Mr. Tom Harrington reports

PRIMO WATER ANNOUNCES STRONG THIRD QUARTER 2023 RESULTS AND INCREASES ANNUAL ADJUSTED FREE CASH FLOW GUIDANCE

Primo Water Corp. has released its results for the third quarter ended Sept. 30, 2023.

"Our third quarter results reflect the underlying momentum of improving our route density, network efficiencies and optimization, and realizing the benefits of our investments and pricing. We once again delivered strong revenue and earnings growth, while achieving record adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] margins. I am proud of the efforts of our team across the enterprise and their focus on improving the customer experience and overall execution," said Tom Harrington, chief executive officer.

"This morning we announced an agreement to sell a significant portion of our international businesses. This transaction offers an attractive premium valuation and simplifies and focuses Primo Water on our core North American water business. The sale will provide us with the financial flexibility to pursue organic growth, reduce leverage, create revenue-diversifying and water direct tuck-in M&A opportunities, and return capital via share repurchases," continued Mr. Harrington.

"Our third quarter performance gives us confidence to reaffirm our 2023 outlook to between $2.32-billion and $2.36-billion of revenue and adjusted EBITDA to between $460-million and $480-million. Full-year 2023 adjusted free cash flow is now forecasted to increase to approximately $160-million, an increase of $10-million versus our previous guidance," said Mr. Harrington.

Third quarter highlights:

• Revenue increased 6 per cent to $622-million compared with $585-million driven by revenue growth of 7 per cent in water direct/water exchange and 19 per cent in water refill/water filtration.
• Gross margin increased 250 basis points (bps) to 62.1 per cent compared with 59.6 per cent.
• Reported net income and net income per diluted share were $33-million and 21 cents, respectively, compared with reported net income and net income per diluted share of $1-million and one cent, respectively. Adjusted net income and adjusted net income per diluted share were $52-million and 33 cents, respectively, compared with $36-million and 22 cents, respectively.
• Adjusted EBITDA increased 21 per cent to $141-million and adjusted EBITDA margin increased 270 bps to a record 22.7 per cent.
• The company reaffirms its full-year 2023 revenue target to between $2.32-billion and $2.36-billion and its full-year 2023 adjusted EBITDA to between $460-million and $480-million.
• Full-year adjusted free cash flow is forecasted to be approximately $160-million, an increase of $10-million versus previous guidance.
• Subject to closing the transformational sale of a significant portion of its international businesses, Primo Water anticipates it will release its 2024 guidance in conjunction with its 2023 year-end earnings in February, 2024.

Sale of international businesses

As announced earlier today, Primo Water entered into a definitive agreement whereby Culligan International will acquire Primo Water's international businesses, excluding the Aimia Foods, United Kingdom, Portugal and Israel businesses, in an all-cash transaction valued at up to $575-million. Upon closing the transaction, Primo Water intends to repay the outstanding balance of its cash flow revolver, with a long-term goal of sustaining adjusted net leverage under 2.5 times adjusted EBITDA. Also, upon closing, an incremental $25-million share repurchase will be authorized, revising the share repurchase authorization to $75-million. The transaction is expected to close by Dec. 31, 2023, subject to the receipt of regulatory approvals and the satisfaction of other customary closing conditions.

Share owners can read the full details of the transaction announcement on Primo Water's website.

Outlook

Primo Water is targeting the results herein from continuing operations for the fourth quarter and full-year 2023.

Third quarter 2023 results conference call

Primo Water will host a conference call, to be simultaneously webcast, on Thursday, Nov. 2, 2023, at 10 a.m. Eastern Time. A question-and-answer session will follow management's presentation. To participate, please call the following numbers:

North America: 888-664-6392

International: 416-764-8659

Conference ID: 93280528

This is a live, listen-only dial-in telephone line.

A slide presentation and live audio webcast will be available through Primo Water's website. 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:

• Revenue increased 6 per cent to $622-million compared with $585-million. The increase was driven by revenue growth of 7 per cent in water direct/water exchange and 19 per cent in water refill/water filtration, due primarily to pricing initiatives and increased demand for products and services from residential and business customers.
• Gross profit increased 11 per cent to $387-million compared with $348-million. Gross margin increased 250 bps to 62.1 per cent compared with 59.6 per cent, driven by pricing initiatives, increased demand and operating efficiencies. Selling, general and administrative expenses increased 6 per cent to $315-million compared with $297-million. The increase was driven by higher selling and operating costs that supported volume and revenue growth related to delivery commissions.
• Reported net income and net income per diluted share were $33-million and 21 cents, respectively, compared with reported net income and net income per diluted share of $1-million and one cent, respectively. Adjusted net income and adjusted net income per diluted share were $52-million and 33 cents, respectively, compared with $36-million and 22 cents in the prior year.
• Adjusted EBITDA increased 21 per cent to $141-million compared with $117-million, driven primarily by pricing initiatives, customer demand and effective expense management. Adjusted EBITDA margin was a record 22.7 per cent for the quarter, compared with 20 per cent.
• Net cash provided by operating activities of $148-million, less $50-million of capital expenditures and additions to intangible assets, resulted in $99-million of free cash flow, or $102-million of adjusted free cash flow, compared with adjusted free cash flow of $21-million in the prior year.

Third quarter reporting segment performance

North America:

• Revenue increased 5 per cent to $470-million driven by revenue growth of 7 per cent in water direct/water exchange, and 18 per cent in water refill/water filtration driven by pricing initiatives and increased demand for products and services from residential and business customers.

Europe:

• Revenue increased 13 per cent to $81-million (increased 4 per cent excluding the impact of foreign exchange) driven by pricing initiatives and favourable impact of foreign exchange rates.

Quarterly dividend

Primo Water announced that its board of directors declared a dividend of eight U.S. cents per share on common shares, payable in cash on Dec. 1, 2023, to share owners of record at the close of business on Nov. 21, 2023.

Share repurchase program

Primo Water also announced that its board of directors plans to increase its $50-million share repurchase program authorization with an incremental $25-million, revising the share repurchase authorization to $75-million, effective upon completion of the transaction. Under the program, the company's common shares may be repurchased periodically in open market or privately negotiated transactions.

The actual timing, manner, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of Primo Water's common shares, general market and economic conditions, applicable law and other requirements, and other business considerations, provided, however, that the price per common share will not exceed the market price as at the date of acquisition (plus reasonable brokerage fees and commissions) in accordance with applicable securities laws and exchange rules.

About Primo Water Corp.

Primo Water is a leading pure-play water solutions provider in North America and Europe and generated approximately $2.2-billion in annual revenue in 2022. Primo Water operates largely under a recurring revenue model in the large-format water category (defined as three gallons or greater). This business strategy is commonly referred to as razor-razorblade because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. The razor in Primo Water's revenue model is its industry-leading lineup of innovative water dispensers, which are sold through approximately 10,800 retail locations and on-line at various price points. The dispensers help increase household and business penetration which drives recurring purchases of Primo Water's razorblade offering or water solutions. Primo Water's razorblade offering comprises water direct, water exchange and water refill. Through its water direct business, Primo Water delivers sustainable hydration solutions across its 21-country footprint direct to customers, whether at home or to businesses. Through its water exchange business, customers visit retail locations and purchase a prefilled bottle of water. Once consumed, empty bottles are exchanged at the company's recycling centre displays, which provide a ticket that offers a discount toward the purchase of a new bottle. Water exchange is available in approximately 17,500 retail locations. Through its water refill business, customers refill empty bottles at approximately 23,500 self-service refill drinking water stations. Primo Water also offers water filtration units across its 21-country footprint.

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