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Primo Water Corporation Announces Third Quarter 2021 Results and Planned Exit of its North American Single-Use Retail Bottled Water Business

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  • PRMW

Company reaffirms full year Adjusted EBITDA guidance and shares multi-year growth algorithm

TAMPA, Fla., Nov. 4, 2021 /CNW/ - Primo Water Corporation (NYSE: PRMW) (TSX: PRMW) (the "Company" or "Primo"), a leading provider of sustainable drinking water solutions in North America and Europe, today announced its results for the third quarter ended October 2, 2021.

Primo Water Corporation Logo (CNW Group/Primo Water Corporation)
Primo Water Corporation Logo (CNW Group/Primo Water Corporation)

(Unless stated otherwise, all third quarter 2021 comparisons are relative to the third quarter of 2020; all information is in U.S. dollars.)

  • Announced plan to exit the North American single-use retail bottled water category (primarily 1-gallon, 2.5 gallon and case-pack water) as part of its overall strategy to increase profitability and further reduce its carbon footprint. The plan does not affect its large format exchange, refill, and dispenser business or the Company's Mountain Valley brand, which sells products primarily in glass bottles.

  • Total revenue increased 6% to $551 million compared to $518 million as North America Water Direct experienced a substantial increase in demand.

  • Reported net income and net income per diluted share were $18 million and $0.11, respectively, compared to reported net income and net income per diluted share of $22 million and $0.14, respectively. Adjusted net income and adjusted net income per diluted share were $36 million and $0.22, respectively, compared to adjusted net income and adjusted net income per diluted share of $38 million and $0.24, respectively.

  • Total Adjusted EBITDA decreased 4% to $106 million compared to $111 million and Adjusted EBITDA margin decreased to 19.2% due to the impact of the Delta variant on the route delivery labor force primarily in July and August which caused route inefficiencies resulting in short term higher operating costs.

  • Repurchased approximately 1.8 million outstanding common shares for $29 million.

  • Expects approximately 6% organic revenue growth in 2021, plus growth from tuck-in M&A, and maintained its full year outlook for Adjusted EBITDA between $390 million and $400 million.


For the Three Months Ended

(in millions of U.S. dollars, except per share amounts, percentages and bps)

October 2, 2021


September 26, 2020


Y/Y Change

Revenue, net

$

550.8


$

517.5


6%

Net income

$

18.1


$

22.3


$

(4.2)

Net income per diluted share

$

0.11


$

0.14


$

(0.03)

Adjusted net income

$

36.4


$

38.3


$

(1.9)

Adjusted net income per diluted share

$

0.22


$

0.24


$

(0.02)

Adjusted EBITDA

$

105.9


$

110.6


-4%

Adjusted EBITDA margin %


19.2%


21.4%


-220bps

"Our pure-play water model continues to drive higher demand for our products and services," said Tom Harrington, Chief Executive Officer. "Third quarter operating results were negatively affected by the increase in the number of associates impacted by Covid resulting in route inefficiencies and higher overtime and temporary worker wages. This was partially offset by higher revenue and fixed cost leverage as our North America Water Direct business experienced a substantial increase in demand. We have seen operational improvement at the end of Q3 and continuing into October, supporting our belief this has been a short-term impact of the virus. I am proud of the efforts of our team during this challenging period and am pleased with everyone's continued commitment to safety and customer satisfaction."

"As we continue to the next phase of our transformation as a pure-play water company and leader in ESG, we are planning to exit the single-use plastic retail bottled water business in North America. Although it is a relatively small part of our overall business, exiting this category will result in a higher margin and more sustainable business. The increasing effect of one-way, single-use plastic bottles in our landfills and waterways has driven us to focus on our more environmentally friendly 3-gallon and 5-gallon returnable bottle business," continued Mr. Harrington.

"We look forward to our Investor Day scheduled for November 17th where we will provide details behind our forecast for high single digit organic revenue growth, continued execution of $40 to $60 million of highly accretive tuck-ins, enhanced EBITDA margins of 40 to 60 basis points per year in addition to the one-time benefit from the planned exit of our single-use retail bottled water business of approximately 100 basis points, and targeted annualized Adjusted EBITDA in excess of $500 million by the end of 2024," said Mr. Harrington.

OUTLOOK

Primo is targeting the following results from continuing operations for the fourth quarter and full year 2021:


Q4 2021

FY 2021


Range

Range

($ in millions)

Low

High

Low

High

Revenue

$540

$550

+ ~6%

Adjusted EBITDA

$108

$118

$390

$400

Cash Taxes

-

~ $10

Interest

-

~ $68

CapEx

-

~ $150

THIRD QUARTER 2021 RESULTS CONFERENCE CALL

Primo Water Corporation will host a conference call today, November 4, 2021, at 10:00 a.m. ET, to discuss third quarter results, which can be accessed as follows:

North America: (888) 664-6392
International: (416) 764-8659
Conference ID: 46080719

A slide presentation and live audio webcast will be available through Primo's website at https://www.primowatercorp.com. The earnings conference call will be recorded and archived for playback on the investor relations section of the website for a period of two weeks following the event.

THIRD QUARTER GLOBAL PERFORMANCE – CONTINUING OPERATIONS

  • Revenue increased 6% to $551 million compared to $518 million (increased by 5% excluding the impact of foreign exchange). The increase is due primarily to pricing initiatives, increased demand from residential and B2B customers and the favorable impact of foreign exchange, partially offset by lower revenue from Water Refill and Water Dispenser sales. Revenue by channel is tabulated below:


For the Three Months Ended

(in millions of U.S. dollars)

October 2, 2021


September 26, 2020


Change


%Change

Revenue, net









Water Direct/Water Exchange

$

344.2


$

312.3


$

31.9


10%

Water Refill/Water Filtration


55.6


57.0


(1.4)


-2%

Other Water


66.8


59.5


7.3


12%

Water Dispensers


16.1


28.5


(12.4)


-44%

Other


68.1


60.2


7.9


13%

Revenue, net as reported

$

550.8


$

517.5


$

33.3


6%

Foreign exchange impact


(5.7)


-


(5.7)


n/a

Revenue excluding foreign exchange impact

$

545.1


$

517.5


$

27.6


5%

  • Gross profit increased 1% to $308 million compared to $304 million. Gross margin was 56.0% compared to 58.8%, due to operational challenges experienced in the quarter.

  • SG&A expenses increased 2% to $264 million compared to $257 million driven primarily by higher selling and operating costs that supported the volume and revenue growth of the business.

  • Reported net income and net income per diluted share were $18 million and $0.11, respectively, compared to reported net income and net income per diluted share of $22 million and $0.14, respectively. Adjusted net income and adjusted net income per diluted share were $36 million and $0.22, respectively, compared to adjusted net income and adjusted net income per diluted share of $38 million and $0.24, respectively.

  • Adjusted EBITDA decreased 4% to $106 million compared to $111 million and Adjusted EBITDA margin decreased to 19.2%, driven by higher selling and operating costs associated with the volume growth and labor availability.

  • Net cash provided by operating activities of $83 million, less $37 million of capital expenditures, resulted in $46 million of free cash flow, or $49 million of adjusted free cash flow (adjusting for the items set forth on Exhibit 7), compared to adjusted free cash flow of $35 million in the prior year period.

THIRD QUARTER REPORTING SEGMENT PERFORMANCE – CONTINUING OPERATIONS

North America

  • Revenue increased 5% to $413 million compared to $393 million (increased by 5% excluding the impact of foreign exchange) driven by increased pricing and demand from residential and B2B customers partially offset by lower revenue from Water Refill and Water Dispenser sales.


For the Three Months Ended

(in millions of U.S. dollars)

October 2, 2021


September 26, 2020


Change


%Change

Revenue, net









Water Direct/Water Exchange

$

281.9


$

252.1


$

29.8


12%

Water Refill/Water Filtration


47.0


48.9


(1.9)


-4%

Other Water


42.6


39.0


3.6


9%

Water Dispensers


16.1


28.5


(12.4)


-44%

Other


25.7


24.7


1.0


4%

Revenue, net as reported

$

413.3


$

393.2


$

20.1


5%

Foreign exchange impact


(0.9)


-


(0.9)


n/a

Revenue excluding foreign exchange impact

$

412.4


$

393.2


$

19.2


5%

Rest of World ("ROW")

  • Revenue increased 11% to $138 million compared to $124 million (increased by 7% excluding the impact of foreign exchange) driven by improved volume and pricing in all channels.


For the Three Months Ended

(in millions of U.S. dollars)

October 2, 2021


September 26, 2020


Change


%Change

Revenue, net









Water Direct/Water Exchange

$

62.3


$

60.2


$

2.1


3%

Water Refill/Water Filtration


8.6


8.1


0.5


6%

Other Water


24.2


20.5


3.7


18%

Water Dispensers


-


-


-


-

Other


42.4


35.5


6.9


19%

Revenue, net as reported

$

137.5


$

124.3


$

13.2


11%

Foreign exchange impact


(4.8)


-


(4.8)


n/a

Revenue excluding foreign exchange impact

$

132.7


$

124.3


$

8.4


7%

SHARE REPURCHASE PROGRAM

During the third quarter, the Company repurchased approximately 1.8 million common shares for a total of approximately $29 million under its previously announced share repurchase program of up to $50 million of the Company's outstanding common shares.

Under the program, the Company's common shares may be repurchased periodically in open market or privately negotiated transactions through the facilities of the NYSE.

ABOUT PRIMO WATER CORPORATION

Primo Water Corporation is a leading pure-play water solutions provider in North America and Europe and generates approximately $2.0 billion in annual revenue. Primo operates largely under a recurring razor/razorblade revenue model. The razor in Primo's revenue model is its industry leading line-up of sleek and innovative water dispensers, which are sold through retailers and online at various price points. The dispensers help increase household penetration which drives recurring purchases of Primo's razorblade offering. Primo's razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, Primo delivers sustainable hydration solutions across its 22-country footprint direct to the customer's door, whether at home or to businesses. Through its Water Exchange and Water Refill businesses, Primo offers pre-filled and reusable containers at over 13,000 locations and water refill units at approximately 22,000 locations, respectively. Primo also offers water filtration units across its 22-country footprint representing a top five position.

Primo's water solutions expand consumer access to purified, spring, and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with the International Bottled Water Association (IBWA) in North America as well as with Watercoolers Europe (WE), which ensure strict adherence to safety, quality, sanitation and regulatory standards for the benefit of consumer protection.

Primo is headquartered in Tampa, Florida (USA). For more information, visit www.primowatercorp.com.

Non-GAAP Measures

To supplement its reporting of financial measures determined in accordance with GAAP, Primo utilizes certain non-GAAP financial measures. Primo excludes from GAAP revenue the impact of foreign exchange to separate its impact from Primo's results of operations. Primo utilizes adjusted net income (loss), adjusted net income (loss) per diluted share, Adjusted EBITDA and Adjusted EBITDA margin to separate the impact of certain items from the underlying business. Because Primo uses these adjusted financial results in the management of its business, management believes this supplemental information is useful to investors for their independent evaluation and understanding of Primo's underlying business performance and the performance of its management. Additionally, Primo supplements its reporting of net cash provided by (used in) operating activities from continuing operations determined in accordance with GAAP by excluding additions to property, plant and equipment to present free cash flow, and by excluding the items identified on the exhibits hereto to present adjusted free cash flow, which management believes provides useful information to investors in assessing our performance, comparing Primo's performance to the performance of the Company's peer group and assessing the Company's ability to service debt and finance strategic opportunities, which include investing in Primo's business, making strategic acquisitions, paying dividends, repurchasing common shares and strengthening the balance sheet. With respect to the Company's expectations of its performance, the Company's reconciliations of Q4 2021 and full year 2021 estimated Adjusted EBITDA, along with targeted 2024 Adjusted EBITDA, are not available, as the Company is unable to quantify certain amounts to the degree of precision that would be required in the relevant GAAP measures without unreasonable effort. These items include taxes, interest costs that would occur if the Company issued debt, and costs to acquire and or sell a business if the Company executed such transactions, which could significantly affect our financial results. These items depend on highly variable factors and any such reconciliations would imply a degree of precision that would be confusing or misleading to investors. Primo expects the variability of these factors to have a significant, and potentially unpredictable, impact on the Company's future GAAP financial results. The non-GAAP financial measures described above are in addition to, and not meant to be considered superior to, or a substitute for, Primo's financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this earnings announcement reflect management's judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies.

Safe Harbor Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 conveying management's expectations as to the future based on plans, estimates and projections at the time Primo makes the statements. Forward-looking statements involve inherent risks and uncertainties and Primo cautions you that several important factors could cause actual results to differ materially from those contained in any such forward-looking statement. The forward-looking statements contained in this press release include, but are not limited to, statements related to future financial and operating trends and results (including Primo's outlook on fourth quarter and full year 2021 revenue and Adjusted EBITDA and Primo's multi-year growth algorithm), Primo's planned exit from its single-use bottle retail water business in North America, and related matters. The forward-looking statements are based on assumptions regarding management's current plans and estimates. Management believes these assumptions to be reasonable, but there is no assurance that they will prove to be accurate.

Factors that could cause actual results to differ materially from those described in this press release include, among others: the impact of the spread of COVID-19, related government actions and Primo's strategy in response thereto on our business, financial condition and results of operations; Primo's ability to compete successfully in the markets in which it operates; fluctuations in commodity prices and Primo's ability to pass on increased costs to its customers or hedge against such rising costs, and the impact of those increased prices on its volumes; Primo's ability to maintain favorable arrangements and relationships with its suppliers; Primo's ability to manage its operations successfully; currency fluctuations that adversely affect the exchange between currencies including the U.S. dollar, the British pound sterling, the Euro and the Canadian dollar; the impact on Primo's financial results from uncertainty in the financial markets and other adverse changes in general economic conditions; any disruption to production at Primo's manufacturing facilities; Primo's ability to maintain access to its water sources; Primo's ability to protect its intellectual property; the seasonal nature of Primo's business and the effect of adverse weather conditions; the impact of national, regional and global events, including those of a political, economic, business and competitive nature; Primo's ability to fully realize the potential benefit of transactions or other strategic opportunities that it pursues; Primo's ability to realize cost synergies of its acquisitions due to integration difficulties and other challenges; Primo's limited indemnification rights in connection with the legacy Primo acquisition; Primo's exposure to intangible asset risk; Primo's ability to meet its obligations under its debt agreements, and risks of further increases to its indebtedness; Primo's ability to maintain compliance with the covenants and conditions under its debt agreements; fluctuations in interest rates, which could increase Primo's borrowing costs; the incurrence of substantial indebtedness to finance Primo's acquisitions; Primo's ability to recruit, retain and integrate new management; Primo's ability to renew its collective bargaining agreements on satisfactory terms; compliance with product health and safety standards; liability for injury or illness caused by the consumption of contaminated products; liability and damage to Primo's reputation as a result of litigation or legal proceedings; changes in the legal and regulatory environment in which Primo operates; Primo's ability to adequately address the challenges and risks associated with its international operations and address difficulties in complying with laws and regulations including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010; the impact on Primo's tax obligations and effective tax rate arising from changes in local tax laws or countries adopting more aggressive interpretations of tax laws; disruptions in Primo's information systems; Primo's ability to securely maintain its customers' confidential or credit card information, or other private data relating to Primo's employees or the Company; Primo's ability to maintain its quarterly dividend; or credit rating changes.

The foregoing list of factors is not exhaustive. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures, including but not limited to risk factors contained in Primo's Annual Report on Form 10-K and its quarterly reports on Form 10-Q, as well as other filings with the securities commissions. Primo does not undertake to update or revise any of these statements considering new information or future events, except as expressly required by applicable law.

Website: www.primowatercorp.com

PRIMO WATER CORPORATION



EXHIBIT 1

CONSOLIDATED STATEMENTS OF OPERATIONS


(in millions of U.S. dollars, except share and per share amounts)

Unaudited





















For the Three Months Ended


For the Nine Months Ended


October 2, 2021


September 26, 2020


October 2,
2021


September 26, 2020

Revenue, net

$

550.8


$

517.5


$

1,555.3


$

1,448.5

Cost of sales

242.4


213.4


685.2


616.4

Gross profit

308.4


304.1


870.1


832.1

Selling, general and administrative expenses

263.6


257.2


771.5


759.0

Loss on disposal of property, plant and equipment, net


2.3


5.4


6.2

Acquisition and integration expenses

2.6


3.3


6.3


28.4

Goodwill and intangible asset impairment charges




115.2

Operating income (loss)

42.2


41.3


86.9


(76.7)

Other expense (income), net

4.3


(4.8)


29.5


0.6

Interest expense, net

16.7


20.4


53.4


60.8

Income (loss) from continuing operations before income taxes

21.2


25.7


4.0


(138.1)

Income tax expense (benefit)

3.1


3.4


4.4


(1.3)

Net income (loss) from continuing operations

$

18.1


$

22.3


$

(0.4)


$

(136.8)

Net (loss) income from discontinued operations, net of income taxes


(0.3)



26.3

Net income (loss)

$

18.1


$

22.0


$

(0.4)


$

(110.5)










Net income (loss) per common share









Basic:










Continuing operations

$

0.11


$

0.14


$

0.00


$

(0.89)

Discontinued operations

$


$


$


$

0.17

Net income (loss)

$

0.11


$

0.14


$

0.00


$

(0.72)

Diluted:









Continuing operations

$

0.11


$

0.14


$

0.00


$

(0.89)

Discontinued operations

$


$


$


$

0.17

Net income (loss)

$

0.11


$

0.14


$

0.00


$

(0.72)










Weighted average common shares outstanding (in thousands)









Basic

160,481


160,101


160,892


153,723

Diluted

161,932


161,433


160,892


153,723

PRIMO WATER CORPORATION



EXHIBIT 2

CONSOLIDATED BALANCE SHEETS




(in millions of U.S. dollars, except share amounts)




Unaudited









October 2, 2021


January 2, 2021

ASSETS




Current assets




Cash and cash equivalents

$

125.3


$

115.1

Accounts receivable, net of allowance of $21.0 ($20.7 as of January 2, 2021)

287.6


222.3

Inventories

95.7


83.8

Prepaid expenses and other current assets

21.1


21.3

Total current assets

529.7


442.5

Property, plant and equipment, net

689.5


685.6

Operating lease right-of-use-assets

174.6


180.6

Goodwill

1,277.0


1,284.3

Intangible assets, net

948.4


987.6

Other long-term assets, net

23.9


24.1

Total assets

$

3,643.1


$

3,604.7

LIABILITIES AND EQUITY




Current liabilities




Short-term borrowings

$

172.9


$

107.7

Current maturities of long-term debt

14.1


17.9

Accounts payable and accrued liabilities

442.1


387.7

Current operating lease obligations

33.9


35.5

Total current liabilities

663.0


548.8

Long-term debt

1,308.4


1,345.1

Operating lease obligations

143.8


148.0

Deferred tax liabilities

149.6


148.1

Other long-term liabilities

64.8


67.8

Total liabilities

2,329.6


2,257.8

Shareholders' Equity




Common shares, no par value - 160,135,328 (January 2, 2021 - 160,406,464) shares issued

1,277.8


1,268.0

Additional paid-in-capital

83.0


84.5

Retained earnings

29.7


...