Primo Water Announces Results for the Third Quarter Ended September 30, 2013 and Strategic Alliance Agreement With DS Waters of America, Inc. WINSTON-SALEM, N.C., Nov. 12, 2013 (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, 2013 and a strategic alliance agreement with DS Waters of America, Inc. Business Highlights: oWater segment net sales for Q3 increased 1.6% to $17.5 million driven by 8.5% U.S. Exchange same-store unit growth oWater segment gross margin percentage improved to 33.7% for Q3 of 2013 from 32.3% for Q3 2012 oDispenser segment unit sell-thru to consumers increased 2.0% and 10.7% for Q3 and the first nine months of 2013, respectively, compared to 2012 oAdjusted EBITDA for Q3 increased 61.6% to $3.0 million compared to $1.8 million for Q3 of 2012 oGenerated $9.1 million in cash flow from operations and $3.4 million in free cash flow during the first nine months of 2013 compared to $4.6 million and $0.2 million for the first nine months of 2012 oEntered into a strategic alliance agreement with DS Waters of America, Inc. "We are pleased with the continued improvements in our overall operating results," commented Billy D. Prim, Primo Water's Chief Executive Officer. "We grew our adjusted EBITDA more than 61% over last year and generated strong cash flow. Going forward, we remain confident in the strength of our business model, the positive operational changes underway and our ability to generate increased cash flow to support our long-term growth opportunities." Third Quarter Results Total net sales decreased 2.4% to $25.5 million compared to $26.2 million for the third quarter of 2012 as a result of a $0.9 million decrease in Dispenser sales partially offset by a $0.3 million increase in Water sales. Water segment net sales increased 1.6% to $17.5 million for the third quarter compared to $17.3 million in the third quarter of 2012. 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 increase in Water net sales was primarily due to a 4.6% increase in Exchange sales driven by same-store unit growth of 8.5% for the Company's U.S. Exchange services compared to the third quarter of 2012. The improvement in Exchange sales was partially offset by a 2.1% decline in Refill sales. Dispenser segment net sales for the third quarter of 2013 decreased 10.3% to $8.0 million compared to $8.9 million in the third quarter of 2012. This decrease is primarily a result of retailers managing inventory levels and shipment timing. The Company believes these trends will continue into the fourth quarter. Despite the 3.7% decline in dispenser unit sell-in to retailers, the Company realized its fifteenth consecutive quarter of growth in consumer purchases as Dispenser unit sales to end consumers increased 2.0% to a 116,400 units for the third quarter of 2013 compared to the same period in the prior year. The Company believes that increased water dispenser penetration will lead to a continued increase in recurring Water sales. Gross margin percentage increased to 25.8% for the third quarter from 24.0% for the third quarter of 2012 driven by improvements in both Water and Dispenser gross margins. Selling, general and administrative ("SG&A") expenses decreased 19.0% to $3.9 million for the third quarter of 2013 from $4.8 million for the third quarter of 2012. In addition, as a percentage of net sales, SG&A decreased to 15.2% for the third quarter of 2013 from 18.3% for the third quarter of 2012. Adjusted EBITDA increased 61.6% to $3.0 million from $1.8 million in the third quarter of 2012.The net loss from continuing operations for the third quarter of 2013 was $(1.6) million or $(0.07) per share, compared to $(2.5) million or $(0.10) per share for the third quarter of the prior year. Cash flow from operations increased 95.9% to $9.1 million for the nine months ended September 30, 2013 from $4.6 million for the prior year period.The increase in cash flow from operations resulted in free cash flow, defined as net cash provided by operating activities less net cash used in investing activities, of $3.4 million for the nine months ended September 30, 2013. Strategic Alliance Agreement with DS Waters of America, Inc. Primo also announced today that it has entered into a strategic alliance agreement with DS Waters of America, Inc., one of the nation's leading operators in the Home and Office Beverage Delivery market. Primo will assume responsibility for DS Waters' current five-gallon retail exchange customers, including account management, billing and collections.Over time DS Waters will become the primary bottling and distribution partner in the U.S. for Primo's Exchange services. It is anticipated that activities under the strategic alliance agreement will be phased in on a region-by-region basis. "We are combining the strengths of two great companies," stated Billy Prim. "Primo has extensive knowledge of retail exchange while DS Waters has one of the largest bottling and distribution systems in the industry.We believe the strategic alliance will also allow us to add incremental revenue, reduce our distribution costs and is expected to lead to improved gross margin over time." "We are excited to partner with Primo Water as we each leverage our core business competencies to create a first-class alliance in the bottled water industry," stated DS Waters CEO Tom Harrington. "We believe this strategic alliance will help us gain increased bottling and distribution volume from Primo's existing retail business as we continue to provide customers with superior product quality and customer service." Guidance The Company expects full year net sales in the range of $90 to $92 million and adjusted EBITDA in the range of $9.1 to $9.3 million or an increase of 68% to 71% over the prior year.The Company expects to incur one-time transition costs related to the strategic alliance agreement with DS Waters. Conference Call and Webcast The Company will host a conference call to discuss these matters at 4:30 p.m. ET today, November 12, 2013.Participants from the Company will be Billy D. Prim, Chief Executive Officer, Mark Castaneda, Chief Financial Officer, and Matt Sheehan, President and Chief Operating 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 26, 2013.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. About DS Waters of America, Inc. DS Waters of America, Inc. (DS Waters) is a diversified beverage company providing bottled drinking water, brewed beverages and water filtration systems to homes and offices across the U.S. Headquartered in Atlanta, Georgia, DS Waters serves over one million homes, offices, restaurants, food service organizations, convenience stores, and retail locations.Its bottled water products are sold under the brand names Alhambra®, Athena®, Belmont Springs, Crystal Springs®, Deep Rock®, Hinckley Springs®, Kentwood Springs®, Mount Olympus®, Nursery®Water, Sierra Springs®, and Sparkletts®. Several of its bottled water brands have been satisfying consumers for more than 100 years. DS Waters offers brewed coffee and tea beverages, as well as office break room supplies under the Standard®Coffee brand. DS Waters provides water filtration systems, equipment and services under the Relyant®brand.DS Waters supports the communities it serves and provides safe drinking water during emergencies and natural disasters. Visit www.water.com, www.nurserywater.com, www.coffeeservice.com, and www.myutapia.com for more information. 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 include our financial guidance and our expectations related to the incremental net sales and reduced distribution costs associated with our strategic alliance agreement with DS Waters.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, the failure to achieve the incremental net sales or reduced distribution costs associated with the strategic alliance agreement with DS Waters, 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 Exchange and Refill services and its water dispensers, adverse changes in the Company's relationships with its independent bottlers, distributors and suppliers (including as a result of the Company's entering into the strategic alliance agreement with DS Waters), the entry of a competitor with greater resources into the marketplace and 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 warranty expense or 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 and effectively integrate 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, 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 22, 2013 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-U.S. GAAP Financial Measures To supplement its financial statements, the Company provides investors with information related to adjusted EBITDA, free cash flow and pro forma fully taxed net loss 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 earnings (loss) from continuing operations before depreciation and amortization; interest expense and other, net; income tax provision; non-cash, stock-based compensation expense; non-recurring and acquisition-related costs; and loss on disposal of assets and other.Free cash flow is defined as net cash provided by operating activities less net cash used in investing actives. Pro forma fully taxed net loss from continuing operations is defined as loss from continuing operations before income taxes less goodwill impairment; debt restructuring costs; amortization of intangible assets; non-cash, stock-based compensation expense; non-recurring and acquisition related costs as adjusted on a pro forma basis for the full effect of income taxes. 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. Adjusted EBITDA excludes significant expenses that are required by U.S. GAAP to be recorded in the Company's financial statements and is subject to inherent limitations. Primo Water Corporation Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2013 2012 2013 2012 Net sales $25,519 $26,158 $71,696 $70,594 Operating costs and expenses: Cost of sales 18,936 19,868 53,924 54,081 Selling, general and 3,873 4,783 11,722 13,657 administrative expenses Non-recurring and 96 170 190 565 acquisition-related costs Depreciation and amortization 3,050 2,898 8,579 7,929 Goodwill impairment -- -- -- 11,488 Total operating costs and 25,955 27,719 74,415 87,720 expenses Loss from operations (436) (1,561) (2,719) (17,126) Interest expense and other, net 1,138 904 3,359 3,082 Loss from continuing operations (1,574) (2,465) (6,078) (20,208) before income taxes Income tax provision – – – (960) Loss from continuing operations (1,574) (2,465) (6,078) (19,248) Loss from discontinued operations (511) (1,370) (872) (14,757) Net loss $(2,085) $(3,835) $(6,950) $(34,005) Basic and diluted loss per common share: Loss from continuing operations $(0.07) $(0.10) $(0.25) $(0.81) Loss from discontinued operations (0.02) (0.06) (0.04) (0.62) Net loss $(0.09) $(0.16) $(0.29) $(1.43) Basic and diluted weighted 24,019 23,752 23,901 23,715 average common shares outstanding Primo Water Corporation Segment Information (Unaudited; in thousands) Three months ended Nine months ended September 30, September 30, 2013 2012 2013 2012 Segment net sales Water $17,544 $17,264 $48,686 $47,624 Dispensers 7,975 8,894 23,010 22,970 Total net sales $25,519 $26,158 $71,696 $70,594 Segment income (loss) from operations Water 4,924 4,718 13,652 12,654 Dispensers 447 (441) 701 (1,223) Corporate (2,661) (2,770) (8,303) (8,575) Non-recurring and (96) (170) (190) (565) acquisition-related costs Depreciation and amortization (3,050) (2,898) (8,579) (7,929) Goodwill impairment -- -- -- (11,488) $(436) $(1,561) $(2,719) $(17,126) Primo Water Corporation Pro forma fully taxed net loss from continuing operations (Unaudited; in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2013 2012 2013 2012 Loss from continuing operations $(1,574) $(2,465) $(6,078) $(19,248) Income tax benefit – – – (960) Loss from continuing operations (1,574) (2,465) (6,078) (20,208) before income taxes Goodwill impairment – – – 11,488 Debt restructuring costs – – – 1,061 Amortization of intangible assets 351 353 1,060 1,020 Non-cash, stock-based 196 256 819 1,043 compensation expense Non-recurring and 96 170 190 565 acquisition-related costs Pro forma effect of full income 354 641 1,523 1,912 tax Non-GAAP net loss $(577) $(1,045) $(2,486) $(3,119) Basic and diluted non-GAAP net $(0.02) $(0.04) $(0.10) $(0.13) loss per share Basic and diluted shares used to compute non-GAAP net loss per 24,019 23,752 23,901 23,715 share Primo Water Corporation Consolidated Balance Sheets (in thousands, except par value data) September 30, December 31, 2013 2012 (unaudited) ASSETS Current assets: Cash $308 $234 Accounts receivable, net 7,887 9,894 Inventories 6,850 7,572 Prepaid expenses and other current assets 1,459 812 Current assets of disposal group held for sale 300 3,041 Total current assets 16,804 21,553 Bottles, net 4,002 3,838 Property and equipment, net 39,401 41,947 Intangible assets, net 11,341 12,477 Other assets 2,592 1,960 Total assets $74,140 $81,775 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $15,043 $11,455 Accrued expenses and other current liabilities 2,709 4,305 Current portion of capital leases and notes payable 16 15 Current liabilities of disposal group held for sale 378 2,784 Total current liabilities 18,146 18,559 Long-term debt, capital leases and notes payable, 18,379 21,251 net of current portion Other long-term liabilities 317 352 Liabilities of disposal group held for sale, net of 2,000 – current portion Total liabilities 38,842 40,162 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, 24,036 and 23,772 shares issued and 24 24 outstandingat September 30, 2013 and December 31, 2012, respectively Additional paid-in capital 273,164 272,336 Common stock warrants 8,420 8,420 Accumulated deficit (246,081) (239,131) Accumulated other comprehensive loss (229) (36) Total stockholders' equity 35,298 41,613 Total liabilities and stockholders' equity $74,140 $81,775 Primo Water Corporation Condensed Consolidated Statements of Cash Flows (in thousands) Nine months ended September 30, 2013 2012 Cash flows from operating activities: Net loss $(6,950) $(34,005) Less: Loss from discontinued operations (872) (14,757) Loss from continuing operations (6,078) (19,248) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,579 7,929 Stock-based compensation expense 819 1,043 Non-cash interest expense 882 1,708 Deferred income tax expense – (960) Bad debt expense 5 161 Goodwill impairment – 11,488 Other 185 (133) Changes in operating assets and liabilities: Accounts receivable 1,952 (1,031) Inventories 715 369 Prepaid expenses and other assets (211) (597) Accounts payable 3,870 3,099 Accrued expenses and other liabilities (1,641) 806 Net cash provided by operating activities 9,077 4,634 Cash flows from investing activities: Purchases of property and equipment (3,745) (3,121) Purchases of bottles, net of disposals (1,904) (683) Proceeds from the sale of property and 2 42 equipment Additions to and acquisitions of intangible (43) (688) assets Net cash used in investing activities (5,690) (4,450) Cash flows from financing activities: Borrowings under revolving credit facilities 68,062 24,496 Payments under revolving credit facilities (73,899) (32,426) Borrowings under Comvest Term loans 3,000 15,150 Note payable and capital lease payments (11) (11) Debt issuance costs (689) (2,049) Proceeds from sale of common stock, net of – (214) issuance costs Stock option and employee stock purchase 82 15 activity, net Net cash (used in) provided by financing (3,455) 4,961 activities Net (decrease) increase in cash (68) 5,145 Cash, beginning of year 234 751 Effect of exchange rate changes on cash (47) (16) Cash provided by (used in) discontinued operations from: Operating activities 189 (4,853) Investing activities – (395) Cash provided by (used in) discontinued 189 (5,248) operations Cash, end of period $308 $632 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, 2013 2012 2013 2012 Loss from continuing operations $(1,574) $(2,465) $(6,078) $(19,248) Depreciation and amortization 3,050 2,898 8,579 7,929 Interest expense and other, net 1,138 904 3,359 3,082 Income tax benefit – – – (960) EBITDA 2,614 1,337 5,860 (9,197) Goodwill impairment -- -- -- 11,488 Non-cash, stock-based 196 256 819 1,043 compensation expense Non-recurring and 96 170 190 565 acquisition-related costs Loss on disposal of assets and 69 78 307 438 other Adjusted EBITDA $2,975 $1,841 $7,176 $4,337 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, 2013 and Strategic Alliance Agreement With DS Waters of
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