Primo Water Corporation

Good morning. My name is Lara, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primo Water Corporation's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. Should you require operator assistance during the call, please press star zero. I'll now turn the call over to John Cuddle, Vice President, Investor Relations.

Welcome to Prima Water Corporation's second quarter 2024 earnings conference call. All participants are currently in listen-only mode. The call is being webcast live on Prima Water's website at primawatercorp.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial and operational performance, the anticipated benefits and strategic rationale of the Blue Triton transaction, including estimated synergies and capital expenditure rates, the ability of Primo Water to complete the transaction on terms agreed or at all, the expected timing of the completed transaction, receipt of regulatory court and stock exchange approvals, and other statements that are not historical facts. 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 annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with securities regulators. 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 second quarter earnings announcement released earlier this morning or on the investor relations section of the company's website at PrimaWaterCorp.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'm accompanied by Robert Reetbroek, PrimaWater's Chief Executive Officer, and David Haas, Chief Financial Officer. As previously announced, we will not be taking live questions from analysts or investors during this call. Instead, the most pertinent questions have been selected and will be addressed by our management team during today's call. Today's scripted comments will focus on Primo Water's current standalone results from continuing operations. Questions and updates related to the proposed merger with Blue Triton Brands will be addressed in the moderated question and answer session on this call. With that, I will now turn the call over to Robert.

Thank you, John, and good morning, everyone. Since the beginning of this year, our team embraced a new strategy that includes a relentless focus on customer-centric initiatives, must-win priorities, as well as a commercial and growth mindset leveraging our portfolio of hydration solutions. Our must-wins are focused on delivering a superior customer experience positioning ourselves as a partner of choice to retail partners and other key stakeholders and operational excellence. Our brand portfolio is driving sustainable growth and results are strong. Our second quarter results showed continued strength across the business and organization with broad-based and balanced growth across channels. Strong progress against priorities, unit growth combined with pricing, enabling us to expand margins and generate a higher rate of free cash flow while delivering against sustainability targets. Total revenue of $485 million increased 7.6%, consisting of volume growth of 3.1% and pricing growth of 4.5%. Revenue gains were driven by organic growth of 6.6%, demonstrating the health of our consumer and category, as well as our strength across our brands and water solutions offerings in the current economic environment. Adjusted EBITDA was $113 million, up 15% versus the prior year, and increasing at nearly twice the rate of revenue growth. The resulting adjusted EBITDA margin was 23.3%, which gives us confidence in our full year margin expansion. Both revenue and adjusted EBITDA exceeded the high end of our guidance issued last quarter. David will discuss more of the details of the quarter in a moment, but the results are a direct reflection of our associates and their commitment to our customers. I would like to publicly recognize and thank them for embracing our must-win priorities and remaining frontline focused while staying dedicated to growing the business profitably. From a macroeconomic perspective, demand for our water solutions is strong, and consumers continue to prioritize healthier lifestyles and focus on hydration. We offer high-quality drinking water solutions to meet the consumer demand, however they choose to hydrate. We continue to see the growth potential as a pure play water company in the large, highly fragmented, and growing North America water category. High-quality drinking water has universal appeal and is a solution for all day parts and usage occasions. Our split between residential and commercial customer base remains approximately 50-50, ensuring a healthy balance of revenue sources. As a beverage company, compared to the broader beverage category, we are pleased that we continue to grow revenue in both volume and price. Furthermore, our current and future business opportunities benefit from additional tailwinds, including growing environmental concerns. Our extensive water resources ensure availability and are reinforced by our dedication to responsible water source stewardship. With that, let us discuss the specific progress of each of our must-win priorities that I identified upon arriving earlier this year. The first must win is to provide a superior customer experience with the goal to yield net organic growth and units or gallons consumed across our water portfolio. We are focused on acquiring and maintaining high value customers and driving annual gallon growth. Consumers can select our products from multiple price tiers from a value price of 50 cents per gallon for water sold at a refill station all the way up to our super premium Mountain Valley spring water delivered in multi-format glass, PET, and aluminum bottles direct to their door or sold at retail and at various on-premise locations. Our increased focus on Mountain Valley, which I spoke about last quarter, continues to deliver impressive results. During the second quarter, we increased our Mountain Valley retail revenue by approximately 87% over the prior year. We are off to an impressive start with the launch of our convenient, nine-pack, single-serve, 16-ounce aluminum bottles, which began selling to food stores throughout the country and to our water direct customers in Q2. Mountain Valley is already a leading brand of spring water sold in the Natural Foods Channel. and we continue to see high levels of Mountain Valley demand for our 5-gallon, 2.5-gallon, retail and on-premise, multi-serve, and single-use products. We continue to scale operations in support of the Mountain Valley growth and are currently running all three of our glass bottling lines 24-7. Looking ahead to our broader portfolio, we have planned customer recruitment marketing programs like Refer a Friend, movers, and returning customers. That will include a targeted media campaign and a frictionless end-to-end customer experience where it's easy to do business with us. We are consistently enhancing various consumer touchpoints to improve their experience. This quarter, traffic to our digital assets was up 29% as we upgraded the My Water Plus app with a fresh design, enhanced features, and launched improvements to our Water.com Quick Shop features to streamline the customer's shop-to-car journey, particularly when engaging with our promotions, and enabled easier access to customer support through our chat feature, now available six days a week. By increasing the coverage of our Customer Experience Center, we had over 30,000 interactions with customers via our chat functionality. With a focus on our quality of service, and rapid request resolution. The initial reaction to our increased customer experience efforts is encouraging. Our Google Business rating has improved 8% year-over-year, and our Net Promoter scores have improved 12% from the prior year. The second must-win is to be the preferred water solutions partner. We meet the end consumer across numerous channels, like direct-to-consumer delivery, or through one of our retail partners with our exchange locations or refill stations. We have an offering to meet each of our customers' needs and budget, or what we call Water Your Way. Customer and volume growth starts with increasing the number of customers and locations in water direct, exchange, refill, and the sale of water dispensers at retail, which drives connectivity across our portfolio of water solutions. During the second quarter, we were able to secure additional display racks with certain major retail stores to support capacity in our exchange channel. Our focus on filling white space gaps and increasing capacity and in stocks is having a noticeable effect by driving double digit revenue growth in the exchange business. Increase in customers and locations will drive future volume growth. As evidence of this future growth, We were recently awarded an agreement to place up to 1,000 incremental refill machines with a large chain of convenience stores in the U.S. Placement of these machines will begin taking place in the remainder of 2024 and well into 2025. The concept of partnering stretches across all aspects of our business, including associates, suppliers, customers, and current and potential share owners. It begins with our associates, whose dedication is evident in every aspect of their efforts. Ensuring a safe environment is our top priority and is essential for our associates to thrive, and we are committed to enhancing our workplaces, upgrading offices, locker rooms, break areas, and parking facilities, as well as production and distribution areas. Associate safety at work as well as in the home, is being fostered through the Q2 launch of the 100 Days of Safety Summer Program, aimed at raising awareness for summer safety best practices, but also rewarding associates for adopting a safety mindset. The program rollout has yielded promising results in reported incidents and overall associate retention and engagement. Community involvement is a key element of our culture. as our associates live in the areas we serve and are passionate about the products and services we provide. One example of our community involvement includes providing support in times of need, like supplying water in times of natural disasters, like the wildfires and hurricanes across several states, as well as during municipal water emergencies. Last quarter, we also went above and beyond providing our products and services in times of need by investing our time in the betterment of our communities. We had the pleasure of co-hosting a community cleanup recently with the City of Hot Springs Parks and Trails, the home of our Mountain Valley brand. We embrace our partnerships and our customer base spans across all types of retail, including mass merchandisers, club stores, DIY, and e-commerce with top tier retailers like Walmart, Costco, Home Depot, Lowe's, and prominent grocery chains throughout North America. I continue to engage with these world-class retailers in top-to-top meetings, and I found a strong desire on their part to drive more traffic to their stores and websites with our dispensers and water accessories, such as the rolling water cooler available on select retailer sites and water.com, exchange and refill stations, as well as Mountain Valley spring water. David and I once again had numerous and extensive interactions with investors and analysts in the second quarter. These themes included an appreciation for our North American-focused business model, our growth algorithm, free cash flow generation and conversion, progress on the sale of the European and Israeli assets, an appreciation for our strong balance sheet, and low leverage how we plan to deploy capital in the coming quarters, and of course, a review of our planned merger with Blue Triton Brands. I would like to extend my personal gratitude to our stakeholders for their high level of engagement. By maintaining, strengthening, and enhancing these partnerships, we can achieve even greater success together. The third must-win is operational excellence. specifically ensuring that we have an optimized organizational structure and operating systems to guarantee our associates' safety and well-being, deliver the highest quality product and service to our valued customers, and scale efficiently as we continue to grow. During the second quarter, we began implementing six- and seven-day delivery schedules as we moved into our traditionally busy period of the summer. We were able to increase our on-time inflow rate to 94% in our water direct channel for the second quarter with positive feedback from our Exchange customers on the strengthened holiday service support. Our refill channel had machine uptime of 98%, an increase over last quarter, and our time to address service calls improved by one and a half days versus last quarter. Throughout our operations, we are driving integrated business processes. During the second quarter, we increased our revenue per route by 5% and units per route per day by 2%, an indication of improved asset utilization, route density, and positive volume and pricing improvement mix. The same principles are now being employed in the optimization of our refill routes. enabling us to extract more value from our team of technicians and service providers. We remain focused on strategic capex investments that deliver high returns. The installation of the new high-efficiency production lines continues, and we brought our Efferdot Pennsylvania production line online during the quarter. The performances of the high-efficiency line installations are driving a reduction of water waste at the filler, and can nearly double the output capacity of the bottling line. We are utilizing advanced robotics to assist some of the more strenuous aspects of our plant and distribution functions, ultimately freeing up our associates to focus on the quality aspects of their roles. The team is on track to deliver the previously announced business optimization program that will enhance our productivity and lower our overall cost to serve while continuing to offer customers an exceptional experience. We remain committed to the annual run rate savings of $20 million by year end 2024. And David will speak to the achievements this quarter and the progress to our full year goals. From a sustainability perspective, we strive to source and process responsibly. to protect the planet we inhabit. We will continue to implement our environmental strategy that is focused on sourcing water responsibly, converting our fleets to more eco-friendly propane, reusing, refilling, and recycling of our plastic bottles, and increasing the use of glass and aluminum as part of our product offering. We carefully monitor our withdrawal rates and we use less than 25% of the permitted withdrawal limits, ensuring the long-term viability of our 100 water sources, which include 26 of our own wells and springs. We will detail these results and improvements in our 2023 sustainability report, which will be released later this quarter. We have a clear plan to deliver growth and profitability with a favorable balance of volume and pricing. Our unique combination of associates, assets, and resources are capable of delivering strong results that benefit all our stakeholders. We are well positioned for future success. Before I turn the call over to David to review our financial results in greater detail and provide our third quarter and full year 2024 outlook, I would like to once again thank all our Primo Water Associates for their support and contribution to the excellent performance of the business. With that, I will now turn the call over to David.