Flow Beverage Corp. (FLOW) Earnings Call Transcript
January 9, 2023
Earnings Call Speaker Segments
Good morning, everyone. Welcome to Flow Beverage Corp's Ops -- Operational Update Conference Call. As a reminder, this conference call is being recorded on January 9, 2023. [Operator Instructions] I will now turn the call over to Nicholas Reichenbach, Founder and Chief Executive Officer of Flow. Go ahead, Nicholas.
Thank you, operator. Good morning, everyone, and thank you for joining us today. I'm joined today by Trent MacDonald, Flow's Chief Financial Officer. For our disclaimers on forward-looking statements, please refer to Slide 2 of the presentation. We are delighted to be walking you through some very significant milestones that Flow has achieved over the last 2 months. The common thread of all these initiatives is that Flow is taking an aggressive action towards our goal of achieving profitable growth for the Flow brand. As Trent will illustrate in the presentation, our stock is trading at 0.3x revenue versus our peers that are trading at an average of 3.5x. We believe the market is not taking into consideration the magnitude of the changes that we've recently made to improve our profitability and strengthen our balance sheet without compromising growth for our Flow branded products. Now let me take you through the most recent milestones. First, on November 9, last year, 2022, we announced the sale of our Virginia U.S. facility -- production facility. The key takeaway from that asset sale was that Flow received cash proceeds of about $17 million. We were able to repay $6 million with a debt and lease obligation and assign another $4.3 million in lease obligations. In short, the transaction significantly improved our balance sheet. Furthermore, Flow retained the ownership of our 144-acre Virginia Spring and most of our co-packing business, which we are now moving up to Aurora Canada, which is operating at full capacity. Many of you are aware that Verona was not operating to capacity. So this deal is expected to improve profitability and provide a greater certainty of cost of goods, cost of sales through our co-packing agreement with the purchaser of the facility BioSteel. Two more recent announcements of Flow included the starting of an internal restructuring and the securing senior secured debt facility of $20 million. In combination, these strategic initiatives were expected to save $17 million in operating costs. Turning to Slide 4. You can see the Flow continues to show up more and more stores across North America, hitting over 46,000 doors as of December 2022. Some of our recent wins include 11,000 stores of Dollar General, 5,000 stores of Family Dollar locations and another 500 locations of Fred Meyer, ShopRite, Market Basket and BJ's Club stores. In the next few slides, I'll walk you through some of our big growth drivers that we see in 2023. First, in food, drug and mass, we announced last week that Costco is significantly expanding its distribution of Flow water in Eastern Canada and also have commitments for our newly launched vitamin-infused water in Costco Canada. And second, one of our largest standing customers, Whole Foods, have committed to an off-shelf program in the United States as well. At a higher level, we're expected -- we expect the growth of North American food, drug and mass channel will continue to focus on our traditional SKUs, select trade spend, maintaining competitive pricing and improving profitability through cost savings in distribution and logistics. Turning to food service. You may recall, on November 17, we announced a distribution agreement with Foodbuy. Foodbuy has access to over 11,000 locations, including hospitality, leisure, restaurants, gaming, casinos, country club, health care and education. We're starting to roll out Foodbuy, and we believe the relationship will contribute meaningfully through the revenues in 2023. Another huge food service win is our agreements with Starbucks Canada to carry Flow across 1,000 locations. We announced this deal December 6, 2022, and are rolling out starting in January. We are delighted to have a leading global retailer like Starbucks as a partner. Since we started announcing food service contracts last year, we stated consistently that our premium and sustainable positioning is exactly what food service partners are looking for. And we see that this is still true with organizations like Starbucks. We expect that sustainability, in particular, will maintain a high growth segment within the beverage markets for quite some time. Before I pass it over to Trent, I'll provide a quick update on our vitamin-infused water watch. Vitamin-infused water is now available for distribution across all our primary sales channels, and we are committed from a number of our leading retail partners to launch this innovation in the coming quarters. Our vitamin-infused water is crafted with -- of the core principles as our flavored water. We do not use artificial flavors, sugars or juices. The product is entirely organic and is packaged in our Tetra Pak, which we believe is the most innovative and sustainable package in the world. If you haven't tried the vitamin-infused water, please contact us for a discount code, and we can jump online and deliver it right to your door. With that, I'll pass it over to Trent.
Thank you, Nicholas, and good morning, everybody. I want to reiterate what Nicholas said, it's an exciting, exciting time to be at Flow. The impact of what we have accomplished over the last 2 months, if not further, cannot be understated. And so, as we released this morning, we expect to generate over $17 million in annual cost savings from our recently announced strategic initiatives. These savings will be through cost of sales, G&A, compensation and benefits as well as logistics and distribution. By the time, our internal restructuring and the transitionary agreement with BioSteel are complete, we expect that we'll be running Flow with down approximately 80 headcount. So that's a great reduction. With the disposition of the Verona production facility, we are significantly more asset light, and we have retained most of our co-packing revenue, which means Aurora is running more efficiently and profitably than ever. And we don't expect to take any write-downs on any of the transactions that we've completed. With regards to the balance sheet, the sale of Verona and the secured debt have added approximately $32 million of cash, which is brought into the bank. And then you have to take into account the cost -- the cash savings from an outflow perspective, so a very large differential and cash impact that we've just accomplished in the last 2 months. We actually have an option to draw another $5 million on the secured debt over the next year. All told, the cash we raised and the improvements to profitability that we expect are believed to significantly improve our runway to profitability. It's a bit too early to say exactly when we expect to be profitable in light of our growth rates and other strategic initiatives that we have going on. But I think it's fair to say that our outlook has improved dramatically over the last few months. We believe Flow is undervalued relative to our peer group, especially considering our Flow brand growth rates and our financial position following the strategic transactions we have executed. You can see in Slide 9 that we are trading at 0.3x enterprise value to revenue. Our peer group conversely, is trading at 5.0x on a weighted average basis for that peer group. That is a remarkable difference. Again, whatever led to the undervaluation, fair enough but we are a very different company today. To say that we believe there is upside to our share price would be a dramatic understatement. Flow has been among the highest growth rates in the peer group when looking at the Flow brand in isolation. You will remember that in our fiscal Q3, we were reporting year-to-date growth of Flow brand products at 21% and 36% in that particular quarter. On a very -- one of the very important factors to understand when measuring Flow's growth, that being going forward, we will not be recognizing the BioSteel volume commitment penalties any further as revenue. That being said, it is still our expectation that true underlying volume will increase in co-pack and more importantly, for our flow brand, which should offset those penalties. This will make our growth in consolidated net revenue appear a bit lower than the reality. But our conviction is that the value is in the Flow brand, and we believe the markets will reward this growth as we demonstrate our results and improve profitability going forward. With the improvements that we have made in our financial position, we are also going to be investing heavily into sales, marketing and brand awareness. At the same time, we'll be investing in our IR program to improve investor awareness as our story has changed a lot in the last few months starting today with this operational update. Given our current valuation, we think the timing is opportune to tell our story to new investors with a diversified approach. With that, operator, I will open it up to any questions.
[Operator Instructions] And your first question will be from Chip Moore at EF Hutton.
Congrats on the momentum here. Maybe if you could help us with the $17 million in cost savings. Just give us a little more detail on how to think about that rolling out? I know that's annualized. So just what needs to happen in the coming months, and any more color you can give us on where that will drop.
Absolutely. So look, a lot of that is already been realized. The Verona plant, as we've talked about, was not running at capacity and the underutilization was a huge cash outflow. And so, when we divest it for us, that immediately allowed us to do some other things down there around logistics and distribution, which we're getting very aggressive on as well. And so a lot of -- I'm going to say, in the tune of about $12 million of the $17 million is already starting to annualize itself, just from that large transaction. But we're also looking at another $5 million to $6 million of internal through SG&A and again, distribution logistics here in Canada, looking at adding that in over the coming quarters. And so, our expectation is that we will be annualizing at $17 million within 2 to 3 quarters. So it's all right there first half.
Fantastic. That's helpful. And just again back to, I guess, the sale of Verona. You kind of alluded to the top line impact, but maybe spell that out a little more clearly for us, obviously, focusing on the Flow brand and the improved profitability as a focus, so we're all aligned correctly.
Well, again, with Verona, we're doing a lot of co-pack down there. And the deal that we struck with BioSteel was such that we signed into a co-pack agreement with them. So our volume in the United States in relation to the Flow brand doesn't stop. In fact, we're getting very aggressive on our rollout of the Flow brand in many retailers. So we continue to look forward to significant growth in Flow brand, both in the United States and in Canada. The co-packer relationship that we did have in Verona were already -- many of them were doing a lot of volume in Canada. And so, we are expecting through several meetings, conversations that we've had already that much of that will transfer itself up into Aurora, which makes that a much more efficient operation as well. So our goal is to continue to grow co-pack while we have the capacity. Eventually, it will be supplanted with Flow brand, which will be a great day. But right now, we anticipate further growth in actual underlying volume in co-pack coming out of Canada.
Got it. So maybe near term, a little bit of a hit as that shifts and then we look for it to ramp back up. Is it the right way to think about it?
Yes, possibly. Look, we can't give guidance and stuff on where we think Q1 will be. But there may be a little bit of a shift and you might see a little impact, but we've been doing pretty good. So we're hoping to offset that.
Perfect. Okay. And that brings me to my other question which is just really around, I guess, two areas, food service, great wins and vitamin water, Nicholas talked about, just update us more broadly on early reception, and it would seem in that -- Starbucks for instance, it seems like a great channel, but any more detail on those areas.
Yes. We expect over the next several months that vitamin water will roll out across food, drug and mass in Canada and the majority of our sales channels. So it's been officially launched in Canada as of January, so you can go online and purchase vitamin water, and they ship to anywhere in Canada and in the United States. And we've had some significant wins, especially with our club channel with Costco accepting the vitamin water across Canada, which will be a significant amount of volume in 2023 with that product SKU. And all of our leading retailers in grocery are rolling out vitamin water, like Metro, Longo's, Whole Foods. And in the United States, it's going across Natural with UNFI and KeHE as our main distributors in 2,000 or 3,000 natural food and grocery stores across the United States. And we're continuing to launch it in our conventional channels, such as Fred Myers, which is a division of Kroger's along with other leading retailers like ShopRite and Wegmans.
Awesome. Yes, I look forward to seeing it here in the U.S. Maybe if I could sneak one last one in. Obviously, you talked about it's a bit too early, right, to say when that profitability emerges clearly a lot closer. But maybe just cash, in general, I know you've got some more now you can draw down just sort of the runway you have. I think maybe that's some of the weakness in the stock, maybe people not recognizing your position and where you stand now just sort of pro forma and how much runway you've got?
Yes. Look, and understandably so. I mean, if you look at the last several sets of financials on a quarterly basis that we put out, the cash burn was very high. And Q4, we're going to be releasing and all of this was done mid to late Q4. In fact, most of it was done after Q4, to be honest. So Q4 may not look that great from a cash flow perspective. But the point is what we've done is very material and significant, very material and significant. And so, we believe we now have created a runway that gets us to where we need to be and we can get to profitability and past operational cash flow positive. And so again, not giving any guidance, but it is within our 3-year plan and not in the out year. So we're -- we think we have the runway. That's our expectation.
And congratulations, again.
Next question will be from Martin Landry at Stifel GMP.
The -- on my end, I'd like to maybe just look at the top line growth for the Flow-branded products for 2023. You were guiding for a growth rate of 25% to 30% last year. I'm wondering what you expect in 2023. Could it be higher or lower than that in terms of revenue growth rate?
Martin, we're getting way away from giving guidance. We're a growing company with a lot of upside. The most guidance I can tell you is this, is that our internal expectation, our plan is to strive to beat anything we've done in the past. That's -- whether we get there or not is [indiscernible] but there's a lot of reason for optimism. And so, I think that's the most we can give without getting too overly general, but our goal is to beat anything we've done in the past.
Okay. That's helpful. And then another high-level question with Vitamin Water, like Nicholas, what's your goal with that product line at maturity? Could Vitamin Water represents 10% of your total Flow branded sales? Could it represent 20% of your Flow branded sales? Help us understand a little bit the potential of that product line.
Yes. We look at vitamin infusion and infusion into our water as one of the cornerstones to the innovation that will provide in functional beverages and functional water beverages moving forward. So we're building it as a portfolio and franchise within the Flow brand. And we will be launching additional functionality and SKUs in 2023. So we're excited about the early adoption from our retailers and the consumer feedback. It's a higher margin -- margin-accretive product for us. But also, it's going in line with the core Flow consumer and what they want to see in functional beverages. So to give a percentage, I'm not too sure we'll give a percentage of how much it will be on our sales, but I do see it as a major driver for a more margin -- margin accretive as well as a larger breadth of products going into the retailers. And from our early look on the product, it is definitely going to exceed what we expected this franchise to be due to the fact that the market has not been innovated in over a decade, and we're the only product that has organic certification as well as zero sugar, zero calories and an amazing taste profile with the core Flow water.
Okay. But it's still very difficult for us to grasp what kind of opportunity we're talking about, if this is less than 5% of total sales? Or -- because you do talk about it, and it sounds like it's a good product [indiscernible]. Like at what point would you be like -- what would you characterize this as a success in terms of percentage of sales of your whole product [indiscernible].
Look, right now, today, 30% approximately, of our portfolio is non-original one. And so we have all of our flavor profiles in a profile and a family of waters. And then that represents 30%. Our goal is to continue to grow that basket, not so much as a percent. We're happy if it does because it's a higher-margin product to Nick's point. But our goal is to grow that back in raw dollars. And if you see what's happening, you look at Starbucks as an example, they took in strawberry rows. So it was important for them for whatever reason, and we have insight into what those reasons are to have a bit of a portfolio versus just our original water flavor. So we believe vitamin is a great market to be in, even right now, especially when you're using the strength of the Flow brand to propel us into that market in that space. So again, our goal is to, right now, 30% is the portfolio versus 70%, which is original. We believe we can continue to grow that number in a raw dollar and it may, in fact, increase as a percentage of the overall basket. And vitamin is going to be a big part of that.
And the promotional activity out there, given inflation and the reduction in consumer spend, are you having to discount more than previously to turn your products?
Yes. We're not seeing the inflationary or decline in consumer purchasing within the premium-enhanced water category or functional water category, and we're not increasing our trade spend as a result of it having to go more promo on any of our core SKUs or products. So hopefully, that will maintain itself. There was a blip for 1 or 2 months last year that we saw a slight decline in the category, but then it rebounded in the summer. And has been maintaining its growth rate in double digits across all channels.
I will now turn the call back to Trent to address any web questions.
Yes. There's lots of web questions coming in. So I'm going to answer a few. I'm going to take on a fairly tough one just to get this going. I'm going to read it out just as it's written because it is a tough and a scathing question. You're trading at significantly lower valuations than your competitors, not because you're undervalued, but because you're bleeding red like it's going out of style. Do you not get that? Don't insult our intelligence by feeding us BS that you're undervalued. So let me answer that, okay? The truth is a lot of companies say they're undervalued. There's no doubt about that. It happens all the time. And when they do feel they're undervalued, there's a lot of things you can do. Some people introduced share buyback programs because they feel it's a great use of shareholder funds to buy back the shares in the open market to bolster the share price, among other things that does for a company. In our case, you have to look at why we were valued the way we were. I'm not going to get into all the reasons, but there is some truth in this particular statement. We were bleeding. There's no doubt, and I said that in our -- in the introduction. You look at our Q3 and prior, our cash flow from operations was abysmal. It was going out the door. So the question is what do you do about that? You can't just sit back. You have to do something. And so what we've done is something that is extremely aggressive. We decided we want to go asset light. We divested of a great facility that could turn into something down the road. But for us, right now, it wasn't doing what it had to do. It was actually costing us so much money operationally that it was inhibiting our ability to grow the Flow brand. So we divested that. And not only did that put money into our bank account, it removed the cash outflow that would have come had we maintained property. We then took on a piece of debt, a piece of debt that we then took in yes, there was another question and we'll answer that, but sort of combining the two around the interest. It has 14%, and the fact is nobody thought that they're offering us in our position a 3% -- 3% over LIBOR rate. That's just not the position we are in today. But we did get a great partner in this particular case that is behind the company, believes in the company, and believes in the management team, and believes in the strategic direction we've taken. And over the next 3 years, we have an opportunity to do a lot with this organization because of the trust of that particular lender put in this organization. And we are going to take some of those funds and pay off another unsecured debt, so we're not double dipping on interest and debt servicing. That would be a bad, bad use of funds. So we are going to be clearing that up, as we said in our update. So look, our goal is to continue to find value by cleaning up the balance sheet, cleaning up the P&L and having the sources and the resources to reinvest in things like marketing, sales and quite frankly, Investor Relations, where we haven't done a great job of telling the story. Now we have a great story to tell. We are stabilized, which is one of the reasons when you're bleeding as this particular question suggests, that's what you have to do. You have to stop the bleeding, which we believe we've done. And now we're in a great and stable area of this life span of ours to continue to invest and to grow and to grow and to grow, which is going to be our focus. And when you're in that position, it is a very fair statement to say, based on where we are today, right now, not 3 months ago, but right now, today, are we not valued appropriately. And we -- our belief is that we are not, that we are not being valued the same way for a lot of reasons, but now there's upside, and it's up to us to unlock that value. Hopefully, I answered that question. There's another question here. The market isn't paying for growth anymore like before, when you're going to -- when are you going to get wake up and focus on profits? You should be buying back stock if you really think it's grossly undervalued to give the market confidence rather than every call coming out and saying how great things are for the last 2 years, only this year share price plunged by 90%. Another fair and reasonable comment. Right now, we are on investor money, right? We are not creating free cash flow. We don't have an excess of free cash flow. We have enough runway to get us to a point we believe to generate free cash flow but it would be a horrible, horrible use of funds right now to take that free cash flow and instead of putting it into developing a further customer -- foundational customer and put it into buying back shares. That is not a good use of fund at this particular time. Down the road, maybe. Maybe there comes a time we are generating enough free cash flow that makes sense in the event at that point, we haven't unlocked as much shareholder value as we would have liked. But right now, the best use of funds is to put it back into operations and allow ourselves that opportunity to grow that Flow brand and get to profitability, which is the strategy that we're trying to execute on. With regards to the last 2 years and the price plunge, we've already talked about that. And I can understand why investors may be disgruntled or frustrated, and I can tell you, Nicholas feels way stronger than me about it even. But this is why we're doing what we're doing. And there's a lot of upside to come as a result of these things that we're doing, and we're not going to stop. We still feel there's things we can do internally to make it a much more operationally efficient organization. And so that's what our goal is to do to come up the other side. Here's another one. Why are you so confident, and I'll let -- Nicholas can answer this one. Why are you so confident that Vitamin Water will be a success and higher margin when collagen and CBD were complete failures? Your track record with new product launches is awful.
Well, thank you for that comment. Collagen-infused water was not a failure at all. Actually, it was very profitable and we distributed into thousands of locations and sold millions of packs of that. So -- and we will continue to sell our collagen infusion and the vitamin-infused product compared to the collagen launch has been probably 3 or 4x as many retailers are launching that product. It's much more of a broad line or mainstream product, given the fact that vitamin water, one of the competing products has been sold into hundreds of thousands of locations, and it's a major category. So we are much more bullish on vitamin infused as a major product line moving forward. Collagen is a little bit of a niche product, but it goes into the core of the Flow wellness consumer. Our CBD water to comment on that, never made it to market due to the overall Canadian marketplace and regulations with the CBD and cannabis-infused beverage. We had a partnership with Molson Trust and Hexo of which we never launched that product. So I couldn't say whether it's sold or didn't sell, but it didn't lose a lot of money. We never launched the product entirely. And we took the assets of that partnership, and we moved them down to Verona, Virginia, and now we have sold those assets at an increased profit for the amount of investment that we put into. So to say that our innovation has not been profitable is an incorrect statement. And we're very excited about vitamin-infused for that reason, and it is a margin-accretive product. The retail pricing of that is $2.99 to $3.49 versus our other core products that are $1.99 to $2.49.
Okay. So there are a couple of questions, and I'll just combine them because there are a couple of questions, really about the debt. What is the reason for placing the previous loan? How's 40% going to impact our profitability margins, so on and so forth. But -- so look, we're in an EBITDA world, obviously. So EBITDA means without interest. And that's -- a lot of people are using that. But the reality is as much as EBITDA as a coin phrase that we all use these days, it really does come down to profitability. It comes down to net income, earnings per share and our ability to generate cash flow. So debt servicing is never really your friend if it's too much. Obviously, when you use debt for the sake of growing shareholder value, it's a great leverage and you can get better multiple on your invested capital when you use somebody else's money being debt versus going and diluting through some type of public offering. And so we've chose the debt [Audio Gap] for a multitude of reasons. And we believe in our projections that we've shown that we can actually service the debt over the 3-year cycle and then see what goes from there. But one of the reasons we're paying off the other debt is because we don't want to be double dipping. The other debt, everyone looks at it and says, oh, geez, it was 12%, the other one is 14%. Well, there was a penalty accruing on the other one that we've negotiated away, which is a great thing in our part. So the penalty was at 12% as well. So really like a 24% piece of security -- sorry, unsecured loan. And that is not a great thing to be facing down the barrel and it was maturing in February of 2024. So we had a creditor who's very interested right now in the story. So it's the old bird in hand. And it was a great time to commence, have that cash influx, get rid of the unsecured loan that was looming. So it doesn't weigh on our stock or weigh on our ability to tell a story because everyone would be wondering like how are you going to pay that off in February 2024. We don't have to worry about that anymore. It's gone. And we don't have that big penalty coming anymore, it's gone. And the warrant coverage was 100%, that's a lot of dilution. It's gone. So, we're only at 10% more on this new piece of debt. So there's a lot of great reasons in the moment that we would want to do that. And so we've done it. And we still have access to another $5 million at some point over the next year, which we believe we will be able to take advantage of with the lenders. So I think overall, it was the right move for Flow at this time.
Yes. Trent, just to add to that, the whole reason and rationale behind taking on the secured debt on top of what Trent mentioned is that this now, for the first time, allows Flow to eradicate the liquidity profile on the stock right now as well as just on our operation because this loan gives us a 3-year outlook into the business for the first time. So when you look at where we were before, which is we had a $9.6 million unsecured debt coming due in February, now we have a $20 million debt facility due in 3 years, 36 months from now, which will allow us to grow the business, grow our cash flow and service that debt and repay. So I think that's an important aspect of why we chose to do it. We want to give us, our shareholders, our investors a longer-term outlook on Flow's operations as we move towards profitability.
There are quite a few questions as well on are we truly undervalued. Again, I'm going to get back to that. Why aren't others looking to buy it if we are undervalued? So look, there's -- that is -- and I talked about the history, and we're not profitable yet, all these kinds of things. It's true, we aren't profitable yet but we have a path, and it's an actual path. And we're doing tangible things. The divestiture was a very tangible action that resulted in some tangible cost savings. These are measurable based on what's actually happened, not what's going to happen and what's projected in the future. The actual cash outflow was measurable, and that will no longer repeat itself because we've divested of it. And there's somebody asking about the 80. How much is the cost to alleviate yourself of 80 team members? Well, many of those are at that facility in the production. And that facility is being taken over from by BioSteel. So there is no severance associated with transferring that asset over. They're taking all of those employees. They're no longer -- they will no longer be our employees coming soon at the end of the transitional services agreement, but they will still be gainfully employed doing the same thing they were yesterday, which is great for us because it allows us to have cost certainty around our cost of goods because we're locked into a co-pack pricing model versus having to operate a facility, tangible, measurable things when put into a financial model can predict where we are going to be over the next 2 to 3 years, especially given our problem has not been and nor does it seem to be in the foreseeable future, sales growth and people loving the brand. People love the brand. Costco, Starbucks, Norwegian cruise lines, Accor Hotels, Whole Foods, you can keep going and going. These are not fly-by-night kind of companies and partners that want to carry our product. This is a great story around sustainability, great products, portfolio approach, which is different than others that people are looking for. And so we need to control the rest of the P&L, which you can argue did we or did we not do a good job of that over the last 2 years. I think the market is telling us that we didn't. But we need to do something to change that, and we are, and we're doing it in a very aggressive way.
I think we -- if the operator can open up the audio for Sean McGowan is now in the queue.
Please go ahead, Mr. McGowan.
Yes. Can you hear me okay?
Yes, Sean.
I have a couple of questions. Just most of them are just to clarify. Is the $17 million savings numbers, is that a number? Or is it a case of like we're going to save $17 million, but we're going to take a big chunk of that and invest it somewhere else? Could you add some color on that, please?
Net. It's a net saving. So what we didn't do, like when we went through -- look, this was a -- this -- again, I'm going to -- my approach as the CFO, and I've only been with Nicholas and the organization as a team member here at Flow for 6 months, call it. And the approach that we've used internally was to do a bottom-up deep-dive analysis of every single expenditure that we are actually expending today, not in the future but what we were actually spending money on and to analyze whether or not we could actually go without that, mitigate it, lower it, do something but not affect sales. And so we went function to function to function and came up with a large list of initiatives that we felt that we could implement, some of which have already been implemented. Others have a time line over the next 2 to 3 quarters. But at the end of that, what we decided was that where we can't cut is on marketing and our ability to build brands. So all of the net sales -- or sorry, the net decreases in cash already take into account the actual additional investments we're putting into building the brand. So the $17 million is a true number not being put back in to be spent out in other places.
Okay. So then I guess another way of asking it for some clarity is what line in the income statement would we likely see the most impact on it? Or is it kind of evenly spread throughout?
You're going to see it really split mostly between SG&A, like G&A, compensation -- salaries compensation and cost of goods. That's where you'll see most of it. You won't see a lot of it in sales and marketing.
Okay. Good. How many -- back on revenue for a second -- so how many of those new adds, particularly in food service that you highlighted, how many of those are incremental to what you kind of had already baked into either previous guidance or your own internal expectation? Or is it more a case of like, okay, well, now we have more visibility on it, we can talk about it, but it was kind of implicit in our growth projections already?
Well, as you know, Sean, Flow has been growing quarter-over-quarter with our revenue, and these are not small growth numbers. Like 25% to 35% growth year-over-year, quarter-over-quarter are big numbers. So when we -- we're not giving guidance into 2023. But as Trent said, we want to beat whatever we did last year and the year before, will continue to grow in double digits and high growth numbers. So to say that they're baked into our already existing plan. I think what is baked in is that we're going to continue to grow the Flow brand and our Flow branded products with more of these retailers coming online like Starbucks and Costco and major food, drug and mass channel as well as food service. So what our goal is, is to continue to grow the Flow brand and the company and obviously beat our last quarters and as well as our last year's projections.
Okay. And just to clarify on that point, when Trent said beat whatever we've done in the past, I assume you mean the rate, not just the dollars, right?
That's right. The rate is very important KPS. Yes. I mean, look, I mean, I don't want to get into the mathematics of it, but we're not going to -- I just don't want to set an expectation out there. We're not going to beat our growth rate from 4 years ago when you're building off of $1 million and then you go to $3 million. And then, oh, wow, that's 200%. Like clearly, as the actual sales dollar figure increases, it gets harder and harder to beat the rates from prior years. But our goal this particular year is due last year, but like no guidance we're not saying it's going to happen, but our goal is to do everything we can to accelerate the growth.
Okay. A couple of other things you're looking for a little more color on. So help me understand how are you going to move that capacity from Verona to -- or the production from Verona to Aurora if Aurora is already operating at capacity? It sounded like that transition hasn't really happened, but you didn't say that Aurora is already at capacity. So how is that going to work?
Yes. That was -- look, the truth is -- I mean, look, we're getting that capacity -- that capacity for what we're doing with it today being that we are running 24/5, okay? So we're running 24/5. And this is modeling in all the co-pack that is coming up. So all that co-pack coming up and with the Flow brand that we're doing out of that facility today, that would put us that capacity. But we have the ability to add another 2 full days of 24 hours. So we have the ability to sustain growth in the near term, for sure.
Got it. That's good margins. And then the last question is, could you clarify what you meant by the penalty on production regarding BioSteel? I didn't quite follow that.
Yes, sure. So the way the prior manufacturing services agreement worked with BioSteel, which was publicly disclosed is that there was a -- there was a minimum volume that they had signed up for under the agreement. And if they didn't meet those volumes, then there was a penalty that they then had to pay as if we were actually manufacturing those minimum volumes. And they had fallen short at the outset. And that's not to do -- I mean BioSteel is a great company and they're doing well and they're growing all the time. But the minimums were there because we invested so heavily in the underlying equipment for the purposes of taking them in as a co-pack client. And so, it was meant to be a bit of a payback for the equipment itself. And so those penalties are classified as revenue under these types of agreements, which are not uncommon, by the way, to have minimums in co-pack when you're committing production line time and scheduling and everything else. So that being the case, that has now gone away with the deal we struck with BioSteel to co-pack in the United States and then do more of a spot agreement in Canada, which is still bringing in lots of volume, and we expect it to continue to do so. But there aren't those penalties that were there before. But the underlying volume, as I said, the actual volume of true co-pack production is going up, not down.
I appreciate all that clarity.
Thank you. Ladies and gentlemen, this is all the time we have today. Thank you for attending. You may now disconnect your lines. Have a good day.
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