prmw-20240330

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 30, 2024


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to l

Commission File Number: 001-31410

PRIMO WATER CORPORATION

(Exact name of registrant as specified in its charter)


Ontario		98-0154711
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

1150 Assembly Dr.
Suite 800
Tampa,	Florida	33607
United States
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (813) 544-8515

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value per share	PRMW	New York Stock Exchange
		Toronto Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding at May 6, 2024
Common Shares, no par value per share						159,966,806

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION			3
Item 1. Financial Statements (unaudited)			3
Consolidated Statements of Operations			3
Condensed Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Balance Sheets			5
Consolidated Statements of Cash Flows			6
Consolidated Statements of Equity			8
Notes to the Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures about Market Risk			32
Item 4. Controls and Procedures			32
PART II. OTHER INFORMATION			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 5. Other Information			34
Item 6. Exhibits			35
SIGNATURES			36

PART I – FINANCIAL INFORMATION


Item 1.			Financial Statements (unaudited)

Primo Water Corporation

Consolidated Statements of Operations

(in millions of U.S. dollars, except share and per share amounts)

Unaudited


	For the Three Months Ended
		March 30, 2024		April 1, 2023
Revenue, net		$	452.0	$	412.5
Cost of sales		160.7		153.5
Gross profit		291.3		259.0
Selling, general and administrative expenses		249.4		234.6
Loss on disposal of property, plant and equipment, net		1.5		1.3
Acquisition and integration expenses		5.3		1.7

Gain on sale of property		(0.5)		—
Operating income		35.6		21.4
Other income, net		(2.6)		(0.3)
Interest expense, net		10.0		18.2
Income from continuing operations before income taxes		28.2		3.5
Income tax expense		9.5		0.3
Net income from continuing operations		$	18.7	$	3.2
Net income from discontinued operations, net of income taxes (Note 2)		6.3		2.6
Net income		$	25.0	$	5.8

Net income per common share
Basic:
Continuing operations		$	0.12	$	0.02
Discontinued operations		$	0.04	$	0.02
Net income		$	0.16	$	0.04

Diluted:
Continuing operations		$	0.12	$	0.02
Discontinued operations		$	0.04	$	0.02
Net income		$	0.16	$	0.04

Weighted-average common shares outstanding (in thousands)
Basic		159,573		159,726
Diluted		160,449		160,781

The accompanying notes are an integral part of these consolidated financial statements.

Primo Water Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in millions of U.S. dollars)

Unaudited


	For the Three Months Ended
		March 30, 2024		April 1, 2023
Net income		$	25.0	$	5.8
Other comprehensive loss:
Currency translation adjustment		(5.5)		(6.6)

Loss on derivative instruments, net of tax 1		(0.7)		—
Total other comprehensive loss		(6.2)		(6.6)
Comprehensive income (loss)		$	18.8	$	(0.8)

______________________

1 Net of the tax impact of $0.2 million and nil for the three months ended March 30, 2024 and April 1, 2023, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

Primo Water Corporation

Consolidated Balance Sheets

(in millions of U.S. dollars, except share amounts)

Unaudited


	March 30, 2024		December 30, 2023
ASSETS
Current assets
Cash and cash equivalents	$	498.3	$	507.9
Accounts receivable, net of allowance of $13.1 ($12.7 as of December 30, 2023)	161.3		156.0
Inventories	46.3		47.3
Prepaid expenses and other current assets	26.3		26.0
Current assets of discontinued operations	125.9		128.7
Total current assets	858.1		865.9
Property, plant and equipment, net	546.5		556.5
Operating lease right-of-use-assets	139.2		136.0
Goodwill	1,004.7		1,004.6
Intangible assets, net	709.1		714.2
Other long-term assets, net	16.9		20.2
Long-term assets of discontinued operations	225.2		225.6
Total assets	$	3,499.7	$	3,523.0
LIABILITIES AND EQUITY
Current liabilities

Current maturities of long-term debt	$	14.3	$	14.2
Accounts payable and accrued liabilities	260.5		276.4
Current operating lease obligations	25.1		25.6
Current liabilities of discontinued operations	102.1		109.9
Total current liabilities	402.0		426.1
Long-term debt	1,255.0		1,270.8
Operating lease obligations	126.5		124.0
Deferred tax liabilities	145.7		144.2
Other long-term liabilities	75.8		64.4
Long-term liabilities of discontinued operations	51.0		52.2
Total liabilities	2,056.0		2,081.7
Equity
Common shares, no par value - 159,707,056 (December 30, 2023 - 159,480,638) shares issued	1,296.4		1,288.6
Additional paid-in capital	85.4		90.6
Retained earnings	173.2		167.2
Accumulated other comprehensive loss	(111.3)		(105.1)
Total Primo Water Corporation equity	1,443.7		1,441.3
Total liabilities and equity	$	3,499.7	$	3,523.0

The accompanying notes are an integral part of these consolidated financial statements.

Primo Water Corporation

Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

Unaudited


	For the Three Months Ended
		March 30, 2024		April 1, 2023
Cash flows from operating activities of continuing operations:
Net income		$	25.0	$	5.8
Net income from discontinued operations, net of income taxes		6.3		2.6
Net income from continuing operations		18.7		3.2
Adjustments to reconcile net income from continuing operations to cash flows from operating activities of continuing operations:
Depreciation and amortization		48.2		47.1
Amortization of financing fees		0.8		0.8
Share-based compensation expense		3.0		2.0
Provision for deferred income taxes		1.9		1.1

Loss on disposal of property, plant and equipment, net		1.5		1.3
Gain on sale of property		(0.5)		—
Other non-cash items		(4.6)		(2.0)
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable		(6.0)		3.8
Inventories		1.2		2.1
Prepaid expenses and other current assets		(3.4)		(2.3)
Other assets		(0.5)		(0.1)
Accounts payable and accrued liabilities and other liabilities		3.1		(26.7)
Net cash provided by operating activities of continuing operations		63.4		30.3
Cash flows from investing activities of continuing operations:
Acquisitions, net of cash received		(4.1)		(7.4)
Additions to property, plant and equipment		(37.6)		(42.2)
Additions to intangible assets		(2.3)		(2.0)
Proceeds from sale of property, plant and equipment		0.1		0.1
Proceeds from sale of property		1.0		—
Other investing activities		2.7		0.8
Net cash used in investing activities of continuing operations		(40.2)		(50.7)


Cash flows from financing activities of continuing operations:
Payments of long-term debt	(2.8)		(3.2)

Proceeds from short-term borrowings	—		61.0
Payments on short-term borrowings	—		(33.2)
Issuance of common shares	6.2		4.3
Common shares repurchased and canceled	(11.1)		(19.3)
Dividends paid to common shareholders	(14.8)		(12.8)
Payment of contingent consideration for acquisitions	(0.7)		(0.8)
Other financing activities	—		(2.5)
Net cash used in financing activities of continuing operations	(23.2)		(6.5)
Cash flows from discontinued operations:
Net cash provided by operating activities from discontinued operations	0.8		4.0
Net cash used in investing activities from discontinued operations	(5.6)		(10.8)
Net cash provided by financing activities from discontinued operations	0.1		6.8
Net cash (used in) provided by discontinued operations	(4.7)		—
Effect of exchange rate changes on cash	(0.5)		0.8
Net decrease in cash, cash equivalents and restricted cash	(5.2)		(26.1)
Cash and cash equivalents and restricted cash, beginning of period	530.5		122.6
Cash and cash equivalents and restricted cash, end of period	$	525.3	$	96.5
Cash and cash equivalents and restricted cash from discontinued operations, end of period	27.0		40.4
Cash and cash equivalents and restricted cash of continuing operations, end of period	$	498.3	$	56.1
Supplemental Non-Cash Investing and Financing Activities:
Additions to property, plant and equipment through accounts payable and accrued liabilities and other liabilities	$	12.2	$	15.1
Dividends payable issued through accounts payable and accrued liabilities	$	0.2	$	0.2

Operating lease right-of-use assets obtained in exchange for lease obligations	$	10.5	$	1.1
Inventory transfer to property, plant and equipment	$	0.2	$	6.9
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	0.9	$	4.7
Cash received for interest	$	4.7	$	—
Cash paid for income taxes, net	$	0.1	$	0.2

The accompanying notes are an integral part of these consolidated financial statements.

Primo Water Corporation

Consolidated Statements of Equity

(in millions of U.S. dollars, except share and per share amounts)

Unaudited

















	Number of Common Shares (in thousands)	Common Shares		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at December 30, 2023	159,481	$	1,288.6	$	90.6	$	167.2	$	(105.1)	$	1,441.3
Net income	—	—		—		25.0		—		25.0
Other comprehensive loss, net of tax	—	—		—		—		(6.2)		(6.2)
Common shares dividends ($0.09 per common share)	—	—		—		(14.6)		—		(14.6)
Share-based compensation	—	—		3.1		—		—		3.1
Common shares repurchased and canceled	(748)	(6.7)		—		(4.4)		—		(11.1)
Common shares issued - Equity Incentive Plan	945	14.1		(8.3)		—		—		5.8
Common shares issued - Dividend Reinvestment Plan	1	—		—		—		—		—
Common shares issued - Employee Stock Purchase Plan	28	0.4		—		—		—		0.4
Balance at March 30, 2024	159,707	$	1,296.4	$	85.4	$	173.2	$	(111.3)	$	1,443.7















	Number of Common Shares (in thousands)	Common Shares		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at December 31, 2022	159,752	$	1,283.2	$	91.3	$	(9.4)	$	(82.2)	$	1,282.9
Net income	—	—		—		5.8		—		5.8
Other comprehensive loss, net of tax	—	—		—		—		(6.6)		(6.6)
Common shares dividends ($0.08 per common share)	—	—		—		(12.9)		—		(12.9)
Share-based compensation	—	—		2.3		—		—		2.3
Common shares repurchased and canceled	(1,278)	(11.6)		—		(7.7)		—		(19.3)
Common shares issued - Equity Incentive Plan	760	11.3		(7.4)		—		—		3.9

Common shares issued - Employee Stock Purchase Plan	27	0.4		—		—		—		0.4
Balance at April 1, 2023	159,261	$	1,283.3	$	86.2	$	(24.2)	$	(88.8)	$	1,256.5

The accompanying notes are an integral part of these consolidated financial statements.

Primo Water Corporation

Notes to the Consolidated Financial Statements

Unaudited

Note 1 - Business and Recent Accounting Pronouncements

Description of Business

As used herein, “Primo,” “the Company,” “our Company,” “Primo Water Corporation,” “us,” or “our” refers to Primo Water Corporation, together with its consolidated subsidiaries.

Primo is a leading North America-focused pure-play water solutions provider that operates largely under a recurring revenue model in the large format water category (defined as 3 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’s revenue model is its industry leading line-up of innovative water dispensers, which are sold through approximately 11,200 retail locations and online at various price points. The dispensers help increase household and business penetration which drives recurring purchases of Primo’s razorblade offering or water solutions. Primo’s razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, Primo delivers sustainable hydration solutions direct to customers, whether at home or to businesses. Through its Water Exchange business, customers visit retail locations and purchase a pre-filled bottle of water. Once consumed, empty bottles are exchanged at our recycling center 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 also offers water filtration units across North America.

Primo’s water solutions expand consumer access to purified, spring and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with the International Bottled Water Association in North America which ensures strict adherence to safety, quality, sanitation and regulatory standards for the benefit of consumer protection. Environmental stewardship is a part of who we are, and we have worked to progressively achieve carbon neutrality throughout our organization. Our U.S. operations achieved carbon neutral certification in 2020 under the Carbon Neutral Protocol, an international standard administered by Climate Impact Partners.

Basis of Presentation

The accompanying interim unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of our results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. The Consolidated Balance Sheet as of December 30, 2023 included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (the “2023 Annual Report”). This Quarterly Report on Form 10-Q should be read in conjunction with the annual audited Consolidated Financial Statements and accompanying notes in the 2023 Annual Report. The accounting policies used in these interim unaudited Consolidated Financial Statements are consistent with those used in the annual Consolidated Financial Statements.

The presentation of these interim unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.

Discontinued Operations

On November 2, 2023, Primo entered into a Share Purchase Agreement (the “Purchase Agreement”) with a subsidiary of the Culligan Group providing for the sale of Carbon Luxembourg S.à.r.l. and certain of its subsidiaries (the "European Business"). On December 29, 2023, Primo completed the sale of the European Business for aggregate deal consideration of $575.0 million, adjusted for customary purchase price adjustments resulting in total cash consideration of $565.9 million (the “European Divestiture”). The European Divestiture did not include Primo's interests in Aimia Foods Limited (“Aimia”), Decantae Mineral Water Limited (“Decantae”), Fonthill Waters Ltd (“Fonthill”), John Farrer & Company Limited (“Farrers”), and the portions of the Eden Springs Netherlands B.V. business located in the United Kingdom, Israel, and Portugal (collectively the "Remaining International Businesses"). The European Business and the Remaining International Businesses are collectively the "International Businesses." This deal is the first of several transactions that will occur in 2024 as part of a Board-approved plan to sell all of our international businesses, representing a strategic shift in our operations. Accordingly, the International Businesses are presented herein as discontinued operations.

For all periods presented, the operating results associated with the International Businesses have been reclassified into Net income from discontinued operations, net of income taxes in the Consolidated Statements of Operations and the assets and liabilities associated with this business have been reflected as current and long-term assets and liabilities of discontinued operations in the Consolidated Balance Sheets. Cash flows from the Company’s discontinued operations are presented in the Consolidated Statements of Cash Flows for all periods presented. The Notes to Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. See Note 2 to the Consolidated Financial Statements for additional information on discontinued operations.

Changes in Presentation

Prior to the European Divestiture, our business operated through two reporting segments: (i) North America, which included our DS Services of America, Inc. (“DSS”), Aquaterra Corporation (“Aquaterra”), Mountain Valley Spring Company (“Mountain Valley”) businesses, and (ii) Europe, which included the European business of Eden Springs Netherlands B.V. (“Eden Europe”), and our Decantae and Fonthill businesses. The Other category included the Israel business of Eden ("Eden Israel"), and our Aimia and Farrers businesses, as well as our corporate oversight function and other miscellaneous expenses.

During the fourth quarter of 2023, we reviewed and realigned our reporting segments to exclude the businesses within discontinued operations which reflects how the business will be managed and results will be evaluated by the Chief Executive Officer, who is the Company’s chief operating decision maker. Following such review, our one reporting segment is North America, which includes our DSS, Aquaterra, and Mountain Valley businesses. The Other category includes our corporate oversight function and other miscellaneous expenses. Segment reporting results have been recast to reflect these changes for all periods presented.

Significant Accounting Policies

Included in Note 1 of the 2023 Annual Report is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the financial results of the Company.

Cost of Sales

We record costs associated with the manufacturing of our products in cost of sales. Shipping and handling costs incurred to store, prepare and move products between production facilities or from production facilities to branch locations or storage facilities are recorded in Cost of sales in the Consolidated Statements of Operations. Shipping and handling costs incurred to deliver products from our branch locations to the end-user consumer of those products are recorded in Selling, general and administrative ("SG&A") expenses in the Consolidated Statements of Operations. All other costs incurred in the shipment of products from our production facilities to customer locations are reflected in Cost of sales in the Consolidated Statements of Operations. Shipping and handling costs included in SG&A expenses for the three months ended March 30, 2024 and April 1, 2023 were $121.1 million and $113.3 million, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.

Derivative Financial Instruments

We use foreign exchange forward contracts ("foreign exchange contracts") to manage the foreign exchange risk associated with the principal balance of our €450.0 million 3.875% senior notes due October 31, 2028 (the "2028 Notes"). Foreign exchange forward contracts are agreements to buy or sell a quantity of a currency at a predetermined future date, and at a predetermined rate or price. All derivative instruments are recorded at fair value in the Consolidated Balance Sheets. We exclude forward points from our assessment of hedge effectiveness and amortize them on a straight-line basis over the life of the derivative financial instruments in Other income, net in the Consolidated Statements of Operations. The difference between fair value changes of the excluded component and the amount amortized to Other income, net is recorded in Accumulated other comprehensive loss ("AOCI") on the Consolidated Balance Sheets. We do not use derivative financial instruments for trading or speculative purposes. We manage credit risk related to the derivative financial instruments by requiring high credit standards for our counterparties. Refer to Note 11 to the Consolidated Financial Statements for further information on our derivative financial instruments.

Concentration of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. As of March 30, 2024 and December 30, 2023, cash and cash equivalents were maintained at major financial institutions in the United States, and current deposits are in excess of insured limits. The Company believes these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to the Company. The Company has not experienced any losses in such accounts.

Recently Adopted Accounting Pronouncements

The Company did not adopt any new accounting pronouncements during the three months ended March 30, 2024.

Recently Issued Accounting Pronouncements Not Yet Adopted

Update ASU 2023-06 – Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative

In October 2023, the FASB issued guidance to modify the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. This guidance is effective for the Company no later than June 30, 2027. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.

Update ASU 2023-07 – Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued guidance to improve the disclosures about a public entity’s reportable segments and provide for the disclosure of additional and more detailed information about a reportable segment’s expenses. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.

Update ASU 2023-09 – Income Taxes (Topic 740) - Improvements to Income Tax Disclosures

In December 2023, the FASB issued guidance to enhance the transparency and decision usefulness of income tax disclosures through improvements to disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance is effective for the Company for annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.

Note 2 - Discontinued Operations

International Businesses

On December 29, 2023, the Company completed the European Divestiture for aggregate deal consideration of $575.0 million, adjusted for customary purchase price adjustments resulting in total cash consideration of $565.9 million (see Note 1 to the Consolidated Financial Statements). The European Divestiture excluded the Remaining International Businesses. This deal is the first of several transactions that will occur in 2024 as part of a Board-approved plan to sell all of our international businesses representing a strategic shift in our operations. Accordingly, the International Businesses are presented herein as discontinued operations for all periods presented.

In connection with the European Divestiture, the Company and the purchaser entered into a transition services agreement pursuant to which the purchaser will provide certain information technology and shared service center services to the Company for various periods. For the three months ended March 30, 2024, these services were not material.

The major components of Net income from discontinued operations, net of income taxes in the accompanying Consolidated Statement of Operations include the following:


	For the Three Months Ended
(in millions of U.S. dollars)	March 30, 2024		April 1, 2023
Revenue, net	$	79.1	$	134.0
Cost of sales	46.3		64.7
Gross profit	32.8		69.3

SEC Form 10-Q filed by Primo Water Corporation