Q4 2022 Primo Water Corp Earnings Call
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 fourth quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at Primo water Corp.
Dot com.
I'm accompanied by Tom Harrington premiums Chief Executive Officer, and David has previous Chief Financial Officer.
As part of this conference call. We have included a deck online at Primo water Corp. Dot com that was designed to assist you throughout our discussion.
Tom will start today's call by providing a high level review of full year 2022, and the fourth quarter and our progress on pre most strategic initiatives.
David will review our segment level performance and we'll discuss our fourth quarter performance in greater detail and offer our outlook for the first quarter and full year 2023 before handing the call back to Tom to provide 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 and.
In 2022.
We delivered normalized FX neutral revenue growth of 16%.
Adjusted EBITDA growth of 11%.
Increased adjusted EBITDA margin by 70 basis points to 19%.
Sales of approximately 1 million water dispenser, the razor and razor razorblade model and increase return of funds to shareholders through the higher dividend and the opportunistic share repurchase program, partially funded by the sale of two properties in California.
I am pleased with the performance during the fourth quarter and for full year 2022 and want to thank all the <unk> associates for their contributions to the company's ongoing success.
We remain confident in our ability to deliver our 2023 and 2020 for outlook.
I welcome David Haas towards first earnings call as our recently appointed Chief Financial Officer.
David has been a key member of the Primo team for several years, most recently as Chief strategy Officer.
As the key architect of our corporate strategy, David has a deep understanding of our business segments.
He has hit the ground running with our team of seasoned accounting Treasury and finance professionals that are assisting him in the transition.
As part of this transition our outgoing CFO , Jay Wells will work with David to ensure a seamless transition.
As I mentioned last quarter I'd like to once again, thank Jay for his dedicated service to Primo water.
And we wish him the best as he approaches his retirement.
Our growth outlook is on track with our portfolio of leading water solutions across multiple channels and geographies.
Strong consumer tailwind and the ageing global water infrastructure as well as a compelling financial profile.
Continued investment in our digital platforms and increased connectivity of water dispensers to our water solutions provides a solid foundation to achieve our growth targets.
For the full year 2022, excluding the impact of foreign exchange normalized revenue increased 16%.
Normalized revenue excludes the exited north American single use bottled water retail business and our exited business in Russia.
Adjusted EBITDA increased $40 million.
$420 million, an increase of 11%.
Moving to the fourth quarter.
We delivered the trifecta of strong revenue.
Adjusted EBITDA growth and adjusted EBITDA margin expansion in the quarter.
Consolidated revenue increased 3% to $533 million, which.
<unk> FX headwinds.
Normalized revenue, excluding the impact of foreign exchange grew by a healthy 14%.
Driven by resilient consumer demand.
Increased dispenser sell through.
Solid volume growth in water direct in exchange.
<unk> revenue growth in water refill infiltration.
Consistent growth of our premium water brand Mountain Valley.
Execution of our M&A tuck in acquisition strategy and consistent customer retention.
Adjusted EBITDA in the fourth quarter increased 9% to $107 million supported by higher volume increased pricing and effective expense management that offset the impact of inflation.
Adjusted EBITDA margin for the quarter was up 110 basis points to 21%.
Although there is seasonality in our quarterly results. This was the second quarter in a row with an adjusted EBITDA margin equal to or greater than 20%.
We are especially pleased with the adjusted EBITDA margin expansion in the face of record inflation.
We successfully offset the impact of labor fuel and freight and expanded the margin percentage.
Job well done by the Primo team that positions us for continued success in 2023 and beyond.
We execute a razor and razor blade business strategy, where the rental or sale of dispensers helps create high margin recurring revenue generated from our water solutions.
We saw an increase in the level of sell through and are awarded the dispenser business to approximately 280000 units in the quarter and approximately 1 million units in 2022. These.
These dispenser sales drove connectivity to our water solutions.
What a dispenser sell through represents the units sold by brick and mortar and e-commerce retailers to the end consumer.
Through volume in the quarter was 50% higher than Q4 of 2021.
Our black Friday promotions XD exceeded our end.
Our retail partners' expectations.
Although higher retail prices reflected the impact of the tariff consumers continued to purchase dispensers as part of their health and wellness journey.
The sell through units are a leading indicator of the future organic growth of our water solutions.
The sell in what we sold directly to retailers for Q4 was negatively impacted by retailers efforts to right size their inventories that were increased during 2022 supply chain challenges.
We expect the right sizing of retail inventory to extend into 2023 and the result in lower dispenser revenue for Primo as it did in Q4 <unk>.
However, it has little to no impact award of dispenser sell through recurring revenue and our water businesses, nor our adjusted EBITDA.
Our award of direct and exchange business continued to experience strong topline momentum during the quarter with 13% revenue growth through pricing actions volume growth and improved customer satisfaction enabled by increased delivery frequencies.
Customer retention importantly remained consistent with prior quarters.
We were awarded a five year contract to Big Costco's exclusive service provider for a large format bottle water delivery services directed cosco consumer and business members.
In 2023, we will increase the number and frequency of in store activities at Costco stores increased customer growth from these events will ramp up through the year as we build out the program across more and more of the U S.
Our water refill and filtration business continues to accelerate its growth with an increase in revenue up 14% in the quarter as a result of price increases on outdoor machines improve machine uptime and improve service levels and water filtration.
Our water refill business is one of our water platforms, where consumers who purchased the awarded dispenser connects to one of our water services.
Regarding price elasticity customer trends remain consistent with prior quarters.
Estimate feedback related to the higher pricing has been minimal as we track this through a combination of metrics, including call center activity customer retention and customer growth.
From a digital perspective, we continue to see positive responses from the update of our mobile App my water plus and its ease of use for our customers. Our digital focus in 2023 is centered on new water customer acquisitions through Costco Award of Dot Com as one example.
Water dispenser sales and connectivity to our water solutions.
We continue to invest in best in class digital solutions for our customers.
We are redesigning our website water dot com through a combination of internal and external resources to further enhance the effectiveness of this site.
These marketing investments are helping us build a larger base of long term high value customers.
During 2022, we faced significant cost inflation across labor fuel and freight as well as other input costs, which totaled approximately $74 million.
As I mentioned earlier, we fully offset these headwinds through our pricing and efficiency actions during the year and increased our adjusted EBITDA margin percentage.
The Primo team has done an outstanding job offsetting these increases while continuing to improve the customer experience.
The automated route optimization tool.
So in North America continues to yield efficiencies.
Tool sequences routes for the most efficient path possible, which maximizes the time route sales representatives spend with customers unlocks route capacity to handle future organic growth and minimizing fuel consumption.
As volumes increase through the year, we added routes at a more efficient level.
Teen percent improvement in productivity, when comparing 2022 to pre pandemic 2019, and a record all time high efficiency.
<unk> remains a key operating initiatives.
Our 2022 revenue per stop in North America increased nearly 24% compared to last year.
Our arrow tool has helped us offset cost increases, while improving the customer experience and enabling us to increase delivery frequency in support of our efforts to grow our water exchange business.
During 2022, we made meaningful improvements in our ESG story.
We're implementing the reporting systems that provide investment grade reporting detailing our progress on our journey to ESG leadership.
We will be updating our sustainability report for 2021 and 2022 by mid year.
Our upcoming report will highlight improvements in data reporting and our reduction efforts, which have resulted in carbon emissions reductions of nearly 20%.
We source our water from a combination of municipal onsite, well and spring sources across our footprint.
Of the 81 sources, we use 37% are company owned.
Our approach to sourcing enables us to ensure adequate supply and to meet varying consumer water preferences.
From a governance perspective, and identifying new candidates our board will consider the mix of direct their characteristics and diverse experiences perspectives and skills appropriate for the company.
Over the course of the past five years, we've refreshed our board with five new directors.
As we shared last month at the ICR conference for the full year 2023.
We expect revenue to increase to between two three and two $3 5 billion.
With normalized revenue growth in the range of 6% to 8%.
We expect full year 2023, adjusted EBITDA to be between 450 and $470 million.
Both of these financial guidance items exclude any material tuck ins, we might complete throughout 2023.
For the first quarter of 2023, we expect revenue between 520 and $540 million and adjusted EBITDA of between 90 million and $95 million.
Finally, I will reiterate that our strategy is working we are confident in our ability to deliver our 2023 guidance as well as our longer term outlook.
I will now turn the call over to our CFO , David <unk> to review, our fourth quarter financial results in greater detail, David. Thank you, Tom and good morning, everyone before reflecting on the results of the quarter I wanted to begin by expressing my excitement to lead great teams across accounting Treasury finance and strategy.
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I've been involved in the premium business since 2009 preparing for legacy Primo's initial public offering and have worked with Tom since 2013, when we began to work on a production and distribution agreement.
Over the past decade, plus the execution of our strategy grew dispenser sell through from approximately 240000 units to approximately 1 million units in 2022.
The increase in household and small business penetration with our dispensers has created a business with forecasted highly recurring revenue in excess of $2 3 billion supplying close to 1 billion gallons annually for consumers.
Even with this impressive growth. We believe we have just begun to realize the vision the potential of the premium business.
Starting with our fourth quarter results consolidated revenue increased 3% to $533 million.
Compared to $518 million, excluding the impact of foreign exchange normalized revenue increased 14% for the quarter.
As Tom mentioned earlier normalized revenue excludes the revenue of the exited North America single use bottled water retail business and the exit of our business in Russia.
Reported revenue for the year 2021 includes $142 1 million of revenue associated with our single use business and $13 6 million of revenue associated with our Russia business.
Reported revenue for the year 2022 includes $41 million of revenue associated with our single use business and $7 $4 million of revenue associated with our Russia business.
Adjusted EBITDA grew 9% to $107 million, which represents a 110 basis points of margin expansion.
Excluding the impact of foreign exchange adjusted EBITDA grew 12%.
The effect of price increases volume growth and strong demand increased profitability.
During the quarter, we maintained targeted staffing levels and have more than 98% of route delivery positions build we are confident that the incremental investments in our people and the use of predictive staffing model will enable us to deliver our 2023 targets and beyond.
Turning to our segment level performance for the quarter, North America revenue increased 5% to $405 million compared.
Compared to $387 million.
Excluding the impact of foreign exchange normalized revenue increased 14%.
Organic revenue grew by 16% and water direct and water exchange, which included 11% price or mix and 5% volume growth continuing a pattern of consistent price and volume growth throughout the year.
Adjusted EBITDA in North America increased 13% to $96 million.
In our Europe segment revenue decreased by 1% to $60 million.
Excluding the impact of foreign exchange normalized revenue increased 20% with growth in our residential customer base and <unk> volume as Europeans return to the office.
Adjusted EBITDA in the Europe segment increased 33% to $10 million.
Excluding the impact of foreign exchange adjusted EBITDA increased 53%.
Our 2022 results of two to one 5 billion in revenue $420 million of adjusted EBITDA and 70 basis points of adjusted EBITDA margin enhancement confirm our strategy is working and we are on track to deliver our 2023 and long term outlook.
Turning to our Q1 and full year outlook.
We expect consolidated revenue from continuing operations for the first quarter to be between $520 million in.
$540 million and that our first quarter adjusted EBITDA will be in the range of $90 million to $95 million.
As a reminder, our Q1 is typically seasonally softer with lower volumes and adjusted EBITDA margin as part of the shoulder seasons in water demand.
For the full year 2023 revenue is projected to be between $2 3 billion and $2 three 5 billion with.
With normalized revenue growth in the range of 6% to 8%.
We expect full year 2023, adjusted EBITDA to be between $450 million and $470 million.
We expect 20% to $25 million of cash taxes, which is higher than historical run rates due to the utilization of net operating losses or Nols related to the tax impact of the property sales in California, and the increased earnings power of our water Youre way platform. In addition, we are limited.
Amount of Nols, we can use each year, but we have substantial nols available in 2023 and 2024 before the amount start to significantly decline in 2025.
If we were to sell a similar amount of properties in 2023 as compared to 2022, we could see an additional tax impact of approximately $10 million.
We expect approximately $70 million to $75 million of interest expense the amount of interest expense paid could be lower dependant on our capital allocation.
Potential reduction in our revolver.
Our 2023 Capex guidance consists of 7% of revenue plus an incremental $30 million for a total of approximately $200 million.
As a reminder, we decided that during 2023 and 2024, we will invest approximately $30 million per year as opposed to the $50 million noted in our November 2021 Investor day.
This decision is based upon our confidence and run rate performance that enables us to reduce the investment dollars and deliver the 2023 and 2020 for outlook.
Key initiatives to be funded from our Capex plan include driving digital growth, leading dispenser innovation building a more environmentally friendly fleet in.
Installing more efficient water production lines, which will reduce water usage and increased productivity and driving growth in refill and filtration with our on the go units and new filtration innovations.
We expect to return to our normalized total capex spend of approximately 7% of revenue in 2025.
Our 2022 performance reinforces our confidence in our ability to deliver sustained organic revenue growth.
Supporting the organic growth outlook, our recent gains and new points of distribution in our exchange business.
Geographic expansion of Costco in store events, resulting in an increase in the number of events in North America, and our water direct business as well as the improved performance of our refill business.
These gains are a result of our commitment to improve the customer experience through increased service levels as well as continuing investments in the digital experience customer satisfaction and operating efficiencies.
As we mentioned in Q3, we continued to explore opportunities to monetize properties that have seen significant appreciation in value and we are in the process of marketing additional properties. This year.
We were able to close on two properties during the fourth quarter for an aggregate total of approximately $50 million.
We plan to use the net proceeds of these property sales to fund components of our capital allocation plan, including among other things debt reduction and our opportunistic share repurchase program.
Part of the opportunistic share repurchase program during 2022, we repurchased approximately $24 million.
And as of February 20th approximately $6 million year to date.
The repurchase program reflects the board's confidence in our future performance and our continued long term cash flow generation and demonstrates our ongoing commitment to providing value for our shareholders.
We remain focused on reducing our net leverage ratio to below three times by the end of 2023 until less than two five times by the end of 2024 as a reminder, our current debt maturities are in 2028, and 2029 and we therefore have no reason or benefit to refinance any of our.
At this time and are pleased with our current debt structure.
Our 2024 outlook supports our planned multiyear dividend step up that will return an incremental $36 million to shareholders through 2024.
This is on top of our previously announced plans for incremental investment to fuel topline and Bottomline growth.
Regarding our tuck in M&A for 2023, we expect to invest $20 million to $30 million as we focus on our organic growth as well as take a patient approach due to macroeconomic factors that might weigh more on smaller operator operators.
In recognition of our 2022 results strong financial position and confidence in the future of Primo yesterday, our board of directors authorized a quarterly dividend of <unk> <unk> per common share, which represents a 14% increase over previous quarterly dividend and marks the second consecutive year. The board has.
<unk> the quarterly dividend.
I am excited for the opportunities that we have in front of US I believe we have the right plan and the right team to win our customers associates and shareholders can all share in our success as consumers migrate towards healthy hydration solutions I will now turn the call back to Tom.
Thanks, David we.
We are pleased with last year's results and are excited about our future.
We are one of the only pure play awarded platforms and benefit from a predictable and resilient revenue base, well balanced with the residential and b to B customer base.
Our high single digit long term growth targets are driven by the connectivity of water dispensers to our water solutions with supporting consumer tailwind to include focus on health and wellness.
And concerns with aging global water infrastructure.
We have a healthy balance sheet, a compelling long term growth outlook and attractive margin profile that has risen to more than 20% in the last two quarters.
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 will 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.
Operator, please open the line for questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
If your question has been answered and you would like to withdraw from the queue. Please press star followed by the number too.
You are using a speaker phone please lift the handset before pressing any tier one.
One moment. Please for your first question.
Your first question will come from Derek Lessard TD Securities. Please go ahead.
Yes, good morning, everybody and congratulations on a really solid year.
Thanks, Derek appreciate it.
Maybe guys just coming back to the dispenser sales for a second I was curious how much visibility you have on that line item in particular.
Should we be modeling going forward similar to what we saw in Q4 levels and then I guess, whether there is any is there any tie in between the sell in and sell through.
Yes, I'll take the second part of your question first Derek then obviously this is maybe not obviously this is Tom.
The key performance number we look at is the dispenser sell through.
And that is how many defenses are purchased by consumers through our brick and mortar <unk> e-commerce customers.
And this year in 2022, we sold just about $1 million.
Which is the second best year that we've ever had and we had a 50% increase in Q4.
What's important is that as a sign of new customers coming to the category that will convert into water uses and enjoy the water for me the water direct in exchange. They can enjoy it from water refill. So we're quite pleased with that sell through and that will continue to feed the ongoing order growth in our water segments.
Our challenge in <unk> in Q4, and as I said in my prepared comments, we expect some.
Inventory challenges through 2023 is really the amount of inventory that retailers.
Purchased during 2022 as a result of all of the supply chain issues, whether it's all the delays and acquired the elevated cost and retailers, we experienced beginning to bring those inventories down during Q4.
The sell in Israel is interesting, but it has no impact really on our water performance.
On the connectivity and is really unrelated to the sell through so as those inventories.
Inventories normalize through 2023, we would expect that.
It will have soft revenues for us in dispensers.
But importantly.
We expect to continue to see elevated levels of dispenser sell through.
And that's the key one of the key drivers of our growth algorithm. Obviously, we also have our rental business in our water dispensers side. So that business is impacted by that inventory and you see it in and the solid growth in all water direct business.
Okay. That's helpful.
Maybe there's a big difference between your North American and European margins.
Could you just maybe remind us how much of that is structural and maybe whats a reasonable expectation for for closing that gap and over what period do you think you could do that.
Yeah, we had.
We began to close the gap in 2022 and you saw we saw we enjoyed good numbers from Europe and 22, particularly in in Q4, where we had.
Adjusted for FX, something on the order of 50% increase in adjusted EBITDA with FX. It was 33% and 20% revenue growth. So we're pretty happy with the businesses Here's the good news.
As we haven't yet gotten back to pre pandemic levels. So we view it as continued upside and growth on a go forward as Europeans continue to return to work.
So we would expect in the next.
I haven't put out a guide of that but we would expect to get back to pre pandemic level over the course of next year or two.
All things considered equal at this point.
So we're quite pleased with the progress we made there and we see it getting back to pre pandemic levels, which will mirror <unk>.
The margin construct of the North American business.
Okay, That's fair and maybe 114 for David Congratulations on the new role.
Curious just maybe about your high level thoughts and expectations as you begin.
Again, the new journey.
Yes, Thanks Derik.
I think mostly it's been around the business for a while so when you look at either my time in banking or actually as an employee of either of the companies.
Now new frameworks, it's been about a third of my life and Ive been.
Very dedicated to seeing in overseeing the strategic architecture.
So for me, it's a short learning curve around who we are.
Even to that degree when I was at legacy Primo, Tom and I had a very close business relationship and I understood. The merits of the water direct opportunity.
Now, having all three of those services plus the attractive nature of filtration and different geographies, even more complementary to the opportunity more importantly, a great team around me.
Really excited I've worked with a lot of these partners for a bit.
They really have the approach, we have and Tom and I will be out there consistently telling our story, we want people to understand the new Primo does not look like either of its predecessors, and we're here to shape.
Water connectivity to our dispensers and really change the way consumers can hydrate.
Thanks for that gentlemen, congrats again.
Thanks, Dan I appreciate it.
Your next question comes from Andrea Teixeira of Jpmorgan. Please go ahead.
Hey, Good morning, guys. This is drew on for Andrea Thank you for taking our questions and David.
Hey, how you're doing so.
First I want to.
So I wanted to follow back on the dispenser discussion, so clearly a shortfall in the quarter and you're suggesting some more pressure.
23, perhaps but but reiterated the topline and EBITDA guidance.
'twenty three so just curious maybe where you are feeling more bullish on the underlying business on the underlying <unk> business.
And perhaps.
That should lead to faster EBITDA growth.
Those are obviously.
EBITDA positive businesses.
Yes, if you look.
Thanks, Joe.
Of course dispenser sell through we expect to continue right.
Alright, so that is the.
The key component of the razor razorblade performed quite nicely Q Q4 performance in more of a direct.
14% and revenue in North America, and 20% growth in Europe . So clearly theyre good performance growing the revenue and in North America. It is a combination of price and volume So North America volume was up 5% organic volume.
<unk>, which is a continuation of both price and the elasticity of our business and the volume growth, which says that more customers consuming more water.
Both from customers, we sign up as a result of dispenser sell through but also from the benefit of programs like Costco and other tactics, we execute on growing the water direct customer base. So we're confident in our ability to continue to drive revenue and volume growth in that part of our business and now you've seen also.
In our refill and filtration business solid performance in Q4, that's a couple of quarters of consecutive growth. So we think we're in a good place there and we would expect to continue to see growth in that segment of our business. So the model works.
And market tactics are working and they are driving the revenue growth that we expect that's embedded in our growth algorithm for 2023, which is in the range of 6% to 8%.
And obviously that would contemplate.
Some softness in dispensers.
Perfect. Thanks for that and just following up on.
Customer additions so it sounds like you.
Continuing on our customers the retention consistent.
I guess.
Following the quarter end any change that you've seen year to date and consumer sign up.
Are you having to kind of.
On a promotional activity or introductory pricing to the game sign ups or how you see that progressing through the year. Thank you.
Yes, Thanks, Joe.
As we mentioned before we sign that five year agreement with Cosco, which gives us the ability exclusively to market our services to cosco consumer and business members.
We're building that program as we speak it will accelerate as we go through the year. It's a key component of the water direct growth because it will bring more customers.
The <unk> family it'll build quarter over quarter right. You don't start everything the first day of January we build out that capability and we are quite pleased with the way we've started.
We're also seeing good performance on our digital activities on our awarded Dot Com and other sites. So we are off to a good start within where we expect it to be in.
Middle of January or Middle of February excuse me.
In terms of the growth story in terms of <unk>.
Revenue and volume from award of direct side and the same with our refill business. So we're quite pleased with our stock.
Your next question will come from Dan Moore at CJS Securities. Please go ahead.
Hi, Good morning, it's Pete Lukas for Dan.
Just in terms of the resi side, obviously, you had a big spike during the pandemic just curious what youre seeing in terms of consumer purchasing power and discretionary spending.
That softened at all in recent months and any trends youre seeing there.
Yes, good morning, Pete and thanks for joining.
Our residential performance is greater than pre pandemic levels.
Obviously, you may recall those questions about what was the stickiness of the residential customer base as it grew through the pandemic I'm happy to report it sticky.
There was not a trade from commercial residential.
In our residential business is higher.
Then it was in 2019 pre pandemic we benefit from.
Our commercial customers for us <unk> in North America, and real commercial office space in Europe still not all the way back to pre pandemic, but we expect that we'll benefit from that return in our growth algorithm over the course of 'twenty, hopefully only 23 by 23 and 2024.
So very sticky.
Delivering what we wanted better than it was pre pandemic.
So we're quite pleased in the mix of the customer base and on account basis think of our business I'll use North America about 50 50 in terms of customer counts.
50% residential a 50% beta be a commercial on a revenue side, it's roughly 60% residential 40% commercial just to give you a context. So we're quite pleased with the current construct.
Very helpful. Thanks, and just one more from me in terms of margin benefits that you expect to achieve if raw materials and input costs continue to pull back just any sense of what we could expect there.
We enjoyed not about slow is at 74 million of inflationary costs, which on a full year basis.
Roughly 10% increase.
So big component of that is labor. So we don't expect labor to come back right. So that's one that we'll continue our fuel will come back some.
We do have an energy surcharge and it offsets the fuel so the energy surcharge will go up and down with how fuel may come back down.
It continues on its current trend in freight comes back I think about freight, though a large component of freight related to the dispenser business.
So the dispensing business Park Capex, we would expect to see some mitigation in those costs over the course of the year and our current view would incorporate some of that into our current.
Guidance, both in the quarter and for the full year.
Very helpful. Thanks, I'll jump back in the queue.
Yes, Thanks, Matt appreciate it.
Your next question will come from John Zeng borrow at CIBC. Please go ahead.
Thanks, Good morning, guys and welcome David.
Thanks.
Good morning, John .
Good morning. My question is on free cash flow generation and in particular working capital and in pre pandemic years. This was generally neutral to positive.
For what Braemar was it's been a meaningful drags in 2020 now through to 2022. So I wonder has something changed structurally here and do you expect you'll need to keep investing in working capital in 2023.
Yes, John I'll take a high level, and then I'll flip it over to David for perhaps a little bit more granular.
A review of working capital as a 2022 phenomena.
Largely.
Driven by.
The supply chain challenges we faced.
So if you sell on a high level, we don't in.
Hopefully those supply change.
Anomaly in my opinion in 2022 don't repeat themselves, but the biggest changes the biggest change in working capital were related to decisions we made.
Working capital and as a result of that supply chain, but let me flip it to David for some more color.
Yes, so John on dispensers, whether imported for use in our rental fleet.
Or imported to then supplied domestically to retailers.
Both of those would have been impacted negatively by the tariff percentage so on a like for like basis, a single dispenser would've.
Impacted working capital that much higher due to the tax if you will or call. It a tariff of the percentage.
So when.
When we talk about sell in versus sell through at least of the retail oriented dispensers, both we and our retail partners increased inventory to support.
Shortages challenges et cetera that most of the supply chain.
Chain based and so that would have.
Ben the largest contributor to the working capital change on a year over year basis.
Combination of the tariff 25 cents on the dollar higher and in fact that we eyes wide open.
Increase the inventory level to meet growing consumer demand correct and so on a like for like basis. If we bring in the same quantity of dispensers zone any annualized level in 'twenty three they will they will cost 25 cents on the dollar less.
Got it Okay. That's helpful. And then my follow up is it's twofold, they're both housekeeping items.
There was roughly $10 million worth of SG&A costs added back to EBITDA can you say what that consisted of and secondly can you confirm the plan for buybacks for 2023 is still roughly $75 million.
Yes, so I'll start with the second one clearly just to just to clarify something put in the supplemental.
That would've been a year to date value and it is not a change in our repurchase program.
So the residual value left of that repurchase program as it meets sort of thresholds and criteria will still be executed. So the monetary value mentioned would have only been in the year to date value. It is not a change.
Prescribed sort of look at the program so far.
Full year.
Authorization was $100 million.
Which happens to be 'twenty, two and 'twenty three.
And through a week or so ago.
We've so far repurchased about $30 million.
Right.
It's we're still authorized up to an incremental 70 million opportunistically.
So the first part of your question that would be a complete noncash related item as we sold properties. We had some sub leases related to that and Thats, an accounting charge simply to a mark to market accounting. So they know what our rates are in the market and what our current relationship is with.
That subtenant.
The noncash charge the majority of that value.
Understood. That's helpful. Thanks very much.
Okay. Thanks, John appreciate it.
Your next question comes from Garik delay at Canaccord. Please go ahead.
Yes, hi, good morning, everyone.
Good morning Derik.
Just on your on your guidance for EBITDA for 2003, and 24 for 23 at the midpoint, you've got about a nine 5% increase in EBITDA year over year, and then to get to your medium term target for 2024 that implies a 15% increase on top of that midpoint for 'twenty three.
So can you just.
Walk us through how you expect to get there and why do you expect to see an acceleration in your EBITDA growth and 24 versus 23.
Well a.
A couple of things and we Havent provided all the detail is obviously in 2024, but I'll just share with you that the way I think about it so.
Our guide for our guidance for 'twenty three is $4 50 to $4 70.
We know we have now exited completely.
The.
Retail business, so we'll get the flow through full benefit of having exited that business.
We as we previously articulated we're making incremental capital investments.
And those capital investments are not all done and theres future work to be done, which will help us improve operating efficiencies.
As an example, we talked about in this in the script.
<unk>.
So it's how do we use our automated route optimization to improve route efficiency, we're quite pleased with the first call. It five months of benefit from <unk>, but there is more to combat. The result of that one program. As an example today, it's only in North America not in Europe , we would expect over.
Time to introduce that to Europe .
So our first production line and that we've talked about effectiveness and efficiency on a production line so where.
We've been operating on a new line in about 10 days now.
And it is on the path to produce the kind of benefits that we thought so as you build to 'twenty four.
His runway performance and two quarters of improved adjusted EBITDA margin in Q3, and Q4, where we got over that.
Short term magic up 20%.
The exit full exit of retail further investments on that incremental capex to drive efficiency and that could do things like <unk> and production and of course incremental revenue and the natural leverage that we get through our income statement as we continue to grow in that 6% to 8% range. So it's a combination of those things.
That gives us confidence in in 'twenty, three and frankly in 2024.
Okay. That's helpful. And then just following up on something you can do to add a couple of cents here your commercial business as it relates to pre COVID-19 level. It sounds like youre not fully back, but pretty confident you'll get there in the next year or two.
Is there a major difference between North America, and Europe, where you're at versus where you were pre COVID-19 and can you can you give us some color on what that sort of magnitude of differences.
Yes.
North America is closer.
Part of that is the construct of the differences in that commercial business Derek So.
North America business is more b to B cell Doctor's office dentist office hair Salon.
And the European business is more large commercial office.
And.
The U S that North American business is in the night.
Early 90% return ish in that European business would start with an eight.
But making good recovery, so we see a clear path, where we will absolutely benefit from growth in both of those over the course of the next year or two I can't predict in which quarter, it's going to happen in but we see continued improvement on both sides of the Atlantic.
And hopefully that gives you a kind of order of magnitude of the difference between between the two pieces.
Yeah, that's great. Thank you very much.
Thanks, Dan I appreciate it.
Your next question comes from Pavel <unk> at Raymond James. Please go ahead.
Thanks for taking the question.
Maybe back on the European aspect, given the drop in the euro and the pound over the past year, you talked about the currency impact is.
Is this actually creating it.
More target rich environment for you as a potential consolidator Emma.
M&A assets in Europe .
Yes, Pablo good morning, and thanks for the question.
Our M&A.
And what we have articulated both at ICR and in our prepared comments is we're going to be thoughtful.
And patients.
And part of that is we think inflation will.
<unk> will have.
Impact on small operators over time.
So frankly, we want to let that the habits of fact then.
We have a pipeline of opportunities and we continue to look for the right ones, but we're not rushing to execute those in today's environment and want to be really patient about the ones that we do execute.
In 2023.
Okay, Let me turn to the ESG roadmap you talked about some of the initiatives you have in place.
This is the first year with the commercial electric vehicle tax credit from the inflation reduction Act are you starting to maybe.
Look with more appetite on electric mobility for your truck fleet at least in the U S.
Yes, the way we think about it is we certainly have a large appetite for it.
We will focus on our lighter weight assets first.
Think about that pad, though is we have a large service fleet, which would be more like van.
And largely it both in the U S and in Europe . So we are looking at how we might begin to shift from gas powered to EV for the smaller asset.
And we continue to look at larger assets to handle for the bigger beverage bodies.
But.
We haven't found the right economic solution, yet because the cost is still all three X what it would be from a propane powered diesel for our propane powered asset. So we'll continue to look at propane for the bigger assets in the U S North America.
We will look to expand our exposure and use of.
Not diesel or gas powered assets for the smaller fleet.
And we stay very diligent look getting out of their assets as we hope the economics get to a place where we can wisely invest shareholders dollar in that in that equation.
Understood Thanks very much.
Pablo.
Ladies and gentlemen, once again, if you would like to ask a question. Please press star one now.
Your next question will come from Derek Lessard TD Securities. Please go ahead.
Yes, just one follow up for me I was curious if your guidance ever see and.
I know, it's part of it.
Longer.
The longer term tailwind, but I was curious if you ever see pumps and sales on the back of it.
Use events like the train derailment and water contamination in Ohio.
Flowers.
As I think about the aging water infrastructure in.
In recent weeks Flint this pop up again.
An issue and Jackson, Mississippi.
As Pat popped up again as an interest.
We are in the process of getting some water into east Palestine Palestine.
Hopefully today or tomorrow to support that community.
We say a little bit of a balance.
And we're working hard to redirect some of our efforts to ensure that consumers know that we're a viable.
Both an emergency solution, but a long term solution as they begin to make choices about their healthy hydration solutions.
But it happens in small level blood thats not a big event right. So we don't see a big burst, but we see it meaningfully in some.
Some of the smaller.
Geography.
Okay. Thanks for that color.
Thanks Dax.
There are no further questions on the phone lines. So I will turn the conference back to John <unk> for any closing remarks.
Thanks, Michelle we're excited to announce that Tom David and I will be attending the Raymond James Conference in Orlando on March 6th and the Bank of America consumer and retail conference in Miami on March 14, we hope to many of you there.
This concludes primo's fourth quarter results call. Thank you all for attending.
Ladies and gentlemen, this does conclude the conference call for this morning. Thank you very much for your attendance and would you. Please disconnect your lines.
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