SODA

SodaStream International Ltd. (SODA)

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SodaStream International Ltd. (SODA)

Q4 2012 Results Earnings Call

February 20, 2013 8:30 AM ET

Executives

Yonah Lloyd - Chief Corporate Development and Communications Officer

Daniel Birnbaum - Chief Executive Officer

Danny Erdreich - Chief Financial Officer

Gerard Meyer - President and General Manager, U.S. Subsidiary

Analysts

Jon Andersen - William Blair

Joe Altobello - Oppenheimer

Bill Schmitz - Deutsche Bank

Tavy Rosner - Barclays

Jim Chartier - Monness Crespi

Greg McKinley - Dougherty

Jim Duffy - Stifel Nicolaus

Presentation

Operator

Please standby, we are about to begin. Good morning. My name is Kyle, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the SodaStream International Fourth Quarter and Fiscal 2012 Earnings Conference Call. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to Mr. Yonah Lloyd, Chief Corporate Development and Communications Officer. Please go ahead, sir.

Yonah Lloyd

Thank you, Kyle. Welcome everyone. This morning’s call will consist of prepared remarks from our CEO, Daniel Birnbaum. We filed the 6-K this morning which includes the press release and financial tables along with the CFO commentary document and a supplemental slide presentation featuring business highlights. These are also available at our IR website and on our new IR app for both iPhone and Android platforms.

Present as well are Danny Erdreich, our CFO; and Gerard Meyer, President and General Manager of our U.S. Subsidiary. Following Daniel’s remarks we will open the call for questions.

I would like to remind everyone that certain statements will be made during today’s conference call which are forward-looking within the meaning of securities laws. Due to the uncertainty of these forward-looking statements, our actual results may differ materially from anything projected in these forward-looking statements. As such we can give no assurance as to their accuracy and we assume no obligation to update them.

Results that we report today should not be considered as an indication of future performance. Changes in economics, business, competitive, technological, regulatory and other factors could cause SodaStream’s actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today.

In addition, we will make reference to certain non-GAAP financial measures including adjusted net income, the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company’s fourth quarter earnings release which is posted on the company’s website.

For more detailed information about these factors and other risks that may impact our business, please review the paragraph in this morning’s press release that begins with the words, ‘this release contains’.

And now it is my pleasure to the turn the call over to the Chief Executive Officer of SodaStream, Daniel Birnbaum.

Daniel Birnbaum

Thank you, Yonah, and thank you everyone for joining us today. We are extremely pleased with our finished to the year. The fourth quarter was marked by tremendous topline growth of 55% year-over-year. Revenue growth was strong across all regions, Americas increased 96%, Western Europe and Asia both increased 31%, and CEMEA was up 28%.

For the first time ever, we surpassed 1 million soda makers in a quarter. Consumables also had a very strong quarter worldwide with sales up 54%, driven by syrup unit growth of 60% and a 26% increase in gas refills. In the U.S. soda makers were up 86% to 568,000, gas refills rose 89% to 890,000 and syrups increased 131% to 2.8 million units.

Strong sell-in was accompanied by equally strong sell-through in the fourth quarter. In the U.S. NPD data shows that sell-out far outpaced door growth. Fourth quarter unit sales of soda makers, syrups and gas refills were up approximately 300%, 140% and 290%, respectively, compared to door growth of approximately 80% for retailers covered by NPD.

While these numbers are outstanding and illustrate growth from both new and same-store retailers, let’s remember that not all doors are created equal and the 80% door growth included Wal-Mart. It’s important to note that our strong retail sale-through was broad-based, spanning all classes of trade from mass to high-end specialty.

Our better than expected retail performance spend all soda maker models including a positive response to the Source, our newest flagship soda maker launched internationally in the fourth quarter at retailers including, Harrods in the U.K., Takashimaya in Japan, Elgiganten in Sweden, Myers in Australia, Media Markt across Europe, The Bay in Canada, and Bed Bath & Beyond and Macy’s in the U.S.

The launch of the Source also generated tremendous media exposure which benefitted our brand momentum and contributed to our overall strong sell-out around the world during Q4.

Our Q4 topline performance generated strong net income growth of 42% on an adjusted basis, which also was above our forecast. With demand higher than anticipated we made every effort to fulfill orders to maintain our strong retail momentum despite the fact we knew this would put a temporary strain on our supply chain and pressure gross margin.

This included a higher reliance on subcontracted manufacturing and even required airfreight of raw materials and finish goods. We called this out during our third quarter earnings call along with the impact from Hurricane Sandy which closed the port in New Jersey during a critical holiday shipping window.

These two items, our increase reliance on subcontractors and the need for expedited shipments were primary reason for the 430 basis points decline in fourth quarter gross margin versus year ago which was also in line with our guidance.

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