Primo Brands Corporation Class A

Good morning, my name is Marissa and I will be your conference operator for today. At this time, I would like to welcome everyone to the Primo Brands Corporation's first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I'll now turn the call over to John Cottle, Vice President, Investor Relations.

Welcome to Primo Brands Corporation's first quarter 2025 earnings conference call. All participants are currently in listen-only mode. The call is being webcast live on Primo Brands' website at ir.primobrands.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial results and operational trends, estimated synergies, impacts from economic factors, our recent refinancing efforts, and other matters. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's quarterly report on Form 10-Q and other filings with the SEC. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call, with the most comparable measures in accordance with GAAP when the data is capable of being estimated, is included in the company's first quarter earnings announcement released earlier this morning and in the investor relations section of the company. website at ir.primobrands.com. In addition to slides accompanying today's webcast to assist you throughout our discussion, we have included a copy of the presentation in a supplemental earnings deck on our website. I am accompanied by Robert Rebroke, Primo Brands Chief Executive Officer, and David Haas, Chief Financial Officer. To start their prepared remarks, Robert and David will discuss the first quarter performance of Primo Brands, as well as the outlook for the full year 2025. With that, I will now turn the call over to Rami.

Thank you, John, and good morning, everyone. We are pleased to report strong performance in the first quarter, highlighting consistent strength across our business and organization. During this period, we achieved balanced growth throughout our portfolio, primarily driven by increased volume. Our business is resilient, and our growth underscores the expansion and of the bottled water category and our success in capturing a greater share of the market while maintaining customer value. Our results are a testament to the strength of our team and our unwavering dedication to providing exceptional customer service as we progress through the early stages of our integration process. Together, we remain committed to our mission to hydrate a healthy America. I will briefly touch on the high-level financial results on a comparable basis, which, as a reminder, compares the combined results of both legacy companies in the prior period against the results of Primo brands in the current period. David will get into the more detailed aspects of the results for the quarter in his remarks. In the first quarter of 2025, we achieved comparable net sales of $1.61 billion, reflecting a 3% increase. This growth was driven by 2.8% volume increase in price or mix growth of 0.2%, highlighting the sustained demand for our beverage solutions and the resilience of both our consumer base and the category. Organic growth contributed 2.6%, while inorganic growth added 0.4%. Importantly, we delivered sales growth across all core water solution offerings and channels, including direct delivery, grocery, club, mass, and away from home. When taking into account the leap day impact in Q1 2024, normalized comparable net sales growth was 4.2%. We achieved meaningful margin rate expansion by capitalizing on synergies, driving cost optimization, and enhancing organic operational efficiencies, all while maintaining our consumer value equation, underscoring the strength and resilience of our business model. Comparable adjusted EBITDA for the quarter rose to $342 million, a 12.1% increase compared to the prior year, growing at four times the rate of comparable net sales growth. This resulted in a comparable adjusted EBITDA margin of 21.2%, a significant improvement of 170 basis points over the prior year's margin of 19.5%. Our performance reflects multiple positive factors driving our results. Consumer demand remains resilient, reinforcing confidence in our offerings. Our beverage portfolio is well diversified across various price points, formats, and channels, including retail, residential, commercial, and away from home. Notably, the price of our water solutions is increasing at a slower rate than municipal tap water costs in many parts of the country. We continue to benefit from positive consumer trends, such as heightened focus on healthier lifestyle choices, which align with the health and wellness attributes of our products. Increasing concerns over water contaminants in tap water continue to drive demand for high quality water solutions. In the first quarter this year, numerous communities were affected by boil alerts, weather events, and municipal water disruptions, highlighting vulnerabilities in municipal water systems. As a result, consumers are becoming more mindful of the need for emergency drinking water supplies, as well as a shift to bottled water products that Primo offers. And we remain strategically focused on U.S.-based manufacturing and distribution that provides us with a competitive advantage over competitors, more impacted by tariffs. Our first quarter results are a testament to the dedication and hard work of our associates, as well as our unwavering commitment to our customers and the execution of our must-win priorities, which were expanded and strengthened through the merger. I would like to highlight a couple of examples of these critical priorities to Primo brands. The first must-win priority is brand leadership. Aimed at positioning our brands as the top choice for consumers by setting the benchmark for quality, innovation, and customer experience in the market. We are focused on expanding our leadership in the bottled water segment and grow functional, flavored, still and sparkling premium branded water across different packaging formats and growth channels. In the first quarter, our brands took center stage with our premium brands continuing rapid growth and increased exposure. Saratoga, one of our premium water brands, was chosen as the official water of the Golden Globes, receiving prominent prime time exposure that reached millions of viewers. Saratoga also achieved viral success when a social media influencer organically integrated the brand into his daily routine. This post generated over 1 billion views with subsequent engagements prominently spotlighting the Saratoga brand. Another equally exciting instance involved Mountain Valley Water, which received organic endorsements from professional athletes. These instances underscore the strength of our brand's loyal following and positive sentiments achieved entirely through unaided, authentic moments. Earlier this quarter, Primo Brand's regional spring water and national purified water brands were announced as the official water of Major League Baseball. Through a 360-degree campaign, America's leading water brands, including Poland Springs, Deer Park, Ozarka, Ice Mountain, Arrowhead, and Pure Life will fuel baseball fandom with exclusive content, local activations, and community give-back moments from opening day to the World Series. Our commitment to brand leadership continues to drive the expansion of our portfolio's reach across consumer occasions. Circana data shows retail household penetration increased 110 basis points year-over-year in Q1. These gains reflect the success of our strategic focus on enhancing accessibility and consumer engagement across our offerings. The second must-win priority is net organic growth focused on expanding our customer and consumer base across in-store, in-home, and omnichannel platforms. This objective is driven by innovative offerings that enable consumers to hydrate anytime, anywhere and in any way they choose. According to syndicated data, Primo Brands solidified its position as the largest branded player to grow its bottled water category dollar share, achieving a 30 basis point increase. With quarter one U.S. retail bottled water category growth of 2%, including 3% volume, we succeeded in growing our business organically. These results underscore the strength of our branded portfolio and reflect the sustained value we offer the consumer with the trend shifting away from sugar-sweetened beverages towards high-quality drinking water. We successfully introduced the new six-count PET versions of our premium Mountain Valley and Saratoga spring waters into the Mass Channel. We believe this incremental distribution will enhance visibility, increase shelf presence, and drive sales growth as more consumers experience the value of a premium offering at an accessible price point. We remain confident that our diversified offerings, iconic brands, and commitments to promoting healthy hydration will continue to drive consumer favorability in the current environment. Simultaneously, We remain focused on expanding and retaining our direct delivery, exchange, and refill customer base, as well as increasing the number of locations we serve. This reflects our focus on optimizing weekend deliveries, adhering to delivery frequency, and accelerating product response times. We are also broadening our exchange offering within mass and DIY channels to include regional spring water brands. creating incremental revenue opportunities while complementing our existing purified water offerings. The third must-win priority is to deliver a superior customer service experience, aimed at delighting our customers by providing consistent, seamless experiences across every product, service, and support touchpoint, leaving a lasting positive impact. We continuously monitor our performance through key metrics such as Net Promoter Score, Trustpilot, Google Ratings, and App Ratings, which provide valuable insights that enable us to make timely improvements. Our digital presence continues to evolve with integrated updates across our websites and mobile apps, yielding more prospect sessions and an increase in active, recurring users. Additionally, we've expanded our direct delivery service to include a broader brand portfolio for customers to enjoy. Customers from across our home and office delivery network can now choose from five-gallon or K-spec spring water options from our established spring and purified five-gallon Primo water offerings. The fourth must-win priority is operational excellence, focused on consistently delivering value to our customers and enhancing performance through efficiency improvements, strategic sourcing, and better returns on invested capital. Our teams have made significant advancements in demand forecasting tools, methodologies, and outcomes, driving improved efficiencies and lowering costs by units. By leveraging machine learning and analytics, we continue to refine demand forecasting, production planning, network optimization, and route design. all while enhancing the overall customer experience. After the quarter ended, our Hawkins, Texas facility experienced damage from a tornado, which caused a disruption to our supply chain. I am proud of the way that the organization rose to the challenge, and while we've had some disruption to supply, we were back up and running in a few days and will be 100% operational by late June. Fortunately, no injuries occurred during this event, a testament to our team's prioritization of safety and resilience. The fifth must-win priority is to be the first choice for stakeholders, where we earn our position as the first choice organization for our associates, communities, retailers, vendors, and investors. This goal is driven by our focus on delivering exceptional associate experiences, fostering sustainability, engaging meaningfully with communities, and nurturing strong, impactful stakeholder partnerships. We value our partnerships with leading retailers and grocery chains across North America, which provide opportunities for joint business planning to strengthen our presence, grow market share, and increase household penetration and volume. Recent top-level meetings and modular resets have yielded significant wins. Our retail partners have also recognized our dedication to partnership, with Walmart nominating Primo Brands as a finalist for the 2024 Supplier of the Year Award for our dispenser and exchange offerings. By fostering and sustaining these relationships, we position ourselves for long-term success. Simply said, if our retail partners win, we win. Our robust business model uniquely integrates our associates, assets, and resources, enabling us to deliver outcomes that benefit all our stakeholders, including associates, suppliers, customers, and both current and prospective stockholders. At Primo Brands, we are dedicated to making healthy hydration more sustainable, responsible, and accessible for everyone, everywhere. This commitment is driven by four key pillars that guide how our business interacts with nature and people. Water stewardship, circular packaging, supporting people and communities, and greenhouse gas reduction. We will share more detail when we release our inaugural 2024 sustainability report later this month. Earlier this month, we partnered with the Ocean Cleanup to support cleanup efforts in Los Angeles County and beyond. while also completing a project with the Cucamonga Valley Water District to remove contaminants from the groundwater, restoring water quality, and increasing local water supply for long-term sustainability. We take immense pride in making a positive impact in the communities we serve. In response to the LA wildfires, our team worked directly with the California Office of Emergency Services to supply more than 22,000 cases of water to hydrate those impacted. We believe all aspects of our business are aligning for flawless integration execution, where we build a foundation for long-term growth by unifying the people, processes, policies, and platforms to maximize timely cost synergy capture, as well as to capture revenue synergies. We believe the successful execution and delivery of these key initiatives will position us to achieve our 2025 financial guidance, which includes capturing $200 million in cost synergies opportunity as we ramp up through the balance of the year. We have already begun the initial stages of the synergy capture. In the first quarter, we focused on reducing redundant corporate headcount and driving efficiencies in the business and optimizing our SG&A structure. At the end of the first quarter, we executed the closure of eight facilities and continued the process of streamlining our workforce. Total cost synergy opportunities are still projected to reach $300 million by the end of 2026. As a reminder, this is $100 million higher and one year sooner than the estimate provided at the time of the deal announcements. with $200 million in 2025 and an incremental $100 million in 2026. From an overall perspective, we expect 2025 net sales to wrap through the year as new distribution and resets are implemented, as well as benefiting from the immediate implementation of product availability across the company's branch network. Cost management and maximizing synergies will remain priorities as we work through the year. An optimization of our production and distribution effort are keys to our longer term success. In recent weeks, tariffs have been a prominent topic in the headlines. Our exposure to potential tariffs is minimal and primarily concentrated in our dispenser business, which accounts for approximately 1% of our overall net sales. As a primarily US-based, vertically integrated business, we are advantaged by our coast-to-coast manufacturing network, which seamlessly connects our people, customers, and consumers, further reinforcing our resilience and adaptability in this rapidly evolving landscape. Before I hand the call over to David, I want to express my gratitude to all our Primo Brands associates for their contributions to our business performance. Their dedication embodies the performance-oriented culture we are fostering, which is centered on exceptional customer service, a relentless focus on distribution, and a commitment to operational excellence and cost control. With that, I will now turn the call over to David.