Primo Water Corporation (PRMW)

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Primo Water (PRMW)

Q4 2012 Earnings Call

March 19, 2013 4:30 pm ET


Katie M. Turner - Managing Director of Healthy Living

Billy D. Prim - Founder, Chairman, Chief Executive Officer and President

Matt Sheehan - Chief Operating Officer

Mark Castaneda - Chief Financial Officer, Secretary and Assistant Treasurer


Andrew P. Wolf - BB&T Capital Markets, Research Division



Good day, ladies and gentlemen, and welcome to the Primo Water Corporation Fourth Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Katie Turner. Ma'am, you may begin.

Katie M. Turner

Thank you. Good afternoon, and welcome to Primo Water's fourth quarter fiscal year 2012 earnings conference call. On the call with me today are Billy Prim, President and Chief Executive Officer; Mark Castaneda, Chief Financial Officer; and Matt Sheehan, Chief Operating Officer.

By now, everyone should have access to the release which went out this afternoon at approximately 4:05 p.m. Eastern Time. If you've not received today's press release, it's available on the Investor Relations portion of Primo Water's website at This call is being webcast and a replay will be available on the company's website.

Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The forward-looking statements should be considered with the meaning of the applicable securities laws and regulations regarding such statements.

Many factors could cause actual results to differ materially from those forward-looking statements, and we can give no assurance of their accuracy, and Primo Water assumes no obligation to update them. We encourage participants to carefully read the section on forward-looking statements incorporated in the press release issued this afternoon and in all documents that Primo Water files with the SEC.

And now, I would like to turn the call over to Primo Water's President and CEO, Billy Prim.

Billy D. Prim

Thank you, Katie, and thank you for joining us on the call. I'm going to start out with a few comments on where we are with our renewed focus on our core business, and then introduce you to Matt Sheehan, who will go a little deeper in our initiatives to drive operational excellence. Then Mark will give you our fourth quarter and full-year 2012 recap and our outlook for 2013.

As we discussed with you last quarter, we discontinued the Flavorstation Sparkling business to focus on our core Water and Dispenser business. We are pleased to report that we can already see the improvement in our results from this strategic move. In the fourth quarter alone, water revenue increased from $13.9 million to $15 million or 8.2%. Total gross profit increased to $4.9 million versus $3.8 million last year, a 27% increase. SG&A decreased to $4.1 million from $5 million last year. And the result -- as a result of this performance, we generated $1.1 million in adjusted EBITDA, up from a loss of $800,000 last year.

To reiterate, our water revenue increased, our gross margin dollars increased, our SG&A went down. And as a result, this improved EBITDA. This is the triple play we hope to continue achieving with our renewed focus on our core competencies in 2013.

Our core business of water and dispensers continues to grow, and our customer base includes a world-class group of retailers. This best-of-breed retail group had a fourth quarter same-store sale increase of 21% in the U.S. exchange unit volume. As we will further focus all of our attention on our core business, we believe the benefits will continue and that we can grow our adjusted EBITDA more than 65% in 2013. Mark will discuss our full outlook of 2013 in a few minutes.

Growing our EBITDA should provide us with financial flexibility to recapitalize our balance sheet and produce cash flow from operations to support future growth. For 2012, we generated positive cash flow from operations of $5.9 million versus a negative $8.2 million in the prior year. This represents a $14-million improvement in cash flow from operations last year.

To explain what is driving the growth of 21% same-store sales in the U.S. Exchange business, you have to look no farther than our dispenser sell-through at retail. Sell-through units of dispensers to consumers grew at retail, up 28% to 92,000 units in the fourth quarter. We also improved the gross margins in both our Water and Dispenser business in the fourth quarter compared to prior year.

Water gross margin improved to 30.9% from 27% and dispensers improved to 4.1% from 1.3%.

In Q4 of 2011, we did have a large channel fill [ph] for new dispenser retail locations. As we've experienced in the past, this type of event distorts the sell-in revenue of dispensers comparison this quarter versus last year. We, however, continue to focus on the retail sell-thru which represents the number of consumers who are buying our dispensers, of which a percentage attach, and continue to buy exclusively Primo Water.

That continues to drive growth but we may be subject, from time to time, of these spikes in the channel fill [ph].

We've also taken steps to clean up our balance sheet to start 2013. We have written down our Flavorstation assets and taken a one-time noncash charge of the goodwill on our balance sheet.

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