SODA

SodaStream International Ltd. (SODA)

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SodaStream International, Ltd. (SODA)

Q3 2012 Earnings Call

November 7, 2012 8:30 a.m. ET

Executives

Yonah Lloyd - Executive Director, Corporate Development and Communication

Daniel Birnbaum - Chief Executive Officer

Daniel Erdreich - Chief Financial Officer

Gerard Meyer - President, SodaStream USA

Analysts

Joe Altobello - Oppenheimer

Jon Andersen - William Blair

Bill Schmitz - Deutsche Bank

Jim Chartier - Monness, Crespi and Hardt

John Faucher - JPMorgan

Greg McKinley - Dougherty & Company

Scott Van Winkle - Canaccord Genuity

Presentation

Operator

Good morning. My name is Audra and I will be your conference operator today. At this time I’d like to welcome everyone to the SodaStream International Third Quarter 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)

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

Yonah Lloyd

Thank you, Audra. 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 Daniel 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’d 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. 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

Thanks, Yonah. Thank you for joining us, and for those of you on the East Coast we hope you and your families are recovering from last week’s storm.

We had a very strong third quarter with record revenues of $112 million, up 49% from a year ago, and record diluted earnings per share of $0.80 inclusive of a onetime tax credit of 67% versus the year ago period. This performance included record unit sales for both soda makers and consumables as well a strong growth in all of our four regions with revenue in Americas up 61%, Western Europe up 33%, CEMEA up 37%, and Asia Pacific up 145%.

These results highlight the globalization of our business and the increased activity among our growing user base. Within each of our regions, several countries delivered very strong results. In the Americas, U.S. sales grew 48% versus last year. During the third quarter we sold 301,000 soda makers representing a year-over-year increase of 21% and a sequential increase of 54%. This is a notable gain achieved despite minimal new door pipeline fill and only modest holiday orders compared to year ago Q3.

Last year we began shipping Bed Bath & Beyond and Macy’s holiday orders during Q3. This year those holiday orders began shipping only in October due to the timing of our new Source soda maker. Excluding this holiday pipeline timing shift, soda maker sales in the U.S. were up about 100% versus a year ago. Gas refills in the U.S. were up 82% year-over-year to 702,000. The net sequential growth excluding pipeline was approximately 20%. This included Wal-Mart roll out in Q2 and the gas exchange tests at Target and Kohl's in Q3. And also at the very end of Q3 we began rolling out 130 liter value-size gas cylinder at Staples. To date, we have achieved nearly 9000 gas exchange locations in the U.S., up from approximately 3000 a year ago.

Finally, U.S. flavor unit sales increased 114% to 2.1 million and were roughly 60% up sequentially excluding pipeline, primarily the Wal-Mart roll out in Q2. In addition to these sell-in results, sell-out at retail during the quarter was also strong. According to NPD data, sell-out for soda makers, flavors and gas refills were all up high triple digits. These are overstated because they are total sell-out figures rather than same-store sales, and as such this level of triple-digit growth reflects our significant door count increase captured in the NPD database.

However, reported NPD sell-outs per door across each of our product categories has significantly increased year-over-year indicating growing productivity per door in units and dollars. On a same-store sell-out basis, data provided to us directly by retailers shows steady growth year-over-year. We are very pleased with this, especially considering we more than doubled our U.S. store count to 14,000 during this period.

To date, our U.S. strategy has focused on growing our retail network. These last few years could be characterized as phase one of our long-term plan. We have heard the concerns about our ability to further growth in the absence of significant new retail expansion. With our recent rollout to Wal-Mart, some have even suggested that this is the beginning of the end for SodaStream in the U.S. However, we view this point in the brand’s evolution as the end of the beginning.

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