SodaStream Reports Third Quarter Results

SODASTREAM INTERNATIONAL LTD. LOGOAIRPORT CITY, Israel — SodaStream International Ltd. (NASDAQ: SODA), a leading manufacturer of home beverage carbonation systems, announced today its results for the three and nine month periods ended September 30, 2014.

For the third quarter ended September 30, 2014:

  • Revenue was $125.9 million compared to $144.6 million in the third quarter 2013
  • EBITDA was $15.7 million compared to $21.9 million in the third quarter 2013
  • Net income was $9.5 million compared to $16.4 million in the third quarter 2013
  • Diluted earnings per share were $0.45, compared to $0.76 in the third quarter 2013

“As we previously announced, our third quarter performance was pressured by challenging selling conditions for soda makers and flavors primarily in the U.S.,” saidDaniel Birnbaum, Chief Executive Officer of SodaStream. “Our performance outside the U.S. was mixed during the third quarter with strength in company operated markets such as Germany, Australia, Canada and Switzerland, partially offset by declines in distributor markets, namely France and the Czech Republic. Today, we are introducing a comprehensive growth plan that will serve as our blueprint for returning SodaStream to profitable growth. We are fully committed to getting the company back on track and leverage the unique opportunity we have to fulfill our role in the transformation underway in the beverage industry.”

The company has posted a copy of its growth plan on the investor relations section of its corporate website at http://sodastream.investorroom.com/

Third Quarter 2014 Financial Review
Geographical Revenue Breakdown
Revenue Three Months Ended
September 30, 2013 September 30, 2014  Increase (Decrease)  Increase (Decrease)
In Millions USD %
The Americas $ 49.8 $ 29.5 $ (20.3) (41%)
Western Europe 75.5 74.6 (0.9) (1%)
Asia-Pacific 8.6 13.3 4.7 54%
Central & Eastern Europe, Middle East, Africa 10.7 8.5 (2.2) (20%)
Total $ 144.6 $ 125.9 $ (18.7) (12.9%)
Product Segment Revenue Breakdown
Revenue Three Months Ended
September 30, 2013 September 30, 2014  Increase (Decrease)  Increase (Decrease)
In millions USD %
Soda Maker Starter Kits $ 62.5 $ 41.5 $ (21.0) (34%)
Consumables 79.1 81.2 2.1 3%
Other 3.0 3.2 0.2 7%
Total $ 144.6 $ 125.9 $ (18.7) (12.9%)
Product Segment Unit Breakdown
Three Months Ended
September 30, 2013 September 30, 2014  Increase (Decrease)  Increase (Decrease)
In thousands %
Soda Maker Starter Kits 1,196 818 (378) (32%)
CO2 Refills 5,806 6,396 590 10%
Flavors 8,261 7,607 (654) (8%)

Gross margin for the third quarter 2014 was 51.2% compared to 54.1% for the same period in 2013. The decline was primarily due to deleveraging of fixed costs on lower sales, higher share of lower margin soda makers in the sales mix and inventory write offs, which were partially offset by a higher share of CO2 refills.

Sales and marketing expenses for the third quarter 2014 totaled $41.6 million, or 33.1% of revenue, compared to $47.5 million, or 32.9% of revenue for the comparable period in the prior year. The $5.9 million decline in sales and marketing expenses was attributable to lower advertising and promotion expenses which decreased to 12.5% of revenue from 15.5% of revenue in the third quarter of 2013. This was partially offset by an increase in selling expenses, including the additional costs of our newly acquired Japanese distribution channel.

General and administrative expenses for the third quarter 2014 were $13.9 million, or 11.1% of revenue, compared to $12.7 million, or 8.8% of revenue in the comparable period of last year. The increase was due to additional expenses related to our newly acquired Japanese distribution channel, as well as additional infrastructure (mainly information technology systems) to support future growth and operational efficiency. This was partially offset by lower share-based compensation expenses.

Operating income decreased to $8.9 million, or 7.1% of revenue, compared to $18.0 million, or 12.5% of revenue in the third quarter of 2013.

Financial income increased to $1.8 million compared to $315,000 in the third quarter of 2013 mainly due to derivative financial instruments gain following the Euro/U.S. dollar devaluation and reduction of liabilities in Israeli Shekel following its devaluation against the U.S. Dollar.

Tax expense decreased to $1.2 million compared to $1.9 million in the third quarter of 2013 due to lower income before tax. Effective tax rate increased to 11.5% compared to 10.5% in the third quarter of 2013 due to changes in the distribution of profit before tax among different jurisdictions.

Balance Sheet Review

  • Cash and cash equivalents and bank deposits at September 30, 2014 were$39.9 million compared to $40.9 million at December 31, 2013. The slight decrease is primarily due to the investment in our new production facility and the acquisition of our Japanese distributor, offset by cash generated from operating activities and an increase in bank debt.
  • The Company had $35.8 million of bank debt at September 30, 2014, mainly for financing the investment in its new production facility, compared to $15.5 millionof bank debt at December 31, 2013.
  • Working capital at September 30, 2014 increased 11.6% to $173.4 millioncompared to $155.4 million at December 31, 2013, mainly due to a decrease in trade payables and an increase in inventory from our newly acquired Japanese distribution channel. Inventories at September 30, 2014 increased 8.2% to$152.2 million compared to $140.7 million at December 31, 2013.
  • Operating cash flow for the quarter increased to $22.7 million compared to $5.0 million in third quarter 2013 mainly due to decrease in working capital.

Guidance

Based on third quarter results and current projections for the remainder of the year, the Company is revising its outlook:

  • The Company now expects full year 2014 revenue to decrease approximately 9% over 2013 revenue of $562.7 million.
  • The Company now expects full year 2014 EBITDA to decrease approximately 26% over 2013 EBITDA of $62.2 million.
  • The Company now expects full year 2014 net income to decrease approximately 42% over 2013 net income of $42.0 million.

Conference Call and Management Commentary

Detailed CFO commentary and a supplemental slide presentation have been filed with the Securities and Exchange Commission today under the cover of Form 6-K and will be posted on the Company’s website, http://sodastream.investorroom.com.

The Company has scheduled a conference call for 8:30 AM Eastern Standard Time(U.S. time) today (Wednesday, October 29, 2014) to review the Company’s financial results. The conference call will be broadcast over the Internet as a “live” listen only Webcast. To listen, please go to: http://sodastream.investorroom.com.  Listeners are urged to login approximately 20 minutes before the conference call is scheduled to begin in order to register, as well as download and install any necessary audio software.  An archive of the Webcast will be available for 30 days after the call.

About SodaStream International

SodaStream manufactures beverage carbonation systems which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. Soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water. Our products are environmentally friendly, cost effective, promote health and wellness, and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles. Our products are available at approximately 70,000 retail stores in 45 countries around the world.  For more information on SodaStream, please visit the Company’s website:www.sodastream.com.

To download SodaStream’s investor relations app, which offers access to SEC documents, press releases, videos, audiocasts and more, please visithttp://itunes.apple.com/us/app/soda-ir/id524423001?mt=8 for your iPhone/iPad, orhttps://play.google.com/store/apps/details?id=com.theirapp.soda for your Android mobile device.

Forward Looking Statements

This release contains forward-looking statements, which express the current beliefs and expectations of management. Such statements are based on management’s current beliefs and expectations and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to: our ability to maintain or expand sales in our target markets, including the United States; our ability to maintain or continue to develop our presence in retail networks; our ability to develop and implement production and operating infrastructure to effectively support our growth; the success of our marketing campaigns and media spending in terms of increased sales or increased product and brand name awareness; our ability to maintain our customer base in markets where we have an established presence; the risks associated with our reliance on exclusive arrangements for the distribution of our beverage carbonation systems and consumables in each of the markets in which we use third-party distributors; our ability to compete effectively with other companies which currently offer, or may offer in the future, competing products; our ability to maintain margins due to decline in product selling price and\or rising costs; potential product liability claims if any component of our beverage carbonation systems is misused; our ability to protect our intellectual property rights; our being found to have a dominant position in certain markets which may place limits on our ability to operate; risks associated with our being a multinational corporation, including fluctuations in currency exchange rates; our potential exposure to greater than anticipated tax liabilities; our products being subject to extensive governmental regulation in the markets in which we operate; adverse conditions in the global economy which could negatively impact our customers’ demand for our products; and other factors detailed in documents we file from time to time with the United States Securities and Exchange Commission.  Forward-looking statements in this release are made pursuant to the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Contact:
Brendon Frey
ICR
Phone: + 1 203-682-8200
brendon.frey@icrinc.com

Consolidated Statements of Operations
In thousands (other than per share amounts)
For the nine months ended For the three months ended
September 30, September 30,
2013 2014 2013 2014
(Unaudited) (Unaudited)
Revenue $ 394,613 $ 385,248 $ 144,584 $ 125,905
Cost of revenue 180,372 187,668 66,366 61,428
Gross profit 214,241 197,580 78,218 64,477
Operating expenses
Sales and marketing 130,047 134,723 47,549 41,636
General and administrative 37,886 40,358 12,660 13,931
Total operating expenses 167,933 175,081 60,209 55,567
Operating income 46,308 22,499 18,009 8,910
Interest expense, net 295 552 141 219
Other financial expense, net 336 (1,210) (456) (2,002)
Total financial expense, net 631 (658) (315) (1,783)
Income before income taxes 45,677 23,157 18,324 10,693
Income tax expense 4,331 2,672 1,925 1,229
Net income for the period $ 41,346 $ 20,485 $ 16,399 $ 9,464
Net income per share
Basic $ 1.99 $ 0.98 $ 0.79 $ 0.45
Diluted $ 1.93 $ 0.96 $ 0.76 $ 0.45
Weighted average  number of shares
Basic 20,757 20,956 20,831 21,000
Diluted 21,383 21,243 21,532 21,193
Consolidated Balance Sheets as of
December 31, September 30,
2013 2014
(Audited) (Unaudited)
(In thousands)
Assets
Cash and cash equivalents $ 40,885 $ 39,901
Inventories 140,709 152,196
Trade receivables 123,936 95,275
Other receivables 22,208 35,405
Derivative financial instruments 538 2,286
Total current assets 328,276 325,063
Property, plant and equipment 107,132 125,792
Intangible assets 48,104 48,015
Deferred tax assets 1,089 1,337
Other receivables 398 464
Total non-current assets 156,723 175,608
Total assets 484,999 500,671
Liabilities
Loans and borrowings 15,452 12,458
Derivative financial instruments 103
Trade payables 90,749 68,496
Income tax payable 9,869 9,675
Provisions 1,614 2,007
Other current liabilities 29,674 31,615
Total current liabilities 147,461 124,251
Loans and borrowings 23,344
Employee benefits 2,221 2,015
Provisions 714 699
Deferred tax liabilities 2,997 2,059
Total non-current liabilities 5,932 28,117
Total liabilities 153,393 152,368
Shareholders’ equity
Share capital 3,378 3,399
Share premium 193,649 201,180
Translation reserve 3,394 (7,946)
Retained earnings 131,185 151,670
Total shareholders’ equity 331,606 348,303
Total liabilities and shareholders’ equity $ 484,999 $ 500,671
Consolidated Statements of Cash Flows
For the nine months ended For the three months ended
September 30, September 30,
2013 2014 2013 2014
(Unaudited) (Unaudited)
(In thousands)
Cash flows from operating  activities
Net income for the period $ 41,346 $ 20,485 $ 16,399 $ 9,464
Adjustments:
Amortization of intangible assets 1,769 2,042 629 781
Change in fair value of  derivative financial instruments (267) (1,324) 270 (1,588)
Exchange rate differences on long-term loans and borrowing (1,030) (1,030)
Depreciation of property, plant  and equipment 8,605 10,085 2,828 3,994
Share based payment 8,238 6,732 2,884 2,195
Interest expense, net 295 552 141 219
Income tax expense 4,331 2,672 1,925 1,229
64,317 40,214 25,076 15,264
Increase in inventories (37,591) (15,604) (12,807) (11,659)
Decrease (increase) in trade and other receivables (35,792) 23,425 (16,423) 9,572
Increase (decrease) in trade payables (8,765) (21,488) 4,467 8,099
Increase (decrease) in employee benefits 24 (70) 25 (89)
Increase in provisions and other current liabilities 578 3,933 5,816 2,167
(17,229) 30,410 6,154 23,354
Interest paid (289) (549) (110) (220)
Income tax received 3,769 715 230 5
Income tax paid (2,287) (4,361) (1,321) (422)
Net cash from (used in) operating activities (16,036) 26,215 4,953 22,717
Cash flows from investing  activities
Interest received 114 42 20 15
Investment in bank deposits (10,000)
Proceeds from (payments for) derivative financial  instruments, net 50 (527) 593 721
Acquisition of subsidiary, net of cash acquired (1,179)
Acquisition of property, plant  and equipment (26,296) (43,710) (6,968) (15,499)
Acquisition of intangible assets (3,543) (4,054) (1,054) (1,508)
Net cash used in investing  activities (40,854) (48,249) (7,409) (16,271)
Cash flows from financing  activities
Proceeds from exercise of employee share options 4,011 820 2,179 79
Receipts of long-term loans and borrowings 30,210 30,210
Change in short-term debt 20,013 (8,830) 3,870 (31,997)
Net cash from (used in) financing activities 24,024 22,200 6,049 (1,708)
Net increase (decrease) in cash and cash equivalents (32,866) 166 3,593 4,738
Cash and cash equivalents at the beginning of the period 62,068 40,885 25,200 36,244
Effect of exchange rates  fluctuations on cash and cash equivalents 9 (1,150) 418 (1,081)
Cash and cash equivalents  at the end of the period $ 29,211 $ 39,901 $ 29,211 $ 39,901
Information about revenue in reportable segments
The Americas Western Europe Asia-Pacific Central &
Eastern Europe, Middle East,
Africa
Total
(In thousands)
Nine months ended:
September 30, 2013 (Unaudited) $ 145,503 196,851 28,738 23,521 $ 394,613
September 30, 2014 (Unaudited) $ 105,141 214,805 37,396 27,906 $ 385,248
Three months ended:
September 30, 2013 (Unaudited) $ 49,791 75,466 8,587 10,740 $ 144,584
September 30, 2014 (Unaudited) $ 29,504 74,589 13,265 8,547 $ 125,905
EBITDA
Nine months ended Three months ended
September 30, September 30,
2013 2014 2013 2014
(Unaudited)
(In thousands)
Reconciliation of Net Income to EBITDA
Net income $ 41,346 $ 20,485 $ 16,399 $ 9,464
Interest expense, net 295 552 141 219
Income tax expense (tax benefit) 4,331 2,672 1,925 1,229
Depreciation and amortization 10,374 12,127 3,457 4,775
EBITDA $ 56,346 $ 35,836 $ 21,922 $ 15,687

The following tables present the Company’s revenue, by product type for the periods presented, as well as such revenue by product type as a percentage of total revenue:
Nine months ended Three months ended
September 30, September 30,
2013 2014 2013 2014
(Unaudited) (Unaudited)
Revenue
(in thousands)
Soda maker starter kits (including exchange cylinders) $ 155,350 $ 119,534 $ 62,484 $ 41,464
Consumables 229,969 254,835 79,076 81,212
Other 9,294 10,879 3,024 3,229
Total $ 394,613 $ 385,248 $ 144,584 $ 125,905

Nine months ended Three months ended
September 30, September 30,
2013 2014 2013 2014
(Audited) (Unaudited) (Unaudited)
As a percentage of revenue
Soda maker starter kits (including exchange cylinders) 39.4% 31.0% 43.2% 32.9%
Consumables 58.3% 66.1% 54.7% 64.5%
Other 2.3% 2.9% 2.1% 2.6%
Total 100.0% 100.0% 100.0% 100.0%