Q1 2022 Primo Water Corp Earnings Call

Good morning. My name is pan and I will be your conference operator today at this time. I would like to welcome everyone to the Prima water corporations first quarter 2022 earnings conference call. All lines have been placed some mute to prevent any background noise. After this speaker's remarks will be a question and answer session. If you'd like to ask a question during this time, simply press star than the number one on your telephone key pad. If you would like to withdraw your question, Please press star than the number two Thank you, I'd now like's turn the conference call over to mr John codll, Vice President of Investor Relations. Please go ahead.

Welcome to Primo Water Corporation's first quarter 2022 earnings conference call. All participants are currently in listen-only mode. This call, and no later than 11 am Eastern time, the call is being webcast live on Primo's website at W Primo water Corp com and will be available for playback there for two weeks.

This conference call contains forward-looking statements, including statements concerning the company's future financial and operational performance. These statements should be considered into connection with cautionary statements and this claimers contained in the safe harbor statements in this morning's earnings press release and the company's annual report on Form 10-K , 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 the politicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordts' with GAAP, when the data is capable of being estimated, is included in the company's first quarter earnings nonset released earlier this morning or on the Investor Relations section of the company's website at W Primo watercorp com.

I am accompanied by Tom harrington, prmost Chief Executive Officer, and Jay Wells, prmost Chief Financial Officer. As part of this conference call, we have included a deb online at W Primo watercorp com. That was designed to assist you throughout our discussion. Tom will start today's call by providing a high-level review of the first quarter and our progress on pro strategic initiatives.

Then Jay will review our segment level performance and will discuss our first quarter performance in greater detail and offer our outlook for the second quarter and full year 2022, before handing the call back to Tom to provide a long-term view ahead of QA.

With that, I will now turn the call over to Tom.

Thank you John , and good morning everyone.

I am quite pleased with the start to 2022 and our Q1 results.

As the impact of the pandemic begins to Wan and we adapt to the current inflationary environment, we remain confident in our ability to deliver on both our short-term and long-term outlook.

I'm especially proud of the efforts of the team and pleased with everyone's continued commitment to safety, customer satisfaction and growth, as our teams have once again responded to the challenges presented by the unprecedented cost inflation and the war in Ukraine.

In the first quarter we achieved double-digit revenue growth driven by strong customer demand, particularly an awater direct and Exchange businesses, and continuue to deliver robust growth on Mountain Valley, Americas's premium spring and sparkling waterortar brand. Our global Water Direct exchange customer base increased four point a half percent to two point three million for the quarter.

This was an increase of one thousand customers versus Q1 of 2021 through organic customer additions.

Customer base acquisitions to our tuck-in strategy and improved customer tension rates, which increased the 86%.

As I mentioned last quarter, the three and five gallon botled wardwater category growth opportunity is estimated to be as large as an incremental 29 million U's households and continues to increase based on tailwinds, including growing consumer demand for environmentally responsible products.

The shift away from sugary sween beverages and well documented concerns with tap orard equality.

The residential opportunity for increased sales of three and five -gound return of botled water remains a top priority, as the category has significant growth potential from our perspective.

We remain focused on increasing households penetration through our execution of our razor razor-blade model.

While the awarded thedispenser segment depried during Q1 because of higher retail price points and less promotional activity driven by tariffs in the elevated cost of motion freight sell-through volume of more than one hundred and ninety thousand dispensers, two consumers resulted in a two point 4% sequential increase in the first quarter versus Q4 of 2021 .

As ocean freight costs moderate, we expect to see a return to growth in our dispenser business through increased promotional activity in the benefit of new customer distribution wins and the increased penetration from our existing customer base. As an example, we recently gained new dispenser business at Costco which shipments beginning qute tifts.

We continued to experience elevated costs driven by inflation across several operating expense categories, including labor, fuel and freight.

To address the higher cost of approximately 10% during the quarter, we implemented two pricing actions, the first in January and the second in March, each in response to higher than forecast inflationary costs at that point in time.

Currently we believe that the pricing actions we have executed will cover the higher costs. The full benefits of these pricing actions are expected to be realized in Q2.

Despite the cost headwind, we continue to invest in the customer experience evidenced by organic customer growth and improved customer retention rates.

Improved pricing, continued demand for our products and the improvement in customer retention gives us confidence in our 2022 guidance, in our long-term 2024 outlook of high single-digit organic revenue growth and adjusted EBITDA approaching $525 million.

In Q1, consolidated revenue increased 10% to $526 million and adjusted EBITDA increased 15% to $88 million, again driven by higher demand for our products and improved pricing in volume led by our Water Direct and Exchange businesses.

Consolidated revenue, excluding a retail single use plastic business in North America, grew 13% to $5 million and, on an FX neutral basis, overall revenue was up 14%.

Consolidated organic revenue was up by double digits, as we experienced a gain of 12% for the quarter.

As referenced earlier, the watered dispensser segment declined because of higher retail price points and less promotional activity driven by tariffs in the spike and ocean freight costs experienced during the quarteras ocean freight containion rates moderate, we expect to return to growth in our dispensive business.

As I mentioned in the past, waterid dispensser sales provide a key point for consumers to enter the botle water categories where we can capitalize on our recurring razor Razor blade revenue upde.

The recurring purchase behavior generates organic order sales as part of our awater go-to-market strategies.

As a reminder, our internal research indicates that approximately 60% of responding survey are new to the ward category. 45% prefer award direct.

30% prebare water exchange and 25% prebare water ricil.

We should continue to gain our air share of this growth, as our razor-razor-blade model remains one of our strategic advantages.

You will likely remember that our B two B channel experien and softness in December and January , resulting from reduced foot traffic.

A clear demonstration of what some call the January swoan is illustrated in a chart of morbility data included in our supplemental presentation on Page 8, titled visits the retail and recreation locations.

It shows a decline putot traffic ofabroughtly 20% in the December January typframe.

As we suspected, the timing corresponds with increased rates of the omnicron variance here in the U S.

Fortunately, we have seen these visits to retail start to rebound as the effects of the omnit Ron variant have easase, and we continue to work diligently to meet the current levels of demand.

We've added analysis of our North American B two B customer base on Page nine of the supplemental presentation deck. That provides a view of the diverse mix of our B two B custom base.

Importantly, it shows that we have no appreciable customer concentration in our awater directbusiness.

A recap of our growth drivers on. Slide 10 demonstrates growth in several key areas: customer count increases on Water Direct and Exchange, consistent gains in the average selling price of our three and five gallon botles, our premium Mountain Valley revenue and e-commerce resue.

We continue to invest in route operations to improve our service metrics, enhancing the customer experience.

We are near our targeted staffing levels and are currently staffed more than 98% in route delivery in U? S.

We believe the long-term benefits of improving the customer experience and increasing customer intention outweighed any short-term investments.

As it relates to our efforts in ESG. We remain focused on elevating our position on environmental responsibility in finding new ways on our commitment to protect the environment, to provide quality drinking mort and manage sustainability.

Later this quarter we plan to publish our first environmental, social and governance report.

The report represents the next step on our efg journe.

We've been working on formalizing our priorities and governance structures, establishing initial targets and enhancing the collection of our data from across our company.

As part of our ESG strategy. Last November we announced the planned exit of the sync use spotwater retail business in North Ma.

We remain on pace to completely exit this category by the end of the second quarter, eliminating approximately four million botles from the Eco.

This is a major step in enhancing our ability to focus on a more environmentally friendly, returnable botled water.

Our three and five gallon returnable botles provide an attractive alternative to combat the challenge of plastic waste, based on their reusability and recycle buildility.

Over the last few months, we've been asked about our business exposure to the war in Ukraine.

As well as our business in Russia.

In 2021, our business in Russia recorded approximately $14 million of revenue and approximately $3 million of adjusted EBITDA.

We have decided to exit Russia and expect to complete ess exit over the course of the next 60 to 90 days.

As we work to exit our business in Russia. We will continue to supply water to the humanitarian and NGO efforts in Eastern Poland as they manage the influx of ukranian citizens displaced from their Homeland.

I would like to extend my appreciation to those, those associates of ours in Poland and in other European countries, as several, all of our associates are hosting refugees from Ukraine in their own homes.

And we're profoundly proud of the health they are providing you these very difficult times.

Our thoughts are with the people of Ukraine and we hope for a speedy end to the conflict.

I'd like to now turn the call over to Jay to view our first quarter results in greater detail.

Thank you Tom, and good morning everyone.

Starting with our first quarter consolidated results.

Consolidated revenues increased 10% to $526 million compared to $478 million.

Excluding the impact of foreign exchange and the exit of our North American singingle-used plastic botle water retail business revenue increased by 14%.

These gains were largely driven by growth in our Water Direct and Exchange businesses.

As we saw a rebound from the effect of reduced foot traffic and the omncound bearing which caused e to D volume to suffer in December and early January .

Rebound has continued into our second quarter.

Total organic revenue growth was 12% for the quarter.

Adjusted EBITDA grew 15% to $88 million as Tom discussed the effects of pricing actions. Volume growth and strong demand drove profitability.

During the quarter we made substantial progress in achieving full-stacking levels and now have more than 98% of our route delivery positition filles. We are confident that the incremental investments we are making in our people will enable us to deliver on our target of nineinetypercent to 10% revenue growth for the year.

The increased staffing costs were accompanied by continued inflationary cost pressures and other areas of our business.

The major buckets of higher costs includeed materials associated with our SC to be exited North America, single-use botled water business, ocean trade, transportation and labor.

The additional price in actions taken in the first quarter have offset these theseed costs and we have captured enough price to offset the cost increases that we have seen to date.

Turning to our segment level performance for the quarter, North America revenue increased 9%, the $397 million compared to $366 million.

Excluding the impact of foreign exchange and the exit of the single-use plafic boted water retafill business revenue increased by 13%, driven by growth in our Water Direct and Exchange businesses.

Organic revenue growth was 11%, driven by a 3% increase from volume and 11% increase from price mix within our Water Direct and Exchange businesses.

Adjusted EBITDA and North America increased 15% the $79 million.

Turning to our rest of the world, segment revenue increased by 14% to $129 million.

Excluded the impact of foreign exchange, revenue increased by 18%.

All channels and the rest of the rope segment showed increases, demonstrating the benefit of our multticountry, multtiannel model.

The increase was driven by growth in both residential and B two B customers.

We are pleased with the performance of our rest-of-the-world business, which is beginning to recover from the pandemic, and commercial businesses are beginning to return to work.

Adjusted, EBITA and the rest of the world segment increased 8% to $16 million, as the benefit of higher revenues from Europeans returning to work was partially offset by investments in sales and marketing for residential customers in Europe to further diversify our customer base and better balance the customer mix.

Turning to our Q2 and full year outlook, revenue was strong in Q1 and is off to a good start in Q2, with storong customer demand and price increases to offset increased costs.

With respect to adjusted EBITDA. Inflation is a result in cost increases in labor fuel, freight and materials.

We are confident we can take price to offset these cost increases, but it may result on short-term windows of cost headwinds.

In addition, we are focusing on long-term growth and laying the foundation for future growth. This requires us to invest in that foundation this year.

Finally the exit of the business in Russia creates a onetime headwind, as we lack $14 million of revenue and $3 million of adjusted EBITDA from this business.

With that said, and based on the information we have available to less as of today, we expect consolidated revenue from continuing operations to be between $540.00056 trillion.

And that our second quarter adjusted EBITDA will be in the range of one million toill $11 million.

For the full year 2022, organic revenue growth is projected to be 7% to 8% and overall revenue growth is expected to be 9% to 10%, and.

Adjusted for the exit of the North American single-use detail water business.

We expect 2022 adjusted EBITDA to between 410 and $42 million.

As Tom mentioned, the exit of the North American single-use retail water business continues to move quickly.

In 2021, these products accounted for revenue of approximately $142 million. We now expect the 2022 revenue of this product line to be about $4 million, with minimal effect on adjusted EBITDA.

We still expect to exit this category by the end of the second quarter.

For the year, we also expect around $1 million of cash taxes, $5 million of interest expense, as well as capital expenditures of approximately $2 million.

The capital expenditures figures include incremental spending, as we discussed during our Investor Day last November , which is being used to support our growth outlook and EBITDA margin expansion.

Key initiatives being funded by our multiyear incremental CapEx include driving digital growth and leading dispense innovations, such as the rollout of an update to our mobile app by water plus, and plans to execute a global e-commerce we shop, both of which will grow our customer base.

Leading to penser and refill innovation, creating differentiation and our product and offerings.

Investment in delivery vehicles to reduce emissions and to support sustainable fleet management.

Investment in new spring sources, including Mountain Valley, support increased customer demand and future growth.

Installation of water production equipment that supports our ESG strategy, reduces water usage and increases efficiencies in places like Los Angeles and calgaryinvestment in leading softer solutions to support supply chain and logistics. Operational excellence.

These initiatives and investments will support our 2024 outlook. That concludes revenue and adjusted EBITDA growth, as well as EBITDA margin expansion.

As we announced yesterday, our Board of Directors authorized a quarterly dividend of seven cents per common share, as discussed during our November investorterday. Our growth outlook and increased free cash flow generation and fund our growth, as well as an increase in our annual dividends.

Our path to a multiyear dividend step up includes an increase in our quarterly dividend per share by one centse in 2022, another in 2023 and another in 2020. -four and.

The increase in the dividend will turned over six million incremental dollars to shareholders in 2020. -two and.

Other aspects of capital deployment include continuing our tuck-in Ma.

For 2022, we continue to target 40 to $16 million with tuck-ins and remain focused on executing the robust pipeline of tuck-in opportunities in front of us.

Our long-term organic growth outlook has not changed. We remain confident in our outlook for 2024. we are forecasting high, single-digit percentage organic revenue growth.

Targeted annualized adjusted EBITDA approaching $525 million.

Adjusted EBITDA margins of 21% to 22%.

Adjusted EPS of a dollar 10 to a dollar 20 cents per share.

Net leverage of less than two point five X.

And ROIC greater than 12%.

I will now turn the call back to Tom.

Thank ja. Looking ahead, we remain focused on executing on differentiated orare-your wayave platform.

We will leverage our pure play water lode to drive revenue growth: 9% to 10% in 2022, adjusting for the exit of the North American single-use plastic retail water business and including the revenue from the tuck-in acquisitions made during 2021 and.

Organic revenue growth is expected to be in a range of 7% to 8%, and.

We continue to prioritize the customer experience on all things digital and we remain focused in understanding the new customer journey by leveraging data to segment our audiences to provide the right content and products for them.

Our current and future customers will be empowered to fully embrace our awater-way strategy in the new format, with the ability to manage erk counts on the go.

Easily obtaining primal products whenever, wherever and however they want them.

We're also on pace to launch our new director-to-consumer fee-commerce destination later this year with new features that enhance the purchasing experience and will' accelerate our dispenser sales.

Our initiative set in taling for our commitment to digital acceleration to provide the best solutions to our customers.

We will continue to execute on a razor zorvoade model, with growth in the number of dispensser salt driving top line growth in sale water products.

Interest levels for the launch of our new Alkaline Water brand, Primo plus, have been very encouraging.

fimal plus outkline water complements our existing portfolio and is a growing trend globally.

Primo plus Alkaline water has a pH level of nine point five at the time of botling, is sold in three gallon botles and is currently available for award direct customers in certain U's geographies.

We have a pipeline that could lead incremental distribution of more than 1000 Primo plus exchange rad places.

Our efforts are paying off in other areas, such as refil. We, partnered with a major retailer, install up to 1000 additional retail machines at net new locations in 2022 and 2020. -three.

Supporting our initiatives are more structural and thematic tailwinds that are driving consumers to healthy hydration solution.

The growth in the health and wellness category continues to support our prospects of gaining share of the broader beverage category.

In addition, the perception of the declining quality of municipal tap order is well document which supports the growth of our products and services.

Tap order as a primary drinking source is expected to continue to decline in all parts of the world for the foreseeable future.

As Jay noted, we expect our consolidated second quarter revenue to be between $54.56 billion and for our adjusted EBITDA to be between $10.11 billion.

For full year or 2022, we continue to forecast revenue growth of 9% to 10%, adjusting for the exit of the North America single-use retail botle water business and including the revenue from the tuck-in acquisitions made during 2021 and.

As we continue to see the improving demand of both the residential and B two B sectors, as consumers and workers are increasing their mobility.

We are forecasting our adjusted EBITDA between 410 and $42 million.

We're also maintaining a strong pipeline of eminate targets which we expect to execute during the remainder of the year. Once again, I'd like to thank the primio water associates across the business for their tireless efforts to serve our customers.

With that, I will turn the call back over to John to move us to QA.

Thanks Tom. During the QA, to ensure we can hear from as many of you as possible, we would ask for a limit of one question and one follow-up purpose. Thank you.

Operator please open the line for questions.

Thank you, Ladies and gentlemen. We will now begin the question and answer session. If you have a question, Please press star, followed by one on your touchstone phone. You will hear a three tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, Please press star, followed by 2, and after using a speaker phone, Please lift your handset before pressing any Keys.

one moment for your first question.

Your first question comes from Kevin Grundy with jefffriys. Please go ahead.

Great thanks morning everyone, and can grasp on on the strong results. I want pick up one Hey. Hey morning, California J. I wanted to ick up on your outlook for the year and then shift the pricing, if I could So. First, just with respect to the outlook, maybe just comment on your decision to maintain your revenue at EBITDA guidance for the year, despite the strong first quarter and what appears to be a solid start to the second.

Clearly where we're pleased with the first quarter.

Revenue growth, EBITDA growth, margin expense.

So it's a rock solid beginning and we see that carrying it the Q2.

What is generally?

So we'd like to get the next little bit under under all wings, if we will, before we make any decisions about where the guidance would go. And I also think it's important to note that, while we announce the exit of Russia, we're not changing our guidance to affect for the short-term headwind of' 14 main three main EBITA. So we'll continue to deliver our guidance in spidred despite that decision.

So that's where we sit, but the business, to your point, is off to a terrific startck. We're quite pleased with it, and it has continued into April , and I guess we won't be the first couple of days a may.

Ok very good, I think that makes sense. And then, just pivoting to pricing, I think the comment was: you took pricing in January and in March. So just a couple of questions are a couple areas. Maybe you could touch on the magnitude of the price increase relative to CPI, which is currently in the eight and a half percent every year. over-year observations on elasticity: so far, seemingly so far, So good, although early, at least with the first round, given the results, and then, just broadly, you know the view on the ability to take additional pricing should the inflation ary environment worsesenon from here. So thanks for that guy, i'llpassit on.

If thanks get, I'll take a piece that then I' lip low jff. The best measure for us is our retention rate, and we're see.

Good stickiness on our customers in both.

Across awards the record and Exchange business at a six perpoint, a half percent of half the number correct. So it's a good growth versus prior year and that says that our investments in service.

Our ability to be 98 a half percent staff on Rs delivery.

Which is the best place we've been in.

Good goally since before any variant- which frankly is very important to us- that we'll probably staf So that we can deliver on our commitments to the customer and they're staking with us.

Then in terms of if you look at our growth, I guess the best indicate indication of double-diggest revenue growth.

On both residential and B to B. pretty much everywhere we do it.

Which we think is a pretty solid sign that our pricing is sticking.

Customers are sticking, which gives us confidence that for a good spot as we move forward. Jane and colory when I add- I think I talked a little bit on myprepared remarks- to look at North America.

Water Direct exchange up 17% in the quarter. Of that, 11% is related to pricing, So that will give you the magnitude. When we talk about the two pric increases, you know we have different levers to pull in our pricice increase. Earlier in the quarter we took pricing on certain products. Later we more increased our delivery fee, our ESC, as we saw diesel prices T be to rise during the quarter. So if it, even though we took two tranches, they were on different line items that are filling different products.

Okay very good good, Thank you, goodgoodbyeluck.

yeah thanks, get appreciate.

Your next question comes from Andrea to tiera with GP maran. Please go ahead. Hi, good morning everyone and acquing the success and conrates on the quarter. My question is more related to how you're seeing price of icity. It looks as if it's probably early to tell, but wondering if you can pars out commercial against idential and and on that ve, if you're seeing.

If you're seeing anything as you as you point out like you know in the quarter quarter today you've had you very good improvement if you can kind of give us a little bit of a you a difference between coming back in some of the commercial clients. So even be to be against residential show and what are you're seeing there quarter today. Thank you as good. So there's a good morning by the way Thank you's whole question there and out you went to North America our B B business growing at a rate in terms of.

The residential full double digit.

And then, if you went to Europe , they're about the same in terms of growth, both in excess of PU, mid-sing Le produddo, mid-double digits.

Terms of growth, So we're quite pleased. The pricing has has gone through and remember our delivery and energy surcharges are generally pgged price of fuel, So it covers us from from nose the volatility in that area. Hence the reason that you know we took another initiative in March once we saw the price of oil spike at the beginning of.

The Ukraine chocolate.

And on different pricing. Keep in mind our average customer Bill: 50 $55, whether you re small business or whether you're residential. So very similar to structure is very similar volume and consumption and the bank type of billing structure. So we're taking pricing, we're taking across our entire customer base in northin America air not just focus on residential or bto B and we are. We see good volume in both, the revenue in both and give retention grilling.

So So not any electricity issues.

The price you think and and I think one important point is.

Our current saing levels and route operations at 98 essentially fully staff.

Is a significant difference from where we were a year ago before Delta.

Right So if I think we're in the best possible position any event, than anything comes forward that onm staffed on ahead of it. We have much better pointing tools in place. We learned in tons from last year, So that gives confidence that we can continue to deliver our customers, which frankly enables our price cap.

You're person build second, not right.

Right if I can just follow up a little bit on the quarter to today and not acknowledging that you have a T compon or organic basis. I think you are up tto with last year total company. Is that something you're trying to when you're commentary about like tracking well in the quarter? Is that higher than what you to achieve with a 10% in the first quarter? Or we should be cognizant of what's happened? I mean the comparisons, organic.

Yes I think we're excycling. If you looked at last year, CK solid Q1 last year and so very good performance on a year-over-year basis.

We're cycling a good performance in Q2 of a year ago.

So we like our current positioning. But I'm a third the way for the quarter. So I don't want to get too far ahead of myself here and.

We're confident.

We'll deliver against our commitments and we'll see how it turns out, But right now we're very good.

greay, Thank you so much for restaurant best UE.

Banks can be appreciate.

Your name.

Your next question comes from Derek lassard with TV Securities. Please go ahead.

yeah good morning everyone, e cho way the Al.

Morning and Congress on the quarter. Just I'm just going back to some of the EBITDA adjustments that you made in the quarter. It looks like a big jump in integration expense. Just curious if that was just a bigger quarter in terms of tuck-ins for you guys.

Yes I would say you really seeing the final type of severance costs related to the overall acquisition, the larger acquisitions we have done, the or C song related to sif well over in Belgium, where we know we did compete that right at the end of the year. But I would say know, as we wrapped up our synergy capture, it's now that we're eliminating some dual staffing and you're seeing the cost of that money through. I would say.

So we have a little bit more about through the year, but I would say you're seeing the final cost associated with the larger acquisitions we've done.

Okay thanks for Jay and I guess one more for me, and it sounds like you know. I was wondering how you guys are thinking about the balance between return to office and- maybe you know- more permanent working from from home schedules, but it sounds to me like you're agnostic either way.

Yes that is correct.

So.

You know we took it on the channe. Everybody knows when we went through the pandemic on a commercial business and we benefited from work from only residential.

So good news is are, as people have begun to work from H mar residential.

busit continues to grow.

Retention continues to improve and.

We have that iddouble-digit growth in commercial in Europe , which is a real sign of the work from home, and we're seeing similar, better numbers in North America. So we're quite pleased of the current balance.

Between the channels as, as the world makes it less changes. Let's open to what the balance of work from home, the work in the office, will make. So we think we're really well positioned. Our business today is roughly in terms of customer count deit.

So you've about half P, half from low Water Direct businesses, resi residential, excuse me, in the other half it's commercial. So we have good balance.

And we have good double-digit broken boat.

Well we really like what we're at.

Okay and maybe just a follow-up to that: where are you in terms of the initiatives in Europe to sort of improve that mix?

So we had last year we articulated, good residential growth.

We continue to have good residents, despite the war.

Good growth in our European business.

We're seeing continued growth in that residential business. We continue to enhance our website. We've opened a number of e-commerce shops, which is important because that's where we will sell dispensers.

Which is the gateway to water services. So we're quite pleased with where we are. We are making enhancementswe refreshed our mobile app in North America. We'll be extending that app into Europe sometime in 2022 and we are consolidating and investing in new sites in Europe and a couple of those we rolled out in the last months or so.

So all those components of the plan coming together, and we think we will, over time, continue to derisk.

And gets better mixed than our customer base in Europe .

Ok thanks for that and good luck for the rest of your gentlemen.

Thanks bark get.

Your next question comes from George jumed with scotiha Bank. Please go ahead.

Good morning. This is Bo. I mean calling on George's behalf. Congrats from the quarter, can you?

Can you talk a little bit about like expectation going forward in Europe , giuring the war, and also how does the volume compares to prepandemic level at the moment?

I did the first St to that goes, where you might repeat it. He faded a little bit.

Yet the volumes in Europe given uncertainties.

Going forward. Yes So yes, okay. So we don't have any direct business in Ukraine.

We do have precise businesses, as everyone is aware, in Poland, in hunary, those businesses are performing quite nicely.

Despite law of.

The disruption. So we're pleased with how those businesses perform if you look on it over a two -year basis. Come back to prepandemic. Our revenue is growing.

It's higher byever right versus two years ago.

Our commercial business in euroors. So little deela little, but aggregate is that a sitting increase, offset by our stated objective of growing the residential of this. So that's coming the fruition way we would hoped.

So we're quite pleased with that. What in aggregated happening in Europe ? We also benefit from that. You know there's more work from home and that's why you see our commercial business beginning to perform better. We expect that frankly, will continue. That I mean you look at, you are seeing more and more countries return to work right now over in Europe . That's how we are having midteenss growth than our commercial business over in Europe . And if you look at versus two years ago, I'd say you know just that part of the commercial business Europe re down mid single digitally. At this point in time we're at the St part of the condemic. We down 40%. So we have seen we're seeing a very good return to that part of the business that think start to normalize over in Europe .

Right and also on that call. You mentioned rightsizing opportunities in Europe . You are waiting for last programs to end there. Can you talk about the opportunity there as well?

But we finished some of our right sizing in 2021.

And gave reference. There is some.

Ma work de that we chatted about with Derek, that we are finalizing. So we think we're largely in the structure we want. Largely and merely. We're now beginning to focus on some investment in SGA obviously, to focus on growth and things like the residential presence in the appropriate service level. That's our business return.

To growth in Europe after.

The two challenges here.

And the only other thing you might be referring to is we are centralized in our back office function to barcelon in Europe , because historically this has been a very decentralized back office business over here and we're making very good progress. We haven't standed up and then we're well along the way of Phase one and we have a second basis in smaller countries in the movement later on this year. But the backshop consolidation in Europe has moved along and progressed very well.

Very helpful, bice price.

Your next question. Both my apologies. Your next question comes from Daniel Moore, with CJS Securities. Please go ahead.

Thank you. Thank you, good morning Tom morning, Jay. Price cost coverage was obviously really good in the quarter despite you so GI you- inflationary pressures. Was there any measurable impacts on EBITDA in the quarter, just given the lag in timing between inflation and when you price?

But.

You know, I think, but we've exuded in the past that we're pretty nimple, and then you know if you went back to the beginning of you know, the pandemic and judge.

aswe made to the cost structure, we reacted to pricing So that second price increase in March.

You know was.

Pretty close to when the impact happened, but there might have been a little bit of the lag there. And then certainly, as we mentioned being our, her comments.

Expect to get full realization of those efforts in Q2 because know in a year-over- unit, that's delivery vide will be higher obviously.

yeah I think net-net. You look at our pricing actions. They were made to offset.

Increases. So net net, net. I wouldn't expect that incremental costs are pricing to benefit our bottom line. It's really to offset the cost our Ing.

Got it very helpful and then maybe just talk about working capital for the expectations for the remainder of the year and how it relates to free cash flow. What your thoughts are there.

If you look at our, our free cash flows say that you will see we do have elevated in inventory levels that we're carrying right now and that was a decision we made to make sure we bought early and stock up on dispenses. We want to make you know we are pushing pensive sales. That is our razor. So we made the knowing decision to buy forward some of the inventory we going to buy later on in the year and I would, I would expect that to continue to year. We want to make sure we're going to push thedispensser sales hard this year when to make sure we have eventually and not so. I would say that's the one pressure you will see if you look at our statement, cash fur I would see rewe're pleaded then at the end of the year but throughout the year we're going to make sure we have we have the spepsed to con CT the key focus to really push the razor So we can sell more raisly, the saying goes.

Makes sense. Maybe last is it look like gemin activity was still a little light light. I know you reiterated your target. Any guidance or color on the cadence of potential tuck-ins as we look at the rest of the year?

Our target remains 40 to six domain. We did a number of, we have executed a number at the end of last year.

So we always want to digest those right So that they don't just show up and no one too. They get a little bit of works too.

So we're focused on the ones we did at the end of the year, but we're confident that we have a solid pipeline ipointul we'll get between four and six million end the year. Progresses for sure.

Area pre CHEP color.

Thank you V for get.

Your next question comes from Steve Powers with duchess. Please go ahead.

okhey, thanks. Hey, I was hoping if you you could just maybe expand on on any challenges or or maybe relative success stories in this environment, just around associate recruitment retention, you know, and wage inflation, on top of all the other crops, inflation we've spoken about, and just how you're thinking about those dynamics, the sort labor dynamics going forward over the balance of the, over the balance of the year. Thank you.

We spent the better part of- let's call it from.

You know that the arrival of the Delta variant through the end of the year very focused on the associateperience.

For our strategic plan.

That is focused on one retention.

So we properly own Board people that we get them trained properly and then then can get into position to take care of our.

Customers we've made good progress because you know, as we reference, we're 98.5 or hundred percent. They have Gon routes.

And we're generally staffed across the company- doesn't mean every town and you know in the market, but we're pretty well staff and very focused. Yes, there's been wages inflation. We call that, as you know, one of the one of the the outcomes in part of our inflation. We have adjusted wages to sure we attract the right people and now that we're staff, our challgees and focus- I don't want to quote a challenge- it keep the ones we got So that we can continue to make progress on growing the top of the business and probably servic saying to customers.

That you know all the moile. Closer to the bottom line.

I would say one.

The thing we implemented, as we've gotten for the end of last year or all into this year, is for our sarss, our drivers, we've implemented a predictive hiring model. Now that you know, we're not waiting for the wespees to the FD anywhere to hire the cur, and we're looking at historic trends, modeling out where we see the openings will come up based on those trends, and we're hiring ahead of it. So that's really what's given us the ability to get our- our, all of our positions full at this point in time is a really well executed predictive hiring model.

Great Thank you very much.

X D.

Your next question comes from Johns Z paro with cibc. Please go ahead.

Orange Jo. Thank for everyone.

Morning if I can ask one more on on prep.

If if I can ask one more on pricing in elasticity, did you see any change in retention rate or customer sign up on the March price increase versus the January price increase and is there any divergence by channel, whether it's residential, B to B or or even e-commerce?

We're not seeing any meaningful changes.

custommer sign on sort retention cross let's call it inside Water Direct. So we're quite pleased with that we obviously we'll follow that to our call center. But we're pleased with where we are from a retention perspective. As we move from Q1 to Q2 and.

Which is for us one of the best indicated. So we're not saying a flarer calls about delibervery fee, we're not paying. A flarer of losses of customers, we're not paying.

Because on ibility, on.

We signing up So we think that we're in a pretty good spot that relates to that and frankly. It is also an outcome of investments. We've made on the associated.

Experience and retention as' an alcohol.

Enhanced we made on digital. It's going to be a benefit of the mold lab. So all the other things we do are enhancing the customer experience.

And to Gay's earli a point if we do all of things better.

And we do the bright for the incremental virus: six box a month or a Bill.

It's not closing people to fep.

And and of course you know, there's other benefits to us in terms of tailwinds about healthy hydration andpeople.

Got our product quality to drink of water and we give it. See, anyway you want.

Okay that's helpful, thanks. And then my followall-up is on the organic growth we listed: 11 and a half percent year-over-year. I'm not sure if you have a handy But in case you do, can you share the pro forma number from q1- last year- it was, it was noisy- versus Q1 20? I get around minus seven or minus eight I just wanted to see if you have that available.

I'm sorry John , I can follow up to be on that when I don't have last year's number.

Handy right now is about what you asking bl: what Q1 last year's number was.

Yes that's why the week we can follow later.

And that was full pandemic. No exactly yes, I that's. I know we were, we were laughping. 9, you know, Q1 2019, with no pandemic, and we were so well in the pandemic of Q1 So yeah, a negative number does sound right at all the top my head. John , I don't have that one hand, but we could follow up doing that number.

Ok understood, that's all for me. Thanks very much.

This's back joh.

Your next question comes from Derek. Delay with Canaccord genuity. Please go ahead.

You hig. Good morning B? ader.

Can I've got just one question 2, questions 1- can you sort of rank order your business lines by margin? I mean it kind of sounds like, based on the commentary on this call and then as well in the press release, that the Water Direct tends to carry a higher margin than the other business lines.

And you're talking to e bit to margin, right right there. Gross, you can walk it down to e.bita, that'd be. That be better, even as a little bit, even as a little bit. But now let's start with gross margin. I work at down, I work at compared. Could gross margins very file?

I mean you look at Water Direct and let's exclude depreciation because that, like to look at it, you're in the high 70%. You know touch in 80 at some quders on our Water Direct is sos definitely. You know a strong margin when you compare it versus our other lves they're much smaller liines. To look at our Filtration business, you know we're not manufacturing our seller projects So it all products So it also has good gross margin. But down and's g is where we have our routes. You know you spended on that, or depreciation because we're amortiz units. So you know we have a very good gross margin on many lines of our businesses. The retail business that we ve talked about- there were eity very low gross margin. Our coffee business, that that's that. In other that are selling coffee get a lower margin business but very happy with our Water Direct. That does run like at high 70% type gross margin.

And the one standout is large dispenser business.

The razor. Good the raer is. We want to get the.

That dispencer in consumer's hand.

So that we can benefit from the sales of water products, whether it's been more a direct quarter exchange. quarto reicil.

So that would be the one outliyer in terms of gross.

And frankly EBITDA, because we want to sell it and get them in your home. That' the lowest possible price because they will. 45% of them are going to come toward direct, 30% of go to exchange and 25% percent of go to our restail business.

And that's the proverbial holy graph: right razer R what?

Yes okay, that makes sense and one more's. I I was a little late to the call, just I M wondering if you have any update- perhaps D ity gave it. Just on the tariff reimbursement that you mentioned last quarter, I believe it was around eight million on the CapEx side and five million on the COG side.

That lives up we don't forecast it. So it's in the hands of others. So if it.

If it comes to comes, but it's nowhere in any of our current guidance or forecasted performance.

Will'll let the? U's government make their ultimate decision on where that turns out.

Ok got it. Thank you very much.

Thanks barret. Thanks very appreciate.

mr codle, there are no further questions at this time. Please proceed.

Thanks vam. This concludes premost's first quarter results call. I do all for attent.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.