Primo Water Corporation Announces Fourth Quarter and Fiscal Year 2020 Results

Fourth quarter financial results exceed high-end of expectations and continue to validate pure-play water model

TAMPA, Fla., Feb. 25, 2021 /PRNewswire/ - Primo Water Corporation (NYSE: PRMW) (TSX: PRMW) (the "Company" or "Primo"), a leading provider of water direct to consumers and water filtration services in North America and Europe as well as a leading provider of water dispensers, purified and spring bottled water, and self-service refill drinking water in the U.S. and Canada, today announced its results for the fourth quarter and fiscal year ended January 2, 2021.

(The fiscal year ended January 2, 2021 included 53-weeks of activity, compared to 52-weeks of activity for the fiscal year ended December 28, 2019. Unless stated otherwise, all fourth quarter 2020 comparisons are relative to the fourth quarter of 2019 and all fiscal year 2020 comparisons are relative to fiscal year 2019; all information is in U.S. dollars.)

FOURTH QUARTER HIGHLIGHTS

• Revenue increased 15% to $505 million compared to $440 million.
  
  
• Gross profit increased 8% to $282 million compared to $260 million.
  
  
• Reported net loss and net loss per diluted share were $20 million and $0.12, respectively, compared to reported net income and net income per diluted share of $2 million and $0.01, respectively. Adjusted net income and adjusted net income per diluted share were $23 million and $0.14, respectively, compared to adjusted net income and adjusted net income per diluted share of $17 million and $0.13, respectively.
  
  
• Adjusted EBITDA increased 36% to $98 million compared to $72 million and adjusted EBITDA margin increased by 300 basis points to 19.4%.

"I am very pleased with our fourth quarter results, despite a difficult operating environment and increased lockdown measures in many of the geographies we serve," said Tom Harrington, Primo's Chief Executive Officer. "We closed the year with another quarter of strong adjusted EBITDA and higher adjusted EBITDA margin, and we are carrying that momentum into 2021 as a more streamlined and profitable company with our pure-play water model. I am confident that the continued demand for our products and services, coupled with the progress we made against our key initiatives throughout 2020, will enable us to build upon these results in 2021."

FOURTH QUARTER GLOBAL PERFORMANCE – CONTINUING OPERATIONS

• Revenue increased 15% to $505 million compared to $440 million (increased by 9% excluding the impact of foreign exchange and the 53^rd week). The increase is due primarily from the legacy Primo acquisition, increased demand for products and services from residential customers and a $19 million benefit from the 53^rd week, partially offset by lower revenue from coffee services and the Water Direct commercial customer base. Revenue growth by channel is tabulated below:

• Gross profit increased 8% to $282 million compared to $260 million driven by the acquisition of the legacy Primo business and a $12 million benefit from the 53rd week. Gross margin was 55.8% compared to 59.1%, due primarily to lower gross profit in the Rest of World ("ROW") segment and the lower gross margin profile of the legacy Primo business.
  
  
• SG&A expenses increased 5% to $248 million compared to $237 million. The increase was driven by the addition of the legacy Primo business and $8 million of expenses from the 53^rd week, partially offset by lower SG&A resulting from cost reduction initiatives implemented earlier in the year.
  
  
• Reported net loss and net loss per diluted share were $20 million and $0.12, respectively, compared to reported net income and net income per diluted share of $2 million and $0.01, respectively. Adjusted net income and adjusted net income per diluted share were $23 million and $0.14, respectively, compared to adjusted net income and adjusted net income per diluted share of $17 million and $0.13, respectively.
  
  
• Adjusted EBITDA increased 36% to $98 million compared to $72 million (increased 31% excluding the impact of the 53^rd week). The increase was driven primarily by increased demand for products and services from residential customers, improved operating leverage, the legacy Primo acquisition, synergy realization and a $4 million benefit from the 53rd week. Adjusted EBITDA margin increased by 300 basis points to 19.4%.
  
  
• Net cash provided by operating activities of $70 million, less $29 million of capital expenditures, resulted in $41 million of free cash flow, or $56 million of adjusted free cash flow (adjusting for the items set forth on Exhibit 7), compared to adjusted free cash flow of $84 million in the prior year.

FOURTH QUARTER REPORTING SEGMENT PERFORMANCE – CONTINUING OPERATIONS

North America

• Revenue increased 24% to $385 million (increased by 18% excluding the impact of foreign exchange and the 53^rd week) driven by the legacy Primo acquisition, increased demand for products and services from residential customers and a $19 million benefit from the 53^rd week, partially offset by lower revenue from our Water Direct commercial customer base and coffee services.

• Gross profit increased 15% to $219 million driven by the legacy Primo acquisition and a $12 million benefit from the 53^rd week.
  
  
• SG&A expenses increased 7% to $174 million driven by the acquisition of the legacy Primo business and $8 million of expenses from the 53rd week, partially offset by cost reduction initiatives enacted earlier in the year.
  
  
• Operating income increased 58% to $38 million. Adjusted EBITDA increased 43% to $82 million (increased by 36% excluding the impact of the 53^rd week), due primarily to the legacy Primo acquisition, improved operating leverage, synergy realization and a $4 million benefit from the 53^rd week.

Rest of World ("ROW")

• Revenue decreased 8% to $120 million driven by lower revenue in our Water Direct customer base and coffee services.

• Gross profit decreased 10% to $63 million driven primarily by decreased revenue in our Water Direct customer base and coffee services.
  
  
• SG&A expenses decreased 8% to $57 million driven primarily by cost reduction initiatives enacted in our European business.
  
  
• Operating income increased 57% to $6 million. Adjusted EBITDA decreased 1% to $24 million as decreased volume in our Water Direct customer base and coffee services business was largely offset by improved operating leverage resulting from cost reduction initiatives.

FULL YEAR GLOBAL PERFORMANCE – CONTINUING OPERATIONS

• Revenue increased 9% to $1,954 million. The increase is driven by the legacy Primo acquisition, increased demand for products and services from residential customers and the 53^rd week, partially offset by lower revenue from the Water Direct commercial customer base and coffee services. Revenue growth by channel is tabulated below:

• Gross profit increased 5% to $1,114 million compared to $1,061 million driven by the legacy Primo acquisition and the 53rd week. Gross margin was 57.0% compared to 59.1%, due primarily to lower gross profit in the ROW segment and the lower gross margin profile of the legacy Primo business.
  
  
• SG&A expenses increased 5% to $1,007 million compared to $962 million. The increase was driven by the addition of the legacy Primo business, costs related to COVID-19 and the 53^rd week, partially offset by cost reduction initiatives implemented earlier in the year.
  
  
• Reported net loss and net loss per diluted share were $157 million and $1.01, respectively, compared to reported net loss and net loss per diluted share of $11 million and $0.08, respectively. Adjusted net income and adjusted net income per diluted share were $86 million and $0.55, respectively, compared to adjusted net income and adjusted net income per diluted share of $59 million and $0.43, respectively.
  
  
• Adjusted EBITDA increased 26% to $362 million compared to $287 million. The increase was driven primarily by increased demand for products and services from residential customers, improved operating leverage, the legacy Primo acquisition, synergy realization and the 53rd week. Adjusted EBITDA margin increased by 250 basis points to 18.5%.
  
  
• Net cash provided by operating activities of $194 million, less $114 million of capital expenditures, resulted in $80 million of free cash flow, or $138 million of adjusted free cash flow (adjusting for the items set forth on Exhibit 7), compared to adjusted free cash flow of $121 million in the prior year.

OUTLOOK

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

FOURTH QUARTER AND FISCAL YEAR 2020 RESULTS CONFERENCE CALL

Primo Water Corporation will host a conference call today, February 25, 2021, at 10:00 a.m. ET, to discuss fourth quarter and full year results, which can be accessed as follows:

North America: (888) 231-8191
International: (647) 427-7450
Conference ID: 6655248

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.

ABOUT PRIMO WATER CORPORATION

Primo Water Corporation is a leading pure-play water solutions provider in North America, Europe and Israel 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 major retailers and online at various price points or leased to customers. 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 21-country footprint direct to the customer's door, whether at home or to commercial 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 21-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, the results of the divested Cott Beverages LLC business and the impact of the 53^rd week in 2020, to separate the impact of these factors from Primo's results of operations.  Primo utilizes adjusted net income (loss), adjusted net income (loss) per diluted share, and adjusted EBITDA 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 our performance to the performance of our peer group and assessing our ability to service debt and finance strategic opportunities, which include investing in our business, making strategic acquisitions, paying dividends, repurchasing common shares and strengthening the balance sheet. With respect to our expectations of performance of Primo, our reconciliations of Q1 2021 and full year 2021 estimated adjusted EBITDA are not available, as we are 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. We expect the variability of these factors to have a significant, and potentially unpredictable, impact on our 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 first quarter 2021 revenue and adjusted EBITDA) 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 our strategy in response thereto on our business, financial condition and results of operations; our ability to compete successfully in the markets in which we operate; fluctuations in commodity prices and our ability to pass on increased costs to our customers or hedge against such rising costs, and the impact of those increased prices on our volumes; our ability to maintain favorable arrangements and relationships with our suppliers; our ability to manage our operations successfully; currency fluctuations that adversely affect the exchange between the U.S. dollar and the British pound sterling, the exchange between the Euro, the Canadian dollar and other currencies and the exchange between the British pound sterling and the Euro; the impact on our financial results from uncertainty in the financial markets and other adverse changes in general economic conditions; any disruption to production at our manufacturing facilities; our ability to maintain access to our water sources; our ability to protect our intellectual property; the seasonal nature of our 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; our ability to fully realize the potential benefit of transactions or other strategic opportunities that we pursue; our ability to realize cost synergies of our acquisitions due to integration difficulties and other challenges; our limited indemnification rights in connection with the legacy Primo acquisition; our exposure to intangible asset risk; our ability to meet our obligations under our debt agreements, and risks of further increases to our indebtedness; our ability to maintain compliance with the covenants and conditions under our debt agreements; fluctuations in interest rates, which could increase our borrowing costs; the incurrence of substantial indebtedness to finance our acquisitions; our ability to recruit, retain and integrate new management; our ability to renew our 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 our reputation as a result of litigation or legal proceedings; changes in the legal and regulatory environment in which we operate; our ability to adequately address the challenges and risks associated with our 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; increased tax liabilities in the various jurisdictions in which we operate; disruptions in our information systems; our ability to securely maintain our customers' confidential or credit card information, or other private data relating to our employees or our company; our ability to maintain our 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