PRMW Primo Water Corporation

Record Results Exceeding Company Guidance

Primo Water Corporation (Nasdaq:PRMW) today reported financial results for the second quarter ended June 30, 2016.

Second Quarter Business Highlights:

• Net sales increased 6.1% to record $34.4 million, exceeding Company guidance
• Water segment net sales increased 9.8% to $24.3 million driven by increases of 13.2% and 5.3% in the U.S. Exchange and U.S. Refill businesses, respectively
• Consolidated gross margin increased 500 basis points to 30.3% as a result of margin expansion in both the Water and Dispenser segments
• Income from continuing operations more than tripled to $2.3 million
• Adjusted EBITDA increased 39.1% to a record $6.2 million, exceeding Company guidance
• Diluted earnings of $0.08 per share, up from earnings of $0.03 per share  
• Pro forma diluted earnings from continuing operations of $0.11 per share up from earnings of $0.05 per share

(All comparisons above are with respect to the second quarter of 2015)

“We experienced another quarter of strong water sales as we continue to benefit from a larger base of households using dispensers,” commented Billy D. Prim, Primo Water’s Chief Executive Officer. “Our record top-line drove gross margin expansion through greater leverage of our supply chain costs and resulted in record adjusted EBITDA that was above our expectations for the second quarter. We are very pleased with our team’s execution and are excited about the opportunities ahead as we continue to deliver on our key strategic initiatives.”

Second Quarter Results

Net sales increased 6.1% to $34.4 million from $32.4 million in the prior year quarter, driven by an increase in Water segment net sales.

Water segment net sales increased 9.8% to $24.3 million from $22.1 million in the prior year quarter.  The increase in Water net sales was primarily due to increases of 13.2% and 5.3% in U.S. Exchange and U.S. Refill, respectively.  U.S. Exchange was driven by an acceleration in same-store unit growth to 9.7% compared to the prior year quarter.  Dispenser segment net sales decreased 1.8% to $10.1 million from $10.3 million in the prior year quarter due to the timing of orders from major retailers. 

Gross margin percentage increased to 30.3% from 25.3% in the prior year quarter due to continued improvement in supply chain costs in both the Water and Dispenser segments.  Selling, general and administrative expenses increased to $4.8 million from $4.3 million in the prior year quarter. 

The U.S. GAAP net income increased to $2.3 million, or $0.08 per diluted share, from $0.7 million, or $0.03 per diluted share, in the prior year quarter.

Adjusted EBITDA increased 39.1% to $6.2 million from $4.4 million in the prior year quarter, driven by the increase in net sales and gross margin expansion.  Pro forma adjusted earnings from continuing operations was $3.2 million, or $0.11 per diluted share, up from $1.4 million, or $0.05 per diluted share, in the prior year quarter.

Outlook

The Company raised its full year 2016 outlook for net sales to $132.2 to $134.3 million and adjusted EBITDA to $21.9 to $22.6 million.

The Company expects third quarter 2016 net sales of $33.9 to $34.9 million and adjusted EBITDA of $5.9 to $6.3 million.

Conference Call and Webcast

The Company will host a conference call to discuss these matters at 4:30 p.m. ET today, August 2, 2016.  Participants from the Company will be Billy D. Prim, Chief Executive Officer, Matt Sheehan, President and Chief Operating Officer, and Mark Castaneda, Chief Financial Officer. 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 16, 2016.  In addition, for the live broadcast listeners may dial (866) 712-2329 in North America, and international listeners may dial (253) 237-1244.

About Primo Water CorporationPrimo Water Corporation (Nasdaq:PRMW) is North America’s leading single source provider of multi-gallon purified bottled water, self-service refill water and water dispensers sold through major retailers 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 the expectation that its momentum will create further growth opportunities in the exchange and refill businesses.  These statements can otherwise be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "project," "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, adverse changes in the Company's relationships with its independent bottlers, distributors and suppliers, the loss of major retail customers of the Company or the reduction in volume or change in timing of purchases by major retail customers, lower than anticipated consumer and retailer acceptance of and demand for the Company's products and services, 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, the Company’s experiencing product liability, product recall or higher than anticipated rates of sales returns associated with product quality or safety issues, the loss of key Company personnel, changes in the regulatory framework governing the Company's business, 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, the Company’s inability to comply with its covenants in its credit facility, significant liabilities or costs associated with litigation or other legal proceedings, 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 9, 2016 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 pro forma net income from continuing operations, 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 income from continuing operations before depreciation and amortization; interest expense, net; non-cash, stock-based compensation expense; non-recurring costs; and loss on disposal of property and equipment and other.   Pro forma net income from continuing operations is defined as income from continuing operations less non-cash stock-based compensation expense, non-recurring costs and loss on disposal of property and equipment.   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,
				2016			2015				2016			2015
	Net sales		$	34,385		$	32,399			$	66,681		$	61,612
	Operating costs and expenses:
	Cost of sales			23,968			24,205				46,915			45,761
	Selling, general and administrative expenses			4,778			4,345				9,807			9,010
	Non-recurring costs			232			34				438			56
	Depreciation and amortization			2,421			2,468				4,829			5,053
	Loss on disposal of property and equipment			219			86				412			151
	Total operating costs and expenses			31,618			31,138				62,401			60,031
	Income from operations			2,767			1,261				4,280			1,581
	Interest expense, net			489			504				959			1,023
	Income from continuing operations			2,278			757				3,321			558
	Loss from discontinued operations			(13	)		(31	)			(25	)		(69	)
	Net income		$	2,265		$	726			$	3,296		$	489
	Basic earnings per common share:
	Income from continuing operations		$	0.08		$	0.03			$	0.12		$	0.02
	Loss from discontinued operations			(0.00	)		(0.00	)			(0.00	)		(0.00	)
	Net income		$	0.08		$	0.03			$	0.12		$	0.02
	Diluted earnings per common share:
	Income from continuing operations		$	0.08		$	0.03			$	0.11		$	0.02
	Loss from discontinued operations			(0.00	)		(0.00	)			(0.00	)		(0.00	)
	Net income		$	0.08		$	0.03			$	0.11		$	0.02
	Weighted average shares used in computing earnings per share:
	Basic			28,826			24,990				27,644			24,837
	Diluted			30,101			26,549				29,656			26,391
	Primo Water Corporation
	Segment Information
	(Unaudited; in thousands)
			Three months ended							Six months ended
			June 30,							June 30,
				2016			2015				2016			2015
	Segment net sales
	Water		$	24,281		$	22,112			$	46,659		$	42,770
	Dispensers			10,104			10,287				20,022			18,842
	Total net sales		$	34,385		$	32,399			$	66,681		$	61,612
	Segment income from operations
	Water			8,715			6,695				16,445			13,122
	Dispensers			785			593				1,483			924
	Corporate			(3,861	)		(3,439	)			(7,969	)		(7,205	)
	Non-recurring costs			(232	)		(34	)			(438	)		(56	)
	Depreciation and amortization			(2,421	)		(2,468	)			(4,829	)		(5,053	)
	Loss on disposal of property and equipment			(219	)		(86	)			(412	)		(151	)
			$	2,767		$	1,261			$	4,280		$	1,581

 

	Primo Water Corporation
	Condensed Consolidated Balance Sheets
	(in thousands, except par value data)
			June 30,				December 31,
				2016				2015
			(unaudited)
	ASSETS
	Current assets:
	Cash and cash equivalents		$	1,557			$	1,826
	Accounts receivable, net			15,869				11,098
	Inventories			8,409				7,092
	Prepaid expenses and other current assets			872				529
	Total current assets			26,707				20,545
	Bottles, net			3,915				3,688
	Property and equipment, net			34,234				31,997
	Intangible assets, net			7,819				8,074
	Other assets			183				183
	Total assets		$	72,858			$	64,487
	LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
	Accounts payable		$	17,328			$	11,994
	Accrued expenses and other current liabilities			2,924				3,748
	Current portion of long-term debt and capital leases			4,262				172
	Total current liabilities			24,514				15,914
	Long-term debt and capital leases, net of current portion
	and debt issuance costs			16,012				19,903
	Liabilities of disposal group, net of current portion, and
	other long-term liabilities			2,513				2,535
	Total liabilities			43,039				38,352
	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,
	25,994 and 25,810 shares issued and outstanding
	at June 30, 2016 and December 31, 2015, respectively			26				26
	Additional paid-in capital			281,677				281,476
	Common stock warrants			7,492				7,492
	Accumulated deficit			(258,151	)			(261,447	)
	Accumulated other comprehensive loss			(1,225	)			(1,412	)
	Total stockholders’ equity			29,819				26,135
	Total liabilities and stockholders’ equity		$	72,858			$	64,487

 

	Primo Water Corporation
	Consolidated Statements of Cash Flows
	(Unaudited; in thousands)
		Six Months Ended June 30,
			2016				2015
	Cash flows from operating activities:
	Net income	$	3,296			$	489
	Less: Loss from discontinued operations		(25	)			(69	)
	Income from continuing operations		3,321				558
	Adjustments to reconcile net income to net cash
	provided by operating activities:
	Depreciation and amortization		4,829				5,053
	Loss on disposal of property and equipment		412				151
	Stock-based compensation expense		1,046				1,175
	Non-cash interest expense		55				55
	Realized foreign currency exchange loss and other, net		(172	)			152
	Changes in operating assets and liabilities:
	Accounts receivable		(4,708	)			(1,380	)
	Inventories		(1,290	)			(1,903	)
	Prepaid expenses and other assets		(337	)			340
	Accounts payable		5,305				4,554
	Accrued expenses and other liabilities		(675	)			(238	)
	Net cash provided by operating activities		7,786				8,517
	Cash flows from investing activities:
	Purchases of property and equipment		(5,423	)			(2,682	)
	Purchases of bottles, net of disposals		(1,329	)			(1,361	)
	Proceeds from the sale of property and equipment		8				14
	Additions to and acquisitions of intangible assets		(36	)			(4	)
	Net cash used in investing activities		(6,780	)			(4,033	)
	Cash flows from financing activities:
	Borrowings under Revolving Credit Facility		20,900				13,100
	Payments under Revolving Credit Facility		(20,900	)			(15,100	)
	Note payable and capital lease payments		(143	)			(69	)
	Stock option and employee stock purchase activity, net		(1,177	)			39
	Net cash used in financing activities		(1,320	)			(2,030	)
	Cash used in operating activities of discontinued operations		(52	)			(92	)
	Effect of exchange rate changes on cash and cash equivalents		97				(54	)
	Net (decrease) increase in cash and cash equivalents		(269	)			2,308
	Cash and cash equivalents, beginning of year		1,826				495
	Cash and cash equivalents, end of period	$	1,557			$	2,803

 

	Primo Water Corporation
	Non-GAAP EBITDA and Adjusted EBITDA Reconciliation
	(Unaudited; in thousands)
			Three months ended June 30,								Six months ended June 30,
				2016				2015				2016				2015
	Income from continuing operations		$	2,278			$	757			$	3,321			$	558
	Depreciation and amortization			2,421				2,468				4,829				5,053
	Interest expense, net			489				504				959				1,023
	EBITDA			5,188				3,729				9,109				6,634
	Non-cash, stock-based compensation expense			486				540				1,046				1,175
	Non-recurring costs			232				34				438				56
	Loss on disposal of property and equipment and other			257				129				491				231
	Adjusted EBITDA		$	6,163			$	4,432			$	11,084			$	8,096

 

	Primo Water Corporation
	Pro Forma Net Income From Continuing Operations Reconciliation
	(Unaudited; in thousands, except per share amounts)
			Three months ended							Six months ended
			June 30,							June 30,
				2016			2015				2016			2015
	Income from continuing operations		$	2,278		$	757			$	3,321		$	558
	Non-cash, stock-based compensation expense			486			540				1,046			1,175
	Non-recurring costs			232			34				438			56
	Loss on disposal of property and equipment			219			86				412			151
	Pro forma net income from continuing operations		$	3,215		$	1,417			$	5,217		$	1,940
	Pro forma earnings from continuing operations per share:
	Basic		$	0.11		$	0.06			$	0.19		$	0.08
	Diluted		$	0.11		$	0.05			$	0.18		$	0.07
	Weighted average shares used in computing pro forma earnings per share:
	Basic			28,826			24,990				27,644			24,837
	Diluted			30,101			26,549				29,656			26,391

Contact:
Primo Water Corporation
Mark Castaneda, Chief Financial Officer
(336) 331-4000

ICR Inc.
Katie Turner
Hunter Wells
(646) 277-1228