Primo Water Corporation

Good morning. My name is Elvis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primo Water Corporation's third quarter 2024 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'd 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 star, followed by the number two. Thank you. I'll now turn the call over to John Cottle, Vice President, Investor Relations.

Welcome to Prima Water Corporation's third 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 trends and results, the Blue Triton transaction, the anticipated benefits of the Blue Triton transaction, including estimated synergies, and related 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 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 third 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. The supplemental deck will be broken into two sections, the current continuing operations of Primo Water and information related to the transaction between Primo Water and Blue Triton Brands. I am accompanied by Robert Reetbrook, Primo Water's Chief Executive Officer, and David Haas, Chief Financial Officer. Today's financial results represent PrimaWater's third quarter standalone results from continuing operations. To start their prepared remarks, Robert and David will discuss the Q3 performance of PrimaWater, followed by Robert's thoughts ahead of the proposed transaction with Blue Triton Brands. Please note that Blue Triton's third quarter financial information was posted earlier this morning on their website at bluetriton.com. With that, I will now turn the call over to Robert.

Thank you, John, and good morning, everyone. Before I begin, I want to take a moment to extend my sympathies to those impacted by the recent hurricanes in the Southeast and the extreme loss of life and property. First and foremost, our thoughts are with those still suffering, and we hope for a speedy recovery for those affected. The efforts of our associates to deliver high-quality drinking water to people in these hard-hit areas was admirable, and I want to personally thank them. We are working with local charities and transport companies to donate water and have so far been able to provide hundreds of thousands of bottles of water to those affected across the Southeast. There is strong demand for our water, and it serves a critical need during natural disasters like wildfires, floods, and hurricanes. Our commitment to aid those in need is unwavering. The resilience of people and associates in these affected communities is remarkable, and we are proud to support them. Earlier this week, we held a special share owner meeting for the purpose of approving our transaction with Blue Triton Brands. The share owners approved the transaction with strong support. and obviously recognize the strategic rationale of combining two great companies, allowing us to better serve our stakeholders. We have now received all necessary approvals, including court approval of the plan of arrangements for the transaction, and aside from a few remaining customary closing conditions, we are ready to begin operations as the new Primo Brands Corporation with closing expected to occur tomorrow, November 8th. The Primo water stock will continue to trade throughout the day on the 8th, and we expect the new company, Primo Brands, to begin trading with the new ticker symbol of PRMB on the New York Stock Exchange next Monday, November 11th. I'll share more of my thoughts on the transaction later. But first, I wanted to take you through the details of Primo Water's third quarter, another great quarter marked by robust, balanced growth and continued strength across the business and organization. Total revenue of $511 million increased 8.8%, consisting of volume growth of 5% and pricing growth of 3.8%. Revenue gains were driven by organic growth of 7.4% and inorganic growth of 1.4%, demonstrating the strength across our water solutions offerings and the health of our consumer and category. Revenue exceeded the high end of our previous guidance by $16 million. And compared to the broader beverage category, I am pleased that we continue to grow revenue with balance between volume and price. Adjusted EBITDA was $125 million, up 11.4% versus the prior year, and increased faster than the rate of revenue growth and matched the high end of our guidance. The resulting adjusted EBITDA margin was 24.4%, a 60 basis point increase over last year's margin of 23.8%. From a macro perspective, our consumers remained resilient when compared to other consumer packaged goods companies, including, notably, other beverage companies. We continue to see accelerated demand for our products and services as consumers focus on healthy hydration and high-quality beverages. We remain frontline focused and it has allowed us to achieve our commitment to grow the business profitably. The results are a direct reflection of the efforts of our associates and their commitment to our customers and our must-win priorities. With that, let us discuss the specific progress of each of our must-win priorities that I identified at the start of the 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. Our relentless focus on fulfilling our customers' needs and desire for high-quality drinking water is successfully driving increased consumption. We are seeing strong demand from our consumers across all channels, from our value offering of water sold at a refill station 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 continuing focus on Mountain Valley, which I spoke about in past quarters, continues to deliver impressive results. During the third quarter, we more than doubled our Mountain Valley retail revenue, driven by sales of our convenient nine-pack, single-serve, 16-ounce aluminum bottles, which are selling at Whole Foods stores throughout the country. We also sold more to our WaterDirect customers where we continue to see high levels of Mountain Valley demand for our five-gallon, two-and-a-half-gallon, multi-serve, and single-use products. In addition, we've expanded our distribution for Mountain Valley in grocers such as HEB in Texas and will continue to expand in 2025 as we anticipate strong consumer demand continuing. We are consistently enhancing various touch points to improve the customer experience. Our upgraded My Water Plus app, now also available in Spanish, has a refreshed design and enhanced features such as easier access to customer support. We have expanded our customer experience center coverage to offer support six days a week. And we have increased our availability to assist customers through our chat functionality, making it even easier for them to reach us. The reaction to our improved customer experience is encouraging. Our Google Business and Trustpilot scores have improved year over year. We're always seeking to expand the ways we reach and interact with consumers. In Q3, we tested reaching potential consumers through the social platform Nextdoor. connecting the Prima water delivery service to the platform you use to stay informed about your community. We are seeing high levels of engagement and planning to launch additional test markets to understand conversion rates before rolling out nationally. 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 and satisfy each of our customers' needs and budgets. 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. The increase in customers and locations across our channels will drive future volume growth. During the third quarter, we were able to add water direct customers and secure additional display racks within our exchange channel and retail stores to support capacity growth, resulting in 8% growth in the channel for the quarter. Our refill and filtration channel continues to show steady and consistent performance with 7.1% growth in the third quarter. This provides further evidence that our product is critical for our customers to satisfy their needs for daily sustenance of high-quality drinking water. Meeting the customer where they are includes offering high-quality water in a format that fits their needs and lifestyle. The third must-win is operational excellence. Specifically, we're focused on building an optimized organizational structure and operating systems that prioritize our associates' safety and well-being, deliver the highest quality products and services, and support efficient scaling and automation as we continue to grow. Maintaining a safe environment is our top priority, as it's essential for our associates to thrive and for them to continue delivering exceptional service to our customers. During the third quarter, we continued to implement six- and seven-day delivery schedules as we moved into our traditionally busy period of the summer. Our on-time, in-full rate of 93% in our water direct and exchange channel was up from 89% in the prior year. Our refill channel maintained machine uptime of 98%, ensuring product availability for our customer base. Production capacity and efficiency are vital to supporting the growth of our business. In the past two years, we have invested in a full upgrade to five of our production lines, yielding higher efficiency and lower cost per unit. We have a clear plan to deliver growth and profitability with a good balance of volume and pricing. Our resilient business model has a unique combination of associates, assets, and resources that are capable of delivering results that benefit all our stakeholders. We are well positioned for future success as we step into the next phase of our business combination with Blue Triton Brands to create Primo Brands Corporation. Before I turn the call over to David, I would like to once again thank all of our Primo Water Associates for their support and contribution to the excellent performance of the business. Their dedication reflects the culture we have built that is centered on customer service and a commitment to operational excellence. With that, I will now turn the call over to David. Thanks, Robert.