Q2 2022 Primo Water Corp (Pre Reincorporation) Earnings Call
Hum.
Hum.
[music].
Hum.
[music].
Hum.
[music].
Good morning, ladies and gentlemen, and welcome to the Primo Water Corporation second quarter 2022 earnings release Conference call.
At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session, but any time. During this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday August 11, 2022, I would now like to turn the conference call over to Mr. John <unk>. Please go ahead.
Welcome to Primo Water Corporation second quarter 2022 earnings Conference call. All participants are currently in listen only mode. This call will end no later than 11 o'clock a M eastern time.
The call is being webcast live on <unk> website at Www Dot Primo water Corp, Dot 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 in connection with <unk>.
Sherri 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 the state.
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 Www Dot Primo.
Water Corp Dot com.
I'm accompanied by Tom Harrington premiums, Chief Executive Officer, and Jay Wells Seamless Chief Financial Officer.
As a part of this conference call. We have included a deck online at Www Dot Primo water Corp. Dot com that was designed to assist you throughout our discussion Tom.
Tom will start today's call by providing a high level review of the second quarter and our progress on Primo's strategic initiatives, then Jay will review our segment level performance and we'll discuss our second quarter performance in greater detail and offer our outlook for the third quarter and full year 2022 before handing the call back to Tom.
<unk> provides a long term view ahead of Q&A.
With that I will now turn the call over to Tom.
Thank you John and good morning, everyone.
I am pleased to announce on behalf of all <unk> associates worldwide.
The results of another strong quarter for Primo water.
As we continue to transform and reshape our company, we are a fundamentally stronger and more streamlined business than ever before we have made significant strides over the past couple of years to focus on our core competency as a pure play water company.
As a result, we have a healthy balance sheet, a compelling long term top line growth outlook and attractive margin profile.
We are confident in our outlook for 2020 floor, which includes high single digit organic revenue growth.
Annualized adjusted EBITDA approaching $525 million.
And adjusted EBITDA margin of 21% to 22%.
The Primo team is delivering results.
To support our planned multiyear dividend step up which will return an incremental $36 million to shareholders through 2024. In addition to the opportunistic share repurchase program of $100 million announced yesterday.
This is on top of our previously announced plans to invest in opportunities that support our growth outlook and EBITDA margin expansion.
Turning to the second quarter.
We delivered robust revenue and adjusted EBITDA growth Punctuating, a solid first half performance.
That gave us confidence to increase our full year guidance.
Our full year 2022 guidance on revenue to 12%, 14% growth in adjusted EBITDA to between 415 and $425 million.
Our business like others is facing macro headwinds.
Our team is resilient and our commercial execution establish as a firm foundation for ongoing success.
Some of these challenges include the translational effect, although significant devaluation of the euro and the unprecedented inflationary environment.
We remain focused on what we can control as we continue to build on our core competencies to achieve our multi year objectives.
In addition to our strong financial performance in the quarter, we exited our single use bottled water retail business in North America.
Let me start our inaugural ESG report and exited our operations in Russia.
In our second quarter consolidated revenue increased 9% to $571 million.
By strong consumer demand.
Price increases, particularly in our North America water direct business increased dispenser revenue and strategic initiatives with retailers.
Robust growth in mountain Valley and continued improvements in the customer experience.
Adjusted EBITDA in the second quarter increased 9% to $108 million supported by higher volume increased pricing and effective expense management that helped offset the impact of inflation.
Consolidated revenue, excluding the single use bottled water retail business in North America, and the impact of foreign exchange grew 16%.
In the global water direct business, our customer base increased over 3% to more than $2 3 million for the second quarter.
This was an increase of more than 75000 customers compared to the same quarter last year through a combination of organic customer additions.
Our base acquisition through our tuck in strategy and an adjusted customer retention rate of just over 86% on a trailing 12 month basis.
Our exchange business is also performing well we are increasing distribution across several large key accounts.
Spanning our product offering with our alkaline product called <unk>, plus as well as improving the customer experience.
Increased delivery frequencies.
In our water refill business, we're beginning to see improved performance revenue increased in the quarter and we are seeing its improvement continue into the third quarter.
We believe this progress is a result of improving machine uptime, coupled with new points of distribution.
We are pleased with the performance of our water and dispenser business this quarter, which solved through volume of more than $225 expenses.
We continue to see growth in volume through increased promotional activity.
Successful initiatives with retailers and increased penetration with our existing customer base.
We are on target to exceed dispenser sell through of over 1 million units in 2022.
We continue to optimize our digital operations in Europe with the <unk> with the goal of being the number one e-commerce water dispenser provider across our 21 country footprint.
While selling water dispenses is not the key driver of our growth. It is a key enabler of our future growth.
What are the expenses are an entry point to the bottled water category that drives our household penetration, where we can capitalize on our recurring razor razor blade model.
The recurring purchase behavior generates organic water revenue and remains one of our key strategic advantages.
Speaking of dispensers, we continue to monitor the potential for tariff relief.
We believe there is a high likelihood that we will see a roughly 90% reduction in Paris bottled water infiltration defenses.
Reduced tariff should enable us to lower the average selling price of dispensers, thus accelerating dispenser sell through and water connectivity.
In other words, we plan to pass through most of the benefit from lower tariffs to our customers that buy awarded defense.
We believe the reduced prices will result in an increase in household penetration that would provide incremental water sales in the years to come.
A lower tariff would also really reduced capex and awarded expansions the expenses that we purchase and rent toward a direct and water filtration customers.
Any benefit related to reduced tariffs and refunds are not included in our outlook at this time.
As it relates to the cost environment inflation continued at an elevated rate during the second quarter with increases in fuel freight and labor costs.
To address the higher costs during the quarter, our commercial teams implemented pricing actions in North America. In addition to the price the two price increases taken in the first quarter.
Given what we are seeing today, we believe that these pricing actions are sufficient to cover the higher operating costs and incremental investments in the customer experience.
In addition, we have recently implemented price increases in our European operations. The benefit of these actions will be realized later in our third quarter and the full benefit will be realized in our fourth quarter <unk>.
These pricing actions along with improved service metrics put us in a better position to offset the unprecedented inflation, we are facing and support our decision to increase our revenue and adjusted EBITDA outlook for 2022.
Importantly, as it relates to price elasticity customer push back related to the higher pricing has been minimal.
We monitor this closely for a combination of metrics, including customer growth call center activity and customer retention all of which remain healthy.
In addition, we continue to invest in route optimization to improve customer service enhance the customer experience and better manage costs. We are at our targeted staffing levels and continue to be staffed at more than 98% throughout deliberate in North America.
We believe the long term benefits, including any improved customer experience and increase customer retention outweigh any short term investments we choose to make.
With the macroeconomic uncertainty we want to highlight the recession resilience of the bottled water industry and our business slide nine in the supplemental deck shows overall bottled water consumption growth and resilience through economic downturns.
The chart shows a consistent increase over time in terms of gallons of water sold and per capita consumption increases generally the long term health of the industry has been unaffected by periods of recession.
As we continue to transform our business we have shed the overwhelming majority of our commodity linked exposure by exiting our former soft drink juice and coffee businesses as well as a single use bottle water retail business in North America.
We have also increased LNG and delivery surcharges to pass through increased operational and delivery cost.
Finally.
I want to reiterate that our strategy is working we.
We are confident in our ability to deliver our 2022 guidance and achieve our long term 2024 outlook of high single digit organic revenue growth with adjusted EBITDA approaching 525 million bottles.
I'll now turn the call over to our CFO Jay Wells to review, our second quarter financial results in greater detail.
Thank you Tom and good morning, everyone.
Starting with our second quarter results consolidated revenue increased 9% to $571 million compared to $526 million.
Excluding the impact of the exit of our single use bottled water retail business in North America, and foreign exchange revenue increased by 16% each.
These gains were largely driven by growth in our water direct and exchange businesses through increased demand in both the residential and BTB channels pricing and the continued return to work across our footprints.
<unk> organic revenue, excluding the impact of FX and adjusted for the acts of the central use bottled water retail business in North America increased 14% in the quarter.
Adjusted EBITDA grew 9% to $108 million.
Excluding the impact of foreign exchange adjusted EBITDA grew 11%.
As Tom discussed the effect of price increases volume growth and strong demand drove profitability.
During the quarter, we maintained targeted staffing levels that have more than 98% of our route delivery positions filled in North America. We are confident that the incremental investments in our people will enable us to deliver our increased full year 2022 revenue growth target of 12% to 14%.
We also experienced inflationary cost pressures in other areas of our business.
The major buckets of higher costs included materials associated with a single use bottle water retail business in North America, which we have now exited.
All freight and labor.
Additional pricing action taken in the second quarter.
As offset these increased costs.
Before I review, our second quarter segment level results I wanted to mention that we are changing our segment structure to include North America and Europe .
For our rest of World segment is now going to be divided and European water operations will be recorded in the Europe segment.
And results of operations for Israel in EMEA as well as our corporate costs will be labeled as other.
The new segment classifications are in alignment with U S GAAP.
In July we completed the planned exit of our operations in Russia.
As a result of the Russia exit and realignment of our segment structure, we performed a fair value assessment during the quarter.
As a result, we recorded a pretax noncash impairment charge of $29 million.
Turning to our segment level performance for the quarter, North America revenue increased 10% to $437 million compared to $397 million.
Excluding the impact of foreign exchange and the exit of a single use bottle water retail business in North America revenue increased by 17% the.
The increase was driven by 21% growth in our water direct and exchange businesses, which included 15% price mix, 5% volume and 1% acquisition growth.
Adjusted EBITDA in North America increased 15% to $97 million.
Turning to our Europe segment revenue increased by 9% to $70 million.
Excluding the impact of foreign exchange revenue increased by 22%.
The increase was driven by our water direct business with growth in our residential customer base and b to be volume as Europeans returned to work.
Adjusted EBITDA in the Europe segment decreased 8% to $12 million as the devaluation of the euro to the dollar more than offset the benefit of higher revenues excluding.
Excluding the impact of foreign exchange adjusted EBITDA increased by 3%.
As Tom mentioned, we have recently implemented price increases in our European operations to mitigate the increased cost of inflation in these markets.
The benefit of these actions will start to be recognized later in our third quarter and the full benefit will be recognized in our fourth quarter.
As I mentioned, we have essentially completed the exit of the single use bottled water retail business in North America.
And 2021 these products accounted for revenue of approximately $142 million.
Through the first half of 2022, we recorded revenue of approximately $41 million as we efficiently wound down the business.
Turning to our Q3 and full year outlook revenue and adjusted EBITDA is off to a strong start to the first half of the year and the beginning of Q3 with strong customer demand and price increases to offset cost increases until freight and labor.
We're also confident in our ability to offset the completed exit of the business in Russia, which will trade a onetime headwind as we lap $14 million of revenue and $3 million of adjusted EBITDA from this business on an annualized basis.
Based on the information we have available to us as of today, we expect.
From continuing operations for the third quarter to be between $570 million and $590 million and that our third quarter adjusted EBITDA will be in the range of $115 million to a $120 million.
For the full year 2020 to overall revenue growth is projected to be 12% to 14% adjusted for the exit of a single use bottle water retail business in North America we.
We expect full year 2022, adjusted EBITDA to be between $415 million and $425 million.
For the year, we expect around $10 million of cash taxes.
$60 million of interest expense as well as capital expenditures of approximately $200 million.
The capital expenditure forecast includes incremental spending as we discussed during our Investor Day last November which is being used to support our growth outlook and EBITDA margin expansion.
In addition to earnings generated from normal course of business. We are exploring an opportunity to sell a few parcels of real estate in California that has seen significant appreciation in value.
Eliminate estimates indicate a combined selling price of approximately $125 million.
Net proceeds will be used to fund share repurchases.
Turning to capital deployment as yesterday, our board of directors authorized a quarterly dividend of <unk> seven per common share.
Our growth outlook and increased free cash flow generation can fund our growth as well as an increase in our annual dividend.
Our path to our multi year dividend.
It's an increase in our dividend per share by <unk> in 2020 to another in 2023 and another in 2024.
The increase in dividend will return over $6 million incremental dollars to shareholders in 2022.
Additionally, our board of directors authorized a new $100 million share repurchase program, which expires on August 14th 2023.
The authorization of the repurchase program reflects the boards confidence in our future performance and our continued long term cash flow generation and demonstrates our ongoing commitment to providing fundamental value for our shareholders.
Other aspects of a couple of capital deployment include continuing our tuck in M&A.
For 2022, we continue to target $40 million to $60 million a pack and.
We remain focused on executing our robust pipeline of tuck in opportunities.
Our long term organic growth outlook has not changed we remain confident in our outlook for 2024, as we forecast high single digit percentage organic revenue growth targeted.
Adjusted EBITDA approaching $525 million adjusted EBITDA margins of 21% to 22%.
Adjusted earnings per share of $1 10 to $1 20 per share.
Net leverage of less than two five times.
And return on invested capital greater than 12% I will now turn the call back to Tom Thanks Curt.
Looking ahead as we continue executing our differentiated water your way platform and focusing on a few key priorities, we will leverage our pure play water model to drive revenue growth of 12% to 14% in 2022 adjusting for the exit of the single use bottled water.
Retail business in North America.
We will deliver organic revenue growth in the range of 10% to 12%.
We will continue to execute a razor razorblade model with growth in the number of dispensaries salt driving top line and earnings growth through the sale of water products.
We are more than pleased with the first half of the year's results and are excited about our future.
With so much uncertainty in the markets, we think the Primo water investment thesis is compelling.
We are the only public pure play consumer from our water platform with leading national and local brand, both North America, and Europe with a predictable recession resistant revenue base and attractive high single digit long term organic growth targets supported by multiple favorable.
Tailwind such as increased consumer attention to health and wellness and aging water infrastructure.
I want to reiterate we are a fundamentally stronger and more streamlined business than ever before.
We've made significant strides over the past couple of years to focus on our core competency as a pure play water company. As a result, we have a healthy balance sheet, a compelling long term top line growth outlook and an attractive margin profile.
We are confident in our outlook for 2024, which includes high single digit organic revenue growth annualized adjusted EBITDA approaching $525 million and adjusted EBITDA margins of 21.
22%.
<unk> is delivering results once again I'd like to think that Primo water associates across the business for their tireless efforts to serve our customers with that I'd.
I'd like to turn the call back over to John for Q&A.
Thanks, Tom during the Q&A 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 per person. If you have additional questions. Please please.
Please reenter the queue. 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 Touchtone phone, you'll hear three ton prompt acknowledging your request and your questions can be pulled in the order they are received.
He was a decline from the polling process. Please press star followed by two and if you're using a speaker phone. Please lift your handset before pressing any tier one moment for your first question.
Your first question comes from Daniel Moore with CJS Securities. Please go ahead.
Good morning, Dan Good morning, Good morning, Good morning, Tom Good morning, Jay Good morning, Jay Good morning, Paul.
So let's.
To start with the updated.
Guide just let me talk about the volume growth assumptions underpinning your updated revenue guide and then qualitatively you know just the confidence in the level of the updated annual outlook. What are you seeing so far in Q3.
Any clouds at all on the horizon as it relates to the consumer you know just a little bit more detail color there would be great.
Yeah, I'll take the qualitative and quantitative Jay.
Uh huh.
Obviously, a very strong Q2, right so customer growth customer retention volume growth pricing elasticity customer basis steady teams are executing we're managing expenses. We are seeing that same performance in Q3.
We can only further builds my confidence that we will deliver on this guide as well as frankly to 2021.
So everything is going according to what we would expect that continues through the month of July which really puts a good place to deliver on our commitments.
I think Tom said it well you look at what I called out in my prepared remarks, our water direct business in North America is what's driving about 21% growth, 15% price mix, but 5% volume organic volume and 1% acquisition. We have continued to see that performance in that part of our <unk>.
Business into Q3 on top of that Tom mentioned, our refill business is showing good growth and it has also continued in the quarter as we've seen ocean freight goes down.
225.
<unk> hundred thousand.
The sensor sales in the quarter, our sell through in the quarter and we're seeing growth in that area. So we'll sell more it assesses this year than we sold last year, which as Tom said is key to driving our water growth. So really are continuing into the third quarter very similar to what we reported in Q2, if not a little better.
Perfect that's very helpful.
And any more color on the commercial b to B volume you.
You know recovery, particularly in Europe , and the momentum you're seeing there.
Yes, so we're seeing pretty consistent growth across the board Jay It's got somewhat more detailed color on how it's breaking down by segment.
I mean, you look at both in North America and in Europe .
We are seeing good return.
If you look at <unk> volume over in Europe , Our revenue was at 8% our pricing was relatively flat. So that was mostly volume driven residential which we continue to add good residential was that.
That revenue was up 14%, so thats very good thing to look at and in North.
America I talked about our growth in our <unk> revenue was up 23%.
Year over year with our residential up 14%.
So as we talked about we are seeing things.
Things normalize from the <unk> side, while continuing to grow our residential side as we said we don't think it's one for one swap with things returned to normal and our numbers are showing it so both channels on both sides of the Atlantic.
Enjoying a good volume growth and pricing growth.
Excellent I'll sneak one more in and jump back in queue, but just timing questions.
One.
On timing of potential benefits on the tariffs and then too.
Some nice property you've got there in California are any sense of timing of when you know that they are the.
Those sales or sale of our sales might be completed thanks.
I'll take the tariff and I gave the Ah <unk>.
Real estate today.
We are cautiously optimistic that it will move from the 25% frankly down to a two 7% AD valorem as opposed to Tara.
It could happen any day, we're not forecasting it.
So it will be upside to us and then as we referenced in our in our comments, we're going to convert that into the sale of one dispensers, so fuel our future growth and lower Capex and what we were and then the flip side is we're also get some reduced capex investment for the ones that we ran so we're optimistic but until it.
Signed and sealed band you know.
We're not counting on it we obviously pay a great deal of attentiveness and are in fact cautiously.
And on the real estate sale, we have one large parcel under contracts will hopefully close and plan to close this quarter.
With the remainder being probably later in the year beginning of next.
Perfect. Thank you again.
Thanks, Sam Thanks, Dan appreciate it.
Your next question comes from Andrea Teixeira with Jpmorgan. Please go ahead.
Hi, Andrea.
How are you a very good question.
I have a question and a follow up please.
That guidance you beat by a tremendous and I guess you were five five.
Topline almost 70 million from zero in the second quarter by around 20, or so I'm just trying to see how.
It's not flowing through is that because of the incremental profitability that you owe me headwinds with the euro depreciation on maybe.
Are you baking in some conservatism into that.
In the backyard.
And then I have a follow up on Europe . Please.
Yes.
There's multiple factors that were that were dealing with number one there is inflation. So part of our price increases as we've talked about is to offset increased cost of steel freight and labor. So that's number one number two.
The euro to the dollar has significantly weakened so we have not changed our full year guidance.
On EBITDA as we have seen the weakening of the euro we've.
We've also exited the Russian business, which as I said.
Early on that you know its $3 million of EBIT that we were lapping so we are lapping.
Lot of headwinds that have come up since the beginning of the year and update our guidance. So that's really how you better do it.
Mhm Okay.
Sure and then on Europe .
Yes. The one thing is the exit ramp of course Youre very.
So I think the answer to the first question right the numbers speak for themselves, but I'm just thinking as you exit the quarter.
Energy prices the way they are and potentially we're lapping easy comps at some point are you seeing any signs of elevated churn.
Deceleration.
Customer adds or anything we should be aware of.
Now maybe maybe later.
Just calm about it.
Yeah, the way I'd think about it despite russia to their size.
The Ukraine is real.
The reality is we're still recovering on our commercial business in Europe , it's still on its way back.
So we would think that that frankly is a tailwind for us as more people go back to work and <unk> commercial segment in Europe , we're seeing that manifest itself with good revenue and volume growth Jay referenced largely volume growth.
And then we continue to generate new customers on the residential side. So.
So clearly you know the tailwind.
High quality drinking water matters on both sides of the Atlantic in.
We are beginning to underwrite that residential opportunity and we would expect that that would continue.
Keep in mind, our customers over in Europe are predominantly contractual based customers. Unlike we have over here in North America. So it has taken us more time to put the pricing through to offset the costs. So our results Q2 really have no price to offset the cost increases as we've seen in just 3% EBIT.
But we have taken the pricing through at this point. So we will have the additional benefit of the pricing to offset the cost inflation in the back half of the year and then the only other small question. It was inside your question was customer retention in Europe is equal to or better than it has been in the past so we're not.
Seeing any changes in the churn that give us any worry.
Uh-huh Oh, that's super helpful. Thank you I'll pass it on and then come back for more.
Thank you thanks, Andrew.
And your next question comes from Kevin Grundy with Jefferies. Please go ahead.
One is that right.
Hey, good morning, everyone.
Hey, good morning.
Tom and Jay So Paulo follow up one on the land and thoughts on buybacks in general so.
Number one just the ability to monetize any other holdings other than what you have outlined.
Think would be of interest and then number two maybe just help me a bit with the recently announced.
Announced a 100 million share repurchase program from the board.
That would seemingly be a finance largely from the real estate proceeds that's sort of setting aside the opportunity to deploy free cash flow post the dividend post tuck in M&A, maybe just help me with that is there an opportunity above and beyond what the board has already outlined.
Yes, let me I'll start with.
To your property question.
And then I'll give the second part of your question Jay.
One roughly in North America 72 locations right.
<unk> is a small number that we've focused on in California like four to be specific.
And part of our team is working on a view that says it is yes, it's about taking advantage of its meaningful appreciation of these properties, but we're also looking at where should our distribution centers for the future of the two.
To maximize or minimize that depending on how you look a lot right is get the logistics minimize our costs and have distribution centers that better match, our current and future customer base.
So the work that we started in California, we will extend across the U S over time.
A thorough and thoughtful process that that gets to what's the right footprint for the next five years seven years, if you will.
That's a real time California's the first piece and the team are now move on to other markets.
And have not sure about your second half, but we saw an opportunity we didn't have a share repurchase program and at this time, we believe our stock is at a very good value I saw the inflow of cash starting in this quarter.
That we have available and we talk to the board. They made a decision the best use of that inflow of proceeds from the sale of land. This fiduciary buybacks and that's that's why we got approval to do so this quarter.
And importantly, we will continue with our other our other uses of capital. So its not instead of we're going to take advantage of this.
Logistics change right to manage better management of our real estate portfolio, which is what this is but we're going to continue to make the investments we articulated back in November of last year on our Investor day about how we grow the top line and high single digit and get that EBITDA margin expansion that we promised.
Okay very good I'll hop off.
So up offline.
But thank you guys congrats again on the quarter.
Thanks, Kevin I appreciate it.
Your next question comes from Derek Lessard with TD Securities. Please go ahead.
Good morning. This is Brett good morning, there's a show called here with Derek and thanks for taking my question.
So maybe just a follow up on Europe . We're just curious as you have seen any pressures on volume routes or even supply chain, particularly in countries, where maybe neighboring Ukraine.
Okay.
Yeah.
If you think about our.
Footprint plants are in local countries.
And we didn't have any meaningful raw materials sourced from Ukraine.
So that we've avoided that with no dependence on that market so other than ocean freight.
And elevated the impact of inflation.
We're in good stead in terms of raw materials, and our ability to supply our customers.
And if you look at Europe , it's a little bit different than North America.
The fuel costs over there is a significant amount of excise taxes. So as fuel costs go up there, it's actually a lower percentage of cost increase than it is here relative. So that's really the main thing that could have been affected by website all in Ukraine, but it actually because of the significant amount of excise tax they put on there.
It's actually a smaller percentage than you would think effect on our business and as I said, we we've taken price to cover that now and will benefit us in the back half of the year.
Okay. Thanks, so much for that and then maybe as a follow up on capital allocation. Just curious how you think about balancing the return of cash to shareholders and your commitment on progress towards lowering our libraries.
Yeah. So there's two parts to that question. So again this is an opportunistic share repurchase based on two opportunities. What we believe is a meaningful.
The lower stock price today.
So to do a share repurchase one based on that and secondly, because of all work on our real estate portfolio, which frees up which creates the ability to do this share repurchase.
We'll continue to invest.
On the incremental capital to drive growth and support the high single digit revenue growth. We've committed through 2024 and also invest on other ways to enhance our EBITDA margins.
So it's again, it's not instead of it's in addition to based on our ability to monetize some of these valuable asset. So we are as Tom said, we are not changing the plan we had at the beginning of the year. It's de leveraged under our plan deleveraging. We're just using this incremental proceeds from the sale of our land and we believe.
Based on where our share price currently is that was the best deployment of that incremental cash that we're getting from the land sales.
Okay. That's very helpful. Thanks, so much for taking my question.
Yeah.
Your next question comes from Jonathan <unk> with CIBC. Please go ahead.
Good morning, John Good morning, guys.
Hey, John .
I wanted to ask about net customer growth I think you mentioned the number year over year. In Q2 was 75000 I think that was 100000 in Q1. So I was wondering if you could share what it was quarter to quarter and is there typically any seasonality on net customer adds I know you have a few different initiatives on that so I'm just wondering if you could add some color there.
Sure.
Yes, there is certainly seasonality, so Q2, and Q3 would be higher quarters historically for customer adds.
Uh huh.
There is real seasonality to that.
We play there is the AD side and that is all around customer retention. So we continue to make progress and investments on the customer experience whether it's digital.
And it's what we call on time and full which is always delivering on time with everything you asked for it through those initiatives.
In place it will impact net growth you know historically for as we go forward.
Right at my Fingertips, John I don't have the movement from Q1 to Q2 I can get back to you, but I know, it's a sequentially higher I just can't give you an exact sequentially growth at the top of my head sorry, John .
Yes, that's okay I appreciate the color there.
And then as my follow up I Wonder if we could get an update on your plans for Primo fresh or on the go.
How close are you to launching a service in the U S and anything you can share.
As you're developing this program.
Yes, I think of Alaska, we've talked about finding the supply chain and in the appropriate manufacturing footprint. We've made good progress there I would expect sometime in Q3 that we'll have units in market I would call a test right. So that says units frankly, both in Europe .
In North America.
On the on the go solution that we want you know this is the opportunity to to make sure that it does exactly what it does mechanically and from a tech perspective, and then once we have comfort that the solution does what we needed to do then we will begin to scale. So we've made progress well.
Plug some units and before Q3 is over.
We remain.
Bullish about where that can bring us.
But again I got to get the units in the field.
They really understand the opportunity here, but.
Okay.
Excited about and happy that we can execute some in Q3.
Okay understood. Thank you very much.
Thanks, John .
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star. One. Your next question comes from Graham price with Raymond James. Please go ahead.
One of them.
Good morning, Thanks for taking my question.
First one maybe on the.
Just regulatory front now that California has voted to start regulating and single use plastics was wondering if you anticipate any boost to demand from that market or just general read through from that.
Yes, we would we would expect that.
Moves to more of a tailwind for us because people are going to look for solutions we.
Have the appropriate one in terms of the ability to refill reuse and read cycle ours.
It frankly this legislation supports our decision to have exited the North America retail business.
So you know this is just further supports our strategy to move to more environmentally friendly and sustainable solutions, and we think that becomes a tailwind for us over time.
Got it got it good good to hear and then for my follow up.
We're seeing more and more businesses.
Looking into or actually purchasing electric trucks.
Which seem like a you know a great use case for your business as well just curious if youre looking at that and maybe just more broadly kind of trends you're seeing on fuel costs.
Yes so.
We continue to execute our conversion of our larger North American fleet from diesel.
So propane.
And it certainly has a positive impact on greenhouse gas emissions, but also is a significant reduction in nitrous oxide.
So that's a positive we will continue that action.
We haven't found an economical electric solution yet for the larger route truck side. We continue to look we're actively in that space.
But the capital cost so far is at least three acts.
What we are though however.
Working through is how do we convert a smaller asset so think about service fans. As an example, both in the U S and North America and in Europe about how we can convert those to E D.
And that's in our I call. It early stage planning, but that would be our intent to begin that migration.
And then fuel cost is you know it depends on where you are.
Right. So you know.
It has not moved down as much as unleaded.
If you look at it and the good news is our LNG surcharge just goes up and down so it covers that cost.
So we are a bit insulated from that but.
Prefer that it went down for the record.
Uh huh.
But we have insulated ourselves of what we do with our energy surcharge and frankly delivery costs.
Deliveries excuse me.
Got it makes sense. Thank you very much.
Thank you. Thank you.
Your next question is a follow up from Andrea Teixeira with Jpmorgan. Please go ahead.
Thank you for taking my follow up so.
I was just hoping if you can elaborate a little bit more on thickness I came to central.
Small water service and connectivity I know you'll have the App and you also have some became more coupons and cooler on coolers and and and I got the coolers.
This idea of games. It's also encouraging so I was wondering if you can talk about marketing dollars and how you were saying I think there's an opportunity.
And also kind of the promotional environment going forward.
Hum.
And Yeah go ahead.
Now I'm sorry, Andrea.
Look we're confident where we're going to grow our dispenser.
We'll sell over a million units this year.
What we've begun to now execute is that you know as an example, you can walk in some retailers and you'll see the coupon on the box.
Uh huh.
Many of the retailers that sell our defenses and that is we've begun to see some increases in connectivity.
We have not conquered the connectivity curve yet.
When we talk about building out our digital plan and our investments, which is one of the areas that we are working on and need to do more work on is to drive that connectivity from where it is today to a new number tomorrow why because we know those water dispenses convert into a razor razor.
Blade and dry out drive our future growth. So it's core to our future marketing plans and we've got to work out all those details. We've made progress we haven't made them or or theres more to do to better said, perhaps.
And if I interpret it that way and it's quite encouraging to hear that in terms of when you come back to the great financial crisis or the last recession, and hopefully we're not going to get into that point, but just to give investors some comfort.
Should we see can you inform us how it happened and.
The impact at least at that point in terms of your engagement and attrition or anything that you may help us gauge.
Yeah, I'll I'll give me a piece of it and then I'll, let Jay elaborate.
One of the key actions, we took out of the latter.
The recession Manhattan.
Back in the late two thousands as we implemented the energy surcharge, we reap the benefit of that today and I was here then so before that recession diesel was $2 50, a gallon I went to I remember high of $4 56, which.
Which is actually not the high today, but we put the energy surcharge in place, which insulates us from that spike in fuel in it and our charge goes up and down so that was a key learning that makes it different.
Because back then I had no right we didn't take the action that was a key learning coming out so that's a key change.
In terms of from two the other thing. We did is we also tightened our credit policies.
Which matters.
And we've had that same credit policy in place so.
That's an important number in our business, it's a cost.
We've mitigated that by changes we made a decade ago frankly that has worked to insulate us from downturns in terms of people forget to pay their bill.
If you want to look at the numbers. If you look at our U S business from 2007 to 2010, so the heart of the recession.
Our direct business the revenue went down 3% over that period of time, if you look at purely organic it went down 4%. So it was it was benefited.
By some acquisitions, but more importantly, when you look at coming out of the recession and you look at 2010 to 2013, our revenue CAGR for growth was 7% and again, 4% organic coming out so we did very well and even better coming out of the last year.
Session. So so that's why I would say we are recession resilient are resistant because yes, we are affected but.
It's not it's not a material effect and we do rebound quickly and as the chart on I think it was slide nine of our deck. It really shows overall the bottled water industry is resilient during these background economic events and I'll, just I'll add on or Taiwan, If you will.
We had this thing called the pandemic.
And I think this company exhibited.
The highly variable nature of our cost structure and we acted.
In a month.
So hopefully investors have the confidence to say, we have the ability and the agility to adjust in real time through these challenges one would face with them. So we have the tail of what happened back then and we have more recent experience with the actions that the company took during a pandemic.
That's very helpful. Thank you and congrats again.
Thanks, Andy appreciate it.
There are no further questions at this time. Please proceed.
This concludes <unk> second quarter results call. Thank you all for attending.
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.