that, we went out and we landed. You know, we extended the BeatBox co-packing agreement for an extra year, so now it's a six-year agreement representing over the term of it about CAD 213 million dollars of revenue for us. But we have other partners as well like BioSteel and Joyburst. BioSteel we did this year, but we have Joyburst, Cwench, which is an up-and-coming company that we anticipate great things from going forward. Great products in the sports hydration industry there, in that segment of the industry, I should say.
So in total, we have, like, CAD 246 million worth of forward contracts, which, you know, is going to really stabilize our organization as we go forward and supplement our ability to get to not only cashflow positive, but that starts with really great margins, which of course you need as a CPG manufacturing company. You need high absorption, so this really helps in that regard. So again, we just came out of TIFF. You can see again in a clear, nice photo here our packaging that's coming out for sparkling water. Again, very, very excited, and TIFF went extraordinarily well. Our growth priorities, not just. We say here 2024, but it's really coming off of 2024, out into 2025.
Our Flow brand growth, on our financials, it looks like we're not growing. It looks like we're declining, but that was part of our restructuring. We made the cognizant decision to get out of unprofitable channels that weren't working for us, for a number of reasons. We took a step back as a result of that in Flow-branded sales, but the growth is still there in all of the channels where we really want it to be growing. So as an example, e-com, retail, convenience, a lot of good food service, natural foods, both in Canada and the United States, and we anticipate that continuing as we go forward.
We are really close to getting to the point where we've mitigated all of the impacts from exiting those unprofitable channels and actually going to full consolidated growth on Flow brand, you know, probably by Q1, if I had to guess. We're really excited to continue to focus our efforts into those channels, and what we've done to really alleviate our path to profitability. We've again expanded our capacity. We went from three lines to four lines. We've announced plans to go up to five and six, which we hope will be operational by the middle of next calendar year. Quite frankly, by the time we get there, they're already filled to our capacity.
We're doing a lot to really drive business and to utilize that site, and we have lots of room for growth at that site in the future for anybody you know who says, "What you know, when are we gonna run out of runway?" We're not. We can go up to probably 14-16 lines in Aurora. We've dramatically improved all of our functional areas in every way and started with an IT ecosystem led by our wonderful Pamela McCray, who's our Senior Vice President of IT. But it was a company-wide effort, and that IT team are rock stars. But we have a. We've gone full automation within our operating environment.
All of our finance function has been completely restructured under Lashana, who's our Senior Director of Finance, and, you know, the team is humming. The processes have been improved. We're closing our months in six days, closing quarters, getting information off to our board and audit committee. It is a very different environment that we find ourselves in today, and we've been working on stabilizing our working capital. So, you know, complete restructuring is expensive. When I first arrived here, and anybody can look it up, in October 2022, we had CAD 2.3 million, you know, worth of cash, and that's it. And we had...
If you add it all up, we had burned through CAD 111 million of cash in the 24 preceding months and had lost close to CAD 60 million on an EBITDA basis in that same timeframe. So the start of this restructuring had us in a lot of peril, but here we are. You know, we're surviving. Just two years later, we're still here. And we are now on the cusp of actual profitability and not so far from cash flow positivity. So a lot of great things have been done over that timeframe, and we're very excited for the future.
And now, like I said, we're working on fixing our working capital, looking at a bit of a recapitalization, now that we have a great story to tell on our future and an actual profitable future coming. So looking for good things here in the next little bit. From a Q3 2024 most recent, you can see here what I talked about, the Flow brand net revenue's down in Q3. Not as much as it was year-over-year, down in Q2. As I said, we've been even though all of that revenue streaming that was there last year and those unprofitable channels is gone, we're closing the gap because we actually are growing in very profitable areas. And you see that. We went from 3% gross margins last year to 34%. We're not gonna stop there.
Our goal is to, you know, in the very near term, in the next couple of quarters, to get that to start with a four, and we'll see where we go from there. We had great gross profit growth over the course of the last year, and our sales and marketing, you see, have stabilized. General admin have come down dramatically. Sales and salaries and benefits, you can see that it's really starting to show what's happened with our restructuring efforts. As a result of that, our EBITDA loss went from CAD 12.7 million last year to CAD 3.5 million. On an adjusted loss, which we've kept the same definition, we don't mess around with that definition, you know, we're down to CAD 1.9 million from CAD 10.7 million loss last year.
So an amazing amount of progress and we believe, again, we're just on the cusp of making that negative a positive. We're really, we're really quite enthusiastic about what we've achieved to date. You know, for us, you know, we just wanna keep focusing on Adjusted EBITDA positive and keep simplifying. We see the resumption of growth. We're focused on co-pack sales and Flow sparkling water. So this is our... These are our net revenue drivers on a consolidated basis, and we need to continue to drive those, again, profitably. Gross margin is a huge focus, so it's capacity utilization, contractual minimums within the co-packing, and operating expenses. We are not gonna take our foot off the pedal when it comes to being efficient, and so you know, we have stable sales and marketing.
Eventually, we're gonna have to put some money in there, clearly, because we want to continue to grow and to open up new doors and new areas of distribution. The restructuring, you know, is, you know, fairly done, but there's always places we can look, and there's some things we're still doing in logistics and distribution, which was the biggest black hole for us when I certainly arrived. Now we've saved, you know, close to CAD 8 million in that area, and that's on higher volume. So it's crazy to think what we've done, and so far, we estimate CAD 20 million- CAD 24 million in overall cost improvements, you know, at this point, versus our run rate, you know, when we first came into the organization.
So, a lot we've been able to accomplish, a lot more that we have to accomplish. Which gets me to this, you know, valuation. You know, we are valued at zero point nine times our enterprise value, but we're pretty high in debt for the size we are. We're looking at what we're gonna do with that over the next several quarters. But if you just look at it from a market capitalization to our forward sales, we're at, like, you know, under point two, whereas our peer group is well over four, if you looked at it just on that basis. So we are woefully undervalued versus our peer group, but value is in the eye of the beholder. It's subjective.
We know why we're undervalued, and there's a lot of reasons there, but inevitably, we need to continue to execute and de-risk our organization, and get rid of some of the overhangs. I think then the market will start to get it right. As long as we continue to operate, I don't see a path where we're growing top line aggressively, being EBITDA positive, cash flow positive, and still trading at multiples under point two. I just don't see that happening. Doesn't mean it won't, but I just don't see it. I think there's a time when investors are gonna have to start taking a serious look at an entry point. You know, we've just had two straight quarters of dramatic improvements.
We're saying what we're gonna do, and then we're doing it. So I think, you know, look, see what the next couple quarters look like, and we'll go from there. But we're on a very, very good path, and we're gonna keep telling the story to people like you, Joe, and taking part in a lot of IR. We talk to investors every day. It's a big part of my role right now to tell the story and to start getting the shareholder value up to reflect what we've done internally from an operations perspective. So that's where we are.
Hopefully, that's of interest to folks, and we always say, "It's a beautiful day to invest in the future." So thanks, everybody, at that.
That was a great overview. Thanks a lot, Trent. We really appreciate it. Since we got a little bit of time, let's dive a little deeper into some questions. You know, looking at results, you guys have done a great job on executing on the operational transformation of the company. You know, do you have any more steps remaining in the transformation or slash restructuring?
Yes, we do, but I'd say we're about 85% complete of the big things, the big low-hanging fruit, but within logistics and distribution, warehousing, you know, we've done a ton. We used to have several warehouses. We're down to one. We went full 3PL. We're doing some nice things in e-com, especially on platforms like Amazon, going to Vendor Central.
But there are things that we still have to do, and our Vice President of Logistics and Supply Chain, Linda, who is in herself quite amazing, she was on maternity leave for a lot of the last year, so she missed a lot of what we've done, and she's come back, you know, thankfully, because she's gonna be the one driving that bus to get us even further ahead. She's already made some pretty good improvements since even arriving back after her time off. So we're looking forward to some good things there.
And then there's a few things we're gonna do in functional areas still that we're toying with, and from an operational perspective, we really have to continue to drive operational efficiency and get our cost per unit down from a standard overhead cost perspective, and we're doing good things there, but there's room to improve even from here.
Well, that's great. You know, long term, you know, you talk about co-packing. How big can that become? What kind of opportunities do you see for growth and profitability there?
Yeah, I think there's amazing opportunity that continues to be in front of us. The reality is that Tetra is not a format of choice in RTD in the United States specifically. It's getting a bit better in Canada, versus what you'd see in Europe. Tetra is a massive company. They're putting a lot of money, effort, and resources into proliferating this as a great RTD drink versus, you know, the brick format for juice packs and stuff, which they've done a great job at, obviously, over the decades. You know, when it comes to water in a bottle or what you see BeatBox is doing, or Joyburst in hydration, or BioSteel, or now Cwench, you know, you see some of what's happening in the marketplace, and it's becoming much more acceptable.
You see even here in Canada, in liquor and alcohol, you have Cottage Springs and some others, and of course, BeatBox in the US, so you know, the more that happens, the more co-pack opportunities arrive for us, and look at Vita Coco, who's been extremely successful in that format, and we're proud to call them a, you know, a partner of ours in terms of co-packing. And so there's a lot of room for growth, and as a result of that, there's always... I get the question all the time, like, "How much more can you guys grow if we have to build a new plant?" We don't. We have a secondary site coming online in probably March when it's fully operational, and this was through the BeatBox agreement that we have, you know, for distillate.
It was really for dilution of our, of their alcohol, so that they don't have to be sending so many trucks.
Yeah
... that are under 20%. We can actually receive it at a higher ABV and dilute it ourselves now with these new capabilities. But we knew that we needed something to grow, so we can comfortably get to eight lines in our current facility. We're gonna be at six by the middle of calendar next year, where, again, we're at four now. And then the new facility will fit at least six, maybe even eight. And so you're talking between 14 and 16 lines, and they're each doing, you know, call it 36 million packs a month, or a year, sorry. So we have a lot of runway to get to some very big revenue numbers, both in co-pack and for the Flow brand.
That's fantastic. So, you know, let's talk a little bit about gross margins. In Q3, you came in at 34%. You know, what do you think is achievable long term as you look at what you're doing with the business?
Yeah, you know, look, Tetra isn't, you know, we're, you know, some of these plastic that are thin, small plastic bottles that you can crush even when you're drinking it, you know, these are pennies. You know, Tetra is a premium format, so it's never going to be something that's gonna allow us to have 75% margins. But, but that being the case, we really believe there's a runway to get us close to 50%, if not marginally over it. It'll take a few more quarters, for sure, and some and we need to really focus, I think. But once you get line, lines five and six, and they're really producing at full capacity as you build towards line seven and eight, I think at that point, your absorption is really through the roof.
You know, based on our, you know, our rent and our overhead and the operational expenses to run that facility. So I anticipate some really great numbers- ... as we sort of get to the second half of our fiscal year twenty-five. But for now, I think, you know, it's... I always say it's lumpy. It's a little bit lumpy. I wish it was just a linear, "Let's just gonna go, every quarter it's gonna go up." But we've made a lot of improvements to get to thirty-four. We'll see what Q4 comes in at, and then Q1, but I think you're gonna see some more improvement between those two quarters, and we'll see where we go from there.
Great. You know, shifting to Adjusted EBITDA, now, what level of revenue do you need to reach to get to 5-10 million in Adjusted EBITDA, and when do you think it would be possible to achieve it?
Without giving hard guidance, I think we can get to that in fiscal 2025. That's internally what we're talking about, and we're building out a plan to get there. But I think there's every reason to believe we could be right in that range of numbers- ... that you just put there, 5-15 million of positive EBITDA next year, next fiscal year. I think that's the path we're on. I don't know if people realize that, but no, that's the absolute path that we are on, and we're gonna work very hard to get there.
That's impressive. You know, kind of shifting gears a little bit, going to the sparkling water, can you provide a little bit more color on why this was chosen as, you know, the next innovation for the company?
Yeah. Look, we've tried different innovation within our Tetra. You know, we went with Vitamin, and before that, we had collagen. But, you know, there's reasons those didn't work out the way we'd anticipated. A lot of it's the way it's merchandised in store, and we can't separate, and it looks like just another flavor extension to our current portfolio. So I'm not sure we did a great job at differentiating from a consumer perspective. And, you know, the biggest competitors in Vitamin are, you know, a lot of them are in refrigerated settings at point of sale. That's expensive retail space, and it's hard to compete unless you have the resources to put into it, so.
But when it comes to sparkling, you know, that's a completely different category. We're not merchandising that on shelf beside our still water in Tetra. It's a very different area of the merchandising space within the water sections. We believe that there is a high demand right now, and we've heard it. Like, we've heard it from our retail partners, not just consumers, retail partners, that, you know, they, they're looking for a more sustainable option in sparkling. And, you know, there's a lot of 355 ml, like a Coke can, that are filled with sparkling water, a lot of private label, a lot of, you know, like everything from a Bubly to a Perrier to whatever. But when it comes to bottles, it's all glass, you know?
This presents a very unique format that has a much lesser, you know, sustainability footprint than, you know, glass does. A lot easier to handle, and we believe it's going to be a great format for us. We have already gotten, I can tell you, like, it's not like when we're announcing, you know, extensions within Tetra. I can tell you, we have a lot of commitments already, like volume, like that we wouldn't even expect it already. That people are, you know, food service as well, they're coming into it big. They love this format. They think they can sell it to their customers and consumers.
And so we're looking for great things, and, you know, now is the time because we're doing it in a way that's sort of cash flow neutral. And for us, which is good, 'cause we're not, you know, we're not rock and rolling it from a working capital perspective at this particular time. We will be eventually, but, you know, we just came through a big restructuring. But that being the case, we have an opportunity right now. So sometimes opportunities you need to take, even if they come at a not so much of an opportunistic time.
But, you know, this is what we had to look at, and so we dove in because we think it'll be cash flow neutral to get it going, and then it's gonna be tremendously cash flow accretive in the very near term because of the way we're launching it. So, specifically food service, where you don't need a ton of marketing and things of that nature, but it's big volume and margin accretive. So we're. That's sort of the impetus behind it at this point.
It's a great-looking product. When is it gonna be available in the U.S., or is it available in the U.S.?
We're not. It's not available anywhere just yet. We've produced quite a bit of it, like, for activations and sampling, but right now, we believe it'll really start becoming available later this calendar year. And mostly the first quarter of next calendar year. So I would expect everybody will be able to buy this in, you know, in the U.S. and Canada by the end of March, in both in e-com and retail environments that have already made orders. And then, you know, in food service environments where we're big, you'll start to see it. So I think by March 31st, it'll be everywhere.
Great. All right. You know, looking at your revenue, I mean, how is it divided between U.S. and Canada today?
Yeah, you know, if you don't look at co-pack, which is clearly all Canada, we're really getting to about a 50/50 on, you know, e-commerce and retail. And we expect US to grow more than Canada over time. We're putting a lot of emphasis to really proliferate the US, and we're getting a much more focused strategy, where we're not just putting things out there so that we're everywhere across the States, 'cause that presents lots of problems logistically as well, and the cost to serve. But we are looking at geographic things that we're doing, that we're gonna have some announcements coming out that we're excited about.
So we're doing some things around that, and we are looking at growing it, and we built out some internal resources and team, team members that are coming in, really going to drive those sales and those results. So we're excited about what that's gonna look like, and that's very recent. But Canada continues to grow. Don't get me wrong. It's growing in great channels. Loblaws has been a great partner for us, as has others, like Sobeys has really turned the page, as well, and Costco, we just launched a 12-pack 750 ml with them that went very well.
Wow
... from what we can see. Starbucks, obviously a big food service partner, and Live Nation in Canada here. So we have lots of growth in Canada, and we continue to look for growth in Canada, but the US is where we're, you know, we're putting our resources there for sure to get where we need to be.
That's good to hear. I mean, clearly, that would be a great opportunity for you guys to get more penetration into the U.S. market.
Absolutely.
You know, just kind of wrapping things up here, you know, looking forward, you know, what are the key milestones investors should be looking for as you finish up fiscal 2024, and more in particular, when you go into fiscal 2025?
Yeah, I think investors have to look. You know, it's hard to look at one quarter in a silo. I think investors have to, you know, when we finally come out with Q4, I think you have to look at, like, what did the last three quarters look like? 'Cause Q1 was the last sort of big quarter of restructuring, as was Q4 and Q3 before that. We had three quarters of, you know, two quarters of planning, three quarters of restructuring, and now you're starting to see the result of all of those efforts. So I think you have to sort of look at, are these guys, you know, is this company really turning the page?
I think that's the first thing you have to look at, is that jump-off point going into FY 2025 based on the final three quarters of FY 2024. I think you're gonna wanna see in Q1, especially, is there a return to growth of the Flow brand? You know, and if so, then, boy, I mean, these guys mitigated a ton of lost sales from unprofitable channels, yet they're actually up. So I think that's gonna be important to look at. I think as you get into the later into the year, you know, even Q2, you're gonna wanna see progression in margins. And I think the overhang. People are looking at our cash, and they're looking at our cash burn. Has the cash burn started to come down, and what are...
And what are we doing to make sure that we're in it for the long run? So we'll be looking at some things and, you know, there'll be some announcements coming out there. But inevitably, we have great partnerships with our bank and continue to have very constructive partner there, and among many of our investors. So there's a lot of people behind this organization, and so we, we've just been de-risking, de-risking, de-risking as we go, as we continue to march towards an actual path people can believe in, and give ourselves credibility. So I think that's those are the big things you're gonna wanna see. Continued growth, better margins, and a very clear path to being able to sustain ourselves as a going concern.
and, you know, we clear all that off in the next six to nine months, and you have that growth and that profitability, and now we have a pretty good balance sheet. I don't see how it can trade. I'd say it all. But, I mean, I know a lot about the markets. I'm in them. I've been around them for most of my adult career, and it's very rare. You can always find them, where there's somebody who's ridiculously undervalued as a growth company that's profitable, but it doesn't happen very often. And so the market, we believe, will get it right as soon as we prove ourselves out.
Yeah, you're right, and you know, this is a great overview. I think it's very helpful. And the key is just to execute like you've been doing, and then at some point, the markets will reward you. So congratulations to you and your team for doing a great job.
Thanks, Joe.
And it's been a pleasure having you with us today. So, you know, with that, we'll just close up. And as a reminder for the folks that are listening, you know, if you'd like to sign up for a one-on-one meeting with management, please visit lythampartners.com/fall2024 and click the Investor and Attendee Registration button. And, with that, you know, thank you again, Trent. We appreciate it, and we wish you all a good day, and enjoy the conference.
Thanks, Joe.