Primo Water Announces Results for the Third Quarter Ended September 30, 2012 WINSTON-SALEM, N.C., Nov. 7, 2012 (GLOBE NEWSWIRE) -- Primo Water Corporation (Nasdaq:PRMW), a leading provider of multi-gallon purified bottled water, self-serve filtered drinking water and water dispensers, today announced financial results for the third quarter ended September 30, 2012. Business Highlights: oQ3 sales increased 8.6% to a record $26.2 million compared to the prior year. oWater dispenser unit sell-thru to consumers increased 29.8% to a record 114,200 units compared to Q3 of the prior year. oTotal locations increased to 24,600 that offer water and/or appliances at the end of Q3. oWater segment operating income increased 21.8% to $4.5 million compared to Q3 of the prior year. oCompany signs agreement with Cuisinart to market Flavorstation appliances and the Company will provide CO2 cylinders for all Cuisinart and Flavorstation sparkling beverage appliances. "We are pleased with the continued positive trends in revenue, gross margin and cash flow from operations, locations and households that use our water," commented Billy D. Prim, Primo Water's President and Chief Executive Officer. "We entered into an agreement with Cuisinart, a premier appliance company, under which Cuisinart will market our Flavorstation appliances. Under this arrangement Primo will receive a revenue stream from Cuisinart's sale of flavors and Primo's provision of CO2 services. This alliance leverages the strengths of Cuisinart and Primo to provide a complete soda appliance solution to retailers. Additionally, we are now able to focus on growing our core water and dispenser businesses, which we believe have significant future growth opportunities as demonstrated by increased consumer purchases of our dispensers in the third quarter of 2012." Third Quarter Results Total net sales increased 8.6% to $26.2 million from $24.1 million in the third quarter of 2011. This increase was due to growth in both Water and Dispenser sales. Dispenser segment sales for the third quarter of 2012 increased 21.6% to $8.9 million compared to $7.3 million in the third quarter of 2011. The increase was due primarily to a favorable mix of higher priced bottom load dispenser sales and price increases to customers offset somewhat by a decrease in units sold into retail of 7.8%. Sell-thru to consumers increased 29.8% compared to the third quarter of 2011 to a record 114,200 units, driven by increased locations and higher sales price per dispenser. The Company believes that increased water dispenser penetration will lead to increased recurring Water sales. Water segment sales for the third quarter of 2012 increased 2.8% to $17.3 million compared to $16.8 million in the third quarter of 2011. Sales in the Water segment consist of sales of multi-gallon purified bottled water ("Exchange") and self-serve filtered drinking water vending services ("Refill"). The Water segment sales increase was primarily due a 7.9% increase in Exchange sales that resulted from U.S. Exchange same-store unit growth of 13.0% for the third quarter compared to 5.3% in the first half of 2012 and 3.4% in the prior year's third quarter. The increase in U.S. Exchange sales was partially offset by a reduction of 3.4% in Refill sales, primarily due to the positive impact of hurricane demand in the prior year's third quarter as compared to the current year. The following table sets forth information regarding locations where the Company's dispensers and water are sold as well as certain sales information. 3Q12 3Q11 % Change Total locations (thousands) 24.6 22.6 8.8% Dispenser locations (thousands) 8.1 6.2 30.6% Dispenser units sell-in to retail (thousands) 106.4 111.0 (4.1)% Dispenser units sell-thru (thousands) 114.2 87.9 29.8% Water Locations (thousands) 16.5 16.4 0.6% Gross margin increased to 24.0% for the third quarter from 22.3% for the third quarter of 2011.Gross margin in the Water segment increased to 32.3% compared to 31.9% in the same period in the prior year primarily due to an improvement in Exchange margin partially offset by a decrease in Refill margin.The decrease in Refill margin was primarily due to costs related to Refill system upgrades by new service providers.Gross margin for the Dispenser segment increased to 8.0% from 0.5% in the prior year, primarily due to retail price increases that were implemented during the third quarter of 2012. The GAAP net loss from continuing operations for the third quarter of 2012 was $(2.5) million or $(0.10) per share, which was essentially flat with the prior year.Non-GAAP pro forma fully-taxed net loss from continuing operations was essentially flat at $(1.0) million or $(0.04) per share for the third quarter of 2012. The primary differences in GAAP and non-GAAP earnings are the $0.6 million and $0.5 million in the pro forma effect of full income taxes for 2012 and 2011, respectively. The Company does not expect to pay U.S. income taxes in the near future as it has sufficient net operating loss carryforwards to offset taxable income. The Company's Water segment continues to perform well experiencing sales growth and profitability. The Water segment's operating income for the third quarter of 2012 increased 21.8% to $4.5 million compared to $3.7 million in the third quarter of 2011.The Dispenser segment generated increased sales and improved gross margin; however, the segment realized operating losses of approximately $0.4 million in the third quarter for both 2012 and 2011.The Dispenser segment incurred non-recurring costs associated with a new store rollout of approximately $0.4 million during the quarter.The Company expects to achieve positive operating income going forward in the Dispenser segment as a result of the full impact of price increases. "Our core Water and Dispenser businesses continue to experience positive trends. While we believe these trends will continue, we have reduced our focus on short term guidance to concentrate on achieving profitability in fiscal 2013," added Prim. The Company is focused on executing three long-term strategies: *Increasing total retail locations to 50,000 - 60,000; *Increasing sales of innovative Dispensers, which the Company believes will lead to greater household penetration and Water sales; and *Achieving profitability Debt Amendment The Company amended its credit agreement to reflect Flavorstation segment as a discontinued operation.The changes to the credit facility allows for the sale of inventory and other assets related to the Flavorstation business outside the ordinary course of business as well as revises the financial covenants to reflect the Company's continuing business.In connection with the amendment, the Company paid a $0.15 million fee, increased the prepayment penalty and amended warrants to purchase 1.6 million shares of the Company's common stock to revise the warrant exercise price from $2.30 to $1.20 per share.The revised warrant exercise price was set at 150% of the 30 day trailing average stock price. Conference Call and Webcast The Company will host a conference call to discuss these results at 4:30 p.m. ET today, November 7, 2012.Participants from the Company will be Billy D. Prim, Chief Executive 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 November 21, 2012.In addition, listeners may dial (866) 712-2329in North America, and international listeners may dial (253) 237-1244. About Primo Water Corporation Primo Water Corporation (Nasdaq:PRMW) is a leading provider of multi-gallon purified bottled water, self-serve filtered drinking water and water dispensers sold through major retailers throughout the United States and Canada. Learn more about Primo Water at www.primowater.com. The Primo Water Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=11942 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. Generally, these statements can 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 here. 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, lower than anticipated consumer and retailer acceptance of the Company's Exchange and Refill services and its water dispensers, changes in the Company's relationships with its independent bottlers, distributors and suppliers, the entry of a competitor with greater resources into the marketplace and competition and other business conditions in the water, water dispenser and carbonating appliance industries in general, the Company's experiencing product liability, product recall and higher than anticipated rates of warranty expense or sales returns associated with a 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 and effectively integrate the recently acquired businesses with the Company's historical 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 facilities, the failure of lenders to honor their commitments under the Company's credit facilities, the failure to realize benefits from the arrangement with Cuisinart with respect to the Company's Flavorstation business, 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 15, 2012 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. Use of Non-GAAP Financial Measures To supplement its financial statements, the Company also provides investors with information related to non-GAAP pro forma fully-taxed net income (loss) per basic and diluted share, which are non-GAAP financial measures.The Company believes these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to its financial condition and results of operations.Management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses and planning purposes. These measures are also presented to the Company's board of directors. Non-GAAP pro forma fully-taxed net loss from continuing operations consists of net loss plus the provision for income taxes, non-cash impairment charges, non-cash stock-based compensation expense, debt restructuring costs, and acquisition-related costs, amortization of intangible assets and the pro forma effect of applying full income tax rates divided by the weighted average number of shares of common stock outstanding during each period.Primo believes non-GAAP pro forma fully-taxed net loss from continuing operation is useful to an investor because it is widely used to measure a Company's operating performance. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States ("GAAP").These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements and are subject to inherent limitations. Primo Water Corporation Condensed Consolidated Balance Sheets (in thousands, except par value data) September 30, December 31, 2012 2011 (unaudited) ASSETS Current assets: Cash $632 $751 Accounts receivable, net 14,397 13,459 Inventories 8,080 7,404 Prepaid expenses and other current assets 3,024 2,644 Curent assets of disposal group held for sale 3,625 2,670 Total current assets 29,758 26,928 Bottles, net 4,180 3,704 Property and equipment, net 43,568 45,838 Intangible assets, net 12,836 13,107 Goodwill 67,740 78,823 Other assets 1,900 1,086 Assets of disposal group held for sale, net of – 14,963 current portion Total assets $159,982 $184,449 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $14,043 $9,369 Accrued expenses and other current liabilities 3,354 2,838 Current portion of capital leases and notes payable 15 14,514 Current liabilities of disposal group held for sale 2,891 3,345 Total current liabilities 20,303 30,066 Long-term debt, capital leases and notes payable, 20,889 44 net of current portion Other long-term liabilities 352 1,710 Liabilities of disposal group held for sale, net of – 3,000 current portion Total liabilities 41,544 34,820 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, 23,751 and 23,658 shares issued and 24 24 outstanding at September 30, 2012 and December 31, 2011, respectively Additional paid-in capital 272,277 271,220 Common stock warrants 8,116 7,007 Accumulated deficit (162,108) (128,102) Accumulated other comprehensive income (loss) 129 (520) Total stockholders' equity 118,438 149,629 Total liabilities and stockholders' equity $159,982 $184,449 Primo Water Corporation Consolidated Statements of Operations (Unaudited; in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Net sales $26,185 $24,110 $70,710 $61,950 Operating costs and expenses: Cost of sales 19,897 18,727 54,145 45,925 Selling, general and 4,783 4,952 13,667 13,210 administrative expenses Non-recurring and 170 249 565 1,167 acquisition-related costs Depreciation and amortization 2,898 2,349 7,929 6,406 Goodwill impairment – – 11,488 – Total operating costs and 27,748 26,277 87,794 66,708 expenses Loss from operations (1,563) (2,167) (17,084) (4,758) Interest expense and other, net 905 190 3,082 956 Loss from continuing operations (2,468) (2,357) (20,166) (5,714) before income taxes Income tax (benefit) provision -- 166 (960) 509 Loss from continuing operations (2,468) (2,523) (19,206) (6,223) Loss from discontinued (1,367) (774) (14,799) (1,163) operations, net of income taxes Net loss $(3,835) $(3,297) $(34,005) $(7,386) Basic and diluted loss per common share: Loss from continuing operations $(0.10) $(0.11) $(0.81) $(0.29) Loss from discontinued (0.06) (0.03) (0.62) (0.06) operations, net of income taxes Net loss $(0.16) $(0.14) $(1.43) $(0.35) Basic and diluted weighted 23,752 23,645 23,715 20,981 average common shares outstanding Primo Water Corporation Non-GAAP Reconciliation (Unaudited; in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Loss from continuing operations $(2,468) $(2,523) $(19,206) $(6,223) Income tax (benefit) provision -- 166 (960) 509 Loss from continuing operations (2,468) (2,357) (20,166) (5,714) before income taxes Goodwill impairment – – 11,488 – Debt restructuring costs – – 1,061 – Amortization of intangible assets 353 535 1,020 1,194 Non-cash, stock-based 256 231 1,043 658 compensation expense Non-recurring and 170 249 565 1,167 acquisition-related costs Pro forma effect of full income 642 510 1,896 1,024 tax Non-GAAP net loss $(1,047) $(832) $(3,093) $(1,671) Basic and Diluted non-GAAP net $(0.04) $(0.04) $(0.13) $(0.08) loss per share Basic and diluted shares used to compute non-GAAP net loss per 23,752 23,645 23,715 20,981 share Primo Water Corporation Segment Information (Unaudited; in thousands) Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Segment income (loss) from operations Water $4,549 $3,733 $12,335 $10,913 Dispensers (441) (458) (1,223) (402) Other (2) (12) 42 (12) Corporate (2,601) (2,832) (8,256) (7,684) Non-recurring and (170) (249) (565) (1,167) acquisition-related costs Depreciation and amortization (2,898) (2,349) (7,929) (6,406) Goodwill impairment – – (11,488) – $(1,563) $(2,167) $(17,084) $(4,758) Primo Water Corporation Non-GAAP EBITDA and Adjusted EBITDA Reconciliation (Unaudited; in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Loss from continuing operations $(2,468) $(2,523) $(19,206) $(6,223) Depreciation and amortization 2,898 2,349 7,929 6,406 Interest expense and other, net 905 190 3,082 956 Income tax (benefit) provision – 166 (960) 509 EBITDA 1,335 182 (9,155) 1,648 Goodwill impairment – -- 11,488 – Non-cash, stock-based 256 231 1,043 658 compensation expense Non-recurring and 170 249 565 1,167 acquisition-related costs Adjusted EBITDA $1,761 $662 $3,941 $3,473 Primo Water Corporation Consolidated Statements of Cash Flows (Unaudited; in thousands) Nine months ended September 30, 2012 2011 Cash flows from operating activities: Net loss $(34,005) $(7,386) Less: Loss from discontinued operations (14,799) (1,163) Loss from continuing operations (19,206) (6,223) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 7,929 6,406 Stock-based compensation expense 1,043 658 Non-cash interest expense 1,708 411 Deferred income tax expense (benefit) (960) 509 Bad debt expense 161 436 Goodwill impairment 11,488 – Other (133) 59 Changes in operating assets and liabilities: Accounts receivable (1,031) (6,483) Inventories (676) (6,363) Prepaid expenses and other assets (597) (918) Accounts payable 3,099 10,645 Accrued expenses and other liabilities 806 (268) Net cash provided by (used in) operating 3,631 (1,131) activities Cash flows from investing activities: Purchases of property and equipment (3,121) (14,175) Purchases of bottles, net of disposals (683) (1,785) Proceeds from the sale of property and 42 18 equipment Business acquisitions – (1,576) Additions to and acquisitions of intangible (688) (219) assets Net cash used in investing activities (4,450) (17,737) Cash flows from financing activities: Borrowings under prior revolving credit 500 23,126 facility Payments under prior revolving credit (15,000) (39,538) facility Borrowings under revolving credit facility 23,996 – Payments under revolving credit facility (17,426) – Borrowings under term loan 15,150 – Note payable and capital lease payments (11) (10) Debt issuance costs (2,049) (517) Proceeds from sale of common stock, net of (214) 39,445 issuance costs Stock option and employee stock purchase 15 352 activity, net Net cash provided by financing activities 4,961 22,858 Net increase in cash 4,142 3,990 Cash, beginning of year 751 443 Effect of exchange rate changes on cash (16) (131) Cash used in discontinued operations from: Operating activities (3,850) (861) Investing activities (395) (2,250) Financing activities – – Cash used in discontinued operations (4,245) (3,111) Cash, end of period $632 $1,191 CONTACT: Primo Water Corporation Mark Castaneda, Chief Financial Officer (336) 331-4000 ICR Inc. John Mills Katie Turner (646) 277-1228 Primo Water Corporation Logo
Primo Water Announces Results for the Third Quarter Ended September 30, 2012
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