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

PR Newswire

TAMPA, Fla., Nov. 4, 2021

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

TAMPA, Fla., Nov. 4, 2021 /PRNewswire/ - 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.

(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 17(th) 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                      September 26, 
U.S. dollars)     October 2, 2021    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                      September 26, 
U.S. dollars)     October 2, 2021    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