Flow Beverage Corp

TSX:FLOW

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, everyone. Welcome to Flow Beverage Corp.'s Third Quarter 2022 Financial Results Conference Call. I'd like to remind everyone that today's call is being recorded, September 15, 2022. [Operator Instructions] I would now like to turn the call over to Mr. Nicholas Reichenbach, Founder, Chairman and CEO of Flow Beverage Corp. Mr. Reichenbach, please go ahead.

[Nicholas Reichenbach, executive]

Thank you, operator. Good morning, everyone, and thank you for joining us today. Floods third quarter 2022 financial results were released last night. The press release, financial statements and MD&A are available on SEDAR as well as the company's website, investors.flowhydration.com. Before I begin, I'll refer to Slide 2 of the presentation, which contains our caution regarding forward-looking statements.

I'm joined on the call today by Trent MacDonald Flow's newly appointed Chief Financial Officer. I'll start off today's presentation by reviewing recent operational milestones that Flow's team has achieved by increasing distribution, customer acquisition and customer awareness. I will then introduce 3 new members of the Flow team before I turn the call over to Trent for a detailed review of our financial results. Before we open the call to questions, I'll review our new distribution agreements with Primo Water and provide an overview on our activation of the New York Marathon and some other upcoming innovation launches and activations. We have had a very active year to date at Flow.

Growth through new doors, innovation and new distribution channels has been our recipe to maintain the #1 market share in format, carton water, and we're able to over-index on the growth compared to the premium and functional water categories. We have successfully launched vitamin infused water over our e-com platform in the United States of America, and we've made our retail launch at Fred Meyer, a division of Kroger's, the largest grocery chain in the United States. We currently expect vitamin water to be a permanent SKU in the functional water set to over 200 Fred Meyer's locations in 2023. Flow has also launched a new 1-liter flavored SKU of blueberry peach and strawberry rose, 2 of our top-selling flavors, in over 1,000 locations.

We announced the launch of these SKUs with Sprouts, one of our leading natural retailers in the United States, in June. And we've had several new retailers pick up the new SKU as well. We are very pleased with the new results. In Q3, we also launched our first off-shelf variety pack with 4 delicious full flavors, and we also saw Erewhon Organic Grocery in the Southern California add our core SKUs to their shelves. We have also signed significant distribution agreements that will propel Flow into the foodservice sector and add new avenues of growth on top of our retail and e-com. We have made significant headway in our foodservice business, launching across all Norwegian Cruise Line ships and beginning to roll out across 71 luxury hotels in North America with the Accor Group.

Turning to Slide 4. You can see the Flow has now reached over 36,000 points of distribution in North America. Since the second quarter, we have added 800 stores. One notable win was securing over 200 ShopRite grocery locations. ShopRite is a part of the largest supermarket cooperative in the United States, and its stores are located across the Northeast Coast of the United States in New Jersey, New York State, Pennsylvania, Connecticut, Delaware and Maryland. We have also added our distribution agreement into the direct-to-consumer sector with Primo, a leading and global pure-play water solution provider, are not included in our points of distribution. So that growth adds to the stores that we've secured in the North American retail channel.

On Slide 5, you can see that we've maintained our leadership in the United States and Canada in the carton water format. We secured the leadership position in the second quarter of 2022 and maintained it throughout the third quarter. We believe we can maintain this leadership position by securing new retail partners, accelerating the uptake of our infused vitamin water products and new product formats and by staying true to our roots of providing a delicious beverage and functional benefits that is produced in best-in-class, sustainable way. Now I'd like to review our incredible successful sponsorship in the National Bank open. Recall that last year, we introduced a more focused marketing strategy.

This new strategy is meant to allocate our resources towards activation and consumer trials as well as partnerships in sporting events like the National Bank open, where we became the official still water of the events both in Toronto and Montreal. It was a huge success. Not only did Flow was available at every concession stand, allowing for over 160,000 consumers to buy and try Flow water, our logo, our water were featured predominantly in the stadium and on international television. If you tuned in to watch Serena Williams play last -- her last match in Toronto, you certainly saw her and other tenant stars hydrating with Flow.

All told, told the sponsorship of the National Bank Open generated over 300 million consumer impressions -- it was a very high ROI event for Flow as it generated hundreds of millions of impressions in a partnership that was very in line with our core strategies. Before I turn it over to our financial results, I would like to welcome a few new members of the Flow team. First, we appointed Trent MacDonald as the Chief Financial Officer of the company in July. Not only does Trent add valuable experience in the capital markets, he also knows how to roll up its leaves to affect the change with a proven track record and domain expertise in food, drug and mass retail. We also appointed Andrea Hunt as Interim Head of Marketing.

Andrea has a proven success of building brands profitably and has the experience in food and beverage industry with world-class organizations such as Constellation Brands, Mondolos and Craft. Last, we announced back in July that Michael Samoszewski has been appointed as a part of the Board of Directors and Chairs our GHRC Committee. Michael spent most of his career at Coca-Cola, and we expect his intimate knowledge in the beverage industry to be a tremendous value to Flow strategic direction. Trent, Andrea, Michael, welcome to the Flow family. We look forward to achieving profitable growth for the Flow brand with all of you. With that, I will pass it over to Trent.

[Trent MacDonald, executive]

Good morning, everyone, and thank you so much for that introduction, Nicholas. I'm proud to be a member of the Flow team and have been a huge fan of both the brand and the company for some time now. In the short time I've been with low, I've been -- I've seen firsthand the commitment to excellence and the opportunity for tremendous growth and value creation. Turning to Flow's financial results. In the third quarter, Flow brand revenue increased 36% over the prior year and 21% on a year-to-date basis. The primary factors driving this growth are new stores, e-commerce growth and smaller impacts from the new distribution channel such as food service and contribution from the new product innovations Nicholas mentioned earlier.

Flow reached $12.7 million in consolidated revenue in the third quarter and $33.6 million for the year-to-date. The growth in Flow brand net revenue has been offset by lower demand for co-packing service from our co-packing partners. As we have said before, we are focused on growing the Flow brand profitably as the primary value driver for shareholders. Margins improved in the third quarter as compared to the prior year, principally from improved capacity utilization. As we've experienced lower relative contribution from the co-packing business, we are realizing improved margins due to the sales mix which favors the Flow brand. We continue to make significant headway and have improved EBITDA losses by over $5 million as compared to the prior year and have also improved adjusted EBITDA to $25.1 million.

The improvement is due to improved operational efficiency, a continued focus on cost discipline and reduced share-based compensation. Turning to Slide 9. We illustrate in more detail we illustrate more detail still with respect to gross and net revenues. Looking at gross revenue, the growth as it relates to the Flow brand was fairly broad-based in the third quarter in our 3 primary segments of U.S. retail, Canadian retail and e-commerce. In short, we are adding more retail locations and points of distribution, which continues to have a positive impact on the top line. We've also made improvements in trade spend. This is attributable to more disciplined and it relates to trade allocation and improved economics from new distribution partners. Lastly, co-packing remains below prior year levels.

As we've said before, Flow is our core business, and we are -- and we use co-packing opportunistically to improve utilization if it can be done profitably. Turning to our income statement. We have increased gross margin and gross profit as compared to the third quarter of 2021. The 36% growth in Flow brand net revenue easily offset the reduced co-packing revenue, while also carrying higher contribution margin. On a year-to-date basis, we have realized 23% gross margins as compared to 28% last year due to 2 additional lines that we added at our Virginia facility in Q4 of 2021, which were underutilized in the first half of this current fiscal year. Looking at operating expenses, we are making a lot of headway.

Sales and marketing is driving most of the decrease in cash operating expenses as we have been very disciplined with trade marketing, and we have allocated our resources to more regional market campaigns as opposed to the prior year where we invested in national marketing initiatives in advance of our IPO. We continue to invest in sales and marketing as a percentage of net revenue as we believe this will be the primary driver of growth. Turning to G&A. We have realized price escalation and insurance costs, warehousing, professional fees and software and licenses and support. Our salaries our salaries and benefits expenses are also trending lower as we focus on improving operational efficiency and internal automation.

With respect to our strategic framework and financial targets, we are maintaining our target to improve EBITDA by 45% to 50% for the entire fiscal year. We have lowered our second half net revenue target to between 35% to 45%, given the net revenue growth we realized in the third quarter of 36%. We believe the new stores and distribution channels we have secured will be big drivers in achieving these growth targets that are well above industry growth rates. Before I pass the call back to Nicholas, I would like to address our cash position. As of July 2022, Flow had over $23 million in the bank, and there are a number of initiatives we are working on to bolster our balance sheet.

This includes the possibility of non-dilutive financing options that can unlock value in our fixed assets, and we're also considering a number of alternatives in our operational cost structure to further optimize operations while reducing cash outflows we will continue allocating our resources with prudence focusing on higher ROI activities as we create a foundation for future profitable growth. I will now pass the call back to Nicholas.

[Nicholas Reichenbach, executive]

Thank you, Trent. A few weeks ago, we announced a distribution agreement with Primo Water. Many of you have probably seen Primo water dispensers in your offices, and you may also see them in your home. Primo operates in 21 countries and generates over $2 billion in revenues last year. On August 23, Flow announced that Flow original outlined springwater will be made available to over 1.8 million Primo subscribers customers in the United States. The distribution agreement is a major win for Flow as we get access to a large number of consumers over an estimated distribution infrastructure, sorry, established distribution infrastructure.

Primo and Flow have shared core principles as they are related to ESG, and we look forward to a long-term partnership with their team. Turning to our upcoming milestones. We still are very active with our product launches, establishing new distribution channels and investing in on-strategy activations. As mentioned at the beginning of our presentation, we expect Fred Meyer will roll out our vitamin water in over 200 locations in the coming months, and we also expect to announce significant additional purchase orders from new retailers in the near term, including Flow's vitamin launched with our Canadian retailers.

In addition to continue to roll out with the core Norwegian Cruise Line and Primo, we expect to be on the shelf at over 300 Winn-Dixie locations in the fourth quarter of 2022, and we'll be adding our core SKUs in Erewhon's markets in the coming months. For those that don't know, Erewhon is a highly influential chain of 7 premium independently owned organic grocery retail locations located in California. Erewhon's customer demographic lines up very well with our current and potential Flow customers, and their values are in line as well with Flow as Erewhon is also a B-Corp certified operator.

Before opening up to questions, I'd like to provide you with a preview of the upcoming New York Marathon. The Marathon takes place in New York City on November 6, and we expect this event to be a successful of a sponsorship as the New York -- sorry, the National Bank open. As a reminder, Flow is the official water partner of the marathon. Flow water will be available at 17 branded hydration stations across the Marathon course and will be in over 800 Flow signs along the course as well. Co-branded Flow water will also be available for thousands and thousands of retail locations along the course route.

We expect significant awareness from the event to with over 50,000 running participants in the marathon, over 1 million spectators supporting the participants and international television coverage, we expect Flow will generate billions of impressions from the folks watching the Marathon. As just like the National Bank open, the Marathon is a strategic marketing and awareness event that aligns very well with our consumer profile, values and will help people live happier and healthier lives. With that being said, I'd like to pass the call over to the operator.

[Operator]

[Operator Instructions]

Your first question will come from Martin Landry of Stifel.

[Martin Landry, analyst]

My first question is with regards to your vitamin water launch. I'm just trying to understand a little bit better your retail penetration. And I was wondering was your strategy to give exclusivity to one retailer at the onset. I'm just trying to understand a little bit why your other retail partners don't list the product yet.

[Nicholas Reichenbach, executive]

That's a great question, Martin. Kroger, as you know, is a very strategic account for Flow. We are not currently in all divisions. There's 13 different banners, over 300 -- sorry, 3 -- over 3,600 locations. Although technically, we didn't give Fred Meyer an exclusive on our vitamin water, we wanted them to be our launch partner in this.

So we could go through the initial first production of the product, understand a little bit more about the velocities that we were going to receive and how the product was going to be received by the consumer. So it was a high touch point activation for us that we had POS in all of their locations with our trade marketing experts on the ground activating the brand with the consumers. So we got a lot of data back from that launch.

And as I said, just briefly, we're very excited about the potential of the vitamin water, both in the United States and Canada. With that being said, Q4, you're going to see vitamin water start to hit the rest of our distribution channels as it gets rolled out over category resets in 2022 and 2023. With that being said, we're also working very hard at getting our vitamin water here in Canada, where we also have a very mature -- more mature distribution network, and we've already got a lot of our retail listings committed to for 2023.

[Martin Landry, analyst]

Okay. Okay. And when you list your new vitamin water, is this an incremental shelf space for you? Or you got to remove some of your existing products?

[Nicholas Reichenbach, executive]

That's also a very good question. It's definitely incremental shelf space across the board. I don't think I've heard of one that we've had to lose a SKU, maybe some optimization done on Flow's part. But for the general kind of strategy is we're deploying a portfolio brand block at retail, where we want all our products listed together so that we get a lot of our branding work done for us on shelf. So if you look at operators that are currently selling our products like collagen water, we've got listed across all of our different SKUs in the same area, which is the enhanced water section, and we'll continue to do so as a core brand blocking merchandising strategy.

[Martin Landry, analyst]

Okay. And just to wrap this discussion on vitamin water. If we would have to look at a sales curve given that you talked about like a planogram resets that are usually happening in the spring, what would you advise us in terms of modeling for sales growth? Is this going to be more of a calendar 2023 growth for you guys? Or how should we think about that?

[Nicholas Reichenbach, executive]

Exactly. Martin, as we spoke about earlier in the year, we have not projected any vitamin water revenue in 2022, and that's continued -- that will be continued our guidance, very small amount of revenue. However, when we talk and on our Q4 earnings call, I think we'll be in a really good position to provide more data for you as you analyze how large the vitamin water will be within our portfolio for 2023.

[Martin Landry, analyst]

Okay. And then switching gears to the Primo agreement I'm wondering if you -- if there's anything you can talk about with regards to the economics of the agreement? Is this going to be margin neutral, margin dilutive or margin accretive versus your current levels?

[Nicholas Reichenbach, executive]

No, it's absolutely a margin accretive exercise for us. Just like our innovation, some of our premium retail and off retail channels are all margin accretive exercises. Our goal is to build our gross margin up every quarter and quarter-on-quarter. So doing deals like Primo will help us build our margin set up. But I'm actually more excited, Martin, about the potential of getting Flow into the hands of 1.8 million consumers across the U.S. that get direct to consumer or direct to home -- is another way of saying it -- deliveries of the Primo product lines, including their jugs.

But they also have a lot of other beautiful products that are complementary to the Flow brand. And so we're very excited to get our products in the hands of all those consumers and a relatively brand-new channel strategy that's called direct-to-consumer or direct-to-home, which is run off of their own premium e-comm website. I believe it's water.com is the website that houses all of those transactions. So we're super excited about that building on our direct-to-consumer strategy with one of the largest players in the world.

[Martin Landry, analyst]

And when does that start?

[Nicholas Reichenbach, executive]

It has already started. And so we're very pleased to have them on as a partner.

[Martin Landry, analyst]

Okay. And then last question is with regards to your cash balance. I think it was around $23 million at quarter end. And I think after the quarter, you reimbursed your debentures. That was a cash out of around $7.5 million. So that brings your cash balance around $15.5 million, if I'm correct. So it's obviously the lowest since you've been public. Just wondering, can you touch a little bit about it, what's your confidence about being able to find non-dilutive financing options in the near future?

[Trent MacDonald, executive]

Yes. This is Trent talking. We're very confident. We've been working at this quite diligently over the past several months. We know that we need to do something, we'll give investors confidence and to set ourselves up for success and for future growth. And so as we said before, we are reviewing more than just non-dilutive financing options to unlock the value of our financial assets. We're also looking at our operational cost structure, our SG&A and other things that we know we want to do some things to optimize it, not only internally so that you have a better foundation for scale, but also from a cash flow perspective.

We've already made some in-roads. As you know, our cash flow used in operations was down slightly from the -- in Q3 from the average of Q1 and Q2. And we did have a much improved EBITDA, which on a normal course, would have translated into better operational cash flows, but there were some timing issues around non-cash working capital items. So not -- overall, I think we're in a really good position to go forward. And in the end, anything we do is going to make the balance sheet much more flexible for other instruments down the road.

[Operator]

Your next question comes from Chip Moore of E.F. Hutton.

[Chip Moore, analyst]

So wondering maybe we can talk about food service a little bit. The rollout in the region and the hotels with the Accor, maybe a little more color on how that's going and then prospects for additional penetration in that food service channel.

[Nicholas Reichenbach, executive]

Yes. Thank you, Chip. I had the honor of launching our Norwegian Cruise Line partnership 2 weeks ago on one of their new cruise lines called the Prima, sorry. And it's one of their new fleets totaling, I believe, 28 ships around the world. And this is one of the more premium experiences that they've launched. They also launched the intent and deployment of many more of these ships in the years to come. They're an incredible partner as it relates to their sustainability platform, which is called sale and sustain, which makes the Flow product a natural product for their consumers.

What gets me super excited about this partnership being on the actual cruise line was seen that there was over 3,000 customers on 1 cruise for, let's say, 3 or 4 days, and this is a midsized cruise shift. There's much larger ones and seeing them have a Flow in the room every day as a trial and sampling exercise and having it for sale on the premium beverage subscription that you can get is just such a great experience, not only for the consumers but for the recycling programs that they do, the way that the package interacts with their current infrastructure.

So it's a really great partnership. We're going to sample out with their help millions of consumers every year. But also from an economic standpoint, this is sold as a premium beverage across all of their premium subscriptions when you buy your ticket, which is a really good complementary brand fit for us. And on a much smaller note, seeing Katy Perry and about 3,000 people inside the cruise line all at one time drinking Flow for their launch event was just really a great experience to see the power of this sampling program and getting liquid to lips on such an international brand and cruise line and experience. Do you want -- I'll speak to Accor now?

[Chip Moore, analyst]

Yes. Perfect.

[Nicholas Reichenbach, executive]

Yes. Accor equally is exciting being the third largest luxury hotel chain in the world. And we've now seen it in their premium locations like the Fairmont hotel chain, Sofitel, SLS 21C, where they're equally sampling out 2 units per room per night, where they're hydrating their customers with premium and sustainability. I see this as being the first of many hotel chains that are going to convert over into the carton format as their sustainable package of choice as well as position our product as a premium hydration experience against a guest that's expecting to have more sustainability around their hotel stay as well as being able to hydrate themselves throughout their adventures in their cities and countries that they're traveling in.

[Chip Moore, analyst]

Yes, absolutely makes a lot of sense.

[Nicholas Reichenbach, executive]

Okay. So you were mentioning the prospects as ahead? Do you want me to talk about the prospects ahead?

[Chip Moore, analyst]

Definitely.

[Nicholas Reichenbach, executive]

Yes. Just to answer your third question. As we mentioned before, with the fall of COVID or the COVID experience. And our food service starting to return back to norm, we're starting to see -- and the data shows that very clearly that sustainable packaging is in going into the triple-digit growth over 100%. And it's starting to drive the consumer intent to purchase and where they're experiencing these brands are at food service -- and that's a highly influential touch point for our consumer acquisition strategy.

And so we're putting a lot of effort right now and in the future to build out a robust food service platform with the highest level of distribution from companies like U.S. Foods, which is one of our partners, Sysco, which is one of our partners, Gordon Food Service, which is one of our partners to be able to get this product out to not only hotels, but also quick-serve and other like-minded brands and restaurants in salad bars and even going into the active space with food service and cafes and gyms, where we already have successful partnerships that we've announced previously.

So we are putting a big effort on that. in Q4 and next year to really build this channel out as not only a revenue driving margin accretive activity, but also as our frontline to consumer acquisition, getting those liquid to lips and getting to buy our product in the grocery store and online afterwards, is one of our chief strategies moving forward.

[Chip Moore, analyst]

Absolutely. And just a follow-up there. Should we think about sort of more under the radar penetration with the Syscos of the world? Or could -- is this something where you could maybe see a partnership with a QSR chain or something like that?

[Nicholas Reichenbach, executive]

I would say that it's inevitable that we'll be continuing to announce larger-scale partnerships within the food service. I don't -- if you guys have been paying attention or if everyone's been paying attention, our IR and releases in our cadence, as I mentioned, first, when I rejoined Flow as the CEO, we will be rapidly communicating, and I think we've been doing that almost weekly at this stage. And biweekly and we continue to see that our progression and focus on signing new deals and distribution, will continue at that pace.

[Chip Moore, analyst]

Great. Okay. And so next job on profitability improvement this quarter. Maybe you can expand a little bit on contribution margins for Flow branded product. Any way to help us there think about utilization near term, co-packing, how that outlook is? Just any insight you can give us into sort of some of the near-term dynamics on the margin front?

[Trent MacDonald, executive]

Sure. Let me answer that one. So look, the Flow branded products where we spend -- where we have most of our trade spend trademarking, we've been very diligent in our endeavors to decrease that spend as a percentage of the gross revenue press. And the team, led by our Chief Revenue Officer, Tinder, has done an amazing job of doing that. Also, e-commerce is where we sell a lot of our low branded products and itself carries a much higher margin as a mix overall. -- our utilization capacity utilization in Verona and Aurora as we have that throughput for Flow brand, it -- the overhead allocations that go towards each unit of production are lowered as a percent of the gross revenue.

So these things are all positive trends. And you can tell from what Nick is saying with regards to new distribution pers, new channels of distribution that we continue to see aggressive growth in the Flow brand. And that's going to consistently allow us to have better margins as we go forward. So without giving any guidance on what we anticipate to see from a gross margin percentage or sales growth in general past the fourth quarter. Things are looking good, and we're very optimistic.

And as well, as you're asking about co-pack, co-pack has always been opportunistic as a part of using our capacity. But as slow brand has picked up more and more becomes a lesser important strategy overall. Not that we're moving away from co-pack. I think there's still room for us to continue with some of those partnerships and look for even new partnerships where they are accretive to our top line and, of course, our path to profitability, but it's not the primary focus of the organization.

[Chip Moore, analyst]

Got it. Okay. That's helpful. And then just on G&A, specifically, I think you called out some escalations in price. I mean, like everybody is seeing, but any more color there on the outlook for G&A...

[Nicholas Reichenbach, executive]

Yes. So just prior to our last quarter -- this quarter results, we did mention that we did a modest price increase. I think it was, I think, less than 5% or 10% of that. I don't know the specifics or I can't remember the specifics because it was a marginal one. And it mainly dealt with maybe the increased cost of logistics shipping in the United States and Canada.

Just to remind everybody on the call, Flow is a vertically integrated company, but we also have a vertically integrated partner named Tetra Pak and they allow us for a long-term view on our cost of goods sold around the package and the actual package that we put Flow in where they're vertically integrated, and they take a very long-term view on cost of goods sold. And historically, over the last 50 years, their costs have been coming down all the time. So we don't see any major changes or any major price increases in the future. We've already taken a modest one. But given the current economic position, that would be our position right now.

[Trent MacDonald, executive]

Okay. And you were talking about G&A Yes. Well, our operational expenses in G&A. Yes. Look, that is something I can say regardless of the trend over the last quarter to 2 or 3 quarters, our goal is to optimize cash flow and optimize the operational structure of our organization, both at the -- our facilities and within all of our functional divisions, and we're looking at all of it.

We -- our IT ecosystem and what that means for licenses and support agreements, our insurance program, external consultants, whatever it might be. We believe that there's a lot of room to improve our G&A, not just as a number specifically, but certainly as a percentage of what we are spending in relation to the net revenue. So we are putting a lot of emphasis on that in the coming quarter. And hopefully, we'll have some more news around things that we're doing that are going to improve cash flow going forward.

[Chip Moore, analyst]

Got it. Okay. Sorry, just one last one for me. On Primo, great to see great organization. Just curious, is this the whole portfolio that will be available, flavored, vitamin, collagen? Or how should we think about that?

[Nicholas Reichenbach, executive]

It's our core SKUs. So our nonflavored 1 liter and 500 ml case -- multipack cases. That's where we're going to put the focus. But I imagine that over time we'll be expanding into our innovation.

[Operator]

[Operator Instructions] Your next question will come from Sean McGowan of ROTH Capital.

[Sean McGowan, analyst]

First off just some follow-ups on the previous questions there on some of the spending lines. Let's start with G&A. So I've been listening to you guys talk about reducing the EBITDA burn. And I thought there would be more progress on that line. Was there anything in that line that you would say is kind of unusual or already taken care of so that we would expect to see more progress in the next quarter?

[Trent MacDonald, executive]

Yes. Look, there are a few things for sure, as we clean up our old accounts receivables and provisions that we may have taken, some of which are noncash. And you can see that in our cash flow that they're non-cash working capital items, weren't really in line with our EBITDA improvements because of some of the timing that went with the payment of payables and other things. But look, inevitably, you're looking at the P&L, and we aren't satisfied with where we are on SG&A.

We believe there's a lot of room for improvement. And I'm telling you right now that we're going to be doing -- making some of those improvements in a very accelerated way. We want to set ourselves up to be quite clean going into the next fiscal year and have everyone be able to see the path to profitability, which we continue to talk about. So there are some things that we're going to do internally and we're already working on that very diligently and aggressively.

[Sean McGowan, analyst]

Okay. Similarly, on share-based compensation, I would have thought given the price performance that at least it would be in line with, if not maybe a little lower than the second quarter. I know it's greatly improved versus the third quarter of last year. But is there anything there that is kind of preventing that from being held down?

[Trent MacDonald, executive]

Well, I mean, that again is -- that's an accounting exercise. It's not truly indicative of all of the sort of share-based compensation that would have been provided to individuals in a new grant within the quarter. It's the amortization of share-based compensation that had been previously provided to executives and Board members and others within the organization related parties. So that is really more of an accounting exercise. So we don't have a lot of control over that as quarters go by.

What we do have is more control over what happens in out quarters as we look to what is a fair and reasonable amount of share-based compensation to provide to executives. Look, to be honest, though, we always are going to believe that share-based compensation is a great non-cash way of incenting executives and other to grow shareholder value. And that's what this is all about, growing shareholder value. So I can tell you in deciding between giving some a bunch of cash compensation versus share-based compensation, I'm going to go on the share-based compensation all day long because they both hit the P&L once non-cash and align people around shareholder value creation, which is a great way to do it, which is why a lot of growth companies like ourselves have share-based compensation as over-indexing on their P&L.

[Sean McGowan, analyst]

Okay. Yes, I hear you. Last question is maybe for Nick. Can you talk a little bit about velocity. I mean that's always been one of chief goals for fueling growth. Can you talk about what kind of loss you saw in the quarter versus last year?

[Nicholas Reichenbach, executive]

Yes, -- that's a great question, Sean. We saw a bit of a decline in velocity in the natural channel, driven by an overall decline in premium water in potential retailers -- sorry, retailers, national retailers like Sprouts. The but the retailers face challenges in the overall premium water category. We saw brands like Avion declined 57% in velocity, CG-44,and our declines were less than 10% in the velocity. So I don't think it's a concerning decline in our core channel, the natural channel, which is derived by SPINS data. but that pretty much is the decline in the velocity in food, drug and mass in the United States was only recently contributed to the Dollar General store launch, which basically is a new channel.

It's a more discount channel in its nature, but it has a lot more stores. So 11,000 stores -- and our velocity was about 6 units per week per store, which is below our average. And so that kind of dragged it down. However, with that being said, it's been a very successful launch at the dollar store, and we're going to continue to drive value for their customers, but also drive incremental revenue for Flow. So although it looked like our velocities may have declined slightly in that channel, it's contributed to more scale and a different type of channel profile.

And for those on the call, all channels have the same velocity. -- natural grocery has a much larger velocity than even food, drug and mass for our product, but gas and convenience has a much lower velocity. So we're starting to see, I would say, Dollar General as a velocity driver similar to gas and convenience. -- which is just slight -- and certain drug channels. So it's nothing to be alarming. We're doing very successful. We have a successful launch in Dollar General, and it's got a lot of revenue in the company with a lot of stores, 11,000 stores. But outside of those 2 things, our velocity maintains its course at our core retailers, and we don't see or foresee any issues with Velocity.

[Sean McGowan, analyst]

Okay. Okay. Then to follow up on those answers. One is in the Dollar General, is the pricing there comparable to what you'd see in other retailers? Or is there some kind of lower margin profile on that revenue?

[Nicholas Reichenbach, executive]

I think that you would probably be able to group that into math similar to Walmart. So they have a value consumer, but it's margin -- it's a standard margin for us.

[Sean McGowan, analyst]

Okay. Well, they have a value consumer, but they're also picking up some Target defects. You have to be confirmed about inflation. And then back to the -- your comments on the industry. So what do you think is going on there in the natural channel? Those are some pretty big declines among your competitors.

[Nicholas Reichenbach, executive]

The natural channel decline. I would say that the post-COVID natural channel has been dealing with the declines that they've had during COVID. But I think just -- I think an overall comment to probably a lot of their categories are -- and this is to the benefit of Flow.

You're starting to see their consumer migrate into conventional, a lot more post-COVID and continue to do so as they kind of drive a more value basket from our other retailers like Walmart, Target, and our grocery chains like Publix, availability and convenience also is driving that as well. So I think it's just probably an overall trend that the consumers are getting products that are in natural grocery stores in conventional items and is now, which is a really positive effect for brands like Flow, but overall, the health and wellness of the consumer that's actually grocery shopping.

[Operator]

Ladies and gentlemen, host and speakers, there are no further questions. So this will conclude today's conference call. We would like to thank you all for participating, and you may now disconnect your lines.