Primo Water Corporation Q1 2023 Earnings Call
World of 8%.
Increased adjusted EBITDA margin by 70 basis points to 17, 4%.
Sell through of approximately 215000 water dispensers.
And continued distributions of capital to shareholders through our dividend of approximately $13 million.
For Q1 2023, excluding the impact of foreign exchange normalized revenue increased 12%.
Normalized revenue excludes the exited North America, a single use bottle water retail business and our exited business in Russia.
Reported revenue for the first quarter of 2022 includes $26 $6 million of revenue associated with our single use business.
And $2 $8 million of revenue associated with our Russia business.
Our schedule is included in our supplemental deck.
Adjusted EBITDA increased $7 million to $95 million, an increase of 8%.
Excluding the impact of foreign exchange adjusted EBITDA grew 9%.
We continue to deliver increased revenue.
Adjusted EBITDA growth and adjusted EBITDA margin expansion.
Consolidated revenue increased 4% to $547 million.
Revenue growth was driven by resilient consumer demand.
Increased water dispenser unit sell through of approximately to 115000.
Solid revenue growth awarded direct in exchange of 11%.
Given by both pricing and volume.
Strong revenue growth and more refill infiltration of 21%.
In global water direct customer retention of approximately 84%, which remained consistent with last quarter.
Adjusted EBITDA in the first quarter increased 8% to.
The $95 million supported by higher volume increased pricing and effective expense management.
We're pleased with the adjusted EBITDA expansion in the face of continuing inflation.
We successfully offset the impact of higher labor fuel and freight expense.
Of approximately $15 million in the quarter.
<unk> expanded the margin percentage to 17, 4% up 70 basis points versus prior year.
As a reminder, our second and third quarter adjusted EBITDA margins are generally higher because of seasonality in our business.
As you know we offer a range of products through a razor razor blade business model, where the rental or sale of water dispensers create high margin recurring revenue generated from our water solutions.
We saw an increase in our level of sell through an award of dispenser business to approximately 215000 units in the quarter.
Higher retail prices reflected the continued impact of tariffs imposed on imports from China.
Consumers continued to purchase new Primo water dispensers and demand remained strong.
One of dispenser sell through represents the units sold by brick and mortar and e-commerce retailers to the end consumer.
This is an important metric for the company because these water dispenser sales drives connectivity to our water solution <unk>.
Resulting in recurring higher margin revenue.
The sell through units are a leading indicator of the future organic growth of our water solutions.
As expected the sell in or what we sold directly to retailers for Q1 continued to be impacted by efforts to right size inventories that were increased during 2022 supply chain challenges.
Our consolidated water direct and exchange business.
<unk> experienced strong top line momentum during the quarter.
With the 11% revenue growth through 9% pricing actions.
Present volume growth and 84% customer retention award of direct and 99% retention and water exchange.
During Q2.
We will expand our mobile App my water plus.
Poland and Israel and continue the update the App based on real time customer feedback.
Our digital focus in 2023 remain centered on new water customer acquisition.
Through Costco award of Dot Com as one example.
Water dispenser sales and connectivity to our water solutions.
In Q4 of last year, we talked about being awarded a five year contract to be Costco's exclusive service provider for large format bottled water delivery services direct Costco consumer and business members.
We're pleased with the rollout of this program and we are increasing the number and frequency of in store activities Costco location to capture the full benefit of this relationship.
We expect this program to drive increased customer growth as we build out the program across the U S.
The growth of our water refill infiltration business continues to accelerate with an increase in revenue of 21% in the quarter.
Driven by price increases primarily on outdoor refill station and improve refill station uptime and service levels.
Our water rebuilt business is one of our water youre away platforms, where consumers refill their own empty, one gallon or multi gallon primo water bottle.
One of our 23500, plus self service refill stations.
Customers in this business are counted as the retail locations of our refill station and not the consumers' physically using the rig fuel stations.
We maintain high refill station retention and there is tremendous potential for continued volume growth across the category.
Water refill targets, a value conscious consumer and provide similar margins to our other water offerings.
This is another positive aspect of our business transformation initiated by the acquisition of legacy Primo that provides a diverse platform of where water services for all consumers.
Customer resiliency related to the higher pricing action across our water solutions has been minimal as we track this through a combination of metrics, including call center activity customer retention and customer growth.
The balance between our demand and pricing continues to be extremely positive.
It's important that we attract quality customers that will remain with our services long term.
We're highly focused on attracting the right customer not just to add a customer for the sake of growing customer count.
I would like to talk for a moment about operating efficiencies.
The ability to serve our customers in the most efficient manner possible is a critical driver of both our short and long term profitability.
Our automated route optimization for Arrow in North America continues to yield deficiencies.
We will extend the use of arrow into a refill and filtration business later in 2023 to capture efficiencies and improve service levels that this tool can deliver.
In addition to capturing cost efficiencies the reduction in mile which supports our commitment to reduction in greenhouse gas emissions.
A key service metrics, we focus on is on time in full or <unk>.
<unk> simply put.
Is did we delivered to the customer on the day at the approximate time and with all the products they requested.
Chip in North America in Q1 was 95%.
Another tool, we use as our predictive staffing model, which continues to be refined and produces outstanding results.
During the quarter, we improved our targeted staffing levels to 100% of route delivery positions filled.
We continue to believe that our incremental investments in our people and the use of our predictive staffing model will enable us to deliver our 2023 targets and beyond.
Last month we.
We published our 2021 supplement to our 2020 ESG report.
I am pleased with the progress reflected in the latest update.
Some of our notable accomplishments described in our supplemental report include.
Achieved all stated dei target.
We placed over 9000 megawatt hours with energy certificate attributes power.
<unk>, our European operations with 100% certified renewable energy certificates.
Announced the strategic exit of the North America, a single use bottle water retail business that produced over 400 million HD p/e plastic containers annually.
Reducing the equivalent of 50000 metric tons of Sidoti and.
And reduced our global greenhouse emissions by 20% over 2020.
We expect to publish our 2022 ESG report later this quarter.
As we shared last quarter for the full year 2023, we expect revenue to be between two three and 235 billion.
With normalized revenue growth in a range of 6% to 8%.
We expect full year 2023, adjusted EBITDA to be between $450 million and $470 million.
Both financial guidance items exclude any tuck ins, we might complete throughout 2023.
For the second quarter of 2023, we expect revenue between 575 and $595 million and.
<unk> EBITDA of between 113 and $123 million.
Primo water is well positioned to achieve our long term growth targets.
We benefit from long term tailwind <unk>.
Including a favorable shift in consumer demand towards health and wellness and.
And concerns with aging global water infrastructure.
We continue to invest in our digital platforms to enhance the customer experience.
And our new innovations for our water dispensers to support connectivity to our water solutions.
We have a compelling financial profile, which we continue to enhance through debt reduction and opportunistic share repurchases and increases to our quarterly dividend.
With continued efficiency improvements that are expand our route capacity and increase on time and in full delivery.
We will continue to drive further adjusted EBITDA margin expansion, leading to increase return on invested capital.
Finally, I will reiterate that our strategy is working well.
Confident in our ability to deliver our 2023 guidance.
I'll now turn the call over to our CFO , David Haas to review, our first quarter financial results in greater detail David.
Thank you Tom and good morning, everyone.
Starting with our first quarter results consolidated revenue increased 4% to $547 million compared to $526 million excluding.
The impact of foreign exchange normalized revenue increased 12% for the quarter.
Adjusted EBITDA grew 8% to $95 million, which.
70 basis points of margin expansion.
Excluding the impact of foreign exchange adjusted EBITDA grew 9%.
The effect of price increases volume growth and strong demand increased profitability.
Turning to our segment level performance for the quarter.
North American revenue increased 4% to $412 million compared to $397 million, excluding the impact of foreign exchange normalized revenue increased 12%.
Organic revenue grew by 11% and water direct and water exchange, which included 10% price or mix and 1% volume growth adjust.
Adjusted EBITDA in North America increased 7% to $85 million.
In our Europe segment revenue increased by 8% to $69 million.
<unk> the impact of foreign exchange.
<unk> normalized revenue increased 20% with growth in our residential customer base and BW volume as Europeans continue their return to the office adjusted EBITDA in the Europe segment increased 61% to $14 million.
Excluding the impact of foreign exchange adjusted EBITDA increased by 69%.
Turning to our Q2 and full year outlook, we expect consolidated revenue from continuing operations for the second quarter to be between $575 million and $595 million and that our second quarter adjusted EBITDA will be in the range of $113 million to $123 million.
For the full year 2023, we are reaffirming our guidance with revenue projected to be between $2 3 billion and $2 three 5 billion.
With normalized revenue growth in the range of 6% to 8%.
We still expect full year 2023, adjusted EBITDA to be between $450 million and $470 million.
Our 2023 Capex consists of 7% of revenue plus an incremental $30 million for a total of approximately $200 million.
As a reminder, we determined that during 2023 and 2024, we will invest an incremental $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 2024 outlets.
Key initiatives to be funded from our Capex plan include driving digital growth lever.
<unk> dispenser innovation building, a more environmentally friendly fleet installing more efficient water production line, which will reduce water usage and increase productivity and driving growth in refill infiltration with refreshed signage and branding of our existing units the.
The development of our on the go units and new filtration innovation.
We expect to return to our normalized total capex spend of approximately 7% of revenue in 2025.
For 2023, we expect interest expense of approximately $70 million to $75 million.
We currently expect 20% to $25 million of cash taxes due to the utilization of net operating losses or Nols in 2022 related to the properties, we sold last year.
While we are limited in the amount of Nols, we can utilize each year, we do have Nols available in 2023 and 2024.
Adjusted free cash flow is expected to increase to approximately $130 million in 2023, which includes the assumption that we monetize several properties.
This is a significant step up from last year's adjusted free cash flow of $85 million and is primarily driven by increased earnings and reduced supply chain impacts on our working capital.
$130 million contemplates increased cash taxes for potential property sales.
Could result in higher free cash flow, depending on the timing and outcome of these property transaction. We expect further increases in our free cash flow in 2024.
As we mentioned during our Q4 call. We continue to explore opportunities to monetize properties that have realized significant appreciation in value. 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.
<unk> share repurchase program.
As part of the opportunistic share repurchase program during 2022, we repurchased approximately $24 million.
During the first quarter, we repurchased another $17 million, bringing the total to $41 million.
Of the one year $100 million opportunistic share repurchase program, which began last August .
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.
We remain focused on achieving our adjusted net leverage ratio target of below three times by the end of 2023 and a 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 debt and are pleased with our current debt structure.
Guarding our tuck in M&A for <unk>.
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 operators.
Yesterday, our board of directors authorized a quarterly dividend of <unk> <unk> per common share, which represents a 14% increase over last year's quarterly dividend rate or.
Our performance reinforces our confidence in our ability to deliver sustained organic revenue growth supported by recent gains and new points of distribution in our exchange business geographic expansion of the 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.
<unk> increased service levels and continuing investments in the digital experience customer satisfaction and operating efficiencies.
I am excited about the opportunities that we have in front of us.
We continue to execute our strategy and are making solid progress in our transformational journey.
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.
This quarter marked the three year anniversary of our acquisition of legacy Primo and the sale of our coffee and tea.
And I think it is important to take a moment and reflect on what our team has been able to accomplish.
During its ongoing transformation from a former caught and legacy <unk> businesses to the new Primo water.
We leveraged our highly variable cost structure to rightsize, our businesses to adapt to the economic environment.
And a consumer base that shifted to more in home consumption.
We increased our revenue and earnings to improve scale reach and better execution.
In the last five years, we've expanded adjusted EBITDA margin from 13%.
The Primo water's 2022, 19%.
We've returned capital to our shareholders through a steadily increasing dividend and opportunistic share repurchases.
We successfully integrated tuck in acquisitions in our water direct businesses and.
<unk> expanded our global footprint.
We increased our understanding commitment and capabilities and ESG.
We've been able to reduce our impact on the environment.
Becoming carbon neutral and eliminating single use plastic from our north American retail operations.
We've assembled a strong team and are excited to share our progress as we continue to realize benefits.
Embracing sustainability as a core strategic pillar of our business.
Prior to the pandemic approximately half of our customers and even more in Europe , where businesses.
Many of which close for much of 2020 and 2021.
Further hurdles included high inflation.
Fluctuating foreign currencies.
Tight labor markets, 25% tariffs on water dispenses manufactured in China, and global supply chain constraints.
Our strategy is clearly working.
And we're pleased with our past accomplishments and we're even more excited about our future.
One of the only pure play water platform and benefit from a large and growing revenue 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.
And concerned with aging global water infrastructure.
We have a healthy balance sheet.
Compelling long term growth outlook.
And an attractive margin profile that we believe will generate adjusted EBITDA approaching $530 million with margins of approximately 21%.
And an adjusted ROIC of 12% by the end of 2024.
Once again.
To think that Primo water associates across the business.
Their tireless efforts to serve our customers.
Before we open the call to questions.
Want to remind everyone again that this call is to discuss our Q1 results and outlook, we will not be taking any questions about our settlement with Legion.
But I encourage those of you are interested to visit our website to review our proxy materials.
With that I'll 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. Thank.
Thank you.
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.
So to your question has been answered and you would like to withdraw from the queue. Please press star followed by the number too.
And if you are using a speaker phone please lift the handset before pressing any key.
One moment. Please for your first question.
Your first question will come from Derek Lessard TD Cowen. Please go ahead.
Yes, good morning, everybody and congratulations on the great quarter.
Thanks, Derek good morning.
And just maybe on that and how this ties into your outlook you're either.
Either beat or came in at the high end of your of your guidance.
However, you didn't raise your full year guide.
It seems like maybe you're erring on the conservative side, but maybe if you could just add some context and your overall thoughts behind that.
Yes, Derek look where we're pleased with the quarter I would say solid start to the year.
We're confident in our current guidance and our ability to deliver on that but I think it's early and I think theres a lot going on in the external market and it's appropriate for us.
To be prudent in terms of our forecast then and stick to our knitting.
Accomplish our targets and deliver the full year guide and see how the next quarter or so develop.
Okay, that's fair and maybe.
Second one for me as well.
It's the first time that we're hearing you guys talk about in detail about free cash flow. So thanks for that just maybe David if you could maybe walk us through again, how you got to the $130 million.
As well as the decision and the important that you are placing on our free cash flow.
Yes. Thanks, Derrick so it's always been an important metric for us we really think this year with much of the COVID-19 disruptions behind us and the recovery of our customer base, including the consumption of our European side of the customer base.
Allows us more clarity.
From a metric again that we've always found important.
And it allows us to start to showcase the platform. We have is a transformed company.
So in general as kind of the.
The script suggested.
Walking down from our midpoint of guidance.
Removing approximately 200 million for the Capex.
The interest is relatively spoken for on our senior note with obviously some of that variability coming in our cash flow alone.
Cash taxes would be the most variable again affiliated with the properties as discussed and how there could be additional upside depending on timing and.
Transaction value there and.
And again on the working capital side, which would have been not necessarily overtly covered.
We tend to reserve a few million dollars there as our AR balances.
And to grow.
Paul.
Collection of that doesn't change the Ara balances naturally grow as pricing starts to go into the customer.
Customer pricing activities. So I think that would give you a pretty good line of sight of how at this point $130 million is that starting value for our viewpoint of the year.
At this time I also think that.
Clearly last year was impacted by supply chain.
The Q2 Q3 inventory adjustments that we made so we thought it important to demystify that.
In connect.
Connect the dots on free cash flow post 2022 supply chain challenges.
Hello.
Hi, good morning, Thank you operator.
So my question is on the cadence of the quarter and the guidance reiteration. Despite the strong start of the year. It seems like most of customer names that we cover January started off strong and then the trends moderated to a softer March.
Wondering if you can comment how you progress and then the trends into April .
And then related to that with the strong performance in the first quarter and above the high end or above at an above high end of range.
The second quarter, probably a little bit softer.
The industry towards anticipated anticipating sorry.
And we today this fiscal year. So can you kind of like Gladys kind of like think about how you are budgeting I understand this beginning of the year, but just to see how conservative you are and then as a follow up can you talk about the volume and price mix components for the water direct business.
This quarter I mean, any any data on customer additions churn and how we see this broke asking for fiscal 'twenty three.
Okay Andrea Thank you.
Quite a question, but let me, let me try and dissect that.
Let's start with Florida direct.
Price and volume so what addressed on our company was up on a revenue basis, 11%, 9% from price 2% from volume.
So we're pleased with that performance you may remember that we have at last quarter talked about the cadence of our revenue growth in 2023.
Net we anticipate anticipated higher revenue growth from price as we lap the actions that we took in 2022.
And that as Costco built.
And we've rolled out that program across the U S. Through the course of the year that wed see more volume growth coming from new customer growth and of course consumption growth in the installed base on the Costco side.
Net the North American side of the story, we are benefiting from both price and volume in Europe .
And that is we took as you may recall, we took more aggressive pricing actions later in Europe , and we saw some of that manifest in Q4, but clearly manifested in Q1.
And then we also are enjoying more consistent return to work, it's still a tailwind for us right because we're not back to pre pandemic levels, but we saw good volume growth from our European operations in the first quarter.
In terms of the cadence we're confident in our 2023 guidance, we think theres a lot going on in the market and we think it's appropriate for us to be prudent to let the next quarter or so play out.
For all external inputs on our business.
Yes, no I get that but I think the two.
Two questions on where announcer to one is the churn I mean, we all appreciate that you had the volume, but I think as <unk>.
Obviously investors appreciate in their investment process to see how the churn is progressing.
A breakdown of how many additions and how many people got out with a price increase in particular in Europe .
And then.
I mean in an environment where.
Your stock is down as much as it is and obviously.
Passengers are not happy with either as a level of conservatism or what you been willing to disclose.
Yes, I'm not going to I'm.
I am not going to react to the first hour by hour and a half hour of the market reaction. This morning.
The stock price.
At all.
Right.
We delivered rock solid numbers that beat what we said it would be and we remain confident in our performance in 2023.
And we're not seeing any meaningful changes in the number of customers and are out.
And I think the best manifest manifestation of that.
The resiliency of our customer base is 11% revenue growth from award or direct business, which is a combination of largely priced but also with that 2% volume performance.
And I can't speak to our markets anybody's reaction to are we overly conservative or not I think there are many others that are frankly being prudent in terms of their views.
What the next 90 180 days hope.
Can you help with just the cadence of that things are happening now in April .
Yes, because all you said.
This is positive and Thats why.
I think we all see.
Yes, we don't see.
Any material changes to April compared to our first quarter results.
Thanks Andrea.
Your next question will come from Dan Moore CJS. Please go ahead.
Hi, Good morning, it's Pete Lukas for Dan.
Your prepared remarks, you mentioned that you were pleased with the rollout of the Booth program at Costco and I think in Q&A, you said look for that to increase your volumes historically, you've added about a quarter of your customers through that program can you just talk a little bit more about what you expect it to look like in the second half and how long you would expect.
Any outsize growth to be sustainable there.
Yes, good morning Pete.
As you think about the booth rollout program and have been most weekends and it's sequential.
So we would expect good growth.
More customers and the volume associated with those customers in Q2, it will expand obviously to get large in Q3 as you build more and more customers as a result of.
That program.
It will be much stronger in Q4, and frankly, it's a tailwind as we move into 2024, because we'll benefit in Q1 next year of 100% of the benefit of the rollout of the customer program.
It has historically been about 25% of the new customer adds as we disclose we haven't disclosed how much more will be but it will be a higher percentage of new customer adds in 2023, and as I said earlier, what Youll see is our revenue growth will shift.
As we move through the course of the year as we benefit from more customers as a result of that of that boot program.
Very helpful. Thanks.
You talked a bunch about Europe , improving pricing and return to work there just in in.
Bigger picture, how do you look at Europe , now compared to how you did three to four years ago and do you think it continues to remain a drag on growth for the next several quarters, just given all the macro uncertainty.
Yes.
Obviously, it was negatively impacted meaningfully during a pandemic and you may recall that customer base was something on the order of 90% commercial.
So the pandemic and closed offices had a pretty significant impact on that business, while we're not back to pre pandemic levels that has now begun a tailwind as Europeans returned to work.
We are pleased with the volume recovery.
We're pleased with the customer retention, because we have pushed through pricing and I think the adjusted EBITDA performance for Europe was was significantly higher than a year ago.
And I think Thats and I don't have the number at the top of my head, it's pretty big number. So we're confident that that business will continue to recover and produce meaningfully higher EBIT adjusted EBITDA margins for us on a go forward basis.
Very helpful. Thanks, I'll jump back in the queue.
Thanks Pete.
Your next question will come from Derek delay at Canaccord Genuity. Please go ahead.
Yes, hi, good morning, guys.
Good morning Derik.
Yes.
Wondering how you guys are where youre seeing the big buckets of inflation across the business.
And are you confident that you can continue to price appropriately for this.
Or is the 9% pricing growth that you implemented does that are you comfortable with that for the next few quarters.
Yes, so our three big components are labor fuel and freight.
Obviously ocean freight has mitigated right. So that's that is no longer the headwind than it was last year and thats associated with all of the supply chain and partially largely dispensary transportation from China.
So that is not a headwind today.
Thankfully.
Fuel is resistant right I've shared this in the past diesel fuel has been more resistant in terms of price changes than unleaded.
So we still face that.
And then labor the labor cost it really a flop over from last year right and the actions that we took we did manage to cover the $16 million of incremental cost in the quarter.
And we think we have the pricing actions in place to continue to cover the inflation cost and if necessary. We will take further actions based on.
How things evolve over the next quarter or two.
And I think the best way to think about it is we covered the significant changes last year I think it was $84 million of inflationary costs in 'twenty two.
And we took.
The actions in real time to keep pace with that and still managed to increase our EBITDA margins in 'twenty two versus 21. So I think we have the right rigor.
And the execution capabilities to cover.
Yes, Okay. That's helpful.
And then I guess just.
Given the challenging.
Consumer spending environment that we're in or that we're entering are you like are you seeing a shift with consumers shifting perhaps more towards the retail business I know it outperformed the water direct is it a function of consumers trading down and then can you just give us some color on the margin differential between water direct repo if any.
Yes, I'll take the first part of that.
The second part of that to David.
<unk> been very focused on improving our service execution on refill.
And our uptime number on rebuild today as an example is higher than 98% that wasn't always that way we've talked about that in the past. We also took a price increase on our refill machines in.
Essentially basically executed beginning Q3, and Q4 and we're seeing the benefit of that.
And we're not seeing any customer resistance at this point the volumes that recovering so we're quite pleased.
So our growth is from price action and refill as opposed to any known to us anyway migration of consumers down trading from any of our other services.
And I think that what supports that as price and volume growth and award of direct business Great performance in our exchange business and the continued stickiness of our customer base. So we think it's price and execution on refill thats driving it.
And then the margin question, David I'm not sure you can help with that one yes on the margin side.
It's fairly agnostic to our other services the difference obviously being that on a percent basis. So on a percent basis theyre agnostic on a dollar basis just from share difference and what consumers are what revenues we generated on a per unit basis, you would get different gross profit dollars, but on a margin basis, we're agnostic.
That's exactly why we love the diversity of that services were.
The consumer.
Performs on all three.
We are able to sort of generate equivalent profits across the business I'd say the one nice distinction about the refill infiltration team is.
Compensation differences between our water direct <unk> in this side of the house, where we're able to keep more of the upside to a performing business there.
Obviously on the water direct side largely the compensation is commission driven.
So I think again, it's a nice diversity platform for us in terms of consumer choice.
Spreads across all three and we're able to make equivalent profits.
Okay, Great. That's helpful. Thank you.
Thanks Derek.
Your next question comes from John Zaro at CIBC.
Go ahead.
Thank you good morning.
Good morning, John .
I wanted to start on maybe Europe , plus rest of world.
I'd like to get a sense of where EBITDA is in dollars from each region versus 2019 really just trying to get a sense of how much more ground. There is to cover to get that business back to where it was.
Yes, so on for the Q.
EBITDA would have been.
About $14 million.
For Europe .
And on the other side.
We have our corporate costs and other activities in there and so we'd have to do some work to bridge that back for everyone but.
The continuation there is again the resumption of in office and returned to work.
And our company beginning concerted effort to shift customer acquisitions balanced into residential to provide more of that diversification that we enjoyed in the U S.
Today.
And our future, but again on the balance there Europe has recovered nicely is showing meaningful signs of getting back to sort of pre <unk> levels.
And I think that's what we're really pleased with the team.
And really not seeing any disruption in customer opinion customer churn.
Again, it seems pretty status quo being able to tolerate sort of the actions we've taken across price.
Yes, okay.
And then maybe we can move to.
Labor expenses I Wonder if you can quantify the percentage increase in labor costs, you saw in Q1 versus some of the past couple of quarters. I know this is noisy because of the.
The compensation structure that you just referenced David but is there a way you can quantify.
The inflation, you're seeing in labor versus the past year or so I want to say.
We haven't gone down the path of tailing out labor as a subset.
We shared last year, something on the order of 10% to 11% inflation costs labor fuel and freight.
And in this quarter that $84 million was something on the order of seven 5%. So it is lower.
The prior run rate.
And hopefully the future forecast of.
Further declines in inflation come true, we will benefit from that.
As we move through potentially benefit from that as that happens in coming quarters.
Haven't peeled out each sub piece of that at this point John .
Okay.
Thank you very much.
Thanks, John .
Ladies and gentlemen, once again, if you would like to ask a question. Please press star one now.
Your next question will come from Kevin Grundy Jefferies. Please go ahead.
Hey, good morning, everyone.
Good morning, Kevin.
Question, probably for David just to come back to the free cash flow.
So I thought at least Directionally, there is going to be some improvement in inventory days. This year, just kind of given where you finished with some of the retailer Destocking last year.
And that May indeed be the case, but it doesn't sound like it's going to be enough to sort of drive working capital improvement if I sort of like tumble through the numbers. It seems like working cap is going to be like a $30 million drag on free cash flow. This year, maybe just spend a moment on that piece is just the working capital piece and why it seemingly is going to be a drag this year.
Yes, we would peg the working capital drag closer to probably 20, Kevin and I think the Delta there is really conservatism around trying to understand the full tax liabilities of some of the property monetization. So if those come true understanding sort of the bridge there that would be the difference of youre trying to use I think that full.
30, plus million dollars of bridge down to why <unk> would be the answer and again I think we're saying probably closer to 20, and we're reserving kind of 10, plus et cetera for excess potential cash tax again properties have not been monetize today theyre in our potential future and we're sort of being cautious to not.
Give out of free cash flow guide that we'd have to walk back just as we pay additional or incremental taxes on those properties again, we won't know the exact timing and value until every property sort of in the Hopper has been officially and finally monetize with the various jurisdictional sort of cash taxes that come with that so.
Okay.
That number would be accurate in your head.
We're kind of again, putting more of that balance after $20 million toward the tax side.
Okay, and then how about longer term.
With respect to free cash flow or is it sort of appropriate to ground. The street at any sort of like free cash flow conversion number how are you thinking about that how do you want us oriented markets.
I think part of it Kevin would be grounded in our previous communications on Capex.
So we've said we'll spend.
The 7% plus $30 million this year, which gets to roughly $200 million. We have a similar 7%, obviously revenue will be higher but the $30 million incremental next year and then in 2025, our plan is to eliminate the $30 million.
So that $30 million essentially drops right. So if you said how do I think about it that's for sure how I think about it narrowly.
From there.
So hopefully that gives you some context of the next three years.
Alright, and I just want to go back and just touch on David's working capital just for a second the real change in any working capital. This year, because we've made we're making progress on the inventory side of your question is really about growth and they are associated with higher revenue. So that's naturally going to go up and that really drives the delta just narrowly working capital.
We're making good progress on the other challenges that we experienced in 2022.
Point of clarity.
Okay, Alright, very good I can pass it on thanks for the color guys I appreciate it.
Thanks, Kevin appreciate it.
There are no further questions. So I will turn the conference back to John Connolly for any closing remarks.
Thanks, Michelle This concludes Primo water's first quarter results call. Thank you all for attending.
Ladies and gentlemen, this does conclude your conference call for this morning Primo we'd like to thank you all for participating and we ask that you. Please disconnect your lines.
Yes.
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