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Primo Water Announces Second Quarter 2018 Financial Results

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Second Quarter Net Sales Exceeds Company Guidance

Raises Net Sales Outlook for 2018

WINSTON-SALEM, N.C., Aug. 07, 2018 (GLOBE NEWSWIRE) -- Primo Water Corporation ("Primo") (NASDAQ:PRMW) today reported financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Business Highlights:

  • Exchange net sales increased 10.4% to $20.0 million

  • Net income of $0.5 million, or $0.01 per diluted share

  • Adjusted EBITDA increased 7.2% to $15.0 million

  • Record sell-thru of dispenser units; an increase of 16.0% to 196,000

  • Continued acceleration of U.S. Exchange same-store unit growth to 9.7%

(All comparisons above are with respect to the second quarter ended June 30, 2017)

"We are pleased with the results for the second quarter as we exceeded our top-line expectations.  In addition to the strong second quarter operating performance, we successfully completed a follow-on equity offering, which allowed us to refinance all of our outstanding debt into a new credit facility," commented Matt Sheehan, Primo Water's President and Chief Executive Officer.  "The interest savings under our new credit facility will allow us to accelerate investment in strategic growth initiatives that we believe will drive customer awareness, household penetration and water growth.  These initiatives, including successful promotions executed to-date, continued to drive our growth, including an acceleration of our U.S. Exchange same-store unit growth.  Our team's executional focus around our purpose of Inspiring Healthier Lives Thru Better Water and our core strategies give us the confidence to once again raise our net sales outlook for the remainder of 2018."

Second Quarter Results

Net sales increased to $75.8 million from $74.8 million for the prior year quarter, driven by growth in Refill and Exchange, which was partially offset by an expected decrease in Dispensers due to the timing of shipments.  Refill net sales increased 1.3% to $44.7 million from $44.2 million for the prior year quarter.  Exchange net sales increased 10.4% to $20.0 million from $18.1 million for the prior year quarter, driven by an acceleration in U.S. same-store unit growth to 9.7%.  Dispensers segment net sales decreased 11.8% to $11.1 million from $12.5 million for the prior year quarter, due to the timing of shipments, while consumer demand, or sell-thru, increased approximately 16.0% to a record 196,000 units for the second quarter of 2018.   

Interest expense increased to $11.2 million for the three months ended June 30, 2018 from $5.0 million for the prior year quarter.  The increase was primarily due to the refinancing of our outstanding debt, which resulted in $3.9 million of prepayment penalties and $3.0 million related to the non-cash write-off of issuance costs related to the prior indebtedness. 

Gross margin percentage increased 270 basis points to 30.4% compared to 27.7% for the prior year quarter, primarily due to improvements in Refill gross margin percentage to 34.6% as a result of acquisition synergies and the implementation of new routing and handheld technology.  Selling, general and administrative expenses ("SG&A") were $9.6 million, or 12.7% as a percentage of net sales, compared to $8.2 million, or 11.0% as a percentage of net sales, for the prior year quarter.  The increase in SG&A was primarily due to an increase in marketing and advertising spending, which we believe will drive long-term growth.

U.S. GAAP net income was $0.5 million, or $0.01 per diluted share, compared to a net loss of $2.5 million, or $0.07 per diluted share for the prior year quarter.  Adjusted net income was $4.5 million, or $0.12 per diluted share, compared to adjusted net income of $2.0 million, or $0.06 per diluted share, for the prior year quarter.

Adjusted EBITDA, a non-U.S. GAAP measure, increased 7.2% to $15.0 million, or 19.7% of net sales from $14.0 million, or 18.7% of net sales for the prior year quarter, driven primarily by the gross margin improvements as described above. 

2018 Outlook

For the third quarter of 2018, we expect net sales of $80.5 million to $83.5 million and adjusted EBITDA of $18.2 million to $18.7 million. 

We are raising our net sales guidance for the full year 2018 to a range of $305.0 million to $309.0 million, compared to the previous range of $303.0 million to $307.0 million.  We are reiterating guidance for adjusted EBITDA of $61.0 million to $63.0 million, as we continue to expect to invest the contribution from the incremental net sales growth into existing and new strategic initiatives.

We do not provide guidance for the most directly comparable GAAP measure to adjusted EBITDA, net income, and similarly cannot provide a reconciliation between our forecasted adjusted EBITDA and net income metrics without unreasonable effort due to the unavailability of reliable estimates, which include interest expense and non-recurring and acquisition-related costs. These items, among others, are not within our control and may vary greatly between periods and could significantly impact future financial results.

Conference Call and Webcast

Primo will host a conference call with Matt Sheehan, President and Chief Executive Officer and David Mills, Chief Financial Officer, to discuss its financial results at 4:30 p.m. ET today, August 7, 2018.   The call will be broadcast live over the Internet hosted at the Investor Relations section of Primo Water's website at www.primowater.com, and will be archived online through August 21, 2018.  In addition, listeners may dial (866) 712-2329 in North America, and international listeners may dial (253) 237-1244.

About Primo Water Corporation

Primo Water Corporation (NASDAQ:PRMW) is an environmentally and ethically responsible company with a purpose of inspiring healthier lives through better water.  Primo is North America's leading single source provider of water dispensers, multi-gallon purified bottled water, and self-service refill drinking water.   Primo's Dispensers, Exchange and Refill products are available in over 45,000 retail locations and online throughout the United States and Canada.  For more information and to learn more about Primo Water, please visit our website at www.primowater.com.

Forward-Looking Statements

Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the applicable securities laws and regulations. These statements include the Company's financial guidance and statements regarding interest savings under our new credit facility allowing us to accelerate investments in strategic growth initiatives that we believe will drive customer awareness, household penetration and water growth; our belief that an increase in marketing and advertising spending will drive long-term growth; and our expectation that we will continue to invest the contribution from the incremental net sales growth in existing and new strategic initiatives.  These statements can otherwise be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "would," "will," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those stated herein. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the loss of major retail customers of the Company or the reduction in volume or change in timing of purchases by major retail customers; the consolidation of retail customers and disruption of the retail business model; lower than anticipated consumer and retailer acceptance of and demand for the Company's products and services; difficulties realizing the anticipated benefits and synergies from the Glacier Water acquisition and managing our expanded operations following the acquisition; the highly competitive environment in which we operate and the entry of a competitor with greater resources into the marketplace; competition and other business conditions in the water and water dispenser industries in general; adverse changes in the Company's relationships with its independent bottlers, distributors and suppliers in its Exchange business; the loss of key Company personnel; risks associated with the Company's potential expansion into international markets, particularly with China, that could be harmful to our business and operations; recently imposed tariffs that cover certain of our products, the potential for increases in existing tariffs or new tariffs, which may materially adversely affect our business, and other potential changes in international trade relations implemented by the U.S. presidential administration; the Company's experiencing product liability, product recall or higher than anticipated rates of sales returns associated with product quality or safety issues; dependence on key management information systems; the Company's inability to efficiently expand operations and capacity to meet growth; the Company's inability to develop, introduce and produce new product offerings within the anticipated timeframe or at all; general economic conditions; the possible adverse effects that decreased discretionary consumer spending may have on the Company's business; changes in the regulatory framework governing the Company's business; significant liabilities or costs associated with litigation or other legal proceedings; the possibility that our ability to use our net operating loss carryforwards in the United States may be limited; the restrictions imposed upon our business as a result of the restrictive covenants contained in our credit agreements; the Company's inability to comply with its covenants in its credit facility; the possibility that we may fail to generate sufficient cash flow to service our debt obligations; the negative effects that global capital and credit market issues may have on our liquidity; the costs of borrowing on our operations as well as other risks described more fully in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K filed on March 7, 2018 and its subsequent filings under the Securities Exchange Act of 1934. Forward-looking statements reflect management's analysis as of the date of this press release. The Company does not undertake to revise these statements to reflect subsequent developments, other than in its regular, quarterly earnings releases or as otherwise required by applicable securities laws.

Use of Non-U.S. GAAP Financial Measures

To supplement its financial statements, the Company provides investors with information related to adjusted EBITDA and adjusted net income, which are not financial measures calculated in accordance with generally accepted accounting principles in the United States ("U.S. GAAP").  Adjusted EBITDA is calculated as net income (loss) before depreciation and amortization; interest expense, net; income tax (benefit) provision; non-cash change in fair value of warrant liability; non-cash, stock-based compensation expense; non-recurring and acquisition-related costs; and loss on disposal of property and equipment and other assets and other.   Adjusted net income is defined as net income (loss) less income tax (benefit) provision; change in fair value of warrant liability; non-cash, stock-based compensation expense; non-recurring and acquisition-related costs; loss (gain) on disposal of property and equipment and other assets; and debt refinancing costs.   The Company believes these non-U.S. GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations.  Management uses these non-U.S. GAAP financial measures to compare the Company's performance to that of prior periods for trend analyses and planning purposes.  These non-U.S. GAAP financial measures are also presented to the Company's Board of Directors and adjusted EBITDA is used in its credit agreements.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP.  These non-U.S. GAAP measures exclude significant expenses that are required by U.S. GAAP to be recorded in the Company's financial statements and are subject to inherent limitations.

FINANCIAL TABLES TO FOLLOW    

 
 
Primo Water Corporation
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share amounts)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2018       2017       2018       2017  
                 
Net sales   $   75,802     $   74,817     $   149,461     $   135,554  
Operating costs and expenses:                
Cost of sales       52,729         54,079         106,150         96,892  
Selling, general and administrative expenses       9,600         8,219         18,800         18,764  
Non-recurring and acquisition-related costs       410         2,977         487         7,425  
Depreciation and amortization       6,114         6,820         12,171         13,211  
Loss (gain) on disposal of property and                
 equipment and other assets       111         (11 )       244         (18 )
Total operating costs and expenses       68,964         72,084         137,852         136,274  
Income (loss) from operations       6,838         2,733         11,609         (720 )
Interest expense, net       11,158         5,022         16,444         10,024  
Change in fair value of warrant liability       –         –         –         3,220  
Loss before income taxes       (4,320 )       (2,289 )       (4,835 )       (13,964 )
Income tax (benefit) provision       (4,771 )       186         (6,496 )       373  
Net income (loss)   $   451     $   (2,475 )   $   1,661     $   (14,337 )
                 
Earnings (loss) per common share:                
Basic   $   0.01     $   (0.07 )   $   0.05     $   (0.44 )
  Diluted   $   0.01     $   (0.07 )   $   0.05     $   (0.44 )
                 
Weighted average  shares used in computing                 
earnings (loss) per share:                
Basic       35,920         33,463         34,549         32,865  
  Diluted       37,232         33,463         35,836         32,865  
                 
                 
                 
                 
                 
Primo Water Corporation
Segment Information
(Unaudited; in thousands)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2018       2017       2018       2017  
Segment net sales:                
Refill   $   44,736     $   44,163     $   86,211     $   80,528  
Exchange       20,007         18,121         38,265         34,866  
Dispensers       11,059         12,533         24,985         20,160  
Total net sales   $   75,802     $   74,817     $   149,461     $   135,554  
                 
Segment income (loss) from operations:                
  Refill       13,894         11,497         25,478         20,206  
  Exchange       6,030         5,381         11,293         10,533  
  Dispensers       842         1,108         1,986         1,686  
  Corporate       (7,293 )       (5,467 )       (14,246 )       (12,527 )
  Non-recurring and acquisition-related costs       (410 )       (2,977 )       (487 )       (7,425 )
  Depreciation and amortization       (6,114 )       (6,820 )       (12,171 )       (13,211 )
Loss (gain) on disposal of property and                
 equipment and other assets       (111 )       11         (244 )       18  
    $   6,838     $   2,733     $   11,609     $   (720 )

 

         
         
Primo Water Corporation  
Condensed Consolidated Balance Sheets  
(In thousands, except par value data)  
         
  June 30,   December 31,  
   2018     2017   
  (Unaudited)      
ASSETS        
Current assets:        
Cash and cash equivalents $   6,222     $   5,586    
Accounts receivable, net     22,802         18,015    
Inventories     7,805         6,178    
Prepaid expenses and other current assets     9,575         3,409    
Total current assets     46,404         33,188    
         
Bottles, net     4,470         4,877    
Property and equipment, net     101,034         100,692    
Intangible assets, net     141,942         144,555    
Goodwill     92,695         92,934    
Investment in Glacier securities ($0 and $3,881 available-for-sale, at fair value at June 30, 2018 and December 31, 2017, respectively)     –         6,510    
Other assets     223         997    
Total assets $   386,768     $   383,753    
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable $   24,189     $   18,698    
Accrued expenses and other current liabilities     8,559         9,878    
Current portion of long-term debt and capital leases     11,119         3,473    
Total current liabilities     43,867         32,049    
         
Long-term debt and capital leases, net of current portion and debt issuance costs     187,589         269,793    
Deferred tax liability, net     1,959         8,455    
Other long-term liabilities     2,250         1,985    
Total liabilities     235,665         312,282    
         
Commitments and contingencies        
         
Stockholders' equity:        
Preferred stock, $0.001 par value - 10,000 shares authorized,         
none issued and outstanding     –         –    
Common stock, $0.001 par value - 70,000 shares authorized,        
37,636 and 30,084 shares issued and outstanding         
at June 30, 2018 and December 31, 2017, respectively     38         30    
Additional paid-in capital     424,427         345,963    
Accumulated deficit     (272,091 )       (273,752 )  
Accumulated other comprehensive loss     (1,271 )       (770 )  
Total stockholders' equity      151,103         71,471    
Total liabilities and stockholders' equity $   386,768     $   383,753    
         

 

 
 
Primo Water Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
       
  Six Months Ended June 30,
    2018       2017  
Cash flows from operating activities:      
Net income (loss) $   1,661     $   (14,337 )
Adjustments to reconcile net income (loss) to net cash      
provided by operating activities:      
Depreciation and amortization     12,171         13,211  
Loss (gain) on disposal of property and equipment and other assets     244         (18 )
Stock-based compensation expense     2,679         3,678  
Non-cash interest expense (income)     2,445         (34 )
Change in fair value of warrant liability     –         3,220  
Bad debt expense     170         108  
Deferred income tax (benefit) expense     (6,496 )       373  
Realized foreign currency exchange loss and other, net     399         4  
Changes in operating assets and liabilities:      
Accounts receivable     (5,065 )       (3,845 )
Inventories     (1,638 )       (1,301 )
Prepaid expenses and other current assets     (1,126 )       (587 )
Accounts payable     5,248         7,686  
Accrued expenses and other current liabilities     (513 )       (3,155 )
Net cash provided by operating activities     10,179         5,003  
       
Cash flows from investing activities:      
Purchases of property and equipment     (8,208 )       (9,089 )
Purchases of bottles, net of disposals     (1,117 )       (1,373 )
Proceeds from the sale of property and equipment     154         27  
Proceeds from redemption of investment in Glacier securities     3,648         –  
Additions to intangible assets     (12 )       (100 )
Net cash used in investing activities     (5,535 )       (10,535 )
       
Cash flows from financing activities:      
Borrowings under Revolving Credit Facility     15,000         –  
Payments under Revolving Credit Facility     (8,000 )       –  
Borrowings under prior Revolving Credit Facility     14,000         1,000  
Payments under prior Revolving Credit Facility     (14,000 )       (1,000 )
Borrowings under Term loans     190,000         –  
Payments under prior Term loans     (184,140 )       (930 )
Payments upon redemption of Junior Subordinated Debentures     (87,629 )       –  
Proceeds from common stock issuance, net of costs     70,791         –  
Proceeds from warrant exercises, net     9,486         –  
Capital lease payments     (818 )       (1,082 )
Stock option and employee stock purchase activity and other, net     (7,039 )       (3,290 )
Debt issuance costs and other     (1,640 )       (249 )
Net cash used in financing activities     (3,989 )       (5,551 )
Effect of exchange rate changes on cash and cash equivalents     (19 )       (1 )
Net increase (decrease) in cash and cash equivalents     636         (11,084 )
Cash and cash equivalents, beginning of year     5,586         15,586  
Cash and cash equivalents, end of period $   6,222     $   4,502  
       

 

               
Primo Water Corporation
Non-GAAP EBITDA and Adjusted EBITDA Reconciliation
(Unaudited; in thousands)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2018       2017       2018       2017  
Net income (loss) $   451     $   (2,475 )   $   1,661     $   (14,337 )
Depreciation and amortization     6,114         6,820         12,171         13,211  
Interest expense, net     11,158         5,022         16,444         10,024  
Income tax (benefit) provision     (4,771 )       186         (6,496 )       373  
EBITDA     12,952         9,553         23,780         9,271  
Change in fair value of warrant liability     –         –         –         3,220  
Non-cash, stock-based compensation expense     1,387         1,342         2,679         3,678  
Non-recurring and acquisition-related costs     410         2,977         487         7,425  
Loss on disposal of property and equipment and other assets and other     216         92         400         149  
Adjusted EBITDA $   14,965     $   13,964     $   27,346     $   23,743  
               

 

                 
Primo Water Corporation
Non-GAAP Adjusted Net Income
(Unaudited; in thousands, except per share amounts)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2018       2017       2018       2017  
                 
Net income (loss)   $   451     $   (2,475 )   $   1,661     $   (14,337 )
Income tax (benefit) provision       (4,771 )       186         (6,496 )       373  
Loss before income taxes       (4,320 )       (2,289 )       (4,835 )       (13,964 )
Change in fair value of warrant liability       –         –         –         3,220  
Non-cash, stock-based compensation expense       1,387         1,342         2,679         3,678  
Non-recurring and acquisition-related costs       410         2,977         487         7,425  
Loss (gain) on disposal of property and equipment and other assets       111         (11 )       244         (18 )
Debt refinancing costs       6,864         –         6,864         –  
Adjusted net income   $   4,452     $   2,019     $   5,439     $   341  
                 
Adjusted earnings per share:                
  Basic   $   0.12     $   0.06     $   0.16     $   0.01  
  Diluted   $   0.12     $   0.06     $   0.15     $   0.01  
                 
Weighted average shares used in computing earnings per share:                
  Basic       35,920         33,463         34,549         32,865  
  Diluted       37,232         34,699         35,836         34,100  
                 


Contact:

Primo Water Corporation
David Mills, Chief Financial Officer
(336) 331-4000

ICR Inc.
Katie Turner
(646) 277-1228

 

 

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