Primo Water Corporation

23, and beyond. Let's move on to the first quarter results. In Q1, we delivered normalized FX neutral revenue growth of 12%, adjusted EBITDA growth of 8%, increased adjusted EBITDA margin by 70 basis points to 17.4%, sell-through of approximately 215,000 water dispensers, and continued distributions of capital to shareholders through our dividend of approximately $13 million. For Q1 2023, excluding the impact of foreign exchange, normalized revenue increased 12%. Normalized revenue excludes the exited North America single-use bottled water retail business and our exited business in Russia. Reported revenue for the first quarter of 2022 includes $26.6 million of revenue associated with our single-use business and $2.8 million of revenue associated with our Russia business. A schedule is included in our supplemental deck. Adjusted EBITDA increased $7 million to $95 million, an increase of 8%. excluding the impact of foreign exchange, adjusted EBITDA grew 9%. We continue to deliver increased revenue, adjusted EBITDA growth, and adjusted EBITDA margin expansion. Consolidated revenue increased 4% to $547 million. Revenue growth was driven by resilient consumer demand, increased water dispenser unit sell-through of approximately 215,000, solid revenue growth in water direct and exchange of 11%, driven by both pricing and volume, strong revenue growth in water refill and filtration of 21%, and global water direct customer retention of approximately 84%, which remained consistent with last quarter. Adjusted EBITDA in the first quarter increased eight percent to 95 million dollars supported by higher volume increased pricing and effective expense management we're pleased with the adjusted evida expansion in the face of continuing inflation we successfully offset the impact of higher labor fuel and freight expense of approximately 15 million dollars in the quarter and expanded the margin percentage to 17.4 percent up 70 basis points versus prior year. As a reminder, our second and third quarter adjusted EBITDA margins are generally higher because of seasonality in our business. As you know, we offer a range of products through a razor razor blade business model where the rental or sale of water dispensers creates high margin recurring revenue generated from our water solutions. We saw an increase in the level of sell through an awarded dispenser business to approximately 215,000 units in a quarter. Higher retail prices reflected the continued impact of tariffs imposed on import from China. Consumers continued to purchase new Primo water dispensers and demand remained strong. Water dispenser sell-through represents the units sold by brick and mortar and e-commerce retailers to the end consumer. This is an important metric for the company because these water dispenser sales drives connectivity to our water solutions, resulting in recurring higher margin revenue. The sell-through units are a leading indicator of the future organic growth of our water solutions. As expected, the sell-in or what we sold directly to retailers for Q1 continued to be impacted by efforts to right-size inventories that were increased during 2022 supply chain challenges. Our consolidated water direct and exchange business continued to experience strong top-line momentum during the quarter with 11% revenue growth through 9% pricing action, 2% volume growth, and 84% customer retention in WaterDirect, and 99% retention in WaterExchange. During Q2, we will expand our mobile app, MyWaterPlus, to Poland and Israel, and continue to update the app based on real-time customer feedback. Our digital focus in 2023 remains centered on new water customer acquisition through CostcoWater.com as one example, water dispenser sales, and connectivity to our water solutions. In Q4 of last year, we talked about being awarded a five-year contract to be Costco's exclusive service provider for large format bottled water delivery services direct to Costco consumer and business members. We're pleased with the rollout of this program, and we are increasing the number and frequency of in-store activities at Costco locations to capture the full benefit of this relationship. We expect this program to drive increased customer growth as we build out the program across the U.S. The growth of our water refill and filtration business continues to accelerate with an increase in revenue of 21% in a quarter, driven by price increases primarily on outdoor refill stations and improved refill station uptime and service levels. Our water refill business is one of our Water Your Way platforms where consumers refill their own empty one-gallon or multi-gallon Primo water bottle at any one of our 23,500-plus self-service refill stations. Customers in this business are counted as the retail locations of our refill stations and not the consumers physically using the refill stations. We maintain high refill station retention and there is tremendous potential for continued volume growth across the category. Water refill targets a value-conscious consumer and provides similar margins to our other water offerings. This is another positive aspect of our business transformation, initiated by the acquisition of Legacy Primo, that provides a diverse platform of water services for all consumers. Customer resiliency related to the higher pricing action across our water solution has been minimal as we track this through a combination of metrics, including call center activity, customer retention, and customer growth. The balance between our demand and pricing continues to be extremely positive. It's important that we attract quality customers that will remain with our services long term. We're highly focused on attracting the right customer not just to add a customer for the sake of growing customer count. I would like to talk for a moment about operating efficiencies. The ability to serve our customers in the most efficient manner possible is a critical driver of both our short and long-term profitability. Our automated route optimization, or ARO, in North America continues to yield efficiencies. We will extend the use of ARO into our refill and filtration business later in 2023 to capture efficiencies and improve service levels that this tool can deliver. In addition to capturing cost efficiencies, the reduction in mileage supports our commitments to reduction in greenhouse gas emissions. A key service metric we focus on is on-time in full, or OTIF. Simply put, is did we deliver to the customer on the day, at the approximate time, and with all the products they requested? OTIF in North America in Q1 was 95%. Another tool we use is our predictive staffing model, which continues to be refined and produces outstanding results. During the quarter, we improved our targeted staffing levels to 100% of route delivery positions filled. We continue to believe that our incremental investments in our people and the use of our predictive staffing model will enable us to deliver our 2023 targets and beyond. Last month, we published a 2021 supplement to our 2020 ESG report. I'm pleased with the progress reflected in the latest update. Some of our notable accomplishments described in our supplemental report include Achieved carbon neutral certification via the carbon neutral protocol while advancing clean drinking water infrastructure in vulnerable communities. Achieved all stated DEI targets. Replaced over 9,000 megawatt hours with energy certificate attributes. Powering our European operations with 100% certified renewable energy certificates. announced the strategic exit of the North America single-use bottled water retail business that produced over 400 million HDPE plastic containers annually, reducing the equivalent of 50,000 metric tons of CO2, and reduced our global greenhouse emissions by 20% over 2020. We expect to publish our 2022 ESG report later this quarter. As we shared last quarter, for the full year 2023, we expect revenue to be between $2.3 and $2.35 billion, with normalized revenue growth in a range of 6% to 8%. We expect full year 2023 adjusted EBITDA to be between $450 million and $470 million. Both financial guidance items exclude any tuck-in we might complete throughout 2023. For the second quarter of 2023, we expect revenue between $575 and $595 million and adjusted EBITDA of between $113 and $123 million. Primo Water is well-positioned to achieve our long-term growth target. We benefit from long-term tailwinds, including a favorable shift in consumer demand toward health and wellness and concerns with aging global water infrastructure. We continue to invest in our digital platforms to enhance the customer experience and in new innovations for our water dispensers to support connectivity to our water solutions. We have a compelling financial profile, which we continue to enhance through debt reduction opportunistic share repurchases and increases to our quarterly dividend. With continued efficiency improvements that expand our route capacity and increase on-time and in-fold delivery, we will continue to drive further adjusted EBITDA margin expansion, leading to increased returns on invested capital. Finally, I will reiterate that our strategy is working. We're confident in our ability to deliver our 2020 free guidance. I'll now turn the call over to our CFO, David Haas, to review our first quarter financial results in greater detail. David?

Thank you, Tom, and good morning, everyone. Starting with our first quarter results, consolidated revenue increased 4% to $547 million compared to $526 million. Excluding the impact of foreign exchange, normalized revenue increased 12% for the quarter. Adjusted EBITDA grew 8% to $95 million, which represents 70 basis points of margin expansion. Excluding the impact of foreign exchange, adjusted EBITDA grew 9%. The effect of price increases, volume growth, and strong demand increased profitability. Turning to our segment-level performance for the quarter. North American revenue increased 4% to $412 million compared to $397 million. Excluding the impact of foreign exchange, normalized revenue increased 12%. Organic revenue grew by 11% in water direct and water exchange, which included 10% price or mix and 1% volume growth. Adjusted EBITDA in North America increased 7% to $85 million. In our Europe segment, revenue increased by 8% to $69 million. Excluding the impact of foreign exchange, normalized revenue increased 20% with growth in our residential customer base and B2B volume as Europeans continue their return to the office. Adjusted EBITDA in the Europe segment increased 61% to $14 million. Excluding the impact of foreign exchange, adjusted EBITDA increased by 69%. Turning to our Q2 and full year outlook, we expect consolidated revenue from continuing operations for the second quarter to be between $575 million and $595 million, and that our second quarter adjusted EBITDA will be in the range of $113 million to $123 million. For the full year 2023, we are reaffirming our guidance with revenue projected to be between $2.3 billion and $2.35 billion, with normalized revenue growth in the range of 6% to 8%. We still expect full year 2023 adjusted EBITDA to be between $450 million and $470 million. Our 2023 CapEx consists of 7% of revenue plus an incremental $30 million for a total of approximately $200 million. As a reminder, we determined that during 2023 and 2024, we will invest an incremental $30 million per year as opposed to the $50 million noted in our November 2021 Investor Day. This decision is based upon our confidence and run rate performance that enables us to reduce the investment dollars and deliver the 2023 and 2024 outlook. The initiatives to be funded from our CapEx plan include driving digital growth, leaving dispenser innovation, building a more environmentally friendly fleet, installing more efficient water production lines, which will reduce water usage and increase productivity, and driving growth in refill and filtration with refreshed signage and branding of our existing units, the development of our on-the-go units, and new filtration innovations. We expect to return to our normalized total capex spend of approximately 7% of revenue in 2025. For 2023, we expect interest expense of approximately $70 to $75 million. We currently expect $20 to $25 million of cash taxes due to the utilization of net operating losses, or NOLs, in 2022 related to the properties we sold last year. While we are limited in the amount of NOLs we can utilize each year, we do have NOLs available in 2023 and 2024. Adjusted free cash flow is expected to increase to approximately $130 million in 2023 which includes the assumption that we monetize several properties. This is a significant step up from last year's adjusted free cash flow of $85 million and is primarily driven by increased earnings and reduced supply chain impacts on our working capital. The $130 million contemplates increased cash taxes for potential property sales and could result in higher free cash flow depending on the timing and outcome of these property transactions. We expect further increases in our free cash flow in 2024. As we mentioned during our Q4 call, we continue to explore opportunities to monetize properties that have realized significant appreciation and value. We plan to use the net proceeds of these property sales to fund components of our capital allocation plan, including, among other things, debt reduction and our opportunistic share repurchase program. As part of the opportunistic share repurchase program during 2022, we repurchased approximately $24 million. During the first quarter, we repurchased another $17 million, bringing the total to $41 million of the one-year, $100 million opportunistic share repurchase program, which began last August. The repurchase program reflects the Board's confidence in our future performance and our continued long-term cash flow generation and demonstrates our ongoing commitment to providing value for our shareholders. We remain focused on achieving our adjusted net leverage ratio target of below three times by the end of 2023 and to less than 2.5 times by the end of 2024. As a reminder, our current debt maturities are in 2028 and 2029, and we therefore have no reason or benefit to refinance any of our debt and are pleased with our current debt structure. Regarding our tuck in M&A, for 2023, we expect to invest $20 to $30 million as we focus on our organic growth, as well as take a patient approach due to macroeconomic factors that might weigh more on smaller operators. Yesterday, our board of directors authorized a quarterly dividend of $0.08 per common share, which represents a 14% increase over last year's quarterly dividend rate. Our performance reinforces our confidence in our ability to deliver sustained organic revenue growth supported by recent gains in new points of distribution in our exchange business, geographic expansion of the Costco in-store events resulting in an increase in the number of events in North America in our water direct business, as well as the improved performance of our refill business. These gains are a result of our commitment to improve the customer experience through increased service levels and continuing investments in the digital experience, customer satisfaction, and operating efficiencies. I am excited about the opportunities that we have in front of us. We continue to execute our strategy and are making solid progress in our transformational journey. We have the right plan and the right team to win. Our customers, associates, and shareholders can all share in our success as consumers migrate toward healthy hydration solutions. I will now turn the call back to Tom.

Thanks, David. This quarter marked the three-year anniversary of our acquisition of Legacy Primo and the sale of our coffee and teeth. And I think it is important to take a moment and reflect on what our team has been able to accomplish during its ongoing transformation from the former cot and Legacy Primo businesses to the new Primo Water. We leveraged our highly variable cost structure to right-size our businesses to adapt to the economic environment and a consumer base that shifted to more in-home consumption. We increased our revenue and earnings to improve scale, reach, and better execution. In the last five years, we've expanded adjusted EBITDA margins from COTS 13% to Primo Water's 2022 19%. We've returned capital to our shareholders through a steadily increasing dividend and opportunistic share repurchases. We successfully integrated tuck-in acquisitions in our Water Direct businesses and expanded our global footprint. We increased our understanding, commitment, and capabilities in ESG. We've been able to reduce our impact on the environment by becoming carbon neutral and eliminating single-use plastic from our North American retail operations. We've assembled a strong team and are excited to share our progress as we continue to realize benefit from embracing sustainability as a core strategic pillar of our business. Prior to the pandemic, approximately half of our customers and even more in Europe, were businesses, many of which closed for much of 2020 and 2021. Further hurdles included high inflation, fluctuating foreign currencies, tight labor markets, 25% tariffs on water dispensers manufactured in China, and global supply chain constraints. Our strategy is clearly working, and we're pleased with our past accomplishments and we're even more excited about our future. We're one of the only pure play water platform and benefit from a large and growing revenue base. Our high single digit long-term growth targets are driven by the connectivity of water dispensers to our water solutions with supporting consumer tailwinds to include focus on health and wellness and concerns with aging global water infrastructure. We have a healthy balance sheet a compelling long-term growth outlook, and an attractive margin profile that we believe will generate adjusted EBITDA approaching $530 million, with margins of approximately 21% and an adjusted ROIC of 12% by the end of 2024. Once again, I'd like to thank the Primo Water Associates across the business for their tireless efforts to serve our customers. Before we open the call to questions, I just want to remind everyone again that this call is to discuss our Q1 results and outlook. We will not be taking any questions about our settlement with Legion, but I encourage those of you who are interested to visit our website to review our proxy materials. With that, I'll turn the call back over to John for Q&A.