PRMW

Primo Water Corporation (PRMW)

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Primo Water (PRMW)

Q2 2013 Earnings Call

August 13, 2013 4:30 pm ET

Executives

Katie M. Turner - Managing Director of Healthy Living, Packaged Food, Supermarket & Food Distribution Companies

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

Matt Sheehan - President and Chief Operating Officer

Mark Castaneda - Chief Financial Officer, Secretary and Assistant Treasurer

Analysts

Eric Wagoner

Robert D. Strauss - Gilford Securities Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Primo Water Corporation Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Katie Turner from ICR. Ma'am, you may begin.

Katie M. Turner

Thank you. Good afternoon, and welcome to Primo Water's Second Quarter 2013 Earnings Conference Call. On the call with me today are Billy Prim, Chairman and Chief Executive Officer; Mark Castaneda, Chief Financial Officer; and Matt Sheehan, President and Chief Operating Officer.

By now, everyone should have access to the release that went out this afternoon at approximately 4:05 p.m. Eastern Time. If you've not received today's press release, it is available on the Investor Relations portion of Primo Water's website at www.primowater.com.

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 included in the press release issued this afternoon and in all documents that Primo Water files with the SEC.

And now, I'd like to turn the call over to Primo Water's 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 in our core business, and then turn the call over to Matt Sheehan, who will go a little deeper in our operational initiatives. Then Mark Castaneda will give you a second quarter 2013 financial recap and our outlook for the remainder of 2013.

In the second quarter, we built off the momentum from last quarter and delivered another strong financial performance, which exceeded our expectations. We are pleased to report our sixth consecutive quarter of positive adjusted EBITDA underscoring our successful execution and cost management improvements across our core business.

We continue to see the benefit from our strategic decision to discontinue the Flavorstation sparkling business and focus on our core Water and Dispenser businesses.

In second quarter, we had several positives to note. First, our Water revenue grew. Both our Refill and Exchange revenues are up.

Secondly, our Dispenser sales to consumers was up. We sold almost 20% more dispensers to consumers in the second quarter of this year versus last year.

Dispenser sales into the retail channel will always be somewhat lumpy because of retailers' managing inventory. But the consumer sales is the number that drives future water growth.

Thirdly, our adjusted EBITDA increased almost 78%.

Lastly, and most importantly, we generated strong cash flow from operations, more than $5.7 million for the first 6 months of this year.

Our team has made excellent progress on the initiatives we laid out at the beginning of the year. Those were: First, to solidify the foundation of our core businesses; secondly was to refinance our debt to lower cost of capital; and third was to grow our core Water and Dispenser businesses.

While solidifying the foundation of our core businesses, our gross margins continue to rise, and our SG&A continues to be lower as a percentage of sales. We will continue to focus our efforts on managing the controllable aspects of our business to help enable our gross margin improvements to continue long term.

As for refinancing, we refinanced our debt with Comvest to allow for increased capacity at a lower rate. We believe this is the first step in a long process. As our trailing EBITDA grows, we will continue to lower our cost of capital and increase our capacity in tranches every few months.

Thirdly, our core Water and Dispenser growth. Based on our strong efforts to solidify the foundation of our core Water and Dispenser businesses, we now believe we are positioned better than ever before with the right team to grow same-store sales and the number of locations offering our water and dispensers.

Same-store sales of U.S. Exchange and Water Dispensers are on track, and we expect this trend to continue as we increase new location growth and enhance growth to existing customers.

Refill, after being flat to down, is also growing again. We believe as we lower our cost of capital, we will increase the rate of location growth going into 2014 and beyond.

Overall, based on the execution of our strategic plan and the strength of our operational results year-to-date, we are well positioned for positive growth and increased EBITDA long term.

We are now raising the adjusted EBITDA guidance, which Mark will review later in the call. With our focus on operational execution, we are well positioned to continue delivering improved financial results, both this year and years to come.

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